As a retired tax preparer, I get tired of the blanket advice to delay taking Social Security. It is not so simple. The break even point for those taking early benefits at age 62 is between age 76 and 77, assuming you spend it all and do not reinvest any. So first look at your health and family history of longevity. if you die before that time you lose your bet. More importantly, and never mentioned, is the fact that you are much more likely to enjoy your spending in early old age than in late old age. Other than medical expenses, what do most people really spend after eighty? I would rather enjoy my retirement when young and healthy enough to do so, than worry about running out of money at the age of eighty. And if you have not learned the unimportance of money by then, I feel sorry for you.
64
Or just work for the government and retire at 55 with no worries. Governments have unlimited abililities to raise taxes to keep paying pensions indexed to inflation. No 401k or corporate plan can match the government’s resources and generosity.
10
So True. Only Government that can infinitely tax can afford pensions.
You can Tax all the rich and all Executives 100% and still not afford to offer workers pensions that last 30-40 years.
Its just not economically sustainable.
3
Has anyone noticed that the decline of defined pensions and their replacement with the completely inadequate 401K has also coincided with the explosion in executive compensation (from about 50x the average employee salary to 500x or more), the decline of unions and the shipping of most decent paying jobs overseas to low pay countries (with the help of Mitt Romney and his ilk looting the existing worker pension plans for the benefit of the owners and these “consultants)? All of this has aided the transfer of money from most of us to the top 1%! The tax cuts have aided this wealth transfer, and now with this latest round, Paul Ryan is already planning to gut Social Security and Medicare to fill the projected deficit these tax cuts are creating. So my advice to anyone, is “grab what Social Security you can while the grabbing is good” because at the rate we are going the average planning for retirement will consist of staking our a nice spot under a highway bridge near you that will last the longest before it’s inevitable collapse. That is, unless the majority of the voter can Peel themselves away from Fox News and start thinking for themselves instead of sucking up the self serving pap the 1% is serving!
64
I realize NYT readers are probably a skewed demographic--i.e., higher-than-average in income and savings--but still, I find it laughable that the article contends that "middle income" implies retirement savings of between $0.1 M and $1M when the median savings of a working-age American is about $5000, or 1/20th of $100k:
https://www.cnbc.com/2017/04/07/how-much-the-average-family-has-saved-fo...
Even among those between 55-61 the median is only $16k. Yes, these numbers are from 2013, but I doubt in the past 5 years that $16k figure has grown to anything close to $100k.
But, fortunately, for most average Americans the massive $1.50/week tax windfall from the GOP tax cut will easily make up the difference.
51
Work longer? Delay taking social security? These are very basic ideas. This article was not helpful. I echo sentiments of others here... what about CD ladders or other options? Anyone reading a retirement article in the NYT likely has the basics down. Why not offer next-level ideas and information? Disappointing.
33
there are days when i think if i have to work one more year for a measly extra $150 a month for SS, i may literally want to lay down and die. as soon as i think i can survive on what i have, i'm out. i hate working, and i hate feeling like i'm counting my few precious days in life out in pennies for fear of poverty. it shouldn't be this way. i'm working full time since i was 19, and it stinks.
62
There is software available to "pensionize" retirement savings. See:
www.i-orp.com,
a no fee, no registration, internet retirement optimizer that computes an optimal savings withdrawal plan that maximizes annual disposable income (after taxes, in today's dollars). The included 3-PEAT simulator measures the plan's performance during difficult historical market periods.
9
All of the "experts" advising people to delay Social Security benefits seem to leave out a couple considerations.
First are taxes. It's quite likely a retiree's tax bracket will increase significantly at age 70 after factoring in the R.M.D.s. So benefits that may be taxed at 12% at age 62 could quite likely be taxed at 24% or more at age 70.
And while this article mentions the political risks to SS in passing, it's quite possible that benefits will be cut by a third or so in 2034, the projected date for the exhaustion of the SS trust fund.
And, of course, there's probably a 15-20% chance that a 62 year-old man won't make it to age 70.
I'm far from convinced that it makes sense to delay taking benefits.
14
A lot of people agree with you, and that's why so many begin collecting at 62, and the vast majority before full retirement age. It is very common in the poor, rural area where we live because many people have done physical work that wears them out.
But this article is probably good advice for the NYT demographic.
We were schoolteachers, and in our case, we have hybrid retirement plans and so have SS, small pensions, and state-run (thus low-fee) but self-directed retirement accounts consisting of mutual funds mostly. In spite of the recession, our retirement savings have done very well. We have always lived below our means, which has helped in several ways. We were able to save more over the years, and are used to the lifestyle, so don't spend a lot in retirement. Our house is long paid for, and our only debt is a 0% car loan.
