$110,000 per Household is Lost by Poor Social Security Timing, Ep # 95

Is your Social Security timing losing you money? Millions of Americans don’t ideally time their Social Security and end up losing thousands of dollars. On today’s episode of Retirement Starts Today I focus on 3 articles. The first one focuses on Morning Star’s star ratings. You’ll learn how and why they are getting an overhaul. The second one is a cautionary tale about Social Security, and the third focuses on what a capital gains tax break could mean. Listen to this episode to hear the latest retirement headlines.

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Outline of This Episode

[1:37] MorningStar overhauls its rating system
[4:55] Retirees lose $3.4 trillion by claiming Social Security too early
[11:26] The White House considers a capital gains tax break

Morningstar’s star ratings are undergoing an overhaul

I don’t put a lot of stock into Morningstar’s investment ratings. This is because Morningstar has always focused on past performance which does not always lead to future results. Well-rated funds typically do worse once they get a good rating because it attracts the attention of many new investors. They can’t replicate their prior successes on a larger scale which then leads the stock to underperform.

The new rating system will now focus more on cost when rating investment funds. This will lead to the downgrading of many investment products. The changes to the rating system will take place at the end of October. I’ll be paying closer attention to their rating scale as the new system rolls out. Do you use Morningstar’s ratings to help you with investment decisions? What do you think of their new system?

I don’t put a lot of stock into Morningstar’s #investment ratings find out why on this episode of #Retirement Starts Today. Click To Tweet

Retirees lose $3.4 trillion by claiming Social Security too early

92% of retirees claim their retirement income suboptimally. Most retirees lose wealth in their 60’s and early 70’s but if they chose to hold off on claiming social security they would live better later. If you claim Social Security early at age 62 you will take a 25%-30% penalty for the rest of your life. If you wait until the full retirement age of 66 then your benefit will compound at 8% each year. The longer you wait the better your retirement benefit gets and if you wait until age 70 to take your social security you will end up with 132% of the original benefit. When are you planning to take your Social Security benefit?

The great debate of the retirement financial world

The debate in the finance world for those that want to retire early is whether you should wait to take social security or should you wait and hold off taking money out of your investments instead. There is a clear disincentive to having advisors recommend delaying taking social security since by delaying taking Social Security clients will be forced to withdraw from their investment accounts. In my opinion, a guaranteed 8% is better than a hypothetical 8%, so I advise my clients to hold off on taking Social Security for as long as they can. Then they can spend the front half of their portfolio, grow the back half, and delay taking social security for as long as possible. Your retirement spending isn’t static, you need to think about your retirement expenses dynamically. Since there are external factors which will change your spending in many ways.

The debate in the finance world for those that want to #RetireEarly is whether you should wait to take social security or should you wait and hold off taking money out of your #investments instead. Click To Tweet

The White House considers a capital gains tax break

The White House is considering a plan that would index capital gains to inflation. This could be a benefit to many retirees that are set to inherit farmland or any other highly-appreciated, long-held property. As with any change in the tax structure, there are pros and cons to the proposal. A con is that this policy could reduce funds coming into federal coffers by $102B over the next ten years. A pro is that this policy could potentially be stimulative to the economy. If there is “moldy money” tied up in many decades old properties, slashing the capital gains taxes owed could bring more sales and more liquidity to the market or spark additional investments.