Poor Advice About Social Security

When to start taking Social Security benefits is a difficult decision that has a significant impact on retirees. Yet, a new working paper finds that individuals who turn to financial advisers for help are often misguided.

Social Security benefits can be claimed as early as age 62. Each year an individual delays filing a claim—up to age 70—the monthly benefit increases. This delay can result in a large lifetime increase in income for retirees who live into their 80s or longer. For a couple, the delay not only increases the working spouse’s benefit, but it also increases the survival benefit should the non-working spouse (typically the wife) live longer. For women who stayed at home while their husbands worked, this is an important point.

Given the opportunity for additional lifetime income, it would seem that most advisers would be in a position to properly guide their clients on how to maximize Social Security benefits. Yet, a survey conducted for the working paper found that only 44% of advisers believed they were “very knowledgeable about how retirement benefits rise with age.” This was despite the fact that more than three-quarters of advisers said they discuss Social Security with their clients.

The median age suggested for taking benefits was 66 (the full retirement age), though 38% of advisers thought most clients took benefits too early. The working paper’s authors opined that advisers themselves may inadvertently be contributing to the problem.

First, 56% of advisers use “breakeven analysis.” This analysis calculates how long a retiree has to live before he realizes the cumulative benefit of delaying benefits. This prompts clients to take benefits sooner rather than later out of fear they will die before reaching an age where the cumulative income exceeds the amount lost by initially delaying claims.

Secondly, many advisers don’t understand how spousal benefits work. When asked about a hypothetical 62-year-old couple with $800,000 in assets, just 20% of advisers recommended that a husband delay claiming benefits as long as possible. Yet, doing so would provide a larger survivor benefit for the wife.

Source: “How Financial Advisers and Defined Contribution Plan Providers Educate Clients and Participants about Social Security,” a Pension Research Council working paper by Mathew Greenwald, Andrew Biggs and Lisa Schneider, August 2012.


John Ernst from MO posted over 2 years ago:

can a spouse start taking spousal benefits at full retirement even though their spouse has elected to delay benefits past their full retirement age?

Barry Slatton from AL posted over 2 years ago:

If you have adequate resources -pensions and/or company provided retirement benefits to include health insurance and these resources combined provide 100% of your current income,you can retire at age 62 if you want to.
You should have additional savings to take care of additional expenses along the way

Alan Northcott from FL posted about 1 year ago:

What about filing and then immediately withdrawing the application? I understand that this can boost the spouse's payments, and leave your own to increase with age.

M Carakostas from SC posted about 1 year ago:

I have seen very little about the situation when both spouses are similar in age and have both worked. Can we both take SS based on my spouse's work history at 62 and then switch over - without any penalty/reduction - to mine when I turn 70? Do we receive the same amounts at 70 from my delayed benefit as we would if we took nothing from SS based on my wife's income?

Tom Jones from TX posted about 1 year ago:

No one ever seems to consider the possibility that social security (and Medicare) are going to become severely means-tested after we hit the financial cliff, yet that seems (to me) entirely likely. If that scenario occurs, take it when you can get it, the earlier, the better.

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