What about the theory that, in the end, you’ll probably get the same amount, no matter what you do? That’s not true for most people, especially since people are living longer. Other retirement experts have done the math and determined that, assuming you’re in reasonable health and can afford to wait, you should. That’s especially true for women, who are likelier to live longer. Then again, it’s not true for people who might die earlier.
However, while most people are better off waiting until 70, about 43% of adults would actually be better off claiming benefits earlier than that, the report concludes. Primary breadwinners should be waiting until age 70 about twice as often as their spouses do.
“Rather than a simple rule of thumb about when to claim Social Security, the optimal decision varies broadly, both across and within households,” said Fellowes, a former Brookings Institution scholar.
“Getting rid of their financial safety blanket is something that makes people really nervous.”
Fellowes said the issue isn’t a lack of financial literacy. Indeed, affluent and educated retirees are more likely to make a mistake than are poorer and less-educated ones. Rather, the problem is that the ideal claiming decision can be very difficult psychologically. Balancing your savings with Social Security means, in effect, betting on when you are going to die.
So how does one achieve the necessary balance? The researchers say the best strategy requires dipping into savings in your 60s in order to guarantee a larger check later on. By claiming at the right time, more than half of retirees would see incomes in their 70s and 80s rise by more than 25 percent. But they would need to have the psychological grit to sacrifice some savings early on—and retirees are often reluctant to watch those balances fall.
“Getting rid of their financial safety blanket is something that makes people really nervous,” Fellowes said.
And relying on financial advisers and wealth managers to tell you what to do may be a mistake—they might not have your best interests at heart. Very often, the ideal claiming decision would cause a clients’ investment account balance to drop in the near term, squeezing a source of revenue for financial firms.
If everyone took benefits at the right time, the analysis concludes, the poverty rate among elderly Americans would drop from about 13% to 7%. Meanwhile, the wealthiest 25% of retirees would get an average 14% income boost over the rest of their lives, versus 6% for the poorest quarter of retirees.
If Americans were more clever about claiming Social Security, it would also cost the government more. Lawmakers already face a long-term funding gap for Social Security and Medicare. But Fellowes estimates that the cost might be offset a bit by higher tax revenue from Americans who work further into their 60s—assuming they can keep or find a job, given health issues and age discrimination by employers.