Don’t Plan on Being Average

Even if you are years away from retirement, it’s never too soon to start thinking about how you’ll get there—and how much you’ll need when you are ready to put your working days behind you. Gail Buckner, CFP®, examines the importance of planning for a long retirement, and emphasizes the importance of a decision she says many people don’t give enough thought about—when to take Social Security benefits.

It’s not exactly shocking that Americans say their top retirement worry is income.1 What’s interesting is that we’re not just talking about baby boomers, the generation currently entering or approaching retirement. Franklin Templeton’s 2016 US Retirement Income Strategies and Expectations (RISE) survey of more than 2,000 adults as young as 18 years old found that more than half expressed worry about being able to successfully manage retirement assets (which include Social Security, pensions and individual retirement accounts) so that they can cover retirement expenses.2 And, 30% of survey respondents said their top concern during retirement is or will be running out of money.3

There are undoubtedly good reasons for this angst: the increasing cost of health care, worries about federal proposals to change the taxation of some retirement accounts and plain old fear of the unknown. There’s also the length of time we are likely to be “retired” and having to supply our own paychecks.

Living Longer Than Ever

Increased longevity is regarded as one of the most positive achievements of the 20th century. In 1900, you beat the odds if you made it past age 47, which was the average life expectancy for both men and women.4 By 1950, that had increased by 21 years to age 68, and as of 2010, average life expectancy was more than 78 years.5

According to the Centers for Disease Control and Prevention, 25 of those additional years of life in the 20th century are attributable to “advances in public health.”6 These include medical breakthroughs in the prevention and treatment of heart disease, safer childbirth, improvements in sanitation, greater understanding of food safety (did I hear someone say “refrigerator?”), improvements in motor vehicle safety, fluoridation of drinking water, a decline in the use of tobacco products and the development of vaccinations that prevent diseases such as smallpox (eradicated), influenza, polio, diphtheria and others.7

And, while there are still longevity differences between men and women and among races, these differences generally range from a few months to a few years. In other words, every single American alive today can generally expect to live a decade or more than their grandparents did.

Gains Late in Life

The potential problem with planning your retirement budget based upon “average” life expectancy is that it may understate how long you will actually live. For instance, if a newborn can survive childhood diseases such as measles and chickenpox, there is a higher likelihood that he or she will reach age 20. If a teenager manages to avoid a serious car accident (“No texting!”), he or she has a higher probability of making it to at least 30.

In the first half of the 20th century, much of the increase in life expectancy was due to innovations or discoveries that helped individuals survive to adulthood. However, since the latter half of the 1900s, the biggest improvements in life expectancy have been occurring at the opposite end of the age spectrum. The US Census Bureau predicts that “by 2030, more than 20% of US residents are projected to be aged 65 and over, compared with 13% in 2010 and 9.8% in 1970.”8 Back in 1950, if you made it to age 65 you could, on average, expect to live another 14 years and celebrate your 79th birthday.9

According to the latest report form the National Center for Health Statistics, someone age 65 today is likely—on average—to live another 19 years, to age 84.10 Again, there are differences between males and females and by racial/ethnic background. By definition, “average life expectancy at 65” means that half of the folks who are 65 today will die sooner than the age predicted and the other half will livelonger, and in some cases, substantially longer. If you’re lucky enough to live longer than average, you could spend down your assets too quickly and run out of money before you (or your spouse if you are married) run out of life. The fact is, your life expectancy goes up the longer you live. Half of individuals who are 75 today can expect to be around for another 12 years, reaching age 87.11 If they beat the average and manage to celebrate their 90th birthday, their life expectancy will again be revised higher. Someone age 90 today is expected to live to age 95.12

The Social Security Puzzle

Increased longevity is not a big secret. Just about everyone knows of someone—either in their own or a friend’s family—who is still alive and in their late-80s or 90s. And yet, when it comes to starting Social Security, most of us don’t seem to think it applies to us.

Full Retirement Age (FRA), defined as the age at which you receive 100% of your Social Security benefit, is age 66 for anyone born from 1943 through 1954. For those born in 1955 or later, it gradually begins to increase, by two months per year, until it reaches age 67 for those born in 1960 or later.13

Starting Social Security before FRA can be costly. Your benefit is reduced to account for the fact that you are receiving it “early.” For example, if your FRA is 66 and you file for Social Security benefits based on your work record at 62, the earliest age possible, your monthly benefit will be reduced by 25% permanently. Over the course of potentially 20-30 years in retirement, this can result in literally tens of thousands of dollars less in cumulative income.

