A lot of investors (and advisors) fall victim to fuzzy math in retirement planning. We’ll make sure you aren’t one of them on today’s show. Plus, we’ll answer two questions from local listeners about how to retire when you’ve done no previous planning and trying to understand the spousal Social Security benefit.
Click the timestamps below to jump ahead in the episode…
Key Takeaways From This Episode:
[1:01] Hannah: Ready (but not really) to retire
- Hannah in Moscow says she’s supposed to retire next month but hasn’t done any planning yet. She needs to figure out Social Security options, pension options, Medicare options, as well as what to do. Should she push her retirement date back until she figures this stuff out?
- Perhaps she should, depending on how official her retirement date is.
- Talk to someone who is well-versed in all the elements of retirement. Run the numbers and consider these benefits and how they also impact your spouse.
- Looking at it only a month ahead of time is cutting it a bit close. You want this to be a time of joy and anticipation, not stress. So, make sure you take your time to get the answers right.
[4:50] Tom: Spousal Social Security benefit
- Tom in Plymouth doesn’t understand the Social Security spousal benefit. His wife worked about five years before they had kids and hasn’t worked since. What will she be entitled to?
- This is a common question people have for Chris. When you are married, you are entitled to collect a Social Security benefit either on your own work record or a percentage of your spouse’s work record–whichever is higher.
- The maximum she could collect would be 50 percent of her spouse’s benefit, depending on what age she starts collecting.
- Chris explains some of the different ages and benefits possible when you take Social Security.
[8:42] Fuzzy Math
[9:25] “The mutual funds that I’m invested in have averaged 7% annual growth for the last five years, and I’m perfectly happy with that return moving forward.”
- Psychologists call this the recency bias. People have gotten used to almost double digit returns over the past decade. Don’t just focus on what’s happened recently because if markets turn down, it could do a lot of damage to your retirement portfolio.
- Make sure your plan is built to handle downturns while still taking advantages of these upward periods in the market.
[11:10] “It’s definitely best to wait until 70 to start my Social Security to get the biggest monthly amount possible.”
- This is not fuzzy math–if you look at the numbers there is a stark difference between starting the benefits at 62 vs. age 70.
- Waiting until 70 is going to give you the biggest possible check, but is that right for you? Some people start at 70, that is the right decision. But if you have no other resources or can’t wait until 70 then starting sooner might be right for you. It’s not just about the biggest paycheck when you have all sorts of other factors in the equation.
[13:35] “They say that I can take 4% out of my portfolio every year without running out of money, so if just follow that rule, I’ll be fine.”
- The 4% rule is a good guideline to find out if you are close or not to retirement.
- Take a look at what your nest egg is and withdraw 4% a year and increase that withdrawal a little bit each year to account for inflation then you should be okay.
- Chris gives an example of what this looks like.
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