Despite a recent report showing that a strong economy has helped the Social Security program, there is still a looming threat of the trust funds being depleted within the next decade. Many Americans have the misconception that benefits will completely disappear once the trust fund runs out. The reality, however, is that even if the trust funds are depleted, the program will still receive revenue from payroll taxes. This means that benefits will still be distributed, albeit possibly at a reduced rate.
Data from a Nationwide Retirement Institute survey in 2023 revealed that 75% of adults ages 50 and above believe that Social Security will run out within their lifetime. This fear prompts many retirees to claim benefits early, with the most popular age for claiming being 62. Unfortunately, claiming benefits at this age results in a significant reduction, typically around 30%, from what they would receive if they waited until their full retirement age, which is generally between 66 and 67. In 2022, 29% of beneficiaries claimed benefits at the earliest possible age of 62, according to a report from the Bipartisan Policy Center.
Experts advise that delaying the claiming of retirement benefits is generally the most financially beneficial option. For every year that beneficiaries wait past their full retirement age up to age 70, they stand to receive an 8% increase in benefits. However, data shows that only 10% of claimants actually wait until age 70 to claim their benefits. This could be due to a variety of reasons, including the fear that Social Security may run out of money, as reported in a 2023 Schroders survey, or the need for immediate financial support.
Psychological factors also play a role in the decision to claim Social Security benefits early. Research from professors Suzanne Shu at Cornell University and John Payne at Duke University suggests that individuals may feel a sense of ownership over the benefits they’ve earned, leading them to claim benefits as soon as possible. Additionally, concerns about losing money may also influence early claiming behavior. Despite these psychological factors, experts still recommend delaying claiming retirement benefits for as long as possible to maximize the monthly payout.
While the idea of delaying retirement benefits may seem daunting, even delaying for just a few months can have a significant impact on the monthly payout. Retirement experts emphasize the value of waiting to claim benefits, as this results in larger monthly payments and higher annual adjustments for inflation. By viewing the decision to delay benefits in months rather than years, individuals may find it more manageable to wait until a later age to claim Social Security.
Overall, it is essential for individuals to understand the reality of Social Security benefits and not give in to common myths and misconceptions about the program. By making informed decisions and considering the long-term financial implications, retirees can maximize their benefits and enjoy a more financially secure retirement.
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