Social Security: To start or not to start, that is the question

0:00 Welcome to something more with Chris Boyd. Chris Boyd is a certified financial planner, practitioner, and senior vice president, financial advisor at Wealth Enhancement Group, one of the nation's largest registered investment advisors. We call it something more because we'd like to talk not only about those important dollar and cents issues, but also the quality of life issues that make the money matters matter. Here he is your fulfillment facilitator, your partner in prosperity, advising clients on Cape Cod and across the country. Here's your host, Jay Christopher Boyd. All right. Welcome everybody to another edition of something more with Chris Boyd. I'm Chris Boyd, certified financial planner, practitioner, and I'm here with Jeff Perry and Russ Ball.

0:41 We are all of the AMR team at Wealth Enhancement Group and so glad to have you with us. Hope you listen every week, share our show and rate it always helps us. And if you didn't know, you can find us on video now as well as audio. And I hope you'll take advantage of whatever medium you enjoy. So you can find us on our website, somethingmorewithchrisboyd.com or you can check us out through the Wealth Enhancement Group's YouTube page as well. Yeah. Look for us on Facebook too. We're back on Facebook. If you're not already following it, put in team AMR, Wealth Enhancement Group, and you'll find our page. Love it.

1:21 All right. Hope you'll join in on some of the things we promote and talk about. Um, it's always interesting topics going on from one, one month to the next. There is not a shortage. How many, so you, how many, let's see, 17, 18 years you've been doing radio and podcast, I don't know, 1100 podcasts probably out there. Have you, have you ever, not ever, but is it customary that you don't have a topic in your mind? No, there's always something of interest, whether it's news related or just good, um, financial education that we can talk about. I was agreeing with you. Like, I didn't think you, I mean, it's always like, what should we talk about?

2:07 Not like, is there anything to talk about? Exactly. Exactly. Well, today we've got an interesting topic. Um, this is one of your choice. And I was like, I don't want to talk about that. And as, as we're talking about, it's like, oh my gosh, we've got a lot of, uh, interesting points of view to consider. So it's a topic that, you know, when you get to be almost of the age to accept retirement, take retirement, claim retirement, whatever the word should be. You think about it? I mean, I'm 62 in, uh, seven months now, eight months. And it's like, I can take social security. Should I, well, I know what we kind of think about, um, as financial advisors, but then you read something, um, which I did, which is simulating this inquiry.

2:57 Yeah. I read something from a, uh, talk radio shock talk show host, which doesn't give them a lot of credibility, but I generally like him and he's a credible, uh, person in our industry. Dave Ramsey. I'm a disciple, I guess you'd call it. Um, I, I listened to the show. It's enjoyable. I like his principles, especially around debt, but you know, I don't agree with everything that he says, right. I don't agree with everything you say or Russ says. So yes, sir, I did. I'm sorry. That was my inside voice coming up. Um, no, none of us agree, but you know, we generally have this, these broad principles and I was of the mindset that it is always, or almost if you're in good health, it's almost always best to delay taking your social security to your 70.

3:45 Yeah. It's not to say that there aren't exceptions and circumstances, but that is our default, um, counsel is to try to wait till full retirement age and if possible delay till 70, unless I'll put in a caveat and you have a reason to think your health might be compromised. Um, and similarly, you know, you have to think in terms of not just one person, but two people, right. If you're married, if who has the larger social security, uh, check that one in particular is worthy of consideration for delay, uh, to maximize the benefits so that if either one of you lives a long, longer lifespan, that you'd get the maximum benefits.

4:37 Now we test these and, you know, look at these circumstances. I was really looking at one last night and I ran the numbers, uh, on people and I had them living till, you know, 94 92 and it really didn't make that much difference whether they took it at full retirement age or 70 normally are optimal is, you know, somewhere closer to 70 when you have a long lifespan assumed like that. Right. And just the math was like, nah, it's not that much of a difference. Right. So in that scenario, I kind of defaulted to full retirement age, but generally I would be expecting most people benefit by a delay or the idea of trying to maximize, because by spending more of your own money early in retirement, you might spend less of your money over retirement and that's the premise you're going to challenge.

