Be wary of alternative Social Security claiming strategies, which are in the news now that baby boomers are eligible for benefits. There are expensive software tools designed to help retirees “maximize” their benefits, but inherent flaws permeate the thought processes with these tools (at least the several I’ve investigated).
They expect you to predict when you are going to die.
I’m not so sure I would like to know when (or how) I’m going to die. I’ve looked at a website (www.livingto100.com) that predicts my life expectancy. With my good living habits it says that I’ll probably make it to 90, in spite of a family history of coronary disease. It even says I could add a quarter year by cutting back on my caffeine. I’ll keep my coffee, thank you very much!
Financial planning becomes quite simple when a life expectancy is assumed. Predict the income through the date of death, then build the lifestyle accordingly. In my opinion, financial plans need to go deeper than assumed life expectancy tables.
So that’s the first problem with attempting to quantify the best Social Security claiming strategy: you need to know when you and your spouse, if married, are going to die. And most often, you don’t know.
The next issue I have is their focus on getting the most out of the system. Social Security is an important component of most retirees’ financial plan, but maximizing the “take” from the system shouldn’t be the goal.
The goal should be maximizing lifetime well-being.
Delaying the start of Social Security benefits increases the monthly benefit. But scrutinize any recommendation to delay if it requires spending or depleting savings.
Here’s some questions that should be addressed:
1. How must the portfolio’s investment strategy change to meet the interim income needs?
2. What is the impact on liquidity, now, and in the future?
3. How will it impact net worth, both now and for the estate?
4. Is it important to leave a financial inheritance?
5. What resources are available to the spouse, before and after the first death?
6. Are life and long term care insurance policies in force?
7. Does it actually increase or decrease overall income, not just the portion that comes from Social Security?
The rules that allow for alternative Social Security claiming strategies contain nuances designed to accommodate individual peculiarities. That’s why it’s important to have a good knowledge of all the essential issues before making a decision. Better yet, discuss the overall situation with a CERTIFIED FINANCIAL PLANNERTM, like me, to help make a comfortable decision.