Wednesday, December 30, 2009

Whilst I'm on the subject of retirement

I had an interesting exchange with the social security agent last week. By the way, Social Security is to be commended for the customer service focus their employees have. I have not talked to a person on the phone or dealt with an agent in person who was not courteous, polite, and helpful. A far cry from the usual stereotype we imagine when dealing with government employees.

During the course of our conversation I explained my own reasons for not wishing to retire now, or when I hit the full benefits age of 66. Frankly, I enjoy my work too much and still feel the thrill and energy derived from the challenge. This person's comments to me were he'd seen a number of people delay retirement only to pass away before they collected their contributed portion of the taxes, or their employer's contribution. He told me that it is estimated that at full benefit you get what you paid in in taxes back in the first three years of collection. You get back what your employer paid in during the years 4-6. His ending comment was you want to make sure you get what you paid in before you die.

Well, let's examine that. Suppose I had not built up a nest egg, that the only source of income I would derive would be from social security. Perhaps I still owed on a home, credit cards, personal loans on a boat, motorcycle or some such item. If I retired at age 62 my retirement income would be $1100 per month. I couldn't make it. I could not survive.

The real issue is each person is responsible for their own decisions. While I've heard financial experts explain that if you start drawing at age 62 and live to age 85 you will draw a larger sum of money than if you wait till age 65 and draw till age 85. So what? What if your monthly income is not sufficient to support your financial needs during that period. What kind of anxiety and stress will that create not only on the person but his/her family? I don't particularly care if I get my tax money back. I care more about being able to support myself and my wife, to be able to do more than just subsist than I care about the total amount of money I get over 23 years as opposed to 20 years. I am out to maximize my cash flow not get my tax money back. I don't have use of that tax money now, nor did I have in my earning years. Why should I be concerned about getting that money back when to do so wouldn't accomplish my aims in retirement.

It just goes to show that you really need to understand your needs. You have to understand the best way to fulfill or accomplish those needs. Financial counselors who advocate long term benefits over short term needs are not necessarily providing the best advice. You really need to look at the streams of income you will receive upon retirement and whether or not those streams will be sufficient for your needs. That's the decision point.

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