by Rick Kahler
Once you hit age 62,
what's an investment class that can give you a high guaranteed return with
almost no risk? Bonds? Equities? Commodities?
Nope. Social Security.
There's just one catch. You can't actually get your hands on the money until you're 70.
One of the most
common issues for those approaching retirement age is determining the right
time to file for Social Security. If you file at age 62, you will receive benefits
longer. Yet your monthly benefit for the rest of your life will only be about 75%
of the monthly amount you will receive if you file at your full retirement age
of 66 to 67. If you wait even longer, the benefit amount is higher still.
Those who are unable
to work and don't have sufficient retirement savings may not have a choice about
filing for Social Security early. Those who don't have a compelling need for
early Social Security income may still consider early filing as an option, with
the idea of investing the money for their later retirement.
According to a
recent article by Karen DeMasters in Financial
Advisor magazine, this is not a good choice. She cites research done by
William Meyer and William Reichenstein of Social Security Solutions Inc.
(www.ssanalyzer.com) in Leawood, Kansas.
One big drawback to
investing your Social Security benefits is the penalty you pay if you are still
working. If, between age 62 and your full retirement age, you earn more than $15,120
a year, your benefits are reduced. So you'd start with a smaller benefit
amount, have it cut even further, and not be left with a whole lot to invest.
Even more important, however, is a number that Meyer and Reichenstein emphasize: 8%. This
is the amount that your Social Security benefit increases every year between
age 62 and 70 that you delay filing. In essence, if you leave your Social
Security benefits in the government's hands instead of investing them yourself,
you are guaranteed an 8% annual return on that part of your retirement
portfolio. This doesn't include cost-of-living increases.
benefits and investing them is only a good idea if you are sure you can get
more than an 8% return. Any investment likely to produce a return higher than
8% would come with risks that are unacceptably high for a retirement-age
There are only two
real risks associated with letting your Social Security benefits accumulate
until later than age 62. One is the possibility that Social Security won't be
there when you do retire. Given that the delay is only a few years and that
Social Security is now the retirement plan of most Americans, this is extremely
The second risk is
that you won't live long enough to collect an amount equal to what you would
get if you started benefits early. Unless you are facing a terminal illness,
however, chances are that waiting until at least full retirement age is still
the wisest option.
If your health is
good and you don't need retirement cash immediately, you are far better off to
delay filing. Even if you are facing circumstances that might make early
retirement a necessity, it's a good idea to look at all your options and try to
find creative ways to put off filing as long as possible.
Once you reach age
62, Social Security is always an option. It gives you a doorway out of the
working world any time you really need to take it. But for every year you can
delay walking through that door, you gain 8%. That's an investment return well
worth waiting for.
Rick Kahler, Certified Financial Planner®, MS, ChFC, CCIM, founded Kahler Financial Group, and became South Dakota’s first fee-only financial planner in 1983. In 2009, Wealth Manager named Kahler Financial Group as the largest financial planning firm in a seven-state area. A pioneer in the evolution of integrating financial psychology with traditional financial planning profession, Rick is co-founder and co-facilitator of the five-day intensive Healing Money Issues Workshop offered by Onsite Workshops of Nashville, Tennessee. He is one of only a handful of planners nationwide who partner with professional coaches and financial therapists to deliver financial coaching and therapy to his clients. Visit KahlerFinancial.com today!