The No. 1 action to take now
Ric Edelman: It's Tuesday, February 28th. Let me ask you a question. When should you start to receive your Social Security benefits? All financial advisors pretty much say the same thing. If you're in good health and you can afford to delay, then delay. Even though you're allowed to start receiving Social Security retirement benefits at age 62, you'll be better off in the long run if you wait until you're 70. You'll end up with 76% more money every month, adjusted for inflation, by waiting. We're talking hundreds of thousands of dollars in additional income over your entire retirement.
So if pretty much every advisor says to wait, that's pretty much what every retiree does, right? According to the Federal Reserve, only 10% of retirees wait until age 70 to start receiving Social Security.
Why won't you delay? Well, it's because of human psychology. Waiting will be of benefit to you in 15 or 20 years. But it means you've got to give up income right now and for the next eight years. And you won't really be better off for 13 years. You're not even sure you're going to live eight more years, are you? Let alone the 13 years until you get to the break-even point. Waiting also creates complications depending on your health, your marital status, whether or not your spouse works, the age difference between you and your spouse, the age of your kids, and more.
Social Security is ridiculously complicated and people will naturally choose a simpler, immediate choice that's inferior to a complicated, delayed choice that is superior. It's just human nature.
And Congress is making it even more tempting to start receiving benefits just as soon as you can. We all know that the Social Security Trust Fund is being depleted. It'll be gone by 2032. And when that happens, all Social Security benefits are going to be cut 25%.
Congress could fix this problem right now, you know, but it refuses to do so because of the political backlash. Nobody wins elections by cutting Social Security benefits after all. Democrat President Joe Biden and Republican House Speaker Kevin McCarthy have both said that cuts to Social Security are off the table. And frankly, nobody believes them because the only way to avoid cuts is to massively increase taxes, as if that'll go through Congress.
So all this means that everybody's expecting cuts in benefits between now and 2032. And on that basis, shouldn't you start your benefits now? So at least you get your full amount before the cuts occur? Nobody knows the correct answer to that question.
But if you're a financial advisor, you need to run the numbers for your clients who are 62 and older, who haven't yet started their Social Security benefits. Would they be better off starting Social Security now because of the trust fund crisis? Or should they wait until after the Social Security Administration cuts benefits? This calculation will alter the retirement income strategy you recommend for your clients.
Generally, if you are the client or investor, you need to ask a financial advisor to run that calculation for you. Don't try to do it on your own at home. Your advisor uses sophisticated Social Security planning software. Trust me, it's out of your league. Get it right because we're talking hundreds of thousands of dollars over the rest of your life. That will have a huge impact on your financial future.
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