90% of Americans plan to skip the No. 1 piece of Social Security advice, study finds

A recent study by Schroders indicates that 90% of working Americans plan to claim Social Security benefits before age 70, despite financial advice recommending delayed claiming for higher monthly payments. This widespread deviation is attributed to immediate income needs stemming from insufficient personal retirement savings, concerns over Social Security's long-term solvency (with trust funds projected to be insolvent by 2034, potentially reducing benefits by 20%), and rising basic living expenses that hinder younger generations' ability to save. The trend underscores a significant retirement income gap and increased reliance on Social Security, with potential implications for consumer financial stability and future fiscal policy debates.

Analysis

A recent Schroders study reveals that 90% of working Americans intend to claim Social Security benefits before age 70, diverging significantly from expert advice to delay for higher monthly payments. Only 10% plan to wait until 70, while 44% expect to file before the full retirement age of 67. This widespread early claiming, despite 70% awareness of higher payments from delaying, suggests a critical disconnect between optimal financial planning and current economic realities for a majority of the population.

This trend is primarily driven by immediate income needs, as many retirees face a shortfall in personal savings and require Social Security income to meet expenses. The average current retiree generates $3,250 in monthly income, significantly below the $5,032 non-retired Americans believe is needed for a comfortable retirement. Furthermore, a Goldman Sachs analysis indicates three-quarters of younger Americans struggle to save due to rising basic expenses like housing.

Concerns over Social Security's long-term solvency also contribute to early claiming, with the trust funds projected to be insolvent by 2034, potentially leading to a 20% benefit reduction. This perceived risk, coupled with the fact that Social Security typically replaces only 40% of wages, highlights a growing reliance on the program amidst inadequate personal retirement savings. The collective decision to claim early could exacerbate individual financial precarity and increase pressure on future fiscal policy.

Key Decisions for Investors

• Investors should recognize the widespread early claiming of Social Security as a signal of broader financial fragility among retirees, potentially increasing reliance on other income sources or drawing down personal assets faster than planned.
• Monitor legislative developments regarding Social Security's solvency, as potential changes to benefits or taxation could impact future retirement income streams and broader consumer spending patterns.
• Given the significant gap between desired and actual retirement income, institutional investors should assess their clients' retirement planning assumptions, emphasizing the need for robust personal savings strategies beyond Social Security.