Retirement

3 out of 4 retirees receiving reduced Social Security benefits – MarketWatch

I don’t know about you, but I find the following both depressing and scary. What are people thinking and no, it’s not because they have no choice.  One thing this all means is that there will be growing pressure to increase Social a Security benefits (that will make Old Liz Warren happy). 

 

Growing numbers of workers expect to rely heavily on Social Security as a major source of income in retirement, but almost three-quarters of current retirees are receiving reduced benefits, according to two new reports.

According to a recent Gallup survey, 36% of adults who are not yet retired expect Social Security to be a “major source” of retirement income. That figure is roughly 10 percentage points higher than a decade ago and higher than any response in the past 15 years.

Of course, the best way to maximize Social Security is to delay claiming benefits until “full retirement age,” which is climbing gradually to 67, or beyond. A person due to receive a benefit of $1,000 at a full retirement age of 66 would receive only $750 at age 62 (the earliest age at which most people can claim benefits) – and $1,320 at age 70.

But that math isn’t stopping many workers from claiming benefits early.

Among the 37.9 million Americans receiving Social Security retirement benefits as of December 2013, fully 73% were receiving reduced benefits “because of entitlement prior to full retirement age,” according to a new report from the Social Security Administration.

Relatively more women (75.4%) than men (70.3%) received reduced benefits.

The findings come at a time when the Social Security program itself is straining to meet demands and when many workers are anxious about the size of their nest eggs.

Currently, the Social Security Administration is tapping the interest on the program’s trust funds to pay beneficiaries and, soon, will begin drawing down the assets themselves. At the moment, the trust fund is scheduled to run out in 2033, after which Social Security recipients would receive about 75% of their benefits.

Against that backdrop, a recent Wells Fargo/Gallup survey found that only 28% of non-retired investors are very confident they will have enough savings at the time they decide to retire. An additional 48% are somewhat confident.

The latest Gallup survey concludes: “To the degree [workers’] savings are not sufficient to fund their retirement, [they] will have to make up the shortfall somehow. The guaranteed Social Security benefit is an obvious way to do that, if not by also seeking part-time work or scaling back their standard of living considerably.”

via 3 out of 4 retirees receiving reduced Social Security benefits – MarketWatch.

11 replies »

  1. Dick, At the risk of beating a dead horse, or at least one with a decreased life expectancy, the numbers you provided are interesting. The 1.1 years difference in life expectancy between the high and low end counties is based on the starting age of 65. That is, it ignores the years 62 to 65, precisely the “early years” of collecting.

    Additionally, there is a racial component which we have not discussed. The black male life expectancy compared to the white male life expectancy is I believe (don’t have the numbers on me) even greater than the difference in just the high/low counties
    difference.

    My gut feeling is, for what it is worth, that the number of people who take social security early and benefit from that decision, far out weigh the number of those who made the wrong choice.

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    • I think it’s all in how you define better off. I have no doubt that taking it at 62 and living ones full life expectancy gives more in total benefits. I guess the point I can’t understand is why does that matter when it is effectively an annuity paid at least half and more likely more by somebody else. When I began SS I looked at the statement we used to get showing total paid in. When I did a calculation, I got back all I put in within about seven years and a few more to get back what my wife collected as half of mine. I realize that didn’t include potential lost interest.

      However, if you die early and only collect a few years, does it really matter to you? If you live a long time, when you are 80 isn’t it more important to have a higher monthly income than knowing your total collected benefits are greater because you have been collecting a smaller benefit for a longer period?

      I just don’t see it as a game of getting more from the system as I do assuring your maximum monthly income unless as I said, a person merely saves and invests all that is collected between 62 and when benefit is needed to live on. I began collecting at 66, but I was still working and collecting my pension so I put all the SS payments into investments until a fully retired. On the other hand I now wish I had the higher age 70 benefit.

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      • Dick- When you say you calculated the amount you paid into social security, do you mean adding up the absolute number of dollars paid in or the inflation adjusted dollars. I have a spreadsheet that uses inflation adjusted dollars and it takes longer than 7 years to get back what you put in and considerably longer than that when you add in employer contributions. I’d be happy to send it along to you.

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      • Just absolute dollars and only my money. Given each absolute dollar amount was adjusted for inflation by my raises back then does it matter plus I didn’t account for the SS COLAs to my benefit either.

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  2. .

    Because I am single and debt free… I can live very comfortably on less than my early SS…
    which means my nest egg is untouched and still growing. I do take out a few thousand
    each year from my 401K tax free [and do not have to file a tax return.] I do this so there
    will be less in my 401K to be taxed later under RMD rules.

    .

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  3. I read a report a few weeks ago about the increase in average longevity in the U.S. It appears that the top 50% (or 25%, foret the exact number) of income earners have garnered almost all of the increase in longevity during the past several decades. This is not really surprising. The bottom 25% did not have their longevity increased much, if at all.

    My conclusion: taking early retirement on social secuirty, with its lower payments, may make more sense for those with a shorter time span in which to collect. DB above came to the same conclusion.

    Low wage earners, who are often those in physically demanding jobs, are making the rational choice by taking social security early. Deferring higher payment for the “later years” makes sense only if there are any.

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    • True but the difference is still minor. See below from the National Center for Policy Analysis.

      Life expectancy has increased for both the rich and poor, but the longevity gap between them has widened over time. This study relates county-level life expectancy estimates at the age of 65 to average Social Security benefits for retired workers. Social Security benefits are used as a proxy for the retirees’ relative lifetime earnings. Because the Social Security benefit formula is based on workers’ highest 35 years of indexed earning, average benefits can reasonably be used to estimate the relative lifetime earnings of retirees in each county.

      Social Security benefits are used to rank counties’ retirees as lower or higher in the distribution of lifetime income. The average life expectancy at age 65 is then calculated for the men and women in the counties found to be at the lower and upper end of the income distribution. For example:

      Between 1970 and 2009, life expectancy for men at the age of 65 rose about 32 percent in counties around the 10th percentile, or low end, of lifetime income distribution.

      In contrast, life expectancy for men at the age of 65 rose about 43 percent in counties around the 90th percentile, or high end, of lifetime income distribution.

      Thus, by 2009, men in high income counties lived 1.1 years longer on average than the men in low income counties.

      The difference in 2009 is smaller for women as is the increase in life expectancy from 1970 to 2009 across all women.

      These findings based on county-level income and life expectancy data are consistent with other studies: life expectancy at age 65 has grown over time for all retirees, has grown more rapidly for men than for women, and women’s life expectancy continues to exceed men’s. Further, life expectancy at the higher end of the lifetime earnings distribution has grown more rapidly than at the lower end of the distribution — more so for men than for women.

      – See more at: http://www.ncpa.org/pub/st342#sthash.osmq67FL.dpuf

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  4. .

    I did the math… including the break even point and my family’s average life expectancy…
    and I took SS early… at age 62… because that was the best option for me personally.

    .

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    • I’m not sure that is the point. Most people who study this would agree with you if you are concerned about the total amount you may collect. The other perspective and the one I subscribe to is that in the interest of a higher income in later years it is best to maximize the monthly benefit amount by delaying the start of payment as long as possible.

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      • .

        “… in the interest of a higher income in later years….”

        I retired when I was 55…. took early SS at age 62.

        When all of one’s family dies before one’s break even age…
        there may not be any “later years.”

        One of the most important things to do before one retires…
        PAY OFF ALL DEBT !! You do not want to be paying interest
        on any debt… including a mortgage… after you retire.

        .

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    • Another perspective is that if you don’t need the benefits at 62 you take it anyway and invest the money to build up a nest egg for later years.

      Like

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