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Social Security News

Lack of Social Security Awareness Could Be Costing Retirees Thousands of Dollars

Half collecting or planning to collect benefit before full retirement age; more than half not knowledgeable about maximizing benefits; 83% concerned about program

Oct. 31, 2012 – Many older retired Americans do not understand key issues surrounding Social Security, says the BMO Retirement Institute. Consequently, they are losing out on a significant amount of money that could be used to fund their retirement.

The report, Retirees Not Maximizing Social Security Retirement Benefits, revealed that many retirees are taking their benefits too early and are not necessarily aware of options and strategies that may result in higher benefits. Many others, too, have pointed out it is a mistake for many seniors to take the early retirement benefit offered by Social Security.

 

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"With factors such as the volatile stock market, longer life expectancy, rising health care costs and fewer defined benefit pensions, Social Security may play an even bigger role in ensuring retirement security for the next wave of retirees," said Stephen Williams, Vice President, U.S. Financial Planning Strategy, BMO Private Bank.

"It's vital that retirees do their research and seek out expert advice so they can make informed decisions to maximize their benefits. After all, they paid into the program – why not take full advantage of it?"

Timing Impacts Dollars

The report noted that the decision about when to take Social Security has an impact that can last a lifetime. For example, claiming Social Security as early as age 62 means receiving a reduced dollar amount for life; meanwhile, waiting until full retirement age or beyond yields a higher amount for life. However:

   ● While 91 percent of respondents understood that waiting longer increases the monthly amount they will receive, almost half admitted they are currently collecting or planning to collect before full retirement age.

   ● Couples are particularly vulnerable since a claim impacts both for their combined lifespan and can significantly affect spousal and widow benefits.

Influencing Factors

The report also revealed several factors that influence when people begin taking Social Security:

   ● Too many decisions: When to retire, how much to spend and how to invest savings all should affect when a person decides to collect Social Security benefits. However, since so many decisions take place at retirement it appears that too many options can result in confusion and paralysis, pushing many people to take Social Security early by default.

   ● Lack of knowledge: Half of Americans (52 percent) are not knowledgeable about general strategies to maximize Social Security benefits and 62 percent have not actively looked for information. Sixty percent have not discussed their Social Security decision with anyone.

   ● Will Social Security survive?: Is Social Security running out of money? An overwhelming 83 percent of Americans have concerns about its viability, yet most studies show Social Security is solvent well into the decade of 2030.

Spouses Have Rights Too

Another area where retirees struggle is how retirement affects their spouse. The report found that retirees are not fully aware of all their options:

   ● Almost half (49 percent) of respondents admit they are not knowledgeable about spousal benefits.

   ● Fifty-six percent are uninformed about widow benefits.

This lack of knowledge means that many could be missing out on thousands of dollars annually, since under Social Security rules, a person can receive up to 50 percent of a spouse's benefit and a widow can receive 100 percent of a deceased spouse's benefit.

A Financial Plan Can Help Ensure Social Security Success

The BMO Retirement Institute encourages retirees to make Social Security benefits part of a financial plan that includes other sources of income. Benefits should be discussed with a financial professional as part of a wider strategy, just like investments.

The report revealed that only 54 percent of retirees have a financial plan, while only 42 percent of those aged 45-54 have one. Additionally, 69 percent of those already retired said the advice they would give to pre-retirees is to make a financial plan.

"Retirees should educate themselves on the various aspects of Social Security and get advice on what's best for their particular situation," said Williams. "And be sure to draft a financial plan that incorporates Social Security benefits along with other retirement income sources to provide a comprehensive roadmap for covering lifestyle needs, wants and wishes."

>> To view a copy of the full report, click here.  

>> Sources for all data and findings referenced in this release can be found in the report.

>> BMO and BMO Financial Group are trade names used by Bank of Montreal. Estate planning requires legal assistance which Bank of Montreal and its affiliates do not provide. Please consult with your legal advisor.

>> About the BMO Retirement Institute
The BMO Retirement Institute, a part of BMO Financial Group, was established in 2008 to provide thought-provoking insight and financial strategies for individuals planning for, or currently in, their retirement years.

 

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