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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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