Cash In at Age 75 and Help Save Social Security: Jerome Golden

Illustration by Adrian Forrow Close

Illustration by Adrian Forrow

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Illustration by Adrian Forrow

There is much talk about the need to bring Social Security into actuarial balance, to ensure that the trust fund stays positive beyond 2035, and the system remains sound for future generations. Why not right that balance and at the same time give Social Security beneficiaries more choices about how and when their benefits are distributed?

Allowing new retirees to decide what benefit structure works best for them -- whether it’s to defer monthly payments until age 75 and beyond, or to save up benefits as a hedge against the eventual cost of long-term care -- could save hundreds of billions of dollars over the next 10 to 20 years, and could well save the program money for generations to come.

In my career, I have focused entirely on the private sector. I have not analyzed government programs -- until now. While plenty of proposals have been made to simply cut retiree benefits, I considered whether there might be a way to make Social Security better and stronger.

The sheer size of Social Security gives you a sense of its importance to current and future retired Americans. The current value of the program’s promised benefits is, depending on the measurement used, in the range of $12 trillion to $15 trillion. That is almost as much as the value of all the private retirement plans combined.

The reform that I propose is designed to improve people’s ability to achieve security, however they choose to retire; strengthen the Social Security “brand”; and save a significant amount of money in the next two decades until long-term demographic trends, particularly the phasing out of baby-boom retirees, bring Social Security into actuarial balance.

The fundamental strategy underlying this reform is to permit newly retired workers to use their share of the $12 trillion to $15 trillion to create a personal retirement program that aligns with their own circumstances and objectives.

Retiree Choices

For example, you might plan to continue working to age 75 and gradually cut back on your hours. You would be able to stage your Social Security benefits over that same period to meet your developing cash-flow needs.

Or, if you are concerned about one day needing to pay for a caregiver, rather than burden your children or grandchildren, you would be able to take a lower Social Security monthly payment in the beginning in return for a higher one when the time comes to pay for that long-term care. Essentially, you could have your personal store of Social Security value accumulate on an actuarial basis (recognizing both interest and longevity credits) for future use.

Some options could not be permitted. For instance, retirees could not be allowed to take their share as a lump sum, because if enough people did that, the system would collapse. On the other hand, these reforms could also be extended in some fashion for the benefit of not only new retirees but also people who are already receiving Social Security benefits.

In most cases, beneficiaries’ customized programs would save the system money. And the amounts could be significant. Consider that a single beneficiary who staged his or her elections would save the system approximately $75,000 during the period before the higher payments resulting from deferral would exceed those that would have been made if the beneficiary elected to receive full benefits at the normal retirement age.

With 2.5 million new Social Security retiree awards each year, an adoption rate of just 10 percent could bring almost $20 billion in future savings from the people retiring in just the first year. Over the next 10 years, there could be savings of $200 billion to $400 billion and, over the next 20 years, even more.

Value Doesn't Change

Of course, a significant number of Social Security beneficiaries would be expected to still take full benefits at their normal retirement age -- because it’s their only or major source of retirement income. Importantly, this reform would not reduce the current value of anyone’s promised benefits; it would only reduce the system’s cash outflow in the near term, buying time for the demographics to work through the system.

Under this reform, there would be no need to increase the normal retirement age; the average age at election of benefits would rise naturally. In addition, if enough people postponed their regular monthly benefits to cover the eventual cost of a caregiver, that might take pressure off Medicaid and other funders of long-term care.

Perhaps the biggest benefit would be that all Americans could achieve a greater sense of security about their own retirement future.

(Jerome Golden is the founder and president of Golden Retirement LLC. The opinions expressed are his own.)

To contact the writer of this article: Jerome Golden at jsg@goldenretirement.com.

To contact the editor responsible for this article: Mary Duenwald at mduenwald@bloomberg.net.

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