Retirees lose a collective $3.4 trillion in Social Security income by not waiting as long as possible to tap benefits, a new report concludes.
The study from investment firm United Income examines the long-term financial effects of the decisions surrounding when to claim Social Security. Just 4% of retirees make the generally optimal decision of waiting until age 70 — when benefits reach their maximum amount — to start getting those monthly checks.
About 57% of retirees would build more wealth if they waited until 70, compared to just 6.5% of retirees who would have more wealth if they actually claim prior to age 64. Despite that, more than 70% of retirees tap their benefits by then, according to the study. The earliest you can claim is age 62.
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“People should really engage in retirement planning and figure out whether they should take Social Security early or not,” said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York.
The report examined data from about 2,000 households that participate in a long-running retirement survey done by the University of Michigan. To calculate when the ideal claiming years should be, United Income looked at the longevity for adults in those households, along with their spending projections.
Every year, about 65 million retirees receive Social Security. While the federal program accounts for about one-third of all income for retirees, about 50% of recipients rely on it for more than half of their annual income. Another third count on it for more than 90% of their income.