Three Social Security Misconceptions that could derail your Retirement

There are some old wives tales(no offense if you are an old wife) about Social Security that even now into the information age are still thought of as good ideas. Great thought and preparation needs to go into your retirement and Social Security which as a national average could equal 40% of your income in your golden years can be a significant part of that process. The following are some Soc Sec myths that are still pervasive.

I can live on my Social Security with no other sources of income.

I suppose it depends on where you live. If its Mahattan or San Francisco, its unlikely you can pull that off even with little to no debt. Maybe parts of the Midwest and Florida(no offense if you live there now) which are much cheaper than the aforementioned. As a national average Social Security could be around 40% of your income so while important there’s still the other 60% that’s got to come from somewhere. So saving for retirement is always important. The earlier you start the better. However if you are a person that feels as tough you haven’t saved enough, maybe a future job for you would be one with a pension benefit. Of course there’s probably a better chance of a pterodactyl landing in your driveway. Companies like Johnson and Johnson, Coke, Exxon and lot of the stodgy old utilities still offer a pension benefit. The onus to pay you is on the company; you don’t have to worry about a stock portfolio going up and down or bonds coming due.

You should file for benefits as early as possible.

It depends…sorry for the pat answer. Maybe this will help. Its basically like handicapping your longevity. Are your parents still alive? If so who do you take after? Do you or did you ever smoke? Steak and eggs for breakfast? Half a bottle of bourbon nightly?

If you take it early at 62 and your monthly check is $1,650 and live past 77 yrs old you probably picked the wrong one. If you die before 77 then you cumulative benefits would have been around $316K and that would’ve been the right one. You would have received the MOST totaled up from age 62 to your demise at 77. Living past 77, your totals would be higher if you had waited.

If you file at age 66 and your check is $2,220 per month and you die before 81 years old, you picked the right one. You would have received all totaled $422K. If you live past 81, you’ve picked the wrong one and you should have filed at 70. At age 70, your monthly benefit would have been $2,904 monthly, adding up to $453K total. Dying before 81 would have netted you the most cash in the shortest time. Living past age 81 and claiming at 70 would have gotten you 31K more.

What if I filed early and invest the monthly check?

So you would lose the benefit of the higher checks at later years and you want to roll the dice on the Wall Street casino? What if you just saved money out of your paycheck over time in a 401K? Years of dollar cost averaging is a great strategy. This makes me think of the old method(not really that old. First written about in 1993) of taking 4% out of your portfolio for income regardless of what the market does. Over time and using back testing, this method can make your money last a long time all while taking an income check. However if a lot of calamities are put together– Richard Nixon, OPEC, dotcom become the dot bomb, China tariffs and trade wars the sequence of your withdrawals could be lethal to your nest egg.

You pull out 4% and it drops 20%. The next year you pull 4% and it drops another 14%. The next year you pull 4% and the market drops another 8%. Lots of withdrawals and lots of bad performance can deplete your portfolio quickly.

Bonus: File for benefits before it goes bankrupt

Because the trust funds are funded by payroll taxes and are invested in treasuries notes, its unlikely it will go completely bankrupt. Spikes in interest rates have caused it to make a profit– 21 billion in 2018. With $897 billion coming in taxes and $776 billion going out, all the cash completely being depleted is probably not going to happen. But think of this, what would happen if John or Joan Q. Public wraps their whole financial life around that monthly check and suddenly a letter from the Social Security Admin shows up saying that their checks will be reduced down to 76 cents on the dollar(previously projected). Wouldn’t there be massive hue and cry? When people feel like they’ve been short changed, they probably would sue the gov’t, right? This would be the largest class action lawsuit EVER!! On the other hand, what did a lot of the people in Congress do for a job before they were elected? Attorney usually. They understand a massive lawsuit could happen so hopefully there will be a bailout or a solution coming soon.

On what right could someone feel that entitled to sue the US government over their benefits checks being cut or stopped? The conversation could go like this–“I’ve paid into the plan and you sent me a statement with what I may receive. Its not my fault that you have mismanaged the payroll taxes you received from me to the point that now my benefit has been slashed. The onus to make the payments back to me is on you Mr. Social Security Trust fund manager!” Its easy to see how this could happen.