3 Ideas to Plan For Lower Returns

3 Ideas to Help Plan for Lower Returns

What we earn on our nest egg is a key component to our future plans. Over the past month, we talked about the potential impact of both lower bond and stock returns. What can you do to prepare for this? Today we’ll share 3 ideas to help you plan for lower future investment returns.

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3 Ideas to Help Plan for Lower Returns

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3 ideas to plan for lower returns

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All month long, we’ve talked about the possibility of lower future returns for both stocks and bonds.  

What happens if future returns are less than historical averages? Bond yields indicate the future results from those investments could be well below their averages. And many “experts” believe future stock returns could also be less. This combination creates some significant challenges as you head into retirement.

Here are 3 things you can do to plan for lower future returns.

1. Delay Your Retirement

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Delaying your retirement improves your Social Security and pension benefits (if you will receive a pension). This works three different ways.  It shrinks the discounts you face for early retirement.  It increases your primary benefit. Or, with Social Security, you can receive delayed retirement credits. 

Waiting to retire also helps solve a problem with health insurance in retirement.  You are eligible to receive Medicare at age 65.  This means you won’t have to buy an expensive individual health insurance policy. 

Delaying retirement also allows you to reduce debt, save more, and benefit from compounded returns.

2. Monitor Your Spending

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In my experience, the primary reason people run out of money in retirement is overspending. The more you withdraw from your nest egg, the higher the chance you deplete your savings. Take a good look at your retirement budget. Try to find expenses or costs you can eliminate.

3 ideas to help plan for lower returns

3. Own More Stocks

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Investing involves a trade off. Trying to earn more can mean the short-term shocks are more severe. But, it may be necessary to consider an allocation that provides more opportunities for long-term growth. This may be hard to do, considering we haven’t completely recovered from a pretty steep drop. But in the long-run, the risks could be worth it, even if it is for a short period of time.

Be Flexible

It is important to be flexible.  The plans you created may need to be adjusted as the world around us changes.  None of us know what future returns will be.  But we need to consider what happens if future returns are lower.  Making good decisions now can help improve your chances for longer term success.  And, if things turn out better than expected, everything will be fine.

3 ideas to help plan for lower returns
3 ideas to help plan for lower returns

 

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Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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Stocks Climb A Wall of Worry

Stocks climb a wall of worry.

What does this mean? 

Today, we talk about:

  • The news always seems bad
  • Recessions, trade wars and now impeachment dominate the headlines.
  • But the stock market? What has it done.

We’ll talk about it on this episode of Monday Morning Money.

Watch: Stocks Climb A Wall Of Worry

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Audio Only Version:

We would love to answer your question on a future episode

Do you have a question about money or personal finance? Submit your question using the form below or send an email to neal@flemingwatson.com

Each Episode of Monday Morning Money is also broadcast on Local Radio, WMOA (1490 AM and 101.3 FM).  You can hear it at 11:07 every Monday. 

Listen Now: Stocks Climb A Wall of Worry

You can also watch this on our YouTube Channel.

We would love to answer your question on a future episode

Do you have a question about money or personal finance? Submit your question using the form below or send an email to neal@flemingwatson.com

Stocks climb a wall of worry.

What does this mean? Think about all the stuff which has circulated in the headlines over the past year.

A Looming Recession

We continue to deal with the threat of a recession. A major economic slow down can lead to higher unemployment. It can also impact businesses big and small. In some cases, a recession can mean a bear market.

The talk of a recession tends to darken the mood though, and people’s attitudes tend to sour on things like stocks.

Trade Wars

We are still in the midst of a trade war with China. Something many experts feel could contribute to our economic woes. Both countries are taxing goods imported from the other. This serves to drive prices higher for the consumer.

Officials from both countries continue to talk. Unfortunately, nothing has happened, yet.

Impeachment

And now we can add the possibility of impeachment to the list of big things affecting the mindset of the American public. Regardless of where you stand on this issue, it casts a dark cloud over the future.

