Should I Start Social Security at 62?

Should I Start My Social Security At 62?

This question is from Lloyd. He asks, “I’m planning to retire in the spring when I turn 62. Should I start taking my Social Security or should I wait?”

This is a big decision. The only decision we have when we’re looking at social security is when to file for our benefits.

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The impact of retiring early

The year you were born determines your normal retirement age. When you start Social Security before your normal retirement age, your benefits are reduced. If you’re married, the spousal benefit is also discounted. It also means a lower survivor benefit. The dollar amount of your cost of living adjustments will also be smaller. The percentage will be the same, but the dollar amount of the increase will be smaller.

A lot of people still signed up for social security early.

  • 31% of men and 27% of women sign up for their social security benefits at age 62
  • 6% applied at age 63
  • 7% filed at age 64
  • 10% applied for social security at age 65
  • 33% filed for their benefits at normal retirement age
  • 6% waited until age 70 to maximize their benefits

A little more than half of the recipients file for their benefits early.

A look at some numbers

You can do a lot of calculations to help determine when to start your benefits. Delaying your retirement can lead to thousands of dollars of additional benefits over your lifetime. But, you must live long enough to make it work. Generally speaking, you have to live until you are in your early 80s.

Here is how this can impact Lloyd. Let’s say his full retirement benefit is $2,300 per month. If he starts Social Security at 62, his benefit shrinks to $1,640.

At his full retirement age, his wife’s spousal benefit, if he’s married, would be half of the $2,300 or $1,150. At age 62, the spousal benefit will be, at most, $820. The combined benefits are nearly $1,000 less each month.

If Lloyd waits to start his Social Security, his discount isn’t as big.

  • By waiting a full year to apply for benefits, his amount grows by 7%
  • If he waits two full years, his benefit grows by over 14%
  • Should he wait until age 65, three years later, his benefit grows by 24%

A big decision

Should Lloyd take his Social Security benefits at 62?

It depends. Is he healthy? Is he married? Can he afford to retire without taking his benefits and not to put too much stress on his savings? There are a lot of factors, and it’s hard to say yes or no.

Here is what we typically see. People start their social security when they retire—regardless of their age. Most of the time, it’s because they need the money. The ones who retire and delay their Social Security have been good savers and have low expenses.

You need to consider your entire situation. You can’t make the decision about Social Security in a vacuum. There are many other factors involved in this process.

If you are unsure what to do, talk to a financial advisor before you make a costly mistake.

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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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Maintaining Spending Levels in Retirement

Maintaining Spending Levels in Retirement

Maintaining spending levels in retirement can be a challenge.  A recent study showed that nearly half of retirees were forced to reduce their spending because they didn’t have adequate resources. What are some of the characteristics of those who were forced to cut their spending?  We’ll explore that so you can make better decisions about your retirement.

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Show Outline

  • Intro
  • Consumer Financial Protection Bureau Study
    • Looked at the ability of retirees to maintain their spending level 5 years into retirement.
    • Most retirees see their spending decrease naturally.
      • Spend less on things like transportation and clothing
      • Do fewer things as you get older
      • On average, spending in retirement decreases by 19%
  • The Data
  • What can you do?
  • Outro

Spending in Retirement Decreases...

In general, people tend to spend less in retirement.  Many people find they spend less on transportation, clothing, and entertainment.  Those who had adequate savings saw their spending level decrease by 19%.  But, those who couldn’t maintain their spending level saw their spending drop by 28%.

The Factors in Maintaining Your Spending Level

Marital Status

Married couples are better able to maintain their spending level.  Receiving two Social Security payments is a significant factor.

Age

Older retirees had more success than the younger generations.  More older retirees received company pension benefits than Baby Boomers. 

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Social Security

Starting Social Security at younger ages means you receive a smaller benefit.  Delaying your retirement improves your benefit, spousal benefits, and survivor benefits.  This means you rely less on your savings.

Home Ownership

Home ownership factored into retirees ability to maintain their spending level.  Renters struggled compared to those who own their homes. 

Mortgage debt also played a role.  Those without a mortgage had more success maintaining their spending level in retirement.

Debt

Non-mortgage debt includes things like credit cards, car loans and leases, or other types of loans.

Those who carried debt into retirement struggled more than those who were debt free.

What Can You Do to Plan for A Better Retirement?

