Wrong Question Brings Lower Social Security Payout

NEW YORK (TheStreet) -- The basics of Social Security are pretty simple: The longer you wait for benefits, the more you get. Live past your government-projected life expectancy and those bigger benefits really pay off.

For every dollar you would be entitled to get at 66, you'd get just 75 cents by starting at 62, or $1.32 by waiting to 70. Any optimist would therefore be wise to postpone benefits until they max out at age 70.  Starting early makes sense for only two groups: those expecting to die young and those who must have the money.

But not many people do the logical thing.

"In fact, half of all Americans claim Social Security benefits at age 62 or within two months of stopping working, while just 2% wait until 70, the age at which monthly benefits are maximized," says Morningstar, the market data company.

To find out why, Morningstar asked Suzanne Shu, an assistant professor at UCLA's Anderson School of Management who has studied the question. A key element, she says, is a person's expected lifespan. While no one knows just how long that will be, people's best guesses, or wishes, can vary dramatically according to something as simple as whether they are asked what age they will "live to" or will "die by."

Shu said that "the median life expectancy was 75 years old in the 'die by' frame, and 85 years old in the 'live to' frame." In other words, the typical person has not really tried to pin this number down.

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