Transcript:
Easan Arulanantham:
My portfolio is down, should I ever consider taking Social Security early as income to kind of make up for that decrease in my portfolio?
Tom Vaughan:
Okay, so portfolio is down, obviously, as true for most of us here in this particular market. And let’s, I’m assuming that means that we’re withdrawing some money from that account to live off of or retired, maybe we’re not at full retirement age yet, where we can, you know, get our full Social Security, let’s just say we’re 63 or 62, or something, so we could take it. So should we take Social Security, and take the pressure off the portfolio? Or just keep doing the portfolio and let Social Security grow? Right, you’re gonna actually, it’s actually a math problem, we can put this exact scenario into the financial planning program, run the Monte Carlo simulation, and be able to see which scenario works the best we can try different ages for Social Security, we can try different, you know, concepts for what’s going to happen for the portfolio and how much you’re withdrawing from the portfolio. Right? I mean, you can solve this, we can actually answer this with, you know, MonteCarlo simulation, I guess another way to look at it would be just in terms of withdrawal rates. So let’s just say for example, you’re taking 4% out of your portfolio right now, before the market started down. Now, the markets down, you’re all you’re up to five or 6%, depending on what’s happened with your portfolio. And that’s a pretty big drawdown, I mean, you are really hurting that portfolio at those levels, potentially. And if maybe Social Security, would help to reduce it back to that 4% level again, you know, filling that gap.
If on the other hand, let’s say you were only taking one or 2% of that portfolio, and now the markets dropped and you’re up to 3%, you might be better off letting Social Security grow. As you know, Social Security has a full retirement age, right now, for a lot of people 67. If you take it at 62, you basically get it discounted. In other words, there’s, you get less, it’s a penalty, it’s an exact percentage, every single month that goes by your security is growing to that value that you get it so security, right, I’m sorry, at full retirement age, after full retirement age from 67 to 70, in this case, then you get an 8% increase guaranteed on your Social Security Plus you get an A cost of living increases that happen. That’s a really healthy, I mean, last costume increase was 5.9. The rumors are it’ll be higher this year coming up for 2023 plus 8%. Growth. You know, you’d be missing out on that, if you took it earlier, I’d probably only do that if the math said to do it are my withdrawal rates are really high. And I was really damaging my portfolio because I’d rather have that Social Security grow, grow, grow, because it’s a guaranteed income. You know, the next time we get into a downturn, I want to have the most I can from Social Security coming in, instead of having taken it earlier because of a downturn that turned out to turn around and come back. And now you’re kind of stuck. I mean, you can start your you can you can, if within a year, you can actually go back and do over your Social Security. But you got to pay all the money back. I’ve never seen anybody do it.
Easan Arulanantham:
Yeah, it’s rough. Because if he usually you take Social Security, because you need to take it. Yeah. And so paying back that a year worth of benefits is really raw.
Where’s that coming from? If you had that already, you might not have taken it early. Yeah, you could get lucky in the market, you know, could just skyrocket for a year, maybe then you could do liquidate some of your assets. But yeah, it’s kind of unlikely. And so the idea is, do you give up that 8% Guaranteed growth? I don’t think if if you told me there’s an investment out there that you can give me a percent every year, for three years. You know, I’ll take that in a heartbeat.
Tom Vaughan:
Yeah, I know. I’m gonna say 25. That’s a 24% increase, you know, it’s compounded for that matter. So I mean, it’s really, I think that’s, that’s pretty nice. But, again, it is it is unique, each person has a different situation, there might be a scenario where you should take it, you know, you just your withdrawal rate is too high. We run that through Monte Carlo simulation, we’d be able to see Social Security works better taken so scary now works better. Right? Versus it doesn’t. Yeah. And so that we can, we can play with that we can try out different scenarios. And it’s essentially a math problem. And so it can be solved. There’s always the emotional aspects and kind of what you’re trying to do and, and that does kind of Trump the math, right? The logic is not as strong of a thing as the emotion so you’ve got to, you’ve got to account for that. But, you know, the question is pretty straight. forward as far as that goes, but the answer it depends on your situation. And I’d certainly be looking at withdrawal rate. For starters. If you have a high withdrawal rate percentage, then maybe take Social Security if you don’t, maybe not. And if you really want the right answer, call us set an appointment, you know, and we’ll do the MonteCarlo simulation for you and figure out what the real answer is.