Social Security break-even analysis may skew claiming decisions: experts
When to claim Social Security retirement benefits is one of the biggest financial decisions a retiree will make.
Some social media influencers recently claimed to have cracked the code of this decision; But experts say the calculation they used misses important context.
Some influencers recommend starting collecting Social Security retirement benefits as early as possible, at age 62, because although higher monthly checks come with a delay, cumulative benefits can be greater if started earlier.
The idea is based on the “breakeven” age, the point at which delaying benefits yields more total revenue than claiming them early. This usually falls in the late 70s or early 80s.
The Social Security Administration once offered a break-even analysis for retirement beneficiaries. However, SSA discontinued this practice in 2008 due to concerns from within the agency and from external stakeholders and researchers that it could skew claims decisions.
Next research Rand Corp., a nonprofit think tank. A 2011 study published by found that break-even analysis can have a “very powerful effect” in encouraging individuals to claim benefits early, which can permanently reduce the size of monthly checks.
Why break-even is the ‘wrong frame’
A big problem: No one He knows when they will die, which makes the break-even analysis uncertain. Moreover, Social Security can be thought of as longevity insurance that can protect you from depleting your savings.
“I continue to think that break-even analysis is the wrong framework for thinking about when to receive Social Security retirement benefits,” said Jason Fichtner, a former Social Security Administration administrator who worked for the agency when it stopped using the assessment.
Fichtner previously held positions at the SSA, including acting deputy commissioner and chief economist. He is currently a senior fellow at the National Academy of Social Insurance, a nonprofit organization focused on social safety net programs, and executive director of the LIMRA Retirement Income Institute, a research initiative within the insurance trade association LIMRA.
Instead, experts including Fichtner say retirement beneficiaries should consider other factors when deciding when to claim Social Security retirement benefits, especially how the timing will affect the size of their monthly checks.
Filing at age 62 provides the minimum monthly benefit. Beneficiaries who wait until full retirement age (usually ages 66 to 67, depending on year of birth) will receive 100% of their earned benefits. According to Fichtner, individuals get the maximum benefit by waiting until age 70, which is 77% larger in monthly checks than if they waited from age 62.
“Another way to frame this discussion is to recognize that filing a claim at any age before age 70 is a penalty,” Fichtner said.
Fichtner said the break-even framework might initially feature someone claiming to be 62, but once they reach their personal break-even age, they’ll be left behind for the rest of their lives.
Here are some other factors that experts say should be considered when deciding when to file for Social Security.
Think how long you can live
“How long can I live?” Starting with the question. potential beneficiaries “How long will I live?” They will get a different answer to the question. said Joe Elsasser, a certified financial planner and president of Covisum, a Social Security claiming software company.
Likewise, Social Security Institution states Educational materials state that “retirement may be longer than you think” and that many individuals will live longer than average life expectancy.
Take the rest of your financial plan into account
According to Elsasser, by focusing solely on break-even analysis, potential Social Security beneficiaries neglect to consider their entire financial plan.
This includes the impact of their income on their taxes, as well as how their welfare income will affect the rest of their portfolio, Elsasser said.
While some may argue that it’s too early to invest the money in Social Security, it’s important to remember that a return on investment is not guaranteed.. However, individuals who are late in applying for Social Security 8% benefit increase they wait each year from full retirement age until age 70; This is a guaranteed return that may be difficult to find in the market.
If you are married, make plans for yourself and your spouse.
Married couples where one individual earns higher wages “shouldn’t really use the break-even point as a decision point,” Elsasser said.
The higher earner may consider how long he or she will live when deciding to claim benefits. But if they don’t also take into account how long their spouses will live, Elsasser said, that could lead to significantly reduced survivor benefits for their spouses if the high earner dies.
Think about what would make you happiest
Waiting to make a claim can be difficult, especially if income or health are a concern.
But Elsasser said his clients are happiest when they wait until age 70 to file a claim because of the larger benefit payments they receive each month. Moreover, they do not have to worry too much about market fluctuations affecting their income.
“There is a lot less stress on the portfolio,” Elsasser said.
