A recent study (The Retirement Solution Hiding in Plain Sight) estimates that only 4% of retirees make the correct decision about when to start receiving Social Security. This highlights a horrendously costly mistake by 96% of the population. Regardless of anything else, your financial future might well revolve around this one important choice.
Full Social Security retirement age for those with retirement on the horizon generally falls somewhere between ages 66 and 67 depending on your exact birthdate. Early Social Security payments with substantially reduced benefits can be claimed as early as age 62. If left unclaimed, however, Social Security benefits continue to increase until age 70. Between the early benefits age (62) and the maximum Social Security benefit age (70), monthly benefits increase by about 8% per year. You want a “guaranteed” 8% return? Delay taking Social Security until age 70.
An amazing 79% of retirees elect to receive Social Security early between ages 62-64. The study referenced earlier estimates this age is only optimal for about 8% of the population. The average cost of this poor decision is estimated to be $111,000 per household! The chart below details the optimal versus actual start date by age.
Future Wealth and Future Health
Individual Social Security decisions are typically framed around two unknowns, namely future wealth and future health. Most retirees underestimate their health and overestimate their wealth. That is, they assume that they won’t live past life expectancy thus justifying the decision to take Social Security. Further, they extrapolate their wealth into the future based on best case scenarios often ignoring reality.
Poor Choices = Loss of Potential Income
Social Security payments comprise almost one-third of all income received by retirees. The positive financial income is largely muted, however, by poor decisions concerning the proper starting date for benefits. Retirees will lose over $2.1 trillion in potential future income because of these poor choices.
Social Security decisions should be made based on your entire potential retirement timeframe (25-35 years), not just next month. Start there. Ready for a real conversation?