Individuals are failing to maximize their Social Security retirement benefits, according to a new report.
BMO Retirement Institute, a unit of BMO Financial Group, published this finding in an October 2012 survey of boomers eligible for Social Security. BMO Retirement Institute conducts research on financial strategies for individuals planning for, or currently in, retirement.
The report reveals that 48 percent of boomers are currently collecting or planning to collect Social Security benefits before full retirement age. Yet, 91 percent understand that waiting to take benefits increases the monthly amount they’re eligible to receive.
The BMO survey observes that 52 percent of respondents are not knowledgeable about strategies for maximizing Social Security benefits. And 62 percent have not actively looked for information regarding Social Security.
Eight in 10 survey respondents cite the Social Security Administration website as their primary source of information. Only 25 percent mention a financial advisor as a source of information and guidance.
In the report’s example, individuals who receive a monthly benefit of $2,000 at age 66 would get only $1,500 per month if they were to begin receiving income at 62, the youngest age at which individuals are eligible for Social Security.
Typically, the report adds, individuals can expect a 6-7 percent per reduction in benefits by taking Social Security before full retirement age. Conversely, those who delay taking Social Security benefits until age 70 can count (in BMO’s example) on a monthly benefit of $2,640, the increased payout resulting from accrual of delayed retirement (or mortality) credits.
In BMO’s illustration, these credits accrue at 8 percent annually starting at age 66—well above current interest rates—yielding an aggregate 32 percent gain at age 70.
Individuals who wait until full retirement age can expect to receive an additional $25,000 in Social Security benefits over a life expectancy of 85 years and more than $61,000 if they were to live to age 90.
The report notes that a reduction in benefits can be especially substantial for couples. If the main breadwinner of a household claims too soon, then the spousal benefit will be 50 percent of a smaller monthly check. And the widow’s benefit would be 100 percent of the smaller check for the survivor’s lifetime.