1. Consider delaying your retirement

Delaying your retirement can improve your Social Security benefits.  It can give you an opportunity to save more and benefit from compounded returns.  And it can help you eliminate debt.

2. Create a plan to be debt free

The data shows people who have debt struggle more.  Many times, loan payments are your larger expenses.  Eliminating those before you retire can reduce the stress on your retirement budget.

3. Save more aggressively

This doesn’t mean use more aggressive investments (though that can help).  It means make saving a higher priority, and try to save more.  

maintaining spending levels in retirement
maintaining spending levels in retirement
maintaining spending levels in retirement

 

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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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4 Ways The Pandemic Could Impact Social Security

4 Ways the Pandemic Could Impact Social Security

Social Security is the cornerstone of retirement income for many Americans.  Have you wondered if the Coronavirus outbreak will impact your benefits? Here are four ways the pandemic could impact Social Security.

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The Covid-19 Pandemic and the Economy

The Covid-19 virus has turned the world and the economy on its head. The financial impacts are being felt far and wide. We have record unemployment claims, with nearly 22 million people out of work–so far. And Pew Research estimates 27% of American workers have seen their pay reduced.  Government response has also been extreme.  All of that will impact the future.

Most of the media focus has been on how this outbreak has impacted current workers. But it can also affect retirees. Here are four ways the pandemic could impact your Social Security benefits.

pandemic social security impact

Social Security does provide an inflation-adjusted income stream. But over the past several years those average increases have not been all that great. In some years, it hasn’t been enough to cover the increase in Medicare premiums. 

According to the Federal Reserve Bank of Cleveland, the current 10-year inflation expectation is less than 1.2% per year. If those projections hold, it means small benefit increases. In some years, it could mean your net check decreases due to rising Medicare costs.

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Pandemic Impacts Social Security

Depending on how long the economic shutdown lasts, many older workers could be forced to retire earlier than they expected. For many, this forces them to start Social Security earlier than their normal retirement age. And those discounts could be close to 30%.  

Social Security Impact pandemic

Social Security uses Average Indexed Wages to compute your Social Security benefits. The economic downturn means total wages earned in 2020 will be less. They could be a lot less.

This could impact how they compute your Social Security benefits. The end-result could be a smaller monthly payment. This will most likely impact those who are close to age 60.

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If you are 50 or older, and thinking about your retirement, click here for a free retirement assessment.

Pandemic Impacts Social Security

Right now, fewer payroll taxes are being collected. This places an extra strain on an already stressed system.

Prior to the pandemic, Social Security looked to be solvent until 2034. This means they had enough to pay the promised benefits. But the reduced tax collections could mean the problems could happen a year sooner.

Unless there are major changes, when Social Security reaches this point, benefits will have to be reduced.

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Far Reaching Impact

The coronavirus pandemic has affected more than our health. It has had a significant impact on many areas of our economy. And this includes your Social Security benefits.

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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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4 Things You Can Do Right Now to Improve Your Retirement

4 Things You Can Do Right Now To Improve Your Retirement

Today, we share 4 things you can do right now to improve your retirement.  Click below to listen.

Watch: 4 Things You Can Do Right Now To Improve Your Retirement.

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Start Now! Steps to Improve Your Retirement.

There is plenty written about the retirement crisis in America. But you can make a positive impact on your own situation. Here are 4 things you can do right now to improve your retirement.

4 Things To Improve Your Retirement

Start Saving

Time is your greatest resource when saving for retirement. The earlier in life you start, the longer you enjoy the benefits of compounded returns.

There is a saying, “The best time to plant an oak tree was 20 years ago. The next best time to plant one is right now.”

You can’t make up for the lost time, but you make saving a priority now. Look at your budget. See what changes you can make. Figure out how you can start putting money in a 401K or IRA. Don’t waste any more time.

Improve Your Retirement 4 Things

Save More

How much you save for retirement is critical. Many people suggest you should save 10% of your pay for retirement. Think about increasing that to 15%.

It means you’ll have 50% more in your nest egg. In dollar terms, if saving 10% of your pay results in a retirement savings of $500,000, saving 15% would result in $750,000. That’s a big difference.

4 Things Retirement

Plan To Work Longer

Retiring early can mean big discounts to Social Security benefits. It also gives you fewer years to save and benefit from compounded returns.

