This past week I went with several friends up to Marble Falls for a couple days of golf, whiskey drinking, card playing and steak eating camaraderie. Over one such session, the topic of Social Security arose and two of the guys mentioned that their financial advisors recommended that they wait no longer than Full Retirement Age (67) in their cases to claim Social Security benefits. When quizzed they both mentioned that they were told it made no sense from a dollar and cents perspective to wait until 70. Thus, the purpose of this month’s newsletter.
Case Study – Ward & June Cleaver
- Ward’s birthday is 10/1/1960 his PIA check at FRA is $3,500 per month
- June’s birthday is 10/1/1965 her PIA check at FRA is $2,000 per month
- Assume Ward dies at 85 – June at 95 and both claim at FRA (67)
2024 Social Security COLA is 3.2%
What Social Security fails to do and most financial advisors do as well, is they fail to incorporate any COLA adjustments when advising folks as to when to claim benefits. Let’s look at 3 different scenarios of claiming benefits at 67 vs 70 assuming a 0% – 2% or 3.25% COLA
Ward’s benefits ONLY
| 0% | = | $3,500 @ FRA | > | check @ 85 | $3,500 vs. $4,340 claim @ 70 |
| 2% | = | $3,788 @ FRA | > | check @ 85 | $5,410 vs. $6,708 claim @ 70 |
| 3.2% | = | $3,977 @ FRA | > | check @ 85 | $7,072 vs. $8,770 claim @ 70 |
The combination of Earning 8% Delayed Credits & COLA’s dramatically increase monthly benefits!
Ward’s check at 85 would be +$1,298/mo. or +$15,576/yr. by waiting until 70 with 2% COLA
Ward’s check at 85 would be +$1,698/mo. or +$20,376/yr. by waiting until 70 with 3.25% COLA
Under the Primary Strategy, June would claim at different time frames based upon COLA assumptions that we make! They would be @ 66 with ZERO, 68 & 4 mos. @ 2% & 68 ½ @ 3.25%
At age 84 their Joint Benefits would be;
| 0% | = | $5,500 @ FRA | vs. | $6,207 under Primary | +$8,484 more per year |
| 2% | = | $8,194 @ FRA | vs. | $9,675 under Primary | +$17,772 more per year |
| 3.2% | = | $10,293 @ FRA | vs. | $12,351 under Primary | +$24,696 more per year |
When Ward dies, June inherits the GREATER of the two benefits, but loses her own thus there will be a dramatic reduction in household income. Both of my friends were unaware that the lower earning spouse would switch to whatever their benefits are at time of death!
If you look above Ward’s benefits ONLY, you will see June’s monthly checks showing the difference between Ward claiming at FRA vs waiting until 70.
Longer Life Expectancy
In the case of my friends both of their parents are still alive and in their 90’s thus it is highly likely that they will also live into their 90’s thus the impact of waiting until 70 and the impact of the COLA’s will dramatically affect their lifetime benefits.
Should Ward live until 90 his check would be;
| 0% | = | $ 3,500 @ FRA | vs. | $4,340 @ 70 | or | $10,080 more per year |
| 2% | = | $ 5,973 @ FRA | vs. | $7,406 @ 70 | or | $17,196 more per year |
| 3.2% | = | $ 8,298 @ FRA | vs. | $10,290 @ 70 | or | $23,904 more per year |
Cumulative Total Benefits
Normal Life Expectancy
| 0% | = | $ 1,703,500 | vs. | $1,882,195 | or | + $178,695 |
| 2% | = | $ 2,528,050 | vs. | $2,867,337 | or | + $339,287 |
| 3.2% | = | $ 3,281,438 | vs. | $3,777,419 | or | + $495,981 |
Long Life Expectancy
| 0% | = | $2,363,500 | vs. | $2,626,987 | or | +$263,487 |
| 2% | = | $3,879,728 | vs. | $4,492,628 | or | + $612,901 |
| 3.2% | = | $5,416,912 | vs. | $6,364,580 | or | + $947,668 |
Synopsis
The combination of delaying benefits from age 67 to 70 (8% per year in delayed credits) in conjunction with COLA adjustments will dramatically affect their lifetime retirement income!
In Conclusion
I want to thank my friends for our conversation, since I am always searching for ideas that would be of most interest to you. What is interesting is that they are (hopefully were) under the impression that by tapping their Social Security benefits early, will mean more money for their heirs upon their demise. However, by drawing down on one’s qualified plans for a few short years (3) they could dramatically increase the amount of money they will leave for the children and grandchildren since they won’t have to draw down as much money once they start taking Social Security at age 70!
As always, I’m always here for you. If there is a specific topic you’d like me to address, please feel free to reach out to me.
Enjoy Fall,
