“Americans are notoriously bad savers.”
That’s how the National Bureau of Economic Research (NBER) summarizes savers in a new study that analyzes at what age Americans claim Social Security benefits, finding that only 10.2% wait until the age of 70 to maximize their benefit.
As a result, the other 90% can lose out on well over six figures worth of claims. NBER found that median loss for this age group in household lifetime discretionary spending was $182,370. Thus, waiting to claim Social Security until age 70 could potentially produce a 10.4% increase in a typical workers’ lifetime spending. For one in four, the NBER study finds, the lifetime spending gain exceeds 17%. For one in 10, the gain exceeds 26%. Among the poorest fifth of ages 45 to 62, the median lifetime spending increase is 15.9%, with one in four gaining more than 27.4%.
The study suggests workers ages 45 to 62 should generally wait beyond age 65 to collect their benefits, and over 90% should hold on claiming until they turn 70 years old.
NBER contributors David Altig, Laurence Kotlikoff and Victor Yifan Ye utilized a 2018 American Community Survey and a 2019 Survey of Consumer Finance (SCF) to an analyze the size and distribution of foregone lifetime Social Security benefits. The contributors then measured the size and distribution of foregone lifetime Social Security benefits by applying the fiscal analyzer (TFA) tool. The paper’s abstract describes the tool as a life cycle, consumption-smoothing research tool that incorporates Social Security and all other major federal and state tax and benefit policies.
NBER also analyzes longevity risk in comparison to what they call the “maximum age of life,” noting that most Americans will consider the former rather than the latter to avoid outliving their retirement. The maximum age of life refers to the highest point a retiree will live.
Nevertheless, the paper finds that even when assuming a “unrealistically low maximum age of 85,” three-quarters of all workers would benefit by waiting until age 70 to collect Social Security.
The NBER paper states that despite delaying, a small number of workers will not gain from waiting to collect their retirement benefits. Such workers lose benefits from other transfer programs and face higher lifetime taxes, with the present value net tax increase exceeding the gain in lifetime Social Security benefits.
The bottom line for retirees and workers alike? “Social Security lifetime benefit optimization represents a clear means of improving the welfare of retirees,” the authors write. While high-income retirees have the most in absolute terms to gain from maximizing their lifetime benefits, low-income retirees can raise their living standards by a far higher percentage, according to NBER.
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