When and how should you start claiming your social security benefits? Recent changes have made claiming your social security benefits look a little simpler. There used to be a whopping 567 different ways to claim your benefits and an over 100,000-page manual that interpreted each way. But, the strategy to claiming social security benefits is still far from simple. So, here’s the secret strategy you should consider: “Longevity Risk.”
What is longevity risk? Simply put, it is the risk that you will outlive your money. How many of you know someone that lived to 100? Were they prepared?
There is a fine balance to creating sustainable income that will last as long as you. Social Security alleviates some of the worry and for most of us can be the biggest asset in our portfolio. When I evaluate my clients’ potential income streams I am always pushing the boundaries. The most straightforward claiming strategy is at 62, 66, or 70, but those are just ‘mile markers’--the devil is in the details.
Evaluate your family history. Are you healthier than your parents? Have you been tested for hereditary conditions? Family can provide a lot of insight. I have my father’s heart and in my future I may need to watch out for CHF (congestive heart failure). Being proactive with your health can prolong your life--but you should also be proactive with your money so it lasts as long as you do.
While researching this topic I found a great resource: the Actuaries Longevity Illustrator. This online tool asks a series of questions that help estimates your probability of living to a certain age. My jaw dropped at my discovery--I had a 50% chance of living to age 90. My family history had no such indication. I started planning for the chance I would live that long, or even longer. This resource is one of many that you can use to decide what is the best time to take Social Security. As I create my own plan for retirement I know a few things will be certain. Social Security will have many more changes before I am able to claim. I know that I will have to plan to live longer than I could possibly imagine. I know that there will be periods of inflation. I know I need to save more than what is comfortable in my budget. I know my financial plan will change. That’s why it’s important to work with someone who is adjusting your financial plan for the challenges that are not only a head but the ones you are in currently.
“Social Security: There is a better way,” Center for Retirement Research, Boston College, September 2012.