Sunday, September 21, 2014

Social Security: Should You Retire at Age 62?

After taking a look at the "actuarial adjustments" of social security benefits below:
you ask yourself: should I retire at age 62 or not?

Tradeoffs


The Social Security Administration has designed the benefit formula to, on average, yield the same amount in lifetime benefits irrespective of when you begin receiving payments.  Here is how the U.S. Government Accountability Office explained:
"The Social Security benefit formula adjusts monthly payments so that someone living to average life expectancy should receive about the same amount of benefits over their lifetime regardless of which age they claim."
If you expect to live to average life expectancy (78.74 in 2012), maybe the decision to retire earlier at age 62 or not is irrelevant.

In [1], it has suggested that:
If you're fortunate enough to live well into your 80s or beyond, then waiting will indeed result in a larger lifetime haul.
However, if I were you, I would go with the prevalent wisdom[13] of choosing to retire at age 62 and here are the reasons why:
  1. Future money will have smaller face value
  2. You will enjoy more on traveling when you are younger
  3. Traveling could and should be more expensive in the future
  4. Resource should be more scarce in the future
  5. Travel the world earlier and maybe you can find the best place to retire
But, if you still want to work after retirement, then you should read and understand Social Security's forfeiture rules.[44]

 

Money Face Value


Although social security benefits will be adjusted based on cost of living by the social security administration:[2]
The purpose of COLA is to ensure that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits is not eroded by inflation.
However, COLA is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a COLA was determined to the third quarter of the current year.  And, it has always been underestimated especially considering your main future expenses will be from foods and utilities.[16,24]

Finally, because of the easy money policy in the past five years, there is a real danger of inflation or even hyperinflation in the near future.  As government will struggle with paying down its debts,[30] your benefits will undoubtedly be reduced by either the CPI-W being underestimated or the retirement age being increased.

Travel while You Can


You should travel while you're young because traveling:[4]
  • Teaches you to live an adventure
  • Helps you encounter compassion
  • Allows you to get some culture
As people has discussed on the Internet, traveling is tiring, which demands physical strength.  So, while you are young and healthy, hit the road as early as you can.  Remember that you won’t always be young.

Higher Traveling Costs


Traveling costs won't remain this low forever.  In June of 2014, BP has provided an intriguing update to its global oil reserves estimate in the company's latest yearly review of energy statistics. BP raised its reserve estimate by 1.1% to 1,687.9 billion barrels, which is enough oil to last the world 53.3 years at the current production rates.[3]

Jim Puplava[5] is an expert on the theory of peak oil and its consequences for the financial landscape.  He has interviewed several peak oil proponents on his radio program, including Richard Heinberg, Matt Simmons, Jim Kunstler, Robert L. Hirsch and Oxford University's Oliver Inderwildi.

Recently, here is what he has said when was asked this question: "Do you still believe in peak oil?"[14]
Well, it is a fact that conventional oil peaked in May of 2005 and we've never exceeded it. That kind of oil, which is the cheapest, has been declining in production as older wells, especially the giants, have gone into decline. However, since then unconventional oil has taken its place and helped prevent energy prices from shooting upwards. So, to be accurate, there is really no debate about peak "conventional" oil—the main issue now is on the sustainability and increased use of unconventional sources of oil, renewables and the like, which in general are much more expensive.
What are you waiting for?  While it's still cheap to drive, cruise, or fly, do it.

Resource Shortage Is Real


Based on a report from Time,[6] the world-wide resource shortage is real.  The resource demand is being driven by three factors:
  • The rising world population
  • Increasing global wealth
    • Due to the fast development of emerging market economies, it is estimated 3 billion people expected to join the ranks of the middle class by 2030
  • A marked trend toward urbanization
Without saying, growing population will cause many problems including:
  • Global warming[7]
  • Wars due to resource fights[10]
  • Deteriorated World Health[11]
While the world is still peaceful and resourceful, enjoy your retirement life earlier.

Where to Retire?


This is the question asked by all who plan to retire.  On the internet, you often find topics such as:
There are many factors to consider to make your final decision:
  • Proximity to children/grandchildren
  • Availability of health care
  • Climate  
  • Financial considerations
  • Activities and entertainments
Before you listen to any advice, why not start traveling around to find out yourself.  I would say you can make a better decision if you travel more and read more.  That also means that you need to retire earlier to find more time.

