If you plan to retire early, you have to make some decisions.
Should I claim Social Security early to pay for my living expenses and defer withdrawing money from other retirement accounts? Or should I wait until full retirement age to claim Social Security, or what? Would it be better to wait until a longer age, say 70? In that case, you will have to withdraw money from other retirement accounts to cover your living expenses.
But what if you decide to delay your Social Security claim and withdraw money from other accounts, say, your retirement investment drops in value and all costs skyrocket?
Sound familiar? it should. Because these plunges and surges are exactly what happens in markets and inflation.
Will your nest egg run out as these worrying trends unfold?
These are the questions JP Morgan Asset Management sought to answer in a recent survey. And this is what I discovered:
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Plans to increase life expectancy
According to Sharon Carson, executive director of Retirement Insights Strategy at JP Morgan Asset Management, life expectancy has increased dramatically since 1990 despite recent declines, but the end point is should be regarded as a midpoint rather than
Given that, you may need to plan for your chances of living longer, especially if you are very healthy and a non-smoker. How long can you live? Check out actuary longevity illustrator.
See your investment performance
According to Carson, the longer the expected long-term investment return (return on it) gets lower as the investor ages, and the longer the life expectancy, the greater the cost of delaying Social Security benefits. .
So, for example, a woman with a long-term return on investment of 5.5% and a life expectancy of 88 should consider claiming at age 70.
Of course, not everyone is waiting to receive Social Security. “Some people really need money,” Carson said. “And there’s nothing wrong with that.”
On average, however, social security claims until at least full retirement age, or age 70, unless you expect a high return on investment, especially if you are in good health and need that insurance in the long term. It is better to wait for said Carson.
consider inflation
Withdrawing assets from weaker markets early in retirement, Carson said, is what experts call a set of return risks that can destroy a portfolio.
Think about it: If you retired in 1966 at age 65 and had $1 million in a 40% stocks, 60% bonds portfolio, you would withdraw 5.2% of the value of your initial portfolio, and then withdraw 3%. % increased. Between 1966 and 2000, your portfolio will be worth nothing by his 90th birthday.
When will your social security expire?
In its study, JP Morgan Asset Management used historical rates of return and inflation since 1966 to examine the year-end portfolio value of individuals claiming Social Security at various ages. In their study, they used the following assumptions: a starting portfolio value of $1.5 million; an initial spend rate of $80,000; and a 40% stocks, 60% bonds portfolio. And the historical Social Security cost of living increases. Here’s what they found:
A person who claims Social Security at age 62 will run out of money at age 90. People who claim Social Security at full retirement age will run out of money at 97, and people who claim Social Security at 70 will run out of money at 100.
The study concludes that people with a life expectancy of 81 should wait at least until retirement age to claim Social Security, and people with a life expectancy of 88 and above should wait until age 70.
“Even if the market isn’t that great, if you can at least hold out until full retirement age (to claim Social Security), you’re probably in a much better position.
Carson also ran simulations to show which claiming strategies would provide the highest portfolio value in the event of persistently poor market returns. Here’s what they found: People who claimed at 62 would be out of money at 85. Someone who claims at full retirement age will run out of money at 89, and someone who claims at 70 will run out of money at 92.
Carson ran simulations to show which claiming strategy maximizes portfolio value when market returns are low and inflation is high. result? It didn’t make much of a difference when the man filed for Social Security, all portfolios ran out of money around his age of 84. As such, individuals are advised to spend less and extend the life of their funds, Carson said.
essential advice
“We don’t say, ‘Get[Social Security]early.’ We don’t say, ‘Later,'” Carson emphasized.