I read an article in a financial magazine recently that answered the question, “How does my life expectancy factor into my Social Security claiming decision?”. I've addressed the basics of what life expectancy is in a posting under the CESS tab. The article, like so many others, only treats the benefit as an annuity decision and not an investment decision. The article basically states what I've read many times –“ if you expect to live to be 80, delay claiming until age 70”. Why do I completely disagree with this? In my blog post, I state that (actuarily) a 62 year old male born in 1955 has a 12.66% chance of dying before age 70 (females are apt to live longer). This means 107 men (of 838) in this cohort will not collect a dime themselves. It's well known the payments are structured to equal out (regardless of what age you were when you claimed Social Security) at age 80. Everyone who reaches age 80 would have the same amount of total payments. For males, another 226 of that 838 would never reach this threshold. Put another way, if you've lived to be 62, you have a 40% chance of short-changing your Social Security benefit payment total. I will address how the effect of compound interest makes it even worse (by waiting to file) in a future post.
The impeachment circus in Washington dominated the news cycle this month. Will the Democrats ever stop hounding the President? It seems the market has become numb to the doings in Washington and rarely reacts for long on impeachment developments. The market (Dow Jones average) had a good steady month.
SCORECARD
Our fund, VDADX, was up about 2.8% for the month. Each year, in January, a cost of living adjustment (COLA) is applied to benefit payments. For 2020, this is 1.6%, or $33 for Irma and Sam.
Willie had a month end balance of $190,227.06. His monthly benefit check (including the COLA) would be $2,533.78 if he changed his mind and decided to file for benefits at this time.
Irma deposited the $2100 check and withdrew $2520 from her existing account, so her net total is $268,905.67. Her Social Security investment account now has $78,678.61.
Sam used his benefit check to supply $1680 of his monthly expenses. His untouched IRA account sat at $269,785.74.