The road to retirement turns bumpy for many Americans as they mull the best time to tap Social Security benefits. Law professor Richard Kaplan, an expert on Social Security who has written a guide to help steer prospective retirees, offers some tips in an interview with News Bureau Business & Law Editor Jan Dennis.
Kaplan’s just-published guide is available here.
A News Bureau release on the guide is available here.
More than 75 percent of Americans claim Social Security before their full retirement age, even though it trims monthly benefits for the rest of their lives. Why do you think the early benefit option is so popular?
I hope that there aren’t too many people who think that Social Security is going bankrupt, so they rush to get their money out while they can. Even though that’s a myth, I think there may be some unfounded panic about the solvency of Social Security.
But I think one of the biggest factors is that a lot of people are finding themselves involuntarily retired. Their company closes, and they’re laid off at age 55, 58 or 61. They want to find another job, but can’t or can only get one with far less pay. So they need Social Security to live on or supplement their income. They have rent and bills to pay, so they start Social Security benefits at the earliest possible date.
In general, are people better off waiting to claim benefits?
Usually yes, if they can afford to wait. The longer you delay, the bigger the monthly benefit. People in line for a $1,000 monthly benefit at full retirement get just $750 if they claim as soon as they are eligible at age 62. That 25 percent cut isn’t just for now, it continues for the rest of their lives.
Some people also should consider holding off on claims after their full retirement age, if they have pensions, 401(k) plans and other income to live on. Until age 70, the benefit increases more than 7 percent a year with virtually no investment risk. At 70, there’s no reason not to claim because the benefit is maxed out.
With those long-range advantages, why is deciding when to claim benefits so tough?
Everyone’s circumstances are different and there are so many factors to consider. Among others, there’s health insurance, plans to keep working, their need for money to live on, health and medical history, and the age and health of their spouse, who succeeds to the benefit when they die.
Life expectancy is the biggest X factor. I somewhat facetiously tell people that I can help make the optimum decision if they tell me just two things: What month are you going to die and what month is your spouse going to die?
How does Social Security compare with traditional pension plans?
It’s unbelievably generous, giving full benefits to surviving spouses, minor children, and even benefits for divorced spouses if the marriage lasted 10 years and they haven’t remarried. There’s nothing comparable to that in any private pension plan.
Social Security is not simply a retirement program. There’s a huge social welfare component, trying to insure against life’s calamities – premature death, disability, divorce in a society where women may not have had a lot of economic opportunities.
If we were designing Social Security today, I don’t know that we would be so generous. To some extent, it’s sort of an artifact of its creation in 1935.
