Baby Boomers have experienced a great shift in the retirement landscape since their parents retired decades ago. From the demise of company pensions to the shift toward 401k plans to exponentially higher medical care costs, retirement ‘ain’t what it used to be.’ As a result, the need for Americans to educate themselves is great. There are a variety of retirement related concerns that could cost Baby Boomers greatly if they do not take the time to do so.
In my personal experience, there are many subjects that people are commonly misinformed about concerning retirement. By far, however, they are the most unsure about social security, how to begin and when. It’s not as straight forward as many people think.
You’re likely wondering, “So what’s the big misunderstanding?”
A recent poll by CNBC revealed that there are two areas that Americans most commonly get wrong about social security. The study polled 1,312 people who were 50 and older and here is what they learned:
1. Americans did not know their full retirement age.
Based on the people they polled, close to 70% of the individuals erroneously identified the age they’d be eligible for full social security benefits. Participants conveyed that they believed they’d reach full benefit age at 63. Of course, this is a big misunderstanding.
The Reality: The original Social Security Act of 1935 set the minimum age for receiving full retirement benefits to 65. Under current law, the full benefit age has been increased several times to account for American’s increasing life expectancy. That said, Baby Boomers who were born between 1943 and 1954 are not eligible for full retirement age benefits until their 66th birthday – and this number only incrementally increases from there. Baby Boomers turning 62 this year will not reach full retirement age until 66 and 6 months. Anyone born after 1960 will need to wait to age 67 to reach full retirement benefits.
Why Wait? Americans can begin claiming social security retirement benefits as early as 62. Over the years some people I’ve talked with have seen no reason to wait until full retirement age. Many fear if they wait social security will no longer be there for them. While I can relate to their concern, I always caution people that taking social security at 62 is basically agreeing to a 25-30% pay cut. That’s a big chunk of money to agree to leave on the table.
I’m rarely a fan of procrastination, but when it comes to social security it pays to delay. The biggest “winners” are those who put off claiming until age 70. They receive a 76% higher annual payout than those who start receiving benefits at 62. I understand that this might be highly unrealistic, but it’s worth noting.
With changes in the law, it’s understandable that Baby Boomers might not know their correct full retirement age and the significant advantage of waiting to claim this benefit. For me, the most concerning part of this study was the second big misunderstanding that polled participants expressed.
2. According to the study, participants falsely believed that if they took early social security their benefits would eventually increase to full retirement at their full retirement age.
An alarming 26% of the polled participants believed this to be true. This is an unfortunate misunderstanding and an indicator of how critical it is that Baby Boomers educate themselves about the facts.
The Reality: Once a retiree flips the switch to receive social security that is the benefit they are agreeing to for the rest of their life (besides small cost of living increases). Decisions made regarding social security are permanent. The only way to receive the full social security retirement benefit you’re entitled to is to wait until your full retirement age.
Some areas in life leave no margin for error. Social security is one of them. Failing to make the right decisions will cost you permanently. Sit down with someone who can help ensure that you make the right decision for you. Strategizing 5-10 years before you reach this part of your life could make a world a difference for your golden years.
Tom Kalejta is an author of “Building Wealth, Protecting Dreams” and a financial advisor. He is intrigued by how Baby Boomers are changing retirement trends and lifestyles in the 21st century. He believes in inspiring his readers by talking less about money and more about reinvented possibilities — particularly when things don’t go as planned. He can be reached by emailing [email protected].