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Delaying Social Security to 70 Cost This Couple $137,000. One Change Made It Worth $1.5 Million. · Align Your Retirement

• 0:00
  SPEAKER_00: Hey, welcome back to Align Your Retirement.
• 0:02
  SPEAKER_00: I'm Hazel Secko, CFP and CDFA, founder of Align Financial Solutions, a fee-only fiduciary wealth management firm for Executive Hormon.
• 0:12
  SPEAKER_00: Today I'm going to show you what happened when one couple took the most famous piece of Social Security advice on the internet, and I ran it in my planning software exactly as given.
• 0:21
  SPEAKER_00: It made them poorer, and then one change made the very same decision worth$1.5 million.
• 0:28
  SPEAKER_00: Let's get into it.
• 0:29
  SPEAKER_00: There's one piece of retirement advice that has escaped every corner of the internet, and it's this delay Social Security to 70 because the check you get at 70 is roughly 75% bigger than the one you get at 62.
• 0:43
  SPEAKER_00: And I want to be clear before we start that the advice isn't wrong.
• 0:48
  SPEAKER_00: The check really does grow.
• 0:49
  SPEAKER_00: What almost nobody tells you is what happens to the rest of your money while you wait.
• 0:54
  SPEAKER_00: So today I'm going to show you a couple who came in planning to claim at 62, the way most people quietly do, and what happened when we model the famous advice for them three different ways.
• 1:07
  SPEAKER_00: Their names aren't Claire and Dan, but that's what we'll call them here.
• 1:11
  SPEAKER_00: And like every client story on this show, they're a hypothetical composite, real situations with identifying details changed, and figures that are illustrative.
• 1:19
  SPEAKER_00: Because when we ran delay to 70 on its own, one number got better and one number got worse.
• 1:25
  SPEAKER_00: And I'll show you why both of those things can be true at the same time.
• 1:30
  SPEAKER_00: And then we changed one more thing, and the same delay that had cost them money became worth about$1.5 million.
• 1:38
  SPEAKER_00: Everything today is education rather than personalized advice, because when you should claim depends entirely on your own numbers and your own life.
• 2:20
  SPEAKER_00: Let's start with the numbers, because where their money sits will drive every decision that follows.
• 2:26
  SPEAKER_00: Claire is 56, Dan is 58.
• 2:29
  SPEAKER_00: Between them, they earn$365,000 a year, and they're saving steadily, and they want to stop on the same day, four years from now, when she's 60 and he's 62.
• 2:41
  SPEAKER_00: They've invested a little over$3 million, and the balance sheet on screen shows where it sits.
• 2:47
  SPEAKER_00: Two 401ks, an IRA, a joint brokerage account, and one small tax-free account.
• 2:53
  SPEAKER_00: Before we run the numbers, keep one detail in mind.
• 2:57
  SPEAKER_00: It ends up driving the entire plan.
• 2:59
  SPEAKER_00: Almost all of it is pre-taxed.
• 3:01
  SPEAKER_00: Pre-tax simply means you haven't paid taxes on it yet.
• 3:05
  SPEAKER_00: So when you take it out in retirement, the IRS will tax it as ordinary income.
• 3:10
  SPEAKER_00: That's 88% of everything they've saved sitting in accounts the IRS hasn't touched yet.
• 3:16
  SPEAKER_00: Hold that.
• 3:16
  SPEAKER_00: Now, their plan as they described it.
• 3:19
  SPEAKER_00: Retire at 60 and 62, spend about$125,000 a year plus the mortgage, and claim Social Security at 62 because that's the default sitting in most people's heads.
• 3:31
  SPEAKER_00: I ran it forward exactly like that.
• 3:34
  SPEAKER_00: No improvements because you can't fix a plan you haven't watched struggle.
• 3:38
  SPEAKER_00: Two numbers come back, and I want you to understand both because they answer different questions.
• 3:43
  SPEAKER_00: The first is the probability of success, which comes from running their plan through a thousand different market histories and counting how many never ran out of money.
• 3:53
  SPEAKER_00: Their plan as described comes back at 58%.
• 3:56
  SPEAKER_00: The second is the ending balance.
• 3:59
  SPEAKER_00: In the middle result across those same thousand runs, they have about$1.1 million left at age 95.
• 4:07
  SPEAKER_00: Think of it like a road trip.
• 4:09
  SPEAKER_00: One number tells you the odds of reaching your destination.
• 4:12
  SPEAKER_00: The other tells you how much gas is left when you arrive.
