Case for taking SS early (62)?

[Richard8655]

Thanks all for input to my query.

Just called SS and they confirmed this is true. If I take SS early at 62 based on my work record, my spouse is entitled to half of my FRA (66) benefit if she starts her spousal benefit at her FRA (66). There is no penalty to her benefit because of my early start.

 

[bluztuzumab]

I quite agree with what you say here, Alex.

The one thing that a politician can be trusted to do is try to protect their 'jobs'. SS may be controlled by politicians, but with the strong surge of baby boomers about to retire and take SS - I foresee very little happening to SS (other than a shift in retirement age) for the BBers.

btw - I plan to take SS at 62, but not because I am afraid of insolvency, but more likely the chance I will die before the break-even point - which IMO is a much greater chance than SS severly changing.

Now if more people were to smoke more and eat less healthy - perhaps SS can stay solvent longer...

 

[travelover]

Thanks all for input to my query.

Just called SS and they confirmed this is true. If I take SS early at 62 based on my work record, my spouse is entitled to half of my FRA (66) benefit if she starts her spousal benefit at her FRA (66). There is no penalty to her benefit because of my early start.

This makes sense as she can't control when you start collecting. Recall that some "spouses" are divorced, but still collecting based off ex-spouse's SS benefits.

 

[beowulf]

I have very recent experience with the spousal benefit. I started early SS at 64.5 years of age in January as 2013 is my first full year of retirement. My benefit is modest as I have only 16 years under SS and I also have it reduced further as most of my career was as a fed. In April, when my wife turned 66, she applied for her spousal benefit under my work record and, since she has a much higher SS benefit than I do, will wait until 70 to claim hers. In the meantime, she gets a bit more than half of mine for 48 months while hers grows at 8% a year. A great deal as long as you don't need the money to live.

SS actually called her to make sure she really wanted to do this as her PIA at 66 is about double my current benefit. They encouraged her to take it now and not wait until 70. In our case, the tax issue is not a factor - we will always pay tax on 85% of whatever SS benefit we receive. What is disconcerting is that Medicare premiums shoot up the more taxable income you have in retirement, to include SS. And the income levels for the additional premiums are not indexed for inflation.

This is complex and conversations with different SS employees resulted in different advice and answers.

 

[cybercat51]

One question is whether you are married, and if so it might be beneficial to your spouse for you to delay and take your SS benefits at 66 or 70. That way if you go first than your spouse is entitlement to that higher benefit. For a married couple there are two strategies: File & Suspend and Restricted Application aka Claim Twice. The 1st is when your spouse worked very little or there is a big gap between your Soc Sec benefits and your spouse. The 2nd strategy is when your Soc Sec benefits are close to one another as is your age at retirement.

If not married than forget these strategies. If not in good health than you should take at 62. If in good health you could consider taking from your 401k or Traditional IRA in the earlier retirement yrs. and spend down, then take Soc Soc at a later date. At 62 you get 75% of your FRA (at 66), and at 70 you get 32% more than at FRA.

You are correct when your income is over $34,000 (single) and $44,000 (married) you are going to get your Soc Sec payments taxed at 85%. I face the same situation as you, so I feel your pain.

 

[Peter]

You are correct when your income is over $34,000 (single) and $44,000 (married) you are going to get your Soc Sec payments taxed at 85%..

Actually, 85% of your SS payments will be taxed at whatever your marginal rate might be. Not the same thing as taxing them at 85%!

 

[beowulf]

It just feels like 85%

 

[Independent]

You are correct when your income is over $34,000 (single) and $44,000 (married) you are going to get your Soc Sec payments taxed at 85%. I face the same situation as you, so I feel your pain.

The way I read the worksheet, there's an interaction between SS and ordinary income. It's true that if we had hardly any SS, and had $44,000 of ordinary income, 85% of our SS would be taxable.

But, if our SS is higher, we can absorb more ordinary income before we hit the 85%. For example, if our total income were $44,000, composed of $22,000 of SS and $22,000 of ordinary income, only $500 our our SS income would be taxable.

Here are some combinations that just cross the line to 85%:

SS + Ordinary Income = Total Income

$12k + $43k = $55k
$20k + $47k = $67k
$28k + $51k = $79k
$36k + $55k = $91k
$44k + $59k = $103k

 

[timo2]

No Richard8655 said he has a spouse in post #12. This is an important factor that needs to be considered.

You have to consider joint life expectancy which makes waiting til 70 often a much better option.

My pet peeve is married people who disregard the effects of delaying SS on the survivors benefit. They will probably be leaving widows who are suddenly taxed at the much higher single tax rate. I feel people need to consider the whole of retirement for both spouses and not just focus on the beginning of retirement when both spouses are alive and paying tax at the married rate.

