Delay Social Security Benefits and Choose Annuities, GAO Recommends

Seniors should delay cashing in on their Social Security benefits and opt to invest in annuities, most financial experts agreed in a June 2011 Government Accountability Office (GAO) Retirement Income report. Titled Ensuring Income throughout Retirement Requires Difficult Choices, the report mentions the importance of not just preparing for retirement, but also maintaining and continuing income during retirement.

NewImage

In 2009, GAO says, census data shows that about 3.4 million Americans aged 65 or older lived in poverty, despite the existence of Social Security, Medicare, and Medicaid programs. Many seniors rely on Social Security to fund their retirement, a troubling fact since Social Security trustees reported in 2011 that trust fund reserves are expected to be exhausted by 2036, one year earlier than previously expected. Even more imminent is the trustee’s prediction for Medicare funds, which are expected to run dry in 2024.

Advertisement

These factors weigh heavily on a gloomy forecast for seniors preparing for retirement, and the lack of retirement funding ranking as the number one worry among Americans, according to a recent Gallup poll. AARP reports that 25% of seniors have burned through their personal savings, leaving them in bad shape to retire, and the Center for Retirement Research at Boston College developed a National Retirement Risk Index which projected that 51% of retiring households were at risk of being unable to maintain their pre-retirement standard of living in 2009.

Guidance from GAO comes at a crucial time, as the report lists several strategies for those in or approaching retirement based on factors including individual households’ anticipated expenses, income level, and health. GAO found that most seniors today have taken early, and therefore reduced, Social Security benefits, with 62.1% taking benefits shortly after their 62nd birthday, and 72.8% taking benefits before age 65. However, GAO cites the advantage of not just waiting until full retirement age, but of putting it off even longer, if possible, in order to receive a higher amount of Social Security benefits. GAO also recommends that seniors systematically draw down their savings, and either convert a portion of their savings into an income annuity that would cover necessary expenses, or choose an annuity plan for an employer-sponsored defined-benefit (DB) plan rather than receive benefits in one lump sum.

There’s been a shift from DB pensions to defined-contribution (DC) plans, and GAO says this may mean that increased retirement savings and other options for generating retirement income from savings, such as annuities, might become more important for retirees in the future. While this helps to ensure seniors have a monthly source of income, it’s crucial that retirees make wise investments, as “poor or imprudent investment decisions may mean the difference between a secure retirement and poverty.”

In light of the importance of seniors making informed decisions when it comes to retirement planning and sustainability, GAO highlights the importance of financial education so that seniors may become more financially literate. Currently, says GAO, the government provides resources with a primary focus on saving for retirement, but does not lend enough attention to ensuring income throughout retirement. The study also explores the idea of requiring plan sponsors to provide notice on risks individuals may face when managing income and expenditures during retirements, and also an estimate of lifetime annuity income on certain benefit plan statements.

View the full report here.

Written by Alyssa Gerace

Join the Conversation (13)

see all

This is a professional community. Please use discretion when posting a comment.

  • Boy, those guys at GOA are naive, and do we really expect any better?. The reason we are taking our Social Security at 62 is because we believe that the government is about to enter a period of massive, forced spending cuts. Since SS comes from the same pocket as everything else (yes, we do know that the Trust Fund is broke), then the more we can get before the cuts is better for us.
    At some point soon, the federal gov. will have to operate solely on the funds it takes from taxpayers, fees, royalties, etc, NO borrowing. That would take about a 40% across the board cut, which is even higher when you consider that interest on the national debt can’t be cut, so that much is off the table.
    We also know the quality of our politicians and, thus, are quite confident that this will lapse into a massive crisis. They don’t have years to defer this to the next President and later Congresses, so the prospects are grim, at best.

  • If the retirees had the wisdom to make wise investment decisions, they never would have fought to get their plans changed to DCs.  It is exactly the lure of quick and fantastic but fleeting gains in the dot coms that drove the switch.  Where are those dot com stocks today?
     
    Unfortunately the same financial planners who advised the switch are helping seniors with their investment decisions today.  Is it any wonder that 401(k) plans are so messed up today? 
     
    All the prudent strategies leading up to the 80s have been thrown away in the decades since.  Where we are heading is toward a cliff with too many younger seniors bearing too much debt including mortgage debt.

     
     
     

    • Define “financial planners”.  I think you will find most CFPs and ChFCs, CLUs and others did not push the shift from DBs to DCs.  That was the pension people “helping” the corporations do what they wanted: to save money.
      However, many FPs push professional corps to install DB plans, with perhaps a skinnier DC plan for the lower paid employees.

      • dduck12,

        Forgive me for disagreeing.  Many financial planners pointed to plan gains which the employees were not participating but could if they had defined contribution plans.

        Unfortunately the term financial planner includes anyone who wants to claim that title.  Only CFPs have any special claim to a form of that name.

      • dduck12,

        Forgive me for disagreeing.  Many financial planners pointed to plan gains which the employees were not participating but could if they had defined contribution plans.

        Unfortunately the term financial planner includes anyone who wants to claim that title.  Only CFPs have any special claim to a form of that name.

  • If the retirees had the wisdom to make wise investment decisions, they never would have fought to get their plans changed to DCs.  It is exactly the lure of quick and fantastic but fleeting gains in the dot coms that drove the switch.  Where are those dot com stocks today?
     
    Unfortunately the same financial planners who advised the switch are helping seniors with their investment decisions today.  Is it any wonder that 401(k) plans are so messed up today? 
     
    All the prudent strategies leading up to the 80s have been thrown away in the decades since.  Where we are heading is toward a cliff with too many younger seniors bearing too much debt including mortgage debt.

     
     
     

  • If it’s not a good idea for Seniors to use the proceeds from their Reverse Mortgage to fund an annuity, how could it be a good idea to use the proceeds from their Social Security to fund an annuity?

    • Rainmand,

      What does your question have to do with the article or this thread?  I am sorry but your comment seems odd.  Can you point to where such a recommendation is made?

      • >>Seniors should delay cashing in on their Social Security benefits and opt to invest in annuities

        Did you read the first sentence of the article?

      • rainmand,

        That sentence was not a recommendation to “use the proceeds from their Social Security to fund an annuity.”  It was advice to delay the payout of Social Security benefits. 

        Generally the longer the senior waits to make their initial claim the larger those benefits become.  There are specific rules, so if one delays, the decision to file the initial claim must be chosen with care.

        That is why I found and find your comment odd; that is because it is.

    • Rainmand,

      What does your question have to do with the article or this thread?  I am sorry but your comment seems odd.  Can you point to where such a recommendation is made?

  • If it’s not a good idea for Seniors to use the proceeds from their Reverse Mortgage to fund an annuity, how could it be a good idea to use the proceeds from their Social Security to fund an annuity?

  • I don’t know about other people’s experience, but when I went to the SS office at 6y5, the representative made the case for not delaying to age 72.  Starting early (age 65) means you collect more (and up front) if you happen to die before the crossover point (say 13 years).  However, if you are in good financial and physical health and you think Uncle Sam will keep paying, you may be better off waiting til 65 or 72.  In other words each set of circumstances could lead to early or later start dates. As far as immediate annuities go, I look at them as additional income sources and definitely feel they should cover at least your basic nut (rent, mortgage, maintenance, insurance, etc) perhaps in combination with SS. 
    BTW:  If you have the flexibility, just as with SS, older you are (a blend with spouse, not the lower age as with tenure), the larger your payments will be compared to a younger age. 

string(111) "https://reversemortgagedaily.com/2011/07/11/delay-social-security-benefits-and-choose-annuities-gao-recommends/"

Share your opinion