Most Americans are under-informed about their Social Security retirement choices, and they don’t mind saying so. The fact is the Social Security Administration isn’t structured to provide understandable personal guidance or one-on-one counseling. It’s almost totally automated and dependent on applicants having access to a computer and a good internet connection.
New claims must be filed online and, to reach telephone assistance, one has to have the patience to wade through tedious automated menus, which can have long 24 -hour waits for return calls. Local Social Security offices can be so packed that it’s standing room only. All this is coming home to roost for people who have middle to low incomes, and who can’t afford the fees of professional retirement advisors. Too many people retire too soon, leaving substantial amounts of retirement income behind. That makes it all the more difficult to maintain one’s standard of living later on in retirement.
Recently, I received my letter from Social Security telling me that I’ve reached my full retirement age (66) and I can start unreduced benefits. The letter itself devotes a mere two sentences to the most valuable thing everyone needs to know — that Social Security benefits increase by 8% for each year one delays benefits up to age 70. Eight percent per year is an incredible guaranteed rate of return that would be very difficult to achieve almost any other way.
The Social Security Administration also included a fact sheet that confuses things for any recipient who, like me, is currently age 66. It shows an example of how benefits would grow from age 66 and 2 months (instead of age 66) through age 70. The 66 and 2 months is the full retirement age of people born after 1954.
The letter and the fact sheet leave out the most important part of the calculation — the additional lifetime income that one could expect to receive over a 20 – 30 year retirement, if one delays benefits up to age 70. That can add up to tens of thousands of dollars if you are in reasonably good health. In fact, Social Security’s publications tend to imply that people get about the same amount of benefits if they start benefits early because they receive the reduced benefit over a longer period of time. That isn’t necessarily the case.
It’s important for people planning retirement to learn the age in which you would “break even” for taking benefits earlier than age 70 — which is helpful in determining your optimal age to retire — and how much more you would get if you worked a few more years.
The age at which one applies for Social Security is the single biggest financial decision most of us will ever make, but TSCL’s 2017 Senior Survey suggests that the vast majority of people claiming Social Security aren’t getting the help they need. When survey participants were asked if they had received counseling from the Social Security Administration about the best age to start benefits, 77% of survey participants said no, and 71% said that prior to starting benefits they were unaware of the total lifetime benefit income they could expect to receive.
There’s an overwhelming flood of retirement information targeted to higher -earning upper income Americans, but just about everyone else with more modest incomes are without the guidance to help make the best retirement decision.
If you are still in the retirement planning stage (like me) it’s well worth the time and effort to learn all that you can about your retirement options, how much you should be saving, and what programs might be available to help you do a better job of planning your retirement. Check your community resources for retirement information, like workshops at local senior centers, libraries and community colleges, before making any decision about when to start benefits.
It’s helpful to think of age 70 as the retirement age to get the maximum benefit that you are entitled to. Not only does your benefit grow 8% per year, but the additional years of work could potentially boost the amount of your initial retirement benefit. By continuing to work you also give yourself more time to contribute to retirement accounts and pay off home mortgages, and you reduce the length of time or amount you will need to withdraw from your retirement accounts. That can make a big difference on how well you can live and thrive in retirement.