Apr

28

Delaying Social Security Benefits can make a Significant Difference in Retirement Lifestyle.

Bill MullenAccording to the Social Security administration, a girl born in 2000 has a life expectancy of 84 years and a boy born in that year can expect to live until age 80. The numbers for similar births in 1900 were 58 and 52 respectively.

If you understand that the expectations of life longevity are understated for those who survive to age 25, people need to plan on living longer in retirement. For example a couple now age 65, someone born in 1950 when life expectancy was 71 for females and 66 for males (National Center for Health Statistics), now have a life expectancies of 87 and 84 years (Social Security Administration).

When a young couple starts a family, the concern is dying and leaving his or her family with lots of debt. That concern can be alleviated with the purchase of life insurance. When that same couple reaches retirement age, the concern is not dying. It is living for another 25-35 years and running out of money.

The options for solving that problem are not as easy as buying life insurance. Work longer; live on less; move in with your children; go on welfare. These are some of the options for people who did not start planning for retirement early enough. I continue to be surprised that many, many people do not understand that they will reach a point in their lives, if they live long enough, where they will not be employed with a paycheck arriving each week. The reasons are numerous-illness; no job available; pride. There is also the belief they can save enough in the last 5 years of working to last through retirement or still think they will eventually win the lotto, hope for inheritance and on and on and on with more wishful thinking.

Not too many decades ago, it was common for workers to retire at 62, start collecting Social Security and along with a pension and a small amount of savings, retire with some degree of comfort. Pension plans are not as common as they once were and the saving habits of the average American are not a habit at all. The replacement for pensions, defined contribution plans like 401Ks, are managed by the participant and often ignored and therefore not managed at all.

The one saving factor could be their Social Security benefit. More than likely it will not be enough to make their retirement years very comfortable but it could be extremely helpful. Delaying taking a Social Security benefit until age 70, could increase the benefit by 32% over that which they would have received at their Full Retirement Age (FRA). For example, if they were to receive $2,000 per month at their FRA, at 70 it could be $2,640. That is an increase of $7,680 a year.

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