In a joint survey by AARP and the Financial Planning Association, 77% of consumers said that maximizing their benefit is very important.14 Despite this, more than half of current Social Security beneficiaries filed before they were FRA, locking themselves into significantly lower benefits. According to the respondents in Franklin Templeton’s 2016 US RISE survey, 40% did so or expected to do so simply “because I was eligible.” What’s interesting is that 20% of retired RISE survey respondents said they wished they waited to begin collecting benefits, and another 10% didn’t know if they made the right decision as to when they filed.15

Delay if You Can

Among Americans age 80 and older, Social Security makes up 70% of the income they receive.16 Yet, clearly, there is considerable misunderstanding about when to start this critically important retirement income! Americans not only underestimate the reduction they get by starting prior to FRA, most are unaware that they can increase the size of their check if they delay the start of benefits past FRA.17

Thanks to the Delayed Retirement Credit, Social Security increases your check by 8% for every 12 months that you postpone filing after you reach FRA. Assuming your FRA is 66, waiting until age 70 to start Social Security means your benefit will be at least 32% larger.

Now that Congress has phased out two claiming strategies (“file-and-suspend” and “file-and-restrict”) that were available to boost benefits, the single most important factor affecting the amount of your Social Security check is the age at which you file. If you are married, it is critically important that this decision be coordinated with your spouse.

It’s not the job of the Social Security Administration to advise you on these very personal decisions. It will provide information and clarification, but do not expect the people there to tell you the best way to file. This requires knowledge of many factors, including your total financial picture, your health (and that of your spouse if married), expenses, tax bracket and whether you wish to preserve certain assets so that they can be left to heirs.

In short, unless you have no choice and need the income, deciding when to begin Social Security requires thoughtful consideration. It needs to be incorporated into your overall plan for providing yourself with retirement paychecks for literally the rest of your life. Moreover, with only a couple of exceptions, you only get one chance to decide.

If you have never used a financial advisor before, I can’t think of a better time to find someone who can help you determine the optimum age(s) to file based upon your personal circumstances. An experienced advisor will also help you decide if it might be better to withdraw retirement income from your investments for a few years in order to postpone the start of Social Security.

Gail Buckner’s comments, opinions and analyses are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. Because market and economic conditions are subject to rapid change, comments, opinions and analyses are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the United States, which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

This information is intended for US residents only.

Important Legal Information

This material is being provided for general informational and educational purposes only and should not be considered or relied upon as investment, tax, accounting, or legal advice, an investment recommendation within the meaning of any federal, state or local law, or used as the primary or final determinant of the best strategy on how and when to claim Social Security benefits. It is believed to be reliable; Franklin Templeton Investments (FTI), however, makes no representations or warranties as to its accuracy, completeness or timeliness. It does not provide a complete analysis of every material fact regarding the Social Security program. The hypothetical scenarios are estimates, based on assumptions, and designed to provide a general understanding of the impact of different Social Security benefit claiming strategies. Helpful information can be found at the Social Security Administration’s (SSA’s) website: FTI accepts no responsibility for content on the SSA’s website or other third-party websites. Social Security benefits claiming decisions can be complex and depend on various personal factors besides your age or retirement date, including, but not limited to, your: personal circumstances, needs and individual goals; legal and financial considerations; and tax laws, consequences and status, some or all of which can change frequently. We strongly advise you to consult with the appropriate financial, legal, accounting, tax or other applicable advisors about your specific circumstances and individual goals. All financial decisions and investments involve risks, including possible risk of loss.

1. Source: Franklin Templeton 2016 US Retirement Income Strategies and Expectations (RISE) survey, conducted online among a sample of 2,019 adults comprising 1,011 men and 1,008 women 18 years of age or older. The survey was administered between January 4 and 18, 2016, by ORC International’s Online CARAVAN®, which is not affiliated with Franklin Templeton Investments. Investors in the United States can visit for more information.

2. Ibid.

3. Ibid.

4. Source: US Centers for Disease Control and Prevention, life expectancy

5. Ibid.

6. Source: US Centers for Disease Control and Prevention, “Ten Great Public Health Achievements: United States 1900–1999.”

7. Ibid.

8. Source: US Department of Commerce, Economics and Statistics Division, US Census Bureau, “An Aging Nation: The Older Population in the United States,” May 2014.

9. Source: US Centers for Disease Control and Prevention, life expectancy

10. Source: National Vital Statistics Reports, Vol.64, No. 11, September 22, 2015.

11. Ibid.

12. Ibid.

13. Source: US Social Security Administration Retirement Planner: Benefits by Year of Birth.

14. Source: AARP press release: “FPA, AARP Joint Research Reveals Enormous Social Security Knowledge Gap,” September 28, 2015.

15. Source: Franklin Templeton’s 2016 US RISE survey.

16. Source: Consumer Financial Protection Bureau, “Issue Brief: Social Security Claiming Age and Retirement Security,” November 2015.

17. Source: Financial Planning Association and AARP, “Social Security Planning in 2015 & Beyond: Perspectives of Future Beneficiaries and Financial Planners.”

© Franklin Templeton Investments

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