+2.
In my case, if I die first, my DW takes a big hit in income, and that just isn't fair of me to know that and let it happen. My DW will need that higher amount of SS at 70. If you have the numbers to show that your spouse will be OK, then nevermind. Lots of stuff on the internet about the 'survivor income gap'. Here are a couple of links Retirement Planning, Spouse Protection - Financially Speaking - AARP Bulletin and The Economic Consequences of a Husband's Death: Evidence from the HRS and AHEAD

 

[Richard8655]

My spouse and I are in complete agreement that early SS for the primary worker (yours truly) works out the best for both of us. We did decide, however, that she'll wait until her FRA in order to receive half of my FRA benefit (even though I'll retire at 62).

From running the numbers, this works out the best for both of us in terms of lowest taxes, cumulative payout over time, break-even age, and our own plans and expectations.

 

[beowulf]

I'm not sure I understand what Independent is saying. The only thing that counts for the 85% of SS that is subject to your highest rate of taxation is your total income - in this case your MAGI. If a married couple has more than $44K of MAGI, then 85% of the SS portion of that $44K is subject to taxation. There is a formula for amounts between $24K and $34K, but it's the total that counts. If you have $45K of MAGI, then 85% of your SS is taxable.

I may be mistaken, but the way I read the rules, the only thing that matters is the sum of everything that goes into your MAGI. Please let me know if this is a wrong interpretation.

 

[misanman]

There is a formula for amounts between $24K and $34K, but it's the total that counts. If you have $45K of MAGI, then 85% of your SS is taxable.

I think only 1/2 of the SS amount is used in the calculation. I have the details somewhere but will have to look them up. Perhaps someone else has it readily at hand.

 

[willow]

I think only 1/2 of the SS amount is used in the calculation. I have the details somewhere but will have to look them up. Perhaps someone else has it readily at hand.

the first line in the formula is 1/2 ss as you said.

 

[Independent]

I'm just following this worksheet: http://apps.irs.gov/app/vita/content/globalmedia/social_security_benefits_worksheet_1040i.pdf

Here's my math for a simple case where the couple has $60k of total income - $30k of SS and $30k of other income:

1	Social Security Benefit....	30,000
2	1/2 of 1	15,000
3	Other Income	30,000
7	2+3	45,000
8	Input	32,000
9	7 - 8	13,000
10	Input	12,000
11	9 - 10	1,000
12	min ( 9, 10 )	12,000
13	.50 * 12	6,000
14	min ( 2,13 )	6,000
15	.85 * 11	850
16	14 + 15	6,850
17	.85 * 1	25,500
18	min ( 16,17 )	6,850

Line 18 is the taxable share of SS income. In this case it's 6850/30000 = 23% of the SS benefit.

I don't know how to describe that with just a few words.

 

[willow]

b

 

[rodi]

I find these discussions about the spousal benefit and the file/suspend interesting... However they don't work well unless the couple is reasonably close in age. Someone posted a calculator earlier - (trowprice?) and it only worked if the couple was within 6 years of other.

My husband and I are almost 10 years apart.
I am the higher income earner.
If he takes it next year (turns 62) then we can also get a small amount for our minor children. That doesn't show up on many calculators. (I only knew from a previous discussion from a forum member here.)

If I delay till 70 - that's great - but he's now 79... We'll probably die close to each other - his family has more longevity than me. (Only one grandparent lived past 80 on my side, both parents died youngish.)

It's not so simple to figure this out.

For us - we're looking at him taking it at 62 because, with the kids benefits for 6-8 years - it pushes the break even point to late 80's for him. I have the spreadsheet to prove it.

Still haven't figured it out for me - but I have a decade to figure it out.

I'm sure I'll have a lot more data on my spreadsheet by then.

 

[pb4uski]

The kids benefit is an unusual twist. Have you considered having socialsecuritysolutions.com do an analysis of your situation for you?

 

[willow]

I find these discussions about the spousal benefit and the file/suspend interesting... However they don't work well unless the couple is reasonably close in age. Someone posted a calculator earlier - (trowprice?) and it only worked if the couple was within 6 years of other.

My husband and I are almost 10 years apart.
I am the higher income earner.
If he takes it next year (turns 62) then we can also get a small amount for our minor children. That doesn't show up on many calculators. (I only knew from a previous discussion from a forum member here.)

If I delay till 70 - that's great - but he's now 79... We'll probably die close to each other - his family has more longevity than me. (Only one grandparent lived past 80 on my side, both parents died youngish.)

It's not so simple to figure this out.

For us - we're looking at him taking it at 62 because, with the kids benefits for 6-8 years - it pushes the break even point to late 80's for him. I have the spreadsheet to prove it.

