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Too Many Boomers Leave Money on the Social Security Table

Category: Financial and taxes in retirement

June 19, 2011 — Imagine for a moment that you just purchased an annuity at age 62 and a half. If you decide to start taking payments on it today, you can. But if are willing to wait 7 and 1/2 years, you could increase your monthly payments by at least 75%, maybe more. Which option would you take?

From our headline you have probably guessed we are talking about social security, which at its most basic is an annuity – a guaranteed payment for as long as you and/or your spouse lives. It is clearly one of the best annuities available. You and your employer paid for it. And the money is virtually guaranteed (unless you believe the world will end soon).

Our opening question was the thesis of a recent “Sunday Money” column by Richard H. Thaler in the New York Times, “Getting the Most out of Social Security“. Thaler makes the case that far too many retirees grab their social security benefit at the earliest opportunity (usually 62 or slightly later), and thus pass up a really good benefit down the road. Indeed, he reports, 46% of current retirees start taking their benefits at 62, their first eligible year. Less than 5% wait past age 66 (called somewhat cryptically the Full (normal) retirement age, leaving a tiny fraction who wait until their maximum retirement age at age 70.

Because your social security benefit goes up every year until you start claiming it (until age 70), many experts including Thaler believe that waiting is better. Hence the at least 75% more claim; that’s how much extra you will get for waiting from 62 to 70. It is “at least 75%” because if you continue working and paying into the system, your benefit could possibly go up even more. Sure you will have foregone the income on the lower benefit for 8 years. However, if you live past 78, you will be ahead (for the record: if you make it to age 65 your life expectancy is 82 for a male and 85 for a woman).

Concerns for widows
Boston College’s Financial Security Project raised a related social security concern for widows in its “Squared Away” Blog. The Project makes the point that many surviving spouses do not understand how to get the maximum benefit they are eligible for, and often make a poor choice. According to Stephen Richardson, spokesman for the Social Security Administration, “There are eight or nine options for retirees, spouses, and widows”. In one scenario a husband and wife are both 62 and eligible for social security. The husband dies that year, and before he starts collecting his benefit. Now the wife has several complex options, including: she can take his survivor benefit, take her own benefit, or delay. She could take one of their benefits and then switch at the maximum retirement age. The right answer depends on their situation, particularly, which mate will get the largest benefit at maximum retirement age (which could change if the surviving spouse continues to work).

And back to the annuities vs. stocks question
Also in the Sunday Money column, Thaler talks about annuities. He subscribes to the theory we reported on last week in our “Stuff for Baby Boomers” article, notably that baby boomers are too much invested in stocks and not enough in annuities. In his opinion, more annuities in boomer portfolios would greatly reduce risk, provide stability, and simplify life. Having made the point in previous columns, Thaler reported on several reasons given to him by baby boomers on why they do not invest more in annuities. Those mostly have to do with understanding and trusting the product/provider (they are complicated products and it is hard to know if they are a good deal), inflation protection (most are not), and stability (will the annuity provider be around in 20 years.

For further reference
When Should You Start Taking Your Social Security Benefits? (Topretirements article)
From the Social Security Administration: When to Start Taking Your Benefits

Comments. What are your strategies for claiming your social security benefits? If you already made your choice, are you happy with it? Let us know in the Comments section below. However please note, all political comments will be removed. Please forward those to your congress person.

Posted by John Brady on July 19th, 2011


  1. Hmm, another article advising people to wait. As to the calculations one must make as to whether to start SS benes ‘early’, there’s an overlaying mistrust of the system I think that induces people to start at their earliest eligibility. I think it’s the unfortunate negative propaganda we hear incessently. Also some people,especially in this deep recession, need the money. Thirdly, we’ve been all admonished since childhood that the “bird-in-hand” is the superior choice.

