It’s widely known that age 62 American workers qualify and can start collecting Social Security benefits, but many Americans aren’t sure if they should start collecting at this age or wait until 66 or 70. Prudential Retirement’s Senior Vice President George Castineiras joined me this week to discuss the importance of Social Security benefits to the average retiree, how Americans can start planning for retirement, common myths and misconceptions of Social Security, specific advice for women, and also those who are on fixed incomes and/or divorced, and much more!
Candace Rose: How important is Social Security to the average retiree?
George Castineiras: “It’s very important. In fact, I would say it’s critical. In today’s day and time when you take into consideration that people are living longer, which is a good thing; when you look at average account balances inside of a 401(k) plan ranging at about 61,000 dollars or so for a 65 year old. There’s 10,000 people that are graduating into retirement in this country, every single day for the next 18 years. Healthcare costs are expected to go up. When you look at those dynamics, and there are several others, obviously, you need to incorporate Social Security into the planning process in order to achieve the right amount of lifetime income to benefit your retirement, the one that you deserve. So to give you a statistic on Social Security today: 70%+ of the individuals collecting Social Security right now, are collecting what we would call a reduced benefit. And they’re missing the opportunity in some situations, because I recognize that some have to collect early; but in some situations they don’t recognize that they might be leaving money on the table.”
Candace Rose: How can Americans plan for Social Security? Isn’t it up to Congress?
George Castineiras: “Yeah, and that commonly comes up. That’s a very broad big question that obviously comes up often, but what I would share to your viewers and listeners is recognize that Social Security is here right now. And go back to the number that I just shared with people that are retiring- there’s 10,000 folks a day. Those decisions aren’t going to stop in the near term, and I do see Social Security being part of our future.
Can the benefit structure change? Absolutely. But at the same time, start looking at what your options are in order to include it in your planning process. So to give you another example: the differences between a Social Security benefit between ages 62 and 70- you can actually increase your income for life by twofold if you end up waiting until 70 for that eight year period of time. So the question I would ask folks is there savings that you could get access to between 62 and 70 to delay your retirement claim and increase your Social Security benefit for the rest of your life, especially when you’re living longer.”
Candace Rose: What are some of the most common mistakes retirees make when it comes to Social Security?
George Castineiras: “I think the first one is the statistic that I shared with you, is early claims. I can imagine why people do this from a behavioral perspective- ‘I’ve been working every single day, I’ve been productive in the workforce, I’ve been paying my taxes, and hey, I’m 62, I’m ready to collect my Social Security.’ Part of it’s just the psychology of I’ve paid into this and I want access into it as soon as I can, and I don’t know what’s going to happen tomorrow. So that’s part of it, and that’s what causes some folks to collect early.
The other piece is unaware. People don’t recognize that based on your age and when you claim, you have a different structure of benefit. There’s different structures. You have a worker benefit, a spousal benefit, a survivor benefit, and lastly you have the option to change that benefit structure depending on your specific situation whether you’re married, divorced, widowed and those are commonly misunderstood and quite frankly commonly unknown. So those are what drive the majority of mistakes.”
Candace Rose: What specific advice do you have for women?
George Castineiras: “For women, I’d say there are three things that I’d ask them to give serious consideration to. Number one is: recognize that you’re likely to live longer than men. Statistically that’s the case, I don’t expect that to change. Therefore your need for lifetime income is far greater than for the men.
Then I would say take a look at your options. Whether you’re married, divorced, widowed, you have different options that are available to you on when you take it, and the option structure and then how to convert those options over time. So I’ll give you a specific example: it’s not uncommon for a married couple to go and collect Social Security, let’s say at their full retirement age of 66. Now we all know based on what I just shared that women are expected to live longer. One strategy that can be employed would be instead of both the man and the woman in this case collecting Social Security worker benefit, have the woman take the spousal benefit as an example from age 66 to age 70, and then at age 70 convert that to the worker benefit and that alone can increase her lifetime income for the rest of her life at a much higher rate. By just delaying those four years, and you can do that by collecting a spousal benefit versus the worker benefit.”
Candace Rose: What advice do you have for those who are on a fixed incomes, divorced, are counting on their Social Security benefits and take it early?
George Castineiras: “There’s a couple of things- and I’m glad you brought that up. I’ll share the website and there’s a video that provides a specific illustration to the point that you’re talking about right now. You’re right, it’s not uncommon for divorce to take place in this country, especially at a later age. I would tell you first and foremost, it’s not uncommon for folks not to recognize that they can still collect depending on the situation, a spousal benefit from their ex, even if they’ve been divorced, so as long as they are unmarried.
For example one can collect spousal benefits, and then at the right point and time (maybe 70) convert that spousal benefit to a worker benefit and significantly increase your retirement income for life. One has the right to do that depending on their specific situation.”
Candace Rose: Do you have any additional tips or information you’d like to share?
George Castineiras: “I think the number one tip is just please, and this is a call to action- just become aware of what’s available to you, and understand that you should be planning this into your overall retirement strategy, if you will. I’d ask people to just download the information that we’re talking about, it’s really well laid out. We just updated it, go to the Prudential.com website and type in ‘Social Security’ in the search box, and you’re going to have a paper that comes up called ‘Innovative Strategies for Maximizing Social Security’ and quite frankly you’re going to see a little video that illustrates the point that we talked about just recently regarding the divorce situation. But the paper breaks everything down to the most common mistakes, but most commonly misunderstood realities about Social Security and ways to look at those strategies differently going forward. The number one tip I’d ask people to do is before you race to collect, then I respect why people do, and some people may have to. I’d ask you before you do that, take a look at what your options are for your specific situation, take this information, share it with a financial planner or financial professional and you’ll end up with a better outcome.”