As a result, retirees will lose an average of around $110,000 per household by claiming Social Security early, the study suggests. That adds up to a combined $3.4 trillion in missed income.
About 57 percent of retirees would build more wealth if they waited until they were 70 to claim benefits, the study found. The Social Security Administration (SSA) agrees — you could see a noticeable increase in benefits if you choose to delay retirement. The agency says it will increase the benefit amount until you start accepting checks or until you're 70 years old.
According to Investopedia, the benefit amount increases by about 8 percent each year you postpone until that 70-mark. Those who don't retire as soon as they hit 65 should still apply for Medicare benefits "within three months" of their 65th birthday to avoid paying more in the long-run, the SSA recommends.
If all retirees claimed Social Security at the optimal time, it could cut the rate of “elderly” poverty nearly in half, United Income claims.
To find someone’s “optimal decision,” the authors of the study simulated 486,000 potential future wealth incomes for each participant, based on different benefits using ages, account sequencing strategies and 1,000 different market returns. They selected the option that maximized a person’s chance to pay for things for the rest of their life.
Then the authors compared that optimal choice to what each person actually did.
It can be difficult to meet expenses while living on a fixed income. But 21 percent of people at risk of being unable to afford retirement would see an improvement in their chances if they claimed Social Security at the optimal time, according to the study.
Making the optimal decision means sacrificing near-term wealth in retirees’ 60s and early 70s, so the authors of the study said they don’t expect more people will make the right decision without intervention.
The study’s authors said eligibility age rules should be reconsidered since most retirees would be better off waiting until they’re at least 65 to claim the benefits.
They also suggested age 62 should be labeled the “minimum benefit age” instead of the “early eligibility age,” and age 70 should be labeled the “maximum benefit age.”
"If you start benefits early [at age 62], your benefits are reduced a fraction of a percent for each month before your full retirement age," the SSA says.
Jason Fichtner, one of the study’s authors and the former Social Security Administration chief economist, told The Associated Press people aren’t spending enough time figuring out what would work best.
“If you have the discussions, you can optimize your decisions,” he said. “These discussions aren’t necessarily happening for everyone.”
Fox Business' Jennifer Earl contributed to this report.