"Change is never a smooth curve, it comes in leaps and jolts, plateaus and remissions." -- Alexandra Andrews, "Who Is Maud Dixon?"

Wednesday, July 13, 2011

Did You Miss Your Social Security Check?

     Wait, don't panic! I'm not talking about your monthly payment if you're already receiving Social Security. I'm talking about the annual check-up of your prospective benefits, called "Your Social Security Statement," which the Social Security Administration has been sending out for years, usually in April.

     I have all my statements safely tucked away in my filing cabinet, going back to 1998. Every time I look at them, I am amazed that the Social Security Administration has a record of all my earnings, going back to that summer of 1967 when I earned $109 as a camp counselor. And, yes, as you can see, I am paying close attention to Social Security. Yes, I am counting on those checks to help me through retirement. And yes, I like to check the "balance" in my account once a year, which gives me a feeling of comfort that I will have at least some income to pay my bills even though I won't be working, that I will have income to keep a roof over my head, no matter what happens, even as I begin to lose my faculties and my abilities to take care of myself.

     But this year, in an apparent move to save money, the Social Security Administration did not send out the benefits statements. Instead, to get an estimate of your benefits, you must go on the Social Security website and "do it yourself" with the Social Security Retirement Estimator. The estimator is useful for those who qualify but are not currently receiving benefits. (If you're already receiving benefits, presumably you know how much you're getting and you don't need any estimator.)

     The estimator gives you three key numbers:

     1)  What your monthly benefit will be if you stop working at age 62 (or, your current age if you're over 62 but under full retirement age).

     2)  What your monthly benefit will be if you wait until your full retirement age. As a reminder, for people born between 1943 and 1954 full retirement age is 66. Then full retirement age increases in two-month increments for those born after 1954, until it reaches 67 for those born in 1960 or later. (Presumably if Congress decides to raise the retirement age it will affect only people born after 1960.)

     3)  What your monthly benefit will be if you delay taking benefits until age 70.

     These three numbers dramatically illustrate how much it pays to wait. Your benefit increases about 8 percent a year, or over 30 percent from age 66 to age 70. And that is a pretty amazing rate of return in this era of 1 percent interest rates on bank CDs or U.S. Treasury bills. Indeed, the current rate on a 2-year Treasury bill is less than 0.5 percent. The rate on your Social Security benefit is 8.0 percent. It doesn't take a genius to figure out that it's better to delay Social Security than to invest in a U. S. Treasury bill.

     But, you say, maybe Social Security payments will be cut. Maybe they'll be taxed. Maybe the debt ceiling won't be raised and Social Security checks won't go out at all! (Or to be accurate, electronic disbursements since actual checks are a thing of the past.)

     But remember, it's the same government that's paying you, whether you're getting 0.5 percent from a Treasury bill, or 8.0 percent from Social Security. If the government isn't going to pay, we're all in trouble. If it's going to raise taxes, it's more likely to raise taxes on interest payments than on Social Security payments. And anyone who's proposing changes to Social Security is only talking about benefits for people who are under 50 or 55 years old. So, while that may be a legitimate policy issue to discuss and argue over, it's not really our problem, is it?

     Of course, the other thing to consider is that you may die when you're 64 or 68. So if you wait, you won't get any Social Security at all. But let's face it, if you die, you lose your savings as well ... it doesn't go to you, it goes to your heirs.

     But the fact is, if you're a nonsmoking 60-year-old female, you can expect to live to age 87. If you're a nonsmoking male, to 84. Wouldn't it be nice to have 30 percent more money for those 15 or so years -- not to mention the insurance of knowing you'll enjoy the extra income if you do happen to live longer, especially since running out of money in your 80s or 90s is the biggest financial worry of all.

     If you want some kind of scientific estimate of how long you are going to live, fill out the free life expectancy calculator. You'll see, you're probably going to live longer than you think. (Just be ready for some scolding. According to the calculator I'll be around until age 92, but it's still telling me to cut back on sweets and get more exercise!)