    by Cary Mebach — July 20, 2011

  2. Cary,

    None of us know your specific situation, and a LOT depends upon that. I am 63 and married to a 54-year-old great lady, who has been my wife and life’s partner for 36 years. My SS will be larger that her’s. I do have health insurance from work; however, if/when I die, her coverage will end (unlike my son’s wife since he is career military). Also, if I hold off until age 70, she will be able to choose whether to keep her SS payments or take mine if I die first. There are sooooo many things to consider … right at the time in all of our lives when we all probably just want to live and enjoy this precious thing called life … now that we have had years to realize just how miraculous it is. I too see the polls that say that “Babyboomers **WANT** to work forever” … well, all I know is that they sure as hell haven’t polled me! Sure, some have jobs they love (or need for personal fullfilment); however, for many of us, continued employment in these “golden years” is a NECESSITY! And, an uncertain future (inflation, jobs, housing, etc.) make some of us very cautious … knowing that we may need all of those extra $s (from SS or whatever source) later for assisted living, etc.!

    P.S. I apoligize for sounding cynical … but I guess I am … and becoming more so. We had several friends over for a campfire cookout and general get together for a friend who would be leaving soon to relocate to Costa Rica. She will be joing a growing expat community there and in various other foreign locations (elewhere in Central and S. America, parts of Italy and France that are still fairly inexpensive, Eastern Europe, Thailand, Philippines, Vietnam, and others). They also are making difficult and very personal choices, but can often find it possible to live outside our country for much less. Please … I do NOT mean to start a war of patriotism. These people seem to be making their choice for many other reasons … foremost being that they can live on much less for a suitable quality of life … even with the sometimes painful compromises (family being a big one) they must make.

    by Mad Monk — July 20, 2011

  3. Mad Monk,
    Thanks for your thoughts.
    Unfortunately my earlier spiel was heavily edited by our friend(s) at TopRetirements.
    It had to do with the notion that SS payments are/were established as a ‘trust fund’, the Congress spoiled the fund, and no one dares offer any critical advice to veterans who take a pension at 20 years + 1 day vs waiting for ‘enhanced payments’ at 25, 30 or even 40 yrs service.
    I (& my employers) started contributions to SS fund in 1961 and am only seeking what should be ours as American workers.
    Thanks for your thoughts.

    by Cary Mebach — July 20, 2011

  4. The Sad Reality is that a lot of Baby Boomers are just trying to hang on to make it to 62 in their present position. Outsourcing and Government regulations making that Oh so profitable to so called US Corporations to do so have destroyed a lot of peoples retirement plans. Along with the 2008 crashes that cost BB billions in retirement. I have not been faced with Age Discrimination yet, but I am a DBA in the Mainframe world and we are dissapearing from the work force by the thousands. Given that IT does not have a realistic sucession plan for us, I expect to pick up consulting assignments in Retirement.

    by Tom — July 20, 2011

  5. I like the bird in hand quote. I too will take the money I paid in and run. It seems like a lot of smoke and mirrors coming out of good old Washington. The days of sitting back and hiring a Representative are over. We are getting all our politicians from the parole office. Have to keep an eye on them. Now that we are keeping an eye on them they have legalized and convoluted the language of the bills so we can’t understand them. Kind of like the Catholic church and the Latin language. If you control the language you control everything. They are tricky snakes so all I can say is “Take the money and run.”

    by NoMoreMrNiceGuy — July 20, 2011

  6. If we all knew how much time we had left – this would be a much easier decision!
    Until medical science can answer that question – I guess we put it inline our other assets (spend those first) and when we get to needing it – we file for it.
    As long as I can pay my bills with what I have saved so far, I will hold off and use term life insurance as a way to replace tat money for my heirs and commitments.

    by Paul — July 20, 2011

  7. Here we go again with the experts telling us to wait to collect what we’ve earned, and nudging us towards annuities. No doubt there are many who can afford to wait until 66 or later to collect Social Security, but the recession, plummeting home values, and lost jobs has put many in the position of having little or no choice.

    I’ve researched annuities and don’t find them too complicated to understand at all. However, the administration costs on most are quite high for what one gets in return.

