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Friday, October 30, 2015

You Can Wait Until You Are 62 To Plan How to Take Social Security Benefits

The title of this post isn't a myth.  It's true.  You can wait until age 62.  It's just a bad idea.  If you are 50, you may still have time to start working on an ideal cash flow plan for your 60's & 70's.

I know.  So much can change over 10, 20 years.  And a well crafted cash flow plan will be organic and fluid, as it should be.  Why start so early in life?  So you don't leave free money on the table.  And to decrease the discipline required to make the plan work.

A cash flow plan becomes more important if you may be subject to longevity risk (outliving your money).  I suggest you use this calculator at Life Expectancy  I took the questionnaire and my life expectancy is 88, higher than I imagined.  For benefit timing strategies under current law, the break even age for delaying Social Security averages 8-12 years at age 70.  In other words, if your life expectancy is longer than 78-82 then you should prepare for benefit timing strategies.

"Can you give us an example about why and how a 50 yr. old would need to start Social Security planning?" you wisely ask.  I'm glad you asked.  Sure.  I wish I had the skill to show this graphically.


  1. Current age 50
  2. Life expectancy is 85
  3. Expected budget at planned retirement age of 65 is $5000/mo. in today's dollars
  4. Expected retirement year budget inflated at 3.3%/yr.:  $8137/mo.
  5. Social Security break even age is 78.  This means that by waiting until 70 to turn on Social Security, your delayed retirement credits will have increased your benefit by 24%. So by 78, the income that you lost by waiting is fully recovered.  After that, you're money ahead.
  6. Expected guaranteed income at 65:  $5000/mo.
  7. Income gap at 65:  $3137/mo. (8137 - 5000).  And let's assume Social Security will make up that gap at 70.
  8. Total funding shortfall, with inflation, age 65-70:  $201,059.
So here would be my plan:
  1. Set aside enough per month (including any employer matching, if applicable), before tax to accumulate the $201,059.  At 6% APR, this would require about $691/mo.  Use a true target date fund with at least quarterly automatic rebalancing.
  2. At 65, roll this into an IRA annuity that guarantees the inflation adjusting $3137/mo. you'll need at 65.  This way you avoid sequence of returns risk.  You will also be spending down taxable money at a low tax bracket.
  3. Save as much as you can in after tax vehicles like Roth IRAs, Roth 401(k)s, real estate, that may give you tax-free income beyond age 70, which will likely be your highest tax bracket years.
Every detail here depends on individual circumstances, ever changing tax regulations and many other factors.

Your Constructive Comments are Welcome!

Congress is Gutting Social Security Benefits!!

By now it seems to be common knowledge that Congress is intent on "fixing" the Social Security "loopholes" created by themselves with the obnoxiously titled "Senior Citizens' Freedom to Work Act of 2000" (what we really need is a bill titled "Congressional Freedom to Resign Act of 2016").
The "Bipartisan Kumbaya* Budget Act of 2015" aims to eliminate benefit timing strategies** for married couples.  The reasoning is essentially two-fold (1) It is primarily the "wealthy" who take advantage of these strategies.  Therefore eliminating them won't hurt the poor.  And (2) This needs to be done to protect the solvency of Social Security.  Here are my random thoughts about that reasoning:

  • If regulations allowed Social Security employees to demonstrate timing options to new beneficiaries, more lower income folks would probably take advantage of them.  The issue isn't wealth as much as it is which people are able to get expert advice.
  • I've ceased being amazed at how easily so-called business & public policy experts sidestep the revenue half of the Social Security equation.  If they were on the board of a private corporation and budget shortfalls loomed, they would be asking "How can we increase revenue?"
  • Social Security is not part of the budget!  It is a separate insurance program funded separately by separate payments from workers.  Separate.  If they're seeking budget solutions, they should be looking at the budget.
The title of this post Congress is Gutting Social Security Benefits!! is a myth because the new provisions are more like a slap to the face of retirees than a genuine evisceration.  The key is, this law is not in effect for six months.  There is still time to appeal to your Senators and Representatives to truly enhance Social Security.

Your Constructive Comments are Welcome!

*Just kidding.  The term "Bipartisan" is an attempt to imply a nonexistent legislative hug fest.  Title VIII of the act will be magnanimously named the "Social Security Benefit Protection and Opportunity Enhancement Act of 2015".  I'm not making that up.  I'll go through the details of Title VIII in another post.
**Most notably, the rather terse Subtitle C, Sec. 831 "Closure of Unintended Loopholes".

Thursday, October 22, 2015

12 Worst Financial Advisers in America

Sadly, this heading is not a myth.  Thank you to Producer's Web for compiling this list, not to be cynical, but to be instructive in paying attention to danger signals.

Your Constructive Comments are Welcome!