Getting to your Retirement Exit was created out of a passion to share information on how to properly prepare everyday people for their retirement. It was created because one of the most important decisions that would last over the next 20+ years would often be made in less than 24 hours without direction or coaching. Visit our website at www.myretirementexit.com for more information.
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Why Taking Social Security Early Could Cost You More than a few bucks
Some people say that one of the biggest decisions a retiree can make is deciding on when is the right time to draw social security. In my opinion, this is in fact, the most important decision you would make going into retirement. In my podcast entitled “The Shift” from Accumulation to Distribution, I mentioned that the decision should be planned out well in advance because the stakes are higher once you go into the distribution phase. I want to give you a few reasons why getting it wrong could cost you more than you think. One reason why you need to absolutely get it right is because if you take it to early, then you miss out on one important benefit, Medicare as it is not available until age 65. So if you retire at age 61, where will your medical insurance come from? Trying go it alone with private insurance for 4 years can get quite expensive. Another reason you might not want to take social security to early is that you can leave a lot of money on the table.
Take the graph below taken from the software I use in my planning practice. Peter Cooper, a sample client that I use to show my clients how looking at several scenarios prior to retiring could mean the difference in a few thousand dollars. As you can see if Peter takes his social security as soon as possible or at the age of 62 in the example given below, it could cost him as much as $182,839 or nearly 200k in lifetime benefits. Waiting 5 years could mean as much as the cost of a new home. Wow! What if he waited until age 70 (seen in green below) That could mean as much as a quarter of million dollars in lifetime benefits.
We are not advocating working until 70 years old by no means, but what I have found in the 18 years of working in the financial planning arena is this. Having a plan can save you more money than you think, especially if you don’t have as much to begin with. I also tell my students at the college campus that, it will always cost you more to be reactive then to be proactive. Okay one last reason is a simple one. If you draw benefits to early you increase your exposure to what us advisors call inflation risk. Meaning you are caught in the inflation window a lot longer than you should be. The cost of goods and services will go up over a longer period of time for you.
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I have been getting a lot of requests to put up a blog post to prepare everyday retirees for an upcoming market correction. First of all let’s describe or identify a market correction. A market correction is essentially an overall market drop of about 10%. A market correction is not to be confused with a bear market, which is about a 20% drop in the markets. First, let’s discuss when the last official market correction was on the books. The last correction was the summer of 2015, and it started with China’s market in June. China had a stock market crash that continued into July and August, then around the middle or August the Dow Jones Index (a collection of key stocks that measure the market as a whole) The Dow Jones Stock Index basically measure the pillars or historical fortune 500 giants of the United States fell about 10%. The Dow Jones fell 588 points during a two-day period, 1,300 points from August 18–21. Then on Monday, August 24, the world stock markets were down sub…
I remember sitting in a classroom about 17 years ago, and the instructor passed around a magazine for us to look at. On the cover was a person by the name of Ted Benna, and if you research or look him up you will see that he is called “The God Father of the 401k” or something of that nature. I wanted to add some context to the readers who are yet to listen to Part I of the Reason Why I Hate Your 401K, which is available as a podcast here, and I recommend as an introduction to this Part II blog. In celebration of our 10th podcast for “The Retirement Exit”, I decided that this subject was too complex to share on my podcast so this blog is Part II. Part I (podcast) will share two other important reasons, but Part II (blog) is the biggest reason why I hate your 401k.
I share in that podcast why I hate your 401k, and why I no longer hate my retirement plan. This blog will take into account that my listeners have heard the podcast and pull…