At first glance, you might think that beginning social security benefits at age 62 versus waiting until your full retirement age (FRA – currently age 66) sounds like a pretty good deal. You receive four more years of benefits and won’t have to withdraw as much from your savings as you would if you waited until your FRA. By not taking money out of your savings, the money can grow more than it would if it were relied upon to cover all living expenses.
Those arguments have some merit, but probably not as much as most might think. It may indeed make sense in some situations to begin benefits at 62, particularly for someone with serious health issues. However, for anyone expecting to live past their mid-70’s, the numbers tell a different story.
As an example, consider two 62-year olds (Ms. Early & Ms. Normal) who will both receive a primary insurance amount (PIA) of $2,200 per month at their FRA. Ms. Early opts to receive benefits at age 62 and accepts that she will only receive 75% of her PIA, or $1,650 per month. Ms. Normal decides to wait until her FRA (age 66) to receive her PIA of $2,200. Ms. Early is happy with her decision to start at 62 because she will have received $79,200 in cumulative benefits even before Ms. Normal receives her first benefit payment. When Ms. Normal begins receiving benefits, she receives $550 per month more than Ms. Early, thus Ms. Normal’s cumulative benefit grow faster than Ms. Early’s. At age 77, Ms. Normal’s cumulative benefits will overtake Ms. Early’s. If Ms. Early and Ms. Normal both pass away at age 87, Ms. Normal’s cumulative benefits will have exceeded Ms. Early’s benefit by $66,000.
Over 20 years, $66,000 ($3,300/year) may or may not seem like a lot, but one important detail was left out of the above example for simplicity. Social Security benefits are subject to an annual cost-of-living adjustment (COLA – a percentage increase to a benefit) to keep pace with inflation. The reality is that Ms. Early and Ms. Normal will both receive the same COLA percentage, but they will receive different dollar amounts due to their different benefit amounts. Since Ms. Normal’s benefit is greater than Ms. Early’s benefit, her COLA increase will be greater, causing the difference in their benefits to increase over time as well. If one assumes a 2% annual COLA, the monthly benefit difference grows from $550/month ($1,650 at 62 vs. $2,200 at 66) to $907/month at age 87 ($2,707 for Ms. Early vs. $3,909 for Ms. Normal). Using the 2% annual growth scenario, Ms. Normal’s cumulative benefits overtake Ms. Early’s a year earlier (age 76) and her cumulative benefit will exceed Ms. Early’s by $113,417 at age 87!
As with all annuity cash flow streams, the optimal time to start receiving benefits depends on the length of the time the benefit will be received. In other words, if you knew when you were going to die, it would really help determine when you should start taking benefits! As the examples above illustrates, Ms. Early would have been better off starting at age 62 if she knew she was going to die in her mid-70’s. But, the mathematics of longevity side with Ms. Normal because if Ms. Normal is alive at 65, Social Security’s own studies show that she has a 71% chance of living to age 80, a 53% chance of living to 85 and a 30% chance that she will live to 90.
It is unfortunate that the likelihood of living longer than one expects, and the cost of starting social security early, is not fully appreciated by most people who start their benefit at age 62. If they realized that they had a good chance of living to 90, and that by receiving benefits at 62 they were short-changing themselves of $147,219 in benefits, they might have continued to work a bit longer.
Let’s face it, it’s not easy to announce your divorce, it may in fact be what you are dreading the most, but confiding in others will help you gain the support you need to pick up the pieces. There are so many different emotions – sadness, anger, fear, guilt, etc. One of the fears is about telling your friends and family. How will they react? What will they think? Will they ask a lot of questions that you don’t know how to answer? Will they be supportive?
Some divorces come as no surprise that people saw coming and some divorces seem to come out of left field, depending on how much you and your spouse were “keeping up with appearances.” It is natural to want to keep up with appearances, after all, you may have went through months (even years) where you didn’t know if it would work out or not, and if it did you didn’t want your friends and family to dislike your spouse or think poorly of your marriage. This is not uncommon at all, it just makes initiating the conversation a bit more difficult.
Remember that ultimately your friends and family want you to be happy. Tell your immediate family and closest friends first. From there, it gets trickier to know what is the best approach to take. You probably don’t want to, nor is it healthy, to tell the story over and over, so maybe an email to extended family and friends works for you, or maybe having a specific friend and family member responsible for letting certain people know is the best method for you. Having to worry about whether you are breaking the news in the right delivery method should be the least of your concerns right now, and people ultimately need to understand that. However, because everyone seems to want to know why, it is imperative to have a brief “elevator speech” ready. This can be as simple as, “We are two good people, that are simply not good together.”
Your boss may need to know since divorce proceedings might conflict with your work schedule, but the need to tell co-workers will vary. If you aren’t close to them and normally don’t discuss your personal life then an announcement probably isn’t necessary. In today’s digital world there is also social media to consider. Don’t feel like you have to make an announcement, you can do nothing or simply change your name, eventually people will figure it out. News travels, and beyond close friends and family, you don’t own anyone an explanation.
Don’t be alarmed if some people start to distance themselves. They may also be grieving this divorce. Sometimes friends whose own marriages are struggling will separate themselves from you for fear that it may happen to them as well. It’s important to remember that divorce does not define you. Your true friends will stand by you and most likely will want to help, but they may not necessarily know how. Perhaps before you break the news to friends and family make a list of what people can help with. Whether that’s enlisting in moving help, help with the kids, emotional support, attorney recommendations, or even needing a group of friends to commit to a night out once a month. Write down anything and everything that you might think could help, and then when people ask you can let them know immediately. Helping assists people in coping and understanding, so enlisting in friends and family’s help can be beneficial to all. Friends will want to help and lend advice. Allow them to help, but please seek advice from professionals (clergy, attorneys, therapists, advisers, etc), and remember to take care of yourself emotionally and physical. 
