Who doesn’t love the concept of an all-inclusive vacation? We decide where we want to go, choose our excursions, and pack our bags.
When we get there, it’s all mapped-out, scheduled, and paid-for; all we have to do is follow the plan and enjoy our time away. What about your retirement? Is there an all-inclusive retirement option?
Before I answer that, let’s consider just one aspect of retirement as an example, social security. Here’s an area of retirement planning that seems simple enough; you work for 30 or 40 years, pay into social security from each paycheck, arrive at retirement age and receive social security checks for life. That’s it, right?
Well, maybe or maybe not. Are you planning to retire at age 62 or 65 or 67 or 70? When you retire, will your spouse be retiring at the same time, and is your spouse the same age as you? Do they have 40 quarters in the social security system, or will they be filing a spousal benefit against yours, or vice versa? And does it make sense for one of you to retire without claiming your social security benefits right away but instead defer benefits until social security’s ‘normal retirement age (NRA)’ of 67 or even defer until age 70. Isn’t this fun?
It turns out that in the age of democratized finance, you have all the power to choose your financial adventure but also all the responsibility to do so. Social security is but one area of many that require you to understand your options and to also choose a strategy that puts you and your family in the best possible position. Back in the old days, the typical worker retired from a company after 30 years and received a pension income and social security without much thought. The job of the retiree then was to find a way to live on that income; the rest was decided for you. But here we are in the age of choice, now it’s up to you to have a strategy. Do you?
In the realm of social security, the age at which you choose to claim your benefits may involve many other factors like the value and composition of your other investments, your tax bracket, your spouse’s working history, your health history, and even your views on and approach to using debt in retirement. Factor in some assumptions for inflation and interest rates and you have yourself quite a financial-variables-stew to consume. Is it any wonder why people are so stressed out?
Because of all these very personal dynamics involved, it’s not possible to offer blanket statements or rules of thumb that point to the best social security claiming timing for you. What this does highlight is the very real need for building and maintaining a clear, comprehensive, and written financial plan. We call it a Financial Blueprint. We can’t imagine building a house without a blueprint, so we think your retirement should have one too.
The days of an all-inclusive retirement may have passed. It’s not an option to just decide to retire and enjoy a set-it-and-forget-it retirement like in the past. We can debate whether or not the new reality is a good one, but the choices really are yours now, so choose wisely.