An Important Social Security Factoid
The important social security factoid is: Actuarially Neutral (AN).
I can hear you asking, “What in the world is actuarially neutral ?” Good question. Let me answer it.
All AN boils down to is the simple fact the program is indifferent to whether people tend to claim benefits before full retirement age or after full retirement age. So, you see, on average the increase people receive from claiming later should be roughly offset by the fact they’ll receive fewer monthly payments.
Stated another way, if a senior citizen starts his SS monthly check when he is 62 he is 8 years ahead of the person who starts at age 70. He will get less in his monthly check than if he waits until he turns 70. Because, actuarially speaking, he starts drawing his checks earlier. I bet you can guess what that means. You guessed right, it means a lower amount.
No One Alive Knows That
Obviously the kicker in this scheme is nobody knows when they will die. The person taking his monthly check could outlive the person waiting till 70. So, the larger check at 70 won’t mean a thing in the overall picture.
The government bean counters wanted to be certain everyone would receive as close to the same amount as possible over their lifetime. Hence they created a sliding scale with the first eligible age to collect being 62.
If both parties live to be 80 years old, AN tells us both would have received the same amount over the number of years they collected their Social Security. Of course the numbers will be slightly different based on income factors. But, in theory they will be close.
This isn’t a tome on factors to consider in enrolling into the social security program. It’s merely a brief explanation on the underlying thought/principle that went into constructing the payout schedule. For more factors you may also want to read: Factors to Consider When Claiming Social Security.
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