Here is just my two cents.  Please consult with your financial advisers before making any final decision.

References

  1. Why Smart People Take Social Security Benefits Early
  2. Cost-of-Living Adjustment (COLA) 
  3. The World Has 53.3 Years of Oil Left
  4. 3 Reasons to Travel While You’re Young 
  5. Jim Puplava on Peak Oil  
  6. The Resource Shortage Is Real - Time
  7. This 1 chart exposes climate-science deniers as frauds 
  8. The 15 Best Countries To Retire To In 2014 - Forbes
  9. Retire overseas on $1200 a month - MSN Money
  10. The World's Most Dangerous Water Fight
  11. Scarce resources, climate biggest threats to world health 
  12. Best Places to Retire - US News & World Report 
  13. Social Security: 3 Reasons That 62 Is the "Most Prevalent Age" to Claim Benefits
  14. Has the 2014-2016 Crisis Window Been Delayed?
  15. Social Security: How to Estimate Monthly Retirement Benefit? (Travel to Wellness) 
  16. CPI Distortions 
  17. Retiree Tax Map 
  18. 10 things retirees won’t tell you 
  19. Demographics - Crash Course Chapter 15 
  20. 5 Scary Things Scientists And Economists Think Could Happen By 2050
  21. Here’s the Only State Where Retirees Have Enough Income
  22. Do you have a Social Security game plan?
  23. Understanding the benefits (Social Security Administration)
  24. Markets Are Not Considering Weakness In Middle Class
  25. Retirement Withdrawal Strategies That Can Pay Off Big
    • If you are buying your own health insurance via the Obamacare exchanges, keep your taxable income low to qualify for big subsidies.
  26. When can I start collecting Social Security benefits?
    • There are more articles on the left panel under "Social Security".
    • Will Social Security still exist when I retire?
      • The government’s official position is that there is enough money saved to pay benefits at the currently scheduled amounts until 2041. 
      • The Social Security Administration admits on its Web site that benefits will likely be reduced after that, barring changes that improve the financial strength of the system.
  27. 3 Retirement Rules Of Thumb That Really Work
    • Save 15% a year
    • Create an investment portfolio based on your age
    • For retirement withdrawals, start with the 4% rule. 
  28. The Most Tax-Friendly States for Retirement
    • Most tax-friendly states: AZ, AK, DE, FL, GA, NV, LA, MS, SD, WY
    • Tax-friendly states: AL, AR, CO, ID, KS, KY, OK, PA, SC, TX, WA, WV
  29. Best Cities for Successful Aging
  30. Investors Everywhere Are Underestimating These 3 Massive, Predictable Forces
    • The US government takes in $3 trillion in taxes, but it owes $108 trillion. ”Do the math." 
  31. Social Security Office Locator
  32. Seven Surprising Social Security Facts
    • The tax rate that funds Social Security has already risen SIXFOLD!
  33. Where Are the Hardest Places to Live in the U.S.?
  34. Most livable cities in Canada
  35. Understanding the Benefits (www.socialsecurity.gov)
  36. How age differences in couples affect Social Security
    • It often makes sense for the younger of the two to take benefits early.
  37. Who gets grandfathered in with Social Security rules change?
    • According the provisions put forth in the Bipartisan Budget Act of 2015 (HR 1314) last year, individuals who were born before 1954 are considered to be grandfathered in as eligible to file a restricted application for spousal benefits, according to Jim Blankenship, author of A Social Security Owner's Manual: Your Guide to Social Security Retirement, Dependent's, and Survivor's Benefits.
  38. Check for errors in your Social Security statements
    • Officially, you have to correct errors within 3 years, 3 months and 15 days following the year of the mistake.
  39. How Much Money Does the Average American Get From Social Security?
    • The average for all Social Security receipts is $1,249.55 per month, and for retired workers (over the age of 65), it’s $1,363.66 (as of February 2017).
  40. How to enroll in Social Security?
  41. 3 Reasons It's Dumb to Take Social Security Benefits at 67
  42. The "Angry Birds" Approach to Understanding Deficits in the Modern Economy
  43. 10 Reasons Why You Probably Don’t Know Enough About Social Security
  44. Why Smart People Take Social Security at 62 (Even When They Shouldn't)
  45. Create your personal my Social Security account (ssa.gov)
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