Q: Your article on doubling one's Social Security benefit by waiting until 70 to collect it does not apply to all people.
I started taking mine as at age 66, as did a friend of mine at my suggestion, because our current benefit of around $2,000 would grow to only $2,500, or so, by age 70 (according to the Social Security projection in our most recent statement).
We figured that we'd be giving up $90K in hopes of gaining an extra $6K per year, thereby having to wait 15 years to break even, assuming that we live until 85.
That, in itself, is a key issue. If we don't live until 85, our survivors take a big hit.
We thought it would be better to invest the entire SS check (pre-tax) into our 401(k), let it grow to more than $100K over the next four years, and then draw out five or six thousand per year to offset the lower SS benefit being paid now at age 66 and for the rest of our lives. This way, our survivors will have the $100K nest egg in the event of our untimely death. --PB via email
A: It's certainly true that no single Social Security strategy is right for everyone. As I've explained in some of my previous posts on this subject, you need to weigh many personal factors in making this decision.
I'm not sure about your numbers, though. For example, if your benefit at 66 is $2,000 a month, at 70 it would be 32% higher because you get an 8% annual credit for each of those four years of delay. In other words, at 70 you'd get $2,640. (In real life, you'd get more because the 32% boost doesn't include annual inflation adjustments.)
However, even assuming all your numbers are correct, there is a flaw in your assumptions and a potential flaw in your strategy.
Even if you don't survive until 85, that doesn't mean your surviving spouse will take 'a big hit'. Your husband or wife receives 100% of your benefit after you're gone. How well it will work for your surviving spouses if you and your friend postpone Social Security until you're 70 depends on how long they live, not on how long you live.
The potential flaw in your strategy is that your 401(k) plan may not enjoy the investment return you've projected. There is no guarantee that the Social Security checks you deposit in the plan will grow to $100,000 over four years.
Of course, nothing in life is certain. There are risks in postponing Social Security too.
You and your spouse might both die prematurely.
Social Security's rules might change. Indeed, they probably will -- although it's highly unlikely that any change will apply to anyone who is over 55.
In a worst case scenario, the United States government might default on its obligations. (If that happens, believe me, our 401(k) plans will tank too.)
My own view is that the risk an individual's investments will under-perform his or her expectations is considerably greater than the risk that the U.S. government will default on its debts.
But none of the above necessarily means you were mistaken in taking Social Security at 66. At the end of the day, this decision isn't based solely on numbers. For many people, for a host of reasons -- not all of them financial -- it's more important to have a monthly benefit now than to get a bigger check several years down the road.
Please send your
questions to Lynn@LynnBrennersFamilyFinance.com. I'm sorry
I can't respond personally to every
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