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Getting Personal: Social Security checks, choosing how to save
David Lazarus
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Your questions for Tess Vigeland and the Los Angeles Times's David Lazarus this week: One man who left Bank of America is looking for a safe place with low fees to put his stock portfolio, a laid-off worker wonders whether she should withdraw from Social Security now or later and a couple is trying to decide how to pay down credit card debt, contribute to their retirement and build up an emergency fund.
"The cost of living after you are dead is zilch and I have heard no one say they had regrets about not collecting early after they died."
Yes, the dead do tend not to complain much.
"Again the focus should NOT be on how much you collect but rather on how much you have guaranteed coming in."
This is the cash-flow argument, and is a false choice. So many Americans live by how much comes in every month and how much goes out. They fail to look at overall costs or real wealth.
Getting 8% more by taking retirement at age 70 neglects the opportunity cost of getting that money earlier and investing it. If you can wait until age 70 to collect social security, great.
BUT, if you collected earlier and INVESTED that money, you'd have a nice pile of money by age 70, and this would more than offset the vaunted 8% increase in payout.
Again, the numbers are hard to refute. You "get more" overall by collecting earlier. If you cannot put this into the bank to payout "monthly" at age 70, I cannot help you.
Age 62 - Age 80: (216 months) @ 1463/mo = $316,008
Age 67 - Age 80: (156 months) @ 2085/mo = $325,260
Age 70 - Age 80: (120 months) @ 2586/mo = $310,320
Living the cash-flow lifestyle (looking at money as something that flows through your hands rather than something you OWN) is always short-sighted.
In every financial transaction, such as owning a house, or car, or your retirement, you have to look at overall transaction costs.
And right there is why most Americans are broke. They own no money, and they look at "monthly payment" as being the cost of things, when it is hardly even indicative of anything, other than cash-flow requirements.
Waiting until 70 to collect is excellent advice. If Social Security was an inflation adjusted form of insurance that increased 8 percent a year (much more than any saving account currently offers) then it would be a no brainer. And since it is just that then it is in fact a no brainer. The cost of living after you are dead is zilch and I have heard no one say they had regrets about not collecting early after they died. With that fact in mind people should be focused NOT be on how much they get out but rather on the insured inflation adjusted amount that they get each month as their retirement cost increases because of medical and other needs brought on by aging. Of course variables should be considered BUT as a rule IF YOU CAN WAIT you
should. I predict there will be a tsunami of people who took their social security early asking to reset the clock when they hit seventy. Again the focus should NOT be on how much you collect but rather on how much you have guaranteed coming in. Each yearly cost of living social security increase is greatly magnified when the base is significantly higher. The bird in the hand worldview does not work with this important asset. Think of it as a government annuity.
Great advice, unless you die at age 69! Seriously, there are so many variables that depend upon a person's specific scenario. Most folks take Social Security early on because they need the money. But if you don't need the money, and took the "early" Social Security and banked it, you would come out way ahead, unless you live into your late 80's. And even then, taking into account the investment income from that banked amount, you will come out ahead. I think the blanket advice offered on the air was superficial, particularly since the lady in question was BURNING through her savings at a rapid clip. It is better to "have more" Social Security in terms of monthly check amounts and NO SAVINGS? I think you have to sit down for an hour, at least, to answer this question. 90 seconds on the air is not enough.
I agree with those who suggest the math might not be in your favor if you wait til 70 to take your retirement. AND have a couple of questions
1.If you unemployed for more than a year, will it affect your pay out negatively since SSI is calculated over past earning history?
2. Can you take SSI at 62 and stop taking it if you find a job and get back in the cycle or higher earnings if you are employed for several more years? Otherwise your new income will reduce your much lower SSI payments to nil.
The hosts seem to be assuming reemployment will occur.
Also taking full retirement at your full retirement age allows you to continue to earn. A little know fact is if you take full retirement in the year you will reach full retirement age you can earn about $35K (up from $13K in earlier years)without reducing your
ssi payment, so depending you your income, and when your birthday is, taking SSI a few months early may actually pay out better.
