November 17, 2016
Early Social Security Filers Afraid to Lose
Retirement experts and financial advisers maintain there is a right way and a wrong way to approach Social Security.
For most people, the right way is to view waiting until your late 60s to sign up for benefits as the route to boosting your retirement income and protecting against out-living your savings. People who delay will have a larger Social Security check to pay the bills that come due every single month for as long as they live.
The wrong way is to make a decision based on fear – the fear of losing money if you don’t sign up soon after turning 62, the earliest age allowed under the program. While you might feel that delaying means losing out, delay can, in fact, protect you and your spouse from a more consequential loss in the future: inadequate monthly income when you are very old.
A study on this issue used a new technique to identify which individuals possess this fear of loss. In six different online surveys, the researchers asked some 7,000 working-age adults to choose between numerous pairs of gambles showing the probabilities of scoring a financial gain (45 percent), losing money (45 percent), or breaking even (10 percent). In each pair, one gamble had a smaller potential dollar loss than a second gamble in which they could lose more money – but also win more.
Loss aversion was prevalent. They found that about 70 percent of adults showed some degree of loss aversion, meaning that they preferred the gamble that risked a smaller dollar loss.
Next, the researchers analyzed whether the people who were most loss averse also plan to claim their Social Security benefits at younger ages. In all six surveys, the most loss-averse workers were significantly more likely to claim their benefits earlier.
The researchers hope their new technique and findings improve the ability to identify who is loss averse, so that experts can design better ways to help people make smart decisions about their Social Security, the bedrock of most Americans’ retirement security. Learn More
October 20, 2016
Your Social Security: 35 Years of Work
This blog is for a part-time Macy’s saleswoman and immigrant whom I met in a hospital waiting room – she’d never heard of Social Security.
It is also for a 22-year-old contingent worker I know who lacks steady employment and isn’t regularly accruing credit toward the Social Security pension he will probably need when he retires.
And it is for a 62-year-old eager to claim his benefit right away, possibly short-changing his retirement.
A substantial share of retirees would fall into poverty were it not for the Social Security program passed during the Great Depression. It’s especially important for two groups of people to understand how Social Security calculates their pension benefits: young adults making employment decisions that will impact them decades from now and older people figuring out when to retire.
Yet research shows that many people do not know the basic workings of a program that is crucial to their financial security.
Steve Richardson, a Social Security official in Boston, holds regular seminars to explain the pension program to the public. “The first thing I ask is – before I say my name – ‘How many people in this room know how many years Social Security looks at to determine your pension payment?’
“Not many of them know it’s your high 35 years of earnings.”
To qualify for a pension benefit at all, a person must work full- or part-time for 40 quarters – a total of 10 years. That’s not a difficult hurdle for most to clear during decades in the labor force. What’s central is the size of your future benefit check, which is determined by your highest 35 years of indexed earnings, Richardson said – and that brings us to the math thing. …Learn More
August 9, 2016
Social Security Replaces Less for Couples
Source: U.S. Social Security Administration poster, 1954.
When Social Security was created in the 1930s, wives were mainly full-time homemakers, with their pension benefits based on their breadwinner husbands’ earnings.
But wives went to work in droves after Social Security’s passage. Today, women make up nearly half of the U.S. labor force. Yet the program’s design remains the same, with the result being a steady decline in married couples’ replacement rates – the percentage of the combined earnings of two working spouses that Social Security replaces when both retire.
A study by the Center for Retirement Research found that the replacement rate for couples has declined from 50 percent for married couples born in the early 1930s to around 45 percent for the oldest baby boomer couples, and it will fall to just 39 percent for Generation X couples when they eventually retire.
A declining replacement rate is an important consideration for working couples as they plan for retirement.
The simple explanation for the declining replacement rate is that household earnings are much higher when both spouses are working, but their Social Security pension benefits do not increase proportionally. The reason is that even if a wife doesn’t work, she still receives a spousal benefit equal to half of her husband’s benefit. The more a working wife earns, the lower the couple’s replacement rate. …Learn More
August 4, 2016
Social Security Credits for Moms?
