Just what I needed…on a day when my knees and back are hurting, a reminder of my inevitable decrepitude lands in my inbox.
To be clearer, my annual Social Security benefits statement just arrived.
At full retirement age—67 for me—Uncle Sam will send me $2,872 a month until my oxygen subscription expires. If I wait three years, until I’m 70, my monthly haul ratchets up to $3,561.
Nothing has changed much. Didn’t expect it to. Still on track for what I assume my retirement will look like.
And I still assume my retirement will occur outside the U.S., where the cost of living is radically cheaper, where the quality of living is radically higher, and where my Social Security income will stretch much, much farther. (Not knocking the motherland; just stating financial facts based on my years affording life abroad.)
But really, the reason I bring this up is that it ties in with a story I read from an old Wall Street Journal colleague that popped up in Barron’s a few days ago. It was about reader blowback from an interview with Boston University professor/economist Laurence Kotlikoff.
People get really emotional when it comes to Social Security.
Advocate taking Social Security early, and the spears fly from those who claim that waiting is the only strategy that makes sense.
Counsel people to wait, and the proponents of claiming early hurl invective at your ignorant analysis because everyone knows Social Security is days away from being stuffed into a body bag.
Kotlikoff, it turns out, recommends the same game plan that I regularly preach: wait.
The rational is irrefutable. The 8% annual increase in monthly benefits is arguably the greatest, risk-free rate of return you’ll find anywhere in the investment universe. (Turns out that Kotlikoff, like me, also sold the vast majority of his stocks early in the pandemic and went into cash, fearful that the market is simply way too overvalued and propped up only by Federal Reserve spending and irrationally low interest rates…maybe we’re both just crazy in the same way.)
But back to Social Security—with a question: What is the single biggest risk you face in retirement?
But a true answer.
If you’re a healthy person, your big risk is living so long that your investment accounts run out of life before you do.
At that point, you face the implications of a decision you made decades ago: Live on the Social Security benefits you claimed at 62 (or even at full retirement age), or live on benefits as much as 85% larger because you waited until 70.
Going out on a sturdy limb here, but I’ll say that those who claim early and then run out of nest egg decades later will live a much-reduced lifestyle. Granted, “lifestyle” is a subjective noun for lots of people in their late-90s and beyond. Still…
The self-evident point remains that a paycheck 85% larger is going to provide a far better quality of living for whatever quantity of living you still have remaining late in life.
And I do get it: Turning 62 or 65 or whatever and knowing that you have a pot of money you can immediately dip into every month…who wants to turn that down? I think about that all the time, myself.
Will I really have the willpower to keep my hands out of Uncle Sam’s wallet?
But here’s how I’ve convinced myself to look at this issue:
I can collect $2,022 per month at 62.
Or I can collect $3,561 at 70.
Which means if I want to wait, then I need an amount of money saved by 62 that can float me across that eight-year gap. I assume I need to generate a monthly income at least equal to what I will receive from Social Security at age 70, which would imply a consistent standard-of-living between 62 and my breathing expiration date.
So, $3,561 over 96 months means I need a nest egg feathered with at least $342,000, rounded up. Let’s call it $400,000 to be safe.
Knowing I have that—and I’m substantially above that level at this point—gives me a confidence that when 62 rolls around, and then 67, I’ll successfully restrain myself from claiming Social Security for a few more years.
Plus, I plan to keep writing well into later life…but’s a different dispatch.