Only 10 percent of Americans — and 17 percent of those at or near retirement age — plan to wait until they are 70 to take out the maximum social security benefit, according to a new survey by Schroders, the London-based asset manager with nearly $1 trillion in assets under management.
Overall, about 40 percent of non-retired respondents plan to take their Social Security benefits between the ages of 62 and 65. This would leave them short of qualifying for their full retirement benefits. The choice is deliberate.
According to the survey, about 72 percent of non-retired investors — and 95 percent of non-retired investors aged 60-65 — are aware that waiting longer earns them higher payments. The survey was conducted by 8 Acre Perspective and polled 2,000 US investors across the U.S. between February 13 to March 3. Respondents ranged in age from 27 to 79, with the median household income of respondents being $75,000.
The benefits of a financial advisor and a formal financial plan were clear: Respondents with an advisor and a financial plan made out much better than those without.
According to the survey, retirees who worked with a financial advisor had an average monthly income, including social security, of $5,075, and retirees with a formal financial plan had an average monthly income of $5,810. Retirees without a financial plan reported they only had $3,000 per month of income on average.
Many respondents cited fears about social security running out. Of those surveyed, 44 percent said they were concerned that Social Security may run out of money or that the government would stop making payments. Thirty-six percent said they will need the money and another 34 percent said it was their money and they wanted access to it as soon as possible. About 13 percent said they were advised to take it out earlier than age 70.
“We have a crisis of confidence in the Social Security system and it’s costing American workers real money,” Deb Boyden, head of U.S. defined contribution at Schroders, said in a statement. “Fear about the stability of Social Security has people walking away from money that could improve their quality of life in retirement. Many are not even waiting for their full benefit let alone the maximum, which means they will have to create more income on their own, making it even more important to save and invest earlier for retirement.”
Non-retired respondents said they would need $4,940 per month to enjoy a comfortable retirement — but 37 percent of retirees stated that their monthly income was less than $2,500. On average, current retirees said their monthly income, including Social Security, was $4,170.
According to the survey, the majority of respondents (51 percent) can replace less than half of their last paycheck. Twenty-six percent can replace 50 percent to 74 percent of their last paycheck and just 24 percent can replace 75 percent or more.
A survey by Schroders last year found that nearly 70 percent of Americans at or near retirement had less than $250,000 in savings. Despite that, 58 percent of non-retired Americans said they planned to generate income through their cash savings. Other solutions to generate income include a workplace retirement plan (53 percent), and investment income outside of the employer-provided retirement plan (40 percent).
Not having enough money for retirement is a major fear for Americans.
The majority of those who responded to the survey said they found the idea of no more regular paychecks concerning, with an additional 23 percent finding it terrifying.
Adam Scott co-founder of Argyle Capital Partners, an RIA with more than $150 million in AUM, said that conversations about whether to take out Social Security early is completely dependent on the client and investor.
“It’s not always black and white; there is a math element,” Scott said. “But if the client needs the money to meet their obligations, then they have to take it.”
Scott said that the first question is to figure out how badly the client needs the money. “If they need the money to live, then they have to take it, but if they can live relatively comfortably without taking it, then they shouldn’t take it.”
Other factors like risk tolerance, overall health issues, current saving amount, investments, and life expectancy come into the retirement conversation after the first question is satisfied, he said.