Bestselling personal finance author Suze Orman has often said that the very first enemy of wealth is fear.
She has said that there are many kinds of fears people have over money, including the fear of never having enough, the fear that something cannot be done and the fear of failure.
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Often, Orman says, these emotions lead people to fear the future so much that they only focus on today.
Being mindful about the present is an admirable quality, but not to the extent that a person takes no action regarding long term financial considerations.
This, of course, can eventually affect one's ability to effectively plan for retirement.
And this can lead to another fear many people have about the very government program designed to ease the financial burden on retired people: the solvency of Social Security.
The important facts and how to approach them
A recent survey of non-retired Americans found that only 10% of them plan to get the largest possible Social Security payout by retiring at 70 years old.
"More than 90% of participants in the Schroders survey said they are well aware that if they wait until age 70 to start claiming they will receive the biggest possible monthly payment," Orman wrote on her blog Sept. 28. "A benefit that starts at age 70 is 76% higher than if you start receiving your payout at age 62."
Orman said the biggest thing gnawing at people near retirement is apprehension about Social Security running out of money to the extent that it will stop making payments.
"I share everyone’s concern and frustration that Congress has yet to take steps to put Social Security on firmer financial footing," Orman wrote. "But I want to be clear: Payments will not stop. And it is highly, highly unlikely that any changes to the program will impact anyone at least 55 today."
Orman explained how she sees the key part of the math regarding solvency.
"Beginning in 2034 Social Security will not be collecting enough money from current workers to pay out 100% of the benefits owed to retirees," she wrote. "If that were to happen, payments would not stop completely."
"The worst-case scenario is that earned benefits would need to be cut by around 25% to deal with the cash shortfall," Orman continued. "Now I am not suggesting a payout of just 75% is acceptable, but 75% is a lot more than zero. So let's keep that in mind."
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The ability to be patient can pay off
Another important thing to consider is that the longer a person waits to claim Social Security benefits, the higher their monthly payout will be.
"It's not an either/or of 62 or 70. You can claim any time between age 62 and age 70. And every month that you delay earns you a slightly higher payout," Orman wrote. "Your Full Retirement Age (FRA) is when your payout is 100% of your entitled benefit. For anyone born in 1960 or later, your FRA is 67. If you claim before 67 you will get less than 100%, but claiming at say, 66 and five months is going to get you close to 100%, whereas claiming at 62 will entitle you to 70% of your FRA benefit."
Orman proposed a different way of looking at the issue that might make the decision a little less daunting.
"The key takeaway I want you to understand is that every month you wait will pay off," she wrote. "If waiting until 70 seems too daunting, why not reframe this as an annual choice? At 62 choose to wait. Then ask yourself at 63 if you want to wait until 64."
"Keep doing this, and you may find it much easier to see how you can afford to wait another year and another year."
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