Why You Should NOT Rely Solely On Financial Planning Software

A Plan For Widow(er)s


My wife is 4 years younger than me. Thus, it’s easy to predict she will survive me. I’m a man and older.  Go to a nursing home and look around, not many men.

She needs to have a plan for when I’m gone.  And this is something I think about..a lot.

Where does a widow go for proper guidance? The Social Security Administration?   Well, unless you’re new to my email list, you’ll know how I feel about that.  Just watch this video from my Youtube channel on how the Social Security Administration CONTINUES to shortchange widows even though they’ve been informed about what they’re doing for years!

In fact, one of my friends just asked me a question this morning about a strategy for taking her OWN benefit vs. her SURVIVOR benefit.  So, as I typically do, I go to my go-to person on all things Social Security, Elaine Floyd, and read her posts. Thousands upon thousands of answers Elaine provides to financial advisors.  (I’m interviewing Elaine for my podcast in September, by the way. I’ll keep you posted.)

“Widow client, just turned 62, wants to file early on her own record and restrict her application to allow her Survivor benefit under her husband’s record to grow to her her FRA. When she went to the SS office the associate told her that if she filed early for hers it would “freeze” her Survivor benefit and she wouldn’t be able to get the full amount at her FRA.

Did she just receive bad info from the SS office or is there something that I’m missing?”

Elaine’s response:
“She got wrong information from SSA. Survivor benefits are not included in deemed filing. She should go ahead and file for her own retirement benefit.”

If I told  you how many times I’ve heard,read and been told “She got wrong information from SSA…”  you’d never talk to me again, because I’d do ALL the talking!

By the way, notice the word “she” in Elaine’s answer.  Very rarely do I hear “He got wrong information from the SSA.” Why? Because generally the man files his benefits under normal conditions and dies before his wife does. For the man there are not many rules to contend with. Pretty simple.  (Truly, it shouldn’t be, but if you’re dead set on filing at 62, you don’t have much planning to do.)  It’s the surviving wife who’s left to figure things out.

So, what’s the point of this email?

Simple. Understand the difference between your OWN benefits, your Spousal Benefits and your SURVIVOR benefits!

The rules have changed for your benefits and your spousal benefits due to the bipartisan legislation signed in 2015 by President Obama.   The rules have NOT changed for SURVIVOR benefits though.

This mean if you are a widow you can take your own benefit early.  That is the benefit you earned by your own work history. This benefit will be reduced, but come your Full Retirement Age (FRA) you can switch out to your SURVIVOR benefit which is not reduced. My friend is considering this exact option as we speak and our discussion is what prompted me to write this email.

Her reduced benefit on her own record is $1100 a month but her SURVIVOR benefit will be $2300 a month at her FRA, at 66. If she so chooses, she can get her own benefit now and then in 4 short years get more than double by switching to her SURVIVOR benefit!

Yet, the good folks at the SSA will most likely say “just get your survivor benefit now, because it’ll pay more.” And that is correct. It will pay more NOW, but much, much less in the future.  They are trained to maximize your benefits for today, not for the future.

If she took her Survivor Benefit now it would be around 80% of that $2300, or $1840, and she’ll NEVER get any of her own benefit at all.  So if she sacrifices $700 a month for 4 years because she’s taking a reduced benefit off her own record, she’ll be in a much stronger financial position. Given she’s in good health, she’s going to be around for quite some time. And we don’t want her eating Ramen Noodles at 82!

I have a ton of  videos on my Youtube channel that talks about this.   Here is the playlist just for Social Security Planning. I invite you to visit the channel.  In fact I encourage it. You can see all the comments on there from people about their own planning, maybe people in a similar circumstance as you.

Please have a plan for your surviving spouse.  Put something together so she can at least have one less hurdle to jump when she is on her own.

Time For A Social Security Quiz…

Fun right? But read on, this is going to be incredibly important for you. 

When I was running an analysis on cash flow in retirement for a client, we’ll call them Bob and Jane, I noticed something horrific.  See below if you can identify what is wrong. 
Here’s a hint. Bob is the higher earner and in this scenario we have him dying at the age of 80. 

Anything jump out at you?

Well if you notice in the year after Bob dies, Jane’s Social Security is only $20,173.   Of course, if you’ve been following my emails and/or blogs you’ll know that Jane will actually receive the greater of her own benefit or what Bob was receiving at his death.

In this case Bob was receiving around $46,000 in Social Security benefits.  Yet, the software has Jane only retaining her own benefit.  This is a $26k mistake, made annually.  And as much as I wish it so, this is NOT user error.  This is a programming error.  The developers simply do not understand how Social Security works well enough to program the correct information.

This program also has Bob and Jane paying tax in GA even though they certainly will not given their total income.

Unfortunately, in the 20+ years I’ve been a professional financial planner, this is not an exception to the rule.  It is the rule. Just last night, I was looking at a different program because I’m very familiar with the  retirement planning professional this software group retained on their staff. Their Social Security models have issues too.

I’ve seen another software program run retirement scenarios where the retiree has a 100% success rate even though the retiree doesn’t have enough money to pay off his debts.  How can this be? Well if the investment return assumptions are 6.5% for a conservative portfolio we can make a lot of retirements look great, on a computer.

I’ve had other programs say a retiree needs $4 million to retire. When in fact, they probably need all of $800k or so.

At the end of the day, software is, and will forever be, junk in, junk out.

So, what does this mean for you? Well, you need to be careful with your software-generated retirement plan.  Make sure the numbers are legit.  Ask questions.  Make sure your planner knows what the heck he or she is talking about.  If they are just saying “Look Ms. Smith, you’re going to be okay because the computer says so.”  That does not inspire confidence.   The HUGE firms are more guilty of this than the smaller firms in my opinion.  The HUGE firms offer boilerplate financial planning with an off-the-shelf program that a lot of times was designed specifically for them.  Again, not confidence inspiring.

I use the software as a tool to help present a plan to a client. It certainly is not the end-all solution because the program is only as good as the developers behind it.  Who are those people? Do they know what they’re doing? Do you really want to trust your retirement to them?

Do a double and triple take with ANY financial planning document that is presented to you.

Lastly, if someone says your financial planning is good to go because they did a “Monte Carlo” analysis and you’re at at 95% success rate, the first thing you should say is… “That’s great! Is that before or after taxes and fees?”

Here’s a podcast episode and accompanying blog I did on this topic. Again things aren’t always what they seem and YOUR financial planning is too important not to know everything that went into making your financial plan.

As always, contact me with any thoughts, questions or concerns.

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