A regrettable decision

Tom Foster

By Tom Foster
E. Thomas Foster Jr. is head of strategic relationships for retirement plans for MassMutual.
Posted on Aug 2, 2019

What do retirees most regret? For many people, it’s taking Social Security earlier than their full retirement age.

Three out of 10 retirees report filing for Social Security benefits at age 62 or younger, according to the 2019 MassMutual Social Security Pulse Check commissioned in collaboration with AgeFriendly.com.1 Of those, 38 percent regret their decision, wishing they had filed later.

The regret comes with a sizable price tag. MassMutual calculates that a married couple who live into their early 90’s could relinquish more than a half million dollars in retirement income over their combined lives – or as much as $2,000-4,000 per month – by filing for Social Security retirement benefits at age 62 instead of age 70. Furthermore, a surviving spouse could receive $1,000-2,000 per month less for life as a result of filing at age 62.

Understandably, some people simply cannot avoid filing early. More than half (53 percent) who took benefits early did so out of financial necessity, according to the MassMutual study with AgeFriendly.com. Those reasons included lack of retirement savings, health issues or employment changes.

The lesson for financial advisors and their clients, including those who are participants in retirement savings plans through their employer, may be to hope for the best while preparing for the worst. Often, people cannot control when they retire so preparing financially to do so at an early age may help reduce the sting or provide more options if someone wants to continue working.

Those preparations can include strategies to maximize savings, working longer if possible, or even continuing to work while retired. Doing so may help retirees put off taking Social Security and take advantage of Social Security benefit increases until age 70.

Postponing Social Security at age 62 or later can boost future payments by 8 percent for every year the income is deferred until age 70, the Social Security Administration reports .2 Few investment strategies net such a return, never mind one with a guarantee.

Savings Strategies

  • Maximize deferrals . Workers who have access to a 401(k) or other defined contribution plan can save up to $19,000 annually. Even over a short time, those savings can quickly add up, especially with positive investment returns.
  • Use the catch-up provision . Pre-retirees -- those who are age 50 or older -- can save an additional $6,000 annually in a defined contribution plan for a total of $25,000.
  • Take advantage of any employer match . While not all employers match employee contributions, many do. If a retirement plan participant cannot afford to contribute the maximum or close to it, he or she should consider saving enough to secure the available maximum in matching contributions.
  • Save pre-tax . Contributing pre-tax dollars to a 401(k) or similar plan can reduce the saver’s taxable income. Doing so can help free up additional dollars for savings in another vehicle such as an IRA, mutual fund, annuity or other financial vehicle.

Work Strategies

  • Work longer . Many workers have already come to the conclusion that they will need to work longer. The good news is that many boomers may be in demand, especially those with hard-to-replace skills.
  • Work in retirement . More than one-third of people who retired within the past five years say that employment is a current source of income, according to MassMutual’s 2014 Hopes, Fears and Reality Study about retirement (study not available online). While the number of people who worked in retirement declines with age, one in five of those who retired 10-15 years ago say they continue to work.3

Social Security retirement benefits are a cornerstone of many people’s retirement income. Advisors can help ensure retirement savers don’t regret a decision to take benefits earlier than their full retirement age by providing options and choices.

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1 MassMutual, “New study finds many filed for Social Security retirement benefits out of necessity – but they wish they had filed later,” May 14, 2019.

2 Social Security Administration, “Delayed Retirement.”

GAO, “Retirement Savings: Additional Data and Analysis Could Provide Insight into Early Withdrawals.”

The information provided herein is not written or intended as specific tax, investment or legal advice. MassMutual, its subsidiaries, employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.