Now my fight is with my husband over whether to spend any of the savings, which are at the top end of this article's assumptions. He feels that they are for end-of-life care, while I say we should spend a little of it now, on travel we may not be able to do after we're 70 or older.
I began collecting SS at 66, and our daughter, who has disabilities and lives with us, was also able to begin collecting SSDI then on my record. Although she works part time during the school year, we are basically planning retirement for 3. We need to be sure there is some savings left for her when we are gone as well, so our son can afford to support her.
9
When to take social security is more complex than just looking at 8% increase each year. 81-82 are my break even ages depending on the comparison. Ned to consider tax brackets, specially when minimum distributions kick in, life expectancy, accidental death risk and probably the biggest risk of all...what will Congress do to benefits. I use to believe in waiting but now I’m thinking get it while I can.
12
this is terrible advice for most people. Unless Mr. Vernon et al know something the Social Security people do not, postponing the start of benefits provides NO economic benefit.
"lifetime benefits are about the same for the average beneficiary regardless of claiming age. For individuals who retire early, monthly benefits are reduced to take into account the longer period of time they are received."
https://www.ssa.gov/policy/docs/ssb/v74n4/v74n4p21.html
It gets worse. The time to even break even can take decades!
For me if I delay retiring from 62 until my full retirement age I don't receive the same total dollars from Social Security until age 78!! It's a personal decision, but I don't want to accept a lower standard of living for 16 years so that I'm happier at age 78, if I'm even alive then. The payback period is even later if I wait until age 70 to start collecting.
You can go to the chart at https://www.ssa.gov/OACT/ProgData/ar_drc.html and use the info to build a table based on your birth year.
11
Wrong. There's most certainly a benefit if you live past the break even age, which many people do. And the longer, you live past that age, the bigger the benefit. Do the arithmetic. It's simple.
6
My wife will take SS at 66, I'll wait til 70 since this will assure the maximum survivor benefit for her.
Survey people who take SS early and those who wait for 70. Who has regrets?
6
With interest rates going up it might be better to hold off on buying an annuity. After the rates go higher, you may get a better deal in purchasing your annuity.
4
Or maybe not. Just another aspect of the gamble. And what do you do in the meantime? And how do you know when the "right" time is to jump in?
2
Work longer? Maybe if you REALLY love what you're doing. Otherwise you'll be missing out on the best and most important years of your life. Consider retiring in one of the countries where your money will go a lot further than the US. I am spending my retirement in a beautiful place, with wonderful beaches, friendly people, interesting culture, great food, excellent medical care, all at a fraction of the price of the US. I won't mention the particular country, but there are plenty of places like this. Do yourself a favor and don't work till you drop. Life is too precious.
22
Please, tell us what country. Or do you not want to share your secret?
7
"Some planners are wary of [annuities] because they can be complex and carry high fees."
I suspect "some planners" turn out to be financial planners who run managed accounts (which have even higher fees and don't perform as well as index funds). I have money in various things, but I recently put about 25% of my retirement savings into an immediate annuity from New York Life (a highly rated icompany -- you have to pick a good one). The annuity will start paying me in 3 years and pays 6.13% to start, with an annual cost of living adjustment. And if I die before I've gotten back all of my investment, the rest will go to a beneficiary. (Without that, the rate would have been higher, but I might get hit by a bus next week....)
This is a FAR better rate than the 4% maximum that financial planners recommend people take out of their savings annually, and I will NEVER have to worry about running out of money. (Also, taking money from a retirement account and putting it into an annuity counts as a Required Minimum Distribution -- you don't have to take it out and spend it, just give Uncle Sam his taxes). But you don't have access to the investment after you put it in the annuity. That's why you can't put all of your money in one.
It's also true that annuities (and everything else about retirement) is complex. I strongly recommend the book "Controlling Your Retirement Destiny" by Dana Anspath. Also, for annuities, go to immediateannuities.com
12
If future inflation is like the recent past this works well. The danger is that the future may look like a different decade.
From the chart at https://inflationdata.com/Inflation/Inflation/DecadeInflation.asp the total inflation in the 1970s was over 100%. In the 1980's it was 64%.
Should inflation pick up again then the annuity payout may end up buying much less that was hoped.
2
My error: "Control Your Retirement Destiny."
