SSI – Claiming age 62 or later, What Does It Cost You?

Maybe a minute now will give you an 8% return per year in retirement?

Life and Economics are full of choices. Here’s one, “when should you claim Social Security?” As early as age 62, or as late as age 70? The research article reviewed here has many detailed tips but here are the basics.

The optimal claiming decision in the research “minimizes the risk that the individual will exhaust his or her retirement savings and be forced at some point to limit consumption to what is provided by Social Security.”

When to Claim?

  1. Claiming late can add as much as 10 years to the life of the retirement
    nest egg. (Meyer and Reichenstein, 2012)
  2. Claiming early (age 62) was optimal for those with low incomes and retirement savings of less than $300,000.
  3. Claiming later, or delaying the start of Social Security benefits, was better for wealthier households with retirement savings greater than $700,000.

Basic Research Assumptions:

Assumed the Maximum Social Security Income possible, retiree paid into the system for 35 years, has a life expectancy with a 50% chance for men to obtain age 85, and age 88 for women and income earnings before retirement (2016) was the maximum of $118,500. Plus, savings at retirement was between a $100,000 and $3,000,000; the 90th percentile was reported as $718,000. In case you’re wondering this range represents 95% of Americans with retirement savings. It does not include those with pensions or those without savings at all.

Monthly Income Assumed To Be:

In this study, monthly income works out to be the amount social security pays you plus equal payments from your retirement savings over your expected lifetime. There’s no negative spending available in retirement.

Let’s Try a Scenario:

Let’s use a made-up scenario. If you’re married, and you and your spouse claim SS at age 62 and you earned the average household income of $70,000 your SSI should be about $3500/month combined, plus $1,700 from savings. That means you would live on $5,200/month for the remainder of your life and you would expect your savings to last to age 85 for men, and age 88 for women. If returns are better than 4% over all and inflation remains at under 3% then your retirement savings will provide income beyond Social Security beyond the average age of death for men 85, women 88.

This assumes you have at retirement $500,000 in retirement, and you take 1/25th each year, the math looks like this ($500,000/25 years / 12 months = $1700/ month).

Don’t know How SSI works?

Social Security Basics, The dollar amount of the retirement benefit available from Social Security is a function of career earning history and the age at which benefits are claimed. The current full retirement age is 66 ($2,639/month) and benefits may be claimed as early as age 62 ($2,102). A benefit reduction is assessed in relation to the full retirement age amount for each month that benefits are claimed prior to attainment of age 66.

Deferred claiming credits increase the benefit for each month that claiming occurs after age 66. An individual claiming at the earliest possible time (age 62) will receive an annual benefit that is 25 percent lower than the full retirement age (66) amount. Claiming at age 70 ($3,576) when the deferred credit stops accruing results in a benefit increase of 32 percent. The authors show how this represents an 8% return for waiting from age 62 to 70 for married couples.

Married individuals are eligible for the greater of the spousal benefit or the
benefit attributable to their own career earnings. Upon the death of a spouse, a married individual is entitled to the entire benefit earned by the spouse, if it is higher. Delayed claiming is therefore equivalent to purchasing a deferred joint and survivor life annuity, with the higher deferred benefit purchased by relinquishing near-term benefits.

Reference the Research here:

Much of the reference for this post comes from this research article, “Does the Benefit of Deferring Social Security Offset the Opportunity Cost to Do So?” by Michael J. Alderson, Ph.D.; and Brian L. Betker, Ph.D., Journal of Financial Planning, September 2017; This article found in the 2018 ISCEBS Fellowship Study Materials, here.

Annuities, also labeled personal pension, longevity insurance, or retirement risk transfer, should be considered in specific circumstances to guarantee income. They also propose other techniques to preserve assets for the remainder of life. The research is detailed, but it comes up short describing more about the value of annuities to protect from living beyond average age. I’ll see if I can find an article on that topic.

As a Benefits Specialist, I follow retirement topics in order to help you with choices you have while you’re planning for retirement or are in retirement.

Zenefits, Short the Stock

Interviewing insurance executives at Zenefits in 2015 the problems of Zenefits were obvious. Just like the problems still are now, January 2017.

In midsummer 2015 I knew the meteoric rise of Zenefits was but a flash in the pan. Running an agency of their size relying on so few insurance staff is two mistakes. First, licensing that has exposed no respect for State protections for citizens and second, and worse than the first, is  squandering the opportunity to disrupt an industry stuck on its own existence.

