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Claiming Social Security retirement benefits early means locking in a lower benefit amount for life.
Yet a recent survey of American adults ages 26 and older by the Nationwide Retirement Institute found that claiming early is exactly what many Americans plan to do.
The survey found that 42% of respondents plan to file for Social Security benefits sooner while continuing to work, compared to 36% who said the same in 2021.
Among baby boomers, who are not currently on Social Security, 26% said they plan to file for benefits sooner while continuing to work. Meanwhile, 39% of baby boomers who don’t receive Social Security checks plan to start before full retirement age.
The poll, which included 1,853 adults, was conducted between April and May.
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The full retirement age is generally set at 66 or 67, depending on the year of birth. Yet only 13% of survey respondents correctly identified the age at which they will be eligible to receive 100% of the benefits they have earned.
Claiming early has its drawbacks.
Those who apply for retirement benefits as early as possible at age 62 may see a reduction in benefits of up to 30%, according to the Social Security Administration.
In addition, some of their benefits may be withheld if they work before full retirement age. The survey revealed that 54% of respondents are aware of this reduction.
Concerns about the US economy are a major factor
One reason more Americans might consider claiming early is concern over the US economy, with baby boomers and Gen Xers more likely to believe the outlook is deteriorating.
“Inflation at 40 year highs and certainly seeing their investments fluctuate creates a significant amount of pessimism, worry and fear that they will never see a penny of what they have invested in security social,” said Tina Ambrozy, senior vice president. strategic customer solutions at Nationwide.
Additionally, 70% of respondents fear that Social Security will run out of money in their lifetime.
The Social Security Administration’s latest projections show that program funds will run out in 2035. Importantly, 80% of benefits will still be payable at that time.
The Covid-19 pandemic has also made Americans more pessimistic about retirement, Nationwide found, with 20% of non-retired Americans planning to delay their retirement dates compared to 15% in 2021.
Additionally, 47% of respondents said they are now reassessing their retirement plans due to the pandemic, up from 38% in 2021.
While many people seek advice from their local Social Security office, a better approach is to consult with a financial professional who can help you identify the best strategy for your personal situation, Ambrozy said.
“Education and working with someone who can help make good choices is so important, especially in environments like this when things are going well and they’re down and you don’t know which direction they’re going to go,” Ambrozy said.
Most skipped perks are inflation proof
This year, high inflation has caused Social Security’s biggest cost-of-living adjustment in decades, and an even bigger increase in benefits could come in 2023.
Yet it turns out that most Americans — 68% — don’t realize that Social Security benefits are inflation-proof, Nationwide’s survey finds.
Since the survey was carried out, prices have continued to rise, according to government inflation data.
The measure the Social Security Administration uses to calculate COLA each year — the Consumer Price Index for City and Office Workers, or CPI-W — has jumped 9.8% in the past 12 month.
Based on this data, the Senior League now estimates Social Security the cost of living adjustment for 2023 could be 10.5%. This would equate to a $175.10 increase in the average monthly retirement benefit of $1,668.
Admittedly, there are still several months of data to come before the announcement of the official adjustment for 2023. But even if inflation slows, a record rise is still expected for next year.
The inflation protection offered by cost-of-living adjustments isn’t the only aspect of Social Security that people are drastically behind, Nationwide found.
Only 7% of survey respondents correctly identified all of the factors that determine the maximum benefit a person can receive, including work history, age, benefit start date and marital status.