Are Early Claimers Making a Mistake?

[Sunset]

Just asking, as a young guy, is there any benefit to delaying until 70 so you can be "poor on paper" between 62-70 and get much better government benefits or tax treatment?
.....

Yes.

You can drain your 401K and IRA's before RMD's have to start, while still staying in a low tax rate.
If you take SS early, then that is say 20K per year that cannot come out of IRA, but will come out at RMD time and the boost in income will make your SS partially taxable (possibly).

Also some folks go for ACA subsidies instead by living off money not in IRA/401K so they appear poor as very little of their income is taxable.

 

[brucethebroker]

Depends when you die. More money later won't mean much if you die before you collect or shortly there after.

DW had a very stressful job. I was unable to find another job after being destroyed by the housing crash (Yes, age discrimination does exist....). SS @62 allowed us to move into (very) part time employment, semi-retire and not touch our retirement savings. We have less stress and more time to travel due to SS. We have no plans on taking our savings until RMD.

I see both sides of the argument. But do I think I will second guess taking early benefits when (if) I live to 85? No. We are having too much fun because of it.

Personally, I say if early SS helps you to pull the retirement trigger, go for it.

 

[racy]

FWIW, Laurence Kotlikoff's MaximizeMySocialSecurity website & service uses 100 years as the default death age. Their view is that SS is longevity insurance. Here's what they say in their FAQs section:
"An analogy may help convey our position. Consider homeowners insurance. No one analyzes buying homeowners insurance from a breakeven perspective because we don't have thousands of homes over which to pool the risk of small and worst case losses, such as our house burning to the ground. Because we only have one house, we can't play the odds. We can't decide whether buying a homeowners policy will break even on average. If we made such a calculation we'd never buy homeowners insurance. Why? Because the cost of homeowners insurance always exceeds the expected payout on the policy we buy due to the insurance company needing to charge its fee.
What holds for homeowners insurance holds for longevity insurance. We only have one life to lose, not thousands, so we can't pool risk over when we will die. We will die just once and it may well be at 100 or whatever is our maximum age of life. This is why our software values Social Security benefits through one's maximum, not one's expected age of life. This is not just our company's policy. This is also precisely what the economics and financial theory of longevity risk tells us to do."

 

[eytonxav]

I think the wait till 70 side has a lot to do with having a spouse who could survive you & him/her getting a bigger payment for the rest of their years. Is there data that married folks wait more often than singles?

This is my plan as DW is five years younger and lower earner and I want her to have more should I go first. DW will probably claim her SS at her FRA. The only thing I really have not analyzed is how this might effect RMDs and taxes, that would be one area that might change the plan. Still have 3 yrs to go till 70 and DW has 4 yrs till FRA.

 

[ShokWaveRider]

One other thought I have not considered, I was enlightened by some of these posts. If I take my SS at 70, I will be taxed more because of my IRA(s) RMD. I just used one of the calculators. So taking it earlier may be even more justified.

 

[Which Roger]

One other thought I have not considered, I was enlightened by some of these posts. If I take my SS at 70, I will be taxed more because of my IRA(s) RMD. I just used one of the calculators. So taking it earlier may be even more justified.

Not necessarily, because if you wait until 70 to take SS, you will likely spend down your IRAs more prior to age 70 than if you had taken SS earlier.

 

[ShokWaveRider]

Not necessarily, because if you wait until 70 to take SS, you will likely spend down your IRAs more prior to age 70 than if you had taken SS earlier.

Not in our case. At our current expense rate IRAs will last 36 years. Cash and cash equivalents will last another 36 years and that does not take into account SS or the return on the funds at all.

 

[SJ1_]

I started taking it at 62. I wouldn't say I was unprepared for retirement. With SS, I can easily sustain my lifestyle with a 2.8% WR. I can't remember when exactly the so-called "break even" point is, but isn't it well into my 70s, not counting the time value of money?

I would put myself into rod's group who fears "that SS will be messed with/modified in some way that will negatively impact future claimers... so get it now, before they take it away."

