Tom’s Thoughts on Including Social Security in Retirement Plans
Transcript:
Easan Arlanantham:
So our next question is, I can take Social Security between 62 and 70. Were the pros and cons taken early versus late?
Tom Vaughan:
Yeah, that’s a good question, I actually do an entire seminar, you know, on Social Security maximization, and it’s really interesting. So, you know, the, if you take it at 62, just to take the extremes, obviously, you take, you get a lot less. So what they call full retirement age, fra, is the term that they use all the time, for a lot of people that it’s between 66 and 67. Now, so if you’re taking that 62, you’re going to get less, quite a bit less. And so the disadvantage, there would be obviously, you know, if you live a long time, you’re actually going to get less than total.
And so that’s the big disadvantage to taking it early is just exactly that the advantage of taking it early is that, you know, if you don’t live a long time, then you at least you got something, or you could invest the difference, you know, having taken at 62, instead of 66, or 70, or whatever. And I’m just going to invest the difference, which you could make a valid argument for that also, although what we do is we run all these calculators and you can put that in there, you can say, Okay, I want to invest, I’m going to make this much in my rate of return is going to be you know, x. And it’ll tell you what your breakeven point is. So let’s say, I don’t invest, I’m just going to spend it my breakeven point is 877. That just means Hey, if I live to 78, or beyond, I’m actually better off waiting to take Social Security. If I invest it, maybe my breakeven point is at it again. So you have to think about, you know, how long do you think you might live and those types of things as far as that taking it early, taking it later, the big advantage is, there’s a couple of big ones.
First of all, you get more than what you would get at full retirement age, it grows at 8%, a year after full retirement age plus any cost of living increases. So literally last year, people made I believe was 9.6%, on their on their money, you know, basically guaranteed by the government in that case. And so that’s a big deal, you get a lot more by waiting till age 70, then you might certainly at age 62. The other thing is to if you’re if you’re married, and you know, you’ve got a couple, the bigger one, whoever’s going to get the most. So security, having that grow, and waiting till age 70 on that might be a really big deal. Because when one person passes away, essentially, what happens is the smaller so security disappears. And so you basically can make sure that the couple as a whole is taken care of in a better fashion, by waiting as long as possible for the big one to take the money from and that would, you know, ensure that the success or hope the success of the one of the survivor.
Easan Arulanantham:
Cool. So I guess for like Social Security, if you’re taking now that’s like, good, but for someone my age? Is Social Security, even like, should I have that in my plan? Should I be worrying about that? or thinking about that? Or should I just eliminate it and just plan for life without it?
Tom Vaughan:
I get asked a lot about from younger clients, when I’m working on their financial plan that, you know, here, hey, I don’t want to count Social Security, what have you. But Social Security is actually a really, really important for those people that are retired, they realize how important income source it is, and how valuable it is. So here’s the thing, if you didn’t go back to the 1940s, and so security has been going out of business since then. I mean, there’s, when I go to a class, you know, or at least I used to go to a class before the pandemic, you know, once a year, and they kind of locked us in a room eight hours a day, three days, and all we do is learn about Social Security, Medicare. And, you know, that’s one of the things we talked about all the time, the viability of social security.
And one of the classes, they had all of these headlines, you know, Time magazine and everything going all the way back, like I say, to the 40s. And so security has been going out of business forever and is still here. And part of the reason that it kind of needs to be here is because it is this really important safety net. For a lot of retirees, it’s really the only income they’ve got.
And so, you know, what they are doing is adjusting it. People are living longer. I mean, my parents, you know, could get their maximum, full Social Security age was 65. Mine is 67. So they’ve already moved it back to yours. And maybe for my kids, it’s age 69 or something along those lines. I think that’s fair. People do live longer now and what have you to so I think that works out. Okay. So I think yes, although I would look at possibly, you know, modifying it for some reduced benefit, or having to wait a little bit longer to get the full benefit.
Because I do think that that’s a pattern that they’ll continue to do. It’s not that hard to keep Social Security going. They just changed the rules. And there’s a lot of different ways they can do it with the cost of living increase or the age that you get full retirement benefits and those types of things. I think it’ll be here. We’ve looked at it a lot. And I think it’s, I think it’s solid. And it’ll be here for even for you isn’t. It just might be, you know, a smaller amount than you know what somebody is getting. That’s retired now, at least at the same ages, and that’s fair enough because you might live to 100. So you know who