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.


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.

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

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