+1

plus I rather spend their money than mine

 

[ducky911]

My wife is three years younger and half of mine is a bit higher than all of hers. The optimum is.
1. For here to file for ss at 62
2. For me to file for spousal off of hers at 66
3. For me to file at 70 and her to go onto spousal at the time

 

[Pilot2013]

FWIW, Laurence Kotlikoff's MaximizeMySocialSecurity website & service uses 100 years as the default death age. Their view is that SS is longevity insurance. Here's what they say in their FAQs section:
"An analogy may help convey our position. Consider homeowners insurance. No one analyzes buying homeowners insurance from a breakeven perspective because we don't have thousands of homes over which to pool the risk of small and worst case losses, such as our house burning to the ground. Because we only have one house, we can't play the odds. We can't decide whether buying a homeowners policy will break even on average. If we made such a calculation we'd never buy homeowners insurance. Why? Because the cost of homeowners insurance always exceeds the expected payout on the policy we buy due to the insurance company needing to charge its fee.
What holds for homeowners insurance holds for longevity insurance. We only have one life to lose, not thousands, so we can't pool risk over when we will die. We will die just once and it may well be at 100 or whatever is our maximum age of life. This is why our software values Social Security benefits through one's maximum, not one's expected age of life. This is not just our company's policy. This is also precisely what the economics and financial theory of longevity risk tells us to do."

I think that's the way the government wants us to look at it, but most people on here, not so much. I certainly will not postpone both DW and my SS to 70 as Longevity Insurance. The only reason I will postpone mine to 70 is the survivor benefit. And that is all assuming there is not an overriding reason for me to make a change. After all, plans are made to be changed...

 

[lem1955]

FWIW, Laurence Kotlikoff's MaximizeMySocialSecurity website & service uses 100 years as the default death age. Their view is that SS is longevity insurance. Here's what they say in their FAQs section:
"An analogy may help convey our position. Consider homeowners insurance. No one analyzes buying homeowners insurance from a breakeven perspective because we don't have thousands of homes over which to pool the risk of small and worst case losses, such as our house burning to the ground. Because we only have one house, we can't play the odds. We can't decide whether buying a homeowners policy will break even on average. If we made such a calculation we'd never buy homeowners insurance. Why? Because the cost of homeowners insurance always exceeds the expected payout on the policy we buy due to the insurance company needing to charge its fee.
What holds for homeowners insurance holds for longevity insurance. We only have one life to lose, not thousands, so we can't pool risk over when we will die. We will die just once and it may well be at 100 or whatever is our maximum age of life. This is why our software values Social Security benefits through one's maximum, not one's expected age of life. This is not just our company's policy. This is also precisely what the economics and financial theory of longevity risk tells us to do."

I definitely see SS as longevity insurance and plan to wait until 70 to claim. My grandmother died at 105. I am physiologically young at 61. I may have to plan on 110 years on the planet. Plus, I don't expect my conservatively invested portfolio to grow at 8% annually, whereas, SS should. I do think I will decrease my total portfolio over the course of the next nine years and thereby reduce my RMD's so the tax hit is less when I take that larger SS payout.

 

[phil1ben]

I am 56 and my wife is 53. I am retiring in December. I will take SS at 62 because I fear that it will be played with for high income earners. SS played no role in my retirement decision . For people in the same situation it would not surprise me if the benefits are curtailed or changed in some way. I know the argument that "they can't change it for people over 50" but to pay for all of the programs being promised (i.e. free college etc....) the money will need to come from somewhere. For my entire working life I have been a part of that "somewhere". I suspect I will also be part of that "somewhere" during retirement.

I am jumping on the bandwagon as early as possible to get some of my money back.

 

[nash031]

SS may well be longevity insurance for most. Those with DB pensions, especially COLA-adjusted and particularly with survivor benefits may not need it to serve that purpose. Or, it may well serve that purpose in lieu of a survivor benefits plan. It's a complex puzzle, to be sure.


We have to decide soon whether to opt in to survivor benefits on my military pension. My initial thought is that we will, which would lean me more towards taking SS early as DW would then have a COLA-adjusted pension plus her SS which she could defer until later if I start taking early. Those two combined would probably come pretty close to her baseline expenses if/when I die before her.


Plan A is to make none of this matter.

 

[Pilot2013]

I'm not sure I can "not plan SS" as according to current estimates it will be $60k of income when both are up and running.

 

[Bigdawg]

SS may well be longevity insurance for most. Those with DB pensions, especially COLA-adjusted and particularly with survivor benefits may not need it to serve that purpose. Or, it may well serve that purpose in lieu of a survivor benefits plan. It's a complex puzzle, to be sure.


We have to decide soon whether to opt in to survivor benefits on my military pension. My initial thought is that we will, which would lean me more towards taking SS early as DW would then have a COLA-adjusted pension plus her SS which she could defer until later if I start taking early. Those two combined would probably come pretty close to her baseline expenses if/when I die before her.


Plan A is to make none of this matter.

Sort of similar situation except we have 2 COLA military pensions. Neither of us elected the survivor benefit option for the following reason: Not a good deal. The surviving spouse gets half of your 50%. So estimated 70K for you. She would get 35K. Check the monthly cost. Didn't work for us. Cheaper to get an insurance policy.