    As for social security, I took it early because those funds are needed now, and there is no way around it … and I know I have lots of company.

    by Kate — July 20, 2011

  8. I’ll take SS the day I quit working. I might not live beyond that. If I don’t need the SS to make ends meet, I’ll invest it.

    by JMP — July 20, 2011

  9. Need to be careful with the math. Yes, delaying until 70 increases the payments but as stated: one must live past 79 to ‘break even’. However, this assumes no COLA. If COLA is 3% each year (the average), then the break even point moves to 84. Further, if you can wait, one could take the funds at 62 and invest it. Assuming a 4% return on the funds pushes the break even point back even more.

    by Tom — July 20, 2011

  10. I am in total agreement with NoMoreMrNiceGuy; “Take The Money And Run”. I retired during April 2011 at age 64 after 44 years in the workforce. I am in perfect health, and I still start my day at 5:00 AM (every day) walking, jogging, lifting weights and sometimes riding my bicycle. While all these physical activities are good; none of it is a guarantee that many of us will live long enough to collect SS let alone live until we are age 80+. My suggestion for future retirees is to plan on making lifestyle adjustments (mostly scaling back on expenses) during retirement, and apply for social security as soon as you become eligible. Do not leave a dime on the table for our representatives in Washington that keep telling us that they are speaking for the American public. As one respondent indicated earlier “no one poled me”. If you die before retirement or even early on in retirement and you leave that money on the table; your representatives in Washington will love you for it. Of course they might send your survivor benefit ($250.00) to your beneficiary.

    by Eversly — July 20, 2011

  11. Just to visit the other side of the coin…I too am 64 and plan to continue to work as long as I can up to age 70. Fortunately I am in a business that will continue to employe me…gladly. I can choose to cut back on the total number of hours I work and slip into retirement slowly. My services will continue to be in demand. Since I am divorced, and was married for 10 years, I can claim 1/2 of my spouse’s ss benefit until the age of 70 when I can claim my own benefit. This becomes available to me at age 66. Seems a pity not to claim it. The ss agent I spoke with described it as my vested benefit. I look at it as the pension I can recieve for staying at home to raise children when they were very young. I plan to get as much as I possibly can from ss. And since I just buried my mother at age 90, I will probably need every penny!
    I learned about this benefit through a local life-long learning class offered by a couple of financial planners. I bet this kind of class is available in many communities. It was worth the time and the small fee for materials.
    Whatever your situation, BECOME INFORMED ABOUT YOUR OPTIONS. The truely sad situation is to decide on early retirement without knowing all the oprions because there are no more “do-overs”!

    by LuluM — July 20, 2011

  12. 🙄

    Most people who live to/beyond their age group life expectantcy numbers will withdraw more than they and their employers paid in. 😈 Thanks, for the money, kids/graA

    by Zorro's Heir — July 21, 2011

  13. Interesting to read all the coments that have been left. I can see both sides of this issue, however, the people who are still working should be aware that they may not receive their full benefit anyway if they exceed the maximum earnings scale. Yes, they’ll get it all back later when they stop working, but it will be based on their benefit at 62 or whenever they signed up, rather than the date they stop working. If they had just continued to work and waited to collect when they stopped working or at least age 66, their benefit would be greater. Now, if someone is already out of work or has health issues, it may make sense for them to take the SS & run. Everyone’s situation is different and that’s why it’s so important people do their homework before making a decision.

    I am 65 and my spouse is 63. We are both lucky to have thus far survived the economic downturn with jobs intact and our health is good. But we have calculated that we must pay off our house before we retire. When I turn 66, I plan to apply for SS but keep working. That extra income will speed up the house payoff. When my husband turns 66, he’ll claim a spousal benefit from me. That extra income will be used to build our emergency fund until I finally retire at 68 1/2 or 69. With my SS, the spousal benefit, some PT income and a pension he gets from previous employer, we should be able to get by until he turns 70, at which time he’ll switch over to his own SS benefit. We’ll gain $600+ COLA for the remainder of our lives by doing this.

    LuLum is right – people need to be aware of their options and all the ways they can optimize their benefits within the system.