Mostly terrible advice here. People get about the same amount of money from Social Security, whether they withdraw early or late. So, why not get it early and steadily instead of waiting until later? You'll get the same amount of money, and you can work some and still get the entire benefit, and, I think, get any penalties on work pay back later (you can earn $17,400 currently before giving up $1 of SS for every $2 you earn). Anyway, beware of anybody saying wait to take SS, that is bad advice, as far as I'm concerned.
9
Why does a 74 year-old who drives cars for a living need a life insurance policy? Is he worried about funeral expenses? Set some money aside in government jobs to pay for that instead. Is he worried that his family won't be able to survive without his income? I doubt it. He can't be making that much as a professional car driver.
Of course we don't have all of the details, but he could be putting his insurance premiums to better uses.
19
How big a funeral does anyone need, anyways? I arranged my late father's cremation for $700 a few years back. The VA gave his ashes a nice internment in the local VA cemetery, with a beautiful bronze plaque. The family gathered after the plaque was installed, for a small prayer group (organized by ourselves). Cost: $0.
Even a relatively "fancy" funeral might be $10,000. Why would that require an extra job at 74??? does this man really have an estate of less than $10,000?
8
That 8% carrot seems to blind financial folks to the reality that by retiring early and taking the smaller checks you will eventually end up with the same amount or more should you die which we all do, some earlier, some later.How much more money do you get by working till 70 but dying at say 75? Hedging your bets, pay into long term care insurance in the event you win the DNA lottery and live longer than average but need care so your dwindling savings are not wiped out.
10
Dee - Obviously, if you die at 75, you would have been better off starting benefits earlier, but if you live anywhere past your early 80's, you come out ahead, and then you continue to get the larger payments for the rest of your life. The upside of this can be quite substantial.
7
jr: you are deficient at math. The SS Administration has done the actuarial work for us here! the money is calculated at average life expectancies, so if you take it earlier you get less -- take it later, get a bit more -- but you ARE GOING TO DIE ANYHOW.
You have a limited number of years. Do you want to spend them relaxing in Florida or playing with grandkids -- or sitting at a desk working to get a few extra bucks?
You can't spend that extra money in heaven.
The money is ADJUSTED so you get the same amount in retirement over all -- don't count on living to 100.
10
Concerned Citizen - This is not even math. It's just arithmetic. And even though I have training in actuarial science, you don't have to be an actuary to figure it out.
According to my Social Security statement, if I start taking benefits at 62, I'll get $17800/year, FOR LIFE. If I wait till 70, I'll get $31250. Using a straight line accumulation, for simplicity's sake, and assuming the payments will be spent rather than saved and invested, by age 81, I'll make up the deficit incurred by not receiving the $17800 for 8 years. After that, FOR AS LONG AS I LIVE, I'll receive $13450 more PER YEAR than if I had started at 62. Project that out just a few years and we're talking real money. Even if I only delayed taking benefits until 66, I would still get $7100 more per year, but the catch-up date would be 3 years sooner.
Of course the benefits are based on statistical averages. And of course we're all gonna die. The question is when. Ultimately, it's a crapshoot, but if you have a healthy lifestyle and longevity in your family, odds are you'll beat the average.
When it comes down to it, Social Security is really old age insurance. You can make the case that it's not worth working longer just to get a bigger benefit, but in the event you do live longer, that bigger benefit will be very meaningful. If you can swing it, and you think you'll beat the average, and you believe the benefits will still be there when you get older, you're better off delaying, at least till 66.
15
This article can be reduced to just two things: working longer and spending less. Hardly useful information. What about strategies for maintaining a fixed income cash flow such as a CD ladder or adjusting investments to lower risk?
37
An article about "pensionizing" one's savings should have gone into more detail about annuities beyond saying "many of them are complex and larded with fees". After all, annuities are the traditional way of doing this.
Having recently retired from a freelance career, and having saved a substantial amount of money, I am currently struggling with the choice of buying an annuity versus simply amortizing my savings on my own (or some combination thereof). From the research I've done so far, it appears that, despite whatever costs are built in, the payouts from annuities appear to be pretty good, and, of course, are guaranteed, at least for your life, or for a period certain, with a slightly lower payout. Furthermore, just like with Social Security, the longer you live, the better you make out.
Going the self-amortization route is a gamble in it's own right. It leaves you having to continue investing your money and hoping for the best. With the market at an all-time high right now, the downside risk with equities is significant. And fixed income returns, while trending upward, are still pretty meager. As someone who's kind of wrung out from all the ups and downs in the investment world I've lived through, the case for dispensing with the guesswork and uncertainty, taking my profits, and converting what I have into a guaranteed income stream, is very compelling.
