Americans will lose out on $3.4 trillion in benefits by claiming Social Security too early, according to a new report from United Income, an investment management and financial planning company.
Written by a team that includes former Social Security officials, the report found that 96% of retirees choose a less-than-optimal time to start claiming their benefits, resulting in an average loss of $68,000 per household for current retirees.
The group says that the optimal retirement age for most retirees is 70, even if workers have to dip into retirement savings to wait that long:
“We find that U.S. retirees would be able to generate an additional $3.4T in income during their retirement if they optimized the decision about when to claim Social Security, or about a 9 percent increase in total expected future income among retirees that made a sub-optimal financial claiming decision. Nearly all of this income is lost because one or more retirees in a household claim Social Security too early, which means their Social Security benefit is lower than it would be if they had waited. For instance, a person that would receive a $725 monthly benefit if they claimed Social Security at 62 would see that benefit increase to $1,280 if they had delayed until their 70th birthday, an increase of 177 percent. Spread out across the population of individuals that are claiming Social Security sub-optimally, those extra dollars add up to a substantial amount of money. In fact, the average household that claims sub-optimally would see their retirement income increase by $110,546, and the median household would see their income in retirement increase by $81,673, or an average annual increase of about $3,400 in income."
The flip side of the analysis is that if more Americans wait longer to receive their benefits, it would end up costing the Social Security system that much more.