Client Question 1
How many years of my life is my benefit based upon? The answer is that your personal social security benefit is based upon your highest 35 years of earned income. So, for people playing the S corporation low wage game, or wiping out income every year with bonus depreciation, or whatever, they will see a tremendously reduced monthly check at retirement.
Client Question 2
What is the average benefit I can expect? Social Security tells us the average benefit in America in 2017 for a single person is about $1,360 monthly. Do you know what it took to get this benefit? Thirty-five years of an average annual inflation-adjusted income of $25,000.
Client Question 3
What is the earliest age I can draw my benefit? Nearly everyone knows the generic answer to this, which is age 62 but there are other circumstances where you can draw earlier.
Client Question 4
Shouldn’t I draw at age 62 and invest my money like my financial advisor suggests? Let’s see, the Social Security benefit increases by 8% every year you wait to draw after full retirement age. That increase is tax-free and that increase is risk-free. In your 60’s you cannot afford to take any risk, and an investment advisor suggesting this approach will need to earn 12% just to offset the tax difference, plus another 3-4% to offset the additional risk, meaning the investment advisor needs to earn 15% annually just to match the Social Security risk-free, tax-free increase. Since 1871 the S&P 500 has earned a little less than 6% annually. In my mind, taking the chance of obtaining a 15% return for a high-risk investment at retirement age is one of the single worst financial decisions that can ever be made.
Client Question 5
The biggest question of all is “When should I draw my own benefit?” That’s actually simple Madam client-just tell me what day you will die! This sarcastic answer is an answer to illustrate that there is no “one answer fits everyone”. There are three factors involved in the decision: first, what kind of average life expectancy do we have in America and in your ancestry?; second, what kind of personal health issues do you have that will affect your life expectancy?; and third, what kind of financial situation are you in and who will be drawing on this account besides you?