Best choice for Social Security is to defer
One of your columns using death-risk adjustments hit close to something I have been considering as my wife and I get closer to Social Security age. The common wisdom seems to be to wait as long as you can to start taking Social Security retirement benefits. I have attached a spreadsheet that uses the same Social Security life table you may have used for your column. For males and females similar in income and education to my wife and me, taking Social Security early seems to be a valid option for much of the “active” part of retirement. The higher the interest rate used in the analysis, the more biased the results were toward early claiming. For the male in this analysis, claiming Social Security at 70 was never the optimal strategy. What are your thoughts on this? Also, can you point me to a good summary of the Social Security claiming strategies available to couples after the 2015 budget reconciliation act? — S.L., Austin
People with engineering and finance backgrounds often build spreadsheets to try to figure out when they should take Social Security benefits. Some assume taking the benefits and investing them, building a larger nest egg for the future.
The big mistake most spreadsheet builders make is to assume a high return, while forgetting about risk. Basically, they are comparing apples to oranges. The Social Security deferral deal is a risk-free investment. So you can’t compare it to a guessed stock market return of, say, 10 percent.
Others believe deferring benefits won’t work because they won’t live long enough to recoup the forgone income. What gets missed is that taking benefits may increase your tax bill. It’s easy to assume deferral won’t work if you assume you’ll die young, but most people will be assuming wrong.
I’m amazed at the number of people in their 60s who are eager to assume they will die in their early 70s. In fact, the average lifespan is much longer. The most recent National Vital Statistics Report has male life expectancy of 20 years at age 62. The female life expectancy at that age is 22.8 years.
Another factor is that a simple deferral for one year brings an increase in benefits of 8 percent (a bit less before age 66). Take the same amount of money from your investments and buy a life annuity from an insurance company, and you won’t get an 8 percent payout. And the lower payout won’t be indexed for inflation, either.
Now consider another factor. Social Security deferral works best when interest rates are low.
The most secure benefit deferral “bet” is for a married male with a younger spouse who has earned less. When he defers benefits, he gets a higher benefit until he dies. His spouse, when widowed, gets the higher benefit until she dies. One person in the couple receives the higher benefit for as long as one is alive.
The best source I know on the complex rules for Social Security benefit claiming is professor Laurence J. Kotlikoff at Boston University. Google his name and Social Security, and you’ll find his articles on various news sources. I’ve co-authored three books with him and respect him immensely.
More Americans have access to a checking or savings account, according to a survey by federal regulators, a sign that the improving economy is helping lift the nation’s poorest households.
Having a checking or savings account is considered a cornerstone of financial stability in the U.S. Without one, households must rely on check-cashing services, prepaid debit cards and other costly ways to pay bills and make routine transactions.
The portion of Americans who do not have a bank account, known in industry jargon as the “unbanked,” declined to 7 percent i n 2015 from 7.7 percent in 2013, according to the FDIC. The improvements came mostly from households making less than $15,000 a year and among minority populations, particularly black and Hispanic households.
Another way of looking at it: For every 10 households that were unbanked in 2013, one of those households is now banked.
Each week brings a new engagement announcement on Facebook, and every savethe-date card makes your long-held dream to backpack across Europe seem even more remote. I’ve been there.
During your 20s or 30s, backto-back weddings can turn a joyful occasion into one swipe of a credit card after another.
As much as you want to celebrate your friend or family member, you shouldn’t blow
While the gains were modest, the results of the survey from the Federal Deposit Insurance Corp. offered an encouraging sign. The FDIC report was the most recent piece of data showing that the economic recovery is beginning to positively affect those at the bottom.
The Census Bureau in September said median household income rose 5.2 percent from 2014 to 2015, the first annual increase in that metric since before the recession. That same report showed the proportion of Americans in poverty also fell last year, from 14.8 percent to 13.5 percent, the biggest annual decline in nearly 50 years.
The improving economy likely had some effect on why more Americans opened bank accounts. Not only did more Americans making less than $15,000 open bank accounts between 2013 and 2015, but the number of Americans making less than $15,000 also declined.
“The poor have more money in their pockets, and more are able to afford bank accounts,” said Aaron Klein, a fellow in economic studies at the Brookings Institution.
There are several reasons why people choose not to have a traditional bank account. Some do not trust banks or want to avoid their fees, or they have privacy concerns, according to the FDIC’s report. There is also a perception among the unbanked that bank accounts are not for the poor. More than half of unbanked households said they believe banks are “not at all interested” in serving households like theirs, the report said.
The FDIC conducts a survey of the unbanked and underbanked every two years, gathering the data on odd years and releasing the results roughly a year later.