Wednesday, 06 April 2016 19:30

Why Most Don’t Maximize their Social Security

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In 2014, I wrote a 6-part series on Social Security Strategies with the first article, “How Social Security Strategies Affect Your Retirement”, 5/23/2014 AZ Republic by Dr. Harold Wong. The average retirement benefit was $1,294. For older Baby Boomers, full retirement age for purposes of Social Security (SS) benefits is 66. Only 5.2% of men waited until age 66 and only 1.2% waited until age 70 to take SS retirement benefits. Example: if SS benefits at age 66 were $2,000 per month, it would only be $1,500 at age 62 and $2,640 monthly at age 70. So why don’t people maximize their SS benefits?


Excuse #1: I won’t live that long and so I will start SS benefits at age 62.


The year 2,000 Society of Actuary study shows that once a couple reaches age 65, there’s about a 47% chance that at least one will live to age 93 and a 26% chance that one will live until age 97. The breakeven is about age 80, where the total SS benefits received are the same no matter what age you began SS. Using the above example, you will receive $2,640-$1,500 = $1,140 more monthly SS benefits if you wait until age 70 to start SS. Over the next 15 years, if at least one of you live to age 95, you will collect $205,200 more total SS benefits by waiting until age 70 to start SS benefits.


Excuse #2: After I die, my wife will remarry and find a guy who can support her.


According to the U.S. Social Security Administration, 2002 study, once women get to age 65 and older, 60% are single compared to 29% of men. As women get older, their probability of being single increases. Older women are three times more likely to be widowed than older men. Women tend to live longer than men and marry men who are older than they are. Also, older women don’t tend to re-marry. If you really love your wife, you want’ to wait until age 70 to take SS. When you die, the surviving spouse (usually the wife) can get whichever SS check is higher, yours or hers. By maximizing your SS check, you are also protecting her in her later retirement years.


Excuse #3: If I take SS at age 62, I can invest the money.


In reality, Americans don’t save. In October, 2015, our national savings rate finally reached 5.5% and was only 6% 30 years ago. In most cases, you are going to spend virtually all of your SS check. Second, investing the SS check will only be a benefit if you earn a substantial positive rate of return. During the first 15 years of this century, years 2000-2015, there was only about a 2 to 2.5% average return in the S&P 500 stock market index. If you were with a full-service brokerage firm, their goal for decades has been to earn at least 3% annual fees from your account. So, your net return for this century would be negative, not even counting the effects of inflation.


Conclusion: most do not wait until full retirement age before the take their SS income. This dooms the family to have a low SS income base, to which any future cost-of-living increases will attach. Virtually everyone makes their decision by talking to friends or co-workers instead of sitting down with a financial advisor that really understands how to integrate Social Security and other sources of retirement income.

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