section 1 - The American College Online Learning Center

(1) The increase in dollar amounts received because of a deferred claimingage(2) The increase in percentage of preretirement earnings that is replaced by adeferred Social Security claiming aged. Replacement rate example(1) Couple—both earn $60,000 using Social Security’s “Quick Calculator”(2) At age 62, Social Security replaces 23% of pre-retirement earnings.(3) At age 66, Social Security replaces 32%.(4) At age 70, Social Security replaces 45%.(5) This example was calculated assuming in each case that the individualwould continue working full-time until benefits begin.e. Benefit amount example(1) The maximum benefit is approximately $2,500 a month ($30,000 year) fora 66-year-old (currently the full retirement age) in 2012.(2) Taking at age 62 means the benefit is $1,875 a month ($22,500 a year)(3) Taking at age 70 means the benefit is $3,300 a month ($39,600 a year)4. Everyone wants a good deal from Social Securitya. Many take early to try and get their money’s worth. Under the traditionalbreak-even analysis, die early (under approximately age 80) and you would havereceived more benefits by beginning at age 62.(1) However, betting on dying young is a bad gamble—since losing meansliving a long life with too little income.(2) Wealthier individuals with more resources may be in a better position touse the break-even analysis to determine a starting age. However, at leaston average those with higher socio-economic status are more likely to livelonger—which leads to a decision to defer benefits under the break-evenanalysis(3) The break-even analysis does lead to the conclusion that a singleindividual who is in bad health and has a shorter life expectancy shouldbegin benefits early. For a married person, however, this may not be true.b. Spousal survivor benefits complicate the break-even claiming decision(1) A simple way to look at this is that the surviving spouse receives the higherof the couple’s two Social Security retirement benefits.(2) So when the spouse with the higher Social Security life-time benefit hasa short life expectancy, the surviving spouse will inherit the benefit. So ifbenefits were claimed early, the surviving spouse is saddled with the lowerbenefit for the rest of his or her lifetime.(3) Let’s consider someone who lives an average life expectancy. Forsingles receiving benefits at different starting ages, benefits are actuarialequivalent in this case. However, because of the spousal survivorbenefit (called the widow(er) benefit), married men living the averagelife expectancy who retire and begin benefits early will receive a smallerpresent value than if they defer. This means that for the average couplein this case, deferral results in the better “deal.”3.21