Why People Are Missing Out on Social Security Benefits—and What Experts Say

• Putting off Social Security for retirement can lead to significantly larger monthly benefit payments.
• However, numerous individuals choose not to delay claiming their benefits, often due to financial necessity or personal preference.
• Specialists argue that certain popular justifications individuals provide for opting for early claims frequently do not withstand careful examination.

When it comes to claiming Social Security When it comes to retirement benefits, experts concur that it's typically advisable to postpone them.

Yet many people still claim early — whether at the youngest eligible age of 62 or prior to reaching their complete retirement age.

These initial assertions lead to decreased Social Security payments throughout one's lifetime.

In order to receive all the benefits you're entitled to, you must wait until you reach your full retirement age, which falls between 66 and 67 years old, based on when you were born.

In order to receive maximum benefits, retirees should hold off claiming until they reach age 70.

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Naturally, certain individuals are unable to wait—either because of their health issues or financial situations.

However, studies indicate that numerous individuals opt for early retirement due to concerns over the program's sustainability, or owing to misconceptions that this will maximize their benefits.

In reaction to a recent article from GudangMovies21 about why even waiting a few months To assert eligibility for benefits might be beneficial; however, this prompted a robust response from certain readers.

One reader commented, 'It’s downright theft,' adding sarcastically, 'You simply don’t wish for them [the beneficiaries] to receive their funds back, right?'

Despite this, specialists argue that postponing the application is typically a wise approach.

"From a broad perspective, putting off the application for Social Security benefits might be among the most secure strategies you can adopt to safeguard your future," explained David Blanchett, who leads retirement research at PGIM DC Solutions, part of Prudential Financial’s global investment division.

This is how experts respond to the most frequent reasons people cite for applying for Social Security benefits at the earliest opportunity. .

Investing in the market

If someone begins receiving benefits at age [62] and invests those funds in an S&P index fund for eight years, they would be significantly better off than if they waited till age 70 to start collecting," noted another reader from GudangMovies21.

Given that the S&P 500 has risen approximately 26% over the last year, it might seem appealing to believe that putting your money into an index fund tracking this benchmark could yield better returns compared to holding off on claiming Social Security.

However, there are no assurances that returns will be substantial.

Although the markets might rise by an average of 10% annually, this figure drops to around 7% when adjusting for inflation, as stated by Blanchett. In case of a diversified mix of equities and fixed-income assets, this could mean 5% annual return expectation It makes sense. After several years, the market might perform better, and in other years, it could be worse.

Someone who chooses to wait until they reach 70 before claiming their Social Security benefits can expect an increase of approximately 77% compared to what they would have received had they claimed them at 62 years old, as per Blanchett’s findings. Furthermore, for each year past their designated full retirement age that these individuals postpone receiving benefits, they could see an additional enhancement of around 8%.

Experts suggest that to accurately assess the trade-off, one should compare postponing Social Security with investing in bonds instead of stocks. A key benefit of Social Security is that it provides inflation-adjusted income throughout the recipient’s lifetime.

"If I were to draw a comparison with Social Security, it would make more sense to do so with bond yields," stated Joe Elsasser, a certified financial planner and the founder/president of Covisum, a firm specializing in Social Security claiming software.

He mentioned that when compared to bond yields, postponing Social Security suddenly seems far more sensible.

Transfer funds to beneficiaries

You cannot transfer your Social Security benefits to heirs, whereas your 401(k) can be passed on, hence it’s advisable to start taking Social Security benefits early and withdrawing smaller amounts from your 401(k)," noted a reader of GudangMovies21.

When you're strategizing about integrating Social Security benefits with other financial resources, it’s crucial to take into account how elements like lifespan and tax implications could influence your post-retirement earnings.

Elsasser noted that people commonly misjudge their own lifespan.

Should you have a longer lifespan, larger Social Security benefit payments can aid in maintaining your quality of life, potentially safeguarding other financial resources during your advanced years.

To enhance tax efficiency, it typically makes sense to postpone Social Security, according to Elsasser.

Withdrawals from traditional 401(k) plans might receive less favorable treatment compared to Social Security benefits, which are only as much as 85% of benefits are required to pay federal taxes.

As a result, having additional Social Security income proves beneficial.

According to Elsasser, for numerous individuals, postponing Social Security might lead to a significantly more tax-efficient entire retirement plan, despite potentially being less advantageous from a short-term taxation perspective.

Break-even age

"A GudangMovies21 reader commented that someone retiring at 62 would end up with the same amount of money as someone retiring at 70 by the time they both turn 78, which is considered their projected lifespan. You come out ahead only if you surpass expectations and live beyond this point," the comment stated. The commenter referred to "70" instead of "72", although waiting until age 70 yields greater advantages according to standard guidelines.

A lot of people applying for Social Security usually concentrate on finding a "break-even age," which is when claiming benefits later or earlier wouldn’t result in them losing out financially.

In order to gain from postponing claims, they must surpass their projected break-even age.

Experts suggest that it's advisable to make a claim decision based on an individual's complete financial circumstances rather than relying solely on a single factor.

Elsasser mentioned that the break-even age can serve as a useful benchmark.

However, applicants should also take into account their life expectancy, which could very well exceed that of their parents thanks to advancements in healthcare and greater financial means.

When partners are deciding when to claim benefits, a spouse who earns more should take into account the life expectancy of both parties, which frequently encourages postponing the claiming process, as stated by Elsasser.