Why Clients Want to Claim Social Security Early, and What Advisors Can Do

What You Need to Know

There are few more reliable ways to boost retirement income than delaying Social Security payments as long as possible.
Many savers say they know claiming delays will result in higher income, but they draw early anyway, for a variety of addressable reasons.
Advisors can do a lot to prevent Social Security claiming mistakes by making income planning a frequent topic of discussion.

During a recent interview with ThinkAdvisor, Joel Schiffman, head of strategic partnerships at Schroders, dissected some of the key findings from the firm’s 2022 U.S. Retirement Study, which shows many Americans are knowingly forgoing much-needed retirement income by claiming Social Security early.

As Schiffman points out, a worker in 2022 who is eligible to receive Social Security income benefits at age 62 can increase their income substantially by waiting to claim up to age 70. The percentage increase is 5% each year up to age 64, and it steps up after the person’s 64th birthday to 6 2/3% for each year up to the full retirement age, which is 67 for someone born in 1960.

In turn, after reaching 67, the bonus steps up again to 8% a year until age 70.

According to the Schroders survey, the vast majority (86%) of non-retired survey respondents are aware they could receive higher Social Security payments by delaying the start of their benefits. However, only 11% plan to wait to age 70 to tap into Social Security.

In Schiffman’s view, it may make sense for some clients to claim early, depending on their cash flow needs and their unique family and wealth situations. However, for many people, delaying payments as long as possible makes the most sense from an overall wealth maximization perspective.

“It is encouraging to see data coming out that shows the average claiming age is ticking up, although very slowly,” Schiffman says. “Of course, as we see in our survey results, the decision to start drawing Social Security income is not always discretionary. Some people just need the money.”

However, in Schiffman’s experience, many people choose to start drawing Social Security earlier than is strictly necessary. Many simply want to get their hands on the assets as quickly as possible, even if that means lower overall lifetime payments. Others fear for the solvency of Social Security and believe that drawing early is the only way to begin receiving at least a portion of the benefits they are due.

“This is one area where financial advisors can play a big role in improving people’s claiming decisions,” Schiffman says. “Advisors can help take emotion out of the decision. People hear about the projected trust fund depletion dates and it scares them, but advisors can help them understand that Social Security isn’t just going to disappear in 2034 or 2035.”

As Schiffman points out, even if Congress does nothing ahead of that time, Social Security benefits will not just disappear. Rather, they would be reduced by between 20% and 30% for the typical retiree. In Schiffman’s view, it is highly unlikely that Congress would allow this to happen, given the tremendous popularity of the Social Security program.