Getting to your Retirement Exit was created out of a passion to share information on how to properly prepare everyday people for their retirement. It was created because one of the most important decisions that would last over the next 20+ years would often be made in less than 24 hours without direction or coaching. Visit our website at www.myretirementexit.com for more information.
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Why Taking Social Security Early Could Cost You More than a few bucks
Some people say that one of the biggest decisions a retiree can make is deciding on when is the right time to draw social security. In my opinion, this is in fact, the most important decision you would make going into retirement. In my podcast entitled “The Shift” from Accumulation to Distribution, I mentioned that the decision should be planned out well in advance because the stakes are higher once you go into the distribution phase. I want to give you a few reasons why getting it wrong could cost you more than you think. One reason why you need to absolutely get it right is because if you take it to early, then you miss out on one important benefit, Medicare as it is not available until age 65. So if you retire at age 61, where will your medical insurance come from? Trying go it alone with private insurance for 4 years can get quite expensive. Another reason you might not want to take social security to early is that you can leave a lot of money on the table.
Take the graph below taken from the software I use in my planning practice. Peter Cooper, a sample client that I use to show my clients how looking at several scenarios prior to retiring could mean the difference in a few thousand dollars. As you can see if Peter takes his social security as soon as possible or at the age of 62 in the example given below, it could cost him as much as $182,839 or nearly 200k in lifetime benefits. Waiting 5 years could mean as much as the cost of a new home. Wow! What if he waited until age 70 (seen in green below) That could mean as much as a quarter of million dollars in lifetime benefits.
We are not advocating working until 70 years old by no means, but what I have found in the 18 years of working in the financial planning arena is this. Having a plan can save you more money than you think, especially if you don’t have as much to begin with. I also tell my students at the college campus that, it will always cost you more to be reactive then to be proactive. Okay one last reason is a simple one. If you draw benefits to early you increase your exposure to what us advisors call inflation risk. Meaning you are caught in the inflation window a lot longer than you should be. The cost of goods and services will go up over a longer period of time for you.
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How much money do you actually need to retire? Some retirement calculators say it takes an estimated 1 million dollar retirement nest egg to bring in an average of $40,000 a year as a retirement income. But, in fact, just last month, through research from a science journal published by the Max Planck Insititute for Demographics , the probability of living to 110 years has just increased significantly. Nevertheless, what does that have to do with you, and how much do you actually need to retire? I will address my opening statement first. I have been helping people plan for retirement for over two decades, and I must admit that while most have saved for retirement, less than 15% have amassed a million-dollar retirement portfolio. Does that mean that the existing 85% will live below the poverty line in retirement? I am unsure that this will be the case as some still have pensions, annuities, and untapped real estate wealth not primarily counted on for retirement that may help fill mont
I love talking retirement and rightfully so, as I have been working with clients and their portfolios for nearly 20 years. One thing that was hard for me to understand as a young life insurance agent was why I had to know everything about a client before I started writing their life policy. My manager would always tell me that you have to do confidential questionnaires. My thought as a young agent was why when they wanted insurance, and I want to sell it to them. This type of approach was a win-win for me trying to get a commission. As a veteran in the business for more than 35 years at the time, he said you young kids just do not get it. How do you go into a doctor and tell them your elbow hurt because you bruised it, and they give you some cream and send you on your way, only to discover that you have a fractured bone chip? Now that I am older and around the same age, he was when he started sharing his sage wisdom with me, I truly understand what he was talking about now that I am ol