Still haven't figured it out for me - but I have a decade to figure it out.

I'm sure I'll have a lot more data on my spreadsheet by then.

if you are taking money out of savings to fund from 62-70 taking social security at 62 has an EFFECTIVE break even at 90.
the difference in taking 62/70 is 1.76. in example using 1000 dollars if you get 1000 dollars a year at 62 you would get 1760 at 70.


so 1760 x 20 equals 35200 at 90
so 1000 x 28 equals 28000 at 90

but you also did not use 8000 out of your accounts because you took SS at 62. 35200-28000 equals 7200. extra at 90 if from 70

however 8000 saved -7200 is 800 over for taken at 62.

if you use this formula with your actual 62/70 projections from ss you will see the same thing happen

actual break even is about 82 but EFFECTIVE break even is 90

 

[RunningBum]

if you are taking money out of savings to fund from 62-70 taking social security at 62 has an EFFECTIVE break even at 90.
the difference in taking 62/70 is 1.76. in example using 1000 dollars if you get 1000 dollars a year at 62 you would get 1760 at 70.


so 1760 x 20 equals 35200 at 90
so 1000 x 28 equals 28000 at 90

but you also did not use 8000 out of your accounts because you took SS at 62. 35200-28000 equals 7200. extra at 90 if from 70

however 8000 saved -7200 is 800 over for taken at 62.

if you use this formula with your actual 62/70 projections from ss you will see the same thing happen

actual break even is about 82 but EFFECTIVE break even is 90

No.

If you are going to account for the 8000 you didn't have to take out of your account between 62 and 70, you would also have to account for the extra 760/yr you need to take out of your account every year after that because of the lesser amount you are getting after age 70.

 

[willow]

No.

If you are going to account for the 8000 you didn't have to take out of your account between 62 and 70, you would also have to account for the extra 760/yr you need to take out of your account every year after that because of the lesser amount you are getting after age 70.

no my numbers give the exact amounts until 90

28 times 1000 equals 28000
20 times 1760 equals 35200.

the 8000 is money not taken out of accounts between 62-70.
that's it .
it is indirect money it is NOT from ss directly but it is the EFFECT.

I suggest you just use your own numbers. try it

 

[RunningBum]

If there is an effect to consider between the 0 and 1000 difference from ages 62-70, there is also an effect to consider between the 1760 and 1000 difference every year after.

 

[pb4uski]

If there is an effect to consider between the 0 and 1000 difference from ages 62-70, there is also an effect to consider between the 1760 and 1000 difference every year after.

+1

 

[willow]

one more time.

1760 x 20 equals 35200 at 90
1000 x 28 equals 28000 at 90

35200-28000 equals 7200- amount more that starting at 70 gives at 90

actual break even point about 81 -82

we probably all agree so far.

I say however that the 7200 you did not have to spend in the first 8 years is an INDIRECT benefit of taking at 62. In effect ss gives you a loan that only has to be paid by 90. It becomes EFFECTIVE break even.

after 90 of course the annuity affect hits big time-but if you think you'll be deceased at 90 taking at 62 is a wash.

 

[pb4uski]

What you need to do is compare the cash inflows of alternative A (taking SS at 62) with the cash inflows of alternative B (taking SS at 70). Whichever alternative has the highest cash inflows wins IF you are looking at the decision as an investment decision.

So if you ignore the time value of money (discount rate = 0%), then the breakeven point is ~80.5.

(80.5-62)*1,000 = 18,500 ~ (80.5-70)*1,760

If you include the time value of money at 4% then the breakeven point becomes 86.9 since the pv of 1,000/year for 24.9 years discounted at 4% = the pv of 1,760 a year for 16.9 years discounted at 4% and then further discounted for the 8 year deferral period.

If you change the 4% to 5% then you get ~90.

But the other thing is that the reason for taking at age 70 isn't necessarily to optimize the investment result, it is longevity insurance. For marrieds, you need to look at joint longevity and the joint longevity for a 62 yo couple would be 29 years - to age 91.

 

[willow]

I'm not looking at it as an investment decision. I'm looking at it as the payout at 70 to 90 and the payout at 62-90.

there are reasons to wait to 70.

No savings
was going to work til 70 anyways
wanted your spouse to inherit your lager benefit.
think you will live substantially past 90.
cola amounts higher on the higher SS

those are all good reasons to take at 70.

however reasons to take at 62
EFFECTIVE break even is 90.
lower taxes over years to 90 because of lower ss and required distributions.
interest earned on that pool of money saved.
you don't think you'll make it to 90. all my relatives have died between 86 and 90 that's why I took at 62

ther is NO question that you get more ACTUAL money from ss until 90 if you wait to 70 but the EFFECTIVE break even point is 90 not 82