It will be no surprise that most of us are tired of the supply chain issues causing delays. These delays stretch across nearly every industry, from foodservice to manufacturing and even into technology. However, despite the frustration this causes in our day-to-day lives, does waiting and assessing our expectations create a learning opportunity to evaluate big financial decisions? We most certainly believe so, and one of the most significant decisions facing many of the families we serve involves Social Security, and more specifically, at what age should they begin taking Social Security.
Deciding when to take Social Security has been a pain point for many retirees throughout the years. It will likely remain a primary topic of discussion as our population ages. How about a history lesson before we get into how a delay can benefit those willing to wait?
During the heyday of manufacturing unions, when line workers would “retire,” usually before 62, they would be granted use of the pension their union had created for their golden years. Thanks to some fancy accounting, the pension funds would pay a higher benefit until the retired individual reached 62. “Why would they do this?” That is a great question. The answer is that Social Security was, and still is, eligible at age 62 for those who have contributed to the system. Once age 62 was reached, the pension would reduce its monthly paycheck to the retiree, and Social Security would cover the loss, and hopefully then some. Interestingly, we still see this process playing out today in the pensions from private and unionized companies.
Understanding the institutionalized system created by the pensions of old helps us comprehend why so many believe 62 is the magic age to engage their Social Security benefit. Coupled with the growing concerns of Social Security's long-term viability, many believe taking their benefits as soon as possible is the right thing to do.
Now that we know the history, how does “delaying” Social Security help me retire? To that end, I will answer a question with a question. When planning a meal, do you decide to fix only an entrée, or do you also consider fixing some side dishes and maybe dessert? Likewise, we should not make the Social Security decision in isolation. We need to approach when to take our benefit while looking at our entire financial picture. A misstep in timing can cost us as much as 30% of our available income benefit. If we choose to delay taking Social Security, we reap a guaranteed increase that can be as high as 32% for life and gain powerful tax planning opportunities that otherwise would have been lost by taking Social Security too early.
Making the wrong Social Security decision could result in a loss of nearly a million dollars in retirement, depending on your life span and circumstances. Taking the monthly benefit early and receiving that monthly payment may sound like a great idea; ironically, delaying the urge to file early could offer a greater financial benefit. Make your best decision by looking at your entire financial picture, preferably with the help of a trusted financial advisor.
The Financial Enhancement Group is an SEC Registered Investment Advisor. Securities offered through World Equity Group, Inc. Member FINRA/SIPC. Advisory services can be provided by Financial Enhancement Group (FEG) or World Equity Group. FEG and World Equity Group are separately owned and operated.
