February 27

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When Should I Start My Social Security?

FAMILY UPDATE

My oldest son, now fifteen, recently got his driver's permit. We try to practice a little bit each day. We are still sticking to the neighborhood. It's a little unnerving that he will drive a thousand-pound rocket around town. I guess all parents go through this stress.
We have a couple of indoor cats who like to escape. We've discovered that our adorable mini Goldendoodle is quite the shepherd. We just send him out and he herds them back into the house. It is really funny to watch.
I currently own 208 orchids. The one below, when in bloom, is the #1 out of all of them.

Here are five important questions and five important answers.

1. Dave, how do you invest your own money?

I maximize my 401k contributions and invest 100% into the stock market. Why? I’m 46 years old and plan on working for 20+ more years. If I use any other investment vehicle, I will have a lower return. By maximizing my contributions, I get a big tax break. For every $100 I contribute, I save about $35 in taxes. It really adds up!

2. The government requires you to take money out of your IRA at a certain age. How does that work?

Required minimum distributions (RMDs) are a tool the government uses to collect more taxes. It forces you to withdraw a certain percentage yearly from your IRA once you turn 73. It’s confusing because two years ago, the age was 70 ½, and last year it was 72. It will stay at 73 until 2032 when it will increase to 75.

The amount required to withdraw at age 73 is 3.7%. It slowly increases each year. At 80, you need to withdraw 5%.

3. Can I retire if I still have a mortgage?

Of course. Your mortgage payment is no different from a car payment. If your monthly retirement income can afford the mortgage payment, it is no different than any other monthly debt.

4. Should I pay extra toward my mortgage?

This answer might surprise you, but my answer is a strong "no."

This is the problem: once you put money toward your mortgage, there is no way to get it back out. Now that interest rates are so much higher, second mortgages and home equity lines of credit are very expensive. If you use a good-sized portion of your savings to pay off your mortgage, what happens if a considerable expense comes up?

Also, consider the fact that your current mortgage probably has a low-interest rate. It just doesn’t make sense to upend your financial picture by paying off a low-interest loan.

5. When should I take Social Security?

I’ve taught classes on this stuff for years. More and more, I am noticing that people are taking their benefits much too early. I know it can be hard to wait, but when starting benefits, you need to consider how long you might live. Believe it or not, if you are a healthy 65-year-old, your life expectancy is 90.

If you take your benefit at 62, you get 60% of the benefit you would get if you waited until age 70.

Let’s look at someone who is eligible for $2000 a month at their full retirement age (67 for most of you).

If you take it at 62, you will receive $1533 a month.
If you take it at 70, you will receive $2507 a month.

*All the following numbers assume a 2.5% cost of living adjustment per year (which has been the average for decades).

Let’s say you live until 80 in this scenario.

If you took it at 62, you would have collected $383,000.
If you took it at 70, you would have collected $404,000.

Let’s say you live until 90 (there is a 50% chance you will live this long)

If you took it at 62, you would have collected $697,000.
If you took it at 70, you would have collected $917,000.

Let’s say you live until 95 (there is a 33% chance for women and a 20% chance for men).

If you took it at 62, you would have collected $885,990
If you took it at 70, you would have collected $1,226,420

Let’s take it a step further. What if your full retirement age benefit is $3000 a month?

At 62, $2300 a month.
At 70, $4360 a month.

Let’s say you live until 80.

If you took it at 62, you would have collected $574,000.
If you took it at 70, you would have collected $606,000.

Let’s say you live until 90.

If you took it at 62, you would have collected $1,054,000.
If you took it at 70, you would have collected $1,376,000.

Let’s say you live until 95.

If you took it at 62, you would have collected $1,329,000
If you took it at 70, you would have collected $1,839,000

These numbers can be mind-boggling. It is absolutely possible that there are married couples out there that will collect $3,000,000 of benefits from Social Security during their lifetimes.

Don’t collect Social Security just because you want that extra spending money in your early 60s. It will really come to bite you later on.

Be Blessed,

Dave

P.S.- I am doing Social Security webinars each Saturday at 10:00 AM. If you like to register, please go to www.SocialSecurityRSVP.com.


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