Labor until you are at least 70

by philg

I told my friend Mark about MIT giving us 1982ers a lecture on Social Security (see Social Security: How do you run a retirement system for people who spend like drug dealers?) and he said “You have to read Get What’s Yours: The Secrets to Maxing Out Your Social Security“

I’ll try to write a little more about this book, but for this Labor Day Weekend, let me summarize the message: Keep laboring until you’re at least 70.

Some excerpts:

Social Security is, far and away, Americans’ most important retirement asset. And that’s true not only for people of modest means. Middle-income and upper-income households actually have the most to gain, in total amounts, from getting Social Security right. Toting up lifetime benefits, even low-earning couples may be Social Security millionaires.

In the longevity sphere, the worst-case scenario is, to reiterate, living too long—living to your maximum possible age of life, and, as a result, outliving your savings and income. Social Security provides insurance against this worst-case scenario. This insurance is safe against inflation and against default. It’s also dirt cheap. There is no close substitute for it in the market.

The three of us were taken aback by the numbers in the far right-hand column of this table. A minuscule 1 to 3 percent of people wait until 70 to take their Social Security retirement benefit—when it’s 76 percent larger than at 62 and 32 percent larger than at 66.

Our point is simply this: if you haven’t saved enough by the time you approach retirement, voluntary or in voluntary, the last thing you should do is claim early, thereby depriving your future self of even more savings for old age. We repeat the key number from the last chapter: the difference between taking your benefits at age 62 and waiting until 70 for a couple can be worth as much as $400,000 in savings.

By being patient and taking your Social Security retirement benefit at age 70, you get guaranteed benefits that are 76 percent higher than those at age 62. (This deal’s not quite as good for those born after 1954.)

The bad news is that the system overall is more complex than Americans can understand:

At the surface level, Social Security is complex because it has so many seemingly crazy rules. At a deeper level, its complexity reflects social policy that, when translated into practice, produces results that often defy common sense. An example is paying survivor benefits, based on the work records of ex-spouses, to the divorced who remarry, but only if they remarry after reaching age 60. Get remarried at 59 and 364 days and you’re out of luck. Another perversity is paying benefits to mothers (or fathers) of young children if their spouse is collecting retirement benefits, but only if the parents are married. If the parents are divorced and under 62, too bad. The result is a government retirement system that few if any can decipher without the kind of help provided here.

You can pay Social Security taxes on every penny you earn and end up with no more benefits than someone who never worked a lick. Thanks to Social Security’s spousal and survivor benefits, spouses who don’t work and never did can receive benefits—reasonably large ones, even—based purely on their living or dead or ex-spouse’s earnings record. Yet if you’re a spouse or ex-spouse who did work and paid Social Security taxes year after year, you may end up with no extra benefits than had you never worked at all.

Employees of the Social Security Administration themselves cannot understand the laws and regulations:

[from one author] Our Social Security system is a disgrace, not in its objectives or in the tremendous help it has provided older people over the years, but in the way it’s been designed and the way it’s been financed. Its complexity is beyond belief. The formula for the Social Security benefits of a married spouse involves ten complex mathematical functions, one of which is in four dimensions! It leads all kinds of people to make all kinds of mistakes in deciding when to take benefits and what benefits to take. And the good folks at Social Security will far too often tell you things that are one hundred percent untrue with one hundred and fifty percent conviction.

Even if you ask Social Security to do things that are perfectly legal, you may run into a brick wall. One lady, whom we’ll call Johanna, took her retirement benefit at 63. When Johanna, who never married, turned 66 in 2015, she called Social Security’s 800 number five times and spoke to five different staffers. Each time she told them that she wanted to suspend her retirement benefit and restart it at 70. Each time she was told that she wasn’t allowed to do so. A couple of the staffers told her she would have been able to do so had she requested a suspension at 66 back when she filed for her early retirement benefit at 63. Johanna was perfectly within her rights to request a retirement benefit suspension upon reaching FRA. The law could not be plainer on this point. Nor is there anything in the law remotely suggesting one needs to request benefit suspension before reaching FRA. And now for the rest of the story. Johanna contacted Larry, who asked her to go to her local office. (He also let a very senior official at Social Security know they should send a notice to all staff about her right to suspend. He has no idea if that happened.) In any case, Johanna went to her local office and the staffer (we’ll call him Ed) with whom she met told her she couldn’t suspend. She showed Ed our book, pointing out the section that discussed suspending your retirement benefit. Ed looked at the book, handed it back, and said, no, she couldn’t suspend. Johanna asked Ed how long he’d worked at Social Security. Six months was the answer. Was Ed sure about his information? Yes, he was sure. Johanna insisted Ed check with his supervisor. Ed went to the back of the office, spent a few minutes, returned, and told Johanna that he, Ed, was right. She couldn’t suspend. Johanna asked to speak to the supervisor. The supervisor, whom we’ll call Gloria, came over and also told Johanna, this time very firmly, that she could not suspend. Johanna asked for her name and phone number, left the office, and then reconnected with Larry. Larry was aghast. “This is seven people in a row who didn’t know about suspending retirement benefits. Unbelievable!” It was Friday evening, but Larry called the number and left a message on Gloria’s answering machine that he’d like to talk with her before his column appeared on Monday—a column that was going to recount Johanna’s experience at their office. Lo and behold, Larry received a call Saturday morning from the office’s director, whom we’ll call Stan. They had a nice chat. Stan said he’d worked for Social Security for 30 years and had never heard about suspending benefits. But, he said, he’d check and call Larry back. Larry said great, but asked why he was working on Saturday. Stan said they were understaffed and swamped. Two hours later, Stan called back, and said his office had made a mistake. Johanna could, indeed, suspend and they had called her and were going to do the paperwork with her on Monday. Larry thanked Stan. But Stan was the eighth person in a row who had known nothing—or the wrong thing—about suspending benefits. The lesson here is that you need to tell Social Security what to do, not ask them. And if they deny you your legal rights, shop around for a Social Security staffer who knows her stuff.

