It’s an unfortunate fact that many Americans sorely lack retirement savings.
An estimated 20% of workers aged 50 and over have $0 saved for their senior years, AARP found last year. And even among savers, retirement plan balances aren’t so impressive.
💸💰Don’t miss the move: Subscribe to TheStreet’s free daily newsletter💸💰
The Federal Reserve’s most recent data set points to $200,000 as the median retirement savings balance among Americans aged 65 to 74. Because of this, many retirees inevitably end up extremely reliant on Social Security once they decide to stop working.
Related: Suze Orman drops new surprising words on Social Security, retirement
Of course, that’s a problem by itself. Social Security will replace about 40% of the typical worker’s pre-retirement wages. Reading between the lines, retiring on those benefits alone results in a 60% pay cut.
Seniors typically see their living expenses drop in retirement — but not by 60%. A good rule of thumb is to expect to need at least 70% replacement income.
Social Security can help seniors get there, provided they save something and don’t file for benefits at the wrong time. But it just so happens that the most popular age to sign up for Social Security is 62. And financial guru Suze Orman thinks that’s a problem for some people.
Suze Orman warns retirees about Social Security.
Shutterstock
Suze Orman has important Social Security advice
Suze Orman, the famed personal financial author and media personality, knows that a good number of Americans are nearing or entering retirement with inadequate savings. Because of this, she likes to caution people against claiming Social Security at 62.
The reason 62 is such a popular filing age is that it’s the earliest age seniors can take benefits. But, as Orman warns, “the benefit you receive at 62 will be permanently lower than if you wait.”
Related: Dave Ramsey has blunt words on a Social Security, 401(k) problem
Orman continues, “Every month past age 62 you don’t claim your benefit entitles you to a slightly larger payout when you do start collecting your benefit. Over time, those small incremental increases add up.”
What those contemplating an early Social Security claim need to understand is that failing to wait until full retirement age (which is 67 for everyone born in 1960 or later) results in permanently reduced benefits. Waiting, on the other hand, guarantees larger paychecks for life.
There’s also the option to delay Social Security past full retirement age for boosted benefits. And while that incentive runs out at age 70, it could result in healthier monthly checks for seniors who need the money.
As Orman explains, “If you wait all the way until you turn 70, your benefit will be 76% higher than if you start at age 62.” That’s a huge difference.
Orman says this group of filers should wait on Social Security
Orman thinks all seniors should think carefully before claiming Social Security early, especially given the number of people who lack retirement savings. And even those with savings should be cautious about an early claim.
An investment portfolio, even if managed wisely, is never guaranteed to last. The chances of savings running out can be mitigated by implementing a careful withdrawal strategy. But even then, there are no guarantees.
Related: Tony Robbins warns U.S. workers on Social Security, retirement fact
Social Security, on the other hand, guarantees seniors their monthly benefits for life. So locking in larger benefits commonly makes sense for people who think their lifespans will be fairly long.
To this end, Orman cautions women in particular to be mindful of when they sign up for Social Security.
More on Suze Orman
Suze Orman has blunt words on Social Security for retired AmericansFinance author delivers advice on delaying Social Security benefitsSuze Orman explains how everyone can tame a big money fear now
“A woman who makes it to age 65 in average health has a 50% probability of still being alive at age 88,” she says. “That’s an argument for waiting if you expect to rely on Social Security for a lot of your retirement income.”
Of course, that brings up an important point. Not all retirees end up dependent on Social Security for income. For those who save well, Social Security can serve as bonus money, which makes an early filing less problematic.
But anyone who expects to get the bulk of their retirement income from Social Security should listen to Orman’s advice carefully — and reconsider an early filing unless there’s no other choice.
Related: Veteran fund manager unveils eye-popping S&P 500 forecast
