Why Most Retirees Lose Thousands
Every day 10,000 baby boomers retire. Most of them immediately file for their Social Security retirement benefits. In so doing, retirees lose tens to hundreds of thousands of dollars in lifetime income.
Taking benefits right away can cost you dramatically in two ways.
First, you receive much smaller Social Security retirement benefits for the rest of your life. Taking your retirement benefit at 70 means a 76% higher check each month than taking it at 62.
Second, consider if you took your Social Security retirement benefit before 70. You could lose the opportunity to take another benefit before 70 while letting your retirement benefit grow.
The Sad Story of Joe and Sally
Meet Joe and Sally, who just turned 62 and retired. They earned the same amount annually, and their full Social Security retirement benefit is $3,000 per month.
Joe and Sally go to their Social Security office and meet Joan. She encourages them to take their retirement benefit right away. Otherwise, she argues, they could die and get nothing for all their years of contributions.
They file for their retirement benefits and start collecting $1,875 a month from Social Security. This is only 75% of the $3,000 benefit they’d get by waiting until Full Retirement Age (66). It’s less than half the $3,960 they’d receive were they to wait until 70.
Then, Joe passes away. Sally is devastated. She hears at Joe’s funeral that she can collect Joe’s Social Security retirement benefit as a widow’s benefit. So, she goes to see Joan.
Joan explains that since Sally took her retirement benefit early, they’re not going to give her two benefits at once. But they will give her an excess widow’s benefit. Also, she will receive her retirement benefit. She’ll get it every month and it will be adjusted for inflation.
The Vanishing Excess Widow’s Social Security Benefit
Unfortunately, Joan does the calculation. Unfortunately, Sally’s monthly excess widow’s benefit will be zero. It’s calculated as the difference between her widow’s benefit and her retirement benefit. Her widow’s benefit is always going to be lower than her retirement benefit. All this happened simply because Joe took his retirement benefit early.
Sally consoles herself by saying that she’s definitely not going to make it past 70. So, at least she’ll get her own retirement benefits before she joins Joe.
The years roll by. Sally hits 70. And then she makes it to 80. And then 90. She tells her doctor: “Every day I wake up and kick myself for taking retirement benefits early.”
Her doctor says: “You are as healthy as a horse. My bet is you’ll be one of the 3 million centenarians the U.S. Census Department predicted could be around by now!”
This is how retirees lose money every year. It’s sad, but you can prevent it happening to you.
Why People Claim Social Security Early
What explains Joe and Sally’s behavior?
People are strongly superstitious when it comes to longevity. Retirees lose money every year when they ignore the facts. They fear that thinking about the fact they could long lives could jinx it.