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When it Comes to Social Security are You a Sloth, Early Bird, or Worker Bee?

When it Comes to Social Security are You a Sloth, Early Bird, or Worker Bee?

June 22, 2023

In our last piece, we looked at how we can determine the best strategy for withdrawing your Social Security benefits. If you're someone who is thinking about electing to take your benefits might fall into one of these mindsets.

The Simple Sloth, Early Bird, and Worker Bee

The first perspective is one that sees the decision to retire and the decision to elect Social Security benefits as being one and the same. In other words, the decision to retire and the decision to begin receiving Social Security benefits go hand-in-hand, because that’s just what you do. We will refer to this mindset as the Simple Sloth.

The second perspective is one that basically says, “I’m going to get all that I can.” The idea driving this strategy is that the earlier you collect, the greater your cumulative benefit will be. We will refer to this mindset as I Early Bird.

If it turns out to be true that you collect more by electing as early as possible, however, the truth is that it’s because you ended up not living all that long. To understand why I say that, we just need to walk through a little example. Hypothetically, let’s say that two of your Social Security benefit amounts are $1500/mo at age 62 and $3000/mo at age 70. If we assume no inflation, it should be obvious that it only takes half the time to reach the same cumulative amount if you are collecting $3000/mo, as compared to $1500/mo.

This means that you could defer benefits to age 70 and receive the same cumulative amount of benefits by age 77, as compared to commencing benefits at age 62. Granted, actual Social Security benefits don’t tend to offer that drastic of a disparity, where one benefit amount is twice that of another, but it’s also not far off and you might be surprised by the breakeven age of your benefits.

The third perspective is one that puts receiving a “paycheck” at the center of the decision. In other words, some apparently find comfort in continuing the pattern most of us experience in our working years of receiving a check on a regular basis. We will refer to this mindset as the Worker Bee.

A key piece of this perspective seems to be that the “paycheck” must come from someone else—e.g., an employer or, with Social Security, a government agency. Something else that seems to frequently go hand-in-hand with this perspective is the notion that needing or wanting to withdraw from investments is best done as late in life as possible, if ever. I assure you that the if ever part is not hyperbole.

The guilt that sometimes accompanies a withdrawal request has always been a curious one to me, but that’s a digression we can address at a later date. Whether someone should find more comfort in not withdrawing funds, or in a check coming from Social Security earlier or later, should be determined through the evaluation and monitoring that we have been discussing. It should be contingent upon how much someone can safely receive or withdraw from each of their resources, what risks are associated with the different income strategies available to them, and which aggregate strategy offers the greatest chance of success.

Social Security and Risk

The mindset of the Simple Sloth basically says nothing of risk—i.e., there’s no consideration for anything other than an early, or immediate, election of Social Security benefits, thus there is no consideration of risk. It would seem that the mindsets of the Early Bird and the Worker Bee, however, speak directly to a person’s perception of risk.

  • Someone concerned with collecting the greatest amount of cumulative benefits is basically one who sees the greatest source of risk being a premature death, thus they want to collect as much as they can while they can.
  • Someone who is concerned about receiving a regular check, especially from a third-party source, is one who sees the greatest source of risk, and maybe ironically so, being the premature depletion of their investments, thus they want to withdraw as little as possible right now, and at any point in time.

What should have come into view by now, though, is that no decision is without risk. The simple reason for that is that all options involved in a decision have risk—some more and some less, relative to the other options that are available. The three perspectives discussed above basically reveal, however, that this is not necessarily how financial decisions are understood or experienced.

If our decision-making process involves the automatic exclusion of legitimate considerations, like the possibility of electing to receive Social Security benefits later, then we should realize that such automatic exclusion, in and of itself, potentially compounds any risk that already exists. By quickly and easily dismissing valid considerations, we can essentially say that we’ve managed to trick ourselves into thinking we’ve arrived at a risk-free decision, or at least one with much less risk than we should probably realize. Something being a trick, however, means that it’s not real.

The Fear

Don’t get me wrong, though, it's not like I don’t understand why someone might have a perspective that results in a suboptimal decision-making process. Not only can emotions be powerful masters, but evaluating financial decisions can be complicated and difficult. Minimizing risk, real or perceived, also means minimizing complexity, real or perceived.

Decision-making, by definition, is a process of exclusion—i.e., decisions are made through a process of eliminating options, one-by-one. The best decisions, however, are made when all pertinent information is considered methodically to ensure we have good reason to exclude an option. Any acceleration of this exclusionary process—e.g., dismissing options without consideration—would certainly simplify things, I suppose, but it would also result in the neglect of important information. That neglect can compromise the integrity of any decision that results and a decision lacking integrity is exactly what potentially leads to the realization of risk and the greatest chance of realizing our financial fears.

Now, some might be tempted to conclude that “financial fears” is simply a euphemism for running out of money. That certainly could be one definition, but it is not the exclusive definition, and probably not the best way to understand the true nature of our financial fears. Essentially, if running out of money was the only financial fear that we were attempting to prevent, then that would mean not running out of money would be tantamount to defining financial success.

Is not running out of money all there is to judging the success or failure of our financial decisions and plans, though? Of course not. What we really want is more than just to avoid going broke, right? Do we not want experiences, and are the experiences that we want not unique and specific to each of us?

Do we want to merely finish the race or do we want to win?