Our plan is for me to take at 62. DW is 6 years younger. She will take at 70. At FRA we are close to the same. She will also have a gov pension at 57 to go with her military pension. DW taking the larger amount at 70 will offset loss of my pension at death (estimated at early/mid 80's) and end of term insurance policy. If I go before she takes SS at 70, she will then take SS at that point and have her current military pension and gov pension at 57 and still be inside of the term insurance policy.

If DW goes before me, I have a life insurance policy on her up until I turn 62. We also have 2 rental properties with 200K plus equity (now) (currently only $200/mo pos cash flow) that I would sell in the event of lose of DW.

At 50(me) and 44(DW) we still have many years to change our plans.

Best of luck with your SS and survivor benefit decisions.

 

[daylatedollarshort]

I'm not sure I can "not plan SS" as according to current estimates it will be $60k of income when both are up and running.

+1. I don't have enough other retirement income to not even consider SS. The NPV of SS for a couple each making max benefits would be well over $1M, and even at the lower ends is over $.5M:

" At a maximum Social Security benefit of $2,642/month (for those who maxxed out the Social Security wage base for 35 years), the value of Social Security amounts to about $572,000 for men and $683,000 for women!"

Source: https://www.kitces.com/blog/valuing...s-as-an-asset-on-the-household-balance-sheet/

 

[samclem]

Sort of similar situation except we have 2 COLA military pensions. Neither of us elected the survivor benefit option for the following reason: Not a good deal. The surviving spouse gets half of your 50%. So estimated 70K for you. She would get 35K. Check the monthly cost. Didn't work for us. Cheaper to get an insurance policy.

Foregoing the SBP might work for your family due to the overlapping pensions, etc, but there is >no way< that an insurance policy bought by a person about to retire can provide the benefits of the SBP for a lower price than SBP premiums. It would need to be linked to some sort of (government backed) lifetime annuity with a full COLA. I'd love to see the math on that. And, the SBP premiums are tax deductible, which makes the difference even greater. So, yes, I'd encourage everyone to "check the monthly cost"--and the benefits that are being purchased. After doing that, we bought the SBP.

 

[Bestwifeever]

My wife is three years younger and half of mine is a bit higher than all of hers. The optimum is.
1. For here to file for ss at 62
2. For me to file for spousal off of hers at 66
3. For me to file at 70 and her to go onto spousal at the time

Have you already done this? I imagine you have fully investigated it if not, but you might not have these options any more. This article talks about changes to SS this year and has some links to calculators within it: Social Security's New Rules Call for a Calculator

I only mention this because we found it complicated to fgure out when the laws started changing early this year. We were still able to file strategically because I was older than 62 by the deadline and waited til my FRA to begin collecting (first check next month! yay!), first restricted to DH's record (who had started collecting at his FRA) and when I turn 70, to switch to my own (which will by then exceed half of DH's). This was as close to optimum as it would get for us.

 

[nash031]

Foregoing the SBP might work for your family due to the overlapping pensions, etc, but there is >no way< that an insurance policy bought by a person about to retire can provide the benefits of the SBP for a lower price than SBP premiums. It would need to be linked to some sort of (government backed) lifetime annuity with a full COLA. I'd love to see the math on that. And, the SBP premiums are tax deductible, which makes the difference even greater. So, yes, I'd encourage everyone to "check the monthly cost"--and the benefits that are being purchased. After doing that, we bought the SBP.

Interesting discussion, guys. Thanks!

I'm leaning toward going with SBP. We have term life insurance to carry us through 62/59, which carries us through incoming DD's college years. We aren't planning any life insurance once those expire, and we will probably cancel them earlier if/when we reach FI-plus enough.

I did not know the "premium" was tax-deductible. That's a good little nugget. Given that men generally die before women, and the women in her family demonstrate better longevity than the men in mine, I'm guessing she'll outlive me by 10-13 years. In that case, I think SBP makes the most sense, along with me taking SS early and delaying hers even though I am currently the primary breadwinner. She may work much longer and eventually eclipse my SS payment anyway, especially since our allowances aren't included in the SS calculation, but make up a significant portion of our pay.

Admittedly, I have much more digging to do into SBP before decision time.

 

[ducky911]

Have you already done this? I imagine you have fully investigated it if not, but you might not have these options any more. This article talks about changes to SS this year and has some links to calculators within it: Social Security's New Rules Call for a Calculator

I only mention this because we found it complicated to fgure out when the laws started changing early this year. We were still able to file strategically because I was older than 62 by the deadline and waited til my FRA to begin collecting (first check next month! yay!), first restricted to DH's record (who had started collecting at his FRA) and when I turn 70, to switch to my own (which will by then exceed half of DH's). This was as close to optimum as it would get for us.