What the impact will be? Nobody really knows. Since the 1920’s this has only happened twice, with presidents Nixon and Clinton. Nixon’s problems started in late 1972.  The stock market in 1973 and 74 declined nearly 50%.

Clinton’s problems happened in 1997 and 1998.  In both years, the stock market was up over 20%.

So we don’t have a lot of data to help guide us on what to expect.

Wall of Worry
Stocks Climb A Wall

With all the uncertainty, the dismal news cycle, and overwhelming pessimism, what has the stock market done?

Last Monday – the 28th –  the S&P 500 set a new all-time high.

Stocks Climb a Wall of Worry

At that time the popular large-cap index was up over 23% on a total return basis for the year.

Climb a Wall

On the same day, The Dow Jones Industrial Average closed to within less than 1% of it’s all-time high.  

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This is what it means when people say, “Stocks climb a wall of worry.” The doom and gloom surrounds us. In fact, it is hard to imagine there is anything good happening in the world.  But yet, the stock market just quietly marches higher.

Beneath the noise are great businesses. Companies who find ways to improve profits and deliver value to their shareholders. And sometimes it leads to a pleasant surprise waiting for us when the dust settles.

Stay Informed.

Monday Morning Money is a podcast talking about current events which  impact your bottom line.  

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Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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When Planning for Retirement, Where Do You Start?

When preparing for retirement, where do you start?  That is a question submitted by Tony.  Today, on Monday Morning Money we’ll answer it.

Video: Answering A Reader Question, Where Do You Start?

Each Episode of Monday Morning Money is also broadcast on Local Radio, WMOA (1490 AM and 101.3 FM).  You can hear it at 11:07 every Monday. 

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In addition, you can also hear this episode on our YouTube Channel.  Please take a moment to subscribe, as it helps our analytics and improves our reach.  This also appears on Facebook and LinkedIn.  

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What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

The Question:

“I’m 60 years old and want to retire in a few years. My wife and I have been saving in our 401k’s, but the thought of retiring seems overwhelming. I need to figure this out, where do I start?”

-Tony

The Answer: Where Do You Start?

This is a great question and one we hear quite often. 

Navigating retirement is about managing cash flow. And we need to follow one of the key rules for real-life financial success: spend less than what you earn.

In retirement, our income changes. We go from earning a paycheck to receiving Social Security or a state pension plan. It also means we need to use what we have saved to produce income. For most of us, there is a limit to how much income those resources provide.

So where do you start? Begin with understanding how you spend your money.

Many People Don't Create A Budget

Unfortunately, most Americans don’t know what they are spending.  They are happy if they have money in their bank account when the next paycheck arrives.

According to a survey conducted by the Certified Financial Planner Board of Standards, almost 60% of Americans don’t track their spending. So, unless you are part of the 40% who do, this should be your first task.

Getting Started

Get out those bank statements and credit card bills. It’s time to see where it all goes. It also helps to categorize those expenditures into 3 major categories. Fixed expenses, essential expenses, and discretionary expenses.

Fixed expenses include things which are difficult to change. This is going to include car payments, mortgage, rent, insurance premiums, prescription costs, and taxes.

Essential expenses are necessary items to living, but you do have some control. This will be groceries, your electric bill, cable bill, and other utilities.

Then the discretionary expenses include everything else. Hobbies, eating out, recreational expenses, vacations, entertainment. These are things you could eliminate.

Download Our Free Cash Flow Worksheet

To help you with the budgeting process, we created a free worksheet. You can download it by clicking on the picture to the right. It will help guide you through each of the categories mentioned above.

Where Do You Start

Why Should You Do This?

Why is understanding your spending so important? In our experience, overspending is the biggest threat to your retirement savings. When you can control your spending you improve your chances of longer-term success.

After you go through this exercise you can begin to work on the income part of your retirement puzzle. But that’s a topic for a different episode.

Stay Informed.

Monday Morning Money is a podcast talking about current events which  impact your bottom line.  

If you would like to be notified when a new episode is released, sign up for our mailing list.  Just complete the form.

Join Our List Today!

