Science

This Common Social Security Strategy Could Cost You $182,000

Americans are tempted to reap the most from Social Security, but many retirees are making a strategic mistake that could cost them thousands of dollars in lifetime benefits, according to new research from economists at Boston University and the Federal Reserve Bank of Atlanta. can do.

The analysis examines the issue of the optimal age to claim Social Security in order to maximize retirees’ lifetime discretionary income, or wealth after taxes, living expenses and other necessary costs. The Social Security Administration pays a worker’s full benefits up to what it calls “full retirement age,” which ranges from age 66 to 67, depending on your birth year.

But people can also claim Social Security as soon as they turn 62, with their monthly checks cut by 25%. On the other hand, if workers wait until age 70 to collect Social Security, they get a 32% increase in their payments in exchange for withholding.

However, the reality is that only 6% of American workers wait until they are 70 to claim Social Security, even though the vast majority would be better off waiting until their retirement benefits are triggered. Researchers found.

hit $182,000

Claiming Social Security too early has a very real price tag, as the typical worker is giving up nearly $182,000 in lifetime discretionary income by claiming before age 70, the report said — income that most Americans can use many havens given they haven’t saved enough to carry them into old age.

According to Social Security Administration data, about half of Americans claim Social Security before they reach full retirement age and about one-quarter claim at age 62.

One of the study’s co-authors, Boston University Professor of Economics Lawrence J. “Americans have to change their mindset,” Kotlikoff told CBS MoneyWatch. “They think they’ll be dead tomorrow, and that leads people to berate themselves for making claims too quickly”.

Some people decide to claim Social Security early based on the average life expectancy at age 65, which is 83 years for men and 85 years for women. But a better rule of thumb is to consider what Kotlikoff and his co-authors call the “worst outcome, economically speaking”—living to the maximum age of life, which is well into the 90s or even 100. It is possible

The bottom line is that “we can’t count on dying on time,” said Kotlikoff, who writes about retirement at Maximize My Social Security and is co-author of “get what’s yours“A Guide to the Social Security Program. Instead, Americans should use financial strategies that can help them delay claiming Social Security, which will boost their lifetime discretionary income,” he said.

“find a job”

Nearly half of Americans over the age of 55 have no retirement savings, meaning those workers will be more dependent on Social Security in their old age and quicker to get a steady stream of income as soon as they turn 62. Might be tempted to claim.

But Kotlikoff said people who remain physically active when they turn 62 should stay in the labor market instead of claiming Social Security because by maximizing their benefits, they’ll be better off in the long run. He said that the only people for whom it might make sense to claim early are people who are suffering from a terminal illness or who are disabled.


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“Most people who are retiring early are capable, so it’s a great labor market for those people – they should find jobs and work,” he said. “The fact is we retire longer than we work.”

In addition to working longer, there are several other strategies workers can use to help claim Social Security until they reach full retirement age or beyond. For one, people with retirement savings in 401(k) or other accounts can take that money out earlier, he noted. Cost-saving measures such as living with relatives or taking a loan from a family member can also help you reach the age of 70.

save more

Of course, a flip side of waiting to claim Social Security is the reduction in potential cash flow when a person is in their mid to early 60s, the paper noted. But the analysis found that the impact of delaying Social Security on household cash flow may not be as large as some fear.

“We found that [waiting to claim Social Security] reduces people’s spending by 7% on average — the message is that people feel they will have nothing to live on, but many people have the resources” beyond Social Security, Kotlikoff said.

Overall, Americans also need to put more money aside for their old age, he said. people find they need $1.25 million in savings to ensure a comfortable life in their golden years, according Most recently to Northwestern Mutual Studies. And yet the typical American retirement account holds less than $87,000.

“People are relying on Uncle Sam and their employers for their care, and we’ve seen the result,” Kotlikoff said. “It’s time for some tough love.”

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