Many Americans plan to withdraw Social Security benefits before age 70, leaving money on the table: survey

Some Americans don't know how much income they need to retire

Americans who draw on their Social Security benefits before they turn 70 aren't maximizing their retirement income, a survey said. (iStock)

Americans are knowingly leaving retirement money on the table by drawing on their Social Security benefits too early, a survey said.

Schroders 2022 U.S. Retirement Survey, which polled 1,000 Americans ages 45 to 70, said that 86% of respondents understood that waiting until age 70 to collect their Social Security benefits increased the amount of money they could draw, yet only 11% planned to do so.

Nearly half (48%) of non-retired Americans said they would draw on Social Security between the ages of 62 and 65, while 19% said they planned to file between ages 66-69 and 22% said they were unsure when to claim benefits.

"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," Joel Schiffman, head of strategic partnerships at Schroders, said.

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This is why Americans draw on benefits before age 70

The Schroders survey said that most Americans nearing retirement who are drawing on their benefits early are doing so for two reasons: concerns that Social Security is running out of money and needing the money sooner.

Some Americans may not have had a choice about when to start drawing Social Security benefits, Jay Zigmont, Ph.D., CFP and founder of Childfree Wealth, said. For example, Americans collecting Social Security Disability Insurance (SSDI) will not be able to delay collecting. Others are pushed into involuntary retirement for various reasons and need to claim before 70. 

"Claiming at 70 works well for people who are working until 70 or who have investments that can cover from retirement until 70," Zigmont said. "The best age to claim Social Security depends on what you are going to do with your Social Security.  

"If you can combine putting off Social Security until 70 with a plan for long-term care (paid either via investments or a long-term care insurance policy), you can lower the risks of running out of money," he continued.

Additionally, rising living costs and inflation means that some people can't afford to delay collecting benefits "because their livelihood depends on it now," Steve Sexton, CEO of Sexton Advisory Group, said.    

Life expectancy is also a factor — according to Sexton, the average male life expectancy is 84 years old, and the average female life expectancy is 87. 

"These average life expectancies imply that your years in retirement are close to the number of years you've spent working," Sexton said. "This is a perspective that most people don't realize when claiming their benefits, which could possibly prevent them from collecting benefits early and leaving free money on the table."

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Some Americans don't know how much income they need to retire 

More than half of Americans (55%) nearing retirement don't believe they will be able to replace 75% of their last paycheck in retirement income, according to Schroders’ survey. And 23% had no idea how much monthly income they needed to generate in retirement to live comfortably. Additionally, 55% said they are concerned and 33% said they "are terrified by the idea of no more regular employment paychecks," the survey said.

Having a plan in place for retirement is key to Americans' financial security in their golden years and can help to avoid the anxiety of not having a regular employment check, Sexton said. 

He added that Americans nearing retirement age should look to eliminate any debt before they retire. 

"The average American is $90,000 in debt," he said. "Going into retirement without eliminating your debt will tarnish your golden years with unwanted financial and mental stress."

Those looking to pay off debt faster or increase their retirement savings could turn to a side hustle or second job to raise extra income, Sexton said. He also advised building an emergency fund to cover unexpected expenses and said Americans should consider investing their money in a 401(k), IRA or mutual funds.

"Contribute to these accounts consistently, maxing out your contributions annually if you can," Sexton said. "If an employer offers matching of your 401(k) contributions, this is an even more attractive financial perk. Not taking advantage of employer matching is like leaving free money on the table."

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