Why WHEN You Retire Matters More Than Your Rate of Return

In Newsletter [#014] we revealed the 1st two questions you should ask if you’re within 5 years of retirement:

1. What does it cost to be me?
2. What Lifestyle do I want in retirement?

NOT what many advisors ask:

1. How much is in your 401 (k) and other retirement accounts?
2. What’s the average rate of return on your investments?

If you missed it, go back and review that first step toward retirement.

The questions above, which most advisors ask, are purely for their benefit! The first question is to decipher whether they want to work with you!

The second question is to see if they can convince you that they can do better, so you’ll hire them!

What questions SHOULD you ask, now that you know how much GROSS INCOME you will need?

Remember, what you can spend is “net income”; the last newsletter [#014] explained how to figure out the Gross Income you’ll need before taxes.

We saw that Steve & Joyce would need to spend $8,108/mo. to support the lifestyle they want in retirement.

Unfortunately, they made one of the most common mistakes we see, thinking that if they have that much income, they’re good!

When we calculated the tax that they’d have to pay before they could NET $8,108/mo., they would need $10,135/mo. income, over $2,000/mo. MORE than they anticipated!

That’s $24,000/yr. MORE they hadn’t counted on!

What are Steve and Joyce’s next steps?

Now that we know their GROSS income needed, it’s time to figure out how to cover the Basic and Operating Expenses (“B” + “O”) as much as possible with “guaranteed income streams”.

You remember that we break expenses down into “BODE”:

B = Basic Every Month: mortgage, home & health insurance, utilities

O = Operating Expenses: food, clothes, home repairs, cell phone, internet, etc.

D = Discretionary: Starbucks, eating out, McDonald’s, snacks, Amazon…

E = Entertainment: Vacations, trips, movies, concerts, Netflix, sports, etc.

Steve & Joyce’s first goal (and yours!) is to have their “guaranteed income streams” cover at least “B” and “O”. Once we’ve covered these, we know the basics are covered, no matter market returns.

What? Where do I get “guaranteed income”?

The good news? You (and your spouse, even if he/she never worked) already have a guaranteed income you can plan with…Social Security!

I started by saying WHEN you retire matters more than your “return on investments”. There are two factors that make this true:

Factor #1: Social Security income benefit growth vs. Investment Returns

Factor #2: “Rate of Return” vs. “Sequence of Returns” in the Economic cycle

We’ll begin to cover Factor #1 today, and how WHEN you take Social Security can determine your retirement success.

There is so much to know about your Social Security, and the rules that apply, that we will go even deeper into Social Security taxation, survivor benefits, etc., next week.

Today we’ll cover the basics of Social Security in your retirement.

Okay, don’t panic! I know, the news just said the “Trust Fund” will run out in less than 10 years, in 2034! However, recent reports, dated June 16, 2026, see this as overstated.

https://www.cnbc.com/2026/06/16/social-security-trust-funds-wharton-analysis.html

Additionally, this is greatly misunderstood. If the “Trust Fund” were 100% depleted, that is only a small part of where your monthly payments come from.

Most of the payments are funded by current contributions. If they were to raise the amount of income taxed by Social Security (commensurate with the rising incomes) it would increase the income to pay retirees.

Congress has said over and over that any changes to benefits or age changes will apply only to those under age 55 or 60, and nothing would change for those already collecting.

The biggest change, and most reasonable change, they should make would be highly unpopular. What is that?

RAISE the Full Retirement Age to age 70, and the minimum age to collect to 65 (at least!)

Why do I consider this reasonable? Because we live in a different age than when Social Security was established in 1935!

Federal News Network reports that when Social Security was launched in 1935, the average life expectancy for men was 59.9 years and 63.9 for women.

In 1935, full Social Security benefits started at age 65 (past the average life expectancy!)

Let’s translate that…

Social Security was set up to TRULY be a safety net for those who lived so long they could no longer work, not to grace people with income to take a vacation for as many years as they worked; that’s unsustainable!

When I say “unsustainable”, it’s not just for Social Security! Our nation can’t survive without a working population.

The life expectancy at birth today is 81.4 years for women, and 76.5 years for men.

According to standard Social Security Administration period life tables and actuarial industry charts, a 65-year-old married couple (one male, one female) faces the following joint life expectancy milestones:

Average Joint Life Expectancy: 24.2 additional years (At least one spouse is expected to live to age 89).

Chance of one spouse reaching age 90: 53% (Better than a coin flip).

Chance of one spouse reaching age 95: 22% (Roughly a 1-in-5 chance). [1, 2, 3]

Here’s a chart showing male, female, and couple longevity:

https://retirementresearcher.com/long-can-retirees-expect-live-hit-65/

This includes the entire population, including those on drugs, who don’t have healthcare, but the statistics for homeowners and those with retirement accounts are much higher!

In other words, one spouse could receive benefits from age 62 to 97 — a total of 35 years. If they graduated from college and began working at 27, they may have worked 35 years and then collected benefits for another 35 years.

