How SSA’s poor word choice costs retirees hundreds of thousands of dollars
Ric Edelman: It's Monday, March 6th. I want you to define the word 'full' for me. What does full mean? Well, I think you would say that full means full. No more; at capacity; topped out. If I ask for a full glass of water, you're going to pour water in that glass until you can't pour any more water into the glass. Right? Full means full. We're done.
Well, unfortunately, that word has been incorrectly used by the Social Security Administration, and it is causing millions of Americans to make bad decisions, decisions that they wouldn't make if it weren't for the Social Security Administration's incorrect usage of the word.
This came to a head for me because I had a conversation last week with a friend of mine. He owns a restaurant. Known him for decades. My wife and I love his restaurant. We're there frequently and have been since the 1980s, frankly. And he told me that he's planning to retire. He's thinking about it. And he told me that he was thinking of retiring two years from now. And so we had a conversation about it and such. And in the course of it I asked, Joe, why are you planning to retire in two years? And he said, Well, part of the reason is that in two years I'll be 66 and at 66 and 10 months I can take my Social Security. Well, he had obviously been to the Social Security website because he specifically cited 66 years and 10 months that he's allowed to take his Social Security benefits.
That isn't a piece of information that people casually understand about at all. So clearly, he had gone to the Social Security site because the age at which you're allowed to receive Social Security benefits is in fact tied to your date of birth. And for him, based on his date of birth, he gets Social Security benefits at age 66 and 10 months. But I said, hey, hey, hey, hey, whoa, slow down, my friend. You're referring to Social Security's full retirement age.
And he looked at me with a quizzical eye and said, “What's that?” And I said, “Well, think about this. You're allowed to begin receiving Social Security as early as age 62. You're already 64. So you can start your Social Security benefits right now. If you feel like it, you can start as early as 62. You're referring to your full retirement age. Something in Social Security parlance is called FRA. And under that terminology, the Social Security system tells you that if you retire at your full retirement age, your FRA for you (that's age 66 and 10 months), you get your full social Security benefit.”
And Joe said, “Well, yeah, I guess that's right. That's what the site kind of told me.” That's what he got from his visit to the site, his full retirement age, 66 years and 10 months. And I said, “But do you realize that if you wait until you're 70, you'll collect even more of a benefit than if you start at 66 and 10 months?” And he tilted his head, raised his eyebrows, gave me a quizzical look and basically said, “Huh?”
This is the fault of the Social Security Administration.
In the beginning, you were entitled to receive your Social Security benefits at a retirement age. But over the decades, the Social Security system has evolved. It has changed partly with Congress's support. And you are allowed to begin at some point receiving Social Security benefits sooner than your normal retirement age. So Social Security used language that has proven to be misleading. They stuck with the original date of retirement, call it 65, and at that point you would get your full benefit, but you were allowed to receive an earlier benefit, which is a lower amount. But then over the years it continued even further, where you can delay the receipt of your full benefit to a higher age and the benefit would go higher as well. Which means full, no longer means full.
Let me illustrate for you. In Joe's case, if he were to retire right now, he has earned enough money that he maxes out on his Social Security benefit. And if he were to retire right now, if today here in 2023, he was at his full retirement age, which today for these folks is 66 years and eight months, the maximum benefit is $3,627. Now if someone who's entitled to that money doesn't want to wait that long and they begin at age 62, they take a haircut. They don't get $3,627. They get $2,572. They get $1,500 less by starting their benefits several years earlier.
So you can choose. Start your benefit at age 62 and get $2,500 or wait until you're 66 and get $3,600 or wait until you're 70 and get $4,500. Yeah, $4,555. So as you can clearly see, the full benefit of $3,600 is not full. Wait till 70 and it's an extra $900 per month.
The Social Security Administration is doing American workers a tremendous disservice. It is tricking people, and I would argue inadvertently, unintentionally, by referring to full retirement age when it has nothing to do with full and frankly, for many people has nothing to do with retirement. We need to stop using that phrase. We simply need to say, here's your age 62 benefit, here's your age 66 benefit, and here's your age 70 benefit. Stop using adjectives to refer to these terms because whether or not you're working has nothing to do with it, and whether or not it is full is a highly debatable statistic.
Once Joe began to realize this, he quickly began to rethink whether or not he wants to sell the restaurant in two years or continue working for years beyond that.
Now, let me just illustrate for you the incredible impact of this. And in what I'm about to tell you, I'm going to ignore taxes and inflation and investment returns. I'm going to make this really, really simple. You start at age 62 receiving your Social Security benefits, and let's assume that you are entitled to the maximum amount possible. Let's also assume that you live to age 95. So at age 62, you start off by getting $2,572 a month. Over the course of your life, you'll receive a grand total of about $1 million in Social Security benefits. $2,500 a month, 12 months a year from age 62 to 95, 33 years.
But now let's say that you wait. You don't start receiving benefits at 62. You wait until you're 66. Again, you live to 95. Instead of getting $2,500 a month, you're going to get $3,600 a month. Even though you're getting benefits for four years less because you're starting at 66 instead of 62, you're getting an extra $1,100 a month more, which means over the course of your lifetime, all the way to age 95, instead of getting $1 million, you're getting $1.262 million. You're getting an extra quarter of $1 million over the course of your retirement.
And if you wait until you're 70, yeah, you're denying yourself Social Security benefits for eight years, but when you finally start to get your benefits at age 70, instead of getting $2,500 a month, you're getting $4,500 a month. You're getting $2,000 a month more. Between age 70 and age 95, you're going to get a total benefit of nearly $1.4 million.
You're getting about $350,000 more over the course of your lifetime by waiting until age 70 compared to starting at 62. This is something the overwhelming majority of American workers do not understand because they look at Social Security and they see that they can start at 62 and they also see that, oh, there's a full retirement age of 66.
And they are not at all aware of the incredible economic benefit of waiting to age 70. Because the system is complicated and confusing with very little resource for education and information in your best interest. And as a result, millions of Americans are receiving hundreds of thousands of dollars less in Social Security benefits than they're entitled to. Ignore the word full when it comes to Social Security, because quite frankly, they're full of it.
Hey, if you're listening to me on Apple Podcasts, make sure you subscribe and leave a review. I just got one from a listener who calls themselves ‘Wondering Where to Turn’, and they wrote, "This is not the same Ric Edelman. This is Ric and his new chapter talking about the future of investing. What got us here won't get us into our 100s. We need to think differently and Ric is helping us do that in his new show. The world is changing fast. It's confusing. The vocabulary is new. I'm struggling to keep up and understand, but I've trusted Ric all these years and glad to have him ushering me into this new era. Thank you, Ric”.
Well, WWT - Wondering Where to Turn - thank you for the great review. Glad you're enjoying my new format. Hey, leave a comment if you've got one or a review, do it on Apple Podcasts for The Truth About Your Future with Ric Edelman. I might read yours on the air too, even if I don't like it. Thanks.