Just 10% of Non-Retired Americans Will Wait Until 70 to Take Maximum Social Security Benefits

08-08-2023
piggy-bank-income-outlook-2020

44% Fear Social Security Will Run Out

The cost of a comfortable retirement?  $4,940 per month

Vast majority with DC plan want in-plan retirement income solutions

August 8, 2023 – New York – According to the 2023 Schroders US Retirement Survey, only 10% of non-retired Americans say they will wait until 70 to receive their maximum Social Security benefit payments. 

This includes 17% of non-retired respondents on the verge of retirement (ages 60-65).

Overall, 40% of non-retired respondents plan to take their Social Security benefits between 62-65, leaving them short of qualifying for their full retirement benefits.

The choice to forgo larger Social Security payments is a deliberate one, as 72% of non-retired investors – and 95% of non-retired ages 60-65 –  are aware that waiting longer earns higher payments.

Why are so many non-retired Americans taking their Social Security benefits before age 70?

  • 44% said they were concerned Social Security may run out of money/stop making payments
  • 36% said they will need the money
  • 34% said it was their money and they wanted access to it as soon as possible
  • 13% said they were advised to take it earlier than age 70

“We have a crisis of confidence in the Social Security system and it’s costing American workers real money,” said Deb Boyden, Head of US Defined Contribution at Schroders. “Fear about the stability of Social Security has people walking away from money that could improve their quality of life in retirement. Many are not even waiting for their full benefit let alone the maximum, which means they will have to create more income on their own, making it even more important to save and invest earlier for retirement.”

Average Monthly Income: Having a Plan Pays for Retirees

When asked to forecast how much monthly income they will need to enjoy a comfortable retirement, non-retired survey participants said $4940, on average.

This includes non-retired millennials, who said $5135 per month; and those who are nearing retirement (ages 60-65) who said $4855 per month.

Retirees said that including Social Security, their total monthly income is $4170 on average, though 37% said their monthly income is less than $2500.

Having an advisor and a plan pays off: the average monthly income including Social Security for retirees with a financial advisor is $5075.

For retirees with a formal financial plan, their monthly income is $5810 on average, which is almost twice the $3000 per month of income reported by those without a financial plan.

Defined Contribution Plan Income Solution Seen as Valuable and In Demand

Among working Americans participating in a workplace retirement plan, 32% said their plan provided a retirement income solution; 39% said they didn’t know; and 29% said no.

The vast majority (82%) of those who are offered an income solution in their plan are likely to use it.

Among those who don’t know or do not have a retirement income solution in their plan, 55% said they wish they did – including 64% of those nearing retirement (ages 60-65) – while 33% were unsure, and 12% said it wasn’t necessary.

“Americans are increasingly looking to their employers for insights and solutions to their retirement income challenges,” Ms. Boyden said. “While this has been a topic of conversation for some time, we believe we are entering a phase of accelerated adoption among plan sponsors for solutions to meet these challenges, with products that provide lifetime income, while addressing sequence of return risk with principal protection, and giving investors the flexibility to take the income when they want or need it.”

No More Paycheck Is Terrifying; Income Replacement Is Low

The idea of no more regular paychecks in retirement is not only concerning to 57% of non-retired American, but terrifying for another 23%.

They also have low final paycheck income replacement expectations: Only 23% believe they will need to replace 75% or more of their final paycheck with other sources of income in retirement. Thirty-two percent said between 50-74%; 23% said they needed to replace less than 50%;  and 22% had no idea.

For retirees, the majority (51%) are able to replace less than 50% of their last paycheck; 26% are able to replace 50-74%; and 24% can replace 75% or more.

How will non-retired Americans generate income in retirement? Aside from Social Security, they expect to also use:

  • Cash savings (58%)
  • Workplace retirement plan (53%)
  • Investment income outside of employer provided retirement plan (40%)
  • Defined benefit/pension plan (20%)
  • Rental income  (14%)
  • Annuities (10%)
  • Cash value of life insurance (10%)
  • Reverse mortgage (4%)

Retirees use a variety of specific strategies to turn their savings into income including:

  • Systematic withdrawals from retirement accounts (33%)
  • Dividend producing stocks or mutual funds (24%)
  • Annuities (13%)
  • Individual bonds or bond mutual funds (12%)
  • CDs (12%)

However, almost half (49%) said they don’t have any retirement income strategies, they just take money when they need it.

About the Survey

The Schroders 2023 US Retirement Survey was conducted by 8 Acre Perspective among 2,000 US investors nationwide ages 27-79, including respondents between ages 27-44 for the first time. The survey was conducted from February 13 to March 3 in 2023. The median household income for working Americans surveyed was $75,000.

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