By Heidi Huiskamp, Founder and CEO of Huiskamp Collins Investments, LLC
You hate your job. I get it. You dream of not setting the alarm, pursuing hobbies, traveling and spending time with grandkids. All great. You did it! You hung in there and just had your 62nd birthday: the “magic” age at which you can start taking social security benefits. Either you quit work last Tuesday or you’re chomping at the bit and have your retirement paperwork in hand. Now you’re in my office and waiting for me to wave the enchanted wand and help make all your retirement dreams come true. This is real. This happens every month. A life of leisure with a nice check deposited into your checking account every month sounds too good to be true. Many times it is.
Hitting a certain birthday does not make a comfortable retirement possible unless you have done a great deal of planning and savings beforehand. This year, Forbes reported that the average Baby Boomer has less than $100,000 saved for retirement and a full 45 percent have nothing saved at all. To the average person, $100,000 may seem like a lot of money, but with medical advances enabling us to live into our 80s and 90s, this amount of savings will never be able to sustain the average retirement. According to the U.S. social security website, www.ssa.gov, one can begin taking benefits at age 62, but they will be as much as 30 percent less than if that worker had waited until her or his full retirement age. That much lower benefit is a “do-or-die” thing: there is no making it up later. And please remember that Cost-of-Living-Adjustments (COLA) that might give you a “raise” in your retirement years will be lower as you will be starting at a lower base. On the other hand, for every year that you postpone taking benefits after your personal full-retirement age (dependent on the month and year of your birth) until you turn 70 years of age, your benefit will grow by 8 percent a year. That’s one of the best deals around! To put it into perspective, www.spendmenot.com reports that for the 100 years leading up to 2019, the average annual stock market return was 7.50 percent. Think about it: a higher return than stocks with zero risk! Even though that sounds like a “no-brainer”, the actual numbers don’t bear that out. According to Marketwatch, last year only 6 percent of women and 4 percent of men waited until age 70 to begin social security benefits. And the dismal truth is that a full 31 percent of women and 27 percent of men took permanently reduced retirement benefits at age 62.
I get a lot of people who justify taking social security at age 62 by claiming that social security is going to “go away” and that they’re “taking their share while they can.” It’s not that simple. Is the future of social security at risk? Absolutely, and we will need to have a national reckoning to ensure its continuing viability through a combination of higher taxes, higher full retirement ages to reflect people living longer and possibly even reductions in benefits for certain groups like high net-worth retirees. It is prudent for those planning for retirement to have other “buckets” of savings to draw on in retirement rather than relying solely on social security. But, in some form or another, social security is not going away entirely. The overwhelming numbers in the voters’ bloc of retirees and pre-retirees will ensure that.
Is there any circumstance when taking a reduced benefit at 62 makes sense? Life is a guessing game. If you reach 62 and are no longer able to work due to health conditions and have 3 or more chronic conditions like diabetes, heart disease, or other serious illnesses, you might make a thoughtful choice to take your benefit early as you don’t expect to live into your 70s. Life happens and leaving the workforce at 62 may be your best option.
More questions about retirement? Next month, we’ll explore “The Expenses” side of the retirement equation. Or you can call me anytime at 563-949-4705 or contact me at firstname.lastname@example.org. I’d love to have the opportunity to help you chart the retirement of your dreams!
Securities offered through J.W. Cole Financial, Inc. (JWC)Member FINRA/SIPC. Advisory services offered through J.W. Cole Advisors, Inc. (JWCA). Huiskamp Collins Investments, LLC and JWC/JWCA are unaffiliated entities.