Behavioral Finance and Social Security

Behavioral Finance and Social Security

The only thing we have to fear is fear itself.” — Franklin Delano Roosevelt’s 1933 speech to the nation on his first Inauguration Day.

As our nation takes steps towards a better Financial Security future and Social Security in particular, it’s important to consider what kind of society we want for ourselves and our children. 

When FDR spoke these words at such an important time in history, he was not only referring to the financial crisis of 1929 but also America’s lack of confidence after World War I and its brutal aftermath.

Today we face similar challenges: uncertainty about our future financial security; concern about what today’s actions will mean for tomorrow; anxiety about not being able to meet all of our needs without sacrificing something else (like retirement).

Fear is often at the root of these concerns—fear that poverty could be just around the corner if things don’t go well financially; fear that there won’t be enough money saved up by retirement age because it seems too hard or impossible right now; fear that we may need help someday but don’t know where or how much it might cost us in terms of dignity or privacy if we ask others for assistance.

Learn more about behavioral finance to better understand how people make decisions with their money.

Behavioral finance is a field of study that attempts to understand how people make financial decisions. It looks at the psychology of investing and how emotions play a role in those decisions. 


The Psychology of Risk

Behavioral financial bias can affect your financial decisions in big ways

That’s why it helps to discuss the basics of socionomics with a financial advisor in Norman, OK, in order to understand yourself and your relationship with your wealth. 

For example, risk aversion is a natural human trait. In fact, many people in the world are so risk-averse that they would rather keep their money in cash and not invest at all. Even if this means losing out on greater returns over time. 

However, not all investors are equally averse to risk. Some are willing to take on more risks than others in order to potentially earn larger returns. This is known as “risk-seeking behavior” and can be an important factor when choosing your portfolio allocation (the percentage of your portfolio invested in stocks versus bonds). But because losses are felt more than gains, professional financial advice can help in big ways. 


Behavioral finance and Social Security – Switching costs

Decision Making Business Finance concept.Overcoming switching costs is often a matter of making the decision to change easier. For example, it can be helpful to look at your retirement account and decide which investments you want to keep and which ones you want to get rid of. Once this decision has been made, it’s important to put in some work documenting why it was done. 

You should also make sure that any accounts left behind are easy for you or anyone else who will have access (such as an executor) to manage after your death. Finally, if possible, move all of these investments into one place where they can be managed together by someone who knows what they’re doing – preferably an advisor who specializes in retirement planning or estate planning, like the team at TRAC.


Social Security was designed as an insurance program rather than a savings program or pension plan.

Social Security was designed to protect against poverty in old age, and it is intended to be a safety net for the elderly. As such, it should not be viewed as an investment vehicle or a regular source of income. People who qualify for SS benefits will receive them regardless of their personal financial situation or how much money they have saved on their own.

Social Security was and remains a good program, but it’s not strong enough to rely on as retirement income alone. It was made for supplementation for those who needed it.


Retirement planning and Social Security

Social Security is a safety net for the elderly. It’s not just about money, but also about social support. There are two benefits of Social Security:

  1. A safety net – if you become disabled, SS could help pay for basic living expenses (food, housing, healthcare) if you are approved.
  2. A social safety net – it reduces poverty among the elderly by providing benefits to those with low incomes.


Reevaluate your retirement plan from time to time

Retirement text on highway backgroundIf you are thinking of changing your approach to Social Security (before you opt-in), it may be worthwhile to reevaluate your retirement strategy from time to time. This is because there are several factors that can change the way you should think about Social Security and how much you should elect to receive as your monthly fixed amount. In general, a change in behavioral finance principles could lead to a better decision-making process.

Read: Avoiding 7 Bad Money Decisions: A Look at Behavioral Finance Biases


The Takeaway

Clearly, SS has evolved since its inception in 1935. It has helped provide financial security to millions of Americans and continues to do so. The rules have changed over time, like the age one can claim full benefits, eligibility for spousal benefits, etc., so retirees need to be aware of these changes that may impact their retirement income plans.

If you need to explore how your emotions control your money, call TRAC Advisor Group today!



This blog contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. 

Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. 

TRAC Advisor Group does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstance.

More about the author: Tracy McCary

Tracy has been a financial advisor for 30 years, focusing on helping clients reach their financial goals. He is Series 65 and Oklahoma insurance licensed.