For about 60% of the retiring population, Social Security
provides the majority of their retirement income, a BMO Retirement Institute report said. However, many retirees are taking Social Security benefits
too early, are not making informed decisions, and are unaware of options and
strategies that could maximize benefits.
The timing of when retirees take Social Security can
affect their retirement income. If one spouse has a significantly higher
benefit, when they claim will affect the combined lifespan of both. In
particular, if the main breadwinner claims too soon, then the spousal benefit
will be 50% of a smaller monthly check, and the surviving spouse’s benefit would
be 100% of the smaller check for the survivor’s lifetime. While Social Security
collections can start as early as age 62, it will be a permanently reduced
amount. Waiting until full retirement age (FRA)—which varies based on birth
year—or even later, will ensure receiving a higher amount.
An example provided by BMO shows that taking Social Security
at 62 can result in a reduced benefit of $1,500 per month, typically a 6% to 7% annual reduction. By waiting until FRA, in this case 66, the benefit will be
$2,000. Waiting until 70 and using delayed retirement credits results in the
highest lifetime benefits. Ultimately, a person could receive an additional
$25,000 in total Social Security benefits for a life expectancy of 85 years by
waiting until FRA.
The BMO survey revealed people were aware that if they filed
a claim early, they would get a reduced monthly income amount. Furthermore, 91%
agreed that waiting to take benefits increases the monthly amount they will
receive. However, 48% are currently collecting or planning to collect before
full retirement age. One reason for doing this is that there are too many additional
variables involved in retirement, including retirement age, spouse’s retirement
age, working part-time during retirement, average monthly spending and investing
Another contributor is lack of knowledge. Fifty-two percent
of survey respondents were uninformed about strategies to maximize Social
Security benefits in general, and 62% had not actively looked for information
regarding Social Security. Eighty percent said the Social Security
Administration website would be their primary source of information, and only
25% mentioned a financial adviser. Sixty-one percent have not discussed their
Social Security decision with anyone.