5:34 I am. And I just want to throw one more caveat out. There is most financial decisions. You know, we meet with a lot of clients and they're a theme certainly, but most of them are very individualized. We're all have our own unique circumstances. I mean, you know, some people reach age 62, for example, and they are retired because they can't work and they need the money. Right. So that's, that's all. That's a very good point. It's a very good point. Circumstances can drive this and types of resources, more pension, less pension, more assets, less assets. There are variables that can drive this and your point about the kind of work one does and the demands that that can have, you know, there there's, it's not one size fits all to your point.

6:26 Right. So if you hear something that doesn't make sense, we agree and we can help you. You know, we help our clients when they come to this decision point in their lives and say, you know, I'm thinking of retiring at age, whatever. Um, I'll have my 401k. I have this, maybe I have a small pension. These are my assets. When should I take social security? And it is always, always an individual analysis of their facts and circumstances, their goals, their debt, their cash flows, everything before we give somebody advice. So we're not giving any broad advice here. Uh, well said. Um, I think, you know, the, uh, keep that in mind. You know, we want to, anytime we want to make decisions like this, cause these are very significant to your financial life, it needs to be in the context of a financial plan and the, uh, the influences of all the moving parts that can help to define what's the right answer, what's the best possibility.

7:28 And there's lots of room for, um, personal preferences in some of this. Right. And I, I'm going to say, oh, there's a right answer or the wrong answer. There's not really a right answer or wrong answer. That's, you know, absolute. It's a matter of weighted priorities. Right. And choices, you know what I mean? So, uh, uh, by making this decision, there's a consequence is that fate more, more or less appealing to you. Yeah. Do you know what I mean? Uh, so let's, let's go into why, um, people might or might not want to start, uh, earlier than what I'm suggesting full retirement or, uh, even maximum, uh, retirement, uh, type of ages as the preferred way to do it.

8:16 Uh, one of them I already mentioned, and that is, you may not have the health, uh, you expect to live long enough to, uh, recoup what, you know, what you don't get by delaying and by starting, you know, keep in mind when you start early, you discount your social security benefit. Yep. Uh, some, some potentially as much as like 30%. Uh, I've seen, I've seen, oh, from full retirement age. Yeah. Almost 55% or something from maximum retirement age. Um, it was whole security turn on, you know? So, um, it, it's, it's, and then the inflation adjustments and everything is on a smaller amount, so it doesn't, um, you never catch up, so to speak.

9:06 In one sense, your premise to this, from this article is maybe there's another way to approach this, right? So if you are, if you don't have a health condition and you are eligible to start collecting social security benefits at 62, and I'm going to say you're not working because that's another thing that we can add in later, so you're not working. And you, so the premise from Mr. Ramsey in his article is if you're not working and you can collect the social security at 62 and you're not going to spend it, he's very clear in his comment. If you're just going to increase your lifestyle, don't do it. But if you're not going to spend it, you have that discipline, which I think 90 % of the people, if they get a deposit into their checking account, well, likely going to spend it.

9:57 But yeah, I think that's the challenge with this and you're laying it out very nicely. I think that's the biggest hurdle to whether or not this, this, this option really will play out is will people be disciplined, not spend that money, but actually take it and invest it. That's what acts that they'd have to incur, but put it to work, uh, you know, and saying, oh, if you invest it, you know, it's going to last longer because now it's going to grow into something more. And then when you turn on your social security benefits, you know, you've got this pool of money that's also earning something. That's right. That's the premise of taking that $1,500, $2,000 a month that hypothetically someone is collecting at age 62 and putting it directly into an investment account into some, uh, investment mix.

10:49 That's right for your risk tolerance. And that is, you know, part of that being exposed to the equity market. So you have some potential for gains that it'll last longer and be something that you could leave to your part of your legacy. If you didn't spend it all is more advantageous than waiting for a higher benefit later. And of course, if you pass away from 62 to, you know, say 80. Yeah. Or, or even later, perhaps if you're actually doing this, that's right. It's more financially advantageous to do. All right. I get your point. Um, I think I take issue with the practical reality that will people actually do that?

