A recent study reveals that the overwhelming majority of recent retirees are claiming Social Security benefits earlier than full retirement age and that it’s costing many of them hundreds of thousands of dollars. According to Nationwide Retirement Institute, the group who conducted the study, 83% of recent retirees claimed Social Security early and as a result, they’ll receive almost 50% less in benefits than those who wait until they are 70.1
What are the reasons behind the widespread early withdrawals? About 61% of those claiming early benefits reported that an unexpected life event forced them to. Specifically, health problems spurred the decision to draw early for 30% surveyed and 24% cited a job loss as the reason for early withdrawal.
The amount of money missed out on by those who make Social Security withdrawals early adds up quite a bit over time.
According to the study, retirees withdrawing early had an average monthly benefit of $1,174. By comparison, those who began withdrawing at retirement age had an average monthly benefit of $1,590 and those who delayed benefits had an average monthly benefit of $1,752. The difference between the higher and lower average monthly benefits comes to $7,000 per year, or around $138,000 over 20 years.
The study also showed that many retirees have a number of misunderstandings about Social Security that may be contributing to poor decisions on when to claim benefits:
- One in three pre-retirees said they plan to work during retirement, but only 1% of those surveyed who were in retirement said they actually have continued to work.
- One in four reported planning to draw benefits early because they were worried that Social Security funds would be depleted if they waited too long.
- One in five pre-retirees said they estimated that Social Security alone would be enough to fund a comfortable retirement.
Perhaps the most interesting statistic in the study is that only 17% of respondents said they work with an advisor that helps them specifically with managing Social Security benefits. At Financial Engines, we work closely with our clients to help manage Social Security benefits and focus on three key strategies:
1. Know where you’re going before you get there.
We’ll sit down with you to discuss your entire retirement picture and figure out what exactly you need from both your investments and Social Security benefits to accomplish your goals.
2. Take steps now that can help pay off later.
You need a blueprint for how Social Security and all of your investments will work best together to fund the lifestyle you want in retirement.
3. Even a single decision can make a big difference.
As evidenced by the statistics in the study about how much withdrawing early can cost in the long run, making one poorly informed decision can be costly and make a big difference in your retirement lifestyle. Our advisors work with you to help get it right.
Your retirement years can be some of the best of your life and Social Security can help contribute to your enjoyment of them, but as shown by the study, many people aren’t getting the most out of the program and are missing out on thousands of dollars. You can avoid this, though — working with an advisor can go a long way in helping you navigate the system and utilize it to reach your retirement goals.