The BMO Retirement Institute has issued a report which found that many American retirees do not understand key issues surrounding Social Security and, consequently, are losing out on a significant amount of money that could be used to fund their retirement.
The report, Retirees Not Maximizing Social Security Retirement Benefits, revealed that many retirees are taking their benefits too early and are not necessarily aware of options and strategies that may result in higher benefits.
"With factors such as the volatile stock market, longer life expectancy, rising health care costs and fewer defined benefit pensions, Social Security may play an even bigger role in ensuring retirement security for the next wave of retirees," said Stephen Williams, Vice President, U.S. Financial Planning Strategy, BMO Private Bank. "It's vital that retirees do their research and seek out expert advice so they can make informed decisions to maximize their benefits. After all, they paid into the program - why not take full advantage of it"
Timing Impacts Dollars
The report noted that the decision about when to take Social Security has an impact that can last a lifetime. For example, claiming Social Security as early as age 62 means receiving a reduced dollar amount for life; meanwhile, waiting until full retirement age or beyond yields a higher amount for life. However:
The report also revealed several factors that influence when people begin taking Social Security:
Too many decisions: When to retire, how much to spend and how to invest savings all should affect when a person decides to collect Social Security benefits. However, since so many decisions take place at retirement it appears that too many options can result in confusion and paralysis, pushing many people to take Social Security early by default.
Lack of knowledge: Half of Americans (52 per cent) are not knowledgeable about general strategies to maximize Social Security benefits and 62 per cent have not actively looked for information. Sixty per cent have not discussed their Social Security decision with anyone.
Will Social Security survive: Is Social Security running out of money An overwhelming 83 per cent of Americans have concerns about its viability, yet most studies show Social Security is solvent well into the decade of 2030.
Spouses Have Rights Too
Another area where retirees struggle is how retirement affects their spouse. The report found that retirees are not fully aware of all their options:
This lack of knowledge means that many could be missing out on thousands of dollars annually, since under Social Security rules, a person can receive up to 50 per cent of a spouse's benefit and a widow can receive 100 per cent of a deceased spouse's benefit.
A Financial Plan Can Help Ensure Social Security Success
The BMO Retirement Institute encourages retirees to make Social Security benefits part of a financial plan that includes other sources of income. Benefits should be discussed with a financial professional as part of a wider strategy, just like investments. The report revealed that only 54 per cent of retirees have a financial plan, while only 42 per cent of those aged 45-54 have one. Additionally, 69 per cent of those already retired said the advice they would give to pre-retirees is to make a financial plan.
"Retirees should educate themselves on the various aspects of Social Security and get advice on what's best for their particular situation," said Williams. "And be sure to draft a financial plan that incorporates Social Security benefits along with other retirement income sources to provide a comprehensive roadmap for covering lifestyle needs, wants and wishes."
To view a copy of the full report, please visit: www.harrisbank.com/retirementinstitute
*Sources for all data and findings referenced in this release can be found in the report at www.harrisbank.com/retirementinstitute
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