The new rules are hard to understand and I can see how you think they apply to me.

quote

• The rules affect individuals filing for Social Security benefits on or after May 1, 2016. Benefits may still be suspended between ages 66 and 70 to earn DRCs; however, spousal benefits generally can no longer be collected while the primary benefit is suspended.

I think the word primary is key



Two things. First; my wife will not be collecting spousal benefits while my benefits are suspended. Second; I will not be collecting spousal benefits from her until see files and collects.


I have had this confirmed this year by Maximize your Social Security software.


But still reading this I am not completely sure and will confirm just before decision time next year.

 

[Teacher Terry]

also if you earn I think it is more then 15k/year and take it early that they take a dollar for every 2 you make over that amount. For that reason I wont take it until FRA unless I quit teaching my college class before that time.

 

[Bestwifeever]

The new rules are hard to understand and I can see how you think they apply to me.

quote

• The rules affect individuals filing for Social Security benefits on or after May 1, 2016. Benefits may still be suspended between ages 66 and 70 to earn DRCs; however, spousal benefits generally can no longer be collected while the primary benefit is suspended.

I think the word primary is key



Two things. First; my wife will not be collecting spousal benefits while my benefits are suspended. Second; I will not be collecting spousal benefits from her until see files and collects.


I have had this confirmed this year by Maximize your Social Security software.


But still reading this I am not completely sure and will confirm just before decision time next year.

It is complicated, for sure. There are qualifiers (dob needing to be before 1/1/54, waiting til FRA, etc., etc.) that made our heads spin deciding when to file! There are new rules about suspending benefits (https://www.ssa.gov/planners/retire/suspendfaq.html) and about the filer being deemed to be filing for the max and not being able to change it later (https://www.ssa.gov/planners/retire/deemedfaq.html)
but I am sure the Maximize Your Social Security software took them into consideration when you ran your numbers. Just mentioned this because we just went through it.

 

[hpnutty]

FWIW, Laurence Kotlikoff's MaximizeMySocialSecurity website & service uses 100 years as the default death age. Their view is that SS is longevity insurance. Here's what they say in their FAQs section:
"An analogy may help convey our position. Consider homeowners insurance. No one analyzes buying homeowners insurance from a breakeven perspective because we don't have thousands of homes over which to pool the risk of small and worst case losses, such as our house burning to the ground. Because we only have one house, we can't play the odds. We can't decide whether buying a homeowners policy will break even on average. If we made such a calculation we'd never buy homeowners insurance. Why? Because the cost of homeowners insurance always exceeds the expected payout on the policy we buy due to the insurance company needing to charge its fee.
What holds for homeowners insurance holds for longevity insurance. We only have one life to lose, not thousands, so we can't pool risk over when we will die. We will die just once and it may well be at 100 or whatever is our maximum age of life. This is why our software values Social Security benefits through one's maximum, not one's expected age of life. This is not just our company's policy. This is also precisely what the economics and financial theory of longevity risk tells us to do."

Wouldn't it be better to use 120 years as the maximum age?
Genesis 6:3 (New International Version)
Then the LORD said, "My Spirit will not contend with humans forever, for they are mortal; their days will be a hundred and twenty years."

https://en.wikipedia.org/wiki/Oldest_people

 

[Koolau]

DW took SS at 62 and I will wait until 70. Biggest factor is to increase DW's survivor benefit when I die. We made a calculated-risk decision NOT to enhance my pension's survivor benefit. Thus, the better survivor benefit within SS balances out that decision. Getting right down to it, we have not needed my SS yet AND it has allowed us to spend down some qualified money to avoid more taxes as RMDs go into effect. It's all quite complicated when you realize you are somewhat blind (how long will we live, will SS change, will taxes go up or down, etc. etc.) None of us has a crystal ball, so we do the best we can with the info we have. I suppose the good news is that we have had choices. That means we have had enough resources to allow those choices to be made. Not everyone is that fortunate, so I feel very blessed. YMMV

 

[pb4uski]

Not in our case. At our current expense rate IRAs will last 36 years. Cash and cash equivalents will last another 36 years and that does not take into account SS or the return on the funds at all.

But it is not how many years your IRA will last that is important... what is important is how many years are there if you do Roth conversions if the amount you would convert each year exceeds what you need to live. You can convert and not spend it just like you can withdraw and not spend it but reinvest it in taxable accounts... either way you pay the same amount in tax whether you withdraw or convert.