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Financial Planning

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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Some Changes Are Coming

Some Changes Are Coming
Some changes are coming to the content we create.  And we wanted to take a moment to describe  what is happening.
 
Over the past several months we have made a commitment to creating more content for our website. There are two reasons for this.
 
First, we wanted to help you stay informed about the events going on in the world. We wanted to add perspective and and insight you won’t find in a 30 second sound bite.
 
The second was to help people who are planning for retirement. We created a video series to give them some ideas to help them to plan for a better outcome.
 
We intend to continue both, but there will be a few changes.
 

Monday Morning Money Has a New Format

 Originally we designed this series to help people planning for their retirement. Going forward, this will be the name of our show that addresses current events and how they impact you. 
We are also happy annouce Monday Morning Money will also appear each Monday at 11:07 on local radio WMOA (1490 AM, 101.3 FM). Of course every episode will be here on our website, our Facebook page, and our YouTube channel. The first episode will air on September 2nd.
Some Changes Are coming
 
We are also happy to answer questions. And an easy way is to submit those questions using the form at the bottom of the page.
 

Videos Designed to Help People Plan for a Better Retirement

As you could guess, this series will no longer be called Monday Morning Money. We don’t have a name for it yet. But, they will continue to appear as we have the opportunity to create them.
As always, we want to address the topics which matter most to you. So if you have a question or a suggestion, we are happy to tackle it in a future episode.
 

YouTube and Facebook

 Speaking of YouTube and Facebook, we could use your help. Please take a moment to subscribe to our YouTube Channel. And if you are on Facebook, please like our page. These actions help our analytics for various search engines. This allows us to be able to reach more people who may need help managing their money and planning for the future.

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Fixing Social Security

The Social Security Trust Fund is projected to run out of money by 2035.  It means fixing Social Security is now a hot topic.  We’ll share two proposed ideas on this episode of Monday Morning Money.

Video: Fixing Social Security

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The Plans for Fixing Social Security

Social Security 2100

Social Security Expansion Act

Proposed by Senators Peter DeFazio (NY) and Bernie Saunders (VT)

Larger Benefits

Social Security 2100 changes the calculation of your retirement benefits.  The changes result in an increase of about 2%

The language of the Social Security Expansion Act is vague.  It states benefits will increase.

A Different Cost of Living Adjustment

Both proposals would change the cost of living adjustment. They will use the CPI-E.  This measure better accounts for the rising costs for senior citizens.  It gives more consideration to things like prescriptions and medical care.

Less Income Tax on Your Social Security Benefits

The House Bill will reduce income taxes on your Social Security benefits.  Currently up to 85% of your retirement benefits can be taxed.

The Senate Bill does not address income taxes on Social Security benefits.

A Larger Minimum Benefit

Both proposals would increase the minimum benefit to 125% of the poverty level.

Paying For It

The House Bill would gradually increase Social Security taxes. The tax rate will rise from 12.4% of eligible income to 14.8% over several years.  It would also assess Social Security taxes on earned income over $400,000 per year.

The Senate version would tax all earned income, and remove the earnings cap. It would also tax all forms of income for those who make more than $250,000 per year.  This includes things like dividends and capital gains.

More Videos About Social Security

Financial Planning

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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How Social Security Spousal Benefits Impact Your Retirement

If you’re married, Social Security spousal benefits can impact your retirement.  Today we’ll take a deeper dive into how they work.  And if you are no longer married, we have a bonus tip for you at the end.

Video: How Social Security Spousal Benefits Impact Your Retirement.

Plan for A Better Retirement

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Whether you’re married now, or were married, you should be aware of the provisions for Social Security spousal benefits. This allows you to receive an income based on your spouse’s earnings if their income was more than yours.

Here is how it works.

Computing Social Security Spousal Benefits

When you’re married, and you’re the lower earning spouse, your Social Security benefit will be

  1. Your own benefit based on your own earnings, or
  2. A spousal benefit equal to one half of your spouse’s earnings.

Here’s some numbers. (Click the images to enlarge)

Here are some key things you need to know.

