A just released study using Government statistics, published by United Income called “The Retirement Solution Hiding in Plain Sight” highlighted the fact that American’s have lost and are losing $3.4 Trillion or $111,000 per household in Social Security benefits by claiming benefits incorrectly!  Claiming benefits too early is the cause of this loss in lifetime benefits!

40% claim benefits at age 62, while only 4% wait until the optimal age of 70.

So why is that so many people make this mistake?  It is my opinion that there is an overall lack of education and positioning of alternatives;

  • Underestimating the life expectancy of both spouses
  • Not realizing that whatever your check is at 62 at age 70 it is DOUBLE (assuming a 2% COLA)
  • Not integrating other assets into the Social Security claiming decision. With the stock market at record highs and interest rates at extremely low levels
  • Not realizing that the surviving spouse inherits the greater of the two benefits, upon death of the other spouse
  • Immediate Gratification – Just because you can take benefits at age 62 doesn’t mean you should
  • Making the mistake at looking at the Breakeven point (“It takes me 10 years to get what I would have received, had I claimed at 62 and what if I die?”)
  • Not getting good advice and not using software that shows different claiming scenarios

Future Tax Rates

Also, with an election year right around the corner and the promise of A LOT OF FREE STUFF (healthcare, college, housing, etc.)  the question arises of who will pay for it?  What will future tax brackets look like if certain party takes control of congress and the White House in 2020?  When I started in the Securities Industry in 1975 the top tax brackets were 50% for Earned Income and 70% of Unearned Income.

This might be a great time to start drawing down on Qualified Plans (IRA’s, 401k’s, etc.) prior to RMD’s that begin at age 70 ½ under current law?  Don’t waste a 20% – 25% tax bracket!  Drawing down on Qualified Plans while postponing Social Security benefits could be the best financial decision you will ever make!

Understand ALL your Options

Prior to claiming, hopefully somewhere in your late 50’s or early 60’s everyone should sit down, take the time and get the professional advice and counsel as to how and when to claim Social Security benefits. Now that we’re in the heart of vacation season I’ve heard and read that American’s spend more time planning a vacation than planning their retirement, don’t make or let people you know make this mistake!

Enjoy the Dog Days of Summer,

Live in a constant state of contentment!

Dave Zander, CFP®