May 15, 2007

It all depends on how long you live  

Here's an economist making some provocative claims about when you should take your Social Security benefits. I used to work as a claims representative for the Social Security Administration, and while there was no official position on when people should take their benefits, everyone I worked with felt that it was better to take them as early as possible. Part of the benefits application interview was a quick calculation to show the break even point -- the age at which the higher benefit rate for benefits taken later finally catches up with the benefits received early.

And while Kotlikoff makes some interesting claims, it's hard for me to escape this view that you should take your benefits as soon as possible. Americans' inaccurate views about their life expectancies aside, shouldn't we take into account our ability to spend and enjoy our money? Perhaps this kind of advice applies to those who will never need to spend their Social Security checks and will simply pass them on to their children, but in my experience this is a small subset of the population. Many of the people I spoke with as a claims representative needed every penny of that check to get by.

One thing I do like about Kotlikoff is the rational look at what Social Security benefits have to offer as compared with other available investments. There's so much cynicism surrounding Social Security because of its cloudy future, but the reason it will drive us to the edge of bankruptcy (or beyond) later this century is that it's such a great benefit, and one that people are generally very happy with when they eventually get it.


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