Terry M., an 80-year-old retired nonprofit director from Portland, Oregon, believed she was making a smart move by waiting until age 75 to claim her Social Security benefits. Now, however, she finds herself facing costly mistakes that are affecting her financially in retirement.
Reflecting on her decision, Terry said, “I wish someone had told me that Social Security stops growing when you hit 70. I’ve been so confused, and now, looking back, it feels like I lost out on five years of payments for nothing!”
Her story highlights a common yet expensive error retirees make regarding the timing of their Social Security claims, resulting in significant financial losses that they often can’t recover.
Understanding the Timing Mistakes
Terry, born in 1944, dedicated 35 years to various nonprofit roles in Oregon, eventually retiring in 2014 with a salary of $120,000. Her retirement planning was straightforward, or so she thought.
“I had heard that waiting to claim Social Security could increase your benefits by 8% for each year you delay past full retirement age,” Terry explained. “I figured waiting until 75 would give me the maximum benefit. I thought I was smart!”
Unfortunately, she didn’t realize that after age 70, those retirement credits stop accumulating. For someone born in her year, the full retirement age is 66.
Based on her earnings history, at age 66, her benefits would have been around $2,380 monthly, but by age 70, that amount could have increased to approximately $3,141. Yet, by waiting until age 75 to claim her benefits, she still received just $3,141 per month.
The Common Errors Among Retirees
Terry’s situation isn’t unique. Many savvy retirees make similar miscalculations. The allure of an 8% increase for delaying benefits can often lead to misunderstandings.
“I’ve got a master’s degree and managed a million-dollar budget,” she noted. “But I didn’t take the time to understand Social Security rules. I assumed that delaying would automatically result in higher benefits.”
A range of factors influenced her misjudgment, including advice from a friend who wasn’t well-informed, confusion regarding different Social Security rules, and misplaced confidence in her other savings.
The Impact of Missed Opportunities
Terry’s error wasn’t just about lost Social Security payments. That money could have been utilized to enhance her lifestyle or invested during her healthier days.
“Those were good years,” she recalled. “I had the energy to travel and enjoy life more fully. I’m not saying I’m not enjoying life now, but I might have been more proactive.”
Not receiving Social Security income forced her to draw more heavily on other retirement accounts. “We had to take larger withdrawals from our 403(b) to cover expenses,” she admitted. “That cash could have been growing instead.”
Advice for Future Retirees
Experts in Social Security recommend that Terry would have been better off claiming her benefits at age 70 to fully maximize her delayed retirement credits.
For someone like her, the best approach might have included:
- Claim Social Security at 70: To fully benefit from the delayed retirement credits.
- Use Social Security for basic expenses: Allowing other investments to grow.
- Consider converting a Roth IRA: Since she unnecessarily delayed her Social Security benefits for five years.
Key Takeaways for Retirees
Terry’s experience serves as a cautionary tale for many retirees who may fall into similar traps.
Believing benefits grow forever: Retirement benefits cease to increase once you reach age 70.
Misunderstanding the rules: Differing regulations for survivor benefits, spouse benefits, and late retirement credits can confuse many.
Overestimating the benefits of waiting: While an 8% annual increase seems appealing, it stops at 70, meaning waiting longer may lead to fewer payments without additional benefits.
Ignoring opportunity costs: Social Security payments can be used for current expenses while allowing investments to grow.
Social Security Tips for Today’s Retirees
Terry has learned from her experience and encourages others nearing retirement to consider their health and lifestyle decisions carefully. Consulting with a professional financial planner or Social Security expert can be invaluable for ensuring informed choices.
