A sound retirement plan involves multiple factors, but individuals have sole control over only two of them — saving (vs. spending) and asset allocation, according to J.P. Morgan Asset Management’s Guide to Retirement, 2018 Edition.
They have partial controls over their earnings and longevity and no control over market returns and tax policy, according to the guide.
With that context in mind, Anne Lester, Global Head of Retirement Solutions at J.P. Morgan Asset Management, laid out some of the most important decisions individuals should consider when nearing retirement — decisions advisors should be discussing with their clients — at a luncheon meeting with reporters.
1. When to Start Collecting Social Security
This is “the single most important decision” clients will make because it has “long-term consequences,” said Lester. “Deciding when to claim [Social Security] benefits will have a permanent impact on the benefit you receive.”
That’s because the sooner individuals start collecting Social Security the less money they will receive, while the odds that they live well into their 80s and beyond continues to increase.
Social Security recipients receive 25% less in monthly payments if they begin collecting benefits at age 62 rather than at their full retirement age, which is now 66 for those born between 1943 and 1954. If they delay receiving benefits until age 70, they will collect 32% more than they would have at full retirement age.
Despite the benefits of collecting Social Security later rather than sooner, the median retirement age for workers in the U.S. is 62 even though the average life expectancy for a 65-year-old in 2016 was 85.7 for women and 83.2 for men, said Lester. That differential is expected to narrow further by 2090, when the average longevity is anticipated at 89.5 for women and 87.5 for men.
“Think of Social Security as part of your portfolio,” said Lester.