Social Security? The Numbers Say To Get In Early As Possible

Take Social Security as soon as you can — at 62 advises Steve Maersch, contradicting just about everyone in the retirement advice business. He even lists some of them: The Wall Street Journal, Forbes, Kiplinger magazine, Consumer Reports, Motley Fool, Vanguard Group, CNNMoney, Suze Orman, AARP and Boston College’s Center for Retirement Research. (Steve has been a personal friend for years, and making these arguments as long as I have known him. Someone said if he knows so much why didn’t be write a book, so he has.)

Maersch, a retired copyeditor at the Milwaukee Journal, earned an average of $24,800 over his 31-year career and is now a millionaire, partly by using borrowed funds — at one time more than $500,000 when he was earning in the mid twenties — to invest in the company’s stock program for employees, — and then selling as fast as he could once the company went public. This is completely at odds with much financial advice which says never invest in the company where you work because that just increases your personal risk, what Maersch calls the Enron warning. But the U.S. has 11,300 companies partly or entirely owned by employees, he notes. Presumably most of them are honestly run.

The math — no, make that the arithmetic since Maersch has no patience for the complications investment professionals often indulge in — requires nothing more than a calculator to see how this works. Maersch’s accountant yelled at him to start taking Social Security when he turned 62, and he did. Between the ages of 62 and 65 Maersch collected $54,700 which invested in Vanguard’s Wellesley Income Fund was worth $67,083.

From 62 through 69, Maersch collected $111,543 in Social Security. Based on actual returns for the Wellesley fund that would have grown to $155,000. His investment returns will more than make up for the higher Social Security payments he would have received by waiting until he was 70 and even after taking those make-up amounts out of the fund, the investment continues to grow.

Another factor to consider is mortality — 10% of us will die between 62 and 69 added Maersch who has been to funerals for several friends who died in their sixties.

David Blanchett, head of retirement research at Morningstar, told me he disagrees with taking Social Security early. Delay taking it as long as possible, he said.
“The bad outcome is you live to be 100 and you have spent all of your wealth. If you delay claiming for eight years Social Security rises 76 percent.”

Maersch crunched the numbers for old age, taking it out to age 110.

“In this scenario, at age 110, wait-till-seventy’s Social Security would be $47,477 a year. Mine would be $34,044, or $13,433 less. My Social Security/Wellesley account — after making up this shortfall and those of the preceding 39 years — would be worth more than $425,000.”

He is not a buy and hold investor but follows the January Barometer. On Jan. 31 if stocks are outperforming bonds, he stresses stocks, If bonds are outperforming, he goes strongly into bonds. He lays out the numbers in his book.

“The January Barometer has its critics. A long article in the Wall Street Journal in 2017 declared the January Barometer to be a myth. The author did everything but run the figures.”

His book, which is easy and often amusing reading, and under 100 pages, offers some other practical advice: buy used cars (after having them checked by a mechanic); buy a freezer; keep your accounts at a credit union rather than a bank; invest only in low-cost funds with fees under 1 percent (he is entirely in a few Vanguard funds), use dollar stores, budget stores and outlet stores and keep your finances on an index card that you update monthly with savings, income, debts, investments and upcoming expenses.

He recommends two books by Jack Bogle, founder of Vanguard, and also Tony Robbins’s MONEY Master the Game and Unshakeable. Robbins is the first finance author he has read who stresses the importance of charity.

When the Milwaukee Journal CEO in 1986 saw an impending change in tax law that would make charitable donations less valuable, he encouraged employees to put $25,000 of their stock into donor-advised funds with the Greater Milwaukee Foundation. Maersch and his wife, Judy, did. The Foundation withdraws 4.75% each year.

“This year (2018) Judy and I will write more than $5,000 in grants, and our total donations will then exceed $100,000…When Judy and I pass on, our fund will continue and a living tombstone, producing grants to help minority students with college expenses.”

It is a thought-provoking book that could inspire you to pull out a calculator and see for yourself.

About Tom Groenfeldt

I write - mostly about finance and technology, sometimes about art, occasionally about politics and the intersection of politics and economics. My work appears on and and occasionally in The American Banker and Banking Technology in London.
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