Few workers plan to get the largest Social Security check they can by waiting a little longer to claim, while everyone else is going with a use-it-or-lose-it mindset.
Only 10% of non-retired Americans say they will hold off until age 70 to receive their monthly Social Security check, according to a new survey from asset management company Schroders, the age when they receive the most in benefits. Four in 10 (40%) workers won’t even wait until their full retirement age and plan to tap their Social Security benefits between age 62 and 65, taking the smallest amount available to them.
The number one reason workers said they will take benefits before 70 is because they’re concerned Social Security may stop cutting checks before they reach that age, according to the survey of 2,000 US investors between 27 and 79, with 44% citing that reason.
That’s a problem because one of the key ways Americans can boost their ability to avoid outliving their savings — should they live longer, healthier lives than previous generations — is to delay taking Social Security benefits and boost their monthly check substantially for decades.
“The data suggests that Americans believe Social Security may run out of money before they reach age 70,” Deb Boyden, head of US defined contribution at Schroders, told Yahoo Finance. “We have a crisis of confidence in the Social Security system and that has people walking away from money that could improve their quality of life in retirement.”
There is some validity to their nervousness.
Social Security’s reserves are projected to run out in 2033, according to the annual report from the trustees of the program. It won’t really go kaput, but at that point the entitlement program’s trust fund will be able to pay out just 77% of benefits to seniors.
In that year, annual benefits would be cut by $17,400 for a typical newly retired dual-income couple, according to a new report by the nonpartisan Committee for a Responsible Federal Budget.
But the unwillingness to wait is more complicated than an overarching angst that the Social Security system is going up in smoke.
More than a third (36%) of those surveyed by Schroders expect they will need the money to meet living expenses and won’t be able to afford to hold back. Roughly the same share (34%) said that it’s their money and they want to get it as soon as possible. Finally, 13% said they were advised to take it earlier than 70.
“Individuals need Social Security benefits as an income replacement,” Boyden said. “Unfortunately, the reality is there are many different reasons why Americans are not adequately prepared for retirement.”
How waiting pays off
The upside of waiting to take your Social Security benefit is compelling.
If you have the flexibility to delay benefits until 70 from your full retirement age (which is either 66 or 67, depending on when you were born), you earn delayed retirement credits. Those come to roughly an 8% per year annual increase in your benefit for each year until you hit 70 when the credits stop accruing.
You can turn on your checks as early as 62, but it comes at a price. Those who turn 62 this year, for example, will have their benefit reduced about 30% for claiming now compared with waiting until their full retirement age of 67, according to the Social Security Administration. At full retirement age, workers receive 100% of the benefits they have accumulated. But waiting from 62 to age 70 can result in a monthly check that could be far higher for some folks.
Of course, “there often is a difference between what people tell pollsters about what they expect to do about key retirement decisions and what they actually do,” Mark Miller, a retirement expert and author of “Retirement Reboot,” told Yahoo Finance.
“That said, very few will wait till 70 to claim Social Security — that’s what the Social Security Administration data tells us,” Miller added. “And one reason they take the benefit early is they can’t afford to delay, a relatively small percentage of people are still working at that point, or can afford to fund their living expenses without it.”
The reality is that about half of Americans take Social Security before their full retirement age (FRA), according to SSA data. Roughly 15% of men and 14% of women collect at their FRA. And a fraction of men (7.3%) and women (8.2%) wait until age 70.
“Most people will benefit by delaying as much as possible,” Miller added. “Even waiting to file until your full retirement age is beneficial.”
The median household income for the Americans polled in Schroders survey was $75,000. The income level is worth noting because not everyone has the pleasure of deciding when to claim Social Security benefits.
“For some, the choice is made for them, due to financial stresses or health care needs,” Shai Akabas, director of economic policy at the Bipartisan Policy Center, told Yahoo Finance. “Notably, these challenges are faced more often by people of color and those with less education.”
Education could help delay claiming
Sen. Bill Cassidy (R-La.) has proposed legislation with Sens. Chris Coons (D-Del.), Susan Collins (R-Maine), and Tim Kaine (D-Va.) to address what many see as a stumbling block for waiting to claim — a lack of understanding of how it all works.
“For most people, it’s wiser to wait until age 70,” Cassidy, told Yahoo Finance in an interview. “That’s because over the course of a normal life span, you’ll receive more money if you wait. We are trying to help people understand that by putting out information that would educate the beneficiary.”
The bill would push the Social Security Administration to change the language it uses to describe how benefits change with age. It would also require the agency to send paper statements to more Americans showing them how when they claim affects their benefit amount.
“Communication efforts from the Social Security Administration to help Americans make better decisions on when to claim Social Security in order to obtain the maximum benefit will go a long way to help bridge that education gap,” Boyden said.
In theory, that makes sense. Yet, nearly three-quarters (72%) of workers surveyed by Schroders said they were aware they could receive higher payments by waiting, but they are still planning not to delay.
Kerry Hannon is a Senior Reporter and Columnist at Yahoo Finance. She is a workplace futurist, a career and retirement strategist, and the author of 14 books, including “In Control at 50+: How to Succeed in The New World of Work” and “Never Too Old To Get Rich.” Follow her on Twitter @kerryhannon.