Let's Fix this: Less Than Half of You Know, Before Retirement, How Much Social Security You Will Get

Gordon Achtermann |

Let's Fix this: Less Than Half of You Know, Before Retirement, How Much Social Security You Will Get

Researchers at the University of Michigan Retirement and Disability Research Center found that more than 50% of their sample of pre-retirees say they "do not have a good [emphasis added] estimate of their future Social Security benefits."1 Interestingly, more than half either know (the value of their future benefit) for certain (9%) or have a guess (41.9%), so that implies that some have a guess, but they know in their hearts it's not a good one.

When I read that in the AAII Journal (American Association of Individual Investors), my immediate reaction was, "What The [Heck], how is that possible?!?"

My second reaction was, "Let's fix this."

But first one more data point. "The average expectation bias for monthly retirement benefits in our sample is $307, which equals 27% of the average forecasted benefit for this sample (in current dollars)." Wow. Those who are wrong are off by an average of $307 per month (almost $3,700 per year). For example, you think you are getting $13,700/year, and you end up with $10,000/year. That would hurt.

Here's one problem I suspect happens frequently. People look at their statement, and it says what you will get at 62, at FRA (full retirement age), and at 70. But what people forget is that the estimation assumes you will keep working at an ever-increasing salary until those ages. So when you stop working at 58 or you get laid off, and your new job pays less than the old one, the estimates are not very good anymore.

Whatever the reason, there is a way to stay on top of your future benefits. Monitor your account on the Social Security website. Go to ssa.gov to set up an account if you don't already have one. If you are married, you each need to do this separately. Once in the system, select "Your Social Security Statement" and then "Print/Save Your Full Statement." Then, make a note in your calendar to repeat this exercise a year from now and do it every year until you start collecting.

Remember, every year you wait to begin collecting, you get about 8% more per year. That is, to the best of my knowledge, the highest guaranteed rate of return offered anywhere on the planet. Unless you are in poor health and expect to die younger than your peers, it makes sense to wait as long as you can.

A final note on the risk that benefits may be cut in the future. I always tell my clients that old people vote; the older you are, the more likely you are to vote. So, I don't think any politician is ever going to take away Social Security from folks who are receiving benefits or are close to the age of receiving benefits.

However, if you want to account for the risk of benefit reductions, one idea is to reduce your expectation by 1% for every year between your age and your full retirement age. Example: I'm 56, and my FRA is 67, so that's an 11-year difference. I would take my estimated benefit and multiply it by (1-.11) or .89. If my estimate from them is $3,000/month, I would use $3,000 x .89 = $2,670/month.

Still not sure when the right time is for you? Want someone to double-check your math? Talk to a fee-only financial planner like me and get an unbiased answer.


I hope you found this information useful. Please share and join the conversation.

All the Best!

Gordon Achtermann