Skip to main content

Sound Advice: August 4, 2021

Three Questions

When can I retire?  This is by far the most common question and it’s typically asked by folks in their late 50s or early 60s.  The real question is whether the person has sufficient net assets (after outstanding debts are repaid) and an adequate balance between income and expenses to continue enjoying his or her preferred lifestyle.

The answer is straightforward, but requires a fair amount of effort to reach.  The task is that of assembling four groups of information.  These include assets, liabilities, earnings, and expenses.  In other words: what you own, what you owe, what you earn, and what you spend.  The first three are usually simple to identify.  Spending, however, can be a challenge.  Invariably, there are at least two dozen or more categories of regular expenses.  Added to that are unpredictables such as health care, inheritances, relocation, etc.

The upshot of this gathering and evaluation of information will be a result that indicates the likelihood that there will be sufficient resources for future funding.  In the event that there is a substantial possibility of a shortfall, the needed adjustments include options such as delaying retirement, reducing expenses, and increasing returns on investments.

Question Two comes in several forms.  The first is whether to keep the current residence or sell it and rent.  The second is whether to keep the current residence and move elsewhere, perhaps to an area with a lower cost of living.  The third is whether to sell and downsize. 

The answer requires the same approach as that for Question Number One.  Each case requires a comparison of outcomes between the possibilities. That’s especially so in view of the usually disproportionate importance of residence values for most families.  All of the information needed to answer Question One is needed to answer Question Two. 

Question Three: When should I start taking Social Security?  The answer is equally complex.  Assuming the potential recipient has made a sufficient number of contributions to qualify (usually 40 calendar quarters), there are three main choices.  The first is “taking early” at 62 years of age.  The next is at full retirement age, which varies by date of birth, but tends to be about 67 years of age.  The third is at 70 years of age.  In all cases, it’s not cut and dried.

Taking early at 62, for example, comes with several caveats. One is that benefits are reduced by 30% from those that would be received at full retirement age.  Another is that benefits may be reduced if the recipient continues to work.  Plus, when the recipient stops working, the benefits stay the same.  From a long-term standpoint, this is rarely a good choice.

Taking at full retirement age is a better choice.  There is no reduction of benefits and there is no penalty for continuing to earn income. 

An even better choice for those with good life expectancy is waiting for benefits to start after full retirement age, perhaps as late as 70.  For each year of postponement, benefits will increase by 8%, but the delay can be as little as one month or as long as three years.  The increase is always proportionate.

There are other variations as well, such as spousal benefits, which may involve a comparison of what the spouse would have received based on his or her own contributions with what would be received based on a percentage of the other spouse’s benefits.  Even if the spouses are no longer married, spousal benefits may still be available.

In all cases, the answers to all of these kinds of questions involve an evaluation of relevant information.         

N. Russell Wayne, CFP®

Any questions? Please contact me at nrwayne@soundasset.com

Comments

Popular posts from this blog

Sound Advice: January 3, 2025

2025 Market Forecasts: Stupidity Taken To An Extreme   If you know anything about stock market performance, you can only gag at the nonsense “esteemed forecasters” are now putting forth about the prospective path of stocks in the year ahead.   Our cousins in the UK would call this rubbish.   I would not be as kind. Leading the Ship of Fools is the forecast from the Chief Investment Strategist at Oppenheimer who is looking for a year-end 2025 level for the Standard & Poor’s Index of 7,100, a whopping 21% increase from the most recent standing.   Indeed, most of these folks are looking for double-digit gains.   Only two expect stocks to weaken. In the last 30 years, the market has risen by more than 20% only 15 times.   The exceptional span during that time was 1996-1999, which accounted for four of those jumps.   What followed in 2000 through 2002 was the polar opposite: 2000:      -9.1% 2001:     -11.9% ...

Sound Advice: March 10, 2021

The ABCs of Stock Picking After decades of analyzing stocks (and funds) and investing for clients, I'm happy to share in plain English what's involved, what works, and what doesn't.  Keep in mind the reality that successful stock picking is an effort to maintain a good batting average. In baseball, a batting average of .300 or better is considered quite good.  With stock picking, you need to do better than .600, which means you have many more winners than losers. No one gets it right all of the time.  It's not even close.  Wall Street shops all have their recommended lists and the financial media regularly hawk 10 stocks to buy now. Following that road usually is a direct route to disaster.  Don't be tempted. Let's begin with the big picture: The stock market goes up and down over time, but the long-term trend is up.  When there's a rally under way, everyone feels like a genius.  When the market hits an air pocket, though, with few exception...

Sound Advice: June 17, 2020

Rock and a Hard Place Regardless of your age, impressions from childhood linger.  As the first days of summer approach, we all remember the feeling that accompanied the end of a school year.  Yet as much as many of us would like to believe we again have the summertime freedom to do as we wish, the reality is quite the opposite. Although months of confinement and limitations on social interaction have increased our personal discomfort and severely impacted the business community, our current situation is not analogous to the end of any school year.  It’s quite the opposite. There is every reason to continue wearing face masks, social distancing, and avoiding close contact with others.  Nothing suggests that we can modify our behavior significantly or resume patterns of daily living we enjoyed only a few months ago. There are no meaningful advances in medical treatments.  At best, there are attempts to combine different approaches...