Broker Check

August, 2016


Recently there has been a lot of hoopla about changes in the social security rules regarding claiming strategies that have formerly helped couples to maximize their social security benefits.  Most of the literature focuses on how to get the most money you can from social security but is that the wise thing to try to do? 

First of all, the only real way to try to predict that in any degree of accuracy is if you know your date of death or “DOD” and only then can a close prediction be made.  For example, my Dad retired at age 58 and died at age 65.  If he had waited until he was age 65 to take social security instead of age 62, he would have collected $0.  My mother, on the other hand, died at age 87 so it may have been worth it for her to wait as long as possible, maybe even age 70 to collect.  But who knew that in advance?  My father was apparently as healthy as a horse when he died and my mother had breast cancer at age 74.

What are some real world practical considerations that would be important to people with ordinary but unknown life expectancies? 

One is the old adage that a bird in the hand is worth two in the bush.  Since you don’t know how long you will live, or what will happen to future social security payments with the different governments that will be in effect, why not start at age 62 even if you don’t need it (assuming you aren’t working and earning enough where you would have to give it back)?  If you started at age 62 and took the social security payments you didn’t need and invested them and earned 7%, you would have to live until age 77 to make waiting to start taking social security at age 66 a better option.  If you started taking the benefits at age 66 you would have to live until age 82 to make waiting to take social security until age 70 a better option in terms of the cash in your account.

In the calculations I did, the age 62 benefit was $19,212, the age 66 benefit was $25,764 and the age 70 benefit was $33,672.  What I did was to accumulate each of them when you started taking it at 7% assuming you invested it in something else.  At age 82, if you started investing each amount at 7% across the various ages, your age 62 account would have $430,349, your age 66 account would have $466,844 and your age 70 account would have $466,020.  That is if you lived until age 82.

If you didn’t need the money to live on and decided to use the money for fun rather than invest it, when would you be able and likely to have more fun?  In your 60’s and 70’s or in your 80’s? 

Then there is the question of taking social security benefits early in lieu of spending retirement savings.  First of all there is the tax angle.  Social security is never taxed as heavily as retirement benefits so why not live on less heavily taxed money?  Secondly, whatever is left in retirement plans such as IRA’s, 401(k)’s, etc. can be passed tax-free to heirs when you die, while social security payments stop except to surviving spouses and even then they only can continue the higher of your or their benefits.  Social security payments then cannot be inherited so why not use them?

If after reading all of this, you would like to go through the exercise of trying to see what the best claiming strategy is, I do have software to do that and it is based on two major assumptions; one being life expectancy and the other one being what interest rate you are going to use.

Most of the claiming strategy calculations in the past have been based on inappropriate (for the long haul) discount or earning rates.  If you use historical market returns, inflation and current mortality rates, men should begin to collect benefits as soon as they can, subject to earnings test limits.  Even women will be better off taking it sooner based on historical rates of return. [1] 

So you can see in absence of an exact date of death in the future, there are some really good reasons to start claiming social security as soon as you can, especially given the uncertainty of all of the government programs and the ability to reduce draw downs on your retirement plans.  Also, if you did save the social security that you didn’t need, you could even pass that on to future generations.

I would like to use this opportunity to invite you to come in and we can have a discussion about this in even more detail and figure out the best plan for you given the information we know.

Best regards,


[1] Collecting Social Security versus Spending Retirement Savings – James Gilkeson, PhD, CFA  Journal of Financial Services Professionals  7/16