• 4:16
  SPEAKER_00: Keep an eye on both because they're about to point in different directions.
• 4:20
  SPEAKER_00: So we did what everyone on the internet told them to do.
• 4:23
  SPEAKER_00: We delayed Social Security to 70 and we changed nothing else at all.
• 4:27
  SPEAKER_00: Here is what the results showed.
• 4:29
  SPEAKER_00: And this is what most people never see.
• 4:31
  SPEAKER_00: The probability of success went up from 58% to 60%.
• 4:36
  SPEAKER_00: A couple of points, which is real but modest, and I want to be honest that a move that small is closer to a nudge than a verdict.
• 4:44
  SPEAKER_00: And the money left at the end went down from about$1.1 million to about$965,000.
• 4:52
  SPEAKER_00: That's$137,000 less from following the most repeated advice in retirement.
• 4:59
  SPEAKER_00: Now, before anyone concludes the advice is bad, look at why both of those moved the way they did, because the mechanism is the lesson.
• 5:08
  SPEAKER_00: When they delay to 70, there are eight years for Dan and 10 for Claire, where no Social Security arrives at all.
• 5:16
  SPEAKER_00: So every dollar of their life comes out of the portfolio.
• 5:19
  SPEAKER_00: They spend it down deeper and earlier, which is why the typical path ends smaller.
• 5:25
  SPEAKER_00: That's the cost.
• 5:26
  SPEAKER_00: And it's real.
• 5:27
  SPEAKER_00: But the checks that eventually arrive at 70 are much larger and they're guaranteed and they're adjusted for inflation.
• 5:34
  SPEAKER_00: And they show up in every single one of those thousand futures, including the ones where the market spends a decade being cruel.
• 5:43
  SPEAKER_00: The bigger check matters most in exactly the futures where the portfolio fails.
• 5:48
  SPEAKER_00: That's why the survival number went up while the typical estate went down.
• 5:54
  SPEAKER_00: So the delay isn't a mistake.
• 5:56
  SPEAKER_00: It's a purchase.
• 5:57
  SPEAKER_00: They bought insurance and the premium was paid out of their estate, and the software will even price the insurance for you.
• 6:05
  SPEAKER_00: Because its claiming optimizer says waiting to 70 is worth about$1.27 million more in lifetime benefits than claiming at 62.
• 6:15
  SPEAKER_00: If they live to the end of the plan, if they live long enough, they collect more in Social Security.
• 6:20
  SPEAKER_00: But in the typical outcome, they also leave behind a smaller estate.
• 6:25
  SPEAKER_00: Both can be true at the same time.
• 6:26
  SPEAKER_00: And whether that purchase is worth it depends on a question I ask before I ever open the software, which is what is this money actually for?
• 6:34
  SPEAKER_00: If the answer is that Claire never wants to worry about a bad decade, that trade can absolutely be worth making because the thing being protected is the version of her life where everything else went wrong.
• 6:47
  SPEAKER_00: And there's a version of this that's specific to her because Dan is older and men don't usually outlive their wives, which means the years this insurance protects most are likely to be years Claire is managing alone.
• 7:00
  SPEAKER_00: In this plan, Dan's years run out at 85 and Claire's run to 95, which is 12 years by herself.
• 7:08
  SPEAKER_00: And when one spouse dies, the survivor keeps a larger check rather than both.
• 7:14
  SPEAKER_00: So if they both claim the 62, the check Claire lives on through those 12 years is about$78,000 a year.
• 7:22
  SPEAKER_00: If they both weighted to$70, it's about$125,000.
• 7:27
  SPEAKER_00: That's$47,000 a year more.
• 7:31
  SPEAKER_00: Every year she's alone.
• 7:32
  SPEAKER_00: That is the insurance actually paying out, and it pays out to her.
• 7:36
  SPEAKER_00: But if part of what this money is for is also their kids or a legacy, then$137,000 is not a rounding error either.
• 7:45
  SPEAKER_00: And pretending the trade doesn't exist is how people end up following famous advice into a plan they never chose.
• 7:52
  SPEAKER_00: Either way, notice what just happened.
• 7:54
  SPEAKER_00: The advice everyone repeats turned out to be a trade with a real cost.
• 7:59
  SPEAKER_00: And that's the part most people leave out when they recommend it.
• 8:03
  SPEAKER_00: If you want to see how empty years could look in your own retirement plan, I put together a free resource for you, the Executive Women's Text Playbook.
• 8:12
  SPEAKER_00: You can get it using the link below.
• 8:14
  SPEAKER_00: This guide will help you spot opportunities like this in your own numbers so you're not leaving money on the table.
