Too many people believe they won't live very long and base
retirement plans on short life-expectancies or the assumption that retired
people are couch potatoes and don't need to spend much. These assumptions are
dead wrong for active and relatively healthy people. They lead to bad decisions
about Social Security, savings and spending — leading to impoverished and
inactive elderly lives.
The elderly with enough resources often have active social,
sports and travel lives. They are not couch potatoes. Those of our elderly friends with enough
resources vacation in Hawaii, Palm Desert and Scottsdale. Some take adventure
cruises. Some work on with antique cars. They go to plays and professional
ballgames. These activities often require ample savings.
We see the other side too. The "retirement" on
welfare is far from comfortable. There is constant financial stress from
utility bills, car issues and increasing food prices. Medicaid doesn't cover
their drug copayments, a dental appointment, an audiologist or an eye doctor —
needs which seem to increase each year. Even more stressful is the inability to
help one of their adult children who has lost a job, become disabled or is
divorced with young children.
Short life-expectancies or work layoffs lead many to take
Social Security as early as possible. The benefits for delaying Social
Security are so high that prudent people should consider starting later
even if it costs the majority of their savings to support the delay. Delaying
from 62 to 66 increases Social Security income by 33% plus inflation — even
more by continuing to work. Social Security payments are 76% higher if delayed
till 70.
The so-called break-even death age is about 81. That's the
age where it theoretically doesn't make much difference when a single person
started Social Security. That was the average (unisex) life-expectancy in 1960.
Improved medical care has extended life-expectancy to current values of
86.7 for a woman and 84.4 for man. Longer retirement years increases the need
for Social Security because it is the least expensive longevity insurance
available.
The Social Security break-even age for a couple doesn't have
much meaning. That's because the break-even age for a couple depends on who-dies-when
as well as the survivor benefits. A surviving spouse generally gets 100% of the
worker’s basic benefit amount unless the survivor takes Social Security before
the survivor's full-retirement-age. And spousal benefits may be larger if the
primary earner is employed additional years.
Planning on a short retirement life ends up with
overspending early in retirement, a complaint often cited by elderly retirees,
widows and widowers. You have to remember that life-expectancy is an average
age to die — 50% will live longer. You are likely to be in the group that lives
longer if you don't smoke, exercise, live in a low crime area, etc.
Whether you are healthy or not, go to the Internet and use a
retirement planning program which allows you to enter delayed Social Security,
long-term-care, and if married, spousal and survivor's benefits. You can get
additional insight from a fee-only professional planner who can also help you
with investment advice, health insurance and estate planning.
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