The high price retirees pay for collecting social security too early

The high price retirees pay for collecting social security too early

It’s no secret that retirees often have an interest in waiting to receive their social security benefits. But exactly how much money are people leaving on the table by taking their benefits early?

A recent study, funded by the Federal Reserve Bank of Atlanta, finds that retirees often forgo tens of thousands or even hundreds of thousands of dollars by taking Social Security benefits too soon. This takes into account that if a retiree applies for Social Security at age 70 instead of age 62, the monthly benefit could be 76% higher, adjusted for inflation.

The researchers looked at lifetime discretionary spending and found that nearly 90% of workers between the ages of 45 and 62 would benefit from waiting until age 70 to collect Social Security. Indeed, waiting would increase the median lifetime discretionary spending of the typical worker by $182,370, or about 10%.

Yet less than 10% of retirees are likely to wait that long, the researchers found.

“Knowing when to collect payments, especially if someone is entitled to multiple benefits or coordinating with a spouse, can be nearly impossible to do correctly,” says Laurence Kotlikoff, a Boston University professor and one of the co-authors of the article.

The richest 20% of people aged 45-62 could increase their lifetime discretionary spending by nearly $290,000 on average, expecting to collect until age 70, an increase of about 2.4% , according to the researchers. And the 1% of people who benefit the most while waiting to collect Social Security could see an increase of almost $600,000 for life.


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But even less wealthy retirees benefit significantly from waiting until age 70 to start Social Security, the study suggests. Those ages 45 to 62, whose assets and income put them in the bottom 20% of wealth, could increase their lifetime discretionary spending by almost $110,000, an increase of about 15%.

To reach their conclusions, the researchers used three major datasets: the Federal Reserve’s 2019 survey of consumer finances, the United States Census Bureau’s annual American community survey between 2000 and 2020 and the current population survey conducted by the Census Bureau for the Bureau. labor statistics. The first set of data was used to observe the finances of 6,000 households. The second two data sets were used to model different retirement dates.

The data was analyzed using software that takes into account many variables, including federal and state income taxes, federal and state benefits, and health insurance premiums, all of which play a role. in how much retirees actually have to spend.

If it’s no secret that waiting to collect Social Security pays off in the long run, why aren’t more people doing it?

A big problem is that it can mean taking a short-term financial hit. The authors found that 47% of households in the study would have to reduce their spending in the short term if they postponed collecting Social Security. One solution, according to Professor Kotlikoff, could be for the government to consider allowing people to collect part of their Social Security benefits earlier and part later, so that they can receive the highest payment on the road.

Another problem is that many retirees don’t consider the value of their Social Security benefits over a 30- or 40-year period, thinking they won’t live that long. Financial experts and even advice on the Social Security website recommend that retirees use average mortality rates to estimate the value of their Social Security benefits and cash flow during retirement. But Professor Kotlikoff says “the use of averages is highly irresponsible”.

“It’s more important to think about how long you could possibly live,” he says, adding that Social Security becomes much more valuable if someone expects to live to 100 and maximizing benefits becomes even more essential.

Complexity is another big issue. Social Security may include benefits for spouses, widows, divorcees, disabled children, orphans and parents, and it is difficult to try to coordinate and maximize these benefits.

“Optimizing social security benefits is like anticipating 15 moves in a game of chess,” says Professor Kotlikoff.

Ms. Ward is a writer in Vermont. Email him at

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