Opinion: ROI of waiting: Treating Social Security like an asset

In the Ozarks, we understand the value of longevity and the compounding returns of hard work. For our business community, retirement isn’t just about stopping work; it’s about capitalizing on a lifetime of equity. Yet, when it comes to Social Security, many savvy professionals make decisions based on emotion rather than the same strategic logic they used to build their careers.

If you have glanced at the news recently, you have likely seen the scary headlines. The latest reports say the Social Security trust funds could be depleted by 2034. This has created a use-it-or-lose-it mindset with many preretirees rushing to claim benefits the moment they turn 62 just to get something out of the system.

But before you join the stampede, let’s look at the numbers. For many retirees, Social Security shouldn’t be viewed just as a monthly check. It is a unique asset. It is a government-guaranteed, inflation-adjusted annuity. The question shouldn’t be, “When can I get it?” but rather, “How do I maximize it?”

Quick history lesson
To understand where we are going, it helps to know where we started.

In 1935, President Franklin D. Roosevelt signed the Social Security Act, creating a safety net for American workers for the first time. But did you ever wonder where the normal retirement age came from? According to the Social Security Administration, it traces back to the late 1800s when Germany introduced the world’s first old-age social insurance program under Chancellor Otto von Bismarck.

There is a persistent myth that Bismarck set the standard retirement age at 65. In reality, America’s adoption of age 65 was based on a later revision, as Germany’s program initially set the retirement age at 70. It wasn’t lowered to 65 until 1916 – nearly two decades after Bismarck had passed away. Regardless of whether the target age was 65 or 70, back then, most people didn’t live long enough to collect. Today, the current full retirement age in America is 67 for anyone born in 1960 or later. With longer life expectancies, we are now spending decades in retirement, putting more pressure on the system.

Solvency fixes
That pressure is why you see headlines about the trust funds running low by 2034. But depleted doesn’t mean bankrupt. It just means the savings account is empty, and the system relies entirely on incoming payroll taxes.

The good news? Congress has a toolbox full of wrenches to fix this leak before the tank runs dry. According to recent industry reports, there are several likely steps they could take to shore up funding:
• Raising the age. They could slowly raise the full retirement age to 68 or 69.
• The “cap” lift. Currently, only wages below a certain threshold are taxed for Social Security. Congress could choose to tax all earnings, asking high earners to contribute more.
• Inflation adjustments. They could tweak how cost-of-living adjustments are calculated and reduce the growth of benefits going forward.

While that is a serious problem for Washington to fix, it shouldn’t drive your personal financial strategy today.

Cookie jar compounding
While Washington figures out the fixes, your job is to maximize your share. The math still rewards patience. You can claim as early as age 62, but doing so comes at a cost: a permanent reduction in your monthly payout.

Think of it like a cookie jar. You can reach in early and settle for a crumb, or you can wait. For every year you keep your hand out of the jar, the cookie gets bigger. That growth continues all the way until age 70.

In today’s market, finding a substantial guaranteed annual increase is difficult. If you are in good health and have other assets to bridge the gap, waiting is often the smartest trade you can make.

The executive decision
There is no perfect time to claim. If you need the cash now or have health concerns, taking the money early can be a prudent move. But if you have the luxury of time, view Social Security for what it is. It’s a powerful financial tool that rewards patience.

Ignore the panic headlines. Run the numbers. And if you can manage it, keep your hand out of the cookie jar just a little bit longer.

George Timson is a financial adviser at SignalPoint Asset Management in Springfield. He can be reached at
gtimson@signalpointinvest.com.