(The Center Square) – The majority of Americans should wait until they’re age 70 to begin collecting their Social Security benefits to maximize their monthly payments, according to a study published by the National Bureau of Economic Research.
“Americans are notoriously bad savers,” the authors of the report state. “Large numbers are reaching old age too poor to finance retirements that could last longer than they worked.”
They suggest that “virtually all American workers age 45 to 62 should wait beyond age 65 to collect. More than 90 percent should wait till age 70.”
The authors of the report, “How Much Lifetime Social Security Benefits are Americans Leaving on the Table?,” estimate that when seniors claim their Social Security benefits too early, they may lose more than $180,000 in benefits. The report was written by David Altig with the Federal Reserve Bank of Atlanta and Victor Yifan Ye and Laurence J. Kotlikoff of Boston University.
Federal law requires workers to pay into Social Security and become eligible to receive a portion of what they contributed starting at age 62. Nearly nine out of 10 Americans ages 65 and older receive Social Security benefits as of June 30, 2022, according to the Social Security Administration (SSA).
In 2022, an average of 66 million Americans receive Social Security benefits every month, totaling over $1 trillion in benefits paid. Social Security provides financial assistance for retired workers and survivors of deceased workers through the Old Age and Survivors Insurance (OASI) Trust Fund, and for disabled workers and their families through the Disability Insurance (DI) Trust Fund.
About 45 million retired workers currently receive Social Security benefits; roughly 22 million Americans receive DI benefits.
Social Security benefits account for roughly 30% of the income of the elderly and are also considered the second largest retirement resource of the elderly.
Roughly 40% of retirees are more than 50% financially dependent on Social Security; roughly 13% are entirely dependent, according to SSA data.
“These financial realities make retirees’ failure to maximize their lifetime Social Security benefits particularly acute, but also a potentially remediable problem,” the report states.
As a result, the authors of the report suggest that Americans who either work longer and or live off their pensions, delay collecting their Social Security benefits to receive more money each month.
Because only 10% wait to collect benefits at age 70 or older, the authors estimate “the median loss for this age group in the present value of household lifetime discretionary spending is $182,370.”
If seniors wait until age 70 or older to collect, the authors estimate there’d be a 10.4% “increase in typical workers’ lifetime spending.” Among them, one in four would see a lifetime spending gain exceeding 17%; one in 10 would see gains exceeding 26%, according to the report.
Among the poorest fifth of those between the ages of 45 and 62, the median lifetime spending increase would be 15.9%, with one in four gaining more than 27.4%, according to the report.
The authors also note that based on “Social Security macroeconomic assumptions,” if all seniors optimized their benefits, this would translate to a “$3.4 trillion increase in Social Security’s current colossal $61.8 trillion unfunded liability.”
And if future generations also optimized, “another $3 trillion or so could easily be added to this figure,” they project.
The authors analyzed a 2018 American Community Survey to impute retirement ages for 2019 Survey of Consumer Finance respondents. They also used a Fiscal Analyzer to measure the size and distribution of forgone lifetime Social Security benefits. Their research tool incorporated Social Security and all other major federal and state tax and benefit policies to optimize lifetime Social Security choices, according to the report.
The report’s findings were released after the SSA announced that seniors would receive an 8.7% cost-of-living adjustment increase for 2023. It was the highest increase in roughly 40 years as inflation also reached 40-year highs.
However, according to a 2021 trust fund report, the OASI Trust Fund will only be able to pay scheduled benefits until 2033. In roughly 10 years, the fund's reserves will become depleted and taxable income will only be enough to pay 76% of scheduled benefits.
Likewise, the DI Trust Fund will only be able to pay scheduled benefits until 2057, the trustees reported. In roughly 34 years, the fund's reserves will become depleted and taxable income will only cover 91% of scheduled benefits, they estimate.
In 1940, the remaining life expectancy of a 65-year-old was almost 14 years, SSA says; today it’s over 20 years.
The number of Americans ages 65 and older is also expected to increase from roughly 58 million in 2022 to 76 million by 2035, SSA projects.