The Wealthy Retiree Part 9 – Waiting to Collect Social Security

“Quaero, I have a proposition for you!” Will exclaimed, as he took a wad of cash from his pocket and slammed it on the table. “How would you like $1,000?”

“Um, sure. What’s the catch?”

“No catch. I’m going to give you a choice.” Then he took a penny from his pocket and put it on the table next to the $1,000.

It was Tuesday. Quaero now realized he needed to be sharp on Tuesday because it meant that he would get his next lesson on retirement success from the wealthy retiree, Will Pecunious, a resident of the complex where Quaero worked as a handyman.

“I’ll take the $1,000!” Quaero said with a chuckle. “No contest.”

“Alright, but you might want to consider if you take the penny today and come back tomorrow, I’ll double it and give you two pennies. In fact, I’ll do that every day for three weeks. Or, you can walk out with $1,000 cash, right now.”

Quaero sighed. “I know this is probably a trick of some kind, but I don’t care. I want the $1,000. Bird in the hand, right?”

“You got it. Here you go.” Will picked up the cash and handed it to Quaero.

“Wait, you were serious. I get to keep this?”

“Yup. The money is all yours.” Then he pulled a folded piece of paper from his pocket, unfolded it and handed it to Quaero who was counting his new windfall.

“What’s this?”

“The bill for my lessons,” Will smiled.

“Let me guess—$1,000?” Quaero laughed.

“You have a remarkable ability to read minds, my friend,” Will said, as Quaero handed him back the cash. “The truly ironic part of all of this is if you would have chosen the penny, you would have cleared almost $20,000 in the next three weeks, even after paying my bill.”

“What? How?”

“The total payout over three weeks of doubling the penny each day is almost $21,000. But, you chose a ‘bird in the hand’. So, after covering your educational costs, you’re back to being even.”

“Is it too late to change my mind?” Quaero laughed.

“Yes!”

“Darn! Although, there’s gotta be a lesson here.”

“You really can read minds,” Will said, rolling his eyes.

“It’s a gift.”

“In retirement, when weighing their options for when to collect social security retirement benefits, too many people decide to take the ‘bird in the hand’ as opposed to waiting. They opt for more comfort today when all they are doing is potentially hurting themselves later.”

“So waiting is better? Why?” Quaero looked confused.

“Every year you delay your benefit, it grows until you reach age seventy. Collecting a larger social security check is important. It is, in my mind, the best retirement income you will have. There are three advantages social security offers over just about every other retirement income source.

“The first advantage is social security is adjusted to inflation, so it increases with your cost of living. No matter how high your expenses grow with time, your benefit will keep pace. The second advantage is that it is guaranteed by the federal government. This is far more than any pension or annuity can offer. And finally, third, it is tax efficient. At most, only 85% of your benefit is eligible for federal income tax, and, in most states, it is not taxed at all.”

“Wow, I had no idea!” Quaero said, in complete shock. “I always heard it was best to take it as soon as possible. Free money and all.”

“For some people, that may be the best move, it depends on a few factors. However, for the majority of us, delaying as long as possible will provide us with a higher income if and when we reach extreme old age, and will need it most. This is not only sound, financial planning, but also it is the original intention of the program,” Will concluded.

“Thanks Will! I feel like I’m finally starting to learn something from you!” Quaero said, with a large, toothy smile.

Will stared at him with a raised eyebrow. “Well you know what they say: there are no bad teachers, only bad students.”

Quaero burst into laughter.

Next Issue: Lesson #9: “House of Cards”