Most Americans Ignore Key Social Security Strategy, Risking Lower Benefits
WASHINGTON – A new study from Schroders reveals a startling trend: roughly 90% of Americans are overlooking a critical strategy to maximize their Social Security benefits – delaying claiming until age 70. While financial experts consistently recommend waiting to receive the highest possible payout, the vast majority plan to claim benefits before then, potentially leaving important money on the table.
The reluctance to delay claiming comes as Social Security faces long-term financial challenges. With an aging U.S. population, the program’s payments are currently exceeding contributions, and the latest projections from the Social Security Board of Trustees indicate the trust funds will become insolvent by 2034. While insolvency doesn’t mean Social Security will cease payments, it would trigger an across-the-board benefit reduction of approximately 20%, impacting the program’s over 70 million beneficiaries. This backdrop underscores the importance of maximizing benefits whenever possible.
Schroders’ research highlights a significant gap between retirement expectations and reality. Non-retired Americans estimate needing $5,032 in monthly income for a comfortable retirement, yet current retirees average only $3,250. This shortfall, coupled with rising living expenses – a recent Goldman Sachs analysis found three-quarters of younger workers struggling to save due to housing costs – makes maximizing Social Security benefits even more crucial.
Delaying benefits until age 70 results in an 8% annual increase in the payout, starting at full retirement age. for someone who would receive $2,000 per month at their full retirement age, waiting until 70 could boost that amount to over $3,200. Despite this potential gain, many individuals cite needing the money immediately or uncertainty about their future health as reasons for claiming earlier.
Experts suggest lawmakers could strengthen Social Security by raising the income cap on Social Security taxes, currently at $176,100, as earnings above this threshold are exempt from the payroll tax that funds the program. In the meantime, financial planners emphasize the importance of personalized retirement planning to help individuals make informed decisions about when to claim Social Security and ensure a secure financial future.
