Tom’s Thoughts on Maximizing Social Security
Transcript:
Katie Nealis:
I’m 67, I’m retired, a lot of my friends are taking their social security at 67. Instead of waiting until 70, what do you think I should do?
Tom Vaughan:
Yeah, that’s really interesting. So this is a question that came in a while ago. And it’s, it’s something I’ve run across many, many times, I actually do a seminar on Social Security maximization. It’s an area of specialty, you know, we, we specialize in retirement. And so one of the big pieces of that is so security. And so if you think about that, if you’re 67. Now, I’m going to assume that means you’re at full retirement age. And so it’s not a bad time to take Social Security. If you take it, you know, 62 to 67, you actually get less as far as that goes, you basically get, you know, a penalty for taking it early. And that penalty lasts for the rest of your life. But once you get to full retirement age, one of the big advantages to waiting is that they will increase your benefit by 8% a year, plus any cost of living increase that happens for that year. So for example, if you were waiting in 2021, this year, you would make the 8%. Plus you’d make the 1.3%, cost of living increase that they had for this year, you make a 9.3%, guaranteed return in growth on your income. And what it does is it increases the base of your income for the rest of your life. And so if you can grow it from where it is now to 9.3%, higher, every cost will increase you get after that it’s going to be based on this higher base.
And so if you can just wait that one year, but here’s what’s happening this year, because we’re having, you know, a higher inflationary period, there are some rumors that we might even see a five or 6%, cost of living increase in 2021, that would actually pay out in 2022, they’ll announce this in October. I think about that for a minute. Because that if that actually happens, if you wait through 2022, for your benefits, you might actually get a 13 14% increase on your money on Social Security. And again, you know, the s&p 500, which we just looked at, which is a phenomenal, you know, index average is 11% a year, over the long term. And in that long term, there’s all kinds of downturns and all kinds of hassles, you could make 14%, maybe next year, guaranteed from the US government with no downturn and it increases your base. So not everybody should wait. And you’re really need to run a social security maximization plan to figure out what your breakeven ages, what other assets you’re going to withdraw from, and you know, how much impact that’s going to have on your overall net worth. But in a generic sense, you know, without knowing all of those things, you know, to answer this question, it might be a good idea to kind of wait, now most people don’t wait 50 I believe 8% of people take social security at age 62 here in America, and only 8% actually wait until age 70. I’ve got some clients away till age 70. They’ve been very, very happy with that. So if you know, if you’re married, try to get the bigger one to grow as much as you possibly can. Because if one of you passes away, the bigger one stays, and the smaller one goes away. So maybe if I take one early, you take the smaller one early, potentially, and leave the bigger one to grow until age 70. And that way, there’s something there for whoever, you know, is the survivor of that couple. So it lots of different pieces to take a look at it. So security planning.
Easan Arulanantham:
So how does life expectancy play into that? You know, maybe, like, let’s say, I’m just not exactly the greatest health, you know, I don’t see myself living past 80 is it then kind of warrants me taking a little bit earlier?
Tom Vaughan:
Yeah. So let’s say for example, somebody who’s 67 could take it now, versus waiting till age 70. You know, they’re giving up say, three years worth of income, and they’re going to get a higher income, but how long does it take to get that back? And let’s just say, for example, in your scenario is 82. So by 82, you’ve now made back you know, you’re kind of at a breakeven point. And then after that, right, you’re just making more and more money. And so, a couple of things I would think about there, number one, is, are you a couple or not, or if you’re single, that’s different. If you’re a couple, there’s a chance that one of you makes it past 82 you know, higher chance because there’s two lives there and how is the health of your spouse you know, so that’s something to consider. But if you think your health is really really poor, and you know, you’ve got some, you know, solid you know, thoughts about that. Then Yeah, you can take it earlier, there’s nothing wrong with that at all. But the biggest challenge in financial planning, I’d say by far is people living longer. Because it just makes your money have to last longer and longer, you know, I had a client who called up and was taken the last dollar out of their IRA at 93. And his comments still rings in my air constantly. It’s just Hey, Tom, I just didn’t think I’d live this long. And so you know, and now he’s pretty much out of money, right? So you don’t want to get into that spot. So that’s the kind of the piece there, you’d have to be pretty certain that your health isn’t going to work out. And only a few people are really in that position in my in my opinion. You know, it’s hard to tell. But that’s it’s a good thing to think about it is a piece of the equation. And the Social Security maximization programs that we do, we can put in shorter than average life expectancy we can put in an age, and it’ll tell us, you know, hey, so if you say, I think I’m only gonna live to age 80, we can put that in there and see what it comes back with, as far as you know, what’s the optimum age to take it and it might be earlier because you know that you’re talking about a much shorter time period. But again, keep in mind that if you’re married, it’s not just you, it’s both of you. And so that’s, that’s a piece of it.