BOSTON— What a difference a decade makes—including, it seems, when it comes to Social Security. According to the latest Fidelity Investments® Social Security IQ Survey, today's pre-retirees (ages 55-61) are far less inclined to begin taking Social Security benefits at 62, the first year Americans become eligible to apply—a marked contrast to when the survey was last conducted in 2008. This year, only 28 percent of those aged 61 are planning to claim Social Security benefits as early as possible, which represents a significant decline from 2008, when nearly half (45 percent) of those surveyed were planning to start collecting immediately. One thing hasn't changed, however: the need for a greater understanding around the basics. In fact, when asked to state how much their expected Social Security payments would be, only 14 percent of pre-retirees knew how much and nearly twice as many (26 percent) had no idea.
"Deciding when to start taking your Social Security benefits is one of the most important retirement planning decisions we face," said Ken Hevert, senior vice president of Retirement at Fidelity Investments. "Social Security-related decisions can be complex, with a number of trade-offs associated with the various payment strategies. This decision can be challenging and may be dependent upon several factors, including one's financial situation, health and lifestyle considerations and the needs of your immediate family. However, with some basic guidance and a sound retirement plan in place, it's much easier to make an informed decision and get the most out of your benefits."
Today's Pre-retirees Plan to Wait Longer
While the decrease in 61-year-olds planning to claim Social Security early is the most dramatic shift from 2008, in general many more pre-retirees (ages 55-61) these days intend to wait longer before collecting, enabling them to increase their benefits payments in retirement. In fact, if you can afford to wait until your full retirement age,1 your monthly Social Security income may increase by as much as 30 percent.2 In 2008, 27 percent of 55-61 year olds indicated they would collect Social Security as soon as they became eligible; this time around, only 21 percent felt the same. The average age most people plan to collect is 67, with seven percent opting to wait until age 70.
There are a few possible reasons for this shift in attitude, with an improving economic environment being one of the biggest contributing factors. Nine years ago, more than half (53 percent) of 61-year-old respondents described themselves as unemployed, which perhaps made claiming Social Security benefits an attractive way to make ends meet. In contrast, the number of 61-year-olds describing themselves as unemployed now has dropped to 41 percent. In addition, twice as many pre-retirees (21 percent now, 10 percent in 2008) felt that delaying benefits offers a better return than simply claiming Social Security as soon as possible and investing.
How individuals plan to use their Social Security income in retirement has remained unchanged since 2008. These days, over three-quarters (79 percent) of pre-retirees plan to rely on their benefits to make ends meet and use the funds to pay for basic living expenses such as food, utility costs and mortgages, the same percentage as in 2008.
Social Security Myths and Misconceptions
The findings also reveal that while nearly seven out of 10 (67 percent) pre-retirees claim to be confident they understand the rules of Social Security, many possessed knowledge gaps about the basics that could result in costly misunderstandings when the day comes to retire. Among the most significant:
- There are no do-overs, unless you're willing to voluntarily stop your benefits.3 Thirty-eight percent of pre-retirees thought it was possible to change one's Social Security claiming strategy throughout retirement—in other words, to claim early at 62 and then, when reaching 66 or older, have payments increased to the amount corresponding to full retirement age benefits. In fact, there is generally no income "bumping" once one has claimed Social Security retirement benefits.
- You need to give advance notice. Sixty-five percent did not know you need to apply for Social Security no earlier than four months before you want to receive your first benefit (and three months if you want your first benefit at 62)—including nine percent that incorrectly believe the Social Security Administration (SSA) will contact them when it is time to receive benefits. While you might be able to receive benefits sooner than 3-4 months after filing, Fidelity suggests avoiding a potential income gap by filing as early as possible. This is especially true if you have a special circumstance, such as an agreed-upon retirement date with an employer that cannot be changed.
- It's all about the FRA. Only 26 percent actually knew their full retirement age (FRA). This is a concern because one's Social Security benefits are calculated based on FRA, which is determined by the year you were born. Fortunately, your FRA is easy to find: simply visit the Social Security website.
- Your ex is entitled. Fifty percent thought their Social Security benefits could be reduced if an ex-husband/wife made a claim. The fact is, the calculation of benefits does not change: those who were married for 10 consecutive years and haven't remarried are entitled to either their own benefits or 50 percent of the former spouse's benefits, whichever is higher—once FRA is reached. Best of all, there's no need to discuss this with an ex-spouse and the claim does not reduce or affect your ex's benefits in any way.
"Since most of us can expect to spend 20 years or more in retirement, it's imperative to maximize your guaranteed income streams during these years so you can enjoy the fruits of your labor and live comfortably," said Hevert. "We were encouraged that more people seem to be making this decision more thoughtfully than in years past—not simply as a result of economic necessity. Even so, there are clearly additional ways to make certain you've made the best decisions possible for your specific situation."
Fidelity Introduces New Social Security Benefits Calculator
To help people better understand their Social Security claiming options and how they can impact income in retirement, Fidelity has introduced a Social Security benefits calculator, available at fidelity.com/SSCalculator. After answering five simple questions, the calculator provides a ballpark estimate of projected monthly and lifetime benefits across different claiming ages.
In addition to the information found on the Social Security website about one's benefits and eligibility, Fidelity offers a variety of resources to learn more about Social Security and retirement income:
- Educational Fidelity Viewpoints® articles, including "Should you take Social Security at 62?" "Five Social Security myths debunked," "Social Security Tips for Couples," "Social Security Tips for Singles" and a Retirement Roadmap Special Edition devoted exclusively to retirement planning.
- Seminars and online learning modules to help learn about key retirement issues and how to prepare for them, including a comprehensive webcast where industry leaders provide answers to essential questions you need to know, located at www.Fidelity.com/SocialSecurityAnswers.
- Fidelity customers can also use Fidelity's online Planning & Guidance Center, either online or with the help of a Fidelity investment professional, to dive deeper into retirement preparedness and learn more about how Social Security factors into their overall retirement plan. Within the center, customers can create or view their retirement plan, identify specific steps to improve their readiness, model outcomes and make adjustments to the plan, when needed, to help ensure they stay on track with achieving goals.
- A Fidelity study guide on "Debunking Social Security Myths" that can help you brush up on your Social Security knowledge.
About the Survey
The Fidelity Investments® Social Security Survey is an online survey conducted among a sample of 521 respondents ages 55-61 who are not on permanent disability, which was completed October 18-25, 2016. Data were collected by ORC, Inc., which is not affiliated with Fidelity Investments. The results of this survey may not be representative of all adults meeting the same criteria as those surveyed.
About Fidelity Investments
Fidelity's mission is to inspire better futures and deliver better outcomes for the customers and businesses we serve. With assets under administration of $6.0 trillion, including managed assets of $2.2 trillion as of March 31, 2017, we focus on meeting the unique needs of a diverse set of customers: helping more than 26 million people invest their own life savings, 23,000 businesses manage employee benefit programs, as well as providing more than 12,500 financial advisory firms with investment and technology solutions to invest their own clients' money. Privately held for 70 years, Fidelity employs 45,000 associates who are focused on the long-term success of our customers. For more information about Fidelity Investments, visit https://www.fidelity.com/about.