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With more than 61 million individuals receiving Social Security benefits, one out of every four families in America receives monthly cash payments from the Social Security Administration (SSA). These monthly payments directly benefit 48.5 million retired workers, their current and former spouses, 10 million disabled adults, and include more than 3 million children. Several million more children and adults in the increasing number of multi-generational households in America benefit indirectly from Social Security retirement payments.

In addition to the broad reach of monthly Social Security retirement benefits these payments have ensured the financial well-being of millions of American families for more than 80 years. Eight-four percent of Americans 65 and older receive benefits with more than 60 percent of Social Security beneficiaries receiving one-half or more of their income from SSA. Notably, 33 percent of all beneficiaries receive at least 90 percent of their income from SSA. The percentages of people of color who rely on Social Security income are even more significant. Hispanic, Black, and Asian seniors rely on Social Security benefits for one-half or more of their income at rates of 73, 69 and 62 percent, respectively. Similarly, Hispanic, Black, and Asian seniors rely on Social Security benefits for 90 percent or more of their income at rates of 52, 45, and 41 percent, respectively. Additionally, about 48 percent of married couples, and 71 percent of unmarried individuals, receive one-half or more of their income from SSA. After decades of decreases in defined benefit plans and interest rates, and escalating health care costs and life spans, these high rates of reliance on Social Security benefits are not surprising. Given the depth and breadth of reliance on Social Security benefits it is critical for households to understand and plan for decreasing average retirement benefit amounts. Seniors rely on Social Security retirement benefits because many have few or no other resources. According to the General Accounting Office, 41 percent of households age 55 and older; 52 percent of households age 65 through age 74; and 71 percent of households age 75 and older have no retirement savings. Therefore, maximizing Social Security retirement benefits is critical for seniors’ and their families’ health, safety, and welfare. As of June 2017, retired workers received average yearly benefits of $16,428, while surviving spouses aged 60 or older only received $15,684 of average yearly benefits. Retired workers and their spouses had average yearly aggregate benefits of $27,336, and a widowed senior with two dependent children received average yearly benefits of $31,968 for the household. These amounts represent current average earnings replacement rates of only 52, 38, 32, and 25 percent of low ($22,215), medium ($49,366), high ($78,985) and the maximum ($120,418) earnings amounts for a retired worker at age 65 in 2017. Over time these replacement rates are scheduled to decrease as full retirement age (FRA) increases. Medium earners’ replacement rates at age 65 will decrease from 38 to 34 and 31 percent in 2020 and 2030, respectively.

Because Social Security benefits are such an important component of household income for families, it is not surprising that in 2016 Social Security benefits lifted more than 26 million people out of poverty including 1.5 million children, 7.5 million adults and more than 17 million seniors. Moreover, Social Security benefits decreased the depth of and proximity to poverty for millions more seniors, children, and their families.

The amount of monthly Social Security retirement benefits a senior and her family receives is directly related to when they are claimed. Accordingly, the timing of claiming Social Security retirement benefits is a vital decision for individuals who rely on their benefits to support their households. Many decision models and measures being used by individuals to analyze this timing decision, among other individual financial decisions, are the same measures that have been developed to guide large business organizations. However, because of differences in economic size, capacity, life cycle, mission, goals, and unique human attributes, these large organization models do not fit the needs of lower and middle-income households. At the same time, these increasingly vulnerable individuals do need strategic measures to focus on when making financial decisions. Strategic measures specifically designed to meet the unique needs of these individuals could be valuable to their families and the economy at large as benefits are decreasing over time. One such approach is to analyze, determine, and measure the quality-value of marginal Social Security benefits to a household. This Article will present a few exemplary quality-value dollar timing models. The quality-value dollar models better expose financial advantages that seniors gain by delaying their retirement benefits.

As members of Congress struggle to resolve the long-term financial viability of Social Security and Medicare given an aging and longer-living U.S. population, it is possible that increasing FRA beyond age 67 may be part of any reform package. A quality-value dollar model would be instructive in senior outreach, education, and engagement regarding Social Security benefits timing decisions and any other changes to the existing Social Security retirement system.

Publication Citation

14 NAELA J. 115 (2018).