Every few weeks, it seems, we encounter a new article or two trying to provide a definitive answer to a familiar question: when is the best age to begin taking Social Security benefits? Two such articles came to our attention recently, articles we found notable because the authors disagree pretty strongly with each other’s recommendations. But Rajiv Nagaich of AgingOptions suggests that by focusing so much attention on the Social Security start date, financial writers like these are actually answering the wrong question.
Is It Really Wise to Wait?
We found one article on this topic here on the Barron’s financial website, written by financial columnist Mark Hulbet. “Everyone ‘knows’ that you should defer receiving Social Security benefits until age 70,” he says. But, he counters, with the Social Security Trust Fund projected to run out of money sometime around 2034, is it really wise to wait? Hulbet’s argument, which he has made before, is fairly simple: if a divided Congress can’t find the political will to make the necessary adjustments to the program, they will eventually have to start reducing benefits. Depending on how and when those reductions happen, an argument can be made that taking benefits earlier makes more financial sense than waiting.
Not so fast, counters the second article, this one from the website of Laurence Kotlikoff, Boston University Professor of Economics and expert on Social Security. “Yes,” he says, “Social Security is dead broke. But, no, it’s not necessarily a good idea to take your retirement benefit early even if benefits will be cut in the future.” Kotlikoff makes the case that someone who files for benefits before 70 could receive tens of thousands of dollars less in lifetime income even if Congress ends up reducing program benefits, either all at once or gradually.
An Incentive to Delay Taking Social Security
So what is behind this debate? First, it has to do with how Social Security structures its benefits. For most boomers, those born in 1954 and before, the full retirement age is 66. (It goes up incrementally for younger boomers.) At age 66 Social Security beneficiaries can begin drawing full benefits without restrictions on outside income. However, as most people know, the law allows people to take benefits early – with a disincentive in the form of reduced payments and outside income restrictions – or to delay benefits, sweetening the pot by boosting benefits by 8 percent for each year a retiree waits, maxing out at age 70. Most retirement analysts (but not all) recommend that the best course of action for the typical retiree is to wait until 70 to start receiving your Social Security check: you’ll not only boost your benefit by about 32 percent for the rest of your life, but if you’re married and your spouse will become dependent on your benefit after you die, he or she will also get that higher monthly payment for life. It’s a slam dunk – or is it?
The underlying problem, as financial experts Hulbet and Kotlikoff agree, is that the system is rapidly running out of financial reserves. “Social Security is broke, indeed, it’s dead broke,” writes Kotlikoff on his website. “Its red ink totals $34 trillion – twice the official debt reported by the Congressional Budget Office.” In 2034, when the system’s trust fund finally runs dry, benefits will have to be cut by 23 percent unless the government steps in by hiking payroll taxes or otherwise reforming Social Security’s finances. Mark Hulbet, writing in Barron’s, speculates that Uncle Sam won’t wait 15 years to slash benefits but instead will start making modest annual benefit reductions much sooner. He quotes another Social Security skeptic who wrote, “If you believe that Uncle Sam, saddled with a $20 trillion—and rapidly rising—national debt, will keep his Social Security promises flawlessly, you might as well wait until age 70 to take your benefits (assuming you’re in normal health).” This man, says Hulbet, decided to “take the money and run.”
Kotlikoff makes a much different argument to justify waiting until 70. “First, Social Security remains the third rail of politics and any politician advocating direct benefit cuts will likely be committing political suicide,” he says. “Second, it’s extremely unlikely that benefit cuts would be visited on those already collecting benefits or on those about to start collecting in, say, the next decade. Roughly one fifth of the elderly subsists on Social Security and it’s the main source of financial support for roughly half.” And, he adds, even if benefits are cut across the board in 15 years, Kotlikoff’s popular and well-respected Social Security calculator finds that delaying benefits is still far and away the best fiscal strategy.
Rajiv: It’s the Wrong Question!
So-called experts like Kotlikoff and Hulbet may disagree, says Rajiv Nagaich of AgingOptions – but as we said above, they are probably asking and answering the wrong question. “The thing about this Social Security debate that frustrates me is that this discussion is exclusively focused on saving money. Who says money is the most important measure to determine whether we’re doing the right thing or the smart thing?” As Rajiv states, plenty of people think the answer to a happy retirement is plenty of money, when that is simply not true. “The real issues that matter in retirement – staying healthy, keeping families together, dealing with caregiving and so on – aren’t the things that generate profits for the financial industry or big business, and so they get ignored. That’s the tragedy of so-called retirement planning today. In the U.S. today, we’re not even having the right conversation about aging, about family, about our expectations for the future.”
We urge you to start having “the right conversation” within your own family early in the New Year by attending a LifePlanning Seminar with Rajiv Nagaich. He’ll show you how financial planning, legal preparation, housing choices, family communications and health care strategy can all be blended together seamlessly into a powerful retirement tool called a LifePlan. Seminars are free, information-packed and highly enjoyable. You’ll find a calendar of seminars here on our Live Events page – then sign up online for the event of your choice. Let AgingOptions be your guide through the maze of confusing information and conflicting opinions. Age on!