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Waiting for the Dough

Written by Jeffrey Steele - 6 Comments

Waiting for the Dough

If you’re in your 40s, 50s or 60s, and thinking ahead to how you’ll fund the later years of your life, let me lay out a plan for you to make some serious cash. How much cash? Well, let’s just say it’s quite a bit more than you might imagine.

As they get older, Americans look forward to earning the Social Security benefits they’ve worked so long and hard to achieve. Because the notion of reaping that stream of checks for the rest of their lives seems so tempting, many decide to take those benefits at 62, the earliest possible moment they’re eligible to grab them. Most know they’ll make more money if they wait until their full retirement age of 66, or the oldest age at which they can begin taking their Social Security benefits, 70.

But they don’t know how much more.

For proof of the level of misunderstanding about this issue, try this test on your older friends and relatives. Ask them this question: “How much more, on a percentage basis, will you make in monthly Social Security benefits if you delay starting those benefits eight years, and take them at 70 instead of 62?”

Most people guess somewhere between 20 and 25 percent, says Steven Sass, associate director for the Center for Retirement Research at Boston College. In fact, the correct answer is at least 76 percent.

And because Social Security benefits are calculated on the basis of the average of the highest-earning 35 years of work, if the years of work you log after age 62 provide your biggest paychecks, it could be noticeably more.

Common fallacies

A lot of the people who begin taking their Social Security benefits at their 62nd birthday or soon thereafter not only don’t know how much more they will make by waiting until 70, but are mired in the grip of several other fallacies as well.

First, they assume they won’t live that long, so they might as well grab what’s due them as early as possible. But guessing they won’t live long has been the precursor to poverty for many who lived longer than they ever expected.

Consider a couple in average health as they approach the decision on Social Security. These days, chances are that at least one member of that couple will live to be 89, Sass says. “If they’re in good health, the odds are greater than 50-50 that at least one of them will be around at that age,” he explains.

The second misconception for most is the idea they should strategize to gain the most money possible from Social Security. That is not the right way to approach the issue, Sass says. The real issue is how much retirement income do you need, and where can you get it? For most, especially the long-lived among us, Social Security will provide more than half that income.

“Pensions lose value due to inflation, and savings can dwindle,” Sass says. “Social Security tends to become a larger share of what you have over time.”

Yet another fallacy clouding the minds of those approaching their years of Social Security is that their choices won’t affect their spouse. Wrong again. It’s highly recommended that the higher-earning half of a couple, which often is the husband, delay claiming Social Security as long as possible. That’s because after one member of a couple dies, the surviving spouse can change his or her benefits to that of the deceased spouse. If a higher-earning husband anticipates passing away sooner than his wife, it’s in both his and his wife’s best interests to wait as long as possible to claim Social Security.

Doing so will not only let him claim higher benefits for the rest of his life, but permit his wife to enjoy the higher stream of income through her final few golden years.

Ridiculous non-readiness

We’ve established these startling facts are not well understood by most people. But given the fact that Social Security is likely to be a crucial component in the livelihoods of many people, shouldn’t we at least expect folks to be getting up to speed in general on Social Security as they approach retirement?

Sorry, no can do. That’s too much to ask. This is, after all, America, home of the brave and land of the freedom from responsibility to be financial fit.

According to a Transamerica Center for Retirement Studies’ survey titled “Redefining Retirement: The New ‘Retirement Readiness,’” only about one in four of those respondents in their 60s know “a great deal” about Social Security. And that figure drops to 13 percent among those in their 50s. Speaking of a drop, it’s jaw-dropping to learn that of the very people who expect to rely on Social Security in retirement, only about one in six report they have “a great deal” of understanding.

If you’re among those whose knowledge could be increased, do yourself a favor and start reading up on Social Security, starting at www.aarp.org/socialsecuritybenefits. At that site, you can access a calculator that among other things will help you grasp how much of you monthly expenses Social Security will cover.

Learning more about what one expert calls “the only lifetime stream of income most retirees will ever have” can help you start ensuring Social Security actually provides security.

Published on September 4th, 2012
Modified on September 18th, 2012 - 6 Comments
Filed under: Retirement

About the author: is an independent writer in Chicago who has written over 2,000 articles appearing in publications such as Barron's, Boston Globe, Chicago Sun-Times, LA Times, and more.

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6 Responses to “Waiting for the Dough”

  1. 1
    Susan Says:

    I see what you mean about living in poverty because you outlived your expectations or your family longevity, but honest-to-God, why not bank a substantial portion of that income you take out at age 62. I can hold onto my money as easily as the federal government does and possibly much better. I’d rather cash in on what is available to me as soon as possible so that I can save it and then leave it to my kids. Better those that I love receive it than people who don’t know me nor care.

  2. 2
    valleycat1 Says:

    The other detail people overlook is that by waiting longer to retire, they’ll still be working & bringing in the income until they do retire. It isn’t solely about how much bigger your social security check will be. You could ‘try on’ earlier retirement by setting aside the difference between your actual take-home pay and your retirement benefit & see how comfortable you are able to live on the retirement benefit amount.

  3. 3
    Penny Says:

    The social security calculators are really cool. I wish I could be guaranteed that when I retire in 40 years….I think as it stands I will (inflation or no inflation) pay in more than I will receive back, though.

  4. 4
    Lance @ Money Life and More Says:

    I’m in my twenties and plan to not rely on SS at all. I do however know some about SS but I don’t have an expert knowledge of it. I have a feeling it’ll change before I reach retirement so I think my understanding is good enough for now.

  5. 5
    Tahoe Joe Says:

    Have to disagree on the Social Security advice. Can’t speak for everyone but I have run a spreadsheet on my specific situation. Using a five percent interest rate ( I earned over six last year in a balanced portfolio in a low interest rate enviroment) and a present Worth analysis, my break even for taking SS at 66 rather than 62 is 87 years old and at 70 it is 90 years old. I did not even take tax implications into account. If you have a sizable IRA and delay taking distributions until 70.5, a portion of your SS will start being taxed at that point whereas if you take SS early, you can avoid that portion being taxed for as much as 8 years. So, yes if you want to gamble that you will make it to 87 or older and that SS will actually still be there in its present form, you may make some extra money. I am not willing to take that gamble.

  6. 6
    Jay Says:

    So much talk about delaying Social Security until age 70. Talk about working until full Social Security … How about considering that people worked for 40+ years and WANT to enjoy their life at a young age while they are still healthy and able to! Why do all the financial planners and guru’s assume that people will even live to age 70??!!
    I worked for a very large consumer products company for most of my career. I worked hard, and long hours, with lots of stress. I planned fo my retirement. I lived under my means and saved, saved, saved. By age 57 I couldn’t stand working anymore, and I retired at age 60. I just turned 62 and took my Social Security. So, if people plan their finances and follow the plan, there is no need to wait until 66 or 70!!!! Go when you can, and take Social Security when it becomes available. Who cares if the check is more at age 66 or 70?!

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