     I have to confess, there's a little part of me that wants to apply for Social Security RIGHT NOW, to start getting that money into my arthritic little hands, and to make sure I get at least some of what's due to me. After all, I've been paying into the system since 1967, and it's about time I got some of it back.

     Unfortunately, according to a report on retirement income from the U. S. General Accounting Office, roughly three quarters of eligible people fall for that short-term thinking and elect to start receiving Social Security benefits before their full retirement age. Three quarters of us! Even the GAO says that these people are cheating themselves.

     For most of us between ages 55 and 65, unless we have a life-threatening disease, or really need the money to pay room and board, it's better to hold'em than to fold'em. So don't get scared into cashing in your chips too soon. Hold out for that 8 percent return.


Happy walker said...

walking here with a smile.. have a nice day ~ =D

http://www.lonelyreload.com (A Growing Teenager Diary) ..

Anonymous said...

If I collect at 62, I'll get $700 a month. If I wait till 66, I'll get $1600.

I just hope it's still there. Some economists say to start collecting ASAP and put those checks into a savings account till you actually retire.

Just sayin'.

Bob Lowry said...

Good info. I just checked out the calculator and it works as expected. Now. how long do I leave that money on the table?

Dr. Kathy McCoy said...

Yes, the calculator is a great tool. I used it a lot in the years leading up to our retirement last year. We do depend a lot on Social Security though I also have a small pension and we have savings from our 401K's that we're trying to leave alone as much as possible right now. The challenge is to find a balance -- to be prudent and yet to enjoy one's life and resources as much as possible.

Nance said...

I chose to take my SS benefit at 62 because the income I'd expected and needed from investments was curtailed just after I retired. Based on my understanding of my life expectancy, I really didn't expect to live past the 78+ year point that is the break-even for SS. The calculator just gave me a shock! It says I'll live to be 91. I seriously doubt that, since it didn't ask a couple of critical questions, but I can't help hoping it's wrong. Now, that IS perverse, isn't it?

What mental gyrations we find ourselves required to do, thanks to the perfidy of Big Banks and Wall Street.

schmidleysscribblins.wordpress.com said...

Nice coverage of a complicated topic. I took SS at age 64 following a stroke. I had intended to work longer but time intervened. This is insurance not welfare, but sometimes we forget that. Thianks for the reminder. SS is a good thing. Dianne

Terry said...

At 62 (if it's still around in 8 years), I'll collect @ $1300./mos. I don't plan on waiting til my full retirement age, although I know some financial advisors recommend waiting. I've seen too many people wait and die just a short time after they retire, hardly collecting. Morbid I know, but I'd rather just receive it than let the government keep it for me.

JBO said...

We plan on leaving my husband's money on the table until he is 66. He was going to start at 62- but after reading articles like yours (he should live to his late 80's) the wait began.
Since I am in the "you may lose it" category of 53- I have no idea when or if I will ever get any.I am pretty sure people my age will take it ASAP since they have been threatened to lose it. Still not sure how THAT is fair!
Excellent coverage of the topic

Douglas said...

My sage advice is simple: If you aren't retiring before you reach full benefits, don't touch it. You will be taxed heavily if you take it early and continue to work.

I retired at 59 (lucky me... things just fell in place) and took SS at 62 rather than wait. It works for me but maybe not for you. My father waited until he was 65 but continued to work until he was 77.

We are all different and we have different needs and different perspectives.

The government wants you to hold off as long as you can. They have their reasons and they are not necessarily to your benefit.

Joanna Jenkins said...

I'm with you-- Hold off if you can. And cross your fingers that there will even be Social Security by the time you're able to collect ;-)
Cheers, jj

Accidental Retiree said...

As things stand now, we're waiting. My husband is 2 years older than I and was the higher earner, so I may file at my NRA and he may take spousal benefits and then file for his at 70.

We'll see how things roll out when we get a little closer.

Whatever people decide, it's good that there is discussion about it. I have a friend who's never worked, and she wasn't even aware that she'd have spousal benefits from her husband's earnings record.

People are getting more educated about these benefits!