Social Security Offers Bad Deal to 70-Year-Olds

The problem is that taking this deal cuts your monthly payments forever. If you take the lump sum, your monthly check will be 4% smaller for the rest of your life. Larry Kotlikoff, a Social Security expert, calls this a "massive con job." He says Social Security doesn't tell people about the long-term costs.

Kotlikoff studied what happens to someone who gets $3,000 per month in benefits. Taking the lump sum gives them $18,000 right away. But it reduces their lifetime benefits by $32,000. That means they lose $14,000 total by taking the deal.

Many Americans don't understand how Social Security timing works. For every year you wait after age 67, your monthly payment goes up by 8%. If you wait until 70, you get 76% more money each month than someone who starts at age 62. Only 10% of Americans wait until 70 to get these maximum benefits.

Some people worry that Social Security will run out of money. The government says the trust fund might only be able to pay 77% of benefits starting in 2032. But Congress has always fixed these problems before. The baby boom generation votes, and politicians don't want to anger them.

Life expectancy numbers show why waiting matters. The average American lives to age 79. Women live to 81 and men to 76. But if you make it to 70, you're likely to live much longer. Many people who reach 70 will live into their 90s or even to 100.

Social Security is the only retirement income that goes up with inflation every year. Other savings and investments can lose value over time. If inflation averages 3% per year, a fixed payment loses half its buying power in 25 years. That's why experts call Social Security "catastrophic insurance."

The advice is simple: if you've waited until 70, don't take the lump sum offer. The 4% higher monthly payment is worth much more over your lifetime. Experts say you shouldn't bet against living a long life when you've already made it to 70.