For those of you who may not know it, Social Security is the best and least expensive annuity one can buy. Now that I have your attention, let me further intrigue you with the fact that Dave Ramsey, financial guru du jour, thinks you should generally begin receiving Social Security benefits as soon as possible; to which my reply is a resounding WRONG. Obviously without changes, there is a shortfall of funds available to meet future cash payment obligations. But hey, the U.S. Government stands behind this quasi-Ponzi scheme and whose credit rating is better to rely upon than Uncle Sam’s?
If banks and insurance companies were deemed too large to fail, surely we could anticipate similar treatment of the Social Security system. And a relatively simple system it is‑it takes in cash and pays out cash.
The Houdini math occurs when workers who are presently paying into the scheme believe they are contributing into a trust or fund that is set aside for their future benefit. Wrong again. Contributions made by today’s workers pay the benefits of past workers already in retirement. In a way, employees are lending money to the system in hopes of receiving it all back plus tidy amounts of interest, paid in the form of lifetime income payments that far exceed their contributions.
Assuming history repeats itself (as it often does), future financial disaster is adverted and Social Security pays out as planned. So, you need to take full advantage of its potential.
Wait and you shall receive more
Fact: We Americans are living much longer. Delaying when you will begin to receive your Social Security can increase you annual income by over 9.25 percent for each year you defer. Also assuming a very conservative cost of living allowance or increase (COLA) of 1.5 percent on top of the scheduled annual increases, where on earth in this low interest rate environment can one earn 9.28 percent, backed by the highest credit rated entity in the universe?
Better deal for women
FACT: Seventeen percent of males versus just 10 percent of females are dead by age 62 and by age 67, almost one in four males are dead compared to only 15 percent of females. Ergo, a significant number of males are dead and gone before receiving any benefits from Social Security (or Medicare) at all. Thus, a woman on the exact same career path as a man would receive far more annuity payments and benefits from Medicare and Social Security than a man; yet both equally pay the same premium (taxes). In the “real world,” a female would pay much more for an annuity than her male counterpart due to her increased longevity.
For a female then, delaying the Social Security benefit seems like a simple answer. And in my humble opinion, there are really only four reasons why anyone should not delay receiving their Social Security; these are:
- Known terminal illness or medical defect that will shorten one’s life.
- Insufficient cash flow or investments that would create poverty-type survival.
- Social Security Administration changes the lucrative rules for delaying benefits.
- If you are the lower wage earning spouse.
Being the lower wage earner in a marriage has its benefits and utilizing the file and suspend strategy is most definitely one benefit that should never be overlooked. Social Security is an awesome deal, especially if you’re a woman. One small disclaimer: I made a lot of assumptions in this article and you should know what sometimes happens when one “assumes.”
Michael Ham is both a member of MENSA and an investment advisor. The information herein does not intend to be an offer or solicitation to buy or sell securities. This information is not intended for “public use” and only for licensed investment professionals. Investments in publically traded securities have no insurance or guaranteed feature and can lose substantial portions of your money. Do not invest without seeking the guidance of a professional investment advisor. For more professional education, please see www.thesalestalk.com.
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