AARP Hearing Center
When — and how — to take Social Security is arguably the most important financial decision people make in their lives. The lifetime benefits a 65-year-old couple with one average and one low wage earner typically receive total about $1.1 million — but depending on timing, they could be hundreds of thousands more, or less. Complicating matters are the scores of variations in how and when to claim. Do people make mistakes? You bet. But with the right information, you can avoid them. Here, with help from Social Security experts Laurence Kotlikoff, professor of economics at Boston University, and Marcia Mantell, author of Cookin’ Up Your Retirement Plan, are seven biggies.
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1. Not understanding how benefits grow
By far the biggest mistake made is claiming too early. You can start benefits at age 62 but for every year you wait between 62 and 70, you get a bump in benefits of about 5 percent to 8 percent. That’s a guaranteed return that’s very tough to replicate any other way. Now, of course you should claim if you need the money to live on — or if you have a health reason to believe you won’t live especially long. Sometimes couples are also better off if one files while the other waits (more on that below). But in general, waiting can be very, very profitable.
2. Claiming early out of fears about the Social Security program
The latest report from the Congressional Budget Office says the Social Security trust fund will start to run short, if Congress does nothing to correct it, in 2033. But, notes Mantell, this doesn’t mean that no benefits will be paid. There are “four buckets” in the Social Security trust fund, she explains, and only one (the “reserve account”) is in danger of running dry. Should that happen, the country would still be able to pay about 80 percent of its Social Security obligations. Plus, she says, the likelihood that the government would let that happen is incredibly small. In her opinion, the matter hasn’t reached urgency yet. “In 1982, the reserve account went dry and only [then] did Congress bother to do anything,” says Mantell. “That’s the nature of the political machine.”