Why 80 percent of women take Social Security too early

By Brian O'Connell/MainStreet.com

The longer you wait to take your Social Security benefits at your full retirement age, the more money you'll get every month.

Those benefits make up 40 percent of all post-retirement personal income, according to the Nationwide Retirement Institute. Yet only 15 percent of us elect to wait to full retirement age to take benefits, and just 10 percent start taking Social Security after 70.

The formula depend on the year you were born, but take workers born between the years 1943 and 1954, for whom the full retirement age is 66: If they decide to take benefits at 62, they would lose 25 percent of the monthly value of their Social Security checks.

Americans born after 1960 do worse. The full retirement age is 67, and workers in that demographic who took Social Security at age 62 would lose 30 percent of their full retirement-age benefit.

All told, more than half of Americans start collecting Social Security at 62 -- and four out of five women.

The "wait to take" is especially important, given increasingly extended lifespans. Women who reach 65 are expected to live to 86, according to government tables, and 25 percent will live past 90. Men who reach 65 can expect to live to 83.

The NRI reports that women who take Social Security benefits early average a payout of $1,025 per month. But by waiting until full retirement age, that payout rises to $1,270. And if a women waits to age 70 (with at least 16 years of life expectancy left, presumably), that payout rises to $1,630.

So why are women so quick to pull the trigger on Social Security benefits, leaving such potentially big money on the table -- "hundreds of thousands of dollars," according to the institute?

NRI officials say it's a combination of misinformation and short-term financial need.

"There are many reasons women take Social Security early. Some mistakenly believe taking it earlier will result in more money over the long run, while others may have been forced into retirement early and need the money," says Shawn Britt, director of advanced consulting for Nationwide in Columbus, Ohio.

Not knowing the facts can really hurt, the NRI says.

"Many people are not aware of the different options available for taking Social Security income," Britt adds. "For example, married women might think about having their husband file and suspend, which will still allow the wife to collect spousal benefits," Britt says. "The husband will then wait to age 70 to take his. That way, if he dies, she ends up with a much higher payment as a widow."

"Too many spouses think they can't do this because they still work. That's a huge mistake, and you can't go back to correct it later and get that money back," she says.

Britt includes ill health and a misinformed fear of Social Security funds being depleted before Americans retire on the short and not so sweet list of why people take Social Security early.

The best strategy to gain maximum benefits from Social Security is to meet with a trusted financial adviser, figuring out your retirement cash needs and what role Social Security funds plays.

Other than that, in general it's best to wait things out, given good health and Social Security's solvency. That will add dollars to your bank account well into old age.