Retiree Households Lose $111,000 to This Social Security Misstep

A study finds 96% of retirees make this mistake when claiming Social Security benefits.

Chris Kissell • September 4, 2019

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It’s tough to depend on Social Security income to fund your retirement — and it’s even worse if you are among the millions of Americans who make one very costly mistake.

The average household loses $111,000 in potential lifetime Social Security income simply because benefits are claimed at a “suboptimal” time, according to a recent study by United Income.

The money-management company found that only 4% of retirees claim at the “financially optimal” time, meaning the point that allows them to build the most wealth overall. In other words, 96% of retirees are making the costly mistake of claiming Social Security benefits at the wrong time.

For the largest share of retirees — 57% — the optimal time to claim benefits is at age 70, the study found. But more than 70% of retirees currently claim before turning 64.

Generally, for each year that you postpone claiming your Social Security benefits — up until age 70 — your monthly benefit increases.

In its analysis of data from the University of Michigan’s Health and Retirement Study, United Income also found that:

• The average Social Security recipient would earn 9% more income in retirement if he or she waited to claim benefits until the optimal time.
• About 21% of workers at risk of being unable to afford retirement would improve their chances if they started collecting Social Security benefits at the optimal time.
• Poverty among the elderly could be cut by nearly half if all retirees claimed Social Security at the financially optimal time.

United Income notes that Social Security accounts for about one-third of all income received by retirees — $1 trillion in annual benefits.

In its analysis, United Income argues that “nearly no retirees” are making the best choice about when to claim Social Security.

To make matters worse, it is likely this trend will continue, since making better Social Security claiming decisions “means sacrificing wealth in the near-term,” the company says.

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