“Treat the money you earn and the money you are given the same.” – Jeremy Finger
Question: would you want $750,000 managed properly for your retirement?
That is a dumb question. Of course you want that managed properly. However, many retirees make this mistake and do not even know it…
Jeremy, what in the heck are you talking about???
“Full retirement age” (FRA) is 66 years and 10 months, for some of you. Let’s say your Social Security monthly benefit at FRA is $1,000. That would be $12,000 a year. A rough “rule of thumb” retirement withdrawal rate is 4% of assets and, using this rule of thumb, $12,000/yr is comparable to having a $300,000 asset generating retirement income ($12,000/.04 = $300,000). Using the same math, a $2500/mo benefit would be $750,000. We can call this your “Social Security Asset.” The decision of when to take Social Security will dictate how well your “Social Security Asset is going to work for you.
Take a look at the chart below:
Continuing with the sample figures above, taking your Social Security benefit at 62 as compared to age 66 is the same as reducing your Social Security Asset by roughly $225,000! How? Well, at 62 you are taking a 30% reduction in benefit.
Conversely, DELAYING your Social Security benefit to age 70 is the same as increasing your “Social Security Asset” by roughly $189,000!
Your Social Security Asset increases by roughly 77% by delaying your benefit from age 62 to age 70. By way of note, the increase from FRA to age 70 is 25%.
But Jeremy, if I take my benefit at 62, I will receive the benefit LONGER than if I wait until 70. That is true. And it is also true that the total benefit will depend on the greatest of the unknowns – how long you live.
The break-even age is around 81. Here is the math based on an FRA benefit of $1,000/mo.
At 62: ($708/mo) (19 years) (12 months) = $161,424 total income by age 81
At 70: ($1,253) (11 years) (12 months) = $165,396 total income by age 81
With 81 being the break-even age, those who delay benefits to age 70 and live past 81 will have a greater total income than those who live past 81, but began taking benefits early. Every year beyond age 81 further dramatizes the difference.
A 65 year old male in the US has a life expectancy of 83 years. For women, it is 86 years. A married couple aged 65, there is a 50-50 chance one of them will reach age 90. Consider, too, statistics show more intelligent individuals generally live longer and the very FACT that you are reading this puts you in the top 1% (a Finger Five made up fact).
Jokes aside, the odds favor delaying Social Security benefits. This is especially true when survivor benefits are considered. If the high wage earner takes a reduced benefit, it affects their spouse for the rest of THEIR life, too!
How would Social Security compare to an annuity? Click here.
What if you die early? Then life insurance may be the best investment…kind of joking, kind of not…
On the lighter side, all of us at Riverbend Wealth Management took pictures last week. Should update the website with new photos soon. Elliott got his picture taken for the holiday card on Friday. If you have moved within the past year and want a holiday card, let me know your new address. I am heading to a work conference end of this week. Keep learning…and Retire Happy…it’s a podcast. 😊
Hope all is well with you and your family,
Finger Financial Five – 5 points in 5 minutes or less – is to provide you with a weekly shot of useful financial information. My intention is to share principles, so that you will have more clarity and peace, that help you make better financial decisions.
Investment advice offered through Stratos Wealth Advisors, LLC, a registered investment advisor; DBA Riverbend Wealth Management.
This content is developed from sources believed to be providing accurate information and provided by Riverbend Wealth Management. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stratos Wealth Partners and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.