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Retirement Planning > Social Security > Claiming Strategies

Why Clients Want to Claim Social Security Early, and What Advisors Can Do

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What You Need to Know

  • There are few more reliable ways to boost retirement income than delaying Social Security payments as long as possible.
  • Many savers say they know claiming delays will result in higher income, but they draw early anyway, for a variety of addressable reasons.
  • Advisors can do a lot to prevent Social Security claiming mistakes by making income planning a frequent topic of discussion.

During a recent interview with ThinkAdvisor, Joel Schiffman, head of strategic partnerships at Schroders, dissected some of the key findings from the firm’s 2022 U.S. Retirement Study, which shows many Americans are knowingly forgoing much-needed retirement income by claiming Social Security early.

As Schiffman points out, a worker in 2022 who is eligible to receive Social Security income benefits at age 62 can increase their income substantially by waiting to claim up to age 70. The percentage increase is 5% each year up to age 64, and it steps up after the person’s 64th birthday to 6 2/3% for each year up to the full retirement age, which is 67 for someone born in 1960.

In turn, after reaching 67, the bonus steps up again to 8% a year until age 70.

According to the Schroders survey, the vast majority (86%) of non-retired survey respondents are aware they could receive higher Social Security payments by delaying the start of their benefits. However, only 11% plan to wait to age 70 to tap into Social Security.

In Schiffman’s view, it may make sense for some clients to claim early, depending on their cash flow needs and their unique family and wealth situations. However, for many people, delaying payments as long as possible makes the most sense from an overall wealth maximization perspective.

“It is encouraging to see data coming out that shows the average claiming age is ticking up, although very slowly,” Schiffman says. “Of course, as we see in our survey results, the decision to start drawing Social Security income is not always discretionary. Some people just need the money.”

However, in Schiffman’s experience, many people choose to start drawing Social Security earlier than is strictly necessary. Many simply want to get their hands on the assets as quickly as possible, even if that means lower overall lifetime payments. Others fear for the solvency of Social Security and believe that drawing early is the only way to begin receiving at least a portion of the benefits they are due.

“This is one area where financial advisors can play a big role in improving people’s claiming decisions,” Schiffman says. “Advisors can help take emotion out of the decision. People hear about the projected trust fund depletion dates and it scares them, but advisors can help them understand that Social Security isn’t just going to disappear in 2034 or 2035.”

As Schiffman points out, even if Congress does nothing ahead of that time, Social Security benefits will not just disappear. Rather, they would be reduced by between 20% and 30% for the typical retiree. In Schiffman’s view, it is highly unlikely that Congress would allow this to happen, given the tremendous popularity of the Social Security program.

“But even if those cuts are in store, there is still a very good argument to be made for delaying the payments as long as possible,” Schiffman says. “The idea is that delaying the Social Security payments to 67 or 70 would in itself make up a lot of the benefit reduction. This is obviously not the preferred outcome, but it is important for clients to understand this dynamic. They can take steps to protect the value of their benefit.”

According to Schiffman, findings from the Schroders survey show U.S. investors are in a precarious position, though things could be a lot worse. About a quarter of working Americans say they expect to have at least $1 million in savings when they retire, while another 20% expect to have between $500,000 and $1 million saved.

This leaves more than half (56%) who say they expect to have less than $500,000 saved, including 36% forecasting less than $250,000 in savings.

“These are seriously challenging times, and they seem to be taking a toll on the American worker and their belief about achieving a comfortable retirement,” Schiffman says. “This year, inflation is the top concern Americans have about their retirement, and next year, it may be something else. Whatever the challenge, it can’t derail our focus on saving and preparing for retirement.”

The survey shows that, of those in the critical age range nearing retirement, 69% report they will have less than $500,000, including a significant 54% reporting they will have less than $250,000 saved for retirement. The relative upside is 16% expect to reach at least $1 million in savings.

“It may be too late for some in the older generations to turn their outlook around, but the good news here is that we have such powerful planning tools and wealth building strategies to put in place for the millennials, Gen Xers and Gen Z,” Schiffman says. “The data shows advisors are desperately needed by the investing population.”

According to the survey, fewer than one in four respondents (23%) report having a written retirement plan to guide their decisions, while 40% have done some planning but don’t have a formal plan and 37% have not done any planning. Among those without a plan, 76% find the idea of planning overwhelming and 56% believe it doesn’t make sense because life is so uncertain.

“In reality, we in the industry know that retirement planning provides a critical roadmap to help investors navigate challenging, volatile times,” Schiffman says. “The good news is it’s never too late to embark on the planning process and improve retirement readiness.”


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