Perhaps the most important retirement planning decisions Americans can make beyond when to retire is deciding when to claim Social Security benefits. Financial literacy regarding Social Security becomes imperative for Americans who want to ensure that they claim the maximum amount of benefits to which they are entitled.
For Defined Contribution plan participants that is not a problem. All—100 percent—surveyed by Spectrem Group profess to “very knowledgeable” about the most appropriate age to begin taking Social Security. But are they? At what age do working plan participants intend to start taking Social Security? Were their decisions most likely to optimize their benefits? Did they discuss their decisions with a financial advisor?
We surveyed about 100 Defined Contribution plan participants over the age of 55. The highest percentages anticipate that Social Security will provide 25 percent-49 percent of their monthly retirement income (26 percent) or 50 percent to 74 percent of their monthly retirement income (24 percent).
When do plan participants anticipate they will begin taking their Social Security benefits? Just 7 percent said they would take benefits as early as possible at age 62, and only 21 percent said they intended to wait until they were 70 to take their benefits.
Our survey finds further that the largest percentage (42 percent) of DC plan participants with plan balances of less than $100,000 intend to take their Social Security benefits at the official retirement age of 66. Those with plan a plan balance of $100,000 and up were most likely to say they intended to start taking Social Security at age 70 or older.
Tellingly, when plan participants were asked if they had discussed the best age to begin taking Social Security with an advisor, nearly eight-in-10 plan overall said they had not. Participants with plan balances of more than $100,000 were more likely than their cohorts with lower plan balances to report they had discussed this topic with an advisor (23 percent vs. 14 percent).
Top Takeaways for Advisors and Providers
· Between standard questions about when is the best age to take Social Security, individuals may have concerns about the solvency of the system and what the next president’s policy toward Social Security will be. Financial advisors need to be up-to-date with changes to Social Security rules and be able to address concerns with a full understanding of the law.
· Advisors need to be able to recommend to plan participants what is best based on the participants’ particular financial situation. Advisors need to review the plan participant’s financial plan to ensure they are on track and help ensure they will not have to take benefits too early.
· In discussing when to take Social Security benefits with married clients, advisors need to include the spouse. Are both working? Just one? They will have questions or be seeking clarifications about what one or both spouse’s may be eligible for in relation to retirement benefits..
*According to Spectrem research, there are currently 29.8 million households with $100,000 - $1 million in net worth (not including primary residence, NIPR). There are 9.1 Millionaire households ($1 million - $5 million net worth, NIPR), 1.21 million Ultra High Net Worth households ($5 million - $25 million net worth, NIPR) and 145,000 households with more than $25 million in net worth, NIPR. 