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Guarding Your Wealth for Seniors
When To Start Receiving Social Security Benefits?
A bird in the hand is better than two in the
bush... maybe
By Jeffrey D. Voudrie, CFP
June 2, 2006 - Conventional wisdom and many financial planners say
that you should start taking Social Security benefits as soon as you are
eligible. For many, that is at age 62. This is another time that
conventional wisdom may be wrong. Read on to see whether you should
delay receiving those benefits.
A bird in the hand is better than two in the bush,
right? There’s no guarantee that you will be able to catch the birds in
the bush and you know that you already have a bird in hand. If that bird
represents your next meal then you’d be a fool to let it go in hopes of
catching several birds in the bush.
On the other hand, if you have enough birds in the
freezer to feed you for several months it might be worth taking the
chance on the multiple birds in the bush. Better yet, is there a way you
could have both?
If the bird in question is your social security
benefits, you may do better waiting for the birds in the bush. This is
especially true if you have enough money in savings to meet your needs
for the next several years. Even if it means spending down your
principal to postpone the date you start benefits, you may be far ahead
in the long run. You’d get the bird in hand and the ones in the bush!
On the other hand, if you aren’t able to meet your
needs based on what you’ve set aside, than the bird-in-the-hand (taking
benefits at age 62) is the better choice. Regardless of when you start
Social Security payments, make sure you don’t delay receiving Medicare.
Conventional wisdom says that you should take
benefits at age 62 because you can invest that money and earn a better
return then Social Security does. We’ve all heard how the average return
on the Social Security Trust Fund is only 1%, right? Wrong.
You can earn a guaranteed 8.25% per year by
delaying when you start receiving benefits from age 62 to age 66. And it
doesn’t depend on what the stock market does. It doesn’t matter what
happens to interest rates.
Taking benefits at age 62 results in receiving only
75% of the amount you would get if you wait until you turn 66. Every
year you wait, the amount you receive increases. By waiting until age
66, the annual increase averages 8.25% per year.
The average annual return you are guaranteed by
waiting until age 70 is 10% per year. Benefits increase 8% every year
past age 66. Waiting from age 62 to age 70 results in monthly payments
that are 81% higher.
If you or your spouse lives beyond age 79 then you
will be better off delaying benefits. Average life expectancies indicate
that roughly 50% of those age 62 today will live beyond age 80. Medical
advances will only increase that over time.
The risk of delaying benefits is that the main
breadwinner may die prior to your breakeven age. That would still result
in higher monthly payments to the surviving spouse who may live much
longer. You can also use low-cost term life insurance to make up for the
lost benefits.
Many of those retiring today have not set aside
enough to provide for themselves and their spouse for the rest of their
lives. Some face the prospect of draining their retirement savings and
living just off of Social Security if they live beyond their 80’s. Even
if you will use up your savings more quickly in the short-term, delaying
the start date until age 70 could significantly improve your Social
Security lifestyle.
There’s no way to tell with certainty what the best
decision is for you because none of us know our life expectancy. If you
think, based on your family history and present health that you will
live beyond age 79 and you have enough assets to provide the money you
need until age 65 or 70, then you may want to wait.
Some insurance companies recommend buying an
immediate annuity to provide a payment equivalent to what Social
Security would otherwise provide, but I don’t recommend that approach
and will explain why in the next article.
If you have a specific question or would like more
information give me a call toll-free at 1-877-827-1463 or go to
www.guardingyourwealth.com. You can also reach me by email at
jeff@guardingyourwealth.com.
About Guarding Your Wealth:
“Guarding Your Wealth” is a
nationally syndicated weekly personal finance column written by Jeffrey
D. Voudrie, CFP. Mr. Voudrie is the President of Legacy Planning Group,
a private wealth management firm that employs sophisticated proprietary
strategies designed to protect and grow its clients' investments. Please
visit his website,
www.guardingyourwealth.com to read past articles under the Guarding
Your Wealth Article Archive.
Guarding Your Wealth for Seniors are
a collection of columns by Voudrie that deal with issues of particular
interest to senior citizens. Click here
for all columns.
In addition to being a nationally
syndicated columnist and Certified Financial Planning Practitioner, Mr.
Voudrie provides personal, private money management services to clients
nationwide.
Looking for an energetic expert who
is passionate about financial and wealth management? Mr. Voudrie is an
excellent speaker who will excite and inspire your audience. Mr. Voudrie
is available for a limited number of speaking engagements, television
appearances and radio talk shows. For booking information, email e-mail
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