2023 EP0729 | Financial Updates | 3 Ways Raising the Retirement Age Could Derail Your Financial Plan (and what to do about it!)

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Peter, good to see you. Today we are talking through three ways raising the retirement age could derail your financial plan and what to do about it. The Social Security Fund is set to run out of money by 2033. One measure that could help keep the program afloat would be to raise the retirement age.

So we're going to talk through a few of those implications. Some experts believe the full retirement age could be pushed back to 70. The first way that could affect your plan, of course, claiming Social Security early will lead to a lifetime of less benefits.

Yeah, well, and it already does. So I'll never tell somebody that continuing to work a few extra years is going to be bad for your financial confidence and stability and well-being. But now it may not be as much of an option. We always also have to balance quality of life with financial well-being because planning is a little bit of both. But there really is already a system here if you absolutely need income. And when I say absolutely need, I mean, you really need income before 62. Then if you are disabled, there's the Social Security disability system that that is in place.

And that is something that we've talked about before. Social Security was to protect poverty in old age, but also younger disability. So you can claim something if you absolutely need it before 62. But 62 is when we are first eligible to claim Social Security specifically.

But it is a haircut. You are not yet fully entitled for your full retirement age. And if you take it at 62 already, it is a reduction from your full retirement age benefit. And because of the reduction that they are forecasting in 2033 and the possibility that they may graduate that full retirement age back even further, it could be an even deeper haircut. It's already about a 75 percent reduction or a 25 percent reduction from your full retirement age amount. And then if we experience the further reduction that they are forecasting, that could be another 25 to 27 percent reduction. So you're looking at like a 50 percent discount from what that full retirement age forecasted number would be. And if they move it out further, I would imagine that they even further decrease the amount that you receive if you claim and collect at 62. And so really proceed with caution there.

Only go out and do that if you absolutely need to or have planned accordingly. And you kind of just touched on this, but you may have to work longer than you're able. But imagine not being able to work and not being eligible for those full retirement benefits.

Yeah. Well, that's again what the Social Security Disability Income, SSDI, is about. If you are not able to work, that is one thing. But if you are capable and able bodied and still able to earn and out there actually earning an income, claiming it at 62 may not make sense because the government in their eyes, they view that as double dipping. And they can penalize and will penalize your Social Security income if you are earning over a certain amount, which is a pretty low amount. It's inflation adjusted each year.

Twenty one thousand two hundred and forty dollars this year. But if you earn two dollars more than that, they take back a dollar of your Social Security income and continue to do that all the way on up based on your earnings. So, yeah, if if you can wait and delay, often it makes sense to or if you are going to claim it at 62 and have that reduced amount, then you should have hopefully understood the reduction in your benefits and planned proactively to have a well-funded retirement, because that can be the difference in several hundreds of thousands of dollars over the course of your retirement. That's money that you're either going to get from Social Security or you're going to have to pull from your personal savings and investment assets or that's just not there at all.

And that brings us perfectly to number three here. Of course, if you're unable to work, you may have to tap your savings earlier, which could lead to tax inefficiencies. And of course, the possibility that you are just going to run out of your savings. Yeah, if if we have to pull from money sooner or pull more from our personal savings, obviously that is going to change the trajectory of what we can forecast. Reasonably, the retirement balance to look like it probably will change what retirement is about, the quality of life, if we are having to pull substantially more from our savings and investments earlier on. So the government has raised that full retirement age before, and in all likelihood, I mean, Social Security has moved up two years. It used to be sixty five.

Now it's sixty seven. And meanwhile, life expectancy has gone from about sixty seven to like eighty seven or eighty eight. So Social Security moved up two years while the average life expectancy moved up 20 or probably due to have it reasonably move up a little further. Nobody wants to hear that, of course, because we all look at the desire to stop trading our time for money and feel like we should be entitled to do that at a reasonable point where we still have some enjoyable years of life. But the reality is that since nineteen seventy four with Arisa and the inception of the 401k, the burden for funding retirement has been more and more on our own shoulders. And if you want to do that earlier, you're going to need to make sure that you have funded an ample amount, a reasonable amount to maintain and sustain your quality of life throughout retirement. And a lot of the clients I talk to, they want to make the most of Social Security. But honestly, they look at Social Security as a bit of icing on the cake and are planning on it only as as an additional discretionary source of income. Most of the baseline subsistence they they can forecast out that they have planned and saved and prepared for that amply themselves.

So what strategies then solve for those problems? How can we prepare now for retirement at 70 years old? Well, I mean, I think that a lot of people are looking at that. And again, you know, a lot of people that I talk to, they they are driven, they are motivated. And quite frankly, some of them feel like they would get bored if they retired early. I've got people well into their 70s who are still actively employed and working. Now, that's not for everyone, but retirement's not for everyone either.

So we've got to find that balance. And it's it's all about that personal satisfaction and quality of life. If we want to try to retire earlier, then we need to save more. But but but retirement number, your number is not about a lump sum that you've saved. It's not about an age.

A lot of people look at sixty five. Well, I'm Medicare eligible, so that should be the age in which I retire. Really, it is all about controlling expenses and the ratio between your income and what those expenses are and how much your investment portfolio is capable of filling that gap. And that is the part of planning that a lot of people have ignored. So the sooner that we can really dig into planning for that income generation side, the better off we're going to be. It should start on the first day that we work.

It doesn't for most people. But somewhere along the way, we need to look at the fact that our time and showing up to work, it is the income plan. And if we want to stop making the arrangement where we are trading time for money, then we've got to specifically plan our assets and investments to fill that income plan to make that transition. And a lot of people are in this growth accumulation model, shooting for higher returns. Fantastic. But we also need to look at planning for the next phase in that transition.

And it's it's it's a step that's just too too often overlooked. Again, though, having this conversation earlier rather than later is always important. Peter, if somebody has questions about anything that we've talked about today, what's the best way to reach you? You can reach me at Rashan planning nine one nine three zero zero five eight eight six. Peter Rashan nine one nine three zero zero five eight eight six.

You can also go online. Rashan planning dot com. It looks like rich on planning because you don't get rich on accident, but it's my last name, Rashan. Peter Rashan at Rashan planning dot com and happy to talk through any aspect of your planning.

And even if it's just how do we make the best decisions, how do we optimize Social Security? That is a very important conversation and something you specialize in. All right, Peter, thank you. Absolutely.

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