Despite knowing they could receive larger payments, very few American workers are planning to wait until age 70—the age at which an individual reaches their maximum monthly benefit—to begin taking their Social Security benefits.
According to the Schroders 2022 U.S. Retirement Survey, 86% of non-retired Americans 45 and older are aware they could receive higher Social Security payments by delaying the start of their benefits, yet just 11% of respondents plan to wait to age 70.
Almost a third (32%) said they would take benefits before 70 because they are concerned Social Security may run out of money or stop making payments, while 31% said they expected they would need the money sooner.
Meanwhile, close to half (48%) of non-retired Americans surveyed plan to begin taking Social Security between the ages of 62-65 (before reaching full benefit age), 19% plan to file between ages 66-69, and 22% are unsure when they will claim Social Security.
Even among those not retired and approaching retirement age (60-65), only 11% said they will take their benefits at age 70. Why? Because they will need the money sooner, according to 38% of these respondents.
“Delaying Social Security to increase your benefit is a tried-and-true means of generating more income in retirement, but it’s a path few are prepared to take,” says Joel Schiffman, Head of Strategic Partnerships at Schroders. “This validates what we found in our survey last year when we first saw that only 10% planned to wait until age 70 to take higher benefits.”
Given increasing life expectancies and widespread concerns about not being able to live comfortably without a paycheck, the advantages of creating a retirement income strategy that maximizes Social Security benefits can’t be overstated, adds Schiffman.
Income Replacement Needs
Among non-retired survey respondents nearing retirement (age 60-65), 55% do not believe they will be able to replace 75% of their last paycheck in retirement income.
Surprisingly, the vast majority do not believe they will have to do that—just 23% said they needed to replace 75% of their final paycheck to live comfortably. Instead, they are more likely to say they will need to replace less than 50% of their final paycheck (27% of respondents).
Of significant concern, according to Schroders, is that almost a quarter (23%) of those nearing retirement (60-65) have no idea how much monthly income they will need to generate in retirement to live comfortably, and most are concerned (53%) or even terrified (33%) by the idea of not having a regular paycheck.
According to the survey, the three most popular strategies retirees are using to generate income include:
- systematic withdrawals from retirement accounts (e.g., IRA, 401k plan) (29%);
- dividend-producing stocks or mutual funds (18%); and
- annuities (15%).
Yet, roughly half of all retirees (49%) surveyed said they don't have any strategies to generate retirement income and instead withdraw money as needed.
Retirement Income Solutions
Nearly half (48%) of those survey respondents currently participating in a workplace retirement plan (e.g., 401(k), 403(b), or 457 plan) said their plan offers retirement income products, while 19% said the plan does not have income products and 33% were unsure.
Of those who do not have or are unsure if they have a retirement income product in their plan, 62% said they wish they did. Among those in a plan that offers a retirement income product, almost 9 in 10 (89%) said they are likely to use the product when they retire, keeping assets in their employer plan.
According to the findings, the top five features that participants seek in an in-plan retirement income solution include:
- lifetime income (52%);
- consistent monthly paycheck-like income (49%);
- low fees/cost (42%);
- liquidity/access to money whenever they want (40%); and
- protection from market corrections/down markets (39%).
“The SECURE act was a crucial step toward putting retirement income front and center and made it easier for plan sponsors to introduce insured solutions into DC plans,” emphasizes Schiffman. “However, more needs to be done to educate participants on the importance of higher income replacement, and that comes from planning for retirement income early in their careers.”
The survey was conducted by 8 Acre Perspective among 1,000 U.S. investors nationwide ages 45 –75 from Feb. 17–28, 2022. The median household income for working Americans surveyed was $75,000. The survey included 317 respondents with employer-provided DC plans.
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