The Social Security Advice 90% of Americans Plan To Ignore — And Why
Written by
Josephine Nesbit
Edited by
Brendan McGinley
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A steep majority of working Americans say they aren’t going to follow the most prevalent piece of Social Security advice. Nine in 10 Americans who haven’t retired yet don’t plan to wait until age 70 to claim Social Security benefits, according to a study from investment firm Schroders.
Here’s why Americans are not choosing to wait to claim Social Security, according to finance experts.
Why Delaying Can Make Financial Sense
“If you wait until you’re 70 to claim Social Security benefits, your monthly paycheck will be the highest possible,” said Melanie Musson, finance expert at Quote.com. Retirees can claim as early as 62, but waiting until their full retirement age, currently 67 for most people, means receiving their full benefit amount. Holding off until age 70 increases those payments even more.
“You’ll earn 24% more if you start claiming Social Security at 70 instead of 67. The difference is even greater when comparing drawing benefits at 62 versus 70,” Musson said.
Waiting can be especially beneficial for those who have taxable retirement accounts, such as a 401(k) or IRA, according to Chris Dixon, co-founder of Oxford Advisory Group.
“Since Social Security may be taxed as income for some, and so are withdrawals from tax-deferred accounts, having them both at the same time might lead to a higher tax bill,” he said.
Also, when considering required minimum distributions (RMDs), your income may be at a higher risk of tax complications.
“It is a balancing act between immediate income needs, maximizing benefits and taxes,” Dixon said.
Why Most Retirees Claim Social Security Early
If you can max out your benefit at age 70, why not wait instead?
According to Dixon, the “correct” choice can be more complex than how much your monthly check will be.
“Social Security is often the foundation of a retirement income plan,” he said. “As pensions become far less common, the guaranteed income of Social Security may be the most reliable part of their income plan in retirement.”
Dixon said that some of the most common reasons people claim their benefits early are because they are no longer working and need the income immediately, they do not see a significant change by waiting or they’re weighing their longevity against immediate income.
“Longevity in retirement is often underestimated,” he added. “If someone is planning their retirement with the thought that they may not make it past 80, filing early may actually result in a higher total received benefit.”
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