11:32 Because I, you know, experience tends to be that people don't tend to do that, but that's a possibility. Um, what about, there are some other variables that we need to consider. Yep. So you look like you're about to chime in though. I want to give you a chance to speak before. Well, I was thinking, you know, you have to be pretty exposed to the market to make up the difference in the return that you'd be getting between social security. If you're getting, it's like a 50 something, some odd percent difference between. Yeah. So you're, you're probably losing about a 6 % discount is it per year. And then you'd be making 8% once you get past full retirement. Uh, so let's call it six and a half or seven, six and a half, whatever it might be.

12:15 But, you know, are you going to make that kind of rate of return, so to speak? That's your point. And, and that's not a huge timeframe, you know, it's, it's eight years, right? So, and you have to be willing to take on a significant amount of risk to get that return. Uh, you know, are you going to be putting every paycheck that you get into the S&P 500 or I don't know, some kind of, yeah, I follow your point. So you have to, you have to take that into consideration too. Are you going to, are you going to be willing to risk your first, you have to be willing to save the money. So take them, take that check and invest it. Then you have to be willing to see some volatility when that money is invested. Yeah. And it's like a pretty, you know, you have to do pretty well year over year in that eight year timeframe to get the returns that you'd expect, which isn't to say that you couldn't, it's just, um, there's a, there's a, uh, a tolerance that you'd have to incur and to be benefiting from.

13:11 Um, okay. Good, good thought. I saw you doing the calculator over there. So I was like, all right, he's got something he's cooking up. Um, I was expecting sort of like you were doing the time value of money or something, you know, for a second. The calculation, just to push back a little bit is not that straight. Meaning at the end of the time period, although you're in a decreased, you remain the rest of your life in that decreased benefit, it continues on, right? So it does forever at a discount, at a discount, but not to the full amount.

13:52 You have to do the math. That is, you don't have to make the gain. Your point, I think, let's see if I'm saying this the way you're intending. So the only thing we have to consider is the difference between 62 and 70, if in this scenario, um, that, that, that's the Delta or whatever that you're talking about benefit drawback. Just say the benefit at 62 is 1500 and the benefit at 70 is 3000 round numbers. Yeah. Just for a ballpark. Yeah. Right. So you're only the difference. The Delta is 1500, not 3000 when you're doing the math. Actually, I think that even overstates it. Sorry. Um, cause isn't it, it's a 50% increase in benefit.

14:35 So if it was 1500, it would be 3000. That's a double, uh, the benefit, right? Right. And I, that's a hundred percent. Uh, so it'd be like, it'd be, you know, seven 50 more. I'm going to age 70, not age 66 or 67. Yeah. All right. I think we're saying the same thing. I just think we're coming up with a different number. That's fine. I get the Delta, whatever it is. And that's a variable number too. It's not a simple double or 50% or whatever the calculation is. It is your individual Delta. Yeah. I mean, that is calculable and it is consistent.

15:18 The, what those particulars numbers are will differ from one person to the next, right? All I'm saying is you don't have to just to stick with my numbers. If it's 1500 and then 3000, the money that you save and invest for those years, you're only having to make up in your investment gains, what you would have gotten if you had waited. Um, so that is the, in your numbers, which, you know, we can discuss whether the right numbers we should use or that's just illustrative purposes. It's $1,500, uh, per month.

16:01 Correct. And I think it's actually two 20, uh, um, it would be more like seven 50. Okay. Okay. And in this scenario, but seven 50 a month, we need to be saying, did, did my accumulated wealth generates efficiently that I can derive more than or seven 50 a month for the rest of my life and then have money left over. Correct. Starting at 62. Right. Once again, I think this is going to go back to the question that always goes in the beginning of a social security decision is how long am I going to live? Right. Yeah, exactly. Certainly in the early years, it's beneficial if you get the average return of a, you know, a portfolio.

16:44 Yeah. Another clue, another, um, your, your point about sequence and returns and so forth, that's certainly relevant. Right. Um, but another consideration for people to think about is, uh, are they working? That's a big one. Um, even part-time, uh, you know, there's a threshold by which if you exceed a certain amount of income between that 62 to full retirement age, let's call it 67. Um, then you're going to, uh, be penalized and, and lose, uh, essentially a lot of that social security will become taxable, right? Yeah. And that is a, it's kind of an unspoken mistake that so many people make.

