A significant number of retirees in the United States are claiming their Social Security benefits before reaching the full retirement age, despite the potential for receiving higher monthly payments and increased lifetime benefits by waiting until age 70. Experts recommend postponing claiming benefits to maximize retirement income, but research shows that the majority of new retirees are filing for Social Security before their designated full retirement age of 66 or 67, depending on their birth year.
According to the Social Security Administration (SSA), claiming benefits before the full retirement age can result in a reduction of up to 30% in monthly payments. On the other hand, postponing benefits past the full retirement age can increase monthly payments by up to 32%. The SSA provides a tool for estimating monthly and lifetime benefits based on different claiming ages, with experts generally advising retirees to wait as long as possible to claim, unless health or financial issues prohibit it.
One reason for the high rate of early claiming may be the misleading terminology used by the SSA. The term "early claiming" at age 62 can give the impression that it is a standard option, without clearly conveying the penalties associated with claiming before the full retirement age. Some experts suggest changing the terminology to "minimum benefit age" to help people understand the consequences of claiming early.
Why this matters: The decision of when to claim Social Security benefits can have a significant impact on a retiree's financial security in their golden years. By understanding the advantages of postponing benefits and the factors to consider when making this choice, retirees can make informed decisions that optimize their retirement income and ensure a more comfortable lifestyle.
While only about 8% of beneficiaries postpone claiming until age 70, the maximum benefit age, researchers found that around 57% could have maximized their lifetime income by doing so. Claiming prior to age 64 was found to be the least optimal, with only 6.5% of retirees maximizing their lifetime income by filing at ages 62 or 63. The average retiree collects $739 more per month at age 70 than at age 62, highlighting the substantial difference in benefits based on claiming age.
Key Takeaways
- Many retirees claim Social Security before full retirement age, missing higher benefits.
- Claiming before full retirement age can reduce monthly payments by up to 30%.
- Postponing benefits past full retirement age can increase payments by up to 32%.
- Only 8% of beneficiaries postpone claiming until age 70 for maximum lifetime benefits.
- Claiming at ages 62-63 is the least optimal, missing $739 more per month at age 70.