The Advantages of Waiting to Claim Social Security

Written by Chris Draughon

I want to see you achieve your financial goals so I spend my time making the complicated things simple. As the Director of Financial Planning I help our clients identify their most important financial goals and develop paths to get them there on time with room to spare.

September 28, 2015

A recent survey by the Nationwide Retirement Institute found that 83% of recent retirees started taking social security before full retirement age. Most people are eligible to claim social security benefits as early as age 62. However, each year that a potential retiree delays claiming their benefit they earn delayed retirement credits. These credits increase their future retirement benefit by up to 8% per year. This means the vast majority of retiring Americans are losing up to 49% of their social security benefits.

Why Aren’t Americans Waiting?

According to the National Retirement Institute’s survey, the major reasons people gave for claiming their social security benefits early were:

  • 38% needed the money

  • 30% had health problems

  • 24% had lost their job

Will Social Security Run Out of Money?

A full quarter of recent retirees also say they plan to claim social security early because they are worried that funding for the program will run out during their lifetime. The Social Security Administration forecasts that it can stay fully funded through 2034 without government intervention, a full 19 years from now. Even after that date, however, it estimates that it can cover three quarters of the fund through 2090. And it is very likely that the government will intervene to shore up the fund. Thus, Americans coming up on retirement age plan should plan to receive social security benefits into the foreseeable future.

Why Waiting Really Pays

Sometimes life intervenes and people approaching retirement age face tough choices: loss of a job, a health crisis, or a financial setback. In that case, claiming early retirement may be the only realistic option.

However, waiting to claim those benefits until age 67, which is full retirement age for most people, can pay large dividends for years down the road. Nearly a quarter of those surveyed said that they claimed their benefits early because they did not expect to live long enough to make waiting worthwhile. But what about those that beat the odds? For those who outlive their retirement savings, an increasingly common dilemma, social security represents a critical cushion. (An alarming 26% of retirees have no source of income beyond social security.)

Studies also show that people consistently overestimate how much social security benefits will provide for them. Nationwide’s survey showed that future retirees believe that social security will cover 52% of their expenses. However, the Social Security Administration reports that  on average, social security benefits make up closer to 38% of retirement income.

Maximizing Your Social Security Benefits

One positive finding of the survey was that those who consulted with a financial planner were able to get significantly more money from social security: an average monthly payment of $1,911 — compared to $1,534 for those without a planner.

Click here to download our complimentary e-book, “Secrets to Maximizing Your Social Security Benefits,” from the professionals at First Coast Wealth Advisors.