Social Security claiming: It pays to get help

Inexpensive online services can optimize your benefits

The Social Security filing rules are complex, and many of us make decisions about when to claim benefits that cost us dearly in lost lifetime benefits. This is a big problem, since the lifetime value of Social Security benefits significantly overshadows other sources of retirement income for most Americans.

But plenty of excellent help is available. Today, the market for Social Security advice includes a variety of software tools that can analyze your individual circumstances and retirement income needs, and generate recommendations for getting the most out of benefits. You can find some pretty good free tools - but I’d recommend spending a bit of money on this. For a very modest fee ($20 to $50) you can get a detailed set of options for coordinated spousal filings, and recommendations for coordination of benefits with portfolio drawdowns.

In The New York Times this weekend, I explore the best online software tools for optimizing benefits.

Social Security offices are expected to reopen in March

The national network of Social Security field offices, which were closed nearly two years ago at the start of the pandemic, is on track to reopen on March 30.

The Social Security Administration and unions representing the agency’s work force agreed to reopen more than 1,200 offices, contingent on changes in pandemic conditions and further negotiations. Bargaining is set to conclude by March 1, which would allow 30 days to plan for the office re-entry.

This will restore the public’s ability to interact with the SSA one-on-one for te first time since the onset of the pandemic. I covered this last week for The New York Times. Details are here.

How much stock is too much in retirement?

The major providers of target date funds (TDFs) have long signaled to investors that it’s okay to hold quite a bit of stock in portfolios well into retirement - most allocate 50% or more to equities past the target date. But this rarely is a one-size-fits-all question - and that’s one of the weaknesses of TDFs. They do a good job of maintaining your allocations, but needs differ in retirement.

In the New York Times this week, Jeff Sommer notes that Vanguard is moving toward giving investors more choice on equity allocations:

In a shift that is just beginning to be offered to workplace retirement plans, Vanguard, which has dominated the target-date fund market, has begun to acknowledge the need for variations in its standard portfolios for retirees.

It now says that some investors who have already entered retirement may be better off if they keep their stock holdings fairly high, retaining a 50 percent allocation to equities. The 50 percent stock retirement portfolio will be a new option available to companies with Vanguard target-date retirement funds in their plans. That is a big increase over the current allocation: just 30 percent stocks and 70 percent bonds.

“People will need to evaluate this at a household level,” Roger Aliaga-Diaz, chief economist for the Americas and head of portfolio construction at Vanguard, said in an interview. “This greater allocation to stocks would be for people with more willingness to take on more risk, who are more comfortable with an inherently more volatile portfolio and who are wealthy enough to have the ability to take on more risk without endangering their retirement.”

That sounds good, until you consider that many retirees won’t have a clue about how to pick the right allocation. Anne Tergeson reports in the Wall Street Journal that, left to their own devices, many older investors have equity allocations that are far too high on the equity side:

Thanks to a long bull market that surprisingly rose and rose through the pandemic, plus more than a decade of low yields for bonds, older Americans have a lot of money in the stock market. Data from Fidelity Investments’ 20.4 million 401(k) investors shows that almost 40% of 401(k) investors age 60 to 69 hold about 67% or more of their portfolios in stocks. Among retail clients at Vanguard Group between ages 65 and 74, 17% have 98% or more of their portfolios in stocks.

For my money, the answer here is to work with a financial planner who can talk you through the questions and keep your targeted allocations on track. How much stock to hold depends on any number of factors.

Investing guru Bill Bernstein offered this suggestion to the WSJ:

One way to gauge your comfort level with stocks: calculate how much money you would have left if you were to invest your desired allocation in stocks and experience an approximately 50% selloff, which can occur once or twice a generation, Mr. Bernstein said. Consider someone with a $1 million portfolio who is targeting a 4%, or $40,000, withdrawal. If the investor decides to put 60%, or $600,000, in stocks, the next step is to consider how it would feel to lose half of that money.

What I’m reading

Watch out for nasty tax surprises from target date funds in taxable accounts . . . The dark history of Medicare privatization . . . Social Security opens to survivors of same-sex couples who could not marry.