Don't Let The Government Decide When You Retire

By: Amy Calistri of Street Authority

I try not to be tempted by "click-baiting" headlines on the Internet. You know what I'm talking about -- the salacious, ridiculous, or shocking headlines that you click on, only to discover mundane articles that may or may not have anything to do with the headline.

But we all have our weaknesses; mine is information about retirement planning. This explains why I clicked on the U.S. News headline, "The Perils of Retirement at Age 65."

The article didn't provide me with many new insights. For instance, I already knew that even though you are eligible to start receiving Social Security retirement benefits at age 62, most people have to be older than 65 to receive "full" benefits.

What did surprise me were the comments people posted after reading the article. They fell into two general groups.

There was a group that couldn't bear the thought of working until the age of 65 and over:

"Both my husband and I just turned 60 and quite frankly we have just about had it with working."

"I'm 59 now and so tired of working I could #$%$. 65 is too #$%$ old to stop working."

"I've been working since I was 18 and I am so freaking tired of the rat race. I've been working for absolute idiots since 1999 and I can't stand it anymore."

The other group was convinced the author was trying to trick people out of collecting Social Security:

"These guys writing all these articles must be getting paid by the SS admin."

"I love these articles that are pushed by the corporate and government elites that want you to work until you drop dead."

"Sounds like the media is trying to get everyone to work longer and die without getting any of their benefits that they paid for."

In defense of the author, the longer you wait to start collecting government retirement benefits, the more money you will be eligible to collect each month. And if you were born after 1937 and retire at age 65, you will receive less than full benefits. But that's not the "peril" as I see it.

The real retirement peril I see is that people may be letting the Social Security Administration decide when they should retire. And it doesn't have to be that way.

Dividend Reinvestment is a Flexible Tool, Not an Irreversible Switch

In most cases, people use dividend reinvestment like a switch. Before retirement, they switch it on to maximize the compound growth of their portfolios. After retirement, they switch it off to maximize current income.

If someone started The Daily Paycheck Strategy at age 42*, this is the income they might be able to expect once they flipped the dividend reinvestment switch off after retiring at 66:

*Assumes $200,000 portfolio with an average yield of 6% and zero asset appreciation.

But what if this same person at age 62 got laid off, needed to leave work to take care of an aging parent or just couldn't stand the thought of working another day? If they have a Daily Paycheck portfolio, they don't have to settle for less-than-full retirement benefits from the government. After all, they have a flexible retirement plan.

A Daily Paycheck portfolio investor could flip the switch early. That would provide them with income until they were able to collect full government benefits. With the additional income from the government, they could start to reinvest a small portion of their dividends again.

In the chart below, the investor continues to take two-thirds of his dividends as income, while reinvesting one third of his dividends.

In both examples, the final portfolio values are the same once the investors reach the age of 79 -- more than $850,000 -- even though the early retiree started drawing income four years early. This leaves both investors ample resources to tap for unforeseen emergencies, grandkids' graduation gifts, or to pay for additional healthcare expenses.

Each portfolio is also able to generate more than $50,000 a year. And these are fairly conservative estimates. For instance, it assumes that none of the assets in the portfolios appreciates even one penny.

This is just one example of how you can tweak your Daily Paycheck portfolio. But there are countless ways you can customize the strategy to fit your needs. You can dial back the portion of dividends you reinvest at any time to collect more income. You can ramp up the portion of dividends you reinvest at any time to get more growth.

The point is that the government's retirement plan isn't flexible. But yours can be.

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