Your Age Matters

Social Security reduces your benefits if you retire early. The spousal benefit portion of your income faces a bigger discount. So if you were born after 1960, your normal retirement age is 67. Your benefits get discounted 30%. The spousal benefit gets discounted 32.5%.  (Click image to enlarge)

The Higher Earning Spouse Must Also Receive Benefits

You can apply for your own benefits any time after age 62. However, you won’t receive spousal benefits until your spouse starts their Social Security.

So if your spouse continues to work, you can receive your $800 per month adjusted for your age. Then when your spouse retires, you can get the spousal benefit, adjusted for your age.

If Higher Earning Spouse Retires Early, It Reduces the Spousal Benefit.

Social Security computes your spousal benefit based on the higher earning spouses actual benefit.

So if the higher earning spouse retires early, the maximum spousal benefit will also be reduced.

Spousal Benefits Do Not Benefit From Delayed Retirement Credits

If you delay retirement beyond your normal retirement age, your primary benefit increases. The delayed retirement credits add 8% each year you delay your benefits until age 70. But these delayed retirement credits don’t apply to spousal benefits.

Your spousal benefit is capped at half of your spouses benefit at their normal retirement age.

The higher earning spouse will see their benefits increase for delaying retirement. But, the spouse will not. 

Bonus Tip:  Divorced spouses can file on their former spouse’s earnings record.

If you meet certain conditions, you can claim a spousal benefit on your former spouse’s social security record. Here’s how. (Click Image to Enlarge)

Your ex doesn’t have to be receiving their Social Security in order for you to file for spousal benefits.

And your age will factor into any discounts you may face.

Social Security has a lot of wrinkles and moving parts. And often times it can be tough to work through it.  Spousal benefits can have a significant impact on your retirement income.  Knowing some of the key decision points can help you plan for a better retirement.

Financial Planning

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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5 Reasons to Start Your Social Security at 62

For most of us, waiting to take your Social Security makes sense.  But here are 5 reasons to start your Social Security at 62.

Video: 5 Reasons to Start Your Social Security at 62

Plan for A Better Retirement

We created Monday Morning Money with one goal in mind—give you information which will inspire you to plan for a better retirement. 

We publish a new episode each week.  And, we will deliver it right to your inbox.

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5 Reasons to Start Your Social Security at 62

Last week we showed you one way you can evaluate your Social Security decision. The numbers will say you should wait to start your benefits. And the strategy can work for you, if you live long enough.
 
But it raises the question: Does it make sense to start your benefits early? Sometimes it does. And here are 5 reasons to start your Social Security benefits at age 62.

Early Retirement...

5 Reasons to Start Social Security at 62
Many Americans plan to work beyond age 65. For a large number, an early retirement isn’t a choice.   For those who retire early, they may not be able to afford to delay their Social Security.  
 
Most of us will rely on Social Security and savings for our retirement income.   For our savings to last, we need to watch the withdrawal rate.  Withdrawal rates above 4% increase the risk of running out of money.
 
If you retire early, pay attention to how not having Social Security will impact your savings.  If it increases your risk of running out of money, you may want to start your benefits.

Not Married

5 Reasons Social SEcurity
One of the biggest reasons to delay Social Security is to improve Spousal and Survivor benefits. 
 
If you’re not married, you don’t have to worry about it. 
 
The numbers may show waiting is beneficial.  But, not having a spouse may simplify your decision.  Your choice can become more about what you want to do and not necessarily about the numbers.

Waiting Works, If You Live Long Enough

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When doing the math, waiting to take Social Security can be beneficial if you live long enough. 

For some, there may be known health issues which make reaching the breakeven point questionable. 

But you shouldn’t make this choice based solely on your health.  You also need to consider benefits for your spouse.  Waiting can improve both spousal and survivor benefits.

The System Has Problems, and Government is a Bigger Problem

5 Reasons to Start Social Security

Social Security faces some future financial issues.  If our elected leaders fail to act, future benefits could be cut by as much as 21%.  

And with the way things work in Washington DC today, fixing it might be a real challenge. 

You might lack faith in our elected officials to fix the problem.  If so,  you may want to start your benefits as early as possible.  This way you could get more before benefits are adjusted.

