GAO Questions Focus on Social Security

BOSTON (TheStreet) -- The majority of Americans may be concerning themselves more with Social Security benefits than other strategies that would help ensure lifetime income when the retire.

That's the finding in a report by the Government Accountability Office, an independent, nonpartisan agency that works for Congress. The GAO also found that many are choosing to leave money on the table by collecting Social Security benefits before they max out.

The GAO cites financial experts it interviewed as recommending that "retirees systematically draw down their savings and convert a portion of their savings into an income annuity to cover necessary expenses, or opt for the annuity provided by an employer-sponsored defined-benefits pension instead of a lump sum withdrawal."

Experts also recommended to the researchers that people delay Social Security benefits until reaching at least full retirement age and, in some cases, continue to work and save if possible.

The advice is contrasted with the reality of what folks are actually doing.

GAO found that most retirees rely primarily on Social Security and pass up opportunities for additional lifetime retirement income. Taking Social Security benefits when they turned 62, many retirees born in 1943, for example, passed up increases of at least 33% in their monthly inflation-adjusted Social Security benefit levels available at full retirement age of 66. Most retirees who left jobs with a defined-benefits pension got or deferred lifetime benefits, but only 6% of those with a defined-contribution plan chose or bought an annuity at retirement.

Those in the middle income group who had savings typically drew down those savings gradually. Nonetheless, an estimated 3.4 million people (9%) aged 65 or older in 2009 had incomes below the poverty level. Among people of all ages the poverty rate was 14.3%.

"Policy options proposed by various groups concerning income throughout retirement include encouraging the availability of annuities in DC plans and promoting financial literacy," the GAO report says. "Certain proposed policies seek to increase access to annuities in DC plans, which may be able to provide them at lower cost for some individuals. However, some pension plan sponsors are reluctant to offer annuities for fear that their choice of annuity provider could make them vulnerable to litigation should problems occur."

As for financial literacy efforts, other proposed options promote a better understanding of the "risks and available choices for managing income throughout retirement in addition to the current emphasis on saving for retirement."

The GAO's suggestions for this goal include additional federal publications and interactive tools, sponsor notices to plan participants on financial risks and choices they face during retirement, and estimates on lifetime annuity income on benefit statements.

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