On the CNN financial website this week (money.cnn.com), we found an interesting article that asks a provocative question: “Is 70 Too Late to Claim Social Security?” This question sounds almost heretical, since most experts advise people to wait as long as they can (ideally until 70) before starting their benefits, but as the article points out that actually might not be the best strategy for every retiree.
You can click here to read the CNN article. It was written for CNN by the financial experts at the popular website Motley Fool. We present it here merely as food for thought. As with any financial advice of this magnitude, we urge you not to take action until you’ve carefully reviewed your options with a professional planner. You can contact us here at AgingOptions any time to discuss Social Security strategies along with any other retirement-related questions.
The CNN article acknowledges that choosing when to take Social Security is “one of the most important decisions you make about your retirement.” As most of our readers and radio listeners know, people born in 1954 or earlier can claim benefits as early as age 62 (assuming no disability payment is involved). Full retirement age is considered to be 66. Benefits increase at about 8 percent per year between 66 and 70, so waiting to take benefits is generally considered a sound idea (even though only a small percentage of retirees actually do so – estimated at well below 10 percent of beneficiaries).
But according to CNN, the “time value of money” may dictate that having smaller checks over a longer period of time might be better than receiving larger checks over fewer years. The argument, in simple terms, goes like this: if you wait until age 70 to start Social Security benefits, it will take you about a decade, or until about age 80, to have collected as much as you would have had you started benefits earlier. So in essence, by waiting for maximum benefits, a retiree is gambling on how long he or she will live. CNN suggests some might be better off taking those Social Security payments early, investing them, and enjoying a larger nest egg for the remainder of their lives.
However, there’s a big “if.” The CNN article says this “start early and invest” strategy works well “if other sources of retirement income allow you to invest your Social Security income.” In other words, if you don’t need Social Security to live on, putting it all into investments is a good plan. The reality in our experience, though, is that this idea is a luxury most retirees can’t afford and probably should not do. Studies estimate that, for single retirees, nearly half count on Social Security for 90% of their income. And because many adults still are not preparing adequately for the financial demands of retirement, the situation seems unlikely to change. (This was covered in a recent article on our blog, and you can click here to read it.)
When it comes to investing, there’s also the problem of self-discipline. The experts at CNN suggest you might benefit from investing those early Social Security benefits, but too many people in our experience end up spending those dollars instead, either out of necessity or by choice. In other words, in spite of the best of intentions, those so-called investment dollars get spent elsewhere, and the retiree is left with lower Social Security benefits for life (not to mention lower spousal benefits as well).
Before you take a risk with something as vital as Social Security, we urge you to get professional and unbiased advice. That’s what we’re here for. At AgingOptions we will walk alongside you through the many complex questions about retirement planning and help you make the choices that are right for you. This applies not only to your finances but also to important facets of retirement planning such as housing options, legal affairs, health care coverage and family communication. For everything from choosing a geriatric physician to deciding if a reverse mortgage is right for you, the professional team at AgingOptions stands firmly on your side.
A great way to get a no-obligation overview to the AgingOptions approach to retirement planning is by attending a free LifePlanning Seminar. We offer these popular, information-packed sessions at locations throughout the area. Register online on the Upcoming Events tab, or call our office for questions and assistance. We will welcome the opportunity to be your guide and advocate through the exciting journey of planning for your retirement years.
(originally reported at http://money.cnn.com)