The woman unemployed from her $75K /yr job also talked about selling her large condo to downsize, other that commending this plan, no discussion was held re the expenses of owning a condo , owning a small house or renting, such as condo fees and periodic assessments, cost of homeowners vs renter's insurance, cost of utilities and repairs to furnaces, etc costs of upgrades to appliances, periodic repainting, recarpeting, exterior and yard maintenance etc. some of which may be borne by lessors. I would like to see some discussion of these matters as a separate topic sometime
There are a lot of variables in deciding when to start receiving Social Security, but generally it is better to wait to age 70 if you are in good health and have close relatives that have lived to be over age 85 or 90. There are very few investments these days that could give you a secure 8% per year return. That being said, I did advise a friend to take her Social Security benefits at age 63 when she had been laid off for over a year, had run through most of her savings and was borrowing money from a friend to make her house payments. I worked for Social Security for 35 years and for many years there was 8 and 18 year rule for the month of election for the start of benefits if it would take less than 8 years to lose the initial advantage of an earlier election month or more than 18 years for a later election month. This is assuming a life expectancy of 80 or less. I retired last year at age 65 and will take wife's benefits at age 66, but will try to keep from taking my Social Security until age 70 so that I can take advantage of the 8% increase in benefits for ages 66 to 70. The caller obviously did not want to take her Social Security at this time, so the advice was sound.
Although I posted this here on the 11/18 page, the actual article aired on 11/19, near the end of the show.
I analyzed this using my own data, as reported to me by the Social Security Administration. How long you live affects the outcome. Assuming I live to 80 or so, the payout works as follows:
Age 62 - Age 80: (216 months) @ 1463/mo = $316,008
Age 67 - Age 80: (156 months) @ 2085/mo = $325,260
Age 70 - Age 80: (120 months) @ 2586/mo = $310,320
This does not take into account how the future value of money, potential interest earned (if I banked the money from age 62-70) etc.
What irked me is that the cheerful hosts piped, "Here at Marketplace, We ALWAYS recommend you wait until age 70! You get more!"
You get more per month, but perhaps not more overall. It is a complex equation dependent highly on personal variables, and not suitable for blanket answers.
See:
http://livingstingy.blogspot.com/2010/10/at-what-age-should-you-collect-...
I am just sad that the caller, at that age, was not in a position to consider retirement. Retirement is not a dirty word! This idea that we should all work until we are dead is, well, a bill of goods we have been sold.
I'm retired living off my IRA. I'll soon be 64 and running the numbers on a spreadsheet it looks to me like I'd be better off taking my SS now rather than waiting until I'm 70.5. It's tempting to wait until 70 given the 8% or so that it increases every year but taking SS now in lieu of drawing down my IRA makes it a no-brainer. I agree with Mr. Bell regarding lifestyle & current situation.
If you are going to work until 70 then your advise seems sound, but for someone retired and living on their savings (IRA in my case) then I think it pencils out a bit differently than you suggest.
jon
Jon, it might be better to draw down your IRA at a 3-4% rate and wait to draw Social Security until age 70 (age 70.5 is the IRA rule). However, if you need to draw down your IRA at a greater rate, or if your health and family history indicate that you may not live until you are 85 or older, it might be best to take your Social Security now. If you are married, your widow would receive a higher widow's benefit from Social Security if you waited to draw Social Security until you are age 70. She might well live to be older than age 85. My father died at age 67 and my mother is still alive at age 87 and her doctor told her to expect to live another 5 years.
I was listening to your show while driving and when I heard your advice for your last caller, nearly drove into a tree.
Waiting until you are 70 to collect Social Security is not always good advice. A friend of mine who is an Accountant did the math on this, and in most cases, if you collect early, put that money in the bank and collect interest, the payout is about the same, over time. In order to come out ahead by waiting until age 70, you have to live well into your late 80's. Bear in mind that the average person lives to about age 76-78 in this country.
My accountant friend also pointed out that if you wait until age 70, there is every change that Congress may raise the retirement age to 70 before you get there. As a result, the wait may not be worth it.
It is a personal decision, and one factor to take into consideration is your personal health and life expectancy. Waiting until age 70 is not always the best answer.
Compounding this was the fact the caller is spending $1000-$1500 a month in savings (I am guessing close to the latter). I think you would really have to sit down with a calculator, and do the math on the future value of money, vis-a-vis the social security payout, versus the lost revenue from cashing in savings (not to mention the loss of the savings security reservoir).
Also, you did not ask the caller about their current lifestyle and whether that could affect their current situation. I know people who are "unemployed" but paying $100 a month for cable and another $100 a month for their smart phone. Has this lady explored ways to cut expenses before dipping into savings?
The job market outlook is not very good now. And there is every possibility this lady might never work again - it happens.
I otherwise enjoy your show. But I think blanket prescriptions, such as "wait until 70 to collect Social Security" are not always sound financial advice.
