An affluent client who was quickly approaching age 62 recently asked my opinion about when he and his wife should begin taking social security. My initial response was based on much of the analyses I’ve done about how one can actuarially maximize social security benefits over two peoples lives. By understanding the rules and structuring social security in such a way that you are taking full advantage of all of the nuances within the system, a married couple can greatly increase the amount of benefits received over two peoples lifetime. Sometimes us geeky number guys are more concerned with the math than the reality of how the choice impacts lifestyle.
This client pointed out that he and his wife have plenty of income from other sources and social security will just be an added bonus. He also pointed out that if he used the strategies we teach to maximize his social security benefits it may mean he would receive more money from the social security administration over both of their lifetimes, but most of that additional money would come much later in life. He said, “If I start taking my social security at age 62, I have several very good years to really enjoy the extra infusion of cash. This extra money would afford us more travel and spending more time with our kids and grandkids. That additional income while we are young is much more important to us from a lifestyle standpoint than having an increased income when we are in our 80’s.”
I was reminded that a one size fits all approach to retirement planning doesn’t work. We really need to create a plan based upon your financial reality. Just because we can help you receive an additional 50 to 100 thousand dollars of social security income over yours and your wife’s lifetime, it may not matter if you are receiving the additional money at a time when you won’t be able to enjoy it as much. Ultimately the question this couple was faced with was, “Do we begin taking social security early and enjoy a higher quality of life while we can or do we wait to take benefits later so that we receive a higher quantity of money over our lifetime?”
Now the reality is this couple has the flexibility to ask these types of questions and make these choices because they have done an excellent job preparing for retirement. Because they are affluent, high net worth individuals who have really good retirement income, they have more options available to them.
I’ve also met with people where how and when they begin taking social security benefits is a determining factor for whether or not they are going to run out of money in retirement. So for many of the people we serve the additional social security income later in life is really critical to the longevity of their resources.
Social Security benefits are tax advantaged income, inflation adjusted and have benefits for a surviving spouse. In many cases a healthy couple retiring today will receive more than a half a million dollars in lifetime benefits from the social security administration. It is good to know the strategies for how to maximize these benefits but just because you can doesn’t mean you should.
This article was also featured in the March 2014 Kitsap Peninsula Business Journal.