Retirees Need Education About Social Security

October 31, 2012 ( – Social Security may play a greater role in ensuring retirement security for future retirees, but many remain uninformed about how to maximize this benefit. 

By Kristen Heinzinger | October 31, 2012
Page 1 of 3 View Full Article

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 savings.

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.