Social Security Benefits: Almost 50% of Americans Might Be Making a Big Mistake

Are you making a major mistake if you decide to claim Social Security before full retirement age? According to a recent survey conducted by GOBankingRates, almost half of Americans are planning to claim Social Security before reaching this milestone. While each individual’s retirement journey is unique, claiming Social Security early can mean missing out on significant financial benefits. But how do you know if it’s better for you to claim early or later?

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To gain deeper insights on this topic, we’ve tapped into expert advice to understand the impact of claiming Social Security before retirement and when it might be beneficial to wait.

46% of Americans Opt for Social Security Before Full Retirement Age

According to the survey, 24% of Americans have already claimed or plan to claim Social Security benefits at 62, while 22% plan to do so after 62 but before reaching full retirement age. The highest proportion of Americans opt for claiming at full retirement age, constituting 36%. The numbers drop significantly for those who claim or plan to claim Social Security after the full retirement age but before 70 (the maximum benefit age), with only 11% falling into this category. A mere 7% do not plan to claim Social Security benefits at 70. 

Americans planning to claim Social Security benefits early vary drastically in age. The majority of those planning to claim at 62 are primarily baby boomers, with 43% of those ages 65 and over falling into this category. For those planning to claim after 62 but before full retirement age, the majority are on the younger side, ages 18 to 24, constituting 30% in this group. 

The majority of those planning to claim Social Security benefits at 62 are women, with 26% of women and 21% of men planning to claim at this age. 

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Retirees Are Leaving Up to $111,000 Behind by Claiming Social Security at the Suboptimal Time 

Claiming Social Security early can significantly impact your golden years. To ensure a fulfilling retirement, it’s crucial to maximize your Social Security income and align all the key building blocks for a secure future. A study conducted by United Income, a financial-planning advisory reserve, reveals that retirees are making a significant mistake by claiming Social Security benefits early, according to David Rosenstrock, CFP and founder at Wharton Wealth Planning.

“Using government data and proprietary software, United Income calculates how much money retirees have lost, and are losing, by making mistakes about when to start claiming Social Security benefits,” Rosenstrock said. “This study found that 96% of retirees are leaving up to $111,000 per household behind by claiming Social Security at the suboptimal time. Most retirees choose to begin receiving Social Security payouts within a few months after turning 62 or immediately after they stop working, even though it is generally beneficial to delay the benefits.”

Waiting Until Full Retirement Age Allows You To Take Full Advantage of the Benefits

Experts tend to lead toward the “patience is a virtue” philosophy, emphasizing that waiting can lead to the greatest financial benefits if your situation allows for it.

“The earliest age you can sign up for Social Security is age 62, but if you file before full retirement age (as defined by the IRS), you’ll be looking at a reduced benefit of approximately 75% of the amount you’re eligible for,” Rosenstrock said. “Full retirement age depends on your year of birth. You can also delay your filing past full retirement age. For each year you delay your benefit, up until age 70, your benefit will grow 8% enabling you to receive a maximum of up to approximately 132% of your regular benefit amount. This higher benefit amount would last for the rest of your retirement and serve as the basis for future increases linked to inflation.”

Is Claiming Early Ever a Smart Move? 

There may be some circumstances where claiming Social Security before full retirement age makes financial sense. 

“If you need the income sooner rather than later for personal circumstances or if [you] don’t expect to live very long because of health issues or your personal family health background, then it could make more financial sense for you to claim benefits at full retirement age or even sooner to receive the highest lifetime payout,” Rosenstrock said.

On the other hand, for those who claim Social Security before full retirement age as their only option, it’s important to explore other sources of income. This might include savings, investment income or retirement accounts.

How To Hold Off Claiming Social Security Early

If you’re feeling the financial pressure to claim Social Security early, even if you don’t want to, there’s no need to fear. Here are a few expert ideas to defer pulling from Social Security.

“The most clear answer for those trying to hold off is to keep working,” said Brian Kuhn, CFP and financial advisor at Wealth Enhancement Group. “However, one might not want to do that or be able to. Other considerations could be if you inherit assets and can live off those resources temporarily or downsize and don’t need all the proceeds from the prior house to buy the new one. Both of these provide savings to live on so Social Security and retirement investments can be deferred.”

If You Claim Early and Regret It, It’s Not Always Too Late

If you’ve already started collecting Social Security and are now regretting it, don’t worry; it’s not necessarily too late to take corrective action. 

“Social Security beneficiaries between full retirement age and age 70 can voluntarily suspend payments to maximize earnings in the future,” Rosenstrock said. “If you started collecting within the last 12 months, you can even withdraw your claim by repaying the benefits you have already received.”

Methodology: GOBankingRates surveyed 1,037 Americans aged 18 and older from across the country between September 5 and September 7, 2023, asking fifteen different questions: (1) How much money do you currently have saved for retirement?; (2) How much money do you think you’ll need in retirement?; (3) How much do you spend or expect to spend monthly during your retirement?; (4) If you aren’t yet retired, how much do you expect to get from Social Security during your retirement?; (5) How much of your retirement do you plan to fund with Social Security?; (6) At what age did you or do you plan to claim Social Security benefits?; (7) Did you or do you think you will have to move to afford your retirement?; (8) Which of the following proposed Social Security solutions do you think would work best to prevent the trust fund from being depleted?; (9) What sources of income will you have in retirement? (Select all that apply); (10) How confident are you that you will have saved enough to afford retirement?; (11) If you retired early, at what age did you retire?; (12) Are you counting on help from your family (financial, housing, long-term care, etc.) to afford retirement?; (13) Do you think retiring around age 65 is financially possible for most Americans?; (14) What worries you financially about retirement? (Select all that apply); and (15) If you got a stimulus check in the last two years, how much of the money did you save for retirement?. GOBankingRates used PureSpectrum’s survey platform to conduct the poll.

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This article originally appeared on Social Security Benefits: Almost 50% of Americans Might Be Making a Big Mistake

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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