Teaching Kids About Money, Social Security Strategy & Year-End Giving | Ep 22

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Money conversations happen at every life stage, from teaching a kindergartener about saving to helping retirees maximize Social Security benefits. This episode covers both ends of that spectrum, along with creative strategies for multigenerational wealth transfer.

Starting Financial Education Early

Andy recently introduced his 5-year-old to money through a three-bucket allowance system. She receives $3 each Friday and must put some amount in each category: give, save, and spend. The physical piggy bank has clear sections so she can watch her money accumulate in each bucket.

The concept might seem ambitious for a kindergartener. But financial literacy doesn't require perfect understanding from day one. These early conversations create familiarity with trade-offs, delayed gratification, and charitable giving. By the time kids reach their teenage years and get their first jobs, budgeting feels natural rather than foreign.

As children get older, the allowance can scale with their age and responsibilities. The teenage years present opportunities to introduce investing concepts, especially once they have earned income.

Creative Multigenerational Giving

Several clients have implemented 401(k)-style matching programs for their adult children. One family seeded investment accounts for each child, then offered dollar-for-dollar matching up to $10,000 annually. The catch? Contributions must remain invested for at least three years to keep the match.

This approach accomplishes two goals. First, it encourages children to develop their own saving habits rather than simply receiving gifts. Second, it creates an educational framework around investing and compound growth. The children must actively participate in building their financial foundation.

Engagement matters more than the dollar amount. Whether through stock gifts, Roth IRA contributions, or matching programs, the most successful strategies involve children in the decision-making process rather than simply handing them money.

Three Critical Social Security Mistakes

The claiming decision for Social Security deserves careful consideration. Yet many people approach it casually, making choices that cost them hundreds of thousands of dollars over their lifetime.

The first major mistake is claiming too early. At 62, you can start receiving benefits, but you'll take a 30% permanent reduction compared to waiting until full retirement age (66 or 67). That discount applies not just to your own benefit, but potentially to spousal benefits as well. Only two situations justify claiming at 62: serious health issues limiting life expectancy, or genuine financial hardship with no other income sources.

The second mistake is viewing Social Security in isolation from the rest of your financial plan. The claiming decision should connect to your overall distribution strategy, tax planning, spending flexibility, and investment risk profile. If you have sufficient portfolio assets, drawing from them for a few years while delaying Social Security often makes mathematical sense. Between full retirement age and 70, benefits increase by 8% annually plus inflation adjustments.

The third mistake is treating Social Security like an investment game you're trying to beat. Many people fixate on break-even analysis, trying to calculate whether claiming early or late will maximize their lifetime benefits. This mindset misses the bigger picture.

Longevity Insurance, Not an Investment

Social Security functions best when viewed as longevity insurance rather than an investment to optimize. Consider two extreme scenarios. If you claim at 62 and live to 100, versus delaying until 70 and living to 100, the difference in lifetime benefits reaches hundreds of thousands of dollars. But if you claim at 62 and pass away at 72, versus delaying until 70 and passing away at 72, the early claim looks better financially.

Here's the key question: In which scenario would you actually regret your decision? If you plan for longevity but pass away earlier than expected, you're not sitting around calculating how much Social Security money you left on the table. Life has taken an unfortunate turn that outweighs financial considerations.

But if you claim early and live to your nineties or beyond, you face decades of reduced benefits, more pressure on your investment portfolio, and potentially a smaller legacy for your spouse or heirs. That regret compounds with every passing year.

Medical advances continue extending life expectancy. The idea of reaching 100 seems less far-fetched each year. Social Security provides guaranteed, inflation-adjusted income for your entire lifetime, however long that turns out to be. That guarantee has real value when planning for an uncertain future.

Planning for Couples

Married couples need to think beyond individual benefits. When one spouse passes away, the surviving spouse receives the higher of the two benefits, including any deferral credits earned by waiting until age 70. Even if one spouse has shorter life expectancy, delaying their benefit can protect the surviving spouse who may live much longer.

This survivor benefit calculation changes the equation significantly. Your claiming decision affects not just your own income stream, but potentially your spouse's financial security for decades after your death. Dual life expectancy matters more than individual projections.

What About Social Security's Future?

The question of whether Social Security will exist decades from now comes up constantly. For those currently claiming or within five years of claiming, the answer is straightforward. No elected official wants to face voters after cutting benefits for current retirees. The political cost would be catastrophic.

For younger workers, more uncertainty exists. But the solution likely involves some combination of raising the wage base for Social Security taxes, reducing future benefits for those far from retirement, or means-testing benefits based on overall wealth. The system won't disappear entirely. It will adapt, probably in ways that affect younger generations more than current retirees.

The claiming decision still matters regardless. If you're convinced Social Security won't pay full benefits, you can build extra margin into your planning. But making suboptimal claiming decisions today based on hypothetical future cuts often costs more than any realistic benefit reduction would.

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