The $726,600 mistake |

The $726,600 mistake


Danielle Howard
Staff Photo |

Sally and Dave are picturing the next phase of life. Dave is 61 and Sally is 58. They see themselves shifting away from work, traveling more, spending time with family, volunteering and staying very active. We have worked on painting the picture based on what is truly important to them, and now we are delving into the financial components of creating and maintaining a fulfilling, rewarding “rewirement.” They are part of the tidal wave of baby boomers — 10,000 a day that are turning 62.

As we put the puzzle pieces together, the question of Social Security comes up. “Well, we figured we were just going to take it at 62,” says Dave. “We want to take it soon, before the government runs out of money.” This is the story I hear often. The ugly truth is the government can print more money — you can’t. So, should this be the sole reasoning for taking it at age 62? I assert not. There are many components that need to be addressed before you make a decision that can be set in stone and have a big impact on part of your future income funding. The criteria driving your choice should be: Which starting date and strategy will maximize expected cumulative lifetime benefits as well as minimize your longevity risk (outliving your other portfolio pieces)?

Let’s consider options. First, we need to make some assumptions. With Dave’s family history and current healthy lifestyle, he feels he will live to age 85. Sally, as a female in good health sees herself being around until age 95. Dave’s PIA (primary insurance amount at full retirement) is $2,300 and Sally’s is $1,100. We will also assume an ongoing cost of living adjustment of 2.5 percent within the SS system.

There are more than 500 different ways to take Social Security, and this is a short column. Let’s maximize what Dave and Sally can get from the program. With Dave’s request of taking distributions starting at age 62 for both of them, they could expect to receive lifetime benefits based on our given assumptions of $1,534,802. This sounds like a lot, but with the current amount needed to fund their lifestyle, future goals, and health care expenses incorporating inflation, it only amounts to 23 percent of the funding needed. What is the best option?

For Dave and Sally, they would be better off incorporating the “file and restrict” technique. At Dave’s full retirement age of 66, he files and immediately suspends payments until age 70 when we will take it with delayed credits (8 percent per year). Sally, at age 66, files a restricted application for spousal benefits and at her age 70 files for her own benefit that has accumulated the delayed credits. The lifetime cumulative benefit from this strategy is $2,261,402, a $726,600 difference. Will this make a difference in accomplishing their goals?

The other puzzle pieces include their investable assets (real estate, retirement plans, businesses, life insurance cash values, annuities, etc), primary home equity, how long do they want to work (part time or full time); do they have other sources of income — trusts, pensions, etc. We worked together to come up with a plan that gave them a probability of success in accomplishing their goals of 87 percent — they are comfortable with this.

Social Security is just one piece of your future plan, but it should be taken seriously. I am seeing more and more families looking at Social Security benefits from distribution to legacy planning. It is your money, make it work for you! What is within your control: maximizing the benefits from contributing into the system, and then keeping an eye on Washington and making your voice heard as to retaining a viable, sustainable program.

Social Security no longer sends you your annual report if you are under age 60, but you can order it online at Once you have your reports, take a look at how you can take full advantage of what is due you and avoid making costly mistakes. Let me know if I can help.

Danielle Howard is a Certified Financial Planner ™ practitioner. Wealth By Design, LLC, her financial life planning office is located at 23300 Two Rivers Road in Basalt. She helps clients build financial lives to facilitate their passions and purpose. Visit her at or call 927-3909. Advisory Services offered through Lighthouse Financial, LLC., A Registered Investment Advisor. Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Cambridge and WBD are not affiliated.

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