A recent news story highlighted a couple ages 108 and 107:

Eleanor and Lyle Gittens: The World’s Longest Married Couple

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How many people do you know who COULD continue to work past 65, or even 70?

I’ll bet you know quite a few, and one of them might be YOU!

Now, you may be mad at me, but I’m here to give you the “REAL Truth About Retirement”.

“Nora, what about those poor people who do physical labor, and can’t work into those ages?”

Good question! If someone can no longer perform the physical work they’ve been doing (and I’d give it a qualifying number of years in that occupation to be considered), they could receive their benefits earlier through the disability portion of Social Security.

What does that mean? If the rules on disability were used for those people based on their ability to continue their chosen lifetime occupation, they could collect their full Social Security early as “disability”, just as that works now.

Will Congress make the changes necessary to save Social Security?

I feel certain they will, but not until they are forced to!

Now that we’ve addressed Social Security and made you mad at me for telling the truth about what needs to be done, let’s look at…

Factor #1: Social Security income benefit growth vs. Investment Returns

Your Social Security benefit depends on WHEN you collect!

Did you know…

There are seven main types of Social Security benefits, including retirement, spousal, disability, and survivor options.

Because you can mix, match, and delay these depending on your marital status and work history, there are over 500 different filing strategies!

https://safemoney.com/blog/social-security/567-ways-to-claim-social-security/

Did you know that Social Security employees are forbidden from giving you advice?

They can tell you what your benefits are, but you must determine the best way and time to claim them.

This really makes total sense, unfortunately. Why? Because they don’t know your family or financial situation. And — they’re NOT licensed financial fiduciaries!

Sure, you can “Google” it and get an AI answer…

However, not only does Google not know your personal situation, but it also doesn’t know your family’s illness and longevity history, and even with that, its answers are often incorrect.

Just read the disclaimer when you ask a question…

“AI responses may include mistakes. For financial advice, consult a professional”

In summary, it’s not just a question of early collection, the Full Retirement Age (FRA), or age 70.

Before you even consider WHEN to collect, know the facts affecting your Social Security.

First, how will your Social Security be taxed?

You know about your Net Income, Gross Income, and Adjusted Gross Income, but have you been educated about your “Provisional Income” that determines the taxation of your Social Security?

This explains how “Provisional Income” is calculated:

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Once your “Provisional Income is calculated, there’s a complicated formula as to how much your Social Security will be taxed:

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One of our clients, Steve, asked us, “Wouldn’t it be a good idea to go ahead and collect at 62? I wouldn’t need the money since I’m still working, so I could invest it and grow my retirement account! After all, I can probably do better than the government with my money!”

Now, Steve had a very good Federal career, earning well over $125,000/yr. And, he definitely didn’t need the money while working, so that made perfect sense to him.

What could be the problem with his plan?

Steve didn’t know what he didn’t know! (Like so many of us!)

First, he didn’t understand “Provisional Income”, the taxation on benefits, and that his current income would definitely affect how much tax he has to pay on that benefit before he nets the money he wants to invest.

Plus, it will raise him to an additional tax bracket!

Second, he was unaware of a very important rule, the “Social Security Earnings Test.”

If you collect under “Full Retirement Age” (FRA), which is 67 for most people today, you are subject to this “test”.

How does that work?

The “test” is on how much you earn, and whether you have to “give back” some (as much as 50%) of the Social Security you expected to collect.

This short video explains the ramifications:

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Third, he thought he could do better with his money than the government could.

Normally, I’d agree with him, but NOT when it comes to Social Security benefits!

Steve wasn’t aware that his benefit would increase by 8% every year he waits to collect, PLUS Cost of Living Increases!

As we noted in newsletter [#011], historical Social Security COLAs have averaged around 2%.

Hmm, Steve, can you guarantee a return of over 10% on your investments?

Actually, Steve would have to earn MORE than 10%, because he won’t get the full amount of his Social Security to invest!

This has been quite a journey just to discuss the basics of Social Security.

BEWARE, what you don’t know CAN HURT YOU!

Stay tuned next week for how to maximize your retirement using Social Security as a “base”, and how to increase your “Guaranteed Income for Life” to meet your Basic and Operating expenses!

This brings us back to our reason for this newsletter and our membership site, “Retire Plugged In,” which will roll out shortly.

Our goal is to educate and protect you from a lack of information, misleading information, and information that doesn’t pertain to your situation.

RetirePluggedIn is more than a membership site — it’s a growing community built by us with retirees and future retirees, for retirees and future retirees.

Could you help us help you? We’re looking for pre-retirees and retirees who can give us feedback on what would be most helpful in our membership site.

Think about it, no cost, no big-time commitment, but an opportunity to not only shape this but also to have exclusive Founding Member access and perks.

We’ll explain more at the end of next week’s newsletter.

Okay, I’ll leave you with that for now. Have a great rest of your day, and I look forward to seeing you next week.

Take care,

Nora