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Poor Old Me

Jonathan Clements  |  February 20, 2021

HERE’S A COMMENT I’ve heard countless times in recent years: You should claim Social Security early because you’ll enjoy the money more in your 60s and because you’ll spend less later in retirement.

I think this is nonsense that rests on three wrongheaded assumptions:

  • That spending needs should drive when you claim Social Security.
  • That you will indeed spend less each year as you age.
  • That you’ll be better able to enjoy whatever money you have in your 60s than later in retirement.

Do you believe any or all of the above three statements? Let’s consider the facts and the logic behind each.

1. Claiming early. Yes, there are justifiable reasons for starting Social Security benefits early.

Perhaps you’re in poor health and, if married, so is your spouse. Perhaps, during your working years, you were the lower-earning spouse and thus your benefit will disappear when the first spouse dies. Perhaps you’re out of work, you have no retirement savings and you need to claim Social Security to buy groceries. Perhaps you lie awake at night fearful that the politicians will slash Social Security benefits—even for those already retired. In such cases, claiming Social Security at age 62 might make sense (though, to be honest, I think there’s scant chance that any politician hoping to get reelected would ever cut benefits for existing retirees).

But let’s consider a situation that probably describes most HumbleDollar readers: You’ve taken decent care of your health and it’s highly likely you’ll live to an average life expectancy, which would be the mid-80s for those currently in their 60s, and there’s a good chance you’ll live longer. You’ve also amassed a handsome nest egg, and you’ll cover your retirement costs with some combination of savings and Social Security benefits.

Sound like your situation? Even if you think you’ll spend less later in retirement—and we’ll get to that assumption in a moment—that still doesn’t mean you should claim Social Security early. Instead, drawing on both your retirement savings and Social Security, your goal should be to cover expenses over the course of your retirement in a way that maximizes the total dollars generated by those two sources. And, for most folks, the best way to do that is to cover expenses early in retirement with savings, while delaying Social Security and then relying more heavily on that income stream later on.

Don’t agree? Ask yourself this: Even if you’ll spend more in your 60s, why does it logically follow that you should claim Social Security early? Using this “logic,” it makes just as much sense to draw more heavily on savings in your 60s—and, in fact, almost every expert who has studied the issue has concluded that that’s the optimal strategy.

2. Spending less. According to the Bureau of Labor Statistics’ Consumer Expenditure Survey, households headed by someone age 65 to 74 spent $55,087 in 2019, versus $43,623 for those age 75 and up. In other words, it seems we do indeed spend less as we age.

But guess what? The survey also shows that income plunges as we age, with those 65 to 74 pulling in $65,943, while those 75 and up were at $41,937. That lower income can be explained by things like shrinking household size, as one spouse in a couple dies off, and by depleted retirement nest eggs and less earned income.

What I find most interesting, however, is spending versus income. Those early in retirement are spending 84% of their income, while those later in retirement are spending 104%. A reasonable interpretation: Older retirees aren’t spending less because they have less desire to spend. Instead, their financial situation is compelling them to cut back—and, if they had extra money, they’d likely spend more.

My contention: No matter what their age, most retirees spend what they feel they can reasonably afford to spend. I wouldn’t assume that you’ll spend less as you age. Instead, there’s every chance you’ll spend more—assuming you have the money. Moreover, even if you aren’t spending that money on travel, eating out and going to the theater, there’s every chance you’ll need the money for health care expenses and long-term-care costs, which often drive expenses far higher as we age.

3. Losing happiness. To state the obvious, the end of life likely won’t be a happy time. But what about prior to that? Does our happiness wane as we progress through retirement?

Two of the preeminent happiness researchers, David Blanchflower and Andrew Oswald, compiled data from seven key sources detailing happiness through life. Head to the end of their paper and you’ll find the data presented in seven charts. As you’ll discover, it’s hard to see much difference in the happiness of, say, those age 65 and those age 80. It seems we’re perfectly capable of enjoying life—and the money available to us—later in retirement.

In fact, you may discover that your continued happiness hinges on having more money to spend. At age 58, when I travel, I’m still willing to fly economy and take public transport to and from the airport. At age 81, when my mother travels, she flies business class and likes to hire a driver to meet her when she gets off the plane. She does that because she can afford it, but also because it now takes more money for her to travel comfortably.

If happiness research has anything to teach us, it’s that we aren’t very good at figuring out what will make us happy. We shouldn’t assume that, in our 80s, we’ll be content to sit in an armchair reading a book and watching reruns of old TV shows. Yes, some octogenarians happily do that—but many others do it unhappily, because their depleted nest egg leaves them with no other choice.

During our working years, to amass enough for a comfortable retirement, we need sympathy for our future self, and that means putting aside money for the retiree we’ll one day become. When we quit the workforce, we need to retain a little of that sympathy. We shouldn’t assume that our 80-year-old self won’t be capable of great happiness—and won’t find plenty of uses for the wealth we haven’t yet spent.

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HERE ARE THE SIX other articles published by HumbleDollar this week:

  • There’s a widespread assumption that all seniors struggle financially and cognitively. Dick Quinn—in his usual inimitable fashion—begs to disagree.
  • Haven’t yet cut the cord? For years, David Powell stuck with traditional satellite and cable TV—but the quality and cost savings of streaming services finally won him over.
  • Congress keeps changing the rules that govern retirement accounts and Social Security. James McGlynn looks at what’s happened over the past half-a-dozen years—and what it means for retirees.
  • “So now what?” asks Mike Zaccardi. “I’m financially independent, passionate about investments and financial planning, love to write and present, and can devour steak. How to blend those?”
  • Small positive steps repeated regularly can produce extraordinary results, notes Jiab Wasserman—and that’s true not just of saving and investing, but also exercising and eating healthily.
  • Retirees worry about “leaving money on the table,” so they claim Social Security early, opt for lump sum pension payouts and avoid income annuities. But these strategies often backfire, says Rick Connor.

Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier articles.

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