Make a Strategic Decision.
Know When to File for Social Security.

One of the major decisions which confronts those facing retirement is when to file for social security benefits. This is a very complex subject which warrants a complete analysis in our office. As a preliminary step, I'd like to make some basic points:

1- Delaying taking the benefits based on your own work record (as distinct from any spousal benefits) until age 70 is almost certainly preferable if you are in good health. The value of social security is more than simply receiving an income stream for a certain number of years, because it provides that stream for an uncertain number of years. When you wait until age 70, you receive a much higher benefit for as long as you live with increases for inflation. That type of annuity benefit is so generous as to be unobtainable in the private insurance marketplace.

2- All other things being equal, a married male with a higher income should wait until age 70. Consider the not uncommon situation, where the male is the higher earner and married to a younger woman. In this case, you have to consider that the higher benefit obtained by waiting until age 70 goes not only to the male, but also to the female in the form of a death benefit. Let’s use the example of a man age 65, and a woman age 62, and let’s say the husband dies at his life expectancy (at age 70) of age 85. The benefit will likely continue beyond his life for the remainder of the life of his wife, who, as a female, has a longer life expectancy than he, age 88. This second death doesn’t occur for 6 more years after his death (3 years of her additional life expectancy, plus another 3 years because she’s 3 years younger). So, if he waits until age 70, he receives the higher benefit for six years beyond his age 88, or when he would have turned 94.

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“Stocks for the Long Run” is the name of a famous book, as is Dow 36,000. These books recommend a strategy during the accumulation years of an all stock portfolio, where the average return can be around 10%. The theory went that if you suffer severe declines in the short run that’s ok, because in the long run you will more than make up for these declines during years of outsized gains. However, you may also have heard the phrase, “In the long run we’re all dead!” The parameters of a portfolio designed for decumulation are very different from the parameters of a portfolio designed for accumulation. As retirement income planner Jim Otar says, “There is no long term in retirement distribution planning.”

In analyzing your investments, we look at the mix of asset classes (stocks, bonds, real estate, commodities, alternatives) to help increase the likelihood of success of the retirement plan we produce together. Sometimes, this involves reducing the risk in the portfolio. In retirement you may not need to reach for the big returns like you have been doing during the accumulation phase. When you are drawing down assets there is great value in predictability, and a portfolio with less variability (bonds) will often last longer than one with more variability (stocks). By reducing the risk in a portfolio may you actually improve your plan.

Why not contact us to see what this means for your portfolio?