On this episode of “On the Money,” the Ruedi Wealth retirement planner team discusses the psychology of Social Security claiming.
Economy and Interest Rates (0:28)
The Psychology of Social Security Claiming (10:42)
When prospective clients walk in they treat Social Security like it’s not that much, but it’s really a ton of money in the backdrop of a plan!
Paul A. Ruedi
By far the most common concern I hear is “I need to get the benefits while I can.” In other words, I’m worried Social Security is going to go bankrupt because I’ve heard they don’t have enough revenue to fund expenditures.
David Ruedi, CFP®, RICP®
At the end of the day, Social Security claiming is not a make or break decision – so we do let emotions play into it a little bit, but I don’t want it to be the sole factor. As long as it’s not going to really harm you financially – and you aren’t basing your decisions on fears that are blown out of proportion, if you still just feel better claiming early, then go ahead and claim early.
David Ruedi, CFP®, RICP®
Close to 2/3 of current benefits right now are paid by current tax receipts. If they made 0 changes – and basically what they do right now is fund shortfalls with a trust fund of surpluses from past years – that’s projected to run out around 2030 – so first of all we have a little bit of a window before it runs out – but even if it does, we still have about 2/3 of the benefits covered with current revenue.
David Ruedi, CFP®, RICP®
If you wait to claim social security at 70, and you die at 64 years old, well then you never received benefits at all. But the way I think about this is, what is the likelihood of that happening? Most financial decisions involve some uncertainty – and I think you have to say what is going to give me the best outcome in the highest number of scenarios. So in this case, what is the likelihood of living long enough to make it worthwhile to delay?
David Ruedi, CFP®, RICP®
A 62 year old non-smoking healthy male in average health has a 70% change of living to age 80. The breakeven point for delaying is around age 81 – so in other words you have a high likelihood of living past that breakeven point.
David Ruedi, CFP®, RICP®
What is the worst case scenario for someone taking a retirement income from an investment portfolio – poor investment returns, high inflation, and extreme longevity. That is the perfect scenario for someone delaying social security – so delaying can be a hedge for a retiree who is taking withdrawals from an investment portfolio to fund retirement.
David Ruedi, CFP®, RICP®
We can try to optimize all we want, but we’re never going to do it because we don’t know what the future holds. So there has to be a realistic aspect of finding that right strategy that isn’t just purely mathematical – a lot of it is an attitude issue that allows people to actually enjoy their retirement, because that’s the whole point.
Paul A. Ruedi
Caller Question: Vanguard Model Portfolio (24:07)