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By Jay Gershman, Retirement Visions LLC, West Hartford
When I meet people socially and tell them what I do for a living, it is not unusual for someone to throw me a loaded Social Security question. “Do you tell your clients to collect at 62? That’s what I did!” Of course, something like this is never cut and dry and it comes with a series of counter questions:
“Are you married?”
“How old is your spouse?”
“Did he or she work and earn his or her 40 quarters?”
“Are either of your facing health challenges that would reduce your life expectancy?”
“What’s your family health history?”
“Exactly how long will you and your spouse live?” That one always gets a laugh!
According to personal finance website, The Motley Fool, 42 percent of men and 48 percent of women collect at age 62 and 90 percent of all Americans collect before their full retirement age (FRA). Many do so out of necessity, not because retiring earlier is actually better in the long run. Gone are the days when you can change your mind and just pay back the money, so it’s worth taking a closer look at the decision-making process.
Here are my top five reasons why people make huge mistakes that can cost them dearly in retirement.
- Believing that the government will allow Social Security to fail. We’ve all heard that the Social Security trust fund will run dry at some point in the near future, but the same politicians who make and change these rules are the ones getting elected by voters who either are already collecting or are about to start. Politicians will find ways to extend the program if they want to stay in office.
- Listening to friends and family and not seeking professional advice. The Social Security program is so complex that even some Social Security employees aren’t familiar with the intricacies available to people. Friends will tell you what they did, but what’s right for them might not be what’s right for you. Find an advisor who can help you understand the options available based on your specific financial situation.
- Having a pessimistic belief of how long you’ll live. I would argue that many people do not fully understand their personal life expectancy and have not considered the advances in medical science that extend people’s lives every day. When you say, “I collected early because my breakeven was 14 years and I’ll never live that long,” you should have some idea if you’re right. Talk to your doctor.
- Not understanding the advanced strategies associated with collecting. It is impossible to discuss all of the strategies and explain how they work here, but I will give you the most common opportunities that we see people miss.
- The higher earner collects from the lower earner at full retirement age (as long as they are collecting) as the higher earner’s record continues to grow until age 70.
- The widow is eligible at age 60 to collect and can collect without penalty at full retirement age as their record continues to grow until age 70.
- A divorced individual does not remarry and their ex-spouse dies. They can collect off of their record and allow their own to grow until age 70.
- An individual with younger children who is eligible to collect does not realize that if he collects, the children would as well.
- Not basing the breakeven calculation for married people on two lives. The longer the higher wage earner waits to collect, the larger the check for the survivor. If the survivor lives past the breakeven, you lose.
The bottom line? The more you ask advice from your friend or neighbor about Social Security, the worst off you’ll be. This is retirement, after all, it’s worth getting the right advice to make sure your money is working for you.
Jay Gershman is the Owner and Founder of Retirement Visions LLC, a West Hartford-based financial planning firm that focuses on comprehensive life planning and financial management. For more information, visit www.allset2retire.com. Information and advice are for guidance only and opinions expressed belong solely to the author. Securities offered through Securities Service Network, LLC. Member FINRA/SIPC. Fee based services are offered through SSN Advisory, Inc., a registered investment advisor.
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