The Washington Post has a rather depressing article on The New Reality of Old Age in America, which includes the following chart about Social Security:
For 1/3rd of recipients age 65+, Social Security represents 90% or more of all their income. For 61% of recipients age 65+, Social Security represents at least half of all their income. In other words, Social Security is the cornerstone of retirement for the majority of Americans. Not a company pension. Not IRAs or 401k withdrawals.
Many articles like to explain how waiting until age 70 (the latest possible) to start withdrawals is mathematically the best move, but in reality the most common withdrawal age is 62 (the earliest possible). You only get about 75% of the monthly benefit at age 62 as compared to waiting until “full” retirement age (66 for current new retirees), but you get the money sooner.
Young people like to say things like “I don’t plan on Social Security being around when I retire”. (I probably said something like this too when I was in my 20s.) I have since talked to people whose sole income is Social Security. Nowadays, I don’t see how it could go away.
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I’m not young anymore, though I’m not quite old yet, and don’t factor SS into any of our financial planning because I don’t see how the system is going to keep working. I agree with you that people are going to keep needing it. Anecdotally, more than one person in my dad’s generation relies entirely on it for their retirement income so far as I know, and at some point he will need to as well, but it’s hard to see how it’s going to be sustained. Granted, I don’t know enough in-depth information about it to speculate more than that!
But I imagine as the need continues, the political will to keep the money flowing will be stronger than not.
Well, as long as people are paying in, then something can come out. But given that you are already saving a decent chunk towards retirement, you might actually be right about your family since means-testing is a very possible outcome. That 1/3rd number is pretty startling to me.
I figure the day SS ends the economy will be in shambles and your portfolio will be too (unless it is tp, bottled water and ammo). My plan involves assumes a 25% reduction as a penalty for planning and saving.
I treat a lot of older people. The idea that people can simply work until 70 if you like is naive. Many people no longer have either the physical or mental capacity to do the work that they did when they were younger. This has led to a large increase in the number of people seeking social security disability. The bottom line is that planning to work until 70 is a terrific goal, but shouldn’t be relied on as a means of financial planning.
I feel that the “advice” you see from so many “experts” to wait until 70 to claim is over-simplified and incomplete. The issue that is often ignored is the cumulative amount of money received over one’s lifetime. I’ve done some quick & dirty Excel calculations based on the figures from my own Social Security statement. If I wait until my full retirement age of 67, it will take until age 78 to receive the same total amount of payments I would get by beginning at age 62 (all other things — COLAs, spousal benefits, etc. — being equal). If I wait until age 70, that break even point goes out to age 80 — 82 if compared with beginning at age 67.
Do I hope to live into my 80s? Yes, certainly, but that unfortunately is not the trend among men in my family.
I know this is a departure from the main point of your post, but it is a retirement planning matter to consider when thinking about social security.
I agree, life expectancy should be a part of the SS age decision. I think the mainstream “expert” advice does take into account median life expectancies (if you reach age 62, the median person will now live past 80). However if you have health issues or other factors that would change your specific outlook, you may want to start claiming earlier. I’ve also seen the sad combo of somebody getting a bad diagnosis and submitting their SS claim immediately when they were otherwise planning to wait.
One good reason to delay social security would be to keep income low, especially if you are still working a job. Also, if you have significant unrealized long term taxable capital gains, you may be able to slowly realize them when you have virtually no other income, making it easier to pay 0% on those gains (if income is under $37,950 for singles, $75,900 for married couples).
I have never believed that Social Security won’t be around when I retire, however, I have always planned my retirement around the notion of being able to retire without having to rely on Social Security.
That many rely on Social Security alone, is partially the fact that most don’t plan for retirement or they didn’t have or understand other avenues available to them (401k, IRA, etc).