A new report estimates almost all American retirees claim Social Security at the wrong time, consequently missing out on a collective $3.4 trillion in benefits before they die.
When to take Social Security is a key decision for America’s seniors, for whom the program has become a critical safety net. Some 50% of older Americans derive the lion’s share of their income from the program. Unlike investments and other sources of retirement income, Social Security benefits are guaranteed to keep up with inflation and last for life. That becomes critically important when half of all 65-year-old Americans can expect to live past age 84.
There seems to be little logic in Americans’ claiming decisions. Statistics show that those who end up dying before 75 were just as likely to have claimed early as those who died after 85. Of course, the ideal claiming decision can be very difficult psychologically. Balancing your savings with Social Security means, in essence, betting on when you are going to die.
The best strategy requires dipping into savings in your 60s so as to secure a larger check later on. Claiming at the right time would raise the incomes of more than half of the retirees in their 70s and 80s by over a quarter. They would, however, need to have the forbearance to sacrifice a part of their savings early on, and retirees are often reluctant to watch their balances fall.
There are exceptions to the general rule. While most people are better off waiting until 70, some two-fifths of adults would actually be better off claiming benefits earlier than that. Primary breadwinners should be waiting until age 70 about twice as often as their spouses do.
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Americans Lose Trillions Claiming Social Security at the Wrong Time | Wealth Management