Social Security serves as a fundamental income source for the majority of older Americans. Despite its pivotal role in providing financial stability for retirees and its strong support across political parties—a rare occurrence for any institution today—a recent study by AARP reveals that many individuals remain remarkably uninformed about the inner workings of the agency’s retirement program.
This comprehensive study, released in conjunction with the 90th anniversary of Social Security, highlights that while these retirement benefits are highly valued, the understanding of how to effectively maximize these benefits is alarmingly low. AARP discovered that an impressive 96% of those surveyed acknowledged the importance of Social Security, with three-quarters categorizing it as “very important.” This reflects a notable increase of approximately 10 percentage points since AARP began tracking this sentiment two decades ago.
While it is expected that nearly all respondents aged 50 and above would recognize the significance of the program, it is noteworthy that even among the younger demographic of 18- to 49-year-olds, support levels exceeded 90%. This broad consensus indicates a widespread recognition of the role that Social Security plays in the financial landscape of Americans.
Understanding the Potential Financial Risks of Inadequate Knowledge
Approximately two-thirds of retired respondents indicated that they “rely substantially” on Social Security payments for their financial needs, a significant increase from around half who reported the same in 2005. Given the critical role these benefits play in the financial well-being of older Americans, it is surprising that a considerable percentage of individuals lack a comprehensive understanding of how the program operates.
Only 40% of respondents were aware that most individuals can begin receiving benefits at the age of 62, which is a startling revelation. Even more concerning is the fact that just 24% understood that delaying benefits until the age of 70 could result in substantially higher monthly payments. Knowledge surrounding spousal benefits is also limited; for instance, only 44% of survey participants knew that they could claim Social Security based on an ex-spouse’s work record, provided they were married for a minimum of 10 years prior to divorce.
The most significant factor impacting the amount of your Social Security payment in retirement is the total earnings of you or your spouse throughout your career. The second most influential element is the age at which you begin to claim benefits. Failing to understand how to maximize your Social Security benefits can drastically affect your financial situation during retirement.
The Financial Advantages of Delaying Your Social Security Claims
Individuals typically have the option to start claiming their Social Security retirement benefits at age 62. However, it is often advisable to postpone this decision if possible. This is due to the fact that for each month you delay claiming until you reach your “full retirement age”—which is 67 for those born in 1960 or later—the agency reduces your full benefit amount by a fraction of a percentage point. Although this adjustment of less than 1% may seem minimal, it can accumulate significantly over time. If you begin claiming at age 62 instead of 67, this 60-month difference could result in a reduction of up to 30% of your expected benefit amount.
Upon reaching your full retirement age, you face another crucial decision: whether to continue waiting before claiming benefits. If you choose to wait, you can benefit from what are known as delayed retirement credits. Every year after reaching 67 that you delay filing increases your benefits by 8%, totaling up to 24% if you wait until 70, which is the maximum age to earn these credits.
However, there is a trade-off to consider when delaying until age 70, as it involves forgoing income during this time. Additionally, there is the inherent risk that you may not live long enough to make the delay financially beneficial. Yet, if you are in good health, have a family history of longevity, and can afford to wait, this strategy could yield substantial benefits.
The Social Security Administration provides a calculator and various tools to assist you in making this decision. Generally, AARP estimates that it takes a little over a decade to reach a breakeven point; thus, if you postpone benefits until age 70, you would likely reach this breakeven point between ages 80 and 81.
Of course, many individuals may not have the luxury of waiting if they are compelled to retire early due to health complications or job loss. However, those who have the financial means to delay claiming benefits can secure higher payments for the duration of their lives—and potentially beyond. For married individuals who earned significantly more throughout their careers than their spouses, postponing benefits can have additional advantages. If you pass away, the benefits you accrued through delayed payments can continue to provide financial support for your spouse, as these credits are factored into the calculations for surviving spouses.
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