The Senate Special Committee on Aging held a hearing yesterday on Maximizing Your Social Security Benefits: What You Need to Know. A group of wealthy Senators were wondering why everyone doesn't wait until age 70 to claim their Social Security retirement benefits. Since there's a delayed retirement credit to encourage people to wait, the Senators figure it must be lack of information keeping people from waiting. There definitely is a lack of information. It's a longstanding frustration for me that most people think that Social Security is simple. No, it isn't. No program that pays benefits in many different categories to tens of millions of people could possibly be simple. Even when you try to tell people about the rules that affect them personally, their eyes start glazing over almost immediately. However, the real reason that people claim benefits earlier than some wealthy people think they should is economic necessity. Most people aren't wealthy like these Senators. They don't have the resources to survive more than a few months after retirement without Social Security.
Not that it matters to many people but the math on the delayed retirement credit isn't as wonderful as it's cracked up to be. You get 8% more a year for each year that you delay taking Social Security benefits but that's not compounded and it has to be stacked against the facts that you don't get paid Social Security for the years you waited and that you may die before any theoretical breakeven point or even before drawing Social Security retirement benefits at all. Even if you survive long enough, is it irrational to want to take the money when you're still young enough to be able to do something with it? Life is short. Eating dessert first may not always be a bad idea.
dessert*
ReplyDeleteOur financial advisor says, "Take it now." The breakeven point is so far in the future that it is silly to wait.
ReplyDeleteHow far in the future? I have heard this often that an individual whose (for example) full retirement age is 66, taking retirement at 62,63, 64, 65 would break even at age 75. Realize there are many variables, but what does your financial advisor say about this?
ReplyDeleteAlso, wonder if any SSA wonks out there can suggest a good website for us boomers who are eligible. Not SSA.GOV.
These clowns in the Senate, LIVE ON MARS.
ReplyDeletewith the recent advent of CRISPR i think you should wait till 70 every time unless you are a poor member of the lower class that cant afford genetic modification
ReplyDeleteActuarily, when you take the benefits is a pretty close call. Waiting is a bet that you will live past the break-even point. Taking the benefits early is a bet that you won't. But, betting on waiting and being wrong really costs an individual nothing since, they're DEAD.
ReplyDeleteI know their family loses the benefit of the money they would have received and possibly accumulated, but for large majority of people, saving the money you get from Social Security just does't happen.
Ultimately, the only real point that matters is whether or not you need the money to live the life you want. If you don't, then wait. If you do, then there really is no choice at all.
Not to mention the people who are disabled but who are past their DLI or cant wait three years to have an ALJ hearing and the district office tells them its much easier to just take their early retirement. No waiting at all.
ReplyDeleteI intend to wait until 70. For me, one important purpose of Social Security is to provide some financial security if I live longer than my life expectancy. By waiting, I maximize the amount of guaranteed, inflation adjusted income I'll have that will last until I die. Having that security allows me to spend most of my retirement savings between when I retire and age 70. So by putting off Social Security, I'm not putting off dessert - I can buy dessert with my own money because I know that the rest of the meal is already paid for.
ReplyDeleteFormer CR here: Breakeven point is typically about age 78 -- and if you count the interest earned by allowing savings/IRAs to sit untouched, closer to age 80. So, by waiting, you are betting you'll live longer than that.
ReplyDeleteThe only real advantage to waiting is for a couple where, say, the husband has significantly higher benefit on his work record than the wife has, on her own work record -- and, the wife expects to outlive the husband. In that scenario, for the husband to delay taking social security will mean a higher check that benefits the wife (when she becomes a widow) because widow's benefits are usually the same as what the husband was drawing prior to death.
A8:46, since social security cannot be passed to your heirs (survivors benefits are only paid to certain categories, by statute) and savings/IRAs can be, that's a strike against spending your own funds while you await age 70. Also consider the tax implications: each state taxes social security differently, but many don't tax it at all. Federal taxes are only on up 85% of the social security received, taxed at regular rate. Traditional IRAs are taxed at 100%. And Federal taxes can favor waiting to withdraw from IRAs: if you wait until you must take RMDs from your IRAs (year you attain age 70 1/2), you can designate all/part to go to a charity directly & then it doesn't count as income to you for taxation purposes, at all.
Charles is right, it's not simple.
Sadly, if you want workers to delay retirement, the best way may be to push back the eligibility date for Medicare since most people can't afford to retire if they don't have health insurance. When to choose to collect Social Security benefits is definitely an individual choice based upon a person's perceived circumstances. Many people may make the wrong choice but often the choice they make is a conscious choice. Funny thing about the Republicans is that they have a constant drumbeat that Social Security is going to be insolvent in the future and they they complain when people take the money now rather than in the future.
ReplyDeleteFor most people, taking SS at full retirement age (currently 66) is the best answer. Those advocating for waiting, in some cases, are those wanting to save the government money! If you think you'll live until 90 and don't need the money... then maybe, at 70. If you still have a mortgage, take the money at 66 and pay your house off earlier!
ReplyDeleteSince most people make more earnings in their final years than their early years, it increases their benefits to wait until 70 as more of their good years will outweigh their bad years.
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