Optimizing Social Security Benefits

Warm-Up Discussion

Steve started the session by asking the group what we knew about social security benefits. It turned out that some people knew a LOT about social security benefits and others (like me) didn’t know too much.

Here is some of what came out in the conversation:

• Social security benefits were one of the safety net programs created out of the Great Depression. It was created as an incentive for people to retire. Without it, many people continue working until they died. With people leaving the workforce, opportunities were created for younger people to find work.
• Social security benefits for the current generation are paid for by the next generation. This is why there is a problem now, because the baby boomers are a much larger group than the generation that followed them. 
• There is talk of restructuring social security to that it remains solvent. Will benefits go down? Will the retirement age go up? People are living longer, collecting benefits longer and able to work longer.
• Social security benefits are based on the highest 35 years of salary. There is a cap on the social security tax that people pay (currently $130,000) and there is also a cap on the benefits that people receive. 
• There is a benefits gap between men and women. Since men tend to make more money and pay more money into the system, their benefits are higher even for people who have worked for the same number of years.
• Social security benefits are taxable, especially if combined with other sources of income. 
• You can start collecting benefits when you are 62, though you won’t get the Full Retirement Amount if you start early.

Notice/Wonder With a Graph

At this point, I gave out a handout showing a couple graphs of possible monthly benefits.

I asked the group to take notes on what they noticed and what they wondered. 

Problem-Solving

Steve then posed three main questions for the group to work on:

• If I expect to live until age 70, when should I start collecting social security benefits?
• If I expect to live until age 80, when should I start collecting social security benefits?
• If I expect to live until age 80, when should I start collecting social security benefits?

Participants worked independently for 10 minutes or so, then worked with a small group to create a presentation of their conclusions. 

Nicolas, Stephen and Kathy

After some discussion, this group decided to use the term “endpoint achieved” to communicate when a person’s needs for benefits expired. You can see what they mean, right? It seemed a little harsh to keep talking about the age when we all were going to die. The group then calculated some examples of the total benefits received by someone who starts collecting at a particular age and achieves an endpoint 8 years later (for the first three examples). The last example shows how much someone would receive if they retired at 70 and lived another 16 years.

Tim, Matthew and Charlyene

This group did a bunch of calculations with the monthly retirement benefits at different ages combined with the years of life remaining after retirement. Their work above shows the recommendation for the optimal age of retirement depending on expected life span. They did realize a mistake after making their poster, since they had multiplied the monthly benefit by the years remaining, but had forgotten to multiply by 12 to get the yearly amount. The result didn’t change which choice was optimal and they made the corrections above each total amount on their poster.

Noemia and Nadia

As you can see, Nadia and Noemia didn’t have qualms about referring to the end of life. For each projected life span, they looked at the total benefits collected at the youngest possible retirement age (62) and the oldest possible retirement age (70). With these ages as the bookends of possible total benefits, they had information to help decide which retirement ages were ideal.

Stephanie and Linda

This group had a lot of knowledge about social security benefits. They discussed other pertinent information such as spouse benefits, taxable income, amount of allowable income while receiving benefits, etc. Interestingly, they made the same mistake that Tim, Charlyene and Matthew made in forgetting to convert the monthly benefits to a yearly amount, but it didn’t affect their choices of the optimal years of retirement, agreeing with the earlier group’s decisions. 

Discussion

Steve asked the group what factors we should look at to decide when to start receiving benefits? Our answers included other sources of income, cost of living, whether we have a spouse with income, whether we can wait to start receiving benefits, etc. Steve then shared the following graph with the group and asked if it changed or confirmed their original decisions.

After discussion of the graph, Steve shared some additional information with the group. He pointed out that since for many people, waiting to receive benefits will increase the total benefits over time, you would think that many people should do this, assuming they have the ability to wait. Of course, many people have to start collecting benefits as soon as they are eligible, but other people are probably starting at 62 simply because they can. He pointed out that only 3% of people wait until they are 70 to start collecting benefits. He wondered aloud if this is because only 3% of people really can wait or is it because people aren’t aware of the benefits of waiting? Are people making sensible decisions about choosing when to collect social security benefits?

Thank you to BPL for hosting!

In Attendance: Charlene, Eric, Kathy, Linda, Matthew, Nadia, Nicholas, Noemia, Stephanie, Stephen, Steve, Tim

Programs Represented: Brooklyn Public Library, CUNY Adult Literacy/HSE Program, Department of Education, ParentJobNet, Touro

Respectfully submitted by Eric