One of the pillars of wisdom in the retirement planning community is to argue that we’d be better off postponing retirement. Each year we postpone is one year less of retirement expense, and one year more for our savings to grow.
That’s sound and practical advice…unless what you really want to do is retire.
One alternative is to marry a smart Social Security claiming strategy with an International Living lifestyle. As an IL reader, you know there’s no shortage of fantastic locations where you can live far better for less than in the U.S. These are places where a Social Security check—guaranteed by the U.S. government and adjusted each year for inflation—can go a long way in delivering a life of luxury.
The “claiming strategy” part comes in because the Social Security rules offer a multitude of options that we can put to work for both an earlier and a more financially secure retirement.
Let me give you an example…
Gwen and Jim are both 62 years old and itching to ditch their day jobs and experience the world beyond their borders. In fact, they have already found their retirement haven, where they can live well on $2,500 a month, all in. They have $250,000 in savings and investments and they can start their Social Security benefits at any time.
If they start their benefits at 62 they will receive a combined $2,200 a month. That doesn’t quite cover their budget, but they could dip into their savings for $300 a month to make up the difference.
That would probably work out okay for them, though with a downside risk if their savings don’t grow. Let’s assume their savings just keep up with inflation (like Social Security benefits do). When Gwen and Jim reach 85, their typical life expectancy at age 62, they will have $167,000 remaining in their savings. That’s a bit tight, especially if they go on living for a long time.
On the other hand, if they wait to claim their benefits at age 70 they will collect $3,872 per month and have around $259,000 in savings. That’s a much higher monthly income and greater savings (because they add the extra $1,372, left over from their $2,500 budget, to their savings each month).
But there’s a problem…they spend nearly all their savings to live on up to age 70. No emergency contingency, no cushion, during those years…
Here’s an alternate strategy to balance these extremes.
Gwen, who has the higher benefit, waits to claim at 70 to lock in the maximum survivor benefit. Suppose Jim claims earlier, at 66, when his monthly benefit is $1,333. Under this scenario their savings would never fall below $74,000—perhaps a sufficient cushion—and at age 85 their monthly combined benefit is $3,445 and their savings are restored to $244,000 and growing.
Selecting a benefit starting date at age 66 is just an illustration: Jim has the option to start that benefit at any time before or after that age if they become too uncomfortable drawing on their savings. On the other hand, if the return on their savings is somewhat better, they may choose to wait longer and keep drawing on their savings.
With a hybrid claiming strategy, they keep their options open longer while always retaining the choice to start one or more benefits in any given month. This is a flexible formula for living the dream while locking in a far greater financial security for the long term.
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