MDNews - Minnesota

IN M Y E XPERIENCE, I've found that physicians tend to realize the importance of investing for retirement and are good savers. As a result of such good habits and higher than average incomes, physicians also tend to have above average wealth. Even so, upon approaching retirement age, there are often questions about when to begin receiving Social Security benefits. Since most physicians won't depend on Social Security as a primary source of retirement income and will instead use benefits to supplement retirement income, the best decision will likely be to wait as long as possible to begin receiving payments. But some Social Security features may play additional roles beyond supplementing your retirement income. Social Security benefits are designed to act in an income- replacement capacity, much a like a typical pension. The di•erence is that pensions normally replace 50–70 percent of a person's average income over the previous three to five years, whereas Social Security benefits are based on each worker's highest 35 years of income. Anyone eligible for Social Security is entitled to receive benefits, but not necessarily in proportion to the amount paid in Social Security taxes. Benefits have multiple tiers, ranging from 90 percent to 27 percent of a worker's average annua l inflation-adjusted earnings. The Primary Insurance Amount (PIA) is the amount you receive at full retirement age. Full retirement age is currently 66 but is moving to 67 for anyone born after 1964. Benefits can begin as early as age 62, but at this age, they are reduced by 6.7 percent per year for the first three years and 5 percent per year for each additiona l year. Recipients can also opt to delay benefits until age 70 and earn an 8 percent per year credit in exchange for the delayed start. In 2016, the maximum Social Security wage base is $118,500 per year or $9,875 per month. If you have earned the maximum income eligible for Social Security throughout your career, which is likely for most physi- cians, the monthly benefit is currently $2,639 per month or 27 percent of lifetime earnings. If your portfolio is going to serve as your primary source of retirement income, three factors may negatively impact your financial wellbeing during retirement: poor market condi- tions, higher than expected inflation and a long retirement. Delaying Social Security works out best under these three scenarios. Given the current global economic and geopolitical environment, lower-than-normal market returns and higher inflation are both probable for the foreseeable future. Since most of you will likely enjoy above-average wealth, it is safe to presume that you may also have above-average life expectancy. A long life expectancy coupled with a substantial investment portfolio suggests that Social Security can be used e•ectively as a portfolio hedge or as an o•set to poor market conditions, higher than expected inflation and long retirement. The same factors that negatively impact your retirement also positively a•ect the decision to delay taking Social Security. BY BILL STRAND, FOUNDER AND PRINCIPAL OF PARADIGM: STRATEGIES IN WEALTH MANAGEMENT UNDERSTANDING the Role of Social Security for High-income Earners 1 0 1 0❱❱❱❱❱ S P E C I A L F E A T U R E

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