Financial planners often recommend that retirees delay claiming their Social Security benefits, as it is a powerful strategy to cope with inflation, survive bad investment markets, and reduce the risk of running short on money. The benefits of waiting are significant enough that planners suggest their clients use other savings, such as retirement funds, to help them delay claiming.
Although individuals can create similar bridges independently, having an employer offer this option as part of their retirement plan could simplify the process and encourage more people to delay claiming their Social Security benefits. For instance, if your projected Social Security benefit at age 62 is $1,500 per month, you could set up automated monthly withdrawals of that amount from your 401(k) after retiring. Gal Wettstein, the senior research economist at the Center for Retirement Research and co-author of the study, believes that an employer’s offering of this option could facilitate the process and motivate more individuals to postpone their benefits.
Benefits of Delaying Social Security Payments
Individuals are eligible to claim their Social Security retirement benefits anytime between the ages of 62 and 70. However, claiming benefits before reaching full retirement age, which currently falls between 66 and 67, typically results in a permanently reduced benefit. Conversely, delaying benefits beyond full retirement age boosts the retirement benefit by 8% each year until it peaks at age 70.
Social Security benefits hold immense value, as they are adjusted annually for inflation and cannot be exhausted by unfavorable markets, investment decisions, or unfortunate circumstances.
- Delaying Social Security benefits until age 70 can increase the benefit amount by at least 76% compared to starting at age 62.
- By opting to delay benefits, individuals can secure a higher monthly benefit, which translates to more assured income that will last throughout their lifetime.
- Most People Claim Social Security Benefits Before Reaching Full Retirement Age
Extensive research has indicated that it is advisable for most individuals to postpone claiming their Social Security benefits. It is particularly critical for the higher earner in a married couple to delay since the benefit determines the surviving spouse’s entitlement after the first spouse passes away.
According to a study by economists from the Federal Reserve and Boston University, “virtually all” workers aged between 45 to 62 in the United States should delay claiming beyond the age of 65, and 90% should hold off until age 70. However, only about 10% currently follow this advice. The economists discovered that claiming too early could cost the typical worker over $182,000 in discretionary spending over their lifetime.
Between 2008 and 2018, the average age at which individuals claimed Social Security benefits increased slightly, with men claiming at an average age of 64.7 years (up from 63.6 years) and women at 64.6 years (up from 63.6 years), as per the Social Security Administration. Despite this, the majority of people still opt to claim their benefits before reaching their full retirement age.
Employers Offer Limited Assistance to Employees in Maximizing Social Security Benefits
According to Wettstein, while numerous employers provide matches to incentivize individuals to save for retirement, only a handful assist with payout strategies. Some offer the choice to annuitize, wherein individuals can transfer some or all of their account balance to an insurance company in exchange for a guaranteed payment stream.
The prospect of giving up a substantial portion of their savings is unappealing to most individuals. His study proposed an alternative approach, known as the employer-provided bridge, to a sample of 1,349 people aged 50 to 65 who had not yet retired and held at least $25,000 in their 401(k). The strategy would enable participants to use up to 50% of their retirement account balances to compensate for Social Security payments while they postponed claiming.