Personal Finance

More Americans plan to tap Social Security retirement benefits early and continue working amid economic uncertainty, survey finds

Key Points
  • The Covid-19 pandemic has contributed to high inflation and economic uncertainty.
  • It has also made people second-guess their retirement plans.
  • While more people are interested in claiming Social Security benefits early, there are a few things they should know before they do.
Paul Burns | Getty Images

Claiming Social Security retirement benefits early means locking in a lower benefit amount for life.

Yet a recent survey of U.S. adults ages 26 and up by Nationwide Retirement Institute found that claiming early is exactly what many Americans are planning to do.

The survey found 42% of respondents plan on filing for Social Security benefits early while continuing to work, up from 36% who said the same in 2021.

Among baby boomers, who are not currently receiving Social Security, 26% said they plan to file for benefits early while continuing to work. Meanwhile, 39% of baby boomers who are not receiving Social Security checks plan to start before their full retirement age.

The poll, which included 1,853 adults, was conducted between April and May.

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Full retirement age is generally age 66 or 67, depending on the year in which someone was born. Yet just 13% of survey respondents correctly identified the age when they will be eligible to receive 100% of the benefits they've earned.

Claiming early does have its disadvantages.

Those who claim retirement benefits at the earliest possible age of 62 may see a benefit reduction of as much as 30%, according to the Social Security Administration.

Additionally, some of their benefits may be withheld if they work before full retirement age. The survey found 54% of respondents are aware of this reduction.

Concerns about U.S. economy a big factor

One reason more Americans may be considering claiming early is concerns about the U.S. economy, with baby boomers and Gen Xers more likely to believe the outlook is getting worse.

"Inflation at 40-year highs and certainly watching their investments fluctuate is creating a significant amount of pessimism and concern and fear that they are never going to see a dime of what they have put into Social Security," said Tina Ambrozy, senior vice president of strategic customer solutions at Nationwide.

Moreover, 70% of survey respondents worry Social Security will run out of money in their lifetimes.

The latest projections from the Social Security Administration show the program's funds will run out in 2035. Importantly, 80% of benefits will still be payable at that time.

The Covid-19 pandemic has also made Americans more pessimistic about retirement, Nationwide found, with 20% of non-retired Americans planning to delay their retirement dates versus 15% in 2021.

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Additionally, 47% of respondents said they are now re-evaluating their retirement plans due to the pandemic, up from 38% in 2021.

While many people seek guidance from their local Social Security office, a better approach is to consult a financial professional who can help identify the best strategy for your personal situation, Ambrozy said.

"Education and working with someone who can help make good choices is so important, especially in environments like this when things are up, they're down, and you don't know which way they're going to go," Ambrozy said.

Most unaware benefits are inflation-proof

High inflation prompted the largest Social Security cost-of-living adjustment in decades this year, and an even bigger bump to benefits could be on the way in 2023.

Yet it turns out most Americans — 68% — do not realize Social Security benefits are protected from inflation, according to Nationwide's survey

Since the survey was taken, prices have continued to jump, government inflation data shows.

The measurement used by the Social Security Administration to calculate the COLA each year — the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W — jumped 9.8% over the last 12 months.

Based on that data, The Senior Citizens League is now estimating the Social Security cost-of-living adjustment for 2023 could be 10.5%. That would amount to a $175.10 increase to the average monthly retirement benefit of $1,668.

To be sure, there are still several months of data to come before the official adjustment for 2023 is announced. But even if inflation cools, a record high bump is still expected for next year.

The inflation protection offered by cost-of-living adjustments is not the only aspect of Social Security people are woefully behind on, Nationwide found.

Just 7% of survey respondents correctly identified all factors that determine the maximum benefit someone can receive, including work history, age, benefit start date and marital status.