Claiming Social Security benefits is often talked about in formulas, as if it’s always straightforward. Nonmathematical factors—and feelings—should be given their due weight, it turns out. More in this week’s chat.
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We have written from time to time about the role of Social Security retirement benefits in your plans and planning. I have new perspectives on the process, based on my new status: I’m a Social Security recipient!
I’ve got two interesting and useful lessons from my process so far.
First, in my separate discussions with two Social Security Administration employees, a piece of misinformation emerged. A written summary of a telephone appointment contained a major error, one that would have had negative consequences if left uncorrected.
Second, working through the actual numbers, the arithmetic favoring one start date versus another was not nearly as compelling as I expected. Claiming benefits is often talked about in formulas, as if it’s always straightforward. Nonmathematical factors—and feelings—should therefore be given due weight, it turns out.
Because of the first lesson, I feel even more committed to join each of you as you go through the actual application process. The information is murky, humans can make errors, we can lose pivotal details in the mix… But I would love to try to help make sure the process comes out as you would like it to.
The second lesson underlines something we’ve always believed: your situation, your feelings, your preferences and vision for your cash flow needs absolutely must be part of the equation. Nobody knows the date going on their death certificate, so there is no way to “prove” in advance the “best” time to claim Social Security.
What will work out best for you in your real life? That’s the question.
Social Security is a significant fraction of retirement income for most people, so taking some time to examine and explore options well ahead of time makes sense. We’re here for that. If you are within a few years of retirement, keep watching this space: we will keep discussing what options are available in more detail and how we might approach the choices.
Clients, if you are ready to talk about your retirement plans and planning, please email us or call.
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We’re taking a swig of some big news, fresh from the Social Security Administration.
They’ve announced that the COLA—the Cost-of-Living Adjustment—for 2022 will be 5.9%. Payments for January 2022 will be increased by that amount.
Who doesn’t like getting a raise? But let’s think about how we earned this one.
Our cost of living has been rising. Inflation is running at levels we have not seen in decades. And the laws governing Social Security benefits call for annual adjustments to help offset the rise in the cost of living. In other words, our expenses have been rising for some time, and this “raise” will help us get back some of the purchasing power we have lost.
Inflation has other ramifications, too. Sometimes we assume that financial things with stable values are safe. Savings accounts or certificates of deposit, bonds, and other fixed-income investments generally do offer more stability than long-term equity investments such as common stock.
But perhaps the news from the Social Security Administration is a chance to remember that our cash on-hand pretty much always buys less this year than it did last year—because of the cost of living. If we make 1% interest while prices rise 5%, we are going backward in purchasing power over time.
When there was little inflation, our cash cushions did not cost us a lot. We love the sensation of having the money we need, readily at hand. Funds for emergencies or opportunities are always good to have.
But the purchasing power of excess cash laying around is melting away, day by day. It might pay to consider whether more should be committed to long-term investments.
Clients, if you would like to talk about your cash cushion or anything else, please email us or call.
Investing includes risks, including fluctuating prices and loss of principal.
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It seems like everywhere you turn, there are opinions about retirement. We have not seen this particular bit of advice, so here goes.
After thought and study, we conclude that the worst possible state for retirement is… the state of confusion. Confusion may seriously impair the retirement experience.
• If we don’t understand the income potential of our lump sum balances, we may either be unnecessarily tight with our budget, or run the risk of winding up broke.
• Running out of money is a common and natural fear. Arithmetic guided by experience and knowledge may ease that concern.
• Decisions about Social Security benefits and pension payouts may have a large impact on financial security. The advice one gets at coffee break or at the water cooler may not be the best.
• Health care transforms for most people in retirement. Putting all the pieces together can be confusing. Medicare Part A, Part B, Part D, and supplemental insurance all enter into it. Personal health and financial factors play roles, too.
We advocate thoughtful approaches to major life decisions. A framework of solid information and the right arithmetic may help reduce confusion.
All in all, the state of confidence is a far better place to retire than the state of confusion. Clients, if you would like to discuss this or anything else, please email us or call.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Yes, at age 62 I could claim Social Security benefits. But I won’t.
After talking with you for decades about your Social Security benefits and the tactics you might use in claiming benefits, I’m looking at my own situation. There may be lessons in it for others, so we’ll talk about it here.
Suppose my benefit at age 62 would be $1,500. That’s $18,000 a year! Why wouldn’t I claim it?
1. If I wait until later, my benefit will be larger. That’s $2,128 monthly at full retirement age (66 and 4 months) or $2,856 at age 70.
2. If I claim now, since I want to keep on working, my benefits would be reduced by 50 cents for every dollar I earn over about $17,000.
3. My benefits would be partly taxable because I would have other income of over $23,000 for the year, basically. (It’s complicated—consult your own tax advisor.)
4. Flexibility: A decision to defer claiming Social Security can be changed at any time in the future, if circumstances change.
Since I want to work to age 92, my guess is that I won’t claim until age 70. But that’s just me. Under what circumstances would it make sense to claim at age 62?
A. If your spouse qualifies for benefits twice as large as yours, check into claiming on your record at age 62 and changing to a claim on your spouse’s record at full retirement age. This gives you some benefit from your earnings record, which might otherwise go unused.
B. If you have an impaired life expectancy, an earlier claim might make more sense. A person who plans to claim at age 70 but dies at 68 ends up collecting nothing.
Clients, this is intended to illustrate some of the basic considerations about Social Security strategy. You can learn more at www.SocialSecurity.gov, where you may sign up for a personal account and obtain personal benefit estimates at any time.
Please email us or call if you would like to discuss this at greater length.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
This is a hypothetical example and is not representative of any specific investment. Your results may vary.
There is a recurring concern that comes up when discussing retirement planning with clients. When we sit down with someone to break down various sources of retirement income, sometimes they will stop me and say “Mark, I don’t want to count on Social Security because I’m pretty sure it will be gone by the time I retire.”
It’s an understandable concern. We see headlines all the time calling for Social Security reforms (meaning cuts), throwing around scary words like “default” and “insolvent.” However, it is important to remember what these words really mean. If someone owes you $100.00, and they can only pay you back $99.97, they are technically insolvent. But you’re not really going to miss those three cents all that much.
The Social Security trust is short more than a couple of pennies, but the concept is the same: the program has merely enough funding to meet most of its obligations rather than all of them. You might hear estimates that the Social Security trust fund will “run out” within 20 years, but this does not mean the end of Social Security. Even without the support of the trust, the Social Security program is projected to have enough revenue to continue paying out approximately 75% of its obligations after the trust runs out (according to the latest annual report of the trustee board at ssa.gov.)
This is still a problem, obviously. No one wants to wake up in 20 years and hear their benefits have been cut by 25% because Social Security ran out of money. Thankfully, the fixes are not onerous. The math behind the Social Security trust, as with any pension fund, is based on the principle of compound interest—something that Albert Einstein is said to have called the greatest force in the universe. Staving off that future 25% drop can be accomplished by a smaller 13% decrease in benefits or increase in revenues today (representing a payroll tax of about 2%.)
These changes will undoubtedly cause some pain and there will be resistance to Social Security reforms. None of us knows what the future may bring, so it may be foolish to treat benefit projections as hard and fast numbers. But it seems clear to us that Social Security will likely survive in some form.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
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