Tuesday, February 19, 2013

It May Be Better to Collect Social Security Early After All

One of the issues that often sends older folks’ heads into tailspins is when to begin collecting Social Security. Many financial advisors now recommend waiting as long as possible. Even the top senior advocacy group, the AARP, recommends waiting until age 70 if one can, to ensure maximum benefits paid out over the rest of one’s life. On face value, all the logic appears to hold up, at least until one digs below the assumptions and numbers.

First, most of the assumptions are based on the median life expectancy by a certain age for either sex. For males at age 65, for example, the median years of life expectancy is 17.8 years and for females it’s 20.4 years. In other words, a male retiring at 65 will need 17.8 years of income to live on, based on the median. This means if the average American guy waits until 70 to collect Social Security he can expect to live on its benefits for about 12.8 years on average.

Is this really better for him? And how much total difference in benefits are we talking about. Let’s say that he waits until 70 and collects his assured maximum of $2,000/ month, then for 7.8 years this means he will collect a total of: $187, 200, assuming he doesn’t have to pay taxes on the benefits. But what if he’d started collecting benefits at age 62, with only $1200 a month to start? Then from age 62 he’d be collecting them for 15.8 years and for a total of: $1200/mo x 12 month x 15.8 yrs. = $227, 520 or more than $40,000 in additional benefits over what he’d have collected waiting until age 70, using the same assumptions.

The point here is that the longer period of collecting benefits neutralizes the downside of taking them 8 years early, since by actuarial tables you have less time to enjoy them. (This reminds me of the outraged letter appearing in the AARP Bulletin not long ago, where a guy berated the Bulletin for publishing advice from experts to “wait until age 70”. He wrote: “My life expectancy is only 76.7! If I want until 70 I’d only enjoy my benefits for 6.7 years!”)

Second, in an article appearing in The Sunday Denver Post (‘Is Inequality Shortening Your Life Span?’, p. 6D) many of the assumptions and actuarial tables don’t hold up under further scrutiny and it may well be collecting earlier is a smarter move for certain demographics. For example, a black male who reaches his 45th birthday, according to the article “is 80 percent less likely to live long enough to collect Social Security” say than if he was white. Another dirty little secret is that at age 40, considering ALL American males, 1 in 7 will not make it to age 65. Worse, 3 in 7 will not make it to age 70.

A contributing stunner is that:

“White males with fewer than 12 years of education now have a life expectancy of just 67.5 years- just six months longer than the standard Social Security retirement age set under current law for today’s middle age and younger Americans.”

In other words, these are the males who really need to begin collecting their benefits earlier, say by age 62, because even then they will have only 5.7 years to use them.

The article’s conclusion is despite all the hype and hoopla the fact is that except for those at the very top, the top 1% (who btw, are still getting their Bush-Obama tax cuts thanks to the fiscal cliff deal) “life is shorter than if we’d lived in a more equal, less socially competitive and status –driven society.”

Much of the reason for this, of course, is the lack of adequate health care. Another contributing factor to the demise of too many males, is the combination of smoking, lack of exercise and poor eating habits. (Though stress is definitely another factor and the lack of paid vacation days.)

At the end of the day, every person has to make his own computations on whether it’s better to collect Social Security earlier or to wait. Usually, looking at your family history – if one or both parents and grandparents have lived until 88 or 90, it might be a good idea to wait to collect until 70. However, if longevity isn’t one of your family traits then collecting early is probably wiser.

In the meantime, look for the Neoliberal media to continue pumping the ‘wait until 70’ mantra for everyone, irrespective of family history, education or health issues. Their motive is clear: to keep as many hands from collecting “entitlements” for as long as possible. Meanwhile, they will keep retiring at 48 or 50 to go and golf their 18 holes in the Bahamas or St. Kitts. Waitin’ til 70, after all, is only for the hoi polloi.

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