The Hard Truth About Social Security

Here’s the quarterly retirement funding wake-up slap – but this quarter, it’s about Social Security, not saving or investing. I knew before I wrote this piece that it would stir a lot of reactions, so let ’em fly.

Let’s get the big one out of the way.

If you are physically able and you have a job or are confident you won’t be pushed out of your job because of your age, no one – and I mean no one, especially women – should retire or claim their Social Security benefits at age 62.

I know the prevailing skeptic’s wisdom says to “take your benefits now because they won’t be there down the road.” But that’s so wrong.

For all the reasons I have cited in previous pieces about the political firestorm that cutting or eliminating Social Security would cause, and because the Social Security mess is so easy to fix, I absolutely guarantee it will be there.

In fact, once the reality of the retirement mess we’re in finally hits the mainstream, my gut tells me benefits will be increased. It will be packaged as the next war on poverty.

But let’s stick to why retiring at 62 is such bad idea.

Stepping down at 62 means less time to save. When you consider our longer life expectancies and healthcare costs in the later part of our lives, we’d better save as much and as long as we can.

Thirty-nine percent of women and 35% of men retire at 62. That means more than one-third of people will be receiving the least the Social Security Administration can pay you, and their saving has effectively stopped.

That means that living at the minimum payout can go on for decades.

Women, who have an 80% greater chance to live longer than men and are 80% more likely to live in poverty in retirement, should take a long pause before jumping on the benefits and off the work train as early as possible.

Between ages 62 and 66 (full retirement for most of us), benefits increase by 7% a year. A $1,000 monthly check becomes $1,300.

That’s a 30% increase.

But if you can work and save to age 70, that check amount grows to $1,700. And if you can max out your 401(k) contribution for eight more years, you just added, before any growth, another $196,000.

Most can’t fund the maximum, I know, but any amount will make the last few decades better than just scraping along at the end of life with the minimum Social Security check.

This is the only funding that cannot be affected by the stock market, the economy or a black swan event. It is the ultimate safety net and the only retirement source that will never run out.

And the 7% and 8% annual growth of benefits between ages 62 and 70 is a guaranteed return.

A monthly check from Social Security is the only solution I see to all the bad stuff that can happen to our finances later in life – a limited solution, yes, but also the only one I know for certain will be there for us.

I have heard it down here in the retirement belt many times – 60 is the new 40. There’s a lot of life left to live… doing it at $1,300 or $1,400 a month will be no picnic.

Stay in the work world as long as you can.

Good investing,

Steve