    Reference annuities – I generally dislike most of what I’ve seen. However the indexed annuities are definitely a product to research and examine. They can offer a lot of plusses with very few (if any) negatives. Again – know what your options are. As someone said below – there are no more do-overs.

    by Genie — July 21, 2011

  14. I took SS at 62 because I don’t trust the ability of government to manage money. It has been interesting. 8 years ago the advice was always to take SS as soon as possible. Now they tell you to hold off. Why the change? Hmmmmmmmmmm

    by Susan — July 23, 2011

  15. […] further reference: Too many baby boomers leave money on the social security table From the SSA: When Should You Start Receiving Retirement Benefits When to Start Receiving […]

    by » Ten Things About Social Security You Need to Know Topretirements — October 17, 2011

  16. Easily, the Too Many Boomers Leave Money on the Social Security Table blog post is really the greatest on this topic. I concur with your conclusions and will look forward to your future updates.

    by Ranger Financial Richardson, TX — February 23, 2012

  17. […] Talk with your financial advisor – before you rush off and sign up at age 62!  See “Too Many Boomers Leave Money on the Social Security Table“.  Note: There are folks who worry that Social Security will run out of money.  We’ll […]

    by » Can You Afford to Retire? And What to Do if You Don’t Like the Answer Topretirements — March 13, 2012

  18. […] Your Social Security Benefits 10 Things You Need to Know Before You Start Taking Social Security Too Many Boomers Leave Money on the Social Security Table Social Security Administration: Social Security Benefits […]

    by » What You Think You Know about Social Security Could Hurt You – Part 1 Topretirements — April 26, 2012

  19. Regarding when to take ss I’m taking mind at 62 even though I don’t need it. I plan on investing some and paying my mortgage off. When looking at the whole picture this makes most sense to me. It would take me to age 78 just to break even. If you consider the additional money I will earn on my ss investments it would take me into my eighties to break even!

    by Skip — November 1, 2013

  20. How much information regarding these options can be obtained through a visit to the Social Security Administration office? Has anyone tried this? I have accessed my annual report, which is quite helpful, but of course, decision making when you have a spouse becomes far more complicated.

    by Lynn — November 2, 2013

  21. Skip makes a good point, However in my situation, it made more sense for me to delay, since I have a 401k and a pension that I’m building up also, it should increases my income significantly. By drawing s/s at 62 I would be paying a penalty for working. And the argument is: where can I get 8% return (guaranteed)on my money? Everyone’s situation is different. One strategy for maximizing benefits is to file and suspend.(not for me tho) A good book out there is “Social Security for Dummies”. It can be purchased from Amazon.

    by Mark P — November 2, 2013

  22. And don’t forget about taxes when it comes to SS. From a free Motley Fool report available here:

    “Under current law, Social Security benefits are sometimes subject to tax. The IRS looks at your total taxable income and then adds in half of your Social Security benefits. For every $1 by which that figure exceeds $25,000 for single filers or $32,000 for joint filers, another $0.50 of your benefits gets added to your taxable income. Once the figure exceeds $34,000 for singles or $44,000 for joint filers, the amount added to your income jumps to $0.85 per $1.

    Sometimes, waiting to take Social Security will open up opportunities for smart tax planning. For instance, many retirees take taxable IRA withdrawals to pay living expenses. If you front-load those withdrawals while waiting until later to take Social Security, then you might avoid paying any taxes on the higher benefits you receive in the future, if by then your taxable income has shrunk from having spent down most of your taxable IRA assets.”

    This can work particularly well by converting your conventional IRAs to Roth IRAs which are not taxed or subject to RMDs by owner or spouse. By taking the time when you have lower income due to retirement, you can convert these accounts with a lower tax bill, and draw on them to supplement your SS without fear of losing it to taxes. Many retirees are surprised by the tax bill they get when RMDs kick in and they are forced to take out more than they need. While having more than you need is a nice position to be in, giving more of that to the IRS is not when thinking ahead could limit your government contribution.

    The report above is very readable.

    by Julie — November 3, 2013

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