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Social Security: Bet on the future

By Jennie L. Phipps ·
Thursday, June 5, 2014
Posted: 5 pm ET

Regrets? Those who take Social Security before full retirement age have a few, according to a survey by Nationwide Insurance. The survey found that 23 percent of those who claimed early wished they had made a different choice.

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Some would like a do-over, including about 27 percent of recent retirees and 16 percent of those who have been retired for longer than 10 years.

One of the reasons for that could be the amount of money early claimers get compared to those who wait. On average, early Social Security recipients told Nationwide that they get $1,190 a month, compared to $1,506 for those who waited until full retirement age, and $1,924 for those who delayed even further. If you do the math, those who delayed past full retirement age get an average of $8,808 more a year than early claimers. That's a substantial difference.

The survey also found that about 27 percent of those who have claimed Social Security got less than they thought they were going to get. Of those with household incomes that were less than $50,000, 36 percent said they got less Social Social Security than they expected -- undoubtedly an unpleasant retirement planning shock.

Last weekend over a beer, an acquaintance argued that if he didn't take Social Security at 62, he would never be able to get his fair share. While this decision is obviously very personal and hinges on longevity, the odds are that waiting is better.

An academic viewpoint

Wade Pfau, professor of retirement income at the American College, has calculated that for a man, the real return -- meaning after inflation -- for waiting until age 70 to claim is 3.2 percent by age 84, the average life expectancy of a retiring 62-year old-male. That's an implied investment return that the male would get from the point at which he began drawing benefits until age 84. At the average life expectancy of 86 for a woman, the real return is 4 percent.

"This is quite spectacular in today's world of low bond yields," he wrote in an article for Forbes. By age 90, the real return for delaying taking Social Security to age 70 is 5.2 percent for a couple. That is a return that is unaffected by market ups and downs.

Of course, if you have a good reason to think you're going to die young -- you have a serious ailment, for instance -- it might be smarter to claim sooner. But even that decision isn't simple, especially if you are part of a married couple, Pfau points out. "For a couple, the person who qualified for the highest benefit has extra reason to delay because either surviving spouse keeps the higher benefit when the other spouse dies."

In the case of my beer-drinking acquaintance who is five years older than his wife, delaying his claim would help ensure that his spouse continues to have a liveable income after he's gone.

My friend also argues that claiming soon is important because Social Security must face reform in order remain solvent. Pfau pooh-poohs that as a concern for anyone who is 50 or older. "It takes forever to change Social Security," he says, pointing out that the last major changes were enacted in 1983 and some of those changes still haven't taken effect. "It's almost impossible to imagine that today’s current retirees are going to have any major changes in their Social Security benefits," he says.

The likelihood is that we're going to be around a long time and so will Social Security. The odds that a 62-year-old male will survive to the age 82 are about 60 percent, according to the American Academy of Actuaries. That's about five years past the Social Security break-even point, after which the extra income is all gravy. A woman's odds of living that long are about 70 percent and the odds that either spouse in a couple will live that long is about 90 percent.

For most people, betting on the future is generally the smartest move.

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July 01, 2014 at 6:30 pm

Eward, I'm pretty sure that, if both spouses work and contribute to Social Security, each is entitled to the full value of his or her benefit. Each also has the option to take half of his/her spouse's benefit if that turns out to be a better deal.

michael spano
June 08, 2014 at 7:22 pm

Your article gives sound financial reasons for waiting until age 70 to retire but it omits the value of time. I retired at age 62 and this summer will count 8 years of being free. Free to travel with my wife who is still young enough and healthy enough to enjoy it. Free to take the grandkids to the movies or the park or Disney world. Free to just sleep in in the morning after staying up late partying the night before. If I had waited til age 70 those wonderful years would have been lost. Those extra dollars at age 78 could never make up for the lost years. If I live past 78 I will still have enough money to live and lots more great memories.

Jeff Kelly
June 07, 2014 at 6:34 pm

Ted: What are you smoking? The Rep's have never said they want to shut SS down and then cut taxes for the rich. Take some time, read something other than liberal publications, get some new friends that have some common sense and THINK for yourself. Your comments are quite foolish.

June 07, 2014 at 5:58 pm

These whole SSA rules are obsolete as to the 19th Century when most women use to stay home subjugated by a men ruled world. It's very unfair that a couple who worked equally and paid equally into the SSA system only is able to benefit from one account after BOTH had paid for so many years. When a marriage of more than ten years can leave a spouse full of debts if one of the spouses die. These rules needs to be upgraded to this century accordingly. Congress shouldn't do with our money whatever they want too. I call these rules "Inequality of Civil Rights" Plus with good management the system shouln't be prone to go broke.

ted davey
June 06, 2014 at 9:54 am

The Republicans have repeadedly said they want to shut it down and cut taxes for the rich if they get elected thats it. Better get it while you can