Social Security and why most people get it wrong
Over the years it’s been my observation that most people do the wrong things at the wrong times. Signing up for Social Security is a prime example of this illustration. Recent statistics show that over 50% of retirees will begin Social Security before they qualify for full benefits and as much as 33% of enrollees will start receiving benefits at age 62. This was not such a big deal 15 or 20 years ago when you could still make 7 or 8 % in bank CDs but in today’s environment it is really a big deal. Each and every year you wait to sign-up for Social Security you get a 7-8% raise in benefits; for life. Not only do you get a great benefit increase but you also get all future cost of living increase based on the higher number. This done correctly assuming you live a long and health life can compound for decades and generate twice as much retirement income.
Not only do most people sign-up for Social Security early but only 6% wait till the maximum benefit age of 70. In my opinion almost everyone should wait as long as they possibly can to lock in their Social Security payments even at the risk of using their own assets to fund their sixty’s. In our practice we have clients working second or third careers and pulling from investment portfolio’s to bridge the gap till age 70. Most advisors won’t use this strategy with their clients since it creates a conflict of interest because they are paid by assets under management and this strategy reduces assets but increases long term income. Let’s face it; most people that reach age 70 will live another 15-20 years or maybe even another 30 years. This longevity risk in conjunction with a guaranteed 8% increase for each year you wait is what should drive the decision to delay locking in as long as we can and stay active and productive earlier vs. later. It’s a lot easier to get work in your sixty’s compared to your eighty’s.
Sure there are always exceptions to this strategy. Certainly if you are in terrible health or maybe a married individual that qualifies from your own earning you might start collecting at 62 while your spouse delays till age 70 at which time you stop collecting your own and start collecting 50% of you spouses higher benefit. We find that most people with a little thought can generate enough income by participating in things they enjoy to delay collecting Social Security till at least they receive full benefits. This is a once in a lifetime decision and should be considered carefully so you have the highest probability of a successful retirement. We wish you all a Merry Christmas and hope you prosper in 2012.
