Listen to Experts, Not Influencers, on When to Take Social Security
Don’t get your financial advice from social media. Easy for me to say as a financial professional, but if my doctor said, “don’t get your health advice from social media”, I’d look a little sheepish, since I’m constantly taking diet and fitness advice from the influencers. It’s the nature of American life nowadays.
This being said, trying a different workout or changing my protein intake targets based on YouTube videos is very unlikely to cause any lasting damage in my life, but making lifetime, irrevocable financial decisions based on Instagram or Tic Toc raises the stakes.
Which is why I was a little alarmed to see a recent column on CNBC.com stating social media influencers are online promoting the “ultimate hack” for claiming Social Security benefits. The theme among the influencers is apparently encouraging followers to claim Social Security as early as possible to “break even” earlier and maximize the potential for lifetime income. I decided to watch some of these influencers for myself, and then consult an actual expert on the topic.
First, a couple financial planning realities. In my practice we do not make decisions based on the premises of “I may be dead soon”, or “the government is going to renege on my benefits”. In the case of “I may be dead soon”, barring any highly relevant and timely information to this effect, financial planning is best conducted using reasonable assumptions on life expectancy and typical mortality.
On the second premise of “the government is going to renege on my money”, I can only answer that while the Federal government’s finances can certainly be described as a complete mess, the macroeconomics of a sovereign nation which has total control over its own domestic currency are extremely complex and beyond the scope of consideration when doing individual financial planning. Or said simply, there is an almost absolute probability we are all going to get our Social Security benefits given the information we have available today.
With these realities in mind, lets proceed in this conversation with the understanding the majority of us are going to experience a typical life expectancy, and the government, while certainly a mess, will not default on this absolutely critical public benefit program. Ok.
Back to the influencers. I looked at videos on TikTok, Instagram and YouTube. All three content creators used fairly simple math to establish a formula showing claiming benefits early, taking the funds and investing them at a reasonable return or at least not using other assets invested at a reasonable return, to fund the income provided by Social Security resulted in a “break even” in roughly 15 years.
In this context, break even means if the retiree did not live the full 15 years, then they essentially “won” by claiming benefits at age 62, if they lived beyond age 77 then waiting would have resulted in higher benefits over their lifetime. A couple of the videos mixed in mortality probabilities, to put odds on the chances of claiming early resulting in the win. From the perspective of a planner, there was nothing particularly new in the videos, although all presented their logic in a pithy and convincing way.
Now let’s go back to the real world. I happen to have the benefit of an actual Social Security expert working in the next office over. My teammate and firm partner Bridget Shoemaker has completed, from my perspective, an extreme amount of training and continuing education in Social Security and Medicare benefits. Her training has resulted in professional credentials, and she has 25 years of experience doing financial planning for real world clients. She knows these programs. I went to her office with one question in mind: Is claiming Social Security early at age 62 typically the right decision for retirees?
Her answer, like all pros would say was of course, “it depends”. She continued, “the decision to claim Social Security is one of the most personalized financial decisions any of us will ever make. The decision should be integrated with other decisions such as tax planning, Medicare premium considerations, health status and perhaps most importantly martial status and the age of a spouse”.
Bridget reminded me, while the Social Security Administration used to provide a “break even” calculator on their website, the agency no longer does so and this function is now provided by private software products, which she uses. Contrary to the influencers the software, or pure math, almost always shows claiming benefits at a later age results in higher total lifetime benefits using standard mortality tables.
Despite this logic however, when it comes to real world planning, she also stated it is rare for retirees to delay benefits until age 70 to just maximize total payments. Most of the time a middle ground strategy is utilized based on personalized factors and income needs.
The moral of her story is this decision is too important to be based on online videos. She encourages everyone to get advice based on personalized factors and retirement income needs. Which is likely the best advice of all on this topic.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. No investment strategy can guarantee a profit or preserve against loss. Past performance is not a guarantee of future results. This material may contain forward looking statements; there are no guarantees that these outcomes will come to pass.
Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.
