By Henry K. (Bud) Hebeler


Each month, my wife and/or I visit four elderly women who live alone in low cost housing and are trying to survive on social security. Sometimes they get a little help from their children. These are very nice ladies who deserve better, but their financial condition is determined by irrevocable decisions made long ago.

Typical of people in this condition, they are either widows or were divorced many years ago. Every penny counts dearly. Their social security checks are a fraction of those who were able to make maximum contributions while working. The ladies we visit are still physically capable of caring for themselves. Those who need assisted care are even more stressed financially, especially as Medicare continues to reduce allowable services such as bathing assistance or blood testing.

These ladies are part of a large group of people who really hurt when the price of prescription drugs increases far faster than the inflation rate used to calculate their social security increases. When a doctor prescribes a new medicine, many elderly people have to consider what they are going to give up in exchange because their savings were exhausted long ago.

The other day I read another of those articles that suggests that a person will be better off financially starting social security payments at age 62 rather than 65 or later. Typically, these articles look for the "break-even" age that you would have to outlive in order to justify taking social security later than 62. At the break-even age, the total amount you would get from social security is the same for starting at age 62 as for age 65. More optimistic analysts assume that you would save your social security for the three years until you are 65, invest the money, and then draw it down until the break-even age.

This is a great theory for those who expect to die young, but has little to do with the real world of elderly people. Many of these would give up their right arm in exchange for 20% or more social security if they had waited until a later age to start taking their benefits. In the real world, many women outlive their spouses and live well past the break-even age. The theoretical analysts should give this more consideration.

My own father didn't start taking social security until he was seventy. He lived until age 96, so he really made the right decision. By comparison to the four ladies we visit and the vast majority of elderly people, his social security payments made him well off.

There are a number of people in our community who "took advantage" of early retirement programs offered by their employers during down-sizing periods when business conditions were bad. Those who retired under age sixty-two were especially hard hit in retrospect even though they got a bump in retirement benefits in exchange for retiring early. Without social security payments, they had to draw down their savings at a terrifying rate. Their former employers made out well, but the early retirees didn't. Most of these retirees found that they really didn't have the resources to retire and many are now back at work, but they are in jobs that provide small or no retirement benefits. They would have been much better off spending a few more years working under the cover of a pension and/or company savings plan.

Then there are the ever-growing number of people that want to retire at age 62 because they can start social security then. They seldom even consider the idea of delaying start of social security until 65 even though they are retired. This is because they "need" the money now. (Just wait until they are in their seventies!) The spouse further compounds the problem by also starting to take social security at 62 instead of waiting. It gets even worse if we're considering a non-working spouse who is dependent on the other spouse's social security credits. Then they'll lose at least 22% of what they could have had if they both waited until age 65 to say nothing of the additional savings they could have accumulated by working three more years.

The breakdown in the break-even analysis really shows up when you get to the ages of the ladies we visit. Of course they no longer have the benefit of their husband's social security added to their own. A widow who was getting social security based on her husband's credits normally gives up her own and gets the husband's social security benefits after his death.

Many people compound their social security problem when they ignore the effects of inflation on a fixed pension or the need for emergency reserves when they are trying to decide whether to retire at age 62, 65 or something else. After fifteen or twenty years of retirement with accompanying inflation, that fixed pension isn't worth very much any more. Also, during those years, numerous unforeseen things will have happened that will take big chunks out of savings: home maintenance, children's emergencies, auto repairs, uninsured dental, medical, and drug expenses, etc., etc. To counter these things, people should consider spending only two-thirds of their after-tax pension early in retirement and holding a significant fraction of their savings for emergencies instead of normal living expenses.

So keep in mind, like the four ladies we visit, either you, your spouse, or both, may well live past the break-even age that justified taking social security at age 62. When you do, you'll pay the piper! If you can't afford to delay social security to age 65 or later, perhaps you should reconsider whether you should be entering retirement before that age.