The General Accounting Office reported last week that it would be more cost-effective for people to delay Social Security and get a larger benefit than to take Social Security early and buy an income annuity to make up the difference.
In its report, “Retirement Income: Ensuring Income Throughout Retirement Requires Difficult Choices,” the GAO took a broad look at retirement issues facing Americans and reviewed the various possible policy responses to those problems.
In what was otherwise a recitation of facts already well known to those in the retirement industry, the GAO authors also produced a chart comparing two ways for a male Social Security beneficiary to generate a $16,000 lifetime income starting at age 66.
The beneficiary could start taking $12,000 at age 62 and then pay $71,000 at age 66 for an annuity that would pay out $4,000 a year and bring his income up to $16,000. Or he could wait until age 66 to claim Social Security and receive $16,000 a year for life (replacing the foregone Social Security income with $48,000 in private savings in the meantime).
The net savings for claiming later would be $23,000. Unfortunately, most Americans discount the value of their future income and choose to take Social Security benefits as soon as they can. According to the GAO report, 43.1% of eligible participants took their benefits right away between 1997 and 2005. About 14.1% waited until full retirement age and just 2.8% took benefits after their 66th birthdays.
Women are more likely than men to face poverty in old age, the report showed. About 13.5% of women aged 75 and older lived in poverty during the years 2005 to 2009, while only 7.7% of elderly men were living in poverty. In 2009, an estimated 3.4 million Americans over age 65 lived in poverty.
Among the proposed public policy changes reviewed in the report:
- Revise the safe harbor provisions for plan sponsors when selecting an annuity provider
- Require plan sponsors to offer an annuity
- Encourage plan sponsors to offer a default annuity
- Modify tax laws on required minimum distributions to remove obstacles to deferred income annuities
- Modify spousal protection provisions in defined contribution plans
- Improve financial literacy regarding retirement income sufficiency
The GAO report was produced at the request of the Senate Select Committee on Aging.
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