Be careful though.  It may get fixed.  And if you start your benefits, you have limited opportunities to change your mind.

You're More Fortunate Than Many

Start Social Security at 62

For some, Social Security benefits won’t really matter.  If you fit into this category, you may want to take your benefits early.

Social Security becomes bonus income to help you do the things you want to do.

It also keeps your income lower, which can reduce your taxes.  

Waiting Still Makes Sense, But...

Most of the time, it makes sense to delay Social Security.  But, there are some times when it can make sense to start your Social Security benefits early. For some, it may be a  necessity rather than choice. The important thing for you, take a few moments and look at the numbers. Make sure you are making a good decision for you and your family.

Financial Planning

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

Watch Other Episodes of Monday Morning Money

Catch up on the previous episodes of our weekly video series, Monday Morning Money.  You can also see them on our facebook page and our YouTube channel.

Our Most Recent Videos

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Watch Now

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Evaluating Your Social Security Decision

Evaluating your Social Security decision can be tricky. Waiting to start benefits can pay off—if you live long enough. We’ll show you one way you can look at your situation.

Video: Evaluating Your Social Security Decision

Plan for A Better Retirement

We created Monday Morning Money with one goal in mind.  Give you information to inspire you to plan for a better retirement. 

We publish a new episode each week.  And, we will deliver it right to your inbox.

Don’t miss an episode, subscribe today!

Get Free Weekly Tips!

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There aren’t a lot of choices you can make when it comes to your Social Security Retirement Benefits. In fact, you only have one choice–when  do you start?  So should you claim your benefits as early as possible, or should you wait?

Today we’ll dig into the numbers to show you how waiting can pay off in the long run.

Before we get into the weeds too far, let’s lay down a foundation. This is a simplified scenario, and there are often many different moving parts. We created this illustration using some generic and simple assumptions.

Also, for this episode, we won’t be talking about the impact this decision has on your retirement savings or other parts of your life. Those things should also be considered.

Your situation is unique. Please consult a professional before making any significant decisions.

A Case Study: Tom and Mary's Social Security

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One of the biggest decisions Tom and Mary will make is when they start their Social Security. Do they retire this year? If so, it means they receive their benefits for a longer period of time.

But it also means, their benefits get reduced. In this case by 27%. In real dollar terms, it means they receive less.

Waiting means the discount shrinks, and they receive more each month compared to age 62. 

And if they delay their retirement to age 70, they qualify for delayed retirement credits. This is where your benefits increase by 8% for each year you delay your decision.

62 vs. 65: Evaluating Their Options

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Waiting to retire at age 65 means they receive $612 more per month. But they also receive fewer monthly payments over their lifetime. It will be worth it, if they live long enough. But how long do they have to live to “break even.”
 
This graph shows the cumulative benefits starting at age 62 (dark green line). And the total benefits received starting at age 65 (light green line). We are looking for where the two lines cross. This is how long they have to live to make waiting worth it.
Evaluating Your Social Security
If they live to age 80, waiting to take their Social Security makes sense. What about some other ages?

62 vs. Full Retirement Age (66 and 6 Months)

Evaluating Social Security
SOcial Security
The break even point pushes out to age 82. This makes the “payoff” of waiting a little less certain, but certainly within reason.

62 vs. Maximum Benefits (Age 70)

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Evaluating Your Decision
Delayed Retirement Credits make this interesting. The break even point is age 83. It might be too far away to make it worth considering. But, if they are healthy, they might want to.

Full Retirement Age vs. Maximum Benefits

Of course we should look at this option.  If they decide to work until their full retirement age, should they consider waiting until age 70 to collect Social Security?
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Evaluating Your Social Security Decision FRA v 70
With a break even point of age 84, they may not be comfortable taking the risk.
 
A lot of factors go into evaluating your Social Security decision. The break even point of your cumulative benefits is only one of them. If you would like help looking at your numbers, please click the button below (or give us a call). We would be glad to show you how you can include Social Security into your retirement plans.
Financial Planning

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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