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Treat Social Security as Insurance?

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Last year I wrote an article, Take Social Security Early or Late? which came to the conclusion that you should take Social Security as early as possible and invest it until you need it.

The theory is that you'll do as well as if you waited, but if you happen to die early, that's money that goes to your estate rather than forfeited.

This is a good time to caution readers that, at the age of 39, I haven't put a lot of research into the area of Social Security. Every time I try to wrap my head around it, there are about 3.4 million minor details that change the equation completely. With everyone's specific situation different, one-size-fits-all advice is difficult.

Back to the theory that you should take Social Security early. Soon after posting the article a pointed me to this great article where a speaker had this great line:

"They're [the federal government is] hoping you're gonna wait. And they're hoping you're gonna die.

So why rehash all this now? Philip Moeller has an article in the May 2015 issue of Money Magazine suggesting that people wait to take their Social Security benefits. I wish I could find it online, but sometimes it takes awhile for Money to make them available.

The interesting thing is that he covers the idea of taking your Social Security right away and investing it:

"Roughly calculated, the typical breakeven age is about 80.5. Until then, you'll get more money by taking benefits early. If you don't spend those benefits but invest them instead, the breakeven age can be even higher."

Of course it is going to be much higher if you've been investing the money for an extra 8 years between age 62 and 70. Maybe someone here can do the math, but I'd venture that 80.5 age goes up to more than 85, perhaps even 90. Theoretically, if you invested the money until age 70 and didn't use it, it would be the same as if you just waited until age 70 anyway. Or at least by my math which was in the aforementioned article it comes out to the same.

Moeller makes the argument that breakeven analysis "feels wrong to him." The reason is that it treats Social Security as an investment where you want to earn the highest return. Instead he argues that it is an insurance policy that protects you from outliving your money.

He says:

"If your home never burns down, is the money you spent on insurance premiums a loss? No. You pay for protection, not profits. That's true for Social Security also."

I say, to-MAY-to, to-MAH-to.

Whether you take it early or late, Social Security is going to act as insurance. That doesn't go away. You aren't going to live to 120 and have nothing. It's just a question of how much insurance you'll be getting each month. If you take the insurance money early and invest it (i.e. you don't have a need for the insurance because your house didn't burn down) you'll be just as well off as if you waited with that cushion of 8 years of payments and investment growth.

I personally view Social Security as a part of the income streams that I'm developing. Those include this business, my wife's military pension, income from our income properties, and tapping into our 401ks/Roth IRAs. We've taken steps to reduce our cost of living in retirement by opting for a 15-year mortgage and getting solar power installed.

A whole lot can go wrong in 30 years, but I'm not currently of the view that when to take Social Security is going to be an insurance policy that we'll lean on.

For us, it still seems like breakeven analysis is the way to go. However, I wouldn't fault anyone for thinking about protecting themselves against a scenario where they ensure they have a good income for decades if they need it. Perhaps it is even helpful to not have the temptation of getting it early and spending it.

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Retirement

Posted on April 27, 2015.

Is AdvoCare a Scam?

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In the last couple of months, I’ve received a lot of comments suggesting that I look into AdvoCare. Here are some examples. Each of them had one thing in common, they had someone they loved, a friend of family member sucked in. They seemed to be looking for a way deprogram their brainwashed friend. (Usually, […]

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MLM

Posted on April 24, 2015.

My Gift to Mother Earth: Solar Power Completed

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Fifteen months ago, a little after my second son was born, I was doing a routine exercise of reviewing my necessary expenses. I like to go through and see where we are with spending and if there’s any place we can save money. It’s hard to save money on car and house payments. Short of […]

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environment

Last updated on April 21, 2015.

Book Review: Failure to Launch No More

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I usually start every book review of mine with an usual disclaimer… I usually don’t like reading books. My reading speed is extremely slow and I’d prefer to have all the information distilled into 10-20 pages rather than 200 or more. I often come away thinking that the cost of reading the book is not […]

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Book Review

Posted on April 20, 2015.

Are Preggie Pops a Scam?

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A couple of months ago, a regular reader sent me an interesting email. His wife is pregnant with their first child. (Congrats!) Like most expecting mothers, she is dealing with morning sickness. Her doctor told her to suck on Preggie Pops, and if that doesn’t help, to come back for another visit, and she would […]

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scams, Spending

Posted on April 17, 2015.

Dave Ramsey Supports Pyramid Schemes?

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Quick Synopsis: Dave Ramsey’s information greatly contradicts the FTC’s guidelines on MLMs/pyramid schemes, which may lead (or already has led) to great consumer harm. The other day I was reading something about MLM and someone pointed to a video from personal finance guru Dave Ramsey. The video is from his radio show, so you can […]

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MLM

Last updated on April 14, 2015.

Kiplinger’s Gets Investing in Oil/Commodities Wrong?

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I love getting Money Magazine and Kiplinger’s Magazine each month. I get so much other information from the internet that it is refreshing to see what the experts think is important enough to include in the limited “dead-tree” media format. It’s also nice not to stare at a computer screen for a little bit. I […]

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Investing

Posted on April 14, 2015.

About Those Sponsored Posts Lately…

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You may have noticed some many sponsored posts lately. This ratio of sponsored posts to original content is a limited time thing. There’s been a lot of (short term) sicknesses in my family. My 1 year old had a nasty stomach bug that spread to my 2 year old that spread to my wife and […]

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Blogging

Last updated on April 16, 2015.

The Power of Home Equity

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This post is written and sponsored by U.S. Bank Seems you’ve got a bit of a dilemma on your hands. That big project you’ve had in your head for what feels like forever is now actually coming together on paper and just waiting to be started. You have the time to do it and – […]

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Real Estate

Posted on April 13, 2015.

Tools to Limit Your Tax Liability

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This is a sponsored post written by me on behalf of E*TRADE. All opinions are 100% mine. One week from today is tax day. For some that day is more frightening than all the witches and ghosts on Halloween. Unlike most people, I don’t mind paying taxes. It typically means that I made a good […]

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Tax

Posted on April 8, 2015.

 
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