There is so much opportunity to bring fundamental change to more than brokers it would be a tragedy if Zenefits new leader doesn’t get this right. Continue reading “Zenefits, Short the Stock”

It’s morbid to compare: GM 124; Hospitals 400,000

Outraged over auto deaths?

Mary Barra in front of congress.
Mary Barra in front of congress.

All human life matters and to my way of thinking it’s good the autos and government have a way to track responsibility. I live in Detroit so that makes me a car guy. I feel attached to the auto industry. It’s good the cars we drive are safe.

Outrage over car deaths, of course, makes sense. And, the autos have taken responsibility because the government has a good method to enforce the autos to be accountable to the public.

General Motors will pay $900 million to settle criminal charges related to its flawed ignition switch that has been tied to at least 124 deaths.

CNNMoney (New York) September 17, 2015: 2:46 PM ET;  “GM CEO: ‘People died in our cars’ ” Poppy Harlow

http://money.cnn.com/2015/09/17/news/companies/gm-recall-ignition-switch/

Let’s compare; outrage over 124 auto related deaths compared to more than 400,000 preventable deaths at hospitals? Where’s the outrage? Where’s accountability?

Screen Shot 2015-09-18 at 5.52.25 AM
Healthcare IT news aritcle,

 

In this article, congress talks about possible solutions but isn’t demanding accountability from our medical system.

“The tragedy that we’re talking about here (is) deaths taking place that should not be taking place,” said subcommittee Chair Sen. Bernie Sanders, I-Vt., in his opening remarks.

Healthcare IT News, Erin McCann “Deaths by medical mistakes hit records, the way IT is designed remains part of the problem.” WASHINGTON | July 18, 2014

http://www.healthcareitnews.com/news/deaths-by-medical-mistakes-hit-records

When I talk about our medical system is broken, it’s clear that if the auto tracking method were applied to hospitals we’d have accountability.

Here’s a quote from the same article;

In the hearing’s closing questions, when Sanders inquired as to why this crisis was not constantly splashed across front page news, he was met with this: “When people go to the hospital, they are sick. It is very easy to confuse the fact that somebody might have died because of a fatal consequence of their disease, versus they died from a complication from a medical error,” Jha said. “It has taken a lot to prove to all of us that many of these deaths are not a natural consequence of the underlying disease. They are purely failures of the system.”

In our premiums and in our government run healthcare we pay for these services.

But, our system requires more fixes than just this. The white paper is breaking apart many pieces of the medical system apparatus in order to demonstrate the areas where the system is broken. Follow the white paper for what’s wrong, then we’ll be publishing the fixes in 1qtr 2016.

All insurance is not Created Equal.

A Health Policy Buyers Dilemma

If you’ve had an insurance policy, and we all do, you may not have ever had a claim. The serious claim that is often large, like ten’s of thousands of dollars large is something many people never experience. This causes a purchase dilemma for most people. They must choose a policy without knowing if, at claim time, it will pay as hoped. They may not be entirely sure what to expect even after the sale. It’s popular for a buyer to accept a recommendation from a sales agent because they have to trust that person to match their needs.

Question One

Here’s the rub, many agents are wonderful, terrific people who want to take good care of their customer. There are some, as in any industry, who are going to recommend what’s in their best interest over their clients interest. Unfortunately, it isn’t quite so black and white. In our work with clients and the Decoder we frequently find opportunities for customers and make adjustments to the original recommendations. We’re making a living on finding these opportunities. We can’t say exactly why it is this way but it’s clear there are always opportunities to do better. In case you’re curious, these adjustments along the way pay for the Decoder within a month or two for most groups.

Question Two

There is a second question to be asked. If you’re not worried about your agent’s recommendations and are confident in them, the question is determining their level of confidence in understanding where the opportunities exist for your business. Healthcare is changing daily, we call it “shifting sands,” the speed of change literally keeps me up at night and this is what we do.

Chances are, what your agent knows, comes almost exclusively from insurance carriers and vendors. If you look objectively, you have to say that makes complete sense. After all, selling insurance to business is what they do for their lively hood. You shouldn’t expect something different. Plus, the speed of change makes sorting out all the carrier and vendor and marketplace options really difficult. Is your agent really up on all the options that might fit you, and can they explain those options in a coherent financial manner your CPA would understand?

Assess Two Qualities About Your Agent

I’m probably stating the obvious but it’s important to know where your allegiance lies. In the first case, the agent who you can trust must be screened by you. It’s very likely, you have confidence in your ability to screen out the better agents. You will have confidence then in choosing or keeping your agent.

