Deferring Social Security until Age 70

With more than 10 years working as producer, frontline and agency manager, I have had a front row seat to observe shifts and changes in the motivation and strategy in which clients plan, save and interface with their advisor. Impacting this transition is the fact that pensions are disappearing from company offerings along with sustained years of low interest rates; retirees are more focused on owning lifetime income vs. growing a nest egg. Many financial-based organizations have completely and thoroughly adopted macro-economic systems ranging from Lifetime Economic Acceleration Process, or LEAP, to Living Balance Sheet, which are focused on tax optimization and help position the client to not out live their money.

Social security can trace its origins to the social movement made famous by Huey P. Long with his push for social insurance. Franklin Roosevelt understood how the nation was hurting and that there was a need to protect our aging population. From the first retirement check that hit Ida Mae Fuller’s mailbox in 1940, a whopping $22.54, to today’s retirees who can take down an excess of $3,600 a month for cost of living adjustments, but the number of recipients has grown helping put the program in potential jeopardy.

To combat raises and inflation through the years, social security taxes have virtually increased under every president up until George Bush Sr. Throughout the 90s and 2000s there was a stagnation in the percentage of income that was applicable under the Federal Insurance Contributions Act, or FICA, charge by the government to protect and insure this social pension plan that is, in its essence, a GUARANTEED LIFETIME PENSION. As a direct result much debate has rose about baby boomers entering retirement age and an underfunded programs sustainability for emerging generations such as millennials who are typically cynical of big government due to the fact they have been exposed to the housing market crash, student loan issues and the over-arching war on terror. For the benefit of the plan in recent years, instead of raising the percentage of tax levied through the program dollar for dollar, the administration was able to raise the cap associated with the plan from $118,500 to $127,200. This additional cost of living adjustment, however disheartening for those in higher income brackets, is a positive thing for our aging population.

After taking the time to level set social security the true crux of this blog entry is the fact that there is good, traditional advice when looking at accessing your social security benefit that will differ from most other financial companies. With the help of an advisor I was taught the foundational advice that the breadwinner needs to wait until their 70th birthday to take their benefit. In most families there are two incomes in outside special situations where there is a 403B plan that could disqualify paying in FICA tax. In these situations, it may be ok for the lower earner or stay at home spouse to activate their benefit at age 62 but the reality is the breadwinner will be locking both lives into the payout since the plan insures both lives. The difference in activating a social security benefit at 62 vs. 70 in 2018 is $2,158 monthly compared to $3,698 on the same individual. The only difference between these two numbers is an eight-year period. The breakeven point is roughly nine years when you compare each plan. A lot of people may jump in at this point and say, ‘well we are not going to live that long.’ The fact is current mortality rates highlight that at age 62 a male is expected to live to 85, whereas a female is expected to live to 86; but a married couple living at 62 can anticipate one survivor living into their 90s. This actual math and real science is proof that waiting till age 70 is the best advice. However, not everyone can wait, but the longer you can hold off will benefit the family. This is the reason I would suggest building a temporary bridged income from age 62 to 70 is the best strategy to leverage our social insurance programs. This can be achieved through annuities with period certain, Indexed Universal Life, or IUL, strategies leveraging wash loan provisions or even more sophisticated concepts that you can plan with your advisor.

This was my first blog post because poor decisions during this period in your life can equate to major issues later in those golden years. An income and cash flow allow seniors to be empowered and live on their own without assistance if health permits and sustains the dignity they deserve. Over my career I have ran across seniors in their mid to late 80s who are down to their last $8,000 in their savings account, receiving a monthly $700 benefit, and they are expected to pay for a Medicare advantage plan, a supplement, utilities and buy their medicine. Eventually this is a race that ends up with Medicaid stepping in and all their real property and assets fall under the scope of their rules and regulations.

Medicaid Posts coming soon…