Playing Poker

“Most decisions we make are under Uncertainty—they’re heavily influenced by luck, or by hidden information.  We fool ourselves into thinking that it’s not so Uncertain.  The Coronavirus is so clearly uncertain that people are more open-minded today, and because of that you can actually learn.  We’re always balancing time and uncertainty.”  Barron’s Magazine – Anne Duke, Poker Champion

Every month I look for an idea, revelation or tidbit to write about as it relates to Social Security.  Some months are easier than others and ideas flow like a river and other months it is slow almost dry creek,  this if one of those months.  As I was reducing piles and clutter in my office since this weekend is my son’s wedding and my wife instructed me to tidy up my office (code words for throw my shit away), I came across this Barron’s article about a poker player who now consults and writes.  So let’s delve into my message!

No Mulligans

The Social Security claiming decision is an irrevocable (in most cases) lifetime decision that will have consequences that will affect you and your spouse for possibly several decades!  Making the right or wrong decision on when to claim can easily surpass $500,000 over your joint lifetimes!  Now this is THE BIGGEST FINANCIAL DECISION most American’s will ever make, and they might never know or have to wait years before knowing the wisdom of their decision!  So much for immediate feedback & results.

 If You Tell Me Your Check Out Date and I’ll Tell You When To Claim Your Social Security

Since we don’t have the luxury of knowing exact checkout dates, we can only conjecture and attempt to estimate / guesstimate life expectancy.  I always inquire about their health, but more importantly I ask about the ages of their parents or dates of their deaths and how they died.  Family history is an important marker as to an individual’s life expectancy, but as in poker there are rarely foolproof bets.

Hedge Your Bet – When the only Certainty is Uncertainty

I use very optimistic software to analyze different claiming scenarios, in most cases the recommendation is that both spouses wait until age 70 before claiming their benefits.  This is called the Primary Strategy in that if both spouses live to life expectancy which is normally 85 for men and 95 for women, they maximize their lifetime benefits.  Now we also know that the only Certainty in life is Uncertainty and one best anticipate that things will most certainly change, thus I like to HEDGE the BET.  Have the Higher Earning spouse delay claiming until age 70, but have the other spouse claim before that date.  Especially if they are not working, we might explore having that individual claim as early as age 62 or before they reach their FRA (Full Retirement Age).  What I hope to accomplish is to Hedge the Bet, should one spouse die prior to life expectancy and there is a need for spendable income.

What Are My Alternative Options?

Claiming Social Security benefits should never be made as a stand-alone decision.  It needs to be integrated with one’s other assets which includes continuing to work for several years.  As we’ve seen in the last several months with our stock portfolios one does not know where the market might go in either the short or long term.  Retiring at the beginning of a Bear Market or severe decline in markets can totally devastate one’s retirement plan!  At the same time with non-existent interest rates and relatively low taxes, withdrawing from one’s qualified plans while postponing the claiming of Social Security benefits could prove extremely beneficial in the short and long term.  Explore all your Options!

Treat All Decisions As Bets

“A bet really is a decision about an uncertain future. Treating decisions as bets, I discovered, help me avoid common decision traps, learn from results in a more rational way, and keep emotions out of the process as much as possible.”  Anne Duke – Thinking in Bets   Making Smarter Decision when you don’t have all the Facts

As she says in her book life is not chess.  In chess all the facts and moves are laid out in front of you and he who makes the best decisions wins.  In poker you don’t know all the variables and that my friends is LIFE!

Always here for you,

Dave Zander, CFP®