Lynn Brenner's Family Finance

No, Don't Take Social Security Earlier Than You Must!

Q: I'm 66 years old and as my deceased husband's widow, I've been receiving his Social Security benefit for 6 years. Now Social Security tells me I can switch to drawing my own benefit, and receive about $300 a month more than I'm currently getting. However, if I wait 4 years until I'm 70 years old, I'll receive $892 a month more. I calculate that if I wait the 4 years, it will take me 23 months after I turn 70 to break even.

I feel like waiting, but my planner told me to take it now. I know each case is individual, but are my calculations correct? --AA via email

 

A: Follow your instinct and postpone taking your own benefit until you're 70 years old.

You've actually overestimated how long it will take you to break even. I make it 16 months, not 23 months. Barry C. Picker, a certified financial planner who's also a CPA, confirms the accuracy of my calculation.

Here's how I crunch the numbers:

If you take your benefit now, you'll gain an extra $300 a month for four years. That adds up to $14,400. To find out how long it would take you to collect that $14,400 if you delay your benefit until age 70, and then start it getting $892 a month more, I divide $14,400 by $892.

The result: 16 months.

But my advice would be the same if it took 23 months to break even.

Your Social Security benefit grows a risk-free 8% a year for each of the four years you delay taking it between ages 66 and 70. If you took your benefit now and invested the extra $300 a month for four years, no way could you expect to earn 8% a year on your money -- let alone in risk-free investments! If your financial adviser suggests otherwise, you need a new adviser.

And what's the downside of waiting? True, there's always the risk that just six months after you start your benefit at 70, you're hit by a bus and die. In that case, you will have lost financially.

But the biggest risk most of us face isn't dying early. It's living much longer than we expect. If you're healthy at 66, you're very likely to live well into your 80s and possibly into your 90s. And maybe to 100.

The easiest, surest, and least expensive protection against longevity risk is to maximize your Social Security benefit,  a stream of lifetime income that's adjusted annually to keep up with inflation. (It's the cheapest annuity in town, explains Alicia Munnell, the director of the Center for Retirement Research at Boston College.) With a 32% boost in your initial benefit, your annual inflation adjustments are calculated on a much larger amount. The upshot: You'll receive a substantially bigger monthly amount in your later years.

And in your case, it's clear that you won't suffer current financial hardship by postponing your benefit.

"The fact that you've indicated you want to wait means you don’t need the larger benefit now, and are more concerned about the future," says Picker.  "You will be more comfortable, from a piece of mind point of view, knowing you have the extra income in your later years."

He recommends collecting your widow's benefit until 70 and then switching to your own.

The clincher: this is a decision you can revisit anytime during the next four years. If you change your mind, you can switch to your own benefit sooner if you feel it's necessary.

Please send your questions to [email protected].  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved

I Think My Sister Is Using Mom's Money For Herself

Q: I think I have a sister who is using my mom's money to take a lot of trips, and fix up her lake house.  I know my sister and her husband don't have that kind of money. 

Your June 7 post  says a step-daughter can't look at her deceased step-mother's bank records. So what does this really mean? Are you saying no one can go into my mother's bank accounts to see what's happening? How can we do something about checking into this while she living to see where big amounts of money have been taken out and not returned? --BC via email

A: You can't look at your mother's bank records unless a) she gives you access to them; or b) you can convince a court that she's mentally incompetent and that you should be appointed to take care of her money for her.

Clearly, you feel your sister is taking advantage of your mother. But the crucial question is, Does your mother feel that way? This is her money. She has an absolute right to spend it -- or squander it -- as she wants. Or to put it another way, she's legally entitled to make stupid financial decisions.

The simplest option is to ask your mother what's going on. Maybe she'll tell you.

You can take the straightforward approach:  'Mom, I think Janice and Bruce are spending your money on themselves. I'm worried that they're emptying your accounts. Let's sit down together and take a look at your bank records to make sure that they aren't taking big withdrawals that you don't know about.'

Or you can take a more devious tack: 'Mom, I've heard that your bank doesn't keep very good customer records. May I take a look at your accounts to make sure they're in good order and that all your transactions are being listed properly?'

But be aware that your mother may not welcome your intereference. She may bristle at the implication that a) one of her children is a thief; or b) she doesn't know what's happening in her own financial accounts.

Even if she agrees to let you check her accounts and you discover all your suspicions are correct, then what?

In the best case scenario, she may take your sister to task, demand repayment of any overdue loans, and be more vigilant about her finances in future. There's likely to be an ugly family fight before this outcome is achieved, however; and its aftermath may include a permanent feud between you and your sister and her husband.

On the other hand, your mother may reply to your inquiries by telling you that she's intentionally making your sister gifts, or long-term loans that have no fixed repayment date. Maybe she can't afford such generosity. Maybe your sister doesn't deserve it. And maybe it's incredibly unfair to you.

But the hard fact is that parents aren't legally required to be fair to their children. There's no law against disinheriting your kids. Your mother has a legal right to give her money away, even to strangers -- or to invest it in penny stock or fictious gold mines, for that matter, if that's what she wants to do.

Another option is to hire a lawyer, go to court and argue that your mother lacks the capacity to make financial decisions, and that the judge should appoint another person to take care of her money for her.

This isn't an easy case to prove.

You have the makings of a good argument if your mother lives surrounded by half-finished crossword puzzles, open cans of cat food, and baskets of uncashed pension and dividend checks -- especially if one of her doctors will testify for you. But the mere fact that your mother has been more generous to one child than another isn't evidence of legal incapacity.

And mounting a legal case that your parent is mentally incompetent is very very expensive, emotionally as well as financially.

You may want to consider a third route: ask your sister what's going on. 

You might candidly express your concern by saying, "Janice, I'm afraid Mom is being so generous to you that eventually she won't be able to pay her own bills. I hope you realize that when she runs out of money, she'll have to move in with you and Bruce."

In the heated conversation that follows, at least the two of you will be talking about what happens to Mom down the road. If she's as careless as you think with her money, the sooner you and your sister have that conversation, the better.

Please send your questions to [email protected].  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved