Retiree Households Lose $111,000 to This Social Security Misstep

A worried senior black woman sits on her couch
Photo by Monkey Business Images / Shutterstock.com

It’s tough to depend on Social Security income to fund your retirement — and it’s even worse if you are among the millions of Americans who make one very costly mistake.

The average household loses $111,000 in potential lifetime Social Security income simply because benefits are claimed at a “suboptimal” time, according to a recent study by United Income.

The money-management company found that only 4% of retirees claim at the “financially optimal” time, meaning the point that allows them to build the most wealth overall. In other words, 96% of retirees are making the costly mistake of claiming Social Security benefits at the wrong time.

For the largest share of retirees — 57% — the optimal time to claim benefits is at age 70, the study found. But more than 70% of retirees currently claim before turning 64.

Generally, for each year that you postpone claiming your Social Security benefits — up until age 70 — your monthly benefit increases.

In its analysis of data from the University of Michigan’s Health and Retirement Study, United Income also found that:

  • The average Social Security recipient would earn 9% more income in retirement if he or she waited to claim benefits until the optimal time.
  • About 21% of workers at risk of being unable to afford retirement would improve their chances if they started collecting Social Security benefits at the optimal time.
  • Poverty among the elderly could be cut by nearly half if all retirees claimed Social Security at the financially optimal time.

United Income notes that Social Security accounts for about one-third of all income received by retirees — $1 trillion in annual benefits.

In its analysis, United Income argues that “nearly no retirees” are making the best choice about when to claim Social Security.

To make matters worse, it is likely this trend will continue, since making better Social Security claiming decisions “means sacrificing wealth in the near-term,” the company says.

Determining the best time to claim Social Security

Of course, even if age 70 really is the “optimal time” for most people to claim Social Security, that doesn’t make it the “right time” for you.

As we point out in “5 Reasons You Should Claim Social Security ASAP,” there are times when claiming early makes sense.

And if all of this has you confused about when you should claim, consider obtaining a custom analysis of your claiming options from a specialized company like Money Talks News partner Social Security Choices. Money Talks News founder Stacy Johnson did, as he explains in “Ask Stacy: Where Can I Get Social Security Advice?

You can learn more about Social Security Choices by reading “Maximize Your Social Security.” And you can save $10 on a personalized analysis from the company by using coupon code “moneytalks.”

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