Nearly a Quarter of Seniors Regret This Social Security Decision

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It can be justly said that, without Social Security, a lot of today's retirees would be in big trouble. Although the program is designed to provide coverage to the disabled and survivors of deceased workers, the primary purpose of Social Security is to supply income to retired workers to assist them in meeting their month-to-month expenses. According to Gallup, nearly six in 10 retirees count on Social Security income to be a "major" source of income in retirement; thus, without this source of income, America's retirees would likely be in bad shape financially.

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Yet, the biggest way seniors can influence what they're paid by Social Security, other than working for at least 35 years and earning as much as possible, is by choosing the age at which they'll claim benefits. Seniors can begin claiming benefits as soon as age 62.

When you file can greatly influence your payout

The formula that determines what you'll be paid in benefits is based on your full retirement age, or FRA, which is a dynamic number that entitles you to 100% of your benefits and changes, based on your birth year. For future retirees, your FRA is going to be between 66 years and 67 years.

If you retire at any point before you reach your FRA, your monthly benefit will be lower than the full benefit you'd have received if you'd waited until your FRA to sign up. Conversely, waiting to file for benefits until after your FRA can boost your benefit above and beyond 100%. For each year you hold off on signing up, your benefit increases by about 8%.

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This means claiming benefits at age 62 with an FRA of 66 years could result in a 25% haircut from your full benefit. Comparatively, waiting until age 70, the last year where waiting increases your payout, could boost your payout to 132% of your FRA benefit.

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CHART BY AUTHOR. DATA SOURCE: CENTERS FOR RETIREMENT RESEARCH AT BOSTON COLLEGE VIA 2013 DATA FROM THE SOCIAL SECURITY ADMINISTRATION. 

What do most Americans do? Based on SSA data from 2013 that was analyzed by the Centers for Retirement Research at Boston College, about 45% of seniors claim benefits at age 62. Overall, three in five people choose to claim benefits early, before hitting full retirement age.

Nearly a third of seniors wait until their FRA to claim benefits. Finally, approximately 10% of retirees claim Social Security after their FRA when their payout has grown to more than 100% of their FRA benefits.

Nearly a quarter of seniors regret doing this

However, according to a recently released annual survey from Nationwide Retirement Institute (NRI), nearly a quarter (23%) of surveyed people aged 50 and up regret the age at which they filed for Social Security benefits. Another 24% of seniors told NRI that their retirement benefits were lower than expected.

Admittedly, this means three-quarters of those surveyedwouldn't change when they filed for benefits, but 39% of seniors also noted that a life event forced them to begin taking Social Security benefits. In other words, quite a few seniors are either unhappy with their decision to claim benefits early, or were forced into claiming benefits when their intention would have been to wait.

It's important to know that there is a "do-over" clause built into Social Security -- if you realize, relatively quickly, that you're not happy with your decision to sign up for benefits. You can fill out a form, known as Form SSA-521, to request a withdrawal of application.

Regardless of when you first filed for benefits, as long as you file Form SSA-521 with the SSAwithin the first 12 months of claiming benefits, and you repay every cent of benefits received up to those first 12 months -- which could include benefits paid to your spouse or children -- it'll be as if your original claim never occurred, and your benefits will be able to grow once more at 8% per year.

This do-over clause can come in especially handy for those seniors who've filed for benefits early, only to take up a full-time, or well-paying part-time, job within the first year of receiving Social Security benefits. Seniors with wage income may not need the boost in income provided by Social Security, and could be better served by waiting to file.

Additionally, seniors really need to take the time to understand their claiming options, and have a plan in placebefore hitting retirement. Whether this means sitting down with a financial advisor and discussing your options, or reviewing your options with your significant other and immediate family, it should be done well before hitting your golden years.

Lastly, when a lot of seniors admit that a life event forced them to claim benefits, it suggests that they may not have properly budgeted for emergencies or unplanned expenses. A simple solution (for workers and retirees) is to stick to a budget, which should help apportion more money for emergency funds and retirement accounts.

Budgeting tools online can make setting up a plan a breeze, with the biggest challenge nowadays being that you have to formulate measurable goals that hold you accountable for your saving/spending habits. Getting your family involved, and setting aside money for an emergency fund or investment account on a monthly basis, can help improve your chances of being accountable and staying on track.

The $15,834 Social Security bonus most retirees completely overlook 


If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $15,834 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after.

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