For most Americans, deciding when to claim Social Security retirement benefits will be one of the biggest financial decisions they ever make.
But the difference between the right or wrong decision can be costly.
The typical beneficiary age 65 and up relies on Social Security for half of their income.
But if a worker claims before their full retirement age — typically age 66 or 67, depending on the year in which they were born — their benefits will be permanently reduced.
"The earlier the claim, the steeper the penalty," said Shai Akabas, director of economic policy at the Bipartisan Policy Center, which recently released a new research paper on the topic.
Waiting to claim benefits beyond age 62, the earliest possible age when a worker can claim retirement benefits, pays off. If you wait until the full retirement age of 67, you will receive more than 40% more per month than you would at 62, Akabas said. Delay claiming until age 70 and you will receive more than 75% more per month.
Real life factors, such as job losses or declining health, can limit someone's ability to delay their benefits.
But there are also common misconceptions that may prompt retirees to make an early claiming decision, experts said during a Tuesday webcast hosted by the Bipartisan Policy Center.
Myth: Benefit cuts for older workers are imminent
The economic downturn prompted by the Covid-19 pandemic has not spared Social Security.
The program could run out of funds sooner than had been predicted, according to recent estimates — as soon, in fact, as 2028 or 2032. Notably, the system will still be able to pay benefits when that happens, though they will likely be reduced.
Many prospective retirees might be tempted to start drawing their monthly checks early, for fear that the money could go away.
But people on the brink of retirement should not necessarily be worried, said Sita Slavov, a professor at the George Mason University Schar School of Policy and Government.
"I personally don't think this is a significant risk for people nearing retirement because Social Security reform proposals generally don't cut the benefits of people nearing retirement," Slavov said.
Myth: When I stop working, I have to claim benefits
The date when you stop working and the date you start claiming benefits do not have to coincide.
Yet many people falsely believe they are related, said Jason Fichtner, fellow at the Bipartisan Policy Center and former principal deputy commissioner at the Social Security Administration.
It is possible to continue working at 62 and not claim benefits, Fichtner said. Or you can stop working and not take benefits.
"There are a variety of options you can do," Fichtner said. "But just because you decide to stop working does not mean you have to automatically claim Social Security retirement benefits."
Your decision to start benefits should be based on your personal situation. If you have an illness or other reason to believe you will not live long, it may make sense to start receiving the money early, Fichtner said.
But the longer you wait, the higher your surviving spouse's benefits will also be, if they claim based on your record. The extra money will also help with health or long-term care costs as far as 20 years from now, he said.
"You can always go to Social Security tomorrow," Fichtner said. "You can go next week or you can go next year.
"When you need it, take it," he added. "But you should hold off until you do."
Myth: I should claim based on my break-even date
One key measure people often reference in connection with Social Security retirement benefits is the break-even date.
It's a way to estimate how much you would be paid in total if you either take reduced benefits early or enhanced benefits later.
At this point, Social Security field offices have done away with using break-even calculations when giving claiming guidance, Fichtner said. People who were told at 62 that they would be ahead for the next 14 years might have felt encouraged to start receiving their monthly checks early, he said.
"That made it sound like it was a gain for them," Fichtner said. "We never told them that if you live then past 76, you'll be behind for the rest of your life."
If you wait from 62 to 70, the difference in your benefit amount can be up to 76%, he said.