It is said that no one on their death bed ever wished they had worked just a little longer. The same may not be said for U.S. retirees, however. Among average earners, Social Security payments are likely to make up more than half of their retirement income. The odds seem pretty good that more than a few of them wish they had worked a little longer – or at least waited longer before claiming their Social Security benefits.
Maturity and Social Security
As a financial planner, I spend much of my time talking with people about their concerns regarding retirement. One of my favorite questions to ask is, “At what age do you plan to claim your Social Security retirement benefit?” More often than not, they tell me, “As soon as I can get it,” which is age 62 (unless you are a widow or widower, then it can be as early as 60). While earlier may not always be better, they have plenty of company. As many as 57% of recent retirees chose to claim this benefit prior to full retirement age, locking themselves into a lifetime of 25%-30% smaller Social Security payments.
Claiming Social Security early may turn out to be one of your biggest regrets in retirement.
A recent study conducted by the National Bureau of Economic Research concluded that early Social Security claims are linked to increased likelihood of living in poverty in one’s old age. Why do so many people willingly limit themselves to a smaller Social Security payment, when they could be receiving so much more by waiting a few more years to claim? Oddly, only about 4% of retirees delay collecting Social Security beyond their full retirement age.
Why people retire when they do
The reality is people retire and claim Social Security retirement benefits for a variety of reasons. A combination of individual circumstances, knowledge, economic conditions, and even personal emotions influence our decisions about retirement. While some factors are largely uncontrollable, two of them – knowledge and emotion – are well within our ability to master.
Employers downsize, family members require care, or our own declining health forces us to leave behind the world of work, company benefits, and steady paychecks. Not having sufficient emergency savings or a backup plan for retirement would be regrettable when these unforeseen events happen.
What they regret
Our personal economics also can drive retirement decisions. Waiting too late to contribute to a retirement plan can lead us to regret working longer than we expected. Hoping our health holds out long enough to catch up (and really regretting things if our health falters), or carrying large amounts of debt for many years can drag down our ability to save and invest, leading to more retirement regret.
The combination of what we do or don’t know about retirement can shape our decisions. For example, everyone “knows” the typical retirement age is 65, right (or is it 62)? Not so fast. The Social Security retirement age for full unreduced benefits has changed. Depending upon your birth year, it may be as late as 67. Accordingly, the age at which you claim Social Security can make a significant difference in your retirement lifestyle.
Getting in touch with your emotions
As you might imagine, emotions (positive and negative) also play a role in making regret-free retirement decisions. For example, the mere fact that Social Security is available at age 62 (though reduced by 25%-30%) can influence how we feel about working at that point. Work may suddenly seem optional – we now have a guaranteed way to receive money without working, which appears to encourage earlier retirement.
As with most major decisions, though, letting our emotions be our primary retirement guide can lead to more regrets later. What if I do live to be 95 years old, like the folks at Livingto100.com recently suggested? Do I want to be stuck with the smallest possible Social Security check for 30 years?
The emotional or “affective behavior” aspect of retirement decisions has and continues to be of great interest to me; so much so that I made it the subject of my doctoral dissertation regarding the influence of emotional states upon Social Security retirement decisions. My own research concluded that a combination of both emotion and education can have a measurable effect upon when people choose to make important retirement decisions.
What you can do to make the best decision for yourself
Fortunately, among the many factors that influence retirement, our knowledge and our emotions are two conditions over which we also have some individual levels of control. Among the many retirees whom I’ve counseled and guided over the years, those who eased most successfully into retirement:
- Made time to be as informed as possible, reading up on their own, consulting with trusted financial professionals, or utilizing their financial wellness benefits at work. They sought knowledge.
- Tuned into their emotions. I’m not going to get all touchy-feely, but it is critical to recognize when our feelings begin to overshadow our logic and lead us down decisional paths that may not be in our best long-term interest.
The American Psychological Association encourages people to consider their psychological portfolios along with their financial portfolios when preparing for retirement. My financial planner colleague, Doug Spencer, also recently wrote about ways to be mentally prepared for retirement which includes even more tips on how to fill your retirement with more memories and fewer regrets.