Poor Decision-Making: Lower Benefits Because of Early Retirement
Recently, a lot has been said about Social Security. Many see social insurance provided by Social Security as a thing that will soon belong in the past and not a stable option. However, when you fully understand how the program and benefits actually work, Social Security can still be an important element to your diversified retirement plant.
Regrettably, when people don’t have the proper information at hand, they make ill-advised decisions. One such decision is to start collecting too early. According to research, today, the average age of when people go into retirement and start collecting is 62. In the future, that is expected to be 65.
The thing is, if you are able to delay the moment by which you start collecting, your benefit can be larger by up to 32 percent. This is a significant increase. In fact, if you claim earlier, you’ll see a reduction of benefits. Those who claim their retirement benefits at 62 get a reduction of 25%. 63-year-olds lose 20%, while people aged 64 and 65 get a reduction of 13,3% and 6,7%, respectively.
At this point in time, the full retirement age for Americans is between 66 and 67. You can’t go into retirement before 62, whereas 70 years of age is the latest you can begin collecting.
According to Tim Sullivan, CEO of Strategic Wealth Advisors Group, many people have made the mistake of collecting too early. Although he understands that individuals have different circumstances and reasons for going into retirement, Sullivan claims many do it out of ignorance. One of the main reasons people collect early is because they fear the program will go into bankruptcy. However, this is not completely true. While experts predict that Social Security will no longer be able to pay out full benefits by 2035, the program will still be able to pay 80% of benefits.
Additionally, Sullivan said that people don’t doublecheck the information they hear. They place too much confidence in what he calls ‘hearsay’, and he sees people more open to advice from friends and family, rather than going to a financial professional for a consultation. Sullivan suggests people should view Social Security as an investment — the longer you wait, the better benefits you’ll receive.
Sullivan also claims that there are people who have started collecting early out of fear that they wouldn’t be around for long enough to reap the full benefits of the program. This logic is flawed. Some people don’t know that their family can receive their benefits, as a surviving spouse can inherit them.
The major issue is lack of education on the matter. The majority of Sullivan’s client, according to the expert, have filed for Social Security before reaching full retirement age. The Nationwide Retirement Institute came out with a statistic that only 32% of future retirees correctly answered when asked about eligibility for full benefits. At the same time, out of pensioners who’ve retired ten or more years ago surveyed, only 18% knew the right age.
Make the Right Choice
These percentages are not a good indicator, especially for something as important as your retirement plan. Sullivan strongly advises people to seek out professional help. Those who worked with a financial advisor have seen a 15% increase in income benefits. On average, people with advisors earn $1,551 on a monthly basis, as opposed to $1,324, which is the amount of money people who went into retirement on their own get.
Nonetheless, you shouldn’t wait it out no matter what. There are people who found it necessary to start collecting early. Some valid reasons include paying for health care, job loss, or having to cover living expenses.
Another thing you should be aware of is that you can reverse your decision. If you have recently filed for your benefits and started collecting within the last 12 months, you can still change that. According to Tim Sullivan, to correct the mistake, you have to pay all the money you’ve received back in one lump sum. Afterward, you need to suspend your account. When you’ve taken these steps, your account will grow as it did before. It will continue as if you’ve never claimed it and you can prolong your working years, until you become ready to file for benefits again.