Opinion: This Social Security blunder costs the average woman $130,000

Here is shocking and depressing news. The average healthy woman throws away more than $ 130,000 worth of retirement benefits when she starts getting social security benefits as soon as possible at age 62.

And yet, roughly two-thirds of women do just that.

It’s like buying a brand new Porsche 911 the day you retire and just knocking it off a cliff.

So betray Sophia Duffy, Professor at the American College of Financial Services, Michael Finke, also at the American College, and David Blanchett, Head of Research at Morningstar.

They found that an average income woman gives up about $ 130,000 in retirement benefits if she chooses to start drawing social security benefits as soon as possible instead of waiting until she is 70 for her benefits to max out. For a high earning woman, the loss from the deposit of 62 is a whopping $ 180,000. (At these levels, not only does she knock a Porsche off a cliff – she is on the verge of wrecking a new Ferrari Portofino.)

For men, the sums are smaller because we don’t live that long, but they’re still pretty hefty. An average-income man who starts filing claims at age 62 will forego a nearly $ 90,000 retirement pension, the researchers calculate. For a high earner, the number is over $ 150,000.

Yikes But where do these sums come from?

The researchers talk about real returns, TIPS bonds, and discount rates to get a net present value for our social security benefits. A crude, but easier way of doing this is to imagine what our social security benefits would cost if we had to buy them on the private insurance market.

If we could – what we can’t.

After all, social security is the most valuable retirement product. It is a lifelong annuity supported by the United States government that pays us a monthly income for life whether we are 69, 89, or 119 years old. Oh, and most importantly, it’s guaranteed against inflation. We can argue about whether the government measures inflation accurately when calculating the annual cost of living adjustment, but it’s better than nothing. And that is exactly what most private sector lifelong pensions give you: Nothing.

Thanks to social security, we can make claims at an early age of 62. However, the earlier we make claims, the less we receive each month. Wait until we are 70 and we are getting almost twice as much each month as if you were starting at 62.

It is not always easy to clarify a topic. Many people, especially those on low wages, claim by the age of 62 that they really have no choice: they need the money now. Many others wonder if they will live long enough to make delays profitable. At 62 years of age, the average man can expect to be around 83 years old, and the average woman until she is 86 years old. says the Centers for Disease Control and Prevention. But someone who waits until they’re 70 to claim benefits isn’t really ahead of the game until they make it to nearly 80 anyway.

But there is a crease. Actuaries, economists and financial planners call it “longevity risk”. We don’t know how long we’ll live. And we all want to protect ourselves from the danger of outlasting our savings.

And this is where social security is worth more than it seems. It’s not just a valued source of income. It is a guaranteed, inflation-adjusted, source of income for life.

You couldn’t buy stuff like that now, even if you wanted to. Inflation Protected Government Bonds (TIPS) pay interest rates or yields that are now below the rate of inflation. (Short-term TIPS are guaranteed to hurt your purchasing power by about 2.5% a year. We may wonder how something that is guaranteed to inflation us can be marketed as “inflation protected.” The simplest answer is that it does is being sold by the government and who is going to stop them?)

Duffy, Finke, and Blanchett cite studies showing that around two-thirds of all women make social security claims by the age of 62 and 95% by the age of 65. That literally means throwing money away.

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