Are US Retirees Foregoing Large Sums of Social Security Benefits?

Millennials need to do financial planning for their parents.

Hey Everyone!

Merry Christmas, Happy Hanukkah, Happy Kwanza, and Happy New Year.

But enough Merry and Happy.

Let’s get serious.

Here’s a column published today in The Hill. It’s co-authored with David Altig and Victor Ye. David is Executive Vice President and Director of Research of the Federal Reserve Bank of Atlanta. Victor Ye is a Research Fellow at Stanford University’s HAI Institute. I’ve copied below the abstract from the underlying study.

Here’s the bottom line. Millennials need to do financial planning for their parents who, generally speaking, are on board to lose $182,000 by failing to maximize their lifetime Social Security benefits. The $182K is a median. Hence, half of millennials’ parents are on their way to losing more than $182,000 in lifetime benefits. (Economist to millennials — get this inexpensive tool, run it for your parents and explain that you’re in no mood to let them screw up what may be their most important old-age financial decision.)

Here’s the abstract.

Americans are notoriously bad savers. Large numbers are reaching old age too poor to finance retirements that could last longer than they worked. This study uses the 2018 American Community Survey to impute retirement ages for 2019 Survey of Consumer Finance (SCF) respondents. Next, we run the SCF respondents through the Fiscal Analyzer (TFA) to measure the size and distribution of forgone lifetime Social Security benefits. TFA is a life-cycle, consumption-smoothing research tool that incorporates Social Security and all other major federal and state tax and benefit policies. The program can optimize lifetime Social Security choices. We find that virtually all American workers age 45 to 62 should wait beyond age 65 to collect. More than 90 percent should wait till age 70. Only 10.2 percent appear to do so. The median loss for this age group in the present value of household lifetime discretionary spending is $182,370. Optimizing would produce a 10.4 percent increase in typical workers’ lifetime spending. For one in four, the lifetime spending gain exceeds 17 percent. For one in ten, the gain exceeds 26 percent. Among the poorest fifth of 45 to 62 year-olds, the median lifetime spending increase is 15.9 percent, with one in four gaining more than 27.4 percent.