Would You Be Willing to Accept $.75 for $1?
Josh Crowe, here. I wanted to plant a thought before we get rolling with this week’s webinar.
As you noticed in the subject line, I opened with a silly question (one I heard from my snarky brother growing up), but it’s one we ask individuals and families all the time.
I was talking with a prospect last week via zoom who was adamant about taking their Social Security benefit early at age 62, and although he did not need the income, he was convinced it was the end-all and be-all answer…so I continued the dialogue with this, I said…
“John, I want to do a small exercise with you…I want you to reach in your pocket and pull out a $1 bill.”
He stands up, reaches into his back pocket, and pulls out the newest $1 bill I’ve ever seen…straight off the press new!
“Now it’s my turn…hold on John…one minute here…just one more second John…”
Ripping through the front and rear pockets of my jeans I locate a series of old, tarnished coins from the mid-80’s…3 nickels, 3 dimes, 1 quarter, and 5 pennies for a total of 75 cents…and held it up in my palm to the camera, shuffling the coins to provide him a glimpse.
“Alright John, I am not as rich as you are…I have a total of 75 cents here, but I’d really like that crisp new dollar…I’ll make you a deal John…I’ll trade you my antique coins for that brand new dollar!”
John sat back in his chair and spouted a deep, loud, roar of laughter, “bwuahaha! Josh, you’d have to think I am crazy to accept that offer….I am ugly, but I am not stupid!”
I replied, “John, I don’t think you’re stupid, but that’s exactly what’s happening when you take your benefit early!”
Looking puzzled he asked, “What do you mean, Josh? I know I get less, but that has no connection with your offer?”
Each and every dollar you pay to Social Security, is to be returned to you at your…key word here: “Full Retirement Age.”
Your Full Retirement Age, is the age at which the Administration will return 100% of each dollar you paid in (now there’s more to the formula like investment growth and inflation, but bear with me)…
For each year you claim early, the administration reduces your benefit…so what’s the reduction for taking the earliest at age 62…drum roll, please…25% YIKES!!!
Using a dollar as an example isn’t so bad…here and there it wouldn’t break his wallet…but on a larger amount, like thousands, and for decades…things begin to look a little different!
For example, assume John is to receive $2,000 per month at his full retirement age, this represents 100% of his benefit, and a total of $24,000 per year…
If John takes early at the age of 62, he’ll be making that dollar trade 6,000 times every single year…this is coming from the guy who wasn’t willing to make a single trade with me…
In other words, he’ll let the administration keep $6,000 hard earned dollars every single year! To add insult to injury, if john lives to the average age of ~85, or 23 years, he’ll have made the trade 138,000 times…again, this is coming from a guy not willing to make a single trade with me.
In other words, he let the administration keep $138,000 (not including interest he could have earned, they earn that).
Of course everyone wears a different size shoe…for many, we just can’t make the numbers work…they cannot “have their cake and eat it too”…the moral is simply to shine light through the lens of a more common dealing with.
Our webinar is this Thursday @ 11am. Make sure to click below to join! The least you’ll do, is learn something new.