How Many People Wait to 70 to Maximize Social Security Benefits?

We know waiting to claim Social Security benefits pays—to the tune of an extra 8% per year for every year after full retirement age, or 32% in total.

It’s one of the best deals in finance, and certainly better than much of what's found in the annuity space, yet only 10% of non-retired Americans say they will wait until age 70 to collect.

This includes 17% only of non-retired respondents on the verge of retirement (ages 60-65), according to the 2023 Schroders U.S. Retirement Survey.

Overall, 40% of non-retired respondents plan to take their Social Security benefits between ages 62-65, leaving them short of qualifying for their full retirement benefits.

It’s not a question of ignorance on the public’s part. Schroders notes the choice to forgo larger Social Security payments is deliberate, as 72% of non-retired investors—and 95% of non-retired ages 60-65—are aware that waiting longer earns higher payments.

Why are so many non-retired Americans taking their Social Security benefits before age 70?

Close to half (44%) of respondents said they fear Social Security may run out of money and/or stop making payments. Respondents also indicated that:  

• they will need the money (36%);
• it is their money and they want access to it as soon as possible (34%); or
• they were advised to take it earlier than age 70 (13%).

"We have a crisis of confidence in the Social Security system and it’s costing American workers real money,” Deb Boyden, head of U.S. Defined Contribution at Schroders, said in a statement. “Fear about the stability of Social Security has people walking away from money that could improve their quality of life in retirement. Many are not even waiting for their full benefit let alone the maximum, which means they will have to create more income on their own, making it even more important to save and invest earlier for retirement.”

Status Quo = Benefit Cuts

And those fears appear to be well-founded, according to a new analysis by the nonpartisan Committee for a Responsible Federal Budget (CRFB), which notes that 2024 presidential candidates are facing calls not to touch Social Security under the guise of “protecting benefits.” Such a move, however, would result in a 23% across-the-board benefit cut in 2033, when the Social Security retirement fund becomes insolvent, the organization notes.

The Social Security Trustees project that the Old-Age and Survivors Insurance (OASI) trust fund will deplete its reserves by 2033, when today’s 57-year-olds reach the normal retirement age and today’s youngest retirees turn 72. The CRFB notes that, upon insolvency, the law mandates that the OASI trust fund can only spend in amounts equal to incoming trust fund revenue, which means that all 70 million retirees, dependents, and survivors—regardless of age, income or need—will see their benefits cut by 23%.

For a typical dual-income couple retiring in 2033, this would represent an immediate $17,400 cut in current dollar annual benefits and an immediate $13,100 cut for a typical single-income couple, the organization estimates. The cuts would differ for couples at different income levels, however. A low-income, dual-income couple retiring in 2033 would see a $10,600 cut while a high-income, dual-income couple retiring in 2033 would see their annual benefits slashed by $23,000. Although the cut for a low-income couple would be smaller, it would represent a larger share of their income.

DC Plan Income Solution Seen as Valuable and in Demand

Meanwhile, Schroders' survey also shows that demand for in-plan retirement income solutions appears to be on the rise. Among working Americans participating in a workplace retirement plan, 32% said their plan provided a retirement income solution; 39% said they didn’t know; and 29% said no.

The vast majority (82%) of those who are offered an income solution in their plan are likely to use it.

Among those who don’t know or do not have a retirement income solution in their plan, 55% said they wish they did—including 64% of those nearing retirement (ages 60-65)—while 33% were unsure, and 12% said it wasn’t necessary.

“Americans are increasingly looking to their employers for insights and solutions to their retirement income challenges,” Boyden said. “While this has been a topic of conversation for some time, we believe we are entering a phase of accelerated adoption among plan sponsors for solutions to meet these challenges, with products that provide lifetime income, while addressing sequence of return risk with principal protection, and giving investors the flexibility to take the income when they want or need it.”

Average Monthly Income: Having a Plan Pays for Retirees

When asked to forecast how much monthly income they will need to enjoy a comfortable retirement, non-retired survey participants said $4,940, on average.

This includes non-retired millennials, who said $5,135 per month; and those who are nearing retirement (ages 60-65) who said $4,855 per month.

Retirees said that including Social Security, their total monthly income is $4,170 on average, though 37% said their monthly income is less than $2,500.
Having an advisor and a plan pays off: the average monthly income including Social Security for retirees with a financial advisor is $5,075.

For retirees with a formal financial plan, their monthly income is $5,810 on average, which is almost twice the $3,000 per month of income reported by those without a financial plan.       

No More Paychecks Is Terrifying; Income Replacement Is Low

The idea of no more regular paychecks in retirement is not only concerning to 57% of non-retired American, but terrifying for another 23%.
They also have low final paycheck income replacement expectations: Only 23% believe they will need to replace 75% or more of their final paycheck with other sources of income in retirement. Thirty-two percent said between 50-74%; 23% said they needed to replace less than 50%; and 22% had no idea.

For retirees, the majority (51%) can replace less than 50% of their last paycheck; 26% are able to replace 50-74%; and 24% can replace 75% or more.

• How will non-retired Americans generate income in retirement? Aside from Social Security, they expect to also use:
• Cash savings (58%)
• Workplace retirement plan (53%)
• Investment income outside of employer provided retirement plan (40%)
• Defined benefit/pension plan (20%)
• Rental income (14%)
• Annuities (10%)
• Cash value of life insurance (10%)
• Reverse mortgage (4%)

Retirees use a variety of specific strategies to turn their savings into income including:

• Systematic withdrawals from retirement accounts (33%)
• Dividend producing stocks or mutual funds (24%)
• Annuities (13%)
• Individual bonds or bond mutual funds (12%)
• CDs (12%)

However, almost half (49%) said they don’t have any retirement income strategies, they just take money when they need it.