I’ve discussed this issue before in this column. I am a Social Security expert. I know all about the rules and regulations that can affect your Social Security benefits. But I am NOT a financial planner. I rarely tell people when to apply for their Social Security benefits. I give them all the facts and then let them decide, sometimes in consultation with a real financial planner, exactly when they should start their Social Security checks.
But even though I’ve stressed a thousand times that I am not a financial planner, people are always emailing me asking me when they should take their Social Security benefits. So how do I prove to folks that I’m not a financial guy?
Well, I think I finally have proof.
I was going through some old family photos the other day and came across this picture. That’s my wife in the kayak. And I’m in another kayak behind her taking the photo. And that’s our neighbor’s boat!
Let me explain. We were living at the time in San Diego. Or to be more specific, we were living on Coronado Island, which sits in the bay across from downtown San Diego. We were living in a part of town that was interspersed with canals. Every house in the neighborhood had a dock. And almost every dock had a boat moored to it.
Coronado Island was populated, for the most part, by people of means. For example, San Diego was a Navy town. The sailors who didn’t reside on base lived in apartments spread around the city. But the captains and admirals lived in Coronado. So did the captains of industry, as well as many doctors, lawyers, and other professionals. And yet, a moderately paid government employee and his librarian spouse (that would be me and my wife) somehow managed to find a home we could barely afford in Coronado.
So there we were, with a home on the water and a boat dock, surrounded by people who had the money to fill their slip. Many of our neighbors had boats similar to the one you see in the picture. But all my wife and I could afford were a couple of kayaks. Yet I can tell you, we sure had fun paddling around the canals and out into the San Diego Bay in our poor man’s yachts!
Anyway, here is my point. Look again at the picture. Would you rather take financial advice from the person in the kayak or from the person who owned that huge yacht? I think it’s a no-brainer. Talk to the guy in the yacht about financial advice. But you can talk to me for Social Security advice.
I was reminded of all this when some of you reacted to something I said in a column a couple weeks ago. I told readers not to fret so much over the starting date for their Social Security checks. I specifically told a guy who was almost losing sleep because he wanted to make darn sure his benefits started exactly at age 70 that he shouldn’t worry. I said if his benefits happened to start one month early, he'd only lose a fraction of 1 percent in his ongoing benefit rate. So I said it was “no big deal.” And I thought my comment was literally that—no big deal. But here is an example of the reaction I got:
“I can’t believe the lousy financial advice you gave a reader this week! You told him it would be ‘no big deal’ if he got one month’s extra Social Security check at a reduced rate. You’re wrong. It would be a huge deal. You’ve got to remember that the loss he suffers will just continue to compound over the years. He could eventually lose hundreds if not thousands of dollars if he takes the reduced benefit rate.”
Well, please let kayak boy make a couple points in response to that criticism and others I received in a similar vein.
First, I was not giving this guy financial advice. I merely told him that I thought it wasn’t that big a deal if he ended up making a mistake and starting his benefits in August instead of September when he turned 70.
Second, let’s follow an example to find out if it would be a “huge deal” if that happened. Let’s say the guy’s full retirement age benefit is $3,000 per month. If he waited until age 70 in September to start his retirement checks, he‘d get a 32 percent bonus. In other words, he’d get $3,960 monthly.
The delayed retirement bonus is actually two-thirds of 1 percent for each month benefits are delayed beyond full retirement age—up to age 70. So, if this guy inadvertently started his Social Security checks in August, he'd get a roughly 31.4 percent bonus instead of the full 32 percent. In other words, his monthly Social Security check would be about $3,942.
That’s $18 less than his potential age 70 rate. But then you have to remember that he would be getting one extra Social Security check at the $3,942 amount. If you divide $18 into that, you will learn that he has to live 219 months, or about 18 years, beyond age 70 before he is going to come out on the short end of the Social Security stick by starting his benefits one month early. Or to put that another way, once he is 88 years old, he will start losing $18 per month.
I suppose there is a chance this guy could live to be 100 and end up losing hundreds or even a couple thousand dollars. Of course, there is also a chance he'll get hit by a bus at age 72.
So is it “no big deal?” Or a “huge deal?” I guess it’s all in the way you look at it. If you are a money person and like to worry about these things, then consult a financial planner (who probably owns a big boat), go over all the numbers, create all kinds of spreadsheets, come up with all kinds of matrixes, and then make a decision. (And hope you don’t get hit by that bus!) But if you’re like me, someone who doesn’t lose any sleep over the financial decisions he’s made, then just make the best choice you can based on the knowledge you’ve gathered, don’t fret over a month or two glitch, and enjoy the rest of your life paddling around in your kayak!
