Let’s Stop Shaming the Claiming
The most recent “debate” was inspired by a recent Wall Street Journal article by Derek Tharp — an associate professor of finance at the University of Southern Maine — titled “Why Delaying Your Social Security Benefits May Not Make Sense.”
But it was the Wall Street Journal article that appeared to draw the most critical fire — largely from academics, and mostly (it seemed to me) quibbling about some of Tharp’s math assumptions (when you’re guessing, even rationally, at things that can’t be precisely quantified, there’s always going to be room for “quibbling”), and his apparent presumptions about relative levels of risk. But the critiques that I saw were more focused on his temerity in suggesting that there might actually be legitimate rationales for not waiting till age 70. Even though the subtitle of the article was a fairly innocuous “Most people don’t actually wait until age 70. For at least some[i] of them, it makes a lot of sense.”
Indeed, it’s hard to read an article about Social Security these days that doesn’t proclaim the financial benefits of waiting till 70. Oh, there are caveats such as “if you can afford to wait…,” but the clear message is the “right” answer is to wait. And, at least to my ears, anyone who suggests otherwise is just being…dumb at worst, or selfish[ii] at best.
There’s little question that waiting till age 70 gets you a higher monthly benefit. However, waiting till age 70 does NOT guarantee that you’ll collect more in benefits, in that some people don’t live as long as the actuaries predict they will — and likely some choose to claim earlier than they might because they fear (or know) that will be the case. Meaning some simply want to maximize the total dollar value of the benefits (or its “utility”), rather than take a chance on their longevity.
Moreover, some folks can’t afford to wait — some are concerned that Social Security benefits will be reduced and/or means-tested (more) if they wait[iii] — some would rather take the money now and invest it — and some just don’t see any reason to wait to collect their “full” retirement benefit.
I understand and appreciate that for those who haven’t managed to save enough, it’s been suggested that a good strategy is to use the savings you do have until you’re 70 — bridging that savings gap till you can maximize your monthly Social Security benefits for the remainder or your retirement. There’s also the consideration of a spouse, who might well outlive you, and who would presumably appreciate and/or need the higher benefit you get from waiting.
But it occurs to me that many in the financial services industry — and certainly in the media that quotes them — are increasingly prone to labeling those who take those well-earned benefits “on time” as being foolhardy at best — or stupid.
To that point, I’d like to suggest that there is actually a “right” answer that is not 70 — it’s what the folks that structured the program envisioned — your full retirement age, or FRA.[iv] If you take it earlier than that, you get penalized by getting a smaller monthly benefit. If you wait past that date, you get a proportionately higher benefit, but only until age 70. In theory, the actuaries say those decisions all add up to the same benefit — but for “regular” people, the answer is a reality, not a theory.
That’s not because of the logic or assumptions that Professor Tharp laid out — there’s plenty of “wiggle” room in the math to argue either way. But there’s more to these types of decisions than “the math” — and I think some people get so caught up in a slide rule[v] exercise they forget that there are real, rational, personal reasons for the timing of the claiming decision.
Let’s be straight with people about the tradeoffs — acknowledge the financial realities, and respect — individually, if not collectively — that there actually might be legitimate reasons for claiming those hard-earned benefits at different points in time.
But please, let’s quit “shaming the claiming” until/unless we know the particulars of their individual situation(s).
- Nevin E. Adams, JD
[i] Italics mine.
[ii] Selfish in that they’re — and here the culprit is usually a male — not considering how important that larger benefit will be to their surviving spouse.
[iii] Yes, I know nobody thinks anybody who ever wants to be reelected will ever let current benefits be cut, but these days one can hardly be blamed for opting for a “bird in the hand” solution.
[iv] At this point I should “confess” that I started claiming at MY FRA — with no regrets.
[v] A dated reference, for sure — but check it out.
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