Urban myths are fun, and generally come in two formats:
One is amusing: The term Berliner refers to a citizen of the German capital, but it was also the name of a popular pastry around the time of the JFK’s famous Cold War “I am a Berliner” speech, which therefore roughly translated to “I am a jelly donut.”
Another is creepy—a driver picks up a beautiful young hitchhiker, only to have her mysteriously vanish upon reaching her destination. Inquiring of her whereabouts at a lonely, isolated farmhouse, the driver is shocked to learn she died years earlier in a traffic accident.
Creepy fun is one thing, downright scary is another, and not something to experience in retirement. Irrational fears promulgated by misconception and myth do lasting damage to even the best laid retirement plans. Following on my last post, and based on years of research and thousands of client interactions, we present five more Social Security myths we most often hear:
5) Social Security has nothing to do with asset allocation
So a client has a guaranteed stream of income that will have no impact whatsoever on their weightings in other asset classes? We hope our question is rhetorical, and advisors immediately see the flaw in such thinking.
The Takeaway: The same could be said of asset location, and the significant impact Social Security has on the coordination and composition of the portfolio, as well as the tax-efficiency of subsequent withdrawal strategies.
4) Take benefits as soon as possible and reinvest them for a higher return
Look for more of our research on internal rates of returns in upcoming posts. For now, suffice it to say your clients receive a guaranteed stream of income with no fees. If they delay payments, that’s bumped up by 8% a year (or 32% over four years) in addition to the amount they receive at full retirement age.
The Takeaway: Think advisors can do better? Good luck. See Morningstar’s three- and five-year ratings if you need more convincing.
3) Follow certain Social Security rules-of-thumb