NewburyportNews.com, Newburyport, MA

Business

July 31, 2012

Longevity risk and Social Security

How you decide to claim your Social Security benefits will reflect how well you understand the financial risk to you of longevity — the risk of living a lot longer than anybody ever has in your family.

If you are healthy, if you practice healthy living habits and if you are in your 50s or early 60s, there is a high probability that you will live into your 90s. And well into your 90s. Does your financial plan address the risk to you of running out of money if you live to age 100?

If you are going to be realistic about the risk of running out of money in retirement, you need to plan now for your income in that 10th decade of life.

Besides a pension, a defined benefit from your employment, if you have one, your own personal savings, how you manage them, your Social Security benefits and how you elect to take them are all you have to work with.

You can use your personal savings to take discretionary and variable distributions in retirement or you can convert some of those savings into guaranteed and predictable distributions immediately upon retirement or later on a deferred schedule. Setting up guaranteed and predictable distributions to start 10 or 20 years after you start retirement is commonly called longevity insurance, purchased in the private marketplace.

But the best deal in longevity insurance comes from the public market in the form of Social Security. And how and when you elect to initiate those benefits will have an impact on the rest of your life.

Everybody’s situation is different, and everybody who has earned income credited to Social Security qualifies for three age-based levels of benefits and options. The first is at age 62, the second is at “full retirement age” (between 66 and 67 based on your year of birth) and the third is at age 70, when delayed retirement credits cease.

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