Maximize your quality of life : Social Security and Retirement Withdrawals

Financial PlanningRetirement
Written By John Cervantes, CFA

Maximizing Social Security isn't just about spreadsheets and life expectancy calculations. Prioritizing your health span and understanding spending behavior patterns can help you enjoy your wealth during the years that matter most.

You are not a spreadsheet, actuarial table, or financial model. Qualitative considerations, how we feel, enjoy, or may regret our financial position is equally as important. 

When to claim Social Security benefits has largely been reduced to a lifetime benefit maximization equation based on your and your spouse's life expectancy. Pretty much, tell me when you are going to die and I’ll tell you when to claim your benefit.

“It’s silly to pretend that a dollar of retirement income at 62 is no different from a dollar of (potential) retirement income at 95.”
— Derek Tharp PHD, lead researcher at Kitces.com

But my view has always been, Wealth Management is as much an art as it is math.

How we think about our wealth is unique to our individual experiences and qualitative considerations should be given to the timing of social security benefits. 

Here are my two focal points:

  1. Health Span - Prioritize enjoying money during healthier early retirement years.

  2. Spending Behavior Patterns - Your are more likely to spend social security income than portfolio distributions. As odd as this seems, retirees don't spend their savings. I think at times there’s a conscious or subconscious fear of being poor (again). 

a chart breaking down what retirees spend by age, for single and married

Recent Research in the Financial Planning Review, “Retirees Spend Lifetime Income, Not Savings”, highlights key points:

Retirees don't spend their savings, withdrawing about 2% at age 65. About half of the rule of thumb 4% spending rate, which many argue is also too conservative. 

Most interestingly retiree spending rises as required minimum distributions (RMDs) from qualified retirement accounts begin.

Retirees are seeking permission  to spend their own money. And without that permission they are hoarding wealth. Imagine subconsciously needing permission from the IRS.

Claiming social security prior to age 70 can help improve quality of life. Get specific advice.

Retire, Spend, and Give; Do it with a professional that will help you reduce anxiety and stress. 

Your spouse will thank you. Your kids will especially thank you as they struggle with a home affordability crisis, and $1250 a month child care.

Sources for further review:

  1. Why Delaying Social Security Benefits Isn't Always The Best

  2. Retirees Spend Lifetime Income, Not Savings

John Cervantes, CFA

John Cervantes is a Partner and Senior Investment Advisor at Crossvault Capital Management, LLC, where he leverages over 17 years of experience advising and managing investment portfolios for families of high and ultra-high networth.

Before joining Crossvault Capital Management, John served as a Senior Investment Advisor at Texas Capital Bank, where he was also a voting member of the bank’s Investment Strategy Committee. Prior, he held the position of Senior Investment Manager at Merrill Lynch, managing $1.25 billion in client assets for one of the largest wealth management practices in the country. In this role, John managed a suite of investment strategies, focusing on U.S. Value Equity and Global Asset Allocation. He also developed the team’s Private Equity processes, including fund selection and client allocations.

John began his career at JPMorgan Chase before transitioning to USAA. He holds the Chartered Financial Analyst® designation and earned his BBA in Finance from the University of Texas at San Antonio.

John resides in San Antonio, Texas with his wife, Kaycee, and their two children, Edee and John Kelly.

https://www.crossvault.com/
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