Waiting to retire means the discounts to Social Security get smaller. And if you delay long enough, your Social Security benefits will actually increase.

Improve Retirement 4 Things

Pursue Growth

We all know the stock market can be a wild place. There are plenty of up years, and occasionally, a big down year. But over time, stocks have helped many people improve their retirement picture.

Don’t be afraid of the stock market. It can help improve your returns over time. And that means a better retirement.

You can make your retirement better. Start with these 4 things. If you need some help, talk to a financial planner.

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

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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Do You Need A Million Dollars To Retire?

Do You Need A Million Dollars to Retire?

For some reason, people are fixated on this big round number. Some people will need at least that much if not more. Others will be able to make it work with less—sometimes much less.
We’ll talk about the factors which determine the answer to the “how much” question. And we’ll give you a brief example of how much income a $1,000,000 nest egg can provide.

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An Ice Cold COLA

The Social Security cost of living adjustment, or COLA, is designed to help retirees combat inflation.  The SSA recently announced the improvement for 2020.  Spoiler alert:  This is an ice cold COLA.

Video: An Ice Cold COLA

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What's On Your Mind?

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 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

Every Year, Everything You Buy Costs More.

Every year, everything you buy costs more. That is the simplest way to explain inflation.  When we use the consumer price index, something you bought for $1.00 in 2010 would cost $1.18 today.

One of the key parts of Social Security has been the annual cost of living adjustment—or COLA. This has helped retirees adapt to the constant increase in prices.

COLA

This Year Expect an Ice Cold COLA

Social Security announced the cost of living adjustment for 2020,  and the COLA is ice cold. This year the increase is 1.6%  

For the average benefit, his translates to a monthly increase of $24. Unfortunately, Medicare premiums will also increase next year. The premium should go up almost $9. This means the average net increase from Social Security is only $15 per month.

Not Like It Used to Be

Before 2010, Social Security benefits increased by 3.8% per year. But over the last 10 years, the increases have been far more modest, averaging 1.4% per year.

The statistics don’t always reflect what we see when we go to pay our bills. Some goods and services increase at a faster pace than others. Medical costs are a good example. And as we get older, we tend to incur more medical expenses.

The government is considering a change in how they compute the Social Security cost of living adjustment. But as you know, there is little productive work getting done in Washington DC.

How Does This Impact Your Retirement?

Over the past decade, retirees have had to rely more on their savings to cover their cost of living increases. And we should expect that trend to persist.

Many expect the smaller cost of living increases to Social Security to continue. Likewise, many also expect bigger increases to medicare premiums. This combination results in you getting smaller net increases in your Social Security benefits.

We all need to account for this trend in our plans.  Our savings will be a key element to fighting the constant battle of maintaining our purchasing power.

Stay Informed.

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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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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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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

September 2020 Client Letter

September Client Letter Talk to Jim or Neal Schedule a call with Jim or Neal to discuss your concerns below. Simply select a date and time that is convenient for
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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.

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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.

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

September 2020 Client Letter

September Client Letter Talk to Jim or Neal Schedule a call with Jim or Neal to discuss your concerns below. Simply select a date and time that is convenient for
Watch Now

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Is Gold A Better Investment Than Stocks? Is gold a better investment than stocks?  Wendy asks, “I keep hearing ads advising us to sell our stocks and buy gold or
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Watch Now

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Should I Use My Savings To Pay Off My Mortgage? This question is from Karen. She asks, “With interest rates so low, we aren’t earning anything on our savings. I’m
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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

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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

September 2020 Client Letter

September Client Letter Talk to Jim or Neal Schedule a call with Jim or Neal to discuss your concerns below. Simply select a date and time that is convenient for
Watch Now

Is Gold a Better Investment than Stocks?

Is Gold A Better Investment Than Stocks? Is gold a better investment than stocks?  Wendy asks, “I keep hearing ads advising us to sell our stocks and buy gold or
Watch Now

Should I Start Social Security at 62?

Should I Start My Social Security At 62? This question is from Lloyd. He asks, “I’m planning to retire in the spring when I turn 62. Should I start taking
Watch Now

Should I Use My Savings To Pay Off my Mortgage?

Should I Use My Savings To Pay Off My Mortgage? This question is from Karen. She asks, “With interest rates so low, we aren’t earning anything on our savings. I’m
Watch Now