Dramatic changes in the U.S. family structure over several decades – more divorce, single motherhood, and unmarried couples – could have a big impact on the financial security of baby boomer women as they march into retirement – and on future retirees.
A review of studies on Social Security spousal and survivor benefits by the Center for Retirement Research, which sponsors this blog, examines the difficulty of providing retirement security for the growing ranks of women and mothers who do not fit the traditional family mold.
Social Security’s benefits were designed for the typical family when the pension program was enacted in the 1930s, a family portrayed at the time by Henry Barbour and his wife, Fanny, in the popular radio soap opera, “One Man’s Family.” A spouse, usually the wife, is guaranteed half of her husband’s full retirement age benefit under the program when she reaches her full retirement age – whether she works or not. When her husband dies, her survivor benefit equals his pension benefit.
But women who marry and become divorced within 10 years are not eligible for these benefits. Nor, of course, are single working women, who receive benefits based solely on their own work histories. Increasing numbers of women reaching retirement age today either were in short-term marriages or never married and won’t receive a spousal or survivor benefit. The problem is that most of these women are mothers. …Learn More
February 9, 2016
Could Social Security Statement Do More?
Two out of three working Americans grade their retirement readiness at no better than a “C.”
So how about using the Social Security Statement that lands in their mailboxes, grabbing their attention, to spur them to action?
The statement is already valued by millions of Americans. A survey funded by the U.S. Social Security Administration (SSA) found that people who received statements were “dramatically” more knowledgeable about their basic pension benefits than people who had already retired when SSA started mailing them out in the mid-1990s.
Social Security is the nation’s most important source of retirement income, and the information in the statements is essential to most workers’ retirement planning. Mailed out before every fifth birthday – 25, 30, 35, etc. – and annually at age 60, the statement provides estimates of each worker’s future benefits at three different claiming ages: 62, when they have access to their smallest monthly benefit; the “full retirement age”; and 70, when workers receive their highest monthly benefit. It clearly lays out how much workers can increase their monthly retirement income by delaying when they start collecting their benefits. …Learn More
November 24, 2015
Social Security Delay: the Value to You
What matters most in retirement is how much money comes in the door every single month. That’s why this blog – and its sponsor, the Center for Retirement Research – hammers away at the wisdom of delaying when you sign up for Social Security in order to increase the size of your monthly checks.
So here’s a very quick project for the long Thanksgiving weekend: insert your birthday and earnings into this new online tool to get an anonymous, back-of-the-envelope estimate of how much a delay is worth to you.
The age you claim your benefits is crucial, because two out of three households rely on Social Security benefits for more than half of their retirement income. Yet the majority of people still sign up before they’re eligible for their full benefit, which is age 66 for most baby boomers. Monthly benefits are increased for every year of delay, up to age 70.
The cool part of the tool, released last week by the Consumer Financial Protection Bureau and the Social Security Administration, is the sliding feature. It shows how much monthly benefits rise if you change your claiming age from 62 to 66 to 70. Click here to try the tool. …Learn More
October 29, 2015
Fewer Boomers Get Social Security at 62
The best way for most individuals to increase their retirement income is by delaying Social Security – each year they wait significantly boosts their monthly benefit check.
It seems that baby boomers are getting the message. The share of people who claim their Social Security benefits at age 62 – as soon as they’re eligible – is falling, and falling more rapidly than previously thought.
The share of 62-year-old men who claimed immediately dropped from 56 percent in 1996 to 36 percent in 2013, according to the Center for Retirement Research, which supports this blog. For women with the same birth years, the share of 62-year-old claimers declined from 63 percent to 40 percent.
The Center also confirmed that more people are waiting to sign up for their benefits until after their full retirement age under the program, which is 66 for most baby boomers. Waiting provides at least one-third more in their monthly Social Security checks than the 62-year-old claimers receive. …Learn More