Life Expectancy and Social Security Benefits

By Jonathan Peterson

Copyright © 2015 AARP

When figuring out how much to reduce people’s benefits if they take the benefits early, the Social Security Administration considered average longevity. Of course, you could live a lot longer than average — and that makes your decision on when to claim benefits that much more important.

This gives you some general estimates about how long you’ll live. You should also consider how old your parents lived to be and your personal health, including chronic conditions that may shorten your life span.

A 2007 chart showing the life expectancy of people by age, gender, and race.

Go to bluezones.com and search for the Vitality Compass, answer some questions, and you’ll be given an estimate.

Considering what’ll happen if you live longer than you expect

Half the people in any given age group will exceed their life expectancy, in some cases by a lot. For older couples in decent health, the odds that at least one spouse will survive to a ripe old age are very high. Life expectancy may be higher if you have a good education, if you make a good living, if you’re closely connected to your friends and family, and if you’re careful about keeping in shape.

The possibility of living a very long life can be a big factor when you’re deciding when to start Social Security. You could live a lot longer than you expect. That means your price tag for retirement will keep going up.

Here’s some food for thought: A man who turned 65 in 2013 can expect to live about another 17.5 years. A woman who turned 65 in 2014 can anticipate another 20.2 years. At age 75, he can expect another 10.9 years, and she can expect another 12.8. If that man and woman make it to 85, each is projected to live past their 90th birthday. Among today’s 65 year olds, one in three will make it past 90. One in seven will reach 95.

Knowing your life expectancy isn’t enough. You also need to know what gives you peace of mind when it comes to money. What do you think is worse: living longer than you expected and running short of money, or living shorter than you expected and feeling secure until the end (even if you didn’t max out your lifetime Social Security benefits)?

To illustrate, take a look at Eager Edgar and Steady Betty, two pre‐retirees who are thinking about the next phase of their lives in very different ways. Both are 61 and have had virtually identical earnings in their careers.

Eager Edgar dreams of retiring from his job as a warehouse manager and trekking through the wilderness while he still has the energy. His parents died young, and he views early retirement as his last sure chance to really live. He has a couple hundred thousand dollars in an individual retirement account (IRA), and his rent is modest. The month after he turns 62, Edgar collects his first Social Security payment of $1,600.

Steady Betty sees the world differently. She likes her accounting job, even though the commute is increasingly stressful. But Betty doesn’t want to worry about money when she’s older, and she knows her mother lived until 90. Betty decides to wait four more years until she reaches 66 before claiming Social Security. The prospect of getting a bigger monthly payment and building her nest egg further gives Betty peace of mind.

Fast‐forward a few years. Eager Edgar’s arthritis is getting worse, and his drugs are costing more and more. After a couple adventures in the Rocky Mountains, his hiking equipment begins to gather dust. Unplanned costs for healthcare, a loan to his unemployed son, and the rising cost of living reduce Edgar’s savings. A long stint in a nursing home costs him $30,000.

For the last three years of his life, Edgar is obsessed with the fear that his savings will run out and he’ll lose his independence, all because he has to survive on the reduced Social Security benefits he chose. He dies at 84, a lot later than he expected.

Steady Betty sticks to her plan, putting away savings every month. At 66 she begins collecting her full retirement benefit of $2,133 and enjoys a fulfilling new chapter. A fatal aneurysm brings her life to an abrupt end, midway through her 74th year, much earlier than she expected.

When you’re deciding when to begin collecting Social Security, keep different possibilities in mind and consider the implications for your standard of living and sense of well‐being.

Take the money and run? Think again

Maybe you doubt the wisdom of waiting to start collecting Social Security. Taking the money as soon as possible may seem sensible — it’s a sure thing. But certain arguments in favor of early claiming are shakier. Here are a few of the less persuasive reasons to begin collecting benefits early:

  • I can make the money grow and come out ahead.” This is the economic principle that money today will be worth more tomorrow. You may be able to come out ahead, but there’s a guaranteed reward for collecting Social Security later — several percent a year between age 62 and your full retirement age, and 8 percent per year after that up to age 70.

  • I want a new life.” Of course, you should try to pursue your dreams. Just be aware that your interests may change and business ideas may fail.

  • I could get hit by a bus. Why leave money on the table?” However fatalistic your view, the reality is that a 60‐year‐old man has a greater chance of dying in his sleep at 85 from various ailments than coming to an accidental finale much earlier.

  • I’d better get my share before Social Security goes bust and there’s nothing left.” Most proposed reforms would not hit retirees or near retirees. When Congress voted in 1983 to raise the full retirement age, for example, the impact affected people who reached full retirement age in 2000 and beyond.