Let’s assume in the first case that you’ve used a good process to hire an agent. What about the second case, where you are less prepared to assess how up to speed agent is with ACA, reform, plan regulations, policies and myriad of new options? Fact is, it’s highly unlikely that your abilities in this second part are as adequate.

Sales Process Does Not Work in a Buyers Favor

Insurance has the reputation it has because it’s earned it, and because what insurance provides almost seems like selling air. It is complicated and the sales process does not work in a buyers favor. What is common is that most people don’t experience serious claims that test their trust in a policy and agent, and as a result learn too late that they have a problem.

Insurance is complicated and healthcare is among the most complicated. You should almost expect problems if you’re not introducing an outsiders opinion about the decision you’re making for your policy. I’ve built BenStaff to do just that for you. I had to separate myself from the traditions of insurance and stepped out intentionally to offer an alternative. To protect and work with owners to solve the equation for the optimum outcome has been a real struggle and also opportunity. I have no part in traditional insurance and as a result can give you the benefit of insider information without making a living at selling you a product. I work with agents all the time and am happy to work with a customer’s agent. BenStaff does not participate in commissions, fees or overrides or other bonus’ traditionally part of the sales process.

Many businesses feel forced to reduce the decision to who they trust. While this can be good, it exposes your small and large business to the risk that who they choose to trust may not be the right person or not sufficiently knowledgable to tackle the new day.

See All Your ACA Options With Your Eyes Open.

A Real Life Story of Accepting ACA Changes for a Small Business

The ACA landscape is “shifting sands,” a phrase we coined a couple years ago as we started designing the “BenStaff ACA Decoder“. I’d expect by now everyone understands ACA like we do. Sadly, this is a long way from true. We’re troubled that so few owners are taking advantage of options but then, there is so much “shifting sands” no one who does this part time should be expected to “get it” fast. There is a thread of continuous change, consider this example; the government just announced that open enrollment that ended 2/15 is open still through 4/15. You can still enroll so don’t miss out. See my post, or talk to one of the agents we like to make sure you don’t miss this NEW open enrollment.

Today begins a Story

ACA has changed the world of benefits. We're using our Decoder everyday to help employers meet the challenge.
ACA has changed the world of benefits. We’re using our Decoder everyday to help employers meet the challenge.

Today, I wanted to begin telling a real life story about a family and small business. Of course, names have been changed to protect the innocent (a bit of a Dragnet reference). The reason for it to be a multi-part story, is to allow me to keep tackling the days work. If you follow the story you will learn what’s really happening in the employee benefit world and how it affects you, or could affect you.

It would take too long to write the entire story in one sitting and likely, you wouldn’t have time to read it. If I understand my audience, your interests are different than your neighbor (in viewing anyway). My interest in telling this story is the circumstances cover most every variation for you. Undoubtedly, in this story, there’s something in it for everyone. Owners will appreciate it and also will their HR and Finance staff plus any employee of any employer plus individuals looking for coverage. This story is about any typical business trying under the new law to provide coverage. It should help us collectively understand what ACA means in many different ways.

Part I – a Small Business Looking to Do Better

The story starts with a business who engaged us for our Decoder because they asked the simple question, “we know it’s different than it use to be, and we perceive we could do better but we don’t know how to make the right decision.” This is the question that we answer most of the time. So, here’s a brief background for the story. This is an employer with 18 employees many of whom are part time. We agreed to complete an ACA Decoder for them. We delivered the Decoder to the owners (2 of them) and started the conversation about which of the 3 options was best for them to pursue.

No two employers are the same and no two employers can solve the problems the same. No matter the employer size there are issues employers are facing. There are more than 20 options available to employers. And most employers are facing today’s rate increases with the same tools and intellect as they did last year, or the year before that and this is not serving them well. It’s why no matter your best efforts, you will find employers who use the Decoder do so with added confidence. As you will see with the story as it unfolds over the next few days.

This employer had an agent who was capable by any measure but not attentive to the employers needs. Of course, we established a connection with the current agent by encouraging them to participate with the completion of the Decoder. They objected to the idea and explained they would not be participating. This is so unfortunate, why would an agent not want to work with BenStaff or me to help a customer make a better decision and implement change? This kind of reception by the agent community really doesn’t make sense but we offered introductions to local agents who we knew who would work with us to develop the Decoder. The new agent worked with us to develop options, added a new customer and delivered the services I told the customer they should expect.

Too bad for the old agent but as you will see, the story ends happily every after in the end, you will see how we helped the employer navigate the ACA shifting sands by digging in and getting it done.

I’ll post Part II in the next day or so. Stay tuned.