The Social Security Trap: When Waiting Until 70 Becomes a Huge Mistake

Are you considering delaying your Social Security benefits until age 70 based on the belief that the break-even age is around 80 or 81? This might not be the best decision for you. In this video, James delves into a real client example to illustrate how decisions around Social Security can have profound implications on your financial plan.

Greg and Sherry, a couple aged 62, approached us with the goal of retiring immediately. They had a substantial portfolio, including 401(k)s, Roth IRAs, savings, and a paid-off home. Their aim was to maintain a $6,000 monthly lifestyle throughout retirement, accounting for healthcare expenses and taxes.

Key Assumptions:
Aggressive Investment Mix: 90% in diversified stocks, 10% in various bonds, projecting an 8.8% annual return.
Longevity: Projected lifespan until age 95.

The traditional analysis suggests that delaying Social Security until age 70 yields greater lifetime benefits. However, a detailed examination reveals a critical factor often overlooked – the impact of delayed Social Security on the overall financial plan.

Initial Analysis: If Greg and Sherry chose to collect Social Security at 62, their portfolio would maintain a healthy trajectory, allowing them to meet their expenses over the years. The net effect was positive.

Counterintuitive Results: When they considered delaying Social Security until age 70, the seemingly increased benefits came at a cost. The strain on their portfolio during the years without Social Security income significantly offset the potential gains, resulting in over $400,000 less at the end of their lifetime.

James emphasizes the often-underappreciated role of the rate of return on investments. In a hypothetical scenario with a lower growth rate of 6.3%, delaying Social Security until age 70 proved to be more financially advantageous, adding over $850,000 to their overall wealth.
While the break-even age is commonly cited as a justification for delaying Social Security, the analysis reveals a more nuanced reality. Even with the additional wealth created by delaying, the break-even age could still be around 86.

The decision on when to collect Social Security is complex and interconnected with various aspects of your financial plan. A holistic approach, considering factors like investment growth, tax implications, and other income sources, is crucial. There is no one-size-fits-all solution, and a personalized analysis based on individual circumstances is imperative.

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⏱Timestamps:⏱
0:00 Delaying social security?
0:30 A case study
3:30 Things to consider
6:00 Calculating portfolio withdrawal percentage
8:09 SS at 62 versus 67
11:55 The analysis
13:50 Opportunity cost
14:28 No one size fits all
16:48 The impact of growth rate
18:16 The break-even age

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Advisory services are offered through Root Financial Partners, LLC, an SEC registered investment adviser. This content is intended for informational and educational purposes only and should not be considered personalized investment, tax, or legal advice. We do not provide tax preparation or legal services. Always consult with your CPA or attorney regarding your specific situation.

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