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How Does Life Expectancy Affect Social Security Decisions?

By Dan Caplinger - Apr 24, 2016 at 6:03PM

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There are several things to take into account to be smart about when to claim Social Security.

Image source: BIGSTOCK.

One of the most important aspects of Social Security benefits is that they pay you a fixed amount for the rest of your life. That means that the value of one person's Social Security will be much different from what someone else gets from the program, for the simple reason that people don't all die at the same age. In assessing when to start receiving Social Security benefits, your personal life expectancy plays a key role. Below, we'll look at the various ways in which life expectancy matters for Social Security.

What life expectancy means for Social Security
One key thing to remember is that the life expectancy that matters for Social Security decision is your life expectancy give that you've lived through the early retirement age of 62. Too often, retirees base decisions on life expectancy at birth, but those numbers are lower because they reflect people who die early in life. By the time you reach your 60s, the Social Security Administration estimates that men will live on average until age 84, and women will live to be 86. Improved health among older Americans was one reason that lawmakers felt comfortable back in the early 1980s in raising the full retirement age.

Some argue that the adjustments to monthly benefits that the SSA imposes if you take benefits at an age other than full retirement age accurately reflect life expectancies. But the reductions are based on assumptions from a long time ago that were reasonable at the time but are no longer valid. At this point, those assumptions tend to support waiting as a smarter move than claiming early, assuming other factors don't come into play.

The simple case of single retirees
The simplest situation in assessing Social Security decisions and life expectancy involves retirees who aren't married and don't have any children or other family members who are eligible for benefits on their work history. For them, the decision about when to take benefits is purely personal. If your health is poor and you don't expect to live very long into retirement, then taking benefits early will end up paying you more. If you have a long life expectancy, then waiting several years to claim larger monthly benefits in the future will be more likely to be worth it in the long run.

Introducing family matters
Where things get more complicated is when you have a spouse, children, or other beneficiaries who can claim benefits on your work record. The clearest situation involves having a spouse who has a large enough retirement benefit not to need spousal benefits but who would do better with survivor benefits based on your work record after your death. In that case, it makes sense to consider not just your life expectancy but also that of your spouse in making Social Security decisions, because your spouse will also be affected by whatever choice you make.

Many other situations can cut the other way. Under new laws governing Social Security, you can't get spousal benefits until your spouse files for and actually receives retirement benefits. If you don't have a work history of your own, then having to wait until your spouse decides to file can cost you months or even years of lost spousal benefits. Especially if you don't have a long life expectancy, it can make sense to accelerate benefits to get what you can, even if it requires accepting smaller monthly payments.

Changes to benefits
Finally, keep in mind that life expectancy changes can lead policymakers to consider modifying the laws governing Social Security. If people work longer, then raising the Social Security full retirement age suddenly makes more sense. The potential for abuse of special strategies over the course of a lifetime led to major Social Security changes late last year that are just now taking effect, and further changes in life expectancy could spur new strategies that will require similar legal revisions in the future.

Life expectancy is a complex topic, and it's impossible to be absolutely sure about how long you'll actually live. By making your best guess, though, you can be smart about your Social Security benefits -- but only as long as you take family members and other considerations into account.

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