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Think Before Drawing Social Security Early

By Gary Silverman

In a recent study by the Government Accountability Office a number of facts were given about the state of those nearing or at retirement age. As usual, they found that people have very little saved for retirement, at least compared to how much they might reasonably need for income replacement that might last three decades. And, as usual, people shy away from equities. Neither of these facts surprised me.

What did? Just how many people collect Social Security retirement benefits early. Over 40% begin within one month of their 62nd birthday. Over 70% do so before age 65. Why is that so bad? Because it permanently reduces the benefit payouts they receive.

Now, if someone is unemployable, has little in the way of savings, and starts to draw on their social security early, I won’t quibble. But my guess is that the number of folks in that situation is well shy of 70%.

Why do they do this? The study didn’t say. I’m guessing that some want to supplement their current income. Collecting early allows others to reduce their work schedules.  And many people believe that the social security system is going bankrupt, so they might was well get as much out of it as they can now.

While many worry about current income, I’m more concerned about income longevity. Two of the biggest problems I see in my retirement planning work are people outliving their money, and their income not keeping up with inflation. Social Security helps both of these issues, and this help is more pronounced the longer you wait to start your benefits.

This is especially true for married couples. The reason is that with two of you there is a greater likelihood that someone is going to live a long time. Thus the larger of the two’s Social Security income will be around for both individuals (upon widowhood, the spouse generally gets to keep the larger of the two income streams).

Why my fixation on Social Security? Because it’s one of the last places you’ll find a guaranteed income stream that is inflating. Most private employers are getting away from pensions entirely. Those that still have them usually don’t get cost-of-living increases. States and municipalities, while still offering pensions generally, are starting to cut back on or eliminating that inflation protection, too (just ask a retired teacher in Texas).

But most federal programs, including Social Security, still provide cost-of-living increases and that is crucial. If you are currently drawing a paycheck, imagine what it would be like today trying to live on what you were making 20 years ago. That’s the same situation a retiree at 65 will face at 85 with pensions and the like.

So, before you start drawing your benefits early, think. Think a bit longer. If that’s what will keep you out of the poor-house today, then by all means go ahead. But otherwise consider waiting at least to your full retirement age, if not beyond.

Gary Silverman holds the Certified Financial Planner (CFP®) license, and is a member of the Financial Planning Association (FPA®). Gary is the founder of Personal Money Planning, a retirement planning and investment advisory firm. Find out more about Personal Money Planning at the company website or follow on Facebook.

Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.




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