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Don’t dismiss Social Security

By Jennie L. Phipps · Bankrate.com
Wednesday, November 21, 2012
Posted: 6 am ET

Not long ago, financial advisers took Social Security for granted and offered most people the same advice -- take it as soon as possible. They used the break-even point as an argument for this strategy. The theory went that the age where you would make more by delayed filing is actuarially somewhere in your early 80s. Most people don't live that long, they theorized, so delaying meant that you would collect less overall than you would have gotten if you had taken Social Security at 62. This is especially true if you consider the time value of money, which takes into account how much you could earn in interest over time.

That theory is out of date, James Mahaney, vice president of strategic initiatives for Prudential Financial, told attendees at a presentation offered by Prudential for retirement advisers. "The real risk today is living longer and living beyond your life expectancy," Mahaney said.

Another game changer, Mahaney says, is the number of women who have earned Social Security benefits in their own right. Understanding how to use the joint Social Security filing strategies available to a married -- or even a divorced -- couple can raise payouts significantly and be key to a much richer retirement, says Mahaney, author of the Prudential white paper, "Innovative Strategies to Help Maximize Social Security Benefits."

Add to this the need to understand how Social Security impacts taxes. Dated retirement planning strategies usually advised taking Social Security early so that money in tax-advantaged accounts can go untouched for as long as possible. But tax situations today aren't that simple, Mahaney says. Often it makes more financial sense to develop a strategy that involves spending taxable savings first in order to delay taking Social Security as long as possible and allowing its value to grow. Delayed income credits combined with cost of living adjustments can easily double a Social Security payout.

These factors, combined with the reality that most people will retire without another predictable source of regular income other than Social Security, has dramatically increased its importance. "No other program can match Social Security for its ability to fight inflation, provide longevity protection, shelter income from taxes and guarantee spousal coverage," Mahaney says.

Prudential often hears its younger clients dismiss the importance of Social Security and say they don't ever expect to collect. Mahaney thinks that attitude is seriously misguided. "People have to understand the complexity of this benefit and just how rich it is, so they can fight to keep it," he says.

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14 Comments
Gloria J. Young
November 22, 2012 at 12:34 pm

Money is worth more now than in the future. Time Value of Money is the most important thing in the financial institution.

Steve
November 22, 2012 at 10:41 am

It's also important that younger people don't allow themselves to be misled by the Ryans/Romneys/Bushes of the world into thinking that Social Security will inevitably become insolvent no matter what we do, and that they should all vote along with the political right to go ahead and get rid of it sooner rather than later and all become private investors in its place. That's the road to destitution for us all. Same with trying to voucherize Medicare.

Jalus
November 22, 2012 at 10:03 am

I think it's clear, in spite of what the Media touts, the majority of
Americans will continue to face hard economic times for the next
decade. / "You cannot turn a ship around on a dime." / During this
next decade perhaps CONgress would create and maintain a Labor
Shortage, /i.e., a jobs environment spending more where there are
more jobs available than there are people. Our legislators can achieve
this goal by simply spending more./ If we can simply get everybody
working, the economy will then function in a way that ideally serves
the interests of the poor and the middle-class./ Yes, people would
still lose their jobs as they do today, but it wouldn’t matter. New jobs would would always be easy to find. / Market forces would put constant
upward pressure on wages & benefits packages, obviating the need
for government 'band-aid remedies' like: minimum wage laws and
unemployment insurance. / It ought to be clear by now that
unemployment is the source of all economic evil. Unfortunately,
those who make a living on Wall Street and in the banking industry
disagree./ It's imperative then we spend only what we can pay for:
Needs vs Wants and Tighten Our Belts, because it's going to be a
bumpy ride.

jeremy perry
November 22, 2012 at 9:31 am

mr martinez most people in the south could care less A HALF BLACK MAN lives in the white house, his mother was white by the way.And there is no reason to debate with a leftist about their messiah.I do wonder who you and our president will blame for all the united states problems after his second term though will it still be Bush?