What’s Your Check Out Date?

If I only knew one’s check out date (DOD) it would be so much easier recommending when and how to claim one’s Social Security benefits!  Since that option is not currently available the only thing we can do is make an educated guess based upon life expectancy tables, current health and family history for both spouses.  As you are quite well aware this is definitely not an exact science and entails a great deal of guess work and I’m positive most of you can appreciate the fact that none of us knows.

The Longer You Live – The Longer You Live

If an individual is born today in the USA they would have a life expectancy of 76 for a male and 81 for a female.  Life expectancy for a 50 year old male is 80 and 83 for a female, if one makes it to 65 life expectancy has increased to 83 and 85 respectively and living to age 80 they would still have a life expectancy of 88 and 90.  My mom who just turned 93 has a 4 year life expectancy and should she make it to age 100 she would still have a 2 ½ years to look forward to.  Moral of Story is the longer you live the longer you live!

Mean, Median, Mode Life Expectancy at Birth

According to the SSA’s 2014 period life table*, male life expectancy at birth is 76 years. That’s the mean value. The median life expectancy is just past age 80. And the mode (i..e, most common) age at death is age 86.

The blue line in the chart shows mean life expectancy. As you can see, it occurs well before the mode age at death (i.e., the point at which the chart peaks, at age 86).

Who’s Average?

I did a meeting in San Diego on Wednesday for 250 financial advisors and I asked the simple question of who in the room considered themselves average?  Only 2 individuals raised their hands and I think they did it in jest.  The bottom line is no one thinks their average and I don’t believe any of them would consider themselves as being below average!  So once again when looking at life expectancy table, that is the average life expectancy so most of you and your clients should plan to live longer than life expectancy!

Other Factors

Why do 80% of women outlive men?  Why does a married man extend his life expectancy by 1.7 years, but a married woman sees a 1.4 year reduction?  Do people who retire early outlive those who continue working after age 65?  It depends upon type of work, do they have to work for financial reasons, social interaction from job, the challenge of continuing to work, etc.?  I don’t know the answers to these questions, but maybe the reason that married women don’t live as long is because their husbands quit working?

Social Security Claiming

Now that we’ve explored life expectancy and know exactly when we’re going to die, we can thus decide when we should claim benefits!  That’s right we don’t know, so let’s look at Ozzie & Harriet who both just turned 62 and assuming they are no longer working the difference between claiming early vs waiting until age 70 (Primary Strategy).

Ozzie & Harriet 2020

  • By claiming early they’ll receive $308,000 over the next 8 years vs. $0 in Primary
  • They’re combined check at age 70 will be $3,547 vs $6,228/mo. under Primary or +$32,172/yr. more.
  • The breakeven between the 2 strategies is 8 years w/o taking into consideration the time value of money
  • At age 89 their combined checks would be $5,165 vs $9,076 or $46,932 more per year. The cumulative difference at that time is $474,134 in favor of the Primary Strategy
  • Upon Ozzie’s death Harriet would switch to survival benefits and receive $5,619 vs $3,198 or $2,000 per month more than had Ozzie claimed early
  • There are other options available vs the Primary Strategy, we could have Harriet claim at 62 $1,167/mo. or $14,000/yr. I call this my Las Vegas Strategy, since I’m hedging my bet in case on of them died earlier.
  • We could draw down on Qualified Assets, since taxes are relatively low (Uncertainty of who will win upcoming elections), the market is at an all time high and interest rates are non existent.

In Conclusion

When the only Certainty in life is Uncertainty all we can do is take an educated guess, look at life expectancy (family history), explore other assets and options, hedge one’s bet and do the best we can do with what we know.

Have a great month and as always, never hesitate reaching out if you think I can be of assistance,

Dave Zander, CFP®