17:28 I'm in Florida as our regular listeners know. And I know a lot of people who retire to Florida before full retirement age, and they're taking their social security. I mean, the data is pretty strong. That shows a lot of people take social security at 67 and 62. 62 I think is, uh, is very common, right? The winner or the loser. It's, it's the choice that a lot of people make. Yeah. And so they make it, they retire, not just to Florida, but they retire and they think that they're not going to work. Right. And a lot of people go back to work either because of social reasons, you know, they want that interaction or they want, or extra money, inflation, you have some people back to work, whatever the, whatever the reason is, or their employer calls them and say, Hey, can you work halftime or whatever the situation is, and they never knew, or they never, they never contemplated that part of their social security would then be subject to tax.

18:27 So the good news in that scenario is if that happens to you, you can suspend your benefits and there is virtue. You can get benefit from that later on when you turn it on later on, you know, back at a full retirement age or after, um, you know, you could, uh, benefit from that. I would also argue that, you know, um, for many people when they start, uh, their social security earlier than they, they're, they discontinue work earlier. Um, just generally not necessarily the social security topic per se, but the notion that you're drawing from your portfolio that much sooner, um, that it has a compounded consequence.

19:12 Uh, it's not just, Oh, I'm not saving. It's not just, it's not that it's not growing. It's, and then you're, you're withdrawing from it. And there's a ripple effect that can have a consequence to that. So that's a little off the social security part of this, but timing of your retirement or lack of work perhaps, uh, can really be affected, uh, affect some of these things. And so how much you have is a variable, right? Uh, what are my sources of cashflow? Do I have a pension? Do I have other resources too, uh, could, could be meaningful in this kind of consideration also.

19:53 Right. Absolutely. And back to the tax issue and suspending, which is a good option for people who find themselves going back to work unexpectedly and don't want to have that social security income subject to taxation or at least part of it in this scenario of this hypothetical idea. Um, if you do that, then you're off that plan because the plan is that you take the money, you invest it in equity, exposed investments to get the return. You do not touch it until age 70 and Dave, uh, Ramsey scenario. Yeah. It requires a, you know, pretty rare, like you said, level of discipline and, you know, these things come up, uh, all the time, like something happened with the car and I recently had an issue with the tires, my car unexpected expense, you know, and these things will come up and then to keep using those funds and keep investing them regardless, challenging.

20:54 I think, um, just psychologically, I think to, to be getting that check in the, in the mail every month or, um, you know, it's just, people are more likely to spend it than, than save it on the, on the whole. And I think, yeah, I've read some, some research around, uh, that kind of thinking and, you know, when people are getting those monthly checks, it's more likely that they're going to feel that they can spend it. Well, yeah, go ahead, Russ. Sorry. No, I think it's just, yeah, it just speaks to what you were saying that, um, you know, it's a, it's a smaller percentage of people that are going to be likely to do, to do this successfully and, and capitalize on that difference in Delta.

21:36 I mean, you gotta remember the category that Mr. Ramsey is talking about, that he's talking about a category of people who don't need the money, right? Yeah. So if, if you don't need the money, that, that doesn't mean you're flush, but you know, you just don't need it at the moment for cashflow and that, that $2,000 pops in your checking account each month and your neighbors are planning a cruise and they ask you, and it's like, well, we couldn't normally afford to take an extra cruise, but this $2,000 is just sitting there. We can skip a month, use it for that. I think that's, it's going to creep, right? It's gonna, some of these discretionary things or maybe an emergency, as you said, um, a lot of people, most people would be tempted to miss a couple months and take a portion of it, which skews the whole model.

22:24 Yeah. Yeah. You know, and I bet if we were having this conversation with Dave Ramsey himself, uh, he probably wouldn't disagree with anything we're talking about here. No. You know what I mean? The, the practical realities versus the, the true, who's going to be disciplined about this, who actually doesn't need the money. Um, it's not to say that there aren't those people out there. I'm sure there are, and, and that could be a better math equation. There are variables though. You have to be willing to take risk with those funds, not just park it in a guaranteed account. That's right. Where you would not necessarily get the same kind of return as if you were to delay on the social security decision. Yep. Well, this just fits Dave's entire model of being super disciplined, whether it's debt reduction or, you know, whatever it is, it's a hundred percent in, or it doesn't work.

