Far Too Many Retirees Make This Social Security Mistake

$182,370. That is how much extra spending money the National Bureau of Economic Research says a retiree can capture simply by waiting until age 70 to claim Social Security — rather than joining the roughly nine in ten Americans who file earlier.

You almost certainly will too. Just 10.2% of Americans actually wait until 70. The rest take a smaller check, often years sooner, and only discover later — when their savings start running thin — that the gap they accepted is measured in six figures, not pocket change.

The math behind it is straightforward. Why most people still get the call wrong is the more interesting question.

Six figures on the table.

According to the National Bureau of Economic Research, an estimated 89.8% of Americans make a decision about Social Security that costs them a lot of money. That mistake is claiming Social Security before the age of 70. 

Social Security benefits become available at 62, but claiming any time before your full retirement age (FRA) is considered an early claim. For anyone born in 1960 or later, FRA is 67. Waiting until 67 allows you to avoid shrinking your monthly check due to early filing penalties. However, even delaying that long is likely not long enough, as waiting beyond your full retirement age allows you to increase your monthly payments until the age of 70. 

The problem is, just 10.2% of Americans actually put off their claim until 70. And, anyone who doesn’t wait not only shrinks the payments they collect each month, but they also are most likely leaving hundreds of thousands of dollars of lifetime benefits on the table. 

Why is claiming early often a mistake?

To be clear, claiming Social Security earlier than 70 isn’t necessarily a mistake in every situation. But it turns out to be the wrong choice for many seniors because the best way to increase your odds of maximizing your lifetime Social Security benefits is to delay your claim until 70. In fact, the NBER research found that around 90% of people end up with more lifetime benefits when they delay the start of their checks. 

Delaying pays off for most people because when Social Security was first created, life expectancies were much shorter than they are now. The system of early filing penalties and delayed retirement credits was created to try to equalize lifetime benefits for retirees at that time. The goal was for late claimers to get larger checks for long enough that they ended up receiving a similar amount of lifetime benefits as people who had claimed years before. The early claimers would get smaller checks, but get more of them. 

Since people generally now live longer than they did when Social Security was created, most people who delay — around 90% — now end up getting higher checks for long enough that they receive significantly more total lifetime Social Security benefits. How much more? NBER’s data suggests that those who wait until 70 could enjoy as much as $182,370 in additional discretionary spending due to putting off their Social Security claim.  

This means that if you claim before 70, as about 89.8% of Americans do, you’re making a choice that will most likely leave you with less lifetime income in your later years of retirement and less money coming in for life. When you’re older, and your retirement savings is starting to run dry, you could really regret this and find yourself wishing you had that higher benefit that waiting would have earned for you.