Statistically speaking, the optimal age to begin receiving Social Security benefits is 70. But most people don't seem to care about statistics.
Four in 10 Americans plan to claim Social Security by age 65. Here's their top reason why.
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Survey says
Asset management company Schroders sponsored its annual U.S. retirement survey conducted by 8 Acre Perspective earlier this year. This survey included 2,000 investors across the country between the ages of 27 and 79.
Perhaps the most striking finding from Schroders' survey was that 40% of respondents who haven't yet retired plan to begin receiving Social Security benefits between the ages of 62 and 65. Why?
It's not because they don't understand the higher benefits they will forego by filing for Social Security earlier than their full retirement age. The survey found that 72% of Americans are fully aware they could receive a higher monthly benefit by waiting. They simply choose not to do so.
The reason behind their decision is simple: It's fear. Forty-four percent of the respondents who haven't retired are concerned that Social Security will run out of money.
Are those fears warranted?
Use it before you lose it appears to be a major mindset for many Americans when it comes to Social Security. If the federal program is indeed running out of money, getting as much of the benefits owed to you as quickly as possible makes sense.
But are those fears about Social Security warranted? Not really. It seems that many people are confused about the implications of the financial problems that Social Security faces.
The Social Security program's Old-Age and Survivors Insurance (OASI) Trust Fund is on track to be depleted in 2032, according to the Congressional Budget Office (CBO). If funds from the Disability Insurance Trust Fund are combined with the OASI fund, full Social Security benefits could be paid through 2033.
However, just because these two trust funds are set to run out of money within the next decade doesn't mean that no Social Security benefits will be paid. Most of the program's funding comes from payroll taxes. These taxes will still be in place even after the two trust funds are exhausted.
The CBO projects that Social Security benefits will have to be 25% lower beginning in 2034 if no reforms to the program are made. That's certainly not a positive scenario, but it's a lot better than benefits being totally wiped out as many Americans seem to think will happen.
Patience pays off
The reality is that collecting Social Security benefits too early could result in a greater negative financial impact than the program's trust funds running out of money will cause. If you begin collecting benefits at age 62, the amount you receive will be 30% lower than if you had waited until the full retirement age of 67.
Also, it's way too soon to write off the possibility that Congress will make changes that preserve Social Security benefits. Legislation has already been introduced that would go a long way toward bolstering the program's finances. Sure, the chances of any major Social Security reform bill being passed with the national elections coming up next year are small. However, legislators from both major political parties know that something needs to be done.
Waiting to file for Social Security benefits until you reach 67 (or even better, 70) is a smart financial move for most Americans. Waiting for Congress to do something, as frustrating as it might be at times, should ultimately be worth it too. Patience pays off.
