Stop Analyzing Social Security!

Sunday, April 14, 2013 22:54
Stop Analyzing Social Security!

Tags: financial planning | retirement planning | social security

As a financial advisor, I frequently get asked when it’s best to take Social Security benefits.  To do a thorough evaluation requires calculating the benefit amounts based on various starting dates, anticipated COLA increases, the client’s life expectancy, the client’s work plans, and the client’s tax situation. 

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These complicated calculations typically lead to the conclusion that, as long as the client will live into the 80’s, it is better to wait to claim benefits.

I’ve certainly done my share of those calculations.  However, I haven’t done so in many years.  Why?  Because there is no reason to!  I base my recommendation on just one simple question:


Is the client younger than full retirement age and still working?


If yes, don’t take benefits yet.  If no, take the benefits as soon as possible!


My reasons are simple:

·         It can make a difference to your client’s lifestyle now.

·         Your client’s life expectancy might turn out to be shorter than expected.

·         There is no guarantee that Social Security will continue unscathed in the future.


There might be rare exceptions that justify analyses (divorced spouse, non-working spouse, etc.), but I vote for common sense over pencil pushing!

Comments (2)

Sheryl - seriously?

1. Lifestyle difference - might be true if the client has no assets to draw on - not true for my clients! We can smooth spending by drawing more now and less later when Social Security is claimed.

2. Risk of short life expectancy - While I don't want any of my clients to die soon, what really scares me (and what I think should scare them) is living too long.

3. No guarantees - There's not only no guarantee, but a near-certainty in my mind that Social Security will change. However, I think the political realities mean that for our clients over 50 (80%+ of my clients), change will be minimal. Of course, "the race is not always to the swift, nor the battle to the strong," - but I think that's the way to bet.

"Simple reasons" can lead to bad advice, IMHO. Yes, keep things as simple as possible - but no simpler!
benjwa , April 18, 2013
Thank you for your thoughtful comments. I do agree that, at times, analysis is not only justified but necessary. However, even if reason #1 is not applicable, I still vote for the "bird in the hand" approach.
SherylCPA , April 18, 2013

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