23:12 Yeah. Yeah. All right. Well, I don't know anything you want to take it another direction, Jeff. No, it's, it's an intriguing, it's an intriguing option for people who don't need the money. It's not like you're thinking about it yourself. No. Well, you know, most things that we think about, we think in the context of ourselves or someone that, someone that we know, right. A client, maybe this is a certain client and I'm turning 62 in January. So, but I'm still working. There you go. And like most good red blooded Americans, I do not like paying taxes. There you go. Yep. So I don't think it's, I think I have the discipline.

23:53 If anyone would, I think Jeff, we can agree you would. Yeah. But I don't think I'd consider it because of the tax consequence. It's a dynamic calculation. Certainly looking at Lisa's future social security benefits, my social security benefits potentially working. It's a dynamic calculation that I'll do. Yes. Yeah. I'll dig through it. But my guess is it's, it doesn't matter enough. And one just final thought about why you, I might, I'd likely won't do it is we think about social security as a fixed amount of money.

24:34 When you think about where our income comes from, you know, if we have a pension that's fixed so that we feel positive about that. Some people have sold annuities, not that we typically recommend them, but they choose an annuity because it's fixed. And then we think of social security is fixed. And then we think of our assets, our investments, our 401ks, our IRAs as money that we will withdraw from in the future. But we understand that's not fixed. So you're almost adding like half of your, whatever the number is. Yeah. That's one of those fixed numbers. You're moving toward a variable. You're throwing it into the non-fixed category, right? Even if the math works it, you know, you're going to get this.

25:15 Yeah. That's a good, that's a good point at a high level, just conceptual. Right. Do we really, do we want to have more money in that bucket versus the absolute kind of ranks? So the social security thing, you know, naturally it brings up the whole topic of 2033 or whatever that, you know, maybe we won't dig into right now, but, you know, I just, this is one of those variables that it leaves investors on certain about, and this is one of the reasons I think people will say to me frequently, well, maybe that's a reason I should start it sooner. Cause I don't know what's going to happen down the road. Will there be a reduction in social security benefits if they don't address the challenge that exists right now, which is that there's insufficient resources to make good on the promises that have been made.

26:08 The full benefit, right? The full benefit. It's not saying that there won't be benefits, just there won't be, it wouldn't be the full benefit. I don't think that's likely to happen, but you know, I think that's, that's another variable I guess you could add into this equation that might influence somebody's judgment based on how they see what's going to happen with social security benefits in the future. Yeah. I remain fully committed to my opinion of if a certain political party allowed social security not to pay the full benefits, that would be the end of that political party. Yeah, certainly for a long time in the party, they are the ones labeled with responsibility for that.

26:50 Yeah. It would be the end of that political party or, so I don't see it. I get it. You know, we need to deal with it. And I think we will. Probably is the, they call it the third rail for a reason. It's like everybody makes, Hey, with the other guys trying to take your benefit, you know, that kind of thing. And it, it, it leads to, you know, unnecessary stress for, for, yeah. Yeah. There's a lot of people that's worried about some of this stuff. I've had a lot of calls just recently with all that's going on in Washington these days where clients are saying, you know, is my social security going to be disrupted? I don't think so, you know, but I, you know, I get why people have anxiety around it.

27:31 There's a lot of rhetoric. Can't guarantee it, but it's highly unlikely. Yeah, exactly. And that's kind of the, just as you described it, that's how I tend to frame it for people. It's like, it would be politically unpalatable for any, you know, anyone to try to tank those kind of benefits that people enjoy. Whether or not it's a good decision or not. I think they'll borrow money before they got benefits. I think so too. I think that's the likelihood. Well, this was an interesting thought exercise. Probably a few people that could maybe benefit. Thinking like being really disciplined, maybe inclined to do that. I think it's worth thinking about. But get some help with the decision.

28:12 As you see, we were, you know, stuck on certain parts of it as well. We're just talking it out for the first time. It is not a simple math formula. It may look like one, but it is not. Yeah, and I think it's something that, you know, a little bit of help goes a long way. Right. Interesting topic. Thanks for bringing it up, Jeff. Thanks all for being with us. If you need a little help in your financial planning or portfolio management, please reach out to us. That's why we're here. We're happy to speak with you. Until next time, everybody keeps driving for something more.

29:35 Transcribed by https://otter.ai