Hegna's Hotseat

Diner Wisdom


t 6:00 AM something special happens at your local diner. The “wise men” appear. You’ve seen them; they’re dressed in their Sunday best and order their coffee black. Stop by next weekend, and ask them, “At what age should I withdraw my Social Security benefits?” You know what their answer is? “62! Haven’t you been readin’ the paper? Social Security is goin’ broke! Get while the gettin’s good!”

But is that the right answer? Whether or not someone should delay claiming Social Security benefits is a common debate, and Seeking Alpha published an article debating that Social Security benefits aren’t fully inflation-indexed and that late claimers risk missing out if the program runs out of money.

Is Social Security inflation-indexed?

Menahem Yaari provided breakthrough research on the economics of annuities and life insurance in 1965. How exactly does his research relate to Social Security? Well, Social Security is really a guaranteed lifetime income annuity! The Social Security program doesn’t pay withdrawals like a bank; it uses Treasury Inflation Protected Securities (TIPS). This means the funding is essentially guaranteed; FINRA puts it, “Because they are U.S. Treasury securities, TIPS are backed by the "full faith and credit" of the U.S. government and, therefore, carry virtually no credit or default risk.” Plus, a Cost of Living Adjustment (COLA) is applied to all Social Security benefits and revised every year.

But Tom, with all the national and federal debt, won’t the Social Security system go broke?

The economic facts behind countries’ debts is extremely complicated.Check out my annual economic commentary if you want to know more about this, but in short, due to similar reasons as those mentioned above, your Social Security check will likely continue to come in the mail every month. Now, that check may not buy as much as your great-grandma’s did, but you will still get a guaranteed paycheck for the rest of your life just like you would with any lifetime income annuity. Social Security will not be that difficult to fix. They will likely raise the retirement age on younger people, increase the taxable amount (currently about $128,000), and increase the taxation rate. But with those small changes, Social Security will almost certainly be around for the rest of your life.

One benefit that makes Social Security even better than a lifetime income annuity is that it is some of the best money, money can’t buy; it isn’t for sale! You can’t buy more Social Security, but an annuity can provide another paycheck every month for the rest of your life. So what is the answer to the “wise men?” In general, the breadwinner should delay to age 70. Why do I say “in general?”

Everybody’s situation is a little different. A financial professional can help each unique retiree look at their medical history and their other sources of income to create the optimal plan for retirement. Social Security plays a big part in the planning process, so start the conversation today by sharing this article

See you at the diner!
-Tom Hegna

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