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Delaying Social Security even by months can boost retirement security

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A recent Social Security report showed a strong economy has helped the program.

Still, Social Security’s trust funds may be depleted in the next decade, if no changes happen sooner.

Many Americans have a misplaced worry that benefits will disappear.

“The biggest myth about Social Security is that when the trust fund runs out, the program is just going away,” said Emerson Sprick, associate director of the economic policy program at the Bipartisan Policy Center.

Social Security trust fund set to be depleted by 2035 estimates U.S. Treasury

Even if Social Security’s trust funds are depleted, the program will still have revenue from payroll taxes. Benefits will still go out, though they may be reduced.

Nevertheless, 75% of adults ages 50 and up believe Social Security will run out in their lifetime, a 2023 Nationwide Retirement Institute survey found.

When people claim Social Security

Moreover, data shows retirees often don’t wait until they are able to receive 100% of the benefits they’ve earned.

The most popular age at which to claim is 62, with 29% of beneficiaries claiming at that earliest possible age in 2022, according to a Bipartisan Policy Center report based on Social Security Administration data.

But those beneficiaries take about a 30% benefit cut for not waiting until their full retirement age — the point when they stand to receive 100% of the benefits they’ve earned. The full retirement age is generally between 66 and 67, depending on an individual’s birth date.

Most beneficiaries — 62% — claimed before their full retirement age in 2022.

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Just 16% of retirees claimed at their full retirement age.

For every year beneficiaries wait past their full retirement age up to age 70, they stand to get an 8% benefit increase. But just 10% of claimants waited until age 70, according to the data.

Why people claim early

The top reason people claimed early was their worry that Social Security may run out of money and stop making payments, a 2023 Schroders survey found.

The second most common reason was that they needed the money, according to the survey.

Psychological factors may also prompt early claiming, according to recent research from professors Suzanne Shu at the Cornell University SC Johnson College of Business and John Payne at Duke University Fuqua School of Business.

Workers may feel a sense of ownership over the benefits they’ve earned, and consequently want to claim them as soon as possible, the research found.

Or they may be prompted by an aversion to losing money.

Every month increases your benefits

Nevertheless, experts say it’s still generally best to delay claiming retirement benefits.

“Everyone should know that you have a penalty if you collect before 70,” Teresa Ghilarducci, a professor at The New School for Social Research and author of the book “Work, Retire, Repeat: The Uncertainty of Retirement in the New Economy,” previously told CNBC.

Someone who is eligible for a $2,000 per month full retirement age benefit at 67 may instead get $1,400 per month if they claim at age 62, according to a Bipartisan Policy Center analysis. Waiting until age 70 would instead provide $2,480 per month.

While delays tend to be positioned in years, waiting even just months can help.

Delays of six months, 12 months or 18 months are “very helpful retirement security moves that you can make,” Sprick, of the Bipartisan Policy Center, said. And that still means retiring at age 62, 63 or 64.

“Viewing it that way, in months, can help some folks who really couldn’t make it years,” Sprick said.

Retirement experts agree on the value of delaying Social Security benefits — unless a personal reason such as a lack of income or poor health condition prompts a need to start benefits early.

Social Security benefits are adjusted annually for inflation, a feature generally unmatched by annuities or pensions.

Those cost-of-living adjustments are another reason it pays to wait to claim benefits, as those annual increases are higher when applied to larger benefit amounts.

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