Study: Retirees Lose by Taking Social Security at Wrong Time.

A new study finds that only 4% of retirees start claiming their Social Security benefits at the most financially optimal time. And current retirees collectively will lose $3.4 trillion in potential income to fund their retirement because they started drawing benefits at a less than ideal time. That's roughly $111,000 per household, according to the research from United Income, an online investment management and financial planning firm.

Americans typically can start claiming their Social Security benefits as early as age 62 and most adults do so by the time they turn 63. But the size of the monthly benefit grows for each year they wait, maxing out at age 70.

It's not just a financial equation though. Deciding when to draw benefits depends on a myriad of personal factors such as age, health, other savings, marital status and plans for retirement. But the report's authors say people aren't spending enough time sorting through this process and policymakers could do more to encourage it.

Those conversations are important because Americans are increasingly in charge of their own retirement planning and Social Security is a major component. It accounts for about one-third of all income annually received by U.S. retirees. And many Americans are underprepared to supplement their retirement with their own savings. For about one-third of retirees, Social Security is their primary source of income. 

The researchers also estimate that elderly poverty could be cut by 50% if all retirees claimed Social Security at the optimal time. They suggest policymakers make changes to encourage people to claim at a more financially advantageous age, such as improved education for those eligible for Social Security or changing the terminology to indicate that benefits may increase with time. For example, researchers suggest that instead of calling 62 the "early eligibility age" it could be labeled the "minimum benefit age."

While there is no one optimal age, the researchers found that 92 percent of retirees would be better off waiting to claim Social Security until at least their 65th birthday. The exact timing is tough to pinpoint, even varying within households depending on age and who earned more.

 

That being said, there are people who are better off taking the benefits as soon as they can, such as those in poor health who have less time to enjoy their benefits. For others, waiting for the ideal time to claim would mean losing wealth in their 60s as it would require them to live off savings or investment account withdrawals instead of Social Security benefits.

 Courtesy: SARAH SKIDMORE SELL