90% of Americans May Be Making a Big Social Security Mistake

Here's an alarming statistic: Only 10% of pre-retirees in America plan to wait until age 70 to claim their Social Security benefits, per the 2023 Schroders U.S. Retirement Survey. It's alarming because the longer you wait to start collecting Social Security (up to age 70), the bigger your benefits will be.

It can sometimes make sense to claim your benefits early, but it's generally better to delay. Here's a closer look at this vital decision.

Image source: Getty Images.

The survey says...

The Schroders survey offered additional interesting details:

• 17% of those very close to retiring (those aged 60 to 65) plan to delay until age 70. Perhaps these folks, now that they're very close to retiring, see that they will need those bigger checks.
• Overall, 40% of pre-retiree survey respondents expect to claim their Social Security benefits between ages 62 and 65.

This timing issue is very consequential. You can start collecting your benefit checks as early as age 62, but that will result in shrunken checks (though many more of them), or you can delay until age 70, with each year you delay beyond your "full retirement age" (between 66 and 67 for most of us) boosting your benefits by about 8%.

The table below shows how much of your full benefits you'll receive depending on when you claim them:

Data source: Social Security Administration.

Why so claim benefits so early?

So why are so many people planning to collect early? Here's what Schroders found:

• 44% were concerned that Social Security may run out of money or stop making payments.
• 36% expect to need the money.
• 34% said they just wanted the money as soon as possible, as it was theirs.
• 13% reported being advised to take it earlier than age 70.

It's not crazy to worry about the health of Social Security, but don't think that the program is going to run out of money or stop making payments anytime soon. After all, as long as people are working and being taxed for Social Security, money will be rolling into the program. The problem is that within a decade or so, the money coming in won't fully cover obligations.

The latest report from the combined Old-Age and Survivors Insurance (OASI) Trust Fund and Disability Insurance (DI) Trust Fund finds that it can pay 100% of Social Security obligations until 2035. At that point, incoming funds will only be able to cover 83% of expected payments owed to beneficiaries. (So if nothing is done, future retirees may be receiving only 83% of what they're due.)

It's also fair to claim your benefits early if you do simply need the money. That's true for lots of people.

The best strategy for most of us

But if you can delay starting to collect your benefits, that's likely your best move. This was made clear in a 2019 report from the folks at United Income, based on when 20,000 people claimed their benefits. The report found that:

About 57% of retirees would build more wealth through their life if they waited to claim until they were 70 years old (when only 4% of retirees currently claim), while only 6.5% of retirees would have more wealth if they claimed prior to turning 64 (when over 70% of retirees currently claim benefits).

So for most people, delaying until age 70 is the most effective move, if you want to maximize the dollars you get out of the program. (There are some other ways to increase your Social Security benefits, as well.)

If you're on the fence about delaying, consider this: The average monthly Social Security retirement benefit was $1,919 as of July, amounting to about $23,000 annually. It's true that you'll receive more if your earnings were above average, but the maximum monthly benefit is still just $4,873 for 2024 -- about $58,500 for the year.)

So think through the critical decision of when to start your Social Security benefit checks rolling in, as it can make a big difference. Be sure that Social Security considerations are a big part of your overall retirement planning.