The coronavirus is unlikely to fundamentally alter the long-term financial status of the Social Security program, according to a new study by Boston College’s Center for Retirement Research. Although this encouragingly means that the program’s potential solvency issues are likely not going to get much worse as a result of the pandemic, the existing problems have also not gone away. The good news is that these challenges are still manageable but if one assumes Congress does not act in a timely fashion and awarded benefits have to eventually be reduced, it will only increase the importance of maximizing whatever Social Security benefit remains available. Recently-retired Americans on average, though, started receiving Social Security at age 62, according to an updated report by Nationwide, basically as early as possible.
When asked why they began drawing their benefits from the government, the most frequently cited reasons by surveyed retirees included health problems, exiting the workforce sooner than intended, and an unexpected need for additional income. Regardless of the explanation, such an early retirement means that these Americans are not receiving their full-benefit from the government, and unsurprisingly more than one in five respondents said that their regular Social Security payment is “less” or “much less” than they anticipated it would be. On the bright side, surveyed future retirees on average reported that they plan to start drawing Social Security at age 65. That is much later than current retirees but would still result in a roughly 13.3 percent reduction in their monthly benefit relative to waiting until the full retirement age of 67. Among the pre-retirees that said they intend to delay when they start drawing Social Security, 71 percent said that it is because they want to receive the “largest benefit possible,” and 53 percent said that they “now better understand Social Security and the value of delaying benefits.”
Such forethought is clearly helping because the “typical” surveyed future retiree anticipates receiving a monthly benefit from the government of $1,805. That is 16.2 percent higher than what recent retirees are currently rewarded on average, and 44.5 percent more than what those who retired at least ten years ago generally receive. It also appears useful to seek professional guidance because current Social Security recipients working with a financial advisor were found to collect 17.1 percent more on average from the government than those not consulting with a professional. Ideally, though, the size of the monthly Social Security benefit should not dramatically affect a person’s ability to have a comfortable and secure retirement if the bulk of his or her old-age income is derived from alternative sources. Encouragingly, many pre-retirees reported having a wide variety of savings accounts, such as tax-advantaged 401(k) plans, and surveyed future retirees were found to be a lot less likely than current retirees to say that Social Security will be their primary source of old-age income.
Sources: CRR, Nationwide Retirement Institute