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: April 7, 2021

The High Dividend Strategy: Pros and Cons Let's start with the bottom line about investing in high dividend stocks: It works, but there are significant wrinkles.  A while back, I did a 20-year study of investing in high dividend stocks.  The approach was straightforward.  I began with the S&P 500 universe and divided it into 10 groups of 50 stocks each.  The groups were arranged by dividend yield, highest to lowest, at the beginning of each of the years.   I then tracked the total returns (dividends plus capital appreciation) of these groups for the full period. The results were illuminating.   The highest total returns were from the group with the highest dividend yields.   The returns then descended in perfect order down to the group with the lowest dividend yields.   What's more, the aggregate return from the group with the highest returns was greater than that of the Standard & Poor's 500 and its volatility over the period was lower. That did not mean all

Sound Advice: April 21, 2021

How is the Market Doing? Despite all the noise being trumpeted by the media, the daily prattle about market moves is often wide of the mark and overloaded with information that is misleading or just plain inaccurate.   How else to explain a jump of several hundred points one day followed by a plunge the next day?   That makes no sense. Over time, the foundation for stock valuations is underlying profitability of the companies involved.   As profits increase, stock prices rise, though not necessarily in perfect reflection.   The relationship tends to be meaningful over extended periods, but often not in shorter spans of time.   That’s all about changes in investor psychology.   So let’s begin by defining the “market”.   If we are referring to stocks, the most common reference is to the Dow Jones Industrial Average, which consists of 30 major companies whose progress might be considered representative of the U.S. economy as a whole. The majority of the companies included here are r

Sound Advice: April 14, 2021

Up, Down & Sideways   In past years, the warmer months brought with them a time to turn one’s thoughts to more blissful endeavors.   Although childhood may have been many years ago, what lingers is the apparent freedom from care we felt when at last we were done with school.   Much has changed since those halcyon days when time hardly seemed to move.   Back then, the days went by slowly and the important decisions were few.   Now it’s almost as if you don’t know which direction to turn first. It’s all about communications and the seeming necessity of keeping up to date with what’s going on.   Much of the rising flow of developments may have little impact, but even so it’s no longer a time when we can disconnect until September. From an investment perspective, the challenge is to sort through the rapidly growing mountain of information to isolate the data that is critical and take action where it is needed.   On a grand scale, it’s a matter of separating the wheat from the cha