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 love talking retirement and rightfully so, as I have been working with clients and their portfolios for nearly 20 years. One thing that was hard for me to understand as a young life insurance agent was why I had to know everything about a client before I started writing their life policy. My manager would always tell me that you have to do confidential questionnaires. My thought as a young agent was why when they wanted insurance, and I want to sell it to them. This type of approach was a win-win for me trying to get a commission. As a veteran in the business for more than 35 years at the time, he said you young kids just do not get it. How do you go into a doctor and tell them your elbow hurt because you bruised it, and they give you some cream and send you on your way, only to discover that you have a fractured bone chip? Now that I am older and around the same age, he was when he started sharing his sage wisdom with me, I truly understand what he was talking about now that I am o…
I was creating a retirement plan for a client by the name of Ms. Smith the other day, and I popped the question to her. She said, well, I don't know. It depends on how I feel at that time. I said what do you mean how do you feel at that time, better yet how do you feel about it today. She said I feel pretty good about it today. I said I have been married for 23 years and have never proposed this question to my wife. She said you should; she would probably feel the same way I do about it.
The question I had popped to Ms. Smith was, "If we could go back to November 2007, the "Great Recession" and her entire retirement portfolio was cut in half by 50% would she stick it out?" She said mainly she was in a different place financially and mentally at the time verse where she is now. I told her I get it, and she should be in two different areas in her life versus back then, but preparing retirement plans, I have to ask that question. Not because it's on my questi…