Why Investors Rush To Social Security
Social Security was created in 1935 to serve as a retirement income program for Americans, who contribute to Social Security over their working years and then receive thousands of dollars of payments once they retire. Many Americans, including a significant percentage of affluent investors, depend on Social Security benefits to some degree to provide income in retirement.
But determining the best time to begin taking Social Security benefits is complicated. For most retired investors, they can begin taking benefits at age 62, but will receive more in monthly benefit payments if they wait. Maximum monthly payments are received when investors wait until age 70 to begin receiving payment.
So, investors must balance their need for income at age 62 against the possibility of receiving more money by waiting to take Social Security benefits. Timing becomes a key component of the decision; will the investor live for enough years after age 70 to make up for the eight years of not receiving benefits at age 62?
Investors have resources to assist them in making the correct decision. The Social Security website (www.ssa.gov) does a credible job of explaining the matter, and many Americans have a Social Security office close enough to make a visit for advice.
But many investors also expect their financial advisor to provide information. According to the Spectrem study The Convergence of Health and Wealth, 67 percent of retired investors expect their financial advisor to be knowledgeable on the topic of Social Security benefits. Among investors who are still in the workplace, 71 percent have that expectation of their financial advisor.
Are affluent investors frequently making mistakes regarding the timing of receiving Social Security benefits? A Spectrem survey indicates the answer may be ‘Yes’.
A survey of almost 400 affluent investors with a net worth over $100,000 (not including primary residence) found that 42 percent of them began taking Social Security benefits at age 62. Unless an investor has health issues or financial problems, or has prior knowledge of when they are going to die, taking Social Security benefits at 62 is not the correct decision to make.
So why did those investors take Social Security at age 62? Spectrem asked them that, and 46 percent said, “because they had no reason not to”.
That’s not true! They had thousands of dollars of reasons not to.
Although there is no official calculation of the average Social Security benefit of Americans, the SS website calculates that most Americans will receive more than $1,000 a month at age 70 than they receive at age 62. At the halfway point, age 66, the difference in monthly benefits is more than $500.
Investors taking Social Security benefits at age 62 because “they have no reason not to” are losing money in the long run, assuming there is a long run (that they live until the age of 80).
Of those investors who took Social Security benefits at age 62, 19 percent said they needed the income, 13 percent said their life expectancy and health issues prompted them to do so, and 12 percent said they were advised by their financial advisor to do so. Only 4 percent did so because their spouse was going to wait until age 70 to begin taking theirs, which is a proper and wise strategy to maximize benefits, assuming the spouses had the higher income in their work careers and will live beyond the age of 70.
But that 46 percent who claim they had no reason to wait are either kidding themselves, or unaware of the mistake they made.
Top Takeaways for Advisors
Advisors do not benefit in additional revenues because they give wise Social Security advice. But investors who benefit from a proper decision about Social Security will appreciate the source that told them to wait beyond age 62 to take benefits.
If that source was their financial advisor, the investor may find a way to say thanks.
©2018 Spectrem Group