And That Has Big Financial Implications
“Once again, I completely disagree with Jeff…”
I always like reader emails to me that start that way. I don’t say that to be snarky. I mean it from a constructive viewpoint. To me, it’s a chance to go deeper into a topic than I typically do in these (relatively) short daily dispatches.
Or it’s a chance to, maybe, sway someone’s thinking by showing them a different way of considering a topic.
The topic at hand for this reader was my Oct. 2 missive on why I think it generally makes a lot more sense to hold off on claiming Social Security until you’re 70, rather than claiming it early at 62. In a very tiny nutshell: The 8% annual increase that accrues when you’re waiting those eight years is the best investment return in the country for what is literally a lifetime-income annuity.
But this reader had a different take—a take I’ve heard routinely in the 20-plus years I’ve been writing about Social Security.
First—did you see? The Social Security Administration announced this week it’s hiking retiree benefits by nearly 6%…the largest increase since Reagan was racking up huge debts. Just more indication that real inflation is coursing through the economy. The pay raise is nice, of course, but I suspect it’s not going to adequately cover the consumer-cost increases that are robbing retiree wallets.
That’s a different column, though.
So, back to the reader’s email (and I’ve slightly tweaked this for clarity):
Please let Jeff know…
- Average life expectancy for a white male is 77.3. So, Social Security at 62 vs. 70 means that if you collect $2,022 at 62, you get $364K before dying. If you collect $3,561 at 70, you get $299K. So, you lose $65,000!
- You assume you’ll even live to 70. Die before 70, and you collect even less.
A BIRD IN HAND IS WORTH 2 IN THE BUSH.
Totally understand. The math is the math.
Alas, the math is wrong because the data in that equation is wrong.
The flawed variable is the average life expectancy.
While 77.3 years is correct, it’s correct at birth. The average American male—at birth—will live to see just over 77 years.
But we are not newborns when we first confront a decision to collect Social Security.
We are 62 years old.
And at that point, actuarial tables look very, very different.
From the Social Security Administration’s own website, those of us with a Y chromosome who reach 62, can expect to live another 20.28 years. Like I said, this is actuarial science and it’s based on the Administration’s own history with Social Security payouts.
The data is from 2019, that’s the latest, so it’s slightly stale. But I can tell you from spot-checking data from random years in the recent past that life expectancy for 62-year-old men is rising. (Yay, us.)
So, what does that mean?
Well, using the same numbers as above ($2,022 v. $3,561) and assuming we live precisely to our actuarially projected date with the ferryman, we collect:
- $492,074, if we claim Social Security at 62.
- Or $524,749, if we claim at 70.
Waiting until 70 is a nearly $33,000 victory.
By the way, make it to 70, and actuarially speaking you’ll almost hit 85…so the victory is even sweeter.
As for the second part of that argument—die too soon and you’ve screwed yourself—there are two additional points to address.
First: You’re dead. You won’t know you screwed yourself. That’s not a flippant answer. We (humans) like to apply living-world emotions to a post-mortem non-existence. That’s a flaw. Dead men tell no tales. They also regret nothing.
Second: Flip the argument. What if instead of dying too early, you live too long? My maternal grandmother was born in 1921. Her sister was born a couple of years later. Life expectancy at birth for both was right around 60 to 61 years.
Both died in 2017, well into their 90s.
And both received a Social Security check every single month until death.
So, the “You-could-get-hit-by-a-bus-tomorrow” argument—what I’ll all the Bus Factor Fallacy—is just one side of a coin.
If you’re worried about Bus Factor Fallacy, then, logically, you also have to be worried about the Centenarian Possibility—i.e., never meeting that homicidal bus and, instead, living too long on inadequate income.
Otherwise, you’re not giving honest consideration to all the risks you face.
All that said, I stand by my initial analysis…
I’ll wait to grab those two birds in the bush.