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For many years I, and probably many of you, have been reading from the gospel that people, on average, will collect the same amount of money from Social Security without regard to the age that benefits begin.
The thing is, we have been preaching that gospel for as far back as I can remember. Actuaries calculated this decades ago, and over the years, life expectancy have increased. An exception was during COVID, still, the mortality tables have us living about 3 years longer than 30 years ago.
If I am correct, taking into consideration that we now live longer, the debate about when to claim Social Security would skew towards delaying benefits. That said, and before you all start yelling at me, I know that your reality might not match up with that of the soulless actuary. Many HumbleDollar contributors have laid out valid reasons and solid strategies for claiming early.
Still, longer life, the growth of delayed credits, as well as the increased cost of living credits that come with delayed credits, is a powerful argument for delaying.
For the young folk who have not yet signed up for Social Security, keep in mind that statistically, you might live longer than the folks that crunched the numbers for SS thought you would.
For this post, I asked AI the following question:
The actuaries say that over the long run, it doesn’t matter which age one begins taking Social Security. However, for as long as I can remember the calculations have not changed. With people living longer now than in the past, are those calculations still accurate?
AI supported my contention, citing data from the Financial Planning Association, The Bi-Partison Policy Center, AARP, Thrivent Financial, and Investopedia.
I like to view SS (and claiming later) as longevity insurance. It’s a gov’t guaranteed, lifetime, inflation adjusted annuity.
When my wife and I were planning our retirement, I bought software and no matter which assumptions I used the results were so similar it did not matter when we started SS. So, since we had similar earning histories, I collected at 67 and she delayed to 70. We were both born before 1954, so she was able to collect half of my benefit for three years and then upgrade to her own larger benefit at 70. It worked for us because my health deteriorated after I started collecting and I at least got those three extra years of payments. Bill Bernstein is correct; life throughs you knuckle balls sometimes.
Life sure does throw knuckle balls, Howard.
I was born in 1952, so also benefited from the spousal benefit while I let my benefit grow. That was nice.
Bill Bernstein and Edward McQuarrie recently shared a perspective on SS claiming age.
FYI, Bill Bernstein spoke at Jonathan’s memorial service.
Excellent analysis. Here is their summary:
In a fantasy world of high risk-free returns, always-controlled inflation, no worries about health insurance, no spouse to worry about — particularly a female one — and a precisely scheduled death, you might, possibly, do better by taking social security at age 62 rather than delaying to 70.
In the real world, where your risky portfolio may not return much, inflation is unruly, you prudently wait for Medicare, and then either your or your spouse happen to reach a ripe old age — delay is a powerful strategy for putting a high floor under your income for as long as you live, regardless of what happens to your portfolio.
That’s tellin’ it like it is. Love it.
Another government agency has come to a different conclusion. The IRS has made adjustments to life expectancy tables that impact RMDs. The last change was made in 2022 and was effectively a one- or two-year addition to life expectancy.
How new life expectancy tables affect required withdrawals from IRAs
The SS actuarial adjustment factors were mandated by Congress in 1983 and I don’t think the SS administration has the ability to change them without Congressional approval.
There was a 2019 brief published by the Center for Retirement Research at Boston College on this topic titled “ARE SOCIAL SECURITY’S ACTUARIAL ADJUSTMENTS STILL CORRECT?.” That paper reached the same general conclusion as you. A cited key element in that brief besides longevity are interest rates used in determining the actuarial fairness of claiming adjustments. I do not find where anyone has recently updated the brief due to changes in interest rates.
The conclusion of the brief I found most interesting was “The fact that higher earners live longer and claim later adds a distributional consideration to these findings. If the delayed retirement credit were based on the life expectancy of those who use it, it should be smaller than the current 8 percent to equalize the cost of early versus late claiming. Thus, the current adjustments, both between 62 and 65 and between 65 and 70, favor delayed claiming. As a result, they increasingly favor higher earners.”
My own takeaway from the brief is that average of us who can afford to (a higher earner ) and actually do delay claiming social security until later have a actuarial benefit by doing so. Now my spouse and I just have to live longer than average to realize that benefit.
Because of Covid-19 life expectancy in the US and Europe dropped and has not recovered your comment on increasing expectancy is not correct. https://www.nature.com/articles/s41562-022-01450-3
I wondered about that as well, but more recent information I came across while researching for this post, indicated that the life expectancy has increased in the last several years, and is higher then it was 30 years ago.
The article you cited was published in 2022 and only shows changes in life expectancy from 2019-2021.
You might find this comparison interesting, the UK has a stated policy of delivering actuarially neutral increases for state pension deferral, with an annual uplift of 5.8%. If we assume the UK government has calculated the correct rate to maintain neutrality, and factor in that UK citizens live approximately 3.5% longer than US citizens, this suggests the US figure is on the high side.
A 3.5% adjustment to the UK’s 5.8% rate gives us roughly 6% (5.8% × 1.035 ≈ 6%). This would be the rate needed to maintain actuarial neutrality in the US context…Although my thoughts definitely depend on the UK government getting the maths correct lol
No, they are not sound. The 8% is too much given life expectancy increases and from trust point of view interest rates have changed. In other words, it’s a good deal for beneficiaries.
Your comment doesn’t address the issue actuarial neutrality across claiming ages unless you are saying that it is a good deal for those who wait longer to claim benefits.
That is what I am saying. The 8% is too high so the more a person accumulates – 24% say when it should be perhaps 21% that’s a better deal.
Good reason for not claiming until 70 if you can afford to wait and are in good health
Probably. Especially since nobody supposed to be minding the store has figured it out – more likely ignored the actuaries because they don’t want to deal with the truth.