You have a choice when claiming Social Security retirement benefits. You can start at age 62. Or you can wait, and each month that you delay, your benefit grows a little until age 70, when there's no additional advantage to waiting any longer.
Unfortunately, many people make the wrong choice. And this mistake can come at a high cost.
So, are you one of those people planning to claim at the wrong time? Here's how you can tell.
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Very few Americans claim Social Security at the right time
Data from the National Bureau of Economic Research (NBER) revealed that just 10.2% of workers claim Social Security at the right time. So, odds are good that most people aren't making the optimum choice when starting their Social Security benefit checks.
There's a simple reason people claim at the wrong time. Many people want to start their benefits as soon as they become eligible, or at least by the time they hit their full retirement age, which is 67 for anyone born in 1960 or later.
The problem is that the optimum age for over 90% of people is 70. Anyone who doesn't delay as long as they can is likely leaving money on the table.
Claiming at 70 is the best choice for most retirees
The NBER data is very clear that over 90% of people end up with more lifetime Social Security income with a delayed claim. And the costs of not waiting are very high, with the median loss resulting from an early claim totaling $182,370.
Why is 70 the right age for most people? The Social Security benefits formula was designed with a system of early filing penalties and delayed retirement credits that aimed to equalize lifetime income. However, life expectancies were shorter at that time.
Most people live longer now, so they're better off if they wait to start benefits. The extra income they get later more than makes up for the income missed out on by waiting.
The problem, of course, is that most people don't want to wait until 70 to retire, and they can't afford to leave work and live off money in their retirement plans alone. So, they claim well before 70 and miss out on lifetime income.
What can you do to avoid this problem?
If you want to avoid this issue, optimize your Social Security claim, and max out your benefits, the solution is simple: Save enough in your 401(k) or other retirement accounts so you can live off your investments if you're ready to retire but aren't 70 yet.
If you can invest regularly, take advantage of employer matching contributions, and invest wisely, hopefully you can grow your savings enough that it can support you as you wait for the best time to claim Social Security. Odds are you'll get a lot more money over time from Social Security if you do, and you'll almost definitely have a more secure retirement with bigger checks coming in.
