Being about 3 1/2 years away from retirement, my most recent articles have been about becoming debt-free, my corporate pension and drawdown strategies. All of that makes sense. The closer you get the more that your “high-level” and vague plans become a little more clear and detailed. That’s the beauty of planning, the earlier you start the more time you have to change or be flexible. The closer you get to retirement the less runway you have and it get’s harder (if not impossible) to make significant change.
Which brings me to delaying social security and how we plan to get that done. We plan to delay my social security until I’m 70 years old. Since we are a single-earner household, my social security is most important. My wife will take her’s at 62 and it will produce only $500 per month. But once I turn 70, she’ll ditch hers and take half of mine. This should give her nearly 5x the amount of social security assuming I way as long as possible.
Waiting is great but how can you still retire at 62 and wait until 70 to take social security? That’s 8 years of portfolio drawdown that will likely take most portfolios well above 6% or higher portfolio withdrawal rate. General guidelines say that 4% of less is safe, especially early in retirement. Withdrawing so much of your portfolio the first 8 years of retirement is increasing your sequence of return risk substantially. And that is dangerous to retirement financial health.
So, back to the question. How can you still retire at 62 but wait until 70 to take social security without increasing your sequence of return risk? The answer lies in creating a bridge with some buffer assets and cashflow that don’t care what the stock market is doing.
Waiting Until 70 is Hard
We’ve all read the stories about how waiting until 70 to take social security is a good move. But knowing something and doing something are two different things. People may know waiting until 70 is the logical thing to do but only 3.7% do.
Why is that? First, people are tired (physically and mentally), especially the hard-working blue collar folks. Also, they just don’t have the investment portfolio to wait until 70. I mean, we’ve seen all the horrible retirement statistics and people have to start taking it now if they are going to retire at 62. Finally, taking social security at 62 is available (for now). I wouldn’t be surprised to see the government move the minimum age from 62 to something like 64 or 65 to begin social security. This would have serious implications in American society. Either way, changes will have to be made and I’m betting they want people working longer than 62.
Regardless of what everyone else is doing, my wife and I have a different plan. Since we are a single-income earner family, my wife will take her approximately $6,000 annual payments at 62 while I wait until 70. When I turn 70, she’ll switch from her $6,000 to taking 1/2 of my annual amount.
Remember, I’ve got an advantage though. My corporate pension will payout at 62 in the amount of over $70,000 annually, which will easily cover our essential expenses for 10 years (inflation will eat into my non-COLA pension). This will allow us to cover housing, groceries, transportations, and all other normal basic human expenses. Our assets will cover discretionary expenses. In other words, our assets will cover our retirement fun. It will be the stuff that provides a quality of life we’ve always dreamed about.
Bridge Assets
Again, saying you want to wait until 70 and actually being able to wait takes planning. You can’t just decide the day before you retire what you are going to do. For example, my non-qualified 401k fund has been years in the making. I knew early that I’d be using these 5 years of payouts to help bridge myself to a delayed social security payout.
My pension will cover our essential expenses … not everyone can say that. If I didn’t have a pension then I’d be using these bridge assets to cover essential expenses. Either way, the point is to have dependable cashflow that will help you delay social security. For me, these bridge assets are covering my discretionary or fun expenses.
If I had a pension but no bridge assets that produced cashflow then I’d probably take social security earlier. But I planned in advance and all is well for me to delay until 70. What’s really nice about these assets is I don’t have to sell any stock to produce the income. This means my sequence of return risk is significantly reduced.
My bridge assets come in a few forms but they’ll all equal about $50,000 annually. The NQ 401k and I-Bonds are both bonds. The dividends will likely come from my stocks but I’ll have crowdfunding real estate dividends too. I’m planning for discretionary cashflow of $50,000 each year until I reach 70. So that’s a long 8 years that my cashflow needs to be reliable. I’m assuming about $10,000 of that will pay for taxes and the remaining $40,000 annually will be total fun money.
My Progress
Because I need to plan ahead for these bridge assets, it’s a good idea to track progress. Once I chose my bridge assets and when I’d need them, I could start working the plan. My NQ 401k is on track. Since I’m a highly compensated employee, the company restricts how my I can put into my regular 401k. So, the IRS allows the company to set-up a non-qualified plan where I can contribute up to 9% of my pay. It’s a bond and my company is a BBB+ so I’m not wanting to go all-in to this fund. I’m on-track and that’s important.
The I-bonds are a great low-risk inflation protection asset. I can’t loose money on these because they are US government bonds and they adjust every 6-months based on inflation. My wife and I put started buying $10,000 each (total of $20,000 combined) and we’ll have about $25,000 when/if we chose to cash them in. The stock dividend portfolio was started in 2018 and I’ve got about $180,000 in stocks producing about $7,500 in annual dividends. I’m guessing I’ll need $350,000 to $400,000 in stocks to produce dividends about $15,000.
The bottom line is I’m tracking each item so that it will be there when I retire and need the funds. If these were in place then I’d either have no discretionary funds or I’d need to take social security before 70. That’s not the plan, I’m tracking progress, and all looks good.
Summary
This is very easy to do but it takes planning and execution. The social security statistics clearly show that financial planning and execution are not strong American traits. Something I told my kids often when they were younger was “don’t have the future you be pissed off at the lazy past you.” In other words, this is all for our own use and we have to live with the consequences of our inaction. I was on the verge of paying a heavy price until I woke up and quickly put a plan into action.
Bridge assets shouldn’t be connected to the daily swings of the stock market. Part of the goal is protect your portfolio in the first 5-10 years of retirement. This means you don’t want a market crash to force you back to work. You don’t want a market crash to have you running out of funds by the time your 75. So, selling stocks, stock ETFs, or stock mutual funds as your bridge assets should be avoided. Remember, sequence of return risk is the biggest disrupter of retirement but it’s easy to avoid. And these bridge assets are the perfect way to protect yourself.
Thanks for reading!
Mr. TLR