Most Americans just can’t wait to start claiming Social Security—even if it means giving up nearly $100,000 over the rest of their lifetime by waiting until a more optimum age.
Further confirmation that the most popular age to start claiming Social Security benefits is the minimum age of 62 comes from a recent analysis by the Bipartisan Policy Center, which provides an enlightening overview of current claiming strategies.
The study found that for both men and women, the most popular ages for beginning benefits is 62, followed by age 66 and age 65. Nearly 35% of men and nearly 40% of women take benefits at that earliest possible age of eligibility.
Yes, taking benefits as early as possible makes sense for people in some circumstances, such as dire financial need or having a known lower life expectancy due to health concerns. But for the majority of Americans, they can better optimize their benefits by waiting.
A study commissioned by United Income cited in the BPC issue brief estimates that today’s older Americans will lose a total of $3.4 trillion in potential income because of early claiming, with an average lifetime loss of $95,000 per household.
It also finds that only 4% of older Americans claim at the age that would maximize their wealth. Separately, only 4% wait to claim until age 70, though this research finds that about 57% of older Americans could expect to build more lifetime wealth if they waited to claim until then.
Meanwhile, over 70% currently claim prior to age 64, even though only 6.5% of people would build more wealth by claiming before then.
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If more people figured out how to optimize their Social Security benefits, the issue brief estimates that the poverty rate for Americans over age 70 would be nearly cut in half—from 13% to 7%.
It should be noted that in recent decades, the percentage of both men and women taking benefits early has steadily declined, according to the BPC. Americans are generally working longer and claiming later, two trends that the study notes will help build more secure retirements.
How policymakers could help
There are a number of ways policymakers could help older Americans make more-informed choices that are likely to result in better outcomes.
Here are a few of note mentioned in the issue brief:
- Re-framing claiming decisions: Revise the official names of claiming ages to better reflect the implications of claiming decisions. For instance, SSA could rename the “early eligibility age” as the “minimum benefit age.” Additionally, SSA should explore how various framings—showing benefits in monthly versus annual values, presenting benefit levels as gains versus losses, using older claiming ages as a benchmark, distinguishing “retirement” versus “claiming”—affect claiming decisions.
- New steps to highlight rules and tradeoffs: Add new steps to the claiming process to help older Americans better understand Social Security’s rules and the tradeoffs of different claiming options. These steps could include having claimants sign a form acknowledging permanent benefit reductions from early claiming; giving claimants a blank bar chart on which they would enter the monthly benefits they would receive if they claimed at age 62, their FRA, and age 70; or introducing online pop-up messages with similar information.
- Lump-sum benefits for delayed claiming: Provide a lump-sum benefit for delayed claiming rather than some or all of the higher monthly benefits in place today. This change could create a more effective incentive for people to claim benefits later.
- Bridging retirement and claiming more effectively: Introduce a mandatory add-on savings account to Social Security or provide a streamlined way for existing 401k retirement savings plans to facilitate later claiming. Similarly, encouraging private savings and creating new tools to accumulate assets, such as state-sponsored auto-IRA programs, could help people delay claiming Social Security benefits.
More notable stats from the brief
- Among households headed by someone aged 65 or over, more than half rely on Social Security benefits for a majority of total income, while 19% depend on Social Security for at least 90% of income.
- Social Security currently provides income to 54.8 million Americans, with an average monthly benefit of $1,441.
- Social Security retirement and disability benefits make up about half of total income for the median beneficiary household headed by someone aged 65 or over. These benefits provide at least 90% of income for almost 1 in 5 such households, helping the program lift an estimated 10.3 million older Americans out of poverty and reducing the poverty rate of Americans aged 65 or older by 24 percentage points—and the poverty rate of Americans aged 85 or over by 34 percentage points.
- For a hypothetical worker eligible to receive $1,000 per month at a full retirement age of 67, the beneficiary lowers their monthly benefit by 44% when claiming at age 62 instead of 70.
- Only one-third of Americans have enough retirement wealth to finance at least a two-year gap between retiring and claiming Social Security benefits.
Read the entire BPC issue brief, “How to Help Americans Claim Social Security at the Right Age: Opportunities and Policy Considerations,” at this link.
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Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.