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How to support a 30-year retirement

Postponing Social Security benefits can be a key retirement component for better income in the golden years ahead. That’s what Dr. John Shoven, director of the Stanford Institute for Economic Policy Research, told a capacity audience at the UC San Diego Faculty Club.

His advice is primarily based on the extended longevity of workers that has added as much as 30 years to the lives of Americans born after World War II, the baby boomers. The talk was titled “Financing a 30-year retirement.” Many seniors are now retired longer than they work by taking the prescribed Social Security benefit at age 66 after stopping work earlier.

Sounds great, so where’s the rub? Too many retirees can’t afford to live 20 more years on their savings or pensions if they quit early. The reality is that few can fund a 30-year retirement on a 40-year career.

Shoven’s charts showed that the mortality rate of a 65-year-old in 1955 was 50 percent. It is now 20 percent. Young workers today should plan on working until 70 years old to make ends meet, the speaker advised the UCSD students in the room.

His plan to maximize retirement benefits is to delay drawing Social Security at least to age 70. That plan depends on some supplemental pension resources, such as an IRA or a 401(k) plan that can provide an income flow between retirement and age 70 — even better if you work until 70.

There is an advantage for the employer to keep an experienced worker on the job beyond traditional retirement age. When the employee has been subject to payroll taxes for 40 years, he and the employer no longer pay the taxes. The employee is paid up after 40 years and will not receive any additional retirement benefits, Shoven said.

Why delay taking the Social Security benefit you have been funding for 40 years? Shoven’s charts show how much more income flow can be collected assuming, you live another 10 to 20 years. It’s a potential increase of 25 to 30 percent in monthly pension, maybe adding from $100,000 to $200,000 to benefits. Not bad if you meet or beat the mortality rate.

Another hidden subsidy for retirement is to have the mortgage on your home paid off by quitting time. Those pension checks will stretch further if a monthly payment is avoided.

In situations where both spouses collect Social Security, it is best for the higher earner to wait, so the surviving spouse gets a larger survivor’s benefit. Demographics show that a surviving wife lives 11 more years.

An interesting disclosure on Shoven’s demographic charts was the mortality rate increase related to education. A high school education adds only one year to mortality. College graduates have an increase of seven more years’ life span. That’s an interesting issue to debate. Is it because of a higher-income lifestyle or perhaps due to better health care?

Early retirement and longer mortality are issues affecting future economics that are not being currently addressed. The rapidly increasing ratio of seniors as the baby boomers retire is a problem publicized by senior-care providers, especially for medical services. However, Social Security and Medicare reforms are political poison for elected officials, so nothing is done.

This is not an exclusive American social dilemma. European and Asian nations face growing populations of retired citizens and shrinking numbers of workers to support them.

Caring for the aged and finding the federal and state funds to support them will not be resolved in the present government gridlock. Younger generations should take an active role in political pressure or they will not have a safety net when they retire. Surveys reveal that the millennials do not expect Social Security to assist them when they retire.


Ford is a freelance writer in San Diego. He can be reached at johnpatrick.ford@sddt.com.

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