• 8:19
  SPEAKER_00: But that's not the end of the story.
• 8:21
  SPEAKER_00: The delay also created another effect that is often overlooked.
• 8:26
  SPEAKER_00: That's why I wanted to show you this example.
• 8:29
  SPEAKER_00: Go back to the 88% problem.
• 8:31
  SPEAKER_00: 88% of their money is pre-taxed, and every dollar of it gets taxed as ordinary income on the way out.
• 8:37
  SPEAKER_00: Either when they withdraw it or when required distributions force it out in their 70s.
• 8:42
  SPEAKER_00: Or when the survivor draws it alone in the narrowest brackets of her life.
• 8:46
  SPEAKER_00: That tax bill is sitting in the plan like a mortgage nobody wrote down.
• 8:51
  SPEAKER_00: Now, look at what the delay accidentally built.
• 8:53
  SPEAKER_00: From retirement until 70, Claire and Dan have no paychecks and no Social Security.
• 8:59
  SPEAKER_00: Their taxable income in those years is close to nothing.
• 9:02
  SPEAKER_00: Those are the emptiest tax years they will ever have.
• 9:06
  SPEAKER_00: And in the delay only plan, they're wasted.
• 9:09
  SPEAKER_00: The window is standing wide open and nothing is walking through it.
• 9:12
  SPEAKER_00: So we tried changing just one part of the plan.
• 9:16
  SPEAKER_00: They kept the same retirement dates and spending and still waited until 70 to claim Social Security.
• 9:21
  SPEAKER_00: But each year, they converted enough pre-tax money to fill that 24% tax bracket and no more.
• 9:29
  SPEAKER_00: Since they weren't collecting Social Security during their 60s, they had room to make those conversions without crossing that line.
• 9:36
  SPEAKER_00: And you can see the whole idea in one picture because with the conversions, their taxable income runs flat along the top of the 24% bracket, right up to 66%.
• 9:47
  SPEAKER_00: And without them, those same years just sit there empty while the tax bill waits at the other end of the plan.
• 9:54
  SPEAKER_00: So in Claire and Dan's model, the conversions finish by the time she's 66.
• 10:00
  SPEAKER_00: And by then, the entire pre-tax pile has crossed over.
• 10:04
  SPEAKER_00: And I want to be plain that this costs real money while you're doing this.
• 10:08
  SPEAKER_00: Their total tax bill over those years is about$1.4 million, which is close to$1 million more than the old plan pays over the same stretch.
• 10:19
  SPEAKER_00: Income that high can also raise their Medicare premiums for a few years, and that is part of the price.
• 10:25
  SPEAKER_00: Conversions are not a trick.
• 10:26
  SPEAKER_00: They're a decision to pay a smaller lifetime tax bill on purpose.
• 10:31
  SPEAKER_00: Now you might wonder whether the conversions were doing all the work on their own.
• 10:36
  SPEAKER_00: So I ran that too.
• 10:37
  SPEAKER_00: The same conversions, but claiming at 62, the way they planned.
• 10:42
  SPEAKER_00: Their odds actually went down a little.
• 10:44
  SPEAKER_00: And the money left at the end went up only about$87,000.
• 10:49
  SPEAKER_00: On their own, the conversions barely moved anything.
• 10:52
  SPEAKER_00: So we put the two together.
• 10:54
  SPEAKER_00: Here's what came back.
• 10:55
  SPEAKER_00: Their probability of success rose 7 points to 65%, up seven points from where they started.
• 11:02
  SPEAKER_00: The amount projected to remain at the end also jumped from about$1.1 million to$2.6 million.
• 11:10
  SPEAKER_00: That's roughly$1.5 million more, without changing their lifestyle, their spending, or their plan to claim Social Security at 70.
• 11:18
  SPEAKER_00: Both dials move the same direction this time.
• 11:21
  SPEAKER_00: That's the part I need you to see.
• 11:23
  SPEAKER_00: The delay on its own cost them$137,000.
• 11:27
  SPEAKER_00: The conversions on their own added about$87,000.
• 11:32
  SPEAKER_00: Together, they added about$1.5 million.
• 11:36
  SPEAKER_00: On its own, the delay was a trade, security up and estate down, and reasonable people can take either side of it.
• 11:45
  SPEAKER_00: Paired with the conversions, the trade dissolved.
• 11:48
  SPEAKER_00: The same delay that had been shrinking their estate became the thing, growing it, because the delay is what created the empty years, and the conversions are what those years are for.
