Don’t Forget Social Security

When he does his presentations, Fraser often walks into a room and holds up a lottery ticket. “Everybody knows what it is,” Fraser said, noting that the average family that makes $40,000 a year or less might spend $1,000 a year on lottery tickets. “The reason they do it is because they’re hopeful. They think, ‘there is a chance I could win. In my retirement, my life will be looked after.’ We know that’s not true,” Fraser added, noting it’s something like a 1-in-292-million chance.

The next thing he talks about is, “Well, since you’re not going to win, let me tell you about the lottery ticket you’ve already won, and that’s Social Security.”

Fraser figures that around 90% of people who are age 65 have $60,000 or less in their 401(k) plan. Talking to leaders at some of the top recordkeepers, Fraser made this statement and asked if they would agree. “Guess what they said? ‘The percent is higher and the number’s lower. It’s between $30,000 and $60,000.”

Then you think about how the market dropped in 2022, lowering account balances for participants. “Here’s a person who had $60,000 in their account on Dec. 31, 2021. And now they have $48,000 because the market’s gone down, say 20%. They get upset and think, ‘What should I do next?’ Go to cash, some sort of fixed account? You get on the phone with that person and they’re very upset. You say, ‘Well let’s take a look at your portfolio. What do you think you have?’”

People tend to forget about Social Security—or they’ve been conditioned by politicians, the media or even the retirement industry not to count on it. They might say, “I had $60,000, but now I’m at $48,000.”

“Well, that’s not what you had,” Fraser replies. “Worst-case scenario, you have $250,000 in Social Security at age 60, so that’s $310,000 and you’re down $12,000.” And by the way, Fraser points out, that $250,000 is a fixed account—it’s not going down. In fact, it went up last year with the 5.9% cost-of-living adjustment (COLA), which went up to 8.7% for 2023.

“Do you know what happens when you have that conversation? People say, ‘Oh my gosh, you’re right, George. I hadn’t thought about it that way.’ Because all we do is focus on the plan so often. I think it’s a really important piece that we need to spend more time on.”

Fraser notes that if you think about the way a general retirement presentation goes, it often starts out with something like, “Social Security may not be there for you, so unless you’re saving 15%, you’ll never have the million-dollar account—and therefore look like the people on our brochures.”

This drives him crazy.

“It’s a bunch of baloney. And that’s what we feed to all these average Americans every day,” Fraser said. “And the bottom line—it’s not true. No one says you have to be wealthy. You really need to find a place to cover your expenses and have some fun opportunities sometimes.”

He likes to remind participants that even $1,000 a month in Social Security payments between age 65-85 equates to a quarter of a million dollars. And it’s a lot more than that when you consider the average monthly Social Security benefit was $1,681 in 2022, and it jumped to $1,827 in 2023 thanks to that 8.7% COLA increase.

Benartzi pointed out that only 9% of Americans delay claiming Social Security in a meaningful way. He cited a  recent paper from the National Bureau of Economic Research that found people leave a median household loss of $182,370 on the table by not waiting until age 70 to claim—and over 90% should wait until age 70 to claim but only 10% do so.

“You don’t have  to claim when you retire. Most people don’t know it,” Benartzi said, adding that among people following his strategies, 60% delay claiming.

Because of the high value of waiting to claim, the research concluded workers should do everything they can to delay, including withdrawing from retirement accounts before tapping Social Security.

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