I’ve discussed this issue before in this column. I am a Social Security expert. But I am NOT a financial planner. I give people all the facts, and then let them decide, sometimes in consultation with a real financial planner, exactly when they should start their Social Security checks.
To put it another way, I don’t worry about money. I certainly don’t obsess over it as so many senior citizens seem to do today. Don’t get me wrong. Money is great. And having more of it is certainly better than not having enough of it. My wife and I are financially comfortable. But we are not close to being classified as rich, or even well-off. And we are totally fine with that.
I was reminded of my lack of concern over money matters when many readers reacted almost in shock to something I said in a column a couple weeks ago. A guy had written telling me he was worried that he wouldn’t get the full 32 percent bonus for delaying his Social Security benefits until age 70. This guy was turning 70 in September, and he wanted to make sure that his benefits didn’t start before then. I told him to just make sure that he indicated September as the starting month when he filled out his Social Security retirement benefit application.
But then I opened the floodgates of criticism when I told him not to worry. I said if his benefits would happen to start one month early, he’d only lose a fraction of one percent in his ongoing benefit rate. So I said it was “no big deal.” And I thought my comment was literally that — no big deal. But here is an example of the reaction I got:
“I can’t believe the lousy financial advice you gave a reader this week! You told him it would be ‘no big deal’ if he got one month’s extra Social Security check at a reduced rate. You’re wrong. It would be a HUGE deal. You’ve got to remember that the loss he suffers will just continue to compound over the years. He could eventually lose hundreds if not thousands of dollars if he takes the reduced benefit rate.”
So let me make a couple points in response to that criticism, and the many others I received in a similar vein.
First, I was NOT giving this guy financial advice. I merely told him that I thought it wasn’t that big a deal if he ended up making a mistake and starting his benefits in August instead of September.
Second, let’s follow an example to find out if it would be “a HUGE deal” if that happened. Let’s say the guy’s full retirement age benefit is $2,000 per month. If he waits until age 70 in September to start his retirement checks, he’d get the full 32 percent bonus. In other words, he’d get $2,640 monthly.
The delayed retirement bonus is actually two-thirds of 1 percent for each month benefits are delayed beyond age 66. That comes out to 32 percent at age 70. So if this guy inadvertently started his Social Security checks in August, he’d get a roughly 31.4 percent bonus instead of the full 32 percent.
In other words, his monthly Social Security check would be about $2,628.
That’s $12 less than his potential full rate. But then you have to remember that he would be getting one extra Social Security check at the $2,628 amount. If you divide $12 into that, you will learn that he has to live 219 months, or about 18 years, beyond age 70 before he is going to come out on the short end of the Social Security stick by starting his benefits one month early. Or to put that another way, once he is 88 years old, he will start losing $12 per month.
I pointed out the numbers to a financial planner who had written to criticize me. He still wasn’t convinced. He told me that as a financial planner, he must advise people “to plan for what possibly could happen, not what probably might happen.” He said this guy possibly could live to be 100 years old. And if that happened, he would have lost $144 per year for the 12 years between age 88 and 100. In other words, he would have lost $1,728 in that time frame.
So is it “no big deal”? Or “a HUGE deal”? People who really worry about the green stuff would call that potential $1,728 loss a very big deal indeed. But folks like me, who just don’t obsess over these matters, wonder what all the fretting is about. And let’s be honest. What chance does this guy have of living until age 88, let alone 100?
If he makes it to his 88th birthday, do you think he’s going to jump up and say, “I did it! I beat the Social Security system! From this day forward, I’m coming out ahead to the tune of 12 bucks per month. Whoopee!” Frankly, I doubt it.
And if he makes it to the century mark, I’ve got a hunch he’s going to be happy just to be alive. I don’t believe he’s going to think too much about the extra $1,728 he made over his 30-year career as a Social Security beneficiary.
I get many emails every week from people who are worrying themselves into a tizzy over the precise month to start their Social Security benefits. I rarely tell them what to do. I just tell them about Social Security rules.
But I do suggest that they stop fretting so much over these matters. Depending on how long you live, you may come out a few bucks, (OK, maybe even a few thousand bucks) ahead or behind depending on the choices you make.
If you are a money person and like to worry about these things, then consult a financial planner, go over all the numbers, create all kinds of spreadsheets, come up with all kinds of matrixes and then make a decision. (And hope you don’t get hit by a bus at age 69!)
But if you’re like me, someone who doesn’t lose any sleep over the financial decisions he’s made, then just make the best choice you can based on the knowledge you’ve gathered, and enjoy the rest of your life.