• 11:59
  SPEAKER_00: And the pieces keep helping each other after the window closes because look at what each plan does with the rest of their lives.
• 12:06
  SPEAKER_00: In the old plan, required withdrawals start forcing money out of the pre-tax pile, whether they need it or not.
• 12:13
  SPEAKER_00: The tax bills run for life.
• 12:16
  SPEAKER_00: And in the first year, Claire files a loan.
• 12:18
  SPEAKER_00: Her bill is about$65,000 on her own in the narrowest bracket, which is the widow's penalty arriving right on schedule.
• 12:26
  SPEAKER_00: In the parent plan, the pre-tax pile is simply gone before any of that can happen.
• 12:32
  SPEAKER_00: Their required withdrawals fall to zero and from 67 on their income tax drops almost nothing.
• 12:39
  SPEAKER_00: Over the whole plan that comes to about$1 million less tax, paid earlier at lower rates on purpose.
• 12:46
  SPEAKER_00: And here's the last thing that picked her means.
• 12:49
  SPEAKER_00: And it's the one I want you to remember.
• 12:52
  SPEAKER_00: At the end of this plan, every dollar Claire has left is tax free.
• 12:56
  SPEAKER_00: As a surviving spouse, she has tax-free accounts and the maximized check instead of a tax problem and a reduced one in the years she's filing a loan.
• 13:06
  SPEAKER_00: This is a projection resting on stated assumptions about returns, inflation, and tax law.
• 13:11
  SPEAKER_00: It's a probability rather than a promise, but this mechanism is not a projection.
• 13:16
  SPEAKER_00: The delay creates the window.
• 13:18
  SPEAKER_00: The conversions use it.
• 13:20
  SPEAKER_00: Neither one finds the other on its own.
• 13:23
  SPEAKER_00: And no rule of thumb, no calculator, and no comment section can see the pair because the pair only shows up when someone models your whole life in one place.
• 13:34
  SPEAKER_00: Instead of asking whether to claim a 62 or 70, look at why the advice changed their two numbers in different ways.
• 13:41
  SPEAKER_00: That is how you see the trade you're making.
• 13:43
  SPEAKER_00: Ask what you're buying with that trade and whether that matches your goals.
• 13:48
  SPEAKER_00: Then look at the years after you retire, but before Social Security starts, and consider what those years could be used for.
• 13:55
  SPEAKER_00: That's the question that made the biggest difference for Claire and Dan.
• 13:58
  SPEAKER_00: Only your own numbers can answer it.
• 14:01
  SPEAKER_00: If you're writing anything down today, make it these three.
• 14:04
  SPEAKER_00: One, a retirement projection has two numbers.
• 14:07
  SPEAKER_00: How often the plan survives and what's typically left.
• 14:12
  SPEAKER_00: And a decision can move them in opposite directions.
• 14:15
  SPEAKER_00: So ask to see both before you call anything better.
• 14:18
  SPEAKER_00: Two, delaying social security by itself is a purchase of security paid for out of your estate.
• 14:25
  SPEAKER_00: And whether that trade is right depends on what your money's for, not on what the internet repeats.
• 14:31
  SPEAKER_00: And three, the delay creates the emptiest tax years of your life.
• 14:36
  SPEAKER_00: And if you're sitting on a large pre-tax balance, those years are the cheapest chance you'll ever have to convert, which is when the delay stops costing you and starts compounding.
• 14:47
  SPEAKER_00: This week, look at your own retirement account and see how much of your savings is pre-taxed.
• 14:52
  SPEAKER_00: Try to map out the years right after you retire, but before Social Security starts.
• 14:57
  SPEAKER_00: Identify the years when your taxable income will be lowest.
• 15:01
  SPEAKER_00: If you're not sure or if you want a clearer picture that fits your own situation, talk to a planner who can help you spot your own empty years and show you what those windows might be worth.
• 15:12
  SPEAKER_00: Before you go, if you know a couple who's been told to delay to 70 and left to figure out the rest, send them this one because the rest is where the money was.
• 15:22
  SPEAKER_00: The conversion window, the sizing, and the questions to ask before you touch any of it are in the Executive Women's Retirement Text playbook, free and linked in the show notes.
• 15:32
  SPEAKER_00: And if you want your own version of that three scenario screen, the link to Bookin' A Line call is right there too.
• 15:38
  SPEAKER_00: And that conversation is where we look at your own emptyers.
• 15:43
  SPEAKER_00: Hazel Secko, retirement is too important to wing.
• 15:46
  SPEAKER_00: I'll see you next time.