By Mary Johnson, editor
It’s hard to plan your optimal retirement age without a realistic idea of what to expect in lifetime Social Security income. Yet, according TSCL’s 2017 Senior Survey, 71% of survey participants said that’s exactly the situation they were in when they filed a claim for Social Security benefits. They did not know, and Social Security did not supply any estimate of what they could expect in total lifetime Social Security income based on their choice of retirement age.
When you claim benefits before reaching full retirement age, benefits are reduced by as much as 30%. But only one - in - three people even know their full retirement age — the age at which you can claim full, unreduced benefits. It’s not surprising that most people claim benefits at 62, even though benefits are reduced. Eligibility to begin benefits at age 62 is the one piece of information about Social Security that most people know.
It’s also a common tendency to overestimate how much you will get from Social Security, according to a survey by the Nationwide Retirement Institute. About 30% of future retirees in the survey anticipated collecting more than they are likely to receive, saying they expected to get $1,628 per month in Social Security benefits on average, but current retirees are receiving an average of $1,257 per month. That gap is significant because 55% of those surveyed said that Social Security benefits would be their main source of income in retirement.
Compounding the problem, it’s also common for people close to retirement to underestimate medical expenses. Four-out-of-ten participants in the Nationwide survey did not expect to spend any of their Social Security income on healthcare. The Social Security Administration, however, automatically deducts the Medicare Part B premium, which is $134.00 per month in 2018, from Social Security benefits. Medicare Part B premiums have been the fastest rising retiree cost over the past 18 years.
In fact, 88% of people who planned to retire in the next 10 years did not know what factors determine the maximum Social Security benefit that they could achieve. Benefits are based on the age at retirement, the number of years worked and the earnings record that your benefits will be based on (yours or that of a spouse).
The place to start learning more about your retirement or survivors options is the Social Security website, but don’t stop there. If you have a retirement account, ask your financial advisor if Social Security benefit planning services are offered.
Here are three good books to help you get up to speed:
- Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less, Mike Piper, February 2017.
- Your Social Security Retirement Toolkit: A Step-By-Step Guide to Getting the Money, Benefits & Financial Support You Are Entitled To, February 2017.
- Social Security For Dummies, Jonathan Peterson, October 2017.
Sources: 2017 TSCL Senior Survey, “5th Annual Consumer Survey on Social Security,” Nationwide Retirement Institute, April 2018. “25% of High Earners Have a Huge Misunderstanding About Social Security,” Retire With Money newsletter, Elizabeth O’Brien, Time.com, Money, April 25, 2018.