The $434,886 Social Security Mistake

Part 2 of why you should take Social Security at 70…

I received some email from folks who explained to me THEIR specific situation as to why it’s advantageous for them to take Social Security early. Understood. Every person’s situation is unique. I’m speaking here in generalities. And do not suggest EVERYONE should take their benefit late.

In fact, I did a video a while back titled “Social Security Early (One of the few times it makes sense). And there are even MORE reasons to take Social Security early, which I won’t get into here.

My contention is that most people make a horrible choice by taking Social Security early just by default, without doing ANY research at all. That’s a problem. If you are continually looking at your fantasy football league and have never done basic Social Security planning, you’re wrong. It’s all there is to it.

“How DARE you say such a thing, Josh! You’re an arrogant schmuck!”

Yup. Don’t care. This is serious stuff, my friends. Because the inability of people to engage in critical thinking affects us all, via insane political legislation that is passed because of the ignorance of the voting population.

Sorry to offend but as long as the Good Lord allows me a breath I’m going to speak Truth To Power… Did I say that, again??? BWHAHAHAHA… Next thing you know I’ll say “Lowest Common Denominator” or that I’m a “disruptor in my industry”. ahhhh, the vernacular of hipsters. 🙂

Okay, so back to the issue at hand, the $435,000 Social Security mistake. Watch how this plays out. Oh, by the way, this is partly a continuation of my soon-to-be-released book, “You CAN Retire on Social Security.”

We have Jane. Jane was born in 1960. Jane’s PIA is $2,881. (She made the maximum taxable Social Security wages over her 35 years of employment.)

Quiz…what is Jane’s FRA??? Did you say 66? 67? Somewhere in between? Or did you say “What the heck is FRA?” I’ll let you go to last email for the answer.

Given the above information we can quickly determine what Jane’s benefit will be depending on when she actually files.

So, as we discussed last time, file at 62, get roughly $24k a year, at FRA get around $35k a year and at 70 get $42k a year. BUT, and this is HUGE, this does NOT take into account the inflation adjustments!

Thus, with the inflation adjustment as per the expectations from the Social Security Trustees report:

For the intermediate assumptions, the annual change in the CPI is 2.23 percent for 2018, 2.50 percent for 2019, and reaches the ultimate growth rate of 2.60 percent for 2020 and later.

With inflation adjustments, the benefit at FRA will not be $2,881 a month but actually $3,275, an increase of $394 a month over the initial FRA payment. File at 70 and the benefit will be $4,386, an increase of $814 a month!

Even more interesting, is that if Jane survives until she is 70, her life expectancy is actually another 18 years. This means the Social Security Administration believes they’ll have to pay her until she is 88 yrs old. If she survives until FRA her life expectancy is another 21 years, or until she is 87.

Thus, if Jane does indeed survive until she is 70 that means if she were to have delayed taking her benefit until then, Social Security expects to pay her $1,272,433, adjusted for inflation of 2.6%.

But if she took her benefit at 62, the Social Security Administration feels they’ll only have to pay her $837,547 because they believe she’ll survive until she is 86 as seen in this table:

Female life expectancy

Subtract $837,547 from $1,272,433 and we have our $435,000 mistake. Now, you could argue, and rightly so I must add, that if she took her benefit at 62 and actually did survive to her life expectancy as a 70 yr old, 88, Social Security would pay her for two more years than what I’m showing above. In this case, she’d receive an extra $93,155. Her total payments then would be $939,702. Nothing wrong with that. But still almost $350k LESS than what her total benefits would be if she delayed filing.

The moral of this story is two-fold.

First, really, and I mean REALLY, consider what your life expectancy will be. Is it possible you survive to your mid to late 80s? If so, and especially if you are married, taking Social Security late is absolutely the way to go. (AGAIN…THIS IS A GENERALIZED STATEMENT YOUR SITUATION COULD BE DIFFERENT).

But this means you have actually have to give this some thought, which is the second issue. Do not rely on your “advisor”, your accountant, a software package or anything like that. Think this through! How likely is Jane going to survive until she is in her mid-80s?

If she’s smoking a carton of Kools a day, riding a motorcycle with no helmet while eating high carb foods, probably not very likely, especially if her parents died early. So, go ahead and take the benefit early.

If she falls under the GPO and/or WEP, again, probably not a great idea to delay there either.
There are some other circumstances too where taking Social Security makes sense. But those are the exceptions, NOT the rule.

So, I challenge you. Put some thought into this. Your default should be to take the benefit later, unless there is evidence to suggest otherwise. This is similar to my recommendations about the Roth. Your default should be the Roth, unless evidence points against it.

Blessings,

Josh

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