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Jim Lange: The other decision that I think can work very badly for, let’s say, the dependent spouse is the issue of when to take Social Security, and I know that you have some strong opinions on that. What would your advice, in general, be for people’s plan?
Jane Bryant Quinn: Yes. My advice, in general, would be please don’t take Social Security at 62, because you’re going to get a 25 percent reduction if you are the wage earner, or if you have, on your own benefit, you’re going to get a 37 percent reduction if you’re taking a spouse benefit. So wait. Don’t take Social Security benefits if it is at all possible financially until your full retirement age, which is 66.
Now, at 66, there’s really something fabulous you can do to stretch the total benefit that you will get as a couple over your lifetimes. The husband can file for retirement benefits at 66 and then he gets his full retirement pay, but he can suspend them, meaning he doesn’t collect. If he doesn’t collect, his retirement benefit continues right up to age 70, gaining 8 percent a year plus the inflation rate. So, at 70, he can retire with a much higher benefit than if he took it at 66. But because he filed at 66, his wife can file for … at her full retirement age, can file for spouse benefits on his account. So now she’s collecting spouse benefits, but her own worker benefit is now still increasing 8 percent a year plus the inflation rate. So, theoretically, they could both claim their separate benefits at age 70 and do much better than if they had claimed them earlier.
Jim Lange: Well, by the way, I happen to strongly agree with you, and I’ll add one little piece of information to the party, that if you hold up on your Social Security, and if you are retired, that will also give you more room to do Roth IRA conversions, and I ran a couple numbers that show the difference between taking Social Security at 62 with small Roth IRA conversions and waiting until 66 and then do apply and suspend, and during your lifetime, even if you just live until age 86, you yourself — forget your kids for the moment — are better off by $219,000 in today’s dollars, and then, if you don’t spend all that money and you die and you eventually leave it to your children, your children are actually better off by $519,000. So, I would agree with you. The other advantage of waiting is when … it’s again going back to the issue of protecting both spouses if you wait, and then, let’s say, either one of you dies, the survivor will then get a higher income for the rest of their life, which is protecting them.
David Bear: And then, this warning about the risks of inflation.
Jim Lange: Well, I think one of the problems that people underestimate is inflation, and everybody talks about the market and interest rates, etc., but I don’t hear a lot of discussion about inflation, and you have a very good discussion in the “How to Retire in Style” in your book, Making the Most of Your Money Now. And you make, what I think is, a wonderful analogy. So, I’ll ask you: Why is inflation like Harvey the Rabbit?
Jane Bryant Quinn: Well, you have to remember that Harvey was invisible, and only Jimmy Stewart could see him, but Harvey’s performance was so riveting that the rabbit stole the show. And I think of inflation as the rabbit, as Harvey, simply because you don’t particularly notice it, especially at low rates, but it’s creeping along there anyway. It’s a little bit invisible to you, but over time, it reduces your spendable income, and this is why you continue to invest in stocks for growth even at a younger retirement age, and this is why, when you look at what you’re withdrawing from your 401(k) or your IRA, wherever your money is, that you need to plan for an inflation adjustment as you withdraw just to keep your purchasing power steady.
They’ve been doing some studies about consumer-price inflation and older people, and some say that the inflation rate is much higher for older people because of medical care. Other studies have suggested that it’s not because older people simply aren’t making as many purchases as they used to, so it’s not entirely clear that inflation is higher for older people than it is for younger people. But at any rate, inflation is there, and you have to consider it when you’re planning what your income is going to be in the future.
Jim Lange: Well, you actually have a great chapter in Making the Most of Your Money Now that talks about housing choices and some of the different options that retirees have. You talk about a reverse mortgage, and I get the impression that you like the idea of the reverse mortgage but you don’t like the fees that come along with it. Is that a fair characterization?
Jane Bryant Quinn: I think it’s a fair characterization with an exception, and, you know, there are exceptions due to unusual circumstances. First, you know, a reverse mortgage is something where just … your listeners probably all know about it, but I always just like to make a quick explanation where you can take equity … basically, you’re taking equity out of your home. It’s not a loan because it doesn’t have to be repaid. But you can take it out as a credit line. You can take it out as a lump sum, and then you have that money, and you do not have to repay that money until the house is sold.
So, you are taking a loan against your equity, and when the house is sold, which means if you move, if you go into a nursing home, if something happens, you sell the house, only then do you have to repay the loan. Until that time, the loan is yours, tax-free, to use. It’s an expensive loan. There are a lot of fees upfront, and I have always thought that the time to use a reverse mortgage is only later in life when if you’ve run down other money and you really are in a state of health where you can stay in your home and you want to stay in your home, that this is the last kind of loan you should take. So, you should wait until your late 70s or your 80s before you start thinking about a reverse mortgage, and then, you may decide you don’t want it anyway! You say, “I’ve had it with cleaning the gutters. I’m going to buy an apartment!”
Jim Lange: I was wondering if you had any opinions about doing a one-life or a two-life pension, and whether you thought a one-life insurance would be appropriate, or what some clients do — it just bothers me to no end — is they take a one life and then they don’t do any insurance.
Jane Bryant Quinn: I have a very strong opinion about this, and that is …
Jim Lange: You have a strong opinion about a lot of things but go ahead!
Jane Bryant Quinn: Who, me?
Jim Lange: Who, me?
Jane Bryant Quinn: If you have a pension, and you have it to cover only your own life, how selfish can that be? If your spouse has a pension of her own and it’s equally good, well, you know, that’s fine. If you have plenty of money so you don’t need your pension, that’s fine. But if the spouse needs that pension money to live on and you cover only your own life and then you don’t care about it because you’re dead, I’ll tell you: Not only will your spouse not be happy with your memory, neither will your kids.