What would you say if I suggested that you have a portion of your retirement income in the form of an AA+-rated, government-backed, lifetime annuity with an annual cost-of-living adjustment? It sounds pretty good, doesn’t it? It should. If you bought this annuity from an investment company it would easily cost $329,000 of investment principal or more for every $1,500/month of distributions over your lifetime.
The annuity described above is approximately the Social Security retirement income benefit that most American workers have. Specifically, the average Social Security recipient in 2023, receives about $1,700 before taxes and Medicare premiums. It’s a great retirement income tool. And, if you wait to age 70 you will receive the maximum possible benefit. As long as you live to about age 81, you will get more retirement benefits by starting payments at age 70 than by starting at an earlier age.
In spite of these facts, a recent 2023 Schroders US Retirement Survey, showed that only 10% of non-retired Americans say they will wait until 70 to receive their maximum Social Security benefit payments.
Even worse, 40% of non-retired respondents plan to take Social Security between 62 and 65, thus locking in a permanently reduced benefit.
The choice to forgo larger Social Security payments is a deliberate one, as 72% of non-retired investors—and 95% of non-retired ages 60–65—are aware that waiting longer earns higher payments.
Why are so many non-retired Americans taking their Social Security benefits before age 70?
- 44% said they were concerned Social Security may run out of money/stop making payments
- 36% said they would need the money
- 34% said it was their money and they wanted access to it as soon as possible
- 13% said they were advised to take it earlier than age 70
It doesn’t help that the Center for a Responsible Federal Budget just published an article, Retirees Face a $17,400 Cut if Social Security Isn’t Saved, quantifying the loss for the typical, newly retired dual-income couple if benefits are cut by 23% in 2033.
A few things to note:
- Most Americans will live A LOT longer than they think.
- Social Security estimates that the AVERAGE American male aged 60 today can expect to live past 83. The mathematical average indicates that many more will live longer.
- The Social Security estimates that the AVERAGE American female aged 60 today can expect to live past 86.
- Most Americans fail to appreciate how much the cost of living will increase over a 25-year retirement. A cost-of-living increase is incredibly helpful.
- The US Congress does not want to risk making enemies of all people aged 55 and up in this country. They WILL patch the Social Security program before any required cuts in 2033.
- When Ronald Reagan updated Social Security in the 1980s, he pushed back the age when you could get benefits, for those who were 20 years old at the time, among other adjustments.
- Today, it would be sensible to consider at least two adjustments that could easily fix the Social Security shortfall we face.
- Today, any earnings over $160,200 are NOT taxed for Social Security. Removing this ceiling could plug the hole alone.
- Today, workers can get full Social Security benefits at age 67, up from the original age of 62. It would be sensible to push this age back, given the increasing lifespan of younger Americans.
Remember, that if you are thinking about taking Social Security early to avoid the possible cut in benefits in 2033, you should consider this mathematical fact: If you claim at age 62, you guarantee a reduction in your lifetime benefits of about 30%. For the typical retired couple, this amounts to about $22,700 less in benefits EACH YEAR.
If it sounds like choosing life insurance could be confusing, you are right. I think you would benefit from a visit with an experienced, highly-trained, CERTIFIED FINANCIAL PLANNER™ professional and Behavioral Financial Advisor to help better understand your options. I love to meet new people. So, follow this LINK to find a time for us to have a get-acquainted visit.
I am a financial planner who is an advocate for my clients ALL THE TIME – a fiduciary financial planner. I provide guidance based on clients’ best interests, not commissions or sales quotas. I think it’s the best way to serve clients and I am thrilled to work this way all the time.
And yes, I’m still taking on a few great families to be part of my financial planning practice.
Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.