In this episode of Friends Talk Financial Planning, Bridget and John dive into one of the most debated topics in personal finance: When is the best time to claim Social Security benefits? Bridget believes in waiting until 70 to maximize the payout, while John advocates for claiming as early as 62.
They discuss:
- The processes both John and Bridget follow with their clients
- The importance of using a third-party consultant for Social Security decisions
- How health and longevity considerations affect the timing of claiming benefits
- The pros and cons of early vs. delayed Social Security
- The psychological and emotional aspects impacting decision-making
- Common strategies for couples to optimize their combined benefits
🔗 Resources:
- Alliance of Comprehensive Planners: https://www.acplanners.org
- John's firm website: https://www.trinfin.com
If you're approaching retirement age and are unsure when to claim your Social Security benefits, this episode is filled with valuable insights and expert advice to help you make an informed decision.
TRANSCRIPT:
Bridget: John, you and I got to talk about when's the best time to take Social Security, and it turns out that we disagree. In my heart of hearts, I think you should wait until you're 70 and get the big pound. You, on the other hand, advocate for taking it at 62. Let's talk. Hi, I'm Bridget Sullivan Mermel. I've got a fee-only financial planning practice in Chicago, Illinois.
John: And I'm John Scherer. I've got a fee-only financial planning practice in Middleton, Wisconsin. And before we dig into the when to claim Social Security issue, I want to remind all of viewers to subscribe. Turn the viewers into subscribers. If you hit subscribe, it helps other people find this; keeps you up to date on what we're doing here at Friends Talk Financial Planning. And with that, I'm looking forward, Bridget, to telling you why you're wrong about waiting on Social Security.
Bridget: Well, let's just go through your process. When you're working either on your own or with your clients, tell me how you walk through this?
John: Yeah. As people approach their retirement age or specifically the time when they can claim Social Security.
Bridget: What age do you start thinking about this?
John: Well, it sort of depends on the situation. If somebody is working at 67, we're not going to talk about Social Security claiming quite yet. When they start to approach the time when they are thinking, “In the next two or three years, I'm going to going to retire.” Or maybe I retired when I'm 60, and now I'm looking to claim at 62 or at 67. Or sometimes you say, “Listen, what's our plan?” So to answer your question, a couple of years before we think we're going to claim Social Security or we're going to make a decision to not claim Social Security is when we start taking a look and running our analysis.
And like you, we use a third-party consultant who worked for the Social Security Administration for 30 years and does consulting work for folks like us. We have him come in and run a full breakdown of what are the options, what are the pros and cons, what are the facts so that clients can then make a decision based on what they want to do.
Bridget: Right.
John: That's our approach. Once we start getting close (and it's different for everybody) but a couple of years before we think we might want to do this, we want to know what the choices are, so we can decide. How do you guys approach it?
Bridget: Generally, around age 60, or when one of the clients gets around 60 if it's a couple and they're different ages, then we start talking about it, because I think people kind of want to know. And we use the same consultant, who does a thorough analysis. Recently, I was talking to somebody who's not an advisor, and when I said that we hired out, they said, “What? How could that possibly be worth it?” And it's a head scratcher, isn't it? But it is for us, because the person over the breadth of our clients comes up with enough different strategies that we would have never known about that it's worth it.
John: Yeah. Well, I find that surprising, too. Social Security is one of the few very large financial decisions. There's a lot of dollars involved when you take a look at a 10- or 20- or 30- or 40-year retirement. And once you make a choice, you can't undo that choice. There're a few caveats, but pretty much it's a one and done deal. You have to make a good decision that you have to live with. I think it's worth having the backup. I don't understand that other side of it.
Bridget: Yeah. I think you have a period of time to stop and start and get it and not get it, but most people don't do that. And you're working with a beleaguered, underfunded government agency that makes mistakes. And so just like dealing with the IR's, I would say, if you can limit the number of interactions you have with them, you limit the number of mistakes that can be made, and that you have to try to follow up and get them back in your favor. Both organizations, in general, try not to make mistakes and try to be fair, but I'd rather not spend my time wrangling with them.
John: Yeah. And I think you've had a similar experience with Denny, the consultant we use. He's come up with results that were different. He's solved some problems that we didn't even know we had. And so, I think it's worth having that experience.
Bridget: Yeah. And the other thing is that the standard advice I used to give people, because of inflation, has sort of changed. And so, it's worth, again, just looking at it, making sure my assumptions are still the same, and I find it very helpful. So basically, what we do is have him lay out our options and then just talk it through his clients, because I would say he's kind of a Social Security nerd. And it helps people to have an expert, and we sit in and help them process the information and figure out a plan.
John: Yeah. I guess that's largely what we do, too. And you and I probably have different opinions or feelings or just biases in how we look at things. My feeling overall is that it's not a right or wrong thing, it’s about looking at the choices. And then to make that choice that fits best. And I like the earlier claiming idea; that's probably what we're going to do. But I'll tell clients, listen, here are the tradeoffs, and just sort of big picture without even getting into the details. The earlier you claim Social Security, the less dollars you get as a monthly payment, but you get it for more years. That's the early side.
