Don't Be Afraid to Ask: Everything You Wanted to Know About Social Security
by Seth Meisler
As Baby Boomers enter retirement, one of the most important decisions they will face is when to take Social Security. For most Americans, Social Security represents the vast majority of cash flow they will receive in retirement. In addition, the difference between the optimal Social Security-claiming strategy and the strategy used by most Americans (which is to take it before full retirement age) can result in many thousands of dollars of lost potential cash flow for an individual claimant. Since that lost potential could equal up to $100,000—as much as $200,000 in some cases—it’s imperative to get the decision right. Otherwise, you might be doing the equivalent of throwing away a winning lottery ticket.
Given the high stakes, the importance of this decision cannot be underestimated. It naturally has struck a chord nationwide, as evidenced by the book Get What’s Yours: The Secrets to Maxing Out Your Social Security, by Kotlikoff, Solman, and Moeller, landing on the New York Times Best Sellers list in 2015. And yes, we’ve read it and recommend it, but it’s highly detailed. We suggest you come talk to us instead—that’s what we’re here for!
There are three critical items to be aware of when it comes to claiming Social Security. First, it’s not you—it really is complicated. Second, there is a key unknown in the calculation, which is how long you are going to live. And finally, a call or a visit to the Social Security office may not necessarily help you; in fact, you could inadvertently wind up with bad advice. We’ll explore two of these topics in greater detail.
It’s really complicated
There are literally thousands of rules pertaining to Social Security and thus multiple calculations are needed to determine the optimal strategy. Not only are there numerous variations for married couples, but calculations get significantly more complicated if someone is divorced or widowed. Do not assume that a “rule of thumb” strategy will give you the most money. It is simply not possible to calculate all the permutations without a sophisticated computer program.
How long will you live?
Unfortunately, one of the biggest factors in calculating Social Security is how long you (and potentially your spouse) are going to live and this, of course, is something we don’t know. It might literally be the $64,000 question. Actuaries have calculated that the average lifespan of a 65-year-old couple is 85 years, with approximately a 25% chance that one spouse will live until age 95. In addition, with advances in medical technology, we are seeing people live longer, to the point that every 10 years, the lifespan has been increasing by one year. So for example, someone in his or her mid-60s will have a longer lifespan than someone in his or her mid-70s.
So what to do? Your core assumption needs to be that your lifespan may be longer than you anticipate (with specific rare exceptions). Therefore, the biggest risk for individuals is what I call “Too much life at the end of your money.” This has a direct impact on when to claim Social Security, since delaying making your claim beyond your full retirement age can increase your monthly payment by as much as 32% (excluding inflation).
What Affiance Offers
The Affiance Planning Department has spent a lot of time and energy developing an internal knowledge base in the area of Social Security-claiming strategies. About a year ago, we invested in an industry leading software to run these calculations. This software is far more sophisticated than most programs available on the retail market. Because of the complexity of the rules, the importance of timing, and the dollar amount potentially lost if you make the wrong decision—if you are approximately age 60 or older, we urge you to meet with us. Don’t rely on generic advice that may not be appropriate for your situation.
As a first step, we invite you to learn more about Social Security strategies at our Social Security Seminar on September 16th, 2015. We will go through some of the strategies on when to take Social Security and give advice on how to maximize your benefits. If you know anyone who would benefit from this seminar, we encourage you to bring them along, all are welcome to this educational event. Keep an eye on your inbox for more information.