Retirement. That distant vision of finally stopping work and enjoying your Golden Years. It’s here (or really close).And it’s scary.
There’s a myriad things that makes retirement a frightening reality including:
- What am I going to do to occupy my time?
- What will my spouse think of me being home all the time?
- Will I be healthy long enough to do all the things I dreamed of doing?
- Will I be able to retire comfortably?
While we’ve worked with clients to help solve many of those issues, let’s focus on the question “Will I outlive my money?’ You are faced with some of the most important financial decisions you’ve ever confronted, when you choose to retire. And it’s the sheer amount of choices that makes this both difficult and important. To illustrate this, let’s use Tom and Maria as our hypothetical retiring couple.
When they decided to officially retire, they had 4 categories of money to sustain their retirement (you may have all or some of these):
- Social Security
- Retirement Assets
Since they each had these, there were 8 pots of money to integrate and optimize so that they could retire the way they had dreamed about. These can be irrevocable decisions that can cause irreparable financial harm if chosen with out proper planning.
Let me illustrate this point by using Tom and Maria’s Social Security as an example. Most people take their Social Security when they become eligible at age 62. If you were to contact your local Social Security office, they would most likely encourage you to start taking it once you’re eligible at age 62 – at least that’s been the experience of our clients who’ve visited their local office. Taking early Social Security can be a huge mistake under the right circumstances. If you are of reasonable health, have the other income or savings to sustain you until 66, and have some degree of longevity in your family then it typically pays to wait until age 66 (your Full Retirement Age according to Social Security). Why is that? Let’s walk through some numbers.
For every year that you delay taking Social Security, your benefit increases by 8% plus, since Social Security is indexed to inflation, the inflation rate (CPI). This means that if your Social Security benefit were $1,000 at age 62,waiting until age 66 would give you a benefit of $1,464.10 (assumes 2% CPI). That’s a 46% increase! In the case of Tom and Maria, delaying Tom’s Social Security to age 66 was an increase of over $240,000 in benefits over their lifetimes.
While waiting until age 70 to begin Social Security would provide an even bigger monthly benefit, not everyone can afford to wait that long. Why is it important to maximize your Social Security benefit? If you’re married, then it’s because your spouse will get the higher benefit of either his/her own or yours, whichever is greater.
While there are many intricacies with regards to Social Security this should give you a flavor of the importance to do proper planning. It’s such an individualized process – there’s no cookie cutter approach to retirement planning. You will need a customized plan based on your specific needs and goals. That’s why we developed the Retirement Income Optimizer™ – to provide you with a specific plan that seeks to help you successfully navigate your retirement.
This is a hypothetical example and is not representative of any specific situation. Your results may vary. No strategy assures success or protects against loss.