The longer you wait, the higher the payout goes, but you've got to pay for those first four or six or eight years before you take it. So you don't have money coming in for eight years if you claim at 70, whereas you do have that money coming in for eight years if you claim at 62. Which one's right? Well, neither one of them is right. The actuaries, the government employees, have it figured out. Social Security doesn't care when you take it. On the big picture, it's exactly the same to them whether you take it at 62 or 67 or 70 because of how the actuaries work on those things.
It doesn't make any difference. One of the things that I think is really important and does make a difference is that the government agency has to account for everybody. That means the people who have the best healthcare available in America, the people that don't have any health care, high socioeconomic, low socioeconomic, every walk of life. But individually, we have very different life experiences, life expectancies, lifestyles than the average. And so that's the one thing I focus on. I was just having a discussion with a journalist and talking about when to claim.
And we've had a client where they were talking about the longevity side of things. That's what they've been hearing about. And here're the tradeoffs. And she said, “Nobody in my family has ever lived past age 80. Why do I care about maxing out my retirement income into my nineties? That is probably not a real reality for me.” You go, “Great! Let's claim early.” Or on the flip side, all my grandparents lived past age 95. Geez, maybe you've got a little different viewpoint than somebody else.
Bridget: And so that's something you know that the actuaries who are looking at raw statistics don't know. What's your health?
John: That's right.
Bridget: And so, if you think your health is better than the average person, or, geez, you just had a major health incident. That really plays in.
John: Absolutely.
Bridget: I think people underestimate how long they'll probably live. However, you know if you've got a health history item. And there’re just a few things that I wanted to add to what you said. If you're still working and making a significant amount of money, maybe over $35,000 or $50,000, I don't know exactly what the number is right now, you have to wait until you're 67.
John: That's right.
Bridget: But we just did an episode about how the average age of retirement is 62, so you’re not working. Or if you're not working and your spouse passed away, I think you can take it at 60. Who knew? But again, those are the details that I don't necessarily keep in my head.
John: Look them up.
Bridget: Right. You can look them up, and that's why we have a consultant who helps us make sure we’re covered on the basics. So I want to mention that. The other thing is I think for people who are waiting to take Social Security is that I don't want people who have the means to be scrimping and saving and not enjoying. If you retire at 67 and then wait until you're 70 and have plenty of money, I want you to be spending a consistent amount, and not thinking, “I'll spend more when I have Social Security.”
Okay, now that takes a specific type of person. Spending down your investments in early retirement is not what most people feel like doing. Most people think, “I wanna not spend this money down. I wanna make sure I still have it later.” So I think being realistic with yourself is really part of taking it later. “How much I get in Social Security is not going to impact how much I spend.” Not everybody could say that.
John: No, that's for sure. And I was talking about some of the facts. What's the longevity part? What are the things that I know? Health, other things like that. But then the feelings come into it, too.
Bridget: Exactly.
John: What's your personality? If it's really, really important to you to have guaranteed income, which Social Security is (it's indexed for inflation) and having that idea of having as much as I can guaranteed coming in for as long as I live, if that’s valuable to you, well geez, then waiting as long as you can, is probably best for you, because there’s no arguing the numbers are higher. You’re going to have more money in your eighties and nineties on a guaranteed basis.
If that’s valuable, that’s not a fact, that’s not a map, but that fits your situation. And for other people who say, “I’m not worried. If I have less money when I’m 92, that doesn’t bother me. I want to have that cash flow coming in now so I feel like I can spend it when I’m 62, 64, 68.”That's a different thing. It's not all necessarily about, what does the math say? There's some of that for sure, but then there's also, how do you feel about this? And what are the tradeoffs?
Geez, I'd like to have that money when I'm 64 or 65 and I know that I'm going to have less if I live until I'm 98, but I can live with that. Or until I'm 88. I mean it's just these choices and knowing what those are. And being able to decide as opposed to looking at one side: there's more money if you wait until you're 70. That’s factually true, but that doesn’t consider the feelings. On the other side, hey, I get my money earlier. Yeah, but you also give up some things. Know what your choices are so you can make an intelligent decision for you.
Bridget: I think another thing I just want to mention is that a lot of couples split the difference. So a common strategy that we end up using is whoever is going to get a lesser amount of Social Security takes it at 62 or 67. And then the other person who's going to get a greater amount waits until they're 70. And that helps with some longevity issues, because if you're married and your spouse dies, you get either your spouse's Social Security or your Social Security, whichever is greater. So that helps again with some of the math. And you don't have to be both doing the same thing.
John: That's great. I think that's a great place to wrap things up. Again. I'm John Scherer, and I run a fee-only financial planning practice in Middleton, Wisconsin.
Bridget: I'm Bridget Sullivan Mermel. I've got a fee-only financial planning practice in Chicago, Illinois. John and I are both taking clients. But if you're interested in the way we think about things and you're looking for an advisor in your area, we're both members of ACP or the Alliance of Comprehensive Planners, and you can find an advisor in your area at acplanners.org. We're trying to get to 1,000 subscribers.
John: That's right. Hit that subscribe button.
At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.
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