So… even if you’re young, I’ll agree with my friend Mark: “You have to read Get What’s Yours: The Secrets to Maxing Out Your Social Security“

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12 thoughts on “Labor until you are at least 70”

  1. Someone told me that to suspend and restart, you have to pay back everything you have received. If you do that, then you can get the higher payments that you would have gotten if you started at age 70. I do not know how accurate this is, as the above shows that there is a lot of confusion about it.

  2. I found Bogleheads.org 10 years ago before I took Social Security. The site is primarily about index investing but also talks about a lot of retirement topics like SS. They told me about the advantages of waiting until 70 to draw SS and lots of other information about SS. The key point is your benefit grows by 8% per year you delay drawing it. See here for their discussion, https://www.bogleheads.org/wiki/Social_Security

  3. There’s going to be fiscal crisis inside the next 15 years, or this year, and all this will be irrelevant. There won’t be SS in anything like its current form after.

    Same reason I don’t have any 401k or IRA accounts. The government is just going to steal that stuff when the crisis comes.

  4. You can view your statement on socialsecurity.gov. Starving programmers with no casual encounters with women are around $2900 at age 70. Greenspun is getting $0. The government is going to take back an ever bigger part of it by mandating purchases.

  5. Taking benefits at 62 vs 70 is actuarially neutral for an individual. It’s pays to know when you will die.

  6. Craig: I think you’ve highlighted one of the big points of the book. Taking benefits at 62 is only “actuarially neutral” if you buy into the assumptions made by the Social Security Administration’s actuary. These are similar assumptions to what U.S. states and cities have been making for public employee pensions. So Detroit was doing just fine, for example, on an actuarial basis!

  7. Many of the pension problems are due to the lack of plan assets and the unreasonable assumptions on plan asset returns. I agree with Craig, if you die early, you should probably start at 62.

  8. Philg: I thought most public pension problems were attributed to overly optimistic ROI estimates? Is actuarial science unreliable? I would think insurance companies would be poor bets if that was the case.

  9. As I understand it, the primary issue with underfunded plans is the discount rate used to discount future obligations, which affects the present value of what must be reserved. State and local plans permit what many economists would think to be unreasonably high discount rates given the expected returns on stocks and bonds. Social Security is different though because the federal government can inflate the currency, raise taxes or reduce benefits. Also Social Security as a PAYG system is dependent on the number of people entering the labor force and their productivity which can be affected by e.g. immigration policies and technological advances. So Social Security going bankrupt or whatever is pretty unlikely.

  10. Most public pension are in trouble for lots of reason including pension spiking, insufficient contributions and overly optimistic return projections. The gotcha is most states and municipalities are not willing to revise any of these things to improve the situation. So more and more of them will go BK and have the courts make the changes.

  11. Craig: Social Security can’t have a “problem” like the state pension systems since (a) the Feds can print money, and (b) Congress can cut benefits any time. But, according to the authors of the book that I am quoting, the same assumptions about rate of return go into the calculations of how much to pay people depending on the age at which they choose to collect benefits.

    Suppose, for example, that you assume that the markets will produce a 100% rate of return. In that case, if the goal was to pay two never-married workers who contributed the same amount the same net present value in benefits, you’d pay way less to someone retiring at 62 compared to someone retiring at 70 because the person who retired earlier could take the monthly payments and invest them at 100%/year interest. Does that make sense? So if you believe that the likely risk-free market returns are lower than what Social Security’s actuaries are assuming you should take the authors’ advice and wait until age 70 to start drawing benefits.

    [Separately, actuarial “science” is not unreliable, but you have to know what you’re buying from an actuary. The assumptions, e.g., about rate of return or life expectancy, will determine the answer. Unless the actuary is God, her guess as to the correct numbers to assume isn’t better than yours or anyone else’s.]

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