are very high. Life expectancy may be higher if you have a good education, if you make a nice living, if you’re closely connected to your friends and family, and if you’re careful about keeping in shape.
The possibility of living a very long life can be a big factor when you’re deciding when to start Social Security. You could live a lot longer than you expect. That means your price tag for retirement will keep going up, while financial resources may dwindle. How much will the cost of living be 20 or more years down the road? What about doctors’ bills or long-term care needs? How long can you realistically expect your savings to last? The bigger Social Security payment you get by delaying benefits until you’re 70 could come in very handy in those later years.
Here’s some food for thought: A man who turned 65 in 2015 can expect to live about another 17.9 years. A woman who turned 65 in 2015 can anticipate another 20.5 years. At age 75, he can expect another 11.2 years, and she can expect another 13. If that man and woman make it to 85, each is projected to live past their 90th birthday. Among today’s 65-year-olds, one in three will make it past 90. Almost one in ten will reach 95.
To illustrate, I present Eager Edgar and Steady Betty, two pre-retirees who are thinking about the next phase of their lives in very different ways. Both are 61 and have had virtually identical earnings in their careers.
Eager Edgar dreams of retiring from his job as a warehouse manager and trekking through the wilderness while he still has the energy. His parents died young, and he views early retirement as his last sure chance to really live. He has a couple hundred thousand dollars in an individual retirement account (IRA), and his rent is modest. The month after he turns 62, Edgar collects his first Social Security payment of $1,600.
Steady Betty sees the world differently. She likes her accounting job, even though the commute is increasingly stressful. But Betty doesn’t want to worry about money when she’s older, and she knows her mother lived until 90. Betty decides to wait until she reaches 66 (her full retirement age) before claiming Social Security. The prospect of getting a bigger monthly payment and building her nest egg further gives Betty peace of mind.
Fast-forward a few years. Eager Edgar’s arthritis is getting worse, and his medications are costing more and more. After a couple of adventures in the Rocky Mountains, his hiking equipment begins to gather dust. Unplanned costs for healthcare, a loan to his unemployed son, and the rising cost of living reduce Edgar’s savings. A long stint in a nursing home costs him $30,000. For the last three years of his life, Edgar is obsessed with the fear that his savings will run out and he’ll lose his independence, all because he has to survive on the reduced Social Security benefits he chose. He takes to splitting pills in half, which increases his pain. He dies at 84, a lot later than he expected.
Steady Betty sticks to her plan, putting away savings every month. At 66 she begins collecting her full retirement benefit of $2,133 and enjoys a fulfilling new chapter. A fatal aneurysm brings her life to an abrupt end, midway through her 74th year, much earlier than she expected.
TAKE THE MONEY AND RUN? THINK AGAIN
Maybe you doubt the wisdom of waiting to start collecting Social Security. Studies have shown that age 62 — the earliest age of eligibility — is the most common age for retirement claims. But is it the best? Taking the money as soon as possible may seem sensible — it’s a sure thing. You may need the money. Or you may have reason to believe you won’t live much longer because of a serious illness, for example. In such cases, the logic of claiming reduced, early benefits may be undeniable. But certain arguments in favor of early claiming are shakier. Here are a few of the less persuasive reasons to begin collecting benefits early:
“I can make the money grow and come out ahead.” This is the economic principle that money today will be worth more tomorrow, through investments and a helpful boost from rising interest rates. You may be able to come out ahead, but there’s a guaranteed reward for collecting Social Security later — several percent a year between age 62 and your full retirement age, and 8 percent per year after that up to age 70. And remember: That’s on top of inflation protection. Years ago, retirees could, at the least, plunk down money on risk-free certificates of deposit (CDs) and look forward to steady gains. These days, CDs barely pay anything — and you’re aware of the uncertainties of the stock market. But maybe you’re blessed with financial savvy. Maybe you have the skill to outperform the markets year after year and the discipline to stick to your program. To come out ahead, that’s what you’ll need to do, especially if you live a long time. For most people, relying on a bigger Social Security benefit as a firm foundation of retirement security is easier.
“I want a new life.” If you hate your job or you’ve been waiting for a chance to reinvent yourself (say, by launching a small business), a guaranteed Social Security payment may seem like just the ticket to get started. Of course, you should try to pursue your dreams. Just be aware that your interests may change and business ideas may fail.
“I could get hit by a bus. Why leave money on the table?” Yep, you could get hit by a bus. But however fatalistic your view, the reality is that a 60-year-old man has a greater chance of dying in his sleep at 85 from various ailments than coming to an accidental finale much earlier. Why not make sure that you have the finances you need in the meantime?
“I’d better get my share before Social Security goes bust and there’s nothing left.” This belief strikes a chord with some people. After all, you’ve been hearing doom and gloom about Social Security for years. But as a strategy for collecting your benefits, it’s a bad idea. Most proposed reforms would not hit retirees or near retirees. When Congress voted in 1983 to raise the full retirement age, for example, the impact came far in the future, affecting people who reached full retirement age in 2000 and beyond.
Things turned out differently than either Eager Edgar or Steady Betty planned. The point is that you can’t be sure how long you’ll live. When you’re deciding when to begin collecting Social Security, keep different possibilities in mind and consider the implications for your standard of living and sense of well-being.
Considering Your Spouse When You Claim Social Security
Earlier in this chapter, I focus on how timing your collection of Social Security affects your own bottom line. But the issue of timing is even bigger than that. You and your spouse could face decisions on when to collect benefits that could affect your household for many years. I’m talking about benefits that go to a dependent spouse, based on a breadwinner’s work record, and benefits that go to a survivor after the breadwinner dies. Women are more vulnerable than men to poverty in old age, so these decisions may be of great consequence to many wives, but the same principle applies to everyone: Choices on when to begin Social Security benefits could have a lasting impact on you and your spouse’s financial well-being.
If you’re eligible for Social Security as a dependent spouse, you face a real choice about when to begin benefits. You may claim this benefit if you have reached 62 and your partner has begun collecting retirement benefits. But your own spousal benefit is reduced for each month you claim it before you’ve reached your own full retirement age. At your own full retirement age, your spousal benefit can be 50 percent of the breadwinner’s full retirement benefit. But if you don’t wait, and you claim it as early as 62, it’s reduced significantly.
