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Social Security

Don’t believe these Social Security myths

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Researchers tell us that most people would be better off waiting to claim Social Security benefits. Yet most people file early.

More than half apply for Social Security before they reach full retirement age, which is currently 66 and rising to 67 for people born in 1960 and later. More than 30% apply as soon as they can — at age 62. Only about one in 25 applicants waits until age 70, when monthly benefits max out.

Some people have little choice, of course. They may have no savings and no job. Others have better options than applying early, but don’t realize it.

In my latest for the Associated Press, the myths surrounding Social Security.

What will long-term care cost you?

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Many people are frightened of long-term care costs — for good reason.

Most people over 65 eventually will need help with daily living tasks, such as bathing, eating or dressing. Men will need assistance for an average of 2.2 years, while women will need it for 3.7 years, according to the U.S. Department of Health and Human Services’ Administration on Aging.

In my latest for the Associated Press, the high cost of long-term care and why planning ahead is essential.

Q&A: Finding a financial planner

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Dear Liz: Your column on delaying Social Security suggests using a certified financial planner on an hourly basis to review one’s retirement plans. I have struggled to find one who charges this way. They almost all want to control your money for a fee. The one I found after some effort charges $500 to $600 an hour. Please make some recommendations. I don’t mind if the CFP is not local. I just want someone who is certified, reputable, with a reasonable hourly fee.

Answer: There are a growing number of options for people who want “advice only” financial planning from a fee-only, fiduciary advisor:

XY Planning Network is a network of planners who offer flat monthly fees in addition to any other options, including hourly or assets-under-management fees. Monthly fees are typically $100 to $200, with some planners requiring an initial or setup fee of $1,000 to $2,000.

Garrett Planning Network represents planners willing to charge by the hour, although many also manage assets for a fee. Members are either certified financial planners, on track to get the designation or certified public accountants who have the personal financial specialist credential, which is similar to the CFP. Hourly fees typically range from $150 to $300, with a consultation on one topic such as Social Security-claiming strategies or a portfolio typically taking two or three hours. A comprehensive financial plan may require 20 hours or more.

Advice-Only Financial is a service started by financial blogger Harry Sit to connect people with fee-only advisors who just charge for advice and don’t accept asset management fees. Sit charges $200 to help people find fiduciary CFPs who are either local or willing to work remotely. The planners typically charge $100 to $400 an hour.

Another option for those who don’t have complex needs would be an accredited financial counselor or financial fitness coach. Those in private practice typically charge $100 to $150 an hour, although many work on a sliding scale, said Rebecca Wiggins, executive director of the Assn. for Financial Counseling & Planning Education.

Q&A: Bad Social Security math

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Dear Liz: Regarding when to begin receiving Social Security payments: I would think that people should begin taking payments as early as possible if they can invest it rather than spend it, as a lot of money is “left on the table” between ages, say, 62 and 70. Your thoughts?

Answer: That argument was more compelling a few decades ago when you could get a 7% or 8% return on an FDIC-insured certificate of deposit. These days, there’s no investment that offers a guaranteed return as high as what you’d get from delaying the start of Social Security.

The “take it early and invest” approach also ignores the longevity insurance aspect of Social Security benefits. Most people face a real risk of outliving their savings, which could leave them relying on Social Security for most if not all of their income. Maximizing Social Security benefits by delaying your application can help you live more comfortably, should that happen.

Also, starting early can cause harm to whichever spouse survives the other. When one spouse dies, one of the two Social Security checks the couple was receiving will stop. The remaining spouse will get only the larger of the two checks, which is known as a survivor’s benefit. Maximizing that benefit can help ease the shock of going from two checks to one, so financial planners generally recommend that the higher earner in a couple delay his or her application if possible.

The life-changing magic of working a bit longer

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Retirement experts frequently recommend working longer if you haven’t saved enough. But you may not realize just how powerful a little extra work can be.

Researchers who compared the relative returns of working longer versus saving more last year reached some startling findings. In my latest for the Associated Press, how working just a few months longer can bolster your retirement.

Q&A: Inflation and Social Security

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Dear Liz: Every time someone asks a question about when to start taking Social Security, all you financial advisers make your calculations based on the 7% to 8% annual increase you get by delaying between ages 62 and 70. What you never mention is that once you start getting Social Security, you also start getting the cost of living annual adjustments. I started at 63 and my monthly check has already gone up 5% and it’s compounded. In this era of higher inflation, that pushes out the break-even point into an age in the late eighties. You need to add that into your advice.

Answer: Surveys have shown that most people are happy with their decision to start Social Security, even when they started it early. Perhaps they don’t know what they’re missing.

The researchers who have studied Social Security claiming strategies have factored inflation into the mix, as well as longevity, investment returns and taxes (there’s something known as the “tax torpedo,” which can jack up marginal tax rates for middle-income Social Security recipients). The assumptions can differ, but the results don’t: The majority of people benefit from delaying. In today’s low-interest-rate environment, many researchers say the vast majority are better off.

Another factor the researchers consider — and that many early starters don’t — is what happens to the surviving spouse. When one member of a married couple dies, one of their two Social Security checks goes away and the survivor has to get by on a single check, which will be the larger of the two. That’s why it’s so important that the higher earner in a couple try to delay as long as possible, because it will boost the check for the person left behind.

That doesn’t mean single people should start early, however. Single people tend to have less savings and wealth than married people; they’re more likely to be poor than married couples, and single women have a higher poverty rate than single men. If you wind up getting most if not all your income from Social Security, you’ll want that check to be as large as possible.

As for your phrase, “this era of higher inflation” — yes, the 2.8% cost-of-living boost was higher than the 2% increase of the prior year. The year before that, the inflation adjustment was close to zero, and it was actually zero in 2010, 2011 and 2016. Annual adjustments over the last 20 years have averaged just a little over 2%. That’s not a lot to get excited about.