Expensive Health Changes

Hopefully, you’re breathing a sigh of relief that you can count on some level of benefit from all those FICA taxes you’ve paid into Social Security over the decades. Benefits won’t disappear entirely, even if you don’t get back every penny you paid into the system.

Some workers assume that they won’t need Social Security benefits because they’ve saved so meticulously for retirement. But life throws no shortage of curveballs at you, and retirement is no exception.

Stephen Akin, Registered Investment Advisor and founder of Akin Investments, works with retirees day in and day out, “Without a doubt, the most common issue that retirees have to deal with is health and aging.

“I’ve had clients that have worked all of their lives, had diligently saved and invested. The planned retirement was to focus on investing their Social Security retirement benefits with a goal of family trust or estate building.

“Sadly, life happens. Conditions can change quickly when it comes to health. Even with good benefits and planning, financial shocks can occur. As an investment advisor, this is my number one concern for clients when I am working with them to prepare for their retirement.”

I Didn’t Plan To Use Social Security: Here’s Why I Was Wrong

July 21, 2024

6 MIN READ

Written by G. Brian Davis

Edited by Cory Dudak

Think Social Security, won’t exist by the time you retire? Or, at the opposite extreme, that it will provide such hefty benefits that you can save and reinvest rather than spend them? 

Think again. 

Consider the following experiences relayed by retirement planning experts who work with retired clients all day, every day. You can also see how far a retirement nest egg plus Social Security will go in every state.

Social Security Will Still Exist

Sure, the Congressional Budget Office projects that Social Security will reach insolvency by 2033 — if nothing changes. But you can bet your bottom dollar that Washington politicians won’t let that happen. 

The senior lobby grows stronger every year that goes by, as more baby boomers retire. And it’s always ranked among the strongest lobbying groups in the country. 

Sandra McPeak, Managing Director of Investments for Wells Fargo Advisors, fields this question all the time from workers planning their retirement. “Even if Social Security is underfunded, it would be hugely unpopular for Congress to eliminate it. Congress may increase the starting age or increase the caps on how much income a worker earns is currently taxed for Social Security, but it is highly unlikely that the benefit will be eliminated. 

“However, it pays to ensure you meet the minimum to qualify for Social Security benefits. You must earn at least 40 credits to qualify for social security benefits. Social Security uses the number of credits you’ve earned to determine your eligibility for retirement of disability benefits, Medicare, and your family’s eligibility for survivor’s benefits. You can earn a max of four credits per year.”

The Power of Guaranteed Income

No one can predict financial markets’ movements. You can take a conservative withdrawal rate from your retirement accounts, but you still have no guarantee that a stock market collapse won’t break your nest egg. 

McPeak notes that Social Security benefits offer a rare guarantee of income in retirement. “Except for teachers, government employees, and older aerospace employees, most people are no longer eligible for a pension. Other than a pension and some annuities, Social Security may be the only source of guaranteed income in retirement. 

“People often don’t factor in inflation, stock market fluctuations, the high cost of health insurance, and out-of-pocket medical expenses when they retire. Often, they end up spending all their funds in savings and IRAs before they die. Fortunately, Social Security provides for them and their spouses until they die.”

Delay Withdrawals from Retirement Accounts

A stock market crash early in retirement can do far more damage to your nest egg than the same crash later on. In fact, retirement advisors have a name for this risk: sequence of returns risk.

“Spending your Social Security payments also allows you to be less dependent on using your IRAs or savings to cover your expenses. You may be able to avoid withdrawing funds from your IRAs or 401(k) until you are required to withdraw funds at age 73.

As a result, this increases the time your IRA and 401(k) funds can grow with tax-deferred compounding.”

Survivor Benefits

Married couples can still receive higher benefits from Social Security — even after one spouse shuffles off this mortal coil.

“If your spouse predeceases you, you may be eligible to receive a survivor’s benefit. That means that even though their Social Security payment will cease, you will still receive a survivor or spousal benefit if it is higher than your own benefit.”

Expensive Health Changes

Hopefully, you’re breathing a sigh of relief that you can count on some level of benefit from all those FICA taxes you’ve paid into Social Security over the decades. Benefits won’t disappear entirely, even if you don’t get back every penny you paid into the system.

Some workers assume that they won’t need Social Security benefits because they’ve saved so meticulously for retirement. But life throws no shortage of curveballs at you, and retirement is no exception.

Stephen Akin, Registered Investment Advisor and founder of Akin Investments, works with retirees day in and day out, “Without a doubt, the most common issue that retirees have to deal with is health and aging.

“I’ve had clients that have worked all of their lives, had diligently saved and invested. The planned retirement was to focus on investing their Social Security retirement benefits with a goal of family trust or estate building.

“Sadly, life happens. Conditions can change quickly when it comes to health. Even with good benefits and planning, financial shocks can occur. As an investment advisor, this is my number one concern for clients when I am working with them to prepare for their retirement.”

Other Unexpected Expenses

McPeak explains that the potential unforeseen expenses don’t end with medical bills. 

“Most people look at their account balances and think they won’t need all that money in retirement. However, life happens. 

“The most common mistake I see is that people underestimate how long they will live. The second most common mistake is that they did not plan for long-term care expenses. And out-of-pocket medical, dental, hearing, vision expenses plus medical premiums are usually much more of a drain on expenses than people anticipated, especially toward the end. 

“Or other expenses could hit that you never expected. For example, adult children may ask to move back home or ask you for money. 

“Having that extra source of income from Social Security can relieve the stress of unexpected expenses. If you don’t spend your whole Social Security payment each month, try to save or invest the excess funds to create a buffer for future unexpected expenses. “

Final Thoughts

Expect Social Security benefits to offer some help, even if they don’t cover a full 40% of your retirement expenses. They add a safety net, which you can use to shore up your retirement funds.

McPeak adds that many workers and retirees fail to adequately account for inflation. “Social Security is indexed for inflation, unlike pension or annuity payments, which are usually fixed for life.” 

Social Security adds one more piece to the puzzle of retirement planning. And it will inevitably come in handy when life changes unexpectedly in your golden years.