Common-Sense Ways to Maximizing Social Security & Other Retirement Income

For decades, many have underestimated the crucial importance of maximizing your Social Security and other retirement income. In 2014, the average Social Security (SS) retirement benefit was $1,294 per month. “Among elderly SS beneficiaries, 52 percent of married couples and 74 percent of unmarried persons receive 50 percent or more of their income from SS.” Source: “How Social Security Strategies Affect Your Retirement”, by Dr. Harold Wong, published 5/23/2014 in The AZ Republic.

Example: if you are an older Baby Boomer, your Full Retirement Age (FRA) is 66 and suppose your SS benefit is $2,000/month. If you took SS at age 62, you’re hit with a 25 percent penalty and your SS benefit is $1,500/month. If you wait until age 70 to maximize your SS benefit, you get 32 percent more, or $2,640/month. Only 5.2% of men and 11.4% off women waited until age 66. Only 1.2% of men and 2% of women waited until age 70.

In today’s world of money, you are looking at 2% returns from intermediate bonds or 10-year Treasury notes and 3% returns from 30-year Treasury bonds. Let’s look at SS differently and consider it to be one of our investment asset classes. For you to receive $1,500/month, you would have had to save $720,000 if you earned 2.5% interest. To earn $2,000/month, your savings would have to be $960,000; to earn $2,640/month, your savings would have to be $1,267,200. In addition, SS benefits historically do receive a modest cost of living increase (COL), even though 2016 will be the 3rd year out of the last 6 where there was zero COL.

By waiting 4 years from age 62 to 66 to take your SS benefits, it’s like you saved an extra $240,000. If you wait 8 years until age 70 to take your SS benefits, it’s like you saved an extra $547,200. Even if you believe that you can earn a net (after mutual funds and brokerage fees) of 5% annually in the stock market, you would need to save about $54,650/year for 8 years to accumulate an extra $547,200. Given that the U.S. average savings rate was 5.50% in November, 2015, you would need total earnings of $9,949,091 during the 8-year period from age 62 to 70 to save an extra $547,200 (if there were no earnings at all). We assume that very few readers earn $1,243,636 annually.

A private pension plan is mathematically one of the most efficient ways to increase your retirement income. Example: If you want to take SS at age 62 and receive $1,500/month, how much would a 62-year-old male have to deposit so that he would have an extra $1,140 monthly ($2,640 at age 70 vs. $1,500 at age 62) at age 70.? He would have to deposit $150,000 and let it grow for 8 years. At age 70, he could receive $1,140/month every year from age 70 until death. Note that $150,000 is only 27.41% of the extra $547,200 of savings required in the previous example, if earning 2.5% annually, to generate this extra income. Even better, this private pension income is guaranteed to never go down for the rest of your life. For many, it’s possible to save.

Conclusion: Almost everyone is better off waiting until age 70 to take SS benefits and to rely on a private pension instead of just the bank, bonds, and stock market dividends to fund your retirement income. Most could save $150,000 after a lifetime of work but many cannot save $547,200.

Please contact Dr. Wong for a consultation at (480) 706-0177