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.”

Shortly thereafter, Schroders 2025 U.S. Retirement Survey stated that 44% of non-retirees plan to file for Social Security benefits before reaching age 67 (the full retirement age for everyone born in 1960 or later) — and “just” 10% plan to wait until age 70 (when an individual reaches their maximum monthly benefit). And, sure enough, the retirement industry commentary that followed was largely in the vein of “can you believe people are ignoring all this free money?”

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

 

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[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.

The Big Retirement Question

I’ve been honored with a lot of praise and congratulations over the past couple of months about my “retirement” (and not a little skepticism about my understanding of the term) — but in quiet moments, there’s been one question that keeps coming up.

That question — and it generally arises once topics like “what are your plans,” “are you going to move,” and “can your wife really stand having you around all the time” have been broached — is, quite simply, “how do you know when it’s time to retire?”

Honestly, it’s a complicated question, and one to which the answer is deeply, even intimately, personal.  For many it’s not their choice, of course. Surveys suggest that for significant minorities the timing is imposed on them by external factors; a job layoff, a physical impediment, or perhaps caretaking responsibilities. While none of those were factors in my decision, at the outset, it’s worth bearing in mind that the “when” is not always in your control.

For most people — including THIS person — the calendar plays a role. Sixty-five is one of those milestone markers to which folks (and plan documents) still “anchor” — I say “still” because full retirement age under Social Security for today’s retirees is no longer 65. You don’t actually have to be retired in order to claim Social Security — but as I eyed that decision point, I had Social Security’s marker in mind. The reality is that there remains a certain age range in which thoughts of retirement can be considered “normal.”

Regardless of age (or Social Security) considerations, a big focus of my retirement timing was about finances. More specifically, first knowing how much our monthly living costs (and that knowledge is a lot more accurate closer to actual retirement than it would have been 30 years ago). That said, it remains something of a moving target, what with surging gas prices, and the reemergence of inflation. We tend to live within the bounds of a known paycheck, one that often (though not always) makes an effort to keep pace with such things. As one contemplates the uncertain “certainties” of a more-or-less “fixed” income — well, when you’re looking out over a financial future that is likely to be twenty years — or more — even the most prescient crystal ball gets a little fuzzy.      

All that starts with a baseline, of course, and thanks to my wife’s spreadsheeting and budgeting skills, it was pretty easy to extrapolate what our baseline expenses would be once work-related expenses (including things like 401(k) contributions) were behind us, including a cushion of sorts for the travel we have in mind, and some “new” considerations for things like healthcare.[i]    

With that financial floor established, we then had “only” to see what regular sources of income[ii] we had to meet those expenses. In that regard, we were fortunate — able to structure regular streams of retirement income that exceeded our baseline expenses while still preserving the larger pools of retirement savings that we had set aside over our working careers for things beyond that baseline out into a distant future. 

At that point we had dealt with what for many is the big obstacle — knowing that we could afford to walk away from that regular paycheck, and that we could maintain our current lifestyle. Now, that wasn’t the first time we had run through those estimates — doing so had already helped us establish savings goals over the years — but the calendar provided a specific focus with regard to timing.

And then COVID hit. 

That turned out to be a mixed blessing. For all the awful, scary things that came with the pandemic, it gave me and my wife of (then) 35 years an extended period of time together in close quarters. Our nest was empty, but for two four-legged children — and it affirmed not only our relationship, but the comfort of knowing that I could be not only content, but happy being at home. Make no mistake, if there’s one big regret that one hears retirees express, it’s that they weren’t ready for the shift to a home focus (not to mention their spouses). COVID provided me with a real-world preview of that experience — and even with the interruptions of incessant Zoom and Teams calls (or perhaps because of them?) — I could tell I was … ready.

So, how do you know when it’s time to retire? Well, for my money (literally), you need to have the interest — the motivation — to seek less of the “what you have to do” so that you have more time for the things you want to do. That needn’t be age-related, of course — but life’s ongoing obligations sometimes require a deferral of the latter in the interests of the former. 

To that point you also need to have the money figured out — because the things you want to do may not put food on your table or a roof over your head. That said, you might find that you can live more simply, or live elsewhere — and enjoy life more with…less. It’s easy to get caught up in the pace of work and life — and to push off for another time the opportunity to “smell the roses” — all the more so if you love and enjoy your work.     

Finally, it’s really important to have the right mindset to be ready to step outside the confines of a W-2 employment structure — that you have people or interests or hobbies that can (continue to) provide meaning, fulfillment, and joy in this next chapter of life.

It’s still early days for me in this new chapter — and I’ll concede that by most outward appearances I haven’t retired at all. Trust me, like any new “job” there’s a learning curve. And I’m working on it.

- Nevin E. Adams, JD

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[i] We didn’t appreciate it initially, but to date Medicare planning has proven to be the most stressful because, while the coverage is surprisingly good, premiums are income-based — and Medicare starts with the last official income number it has — your 1040 AGI…FROM TWO YEARS AGO. Perhaps needless to say (except to Medicare), my post-retirement income is less than it was two years ago — but, fortunately, we were successful in making our case on that point.

[ii] I (finally) consolidated my 401(k)s. I’m happy to say that the depositing of those savings has gotten a LOT more efficient over the years. However, I’m disappointed to say that getting those funds OUT is about as tedious as it has always been (one of the reasons I had put off consolidation) — and EVERYONE, it seems still insists on doing so via a hardcopy check that has to get to you via the U.S. mail (though you CAN pay a ridiculous premium to expedite that delivery) — UNLESS you’re rolling it over to an IRA on their platform. Gee, I wonder why…