Since the strategies that we, as advisors, may typically recommend to a client (“file and suspend” or a “restricted application”) must occur at full retirement age or beyond, the claim data suggests that the majority of retirees simply aren’t implementing these strategies. Why? Likely because they do not have the luxury of choosing to delay benefits until a later age, or they are not working with financial advisors who can help them make educated decisions about this significant asset.

Where is the Money Going?
So how are retirees spending Social Security dollars? In January 2014, J.P. Morgan released a paper by Katherine S. Roy outlining the results of a study the firm conducted on spending and retirement, drawing on data from 1.5 million U.S. households. These households have mortgage, debit and credit card relationships with Chase and use those payment types for most of their spending. While the group represents a national sample, it skews heavily toward regions in the Chase ‘‘footprint” (the New York tristate area, the Midwest, Florida, Texas and most of the West).

If we look at households with $1 million to $2 million in assets and compare how much 65-year-olds are spending on various expense categories (health care, housing, education, entertainment, etc.) to how much 90-year-olds are spending, we see interesting things. One thing that caught my eye was that spending on education increased almost as much as spending on health care. We can probably assume that Grandma and Grandpa are helping pay for their grandchildren’s college tuition bills. If they were to lose part or all of their Social Security benefits because of means-testing, I imagine that education spending would be trimmed before health-care spending. This is exactly what the means-testing solutions do not take into account: the ripple effects on different parts of our nation’s economy.

A few other areas of discretionary spending that could be affected are charitable giving and state income taxes. Of course, I don’t mean retirees could choose not to pay their California state income taxes if they were residents. I simply mean that if their income resources are squeezed, that could create a higher incentive for them to relocate out of high-income-tax states (such as New Jersey, California and Iowa) to lower-income-tax states (Nevada, Florida and Texas).