21
Don't forget that annuities are generally sold and handled by insurance companies whose self-interest rather than yours is paramount. Wouldn't trust them myself. The Vanguard Target suggestion from Anthro seems sound.
7
Scout - Insurance, of which annuities are a form, is obviously a form of gambling. And annuities are basically the reverse of insurance policies - instead of making a stream of periodic payments into a fund for the promise of a lump sum payout upon the occurrence of some event, you make a lump sum "pay-in" for the promise of a stream of payouts over some specified period. The insurance company is no more self-interested in winning the bet on your life expectancy than you are.
The bottom line is, there's risk no matter what route you take. The Vanguard Target fund is a market investment, and it could easily tank. What's sound about that? At least with an annuity, there's a guarantee. You pay for it in the short run, but in the long run you can come out way ahead.
4
Is that the solution..work longer? There is a lot of age discrimination out there. They ask you "how long do you plan on being here, when did you graduate high school?" It is not that easy to stay employed until you are 70. Companies did away with pensions and that was a mistake. They should have made a pension contributory. Companies use the excuse of "downsizing" to get rid of employees. Then they give you a spreadsheet with various ages, that were terminated, so you cannot sue them for age discrimination. It is all about share holder value. They feel that once you get past 50 you are no longer valuable. And they don't often contribute to the 401K. It is up to the employer, if they had a "good year". I worked for a company for 18 years and only received 3 matches during that time period. The money in my 401K was 95% my money.There has got to be a better way because these companies are certainly not looking out for their employees.
59
401Ks are supposedly that "contributory pension" and how's THAT worked out? a pension has to be mandatory for both employee and employer or it is useless. People have no concept of the future -- not when you are young, and have demands like mortgages, kids, college, etc.
However, you are correct about trying to work past 60. It is nearly impossible. Nobody will even read your resume. They can figure out your age by how long you've worked or when you graduated. You are an expensive liability if they have health insurance. Why train you, when you will retire or get sick or die in a few years?
Heck, the discrimination starts as young as 45 or 50! and the author thinks you can just "get a job" at 62????
My husband got a match to his 401K this year. It was 1%. Whoopee!
14
Yeah. Work until you are 70 - are you kidding? Even if you want to, try to find a company that wants a 60+ person around until they are 70... Next idea.
26
Why not simply put the 400K in a low expense fund, say a Vanguard Target, and request a monthly payout of 3.5%? Later at 70 1/2 they can set up the required withdrawal to meet IRS demands.
23
OR take your SS as intended -- at 65, unless illness forces you out at 62.
Then learn to live within your means.
Funny the author never mentions that. Retirement means DOWNSIZING. That is appropriate as we enter the last phase of our lives.
Most people don't need a big house or fancy apartment, or a new car every few years. Many seniors would do very well to get a roommate (if they are single) ala "Golden Girls" and split the rent, vs. working 8 more years.
5
Good idea. But how do you plan for the abusive employer who makes sure no one over about 60 except management gets to keep their jobs?
56
My husband intended to keep his last job -- imperfect as it was -- until retirement at age 65 or 66. He was there for 15 years, with outstanding yearly evaluations and regular raises.
But the company decided to quietly axe older employees (despite no pensions and only a self-funded 401K plan) so they started letting people go. My husband was laid off at 62.5 and he was told "well, you can just retire now and get SS, right?" He was shocked at the suggestion!
To get a very meager severance package, he had to sign an agreement not to sue for age discrimination -- paperwork so elaborate, the company had to have known and consulted an "expert" to be sure they were not sued.
He did find another job, but without the seniority, health insurance or vacation time he lost after 15 years at his old job. There is no time now at 64 for him to move up or be promoted anyways.
He was very lucky to find ANY professional job at all, and not be forced into retail work.
To say "he has to work another 6 years until 70" is just cruel. What if your health declines dramatically after 70 as it does for so many -- and you just wasted your last healthy years working some crap job? for what? MONEY IS NOT EVERYTHING.
Money cannot buy you TIME.
Time is priceless.
32
Now that we are living longer on the average, 70 is the new 65. The government should take more aggressive steps towards that transition when it comes to social security and medicare benefits.
7
But it depends on the job. If you work at a desk in an office, that's one thing. If you do manual labor that requires physical strength and agility, or if you work in physically dangerous conditions, etc., 70 is more like 90—if you can even get to 70.
42
I got laid off twice in my 50s. Years back, there were unions that protected people. My father retired at 63, which was the defined age for his job, with a pension and health care.
55 is the new 65.
9
Actually, life span is decreasing in our country. Depressing.
3