Delaying Social Security, even by several months, can boost retirement security

A recent Social Security report showed that a strong economy helped the program.

Yet Social Security’s trust funds could be depleted within the next decade if no changes come sooner.

Many Americans have lost their jobs fear that the benefits will disappear.

“The biggest myth about Social Security is that when the trust fund runs out, the program just disappears,” said Emerson Sprick, associate director of the economic policy program at the Bipartisan Policy Center.

Even if Social Security trust funds are depleted, the program will still benefit from payroll tax revenue. Benefits will continue to be paid, although they may be reduced.

Still, 75% of adults ages 50 and older believe Social Security will run out over their lifetime, according to a 2023 survey by the Nationwide Retirement Institute.

Additionally, data shows that retirees often don’t wait until they can receive 100% of the benefits they’ve earned.

The most popular age to apply is 62, with 29% of beneficiaries applying at that earliest possible age in 2022, according to a report from the Bipartisan Policy Center based on Social Security Administration data.

But these beneficiaries face about a 30% reduction in their benefits for not waiting until full retirement age – the time when they can receive 100% of the benefits they have earned. Full retirement age is generally between 66 and 67, depending on the individual’s date of birth.

Most beneficiaries — 62% — applied before their full retirement age in 2022.

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Only 16% of retirees applied at full retirement age.

For each year that beneficiaries wait beyond full retirement age until age 70, they can receive an 8% increase in their benefits. But only 10% of applicants waited until age 70, the data showed.

The main reason people filed early was their fear that Social Security would run out of money and stop making payments, according to a 2023 Schroders survey.

According to the survey, the second most common reason was the need for money.

Psychological factors may also prompt early complaints, according to a recent study by professors Suzanne Shu of Cornell University’s SC Johnson College of Business and John Payne of Duke University’s Fuqua School of Business.

Workers may feel a sense of ownership over the benefits they’ve earned and, therefore, want to claim them as soon as possible, the study found.

Or, they may be motivated by an aversion to losing money.

Still, experts say it’s usually best to delay applying for retirement benefits.

“Everyone should know that you face a penalty if you collect your contributions before age 70,” said Teresa Ghilarducci, a professor at the New School for Social Research and author of the book “Work, Retire, Repeat: The Uncertainty of Retirement in the New Economy. previously told CNBC.

A person who qualifies for a full retirement benefit of $2,000 per month at age 67 can receive $1,400 per month if they apply at age 62, according to an analysis by the Bipartisan Policy Center. Waiting until age 70 would bring in more like $2,480 per month.

Although delays tend to be in years, waiting even just a few months can be helpful.

Delays of six months, 12 months or 18 months are “very helpful retirement security steps you can take,” said Sprick, of the Bipartisan Policy Center. And that still means retiring at 62, 63 or 64.

“Seeing it this way, in a matter of months, can help some people who really couldn’t survive years,” Sprick said.

Retirement experts agree on the benefit of delaying Social Security benefits — unless a personal reason such as lack of income or poor health requires starting benefits sooner.

Social Security benefits are adjusted annually for inflation, a feature generally unmatched by annuities or pensions.

These cost-of-living adjustments are another reason why it pays to wait before applying for benefits, as these annual increases are higher when applied to larger benefit amounts.