Retirees who file too soon receive lower benefits that, over a long lifespan, result in significantly lower monthly income late in life. Because interest rates are low, many retirees should use savings during the early years of retirement and let benefit levels increase (risk free) so that less savings is required during later years. Marriage, divorce, part-time work in retirement, and other retirement income benefits all complicate the calculation making it impossible to generalize. The recent National Bureau of Economic Research study did make some general findings that readers will find interesting.
Professors Shoven and Slavov concluded that delaying benefits “is actuarially advantageous for a large subset of people, particularly for primary earners in married couples.” While many people start taking benefits right away, afraid that something will happen to them before they can get their money back out of the system, the study actually found that, “most households – even those with mortality rates that are twice the average,” need to think about delaying benefits.
Determining when to start taking benefits is the cornerstone of most retirees’ retirement income plan. Moreover, without an income plan, people have a difficult time knowing how to allocate between “safe money” and “long-term investments.” Finally, with the calculus so overwhelming that it takes an econometrician to run the numbers, many retirees give up at the outset, abandoning their planning effort and just accepting the anxiety that comes with not having a detailed plan for how to best tap resources during the retirement years.
May-Investments solution is to tap into sophisticated planning resources that allow us to evaluate the results from various options. We can adjust when spouses file to claim their resources, adjust whether they claim their own retirement benefits, or tap into “spousal benefits” instead. For more complicated scenarios, we have a Social Study Analyzer program that helps evaluate more complex situations, including 81 different filing options like “file and immediately suspend benefits.” Planning software doesn’t make decisions for you, but it does make it easier to analyze alternatives.
We know that having a plan for the retirement years is a key strategy to help people enjoy a successful retirement. Although having a “plan” is not required, it is one of the key traits that separate successful retirees from those who fail to fully enjoy the retirement season of life. Looking at the numbers won’t necessarily change them, of course. Folks who fail to plan for retirement and go into it with inadequate resources won’t suddenly discover new streams of income that weren’t there before. However, for those who have saved but remain anxious about whether they’ve saved enough, a thorough planning effort brings peace of mind and enjoyment that others, who have failed to plan, rarely enjoy.
If you want to read the full study, “The Impact of Mortality, Interest Rates, and Program Rules,” e-mail me and we'll be glad to forward a copy to you. Happy Thanksgiving from all of us at May-Investments.
Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies .
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