"Time is money." While the statement has become a cliché, it's nonetheless as true as it ever was.
There's no question whatsoever that time effectively is money when it comes to the age you file for Social Security benefits. Only 10% of Americans plan to wait until 70 to claim Social Security benefits, according to Schroders' 2023 U.S. Retirement Survey. Here's how much money they could miss out on.
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Why Americans don't want to wait
Different people have different reasons for not waiting until age 70 to receive Social Security benefits. Many simply want to begin enjoying retirement earlier and need the money from Social Security to make ends meet.
Others have serious health problems that prevent them from continuing to work until they reach 70. Even when individuals with health issues could work, they might choose to retire earlier in an effort to prevent their health from deteriorating further.
Some people have another health-related concern. They worry that they won't live long enough to make waiting until 70 to collect Social Security benefits financially worthwhile.
However, there's another key reason why many Americans don't want to wait until 70 -- or even until their full retirement age -- to begin receiving Social Security benefits. The Schroders survey found that 44% of Americans who haven't retired yet are afraid that Social Security will run out of money. Their mentality is that it's better to get as many benefits as soon as possible.
This fear reflects a misconception about Social Security's financial status. The program's combined trust funds are on course to run out of money by 2033, according to the Congressional Budget Office. This assumes, though, that no reforms are made to bolster Social Security. And even if nothing is done, 75% of scheduled benefits would still be paid thanks to ongoing payroll tax funding.
Leaving money on the table
Regardless of their reasons for not wanting to wait until 70 to receive Social Security benefits, most Americans will leave a lot of money on the table by not waiting. But just how much money are we talking about?
Social Security adds 8% to your benefit payments for each full year you delay receiving benefits after your full retirement age until you reach 70. For anyone born in 1960 or later, this means you could make 24% more by waiting until you're 70 to collect Social Security retirement benefits.
How does waiting until 70 to receive benefits compare to doing so at age 62 -- the earliest possible age? Economists David Altig, Laurence Kotlikoff, and Victor Yifan Ye calculated the present value of the median lifetime loss in this scenario would be $182,370.
Sure, individuals with lower longevity could make greater lifetime benefits by claiming Social Security earlier. However, the analysis conducted by Altig, Kotlikoff, and Ye found that more than 90% of Americans would be better off waiting until age 70. They also determined that nearly everyone should delay until at least age 65 to receive Social Security retirement benefits.
The best retirement strategy, financially speaking
What's the best retirement strategy? From a financial perspective, waiting until 70 to claim Social Security benefits make sense. That's not the only smart move, though.
Social Security wasn't designed to fully fund retirement. Especially for individuals who aren't eligible for pensions, saving as much as possible in other retirement plans such as 401(k) plans and IRAs is prudent.
Even if you plan to file for Social Security benefits well before age 70, starting early with saving for retirement is arguably the best thing you can do. Cliché or not, time really is money.
