Personal Finance

Retirees miss out on $3.4 trillion by claiming Social Security too early, study says

Key Points
  • More than 70% of recipients start their benefits before age 64, although just 6.5% can actually build more long-term wealth by claiming so early.
  • Those guaranteed monthly checks account for about one-third of all income for retirees.
  • About 50% of recipients rely on Social Security for more than half of their annual income. Another third count on it for more than 90% of their income.

Retirees lose a collective $3.4 trillion in Social Security income by not waiting as long as possible to tap benefits, a new report concludes.

The study from investment firm United Income examines the long-term financial effects of the decisions surrounding when to claim Social Security. Just 4% of retirees make the generally optimal decision of waiting until age 70 — when benefits reach their maximum amount — to start getting those monthly checks.

About 57% of retirees would build more wealth if they waited until 70, compared to just 6.5% of retirees — predominantly lower-income individuals with no separate savings — who would have more wealth if they claim prior to age 64. Despite that, more than 70% of retirees tap their benefits by then, according to the study. The earliest you can claim is age 62.

Ariel Skelley | DigitalVision | Getty Images

"People should really engage in retirement planning and figure out whether they should take Social Security early or not," said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York.

The report examined data from about 2,000 households that participate in a long-running retirement survey done by the University of Michigan. To calculate when the ideal claiming years should be, United Income looked at the longevity for adults in those households, along with their spending projections.

Every year, about 65 million retirees receive Social Security. While the federal program accounts for about one-third of all income for retirees, about 50% of recipients rely on it for more than half of their annual income. Another third count on it for more than 90% of their income.

Four strategies to boost your Social Security checks
Four ways to boost your Social Security checks

Deciding when to tap Social Security benefits can be a complicated decision and depends on an individual's situation. Yet the longer you wait to start those monthly checks, the larger they will be.

In addition to considering what a bigger benefit would mean, retirees should consider their life expectancy when determining when to tap Social Security.

Those who expect to live well into their 80s or later benefit from waiting until age 70 to begin their benefits. If that's not the case, it could make sense to tap them earlier.

"The break-even age is usually around 81," Boneparth said.

Of course, many retirees simply can't afford to wait. The report notes that most retirees would lose wealth in their 60s and early 70s if they delay claiming, but would be wealthier in their late 70s and for the rest of their lives.

More from Personal Finance:
Social Security statements could be coming back to your mailbox
Here are the cities with the biggest share of 65-and-older workers
Medigap changes coming next year for future 65-year-olds

Subscribe to CNBC on YouTube.