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Delaying SS is "buying annuity on the installment plan"
Old 03-07-2011, 12:49 PM   #1
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Delaying SS is "buying annuity on the installment plan"

I just happened to check the Retire Early Board and saw John Greaney's March article which may be of interest to some readers here:
Social Security "Withdrawal of Application" Strategy Ends --
But You Can Still buy a Cheap Annuity on the Installment Plan


Back in January, Retire Early noted that you can still "buy" the additional inflation-adjusted monthly benefit that the now defunct Withdrawal of Application strategy provided at age 70 by simply delaying your first Social Security check until then. Think of it as "buying an annuity on the installment plan." It would still be much cheaper than taking Social Security at age 62, and then buying an annuity in the private market at age 70 to make up the difference in your monthly benefit. To illustrate this, let's look at a retiree eligible for the maximum monthly Social Security benefit who turned 70 in January 2011 and started taking Social Security when he turned 62 in January 2003.

Social Security "Withdrawal of Application" Strategy Ends -- But You Can Still buy a Cheap Annuity on the Installment Plan

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Old 03-07-2011, 01:10 PM   #2
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Whoever could have thought of this?

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Old 03-07-2011, 01:14 PM   #3
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True, we have had many threads before on the "When should I take SS?" dilemma.

I am holding off on claiming SS since I like the "old age insurance" aspects of it, but I think there is a real risk that our SS may be reduced or taxed in the years to come.

So, I'm waffling about this right now.
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Old 03-07-2011, 01:17 PM   #4
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Conversely, taking SS early at 62 is essentially selling an annuity back to the government.
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Old 03-07-2011, 01:46 PM   #5
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I'm gonna take SS right after I pay off my mortgage. But should I pay off the mortgage early?
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Old 03-07-2011, 01:47 PM   #6
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I'm gonna take SS right after I pay off my mortgage. But should I pay off the mortgage early?
I suggest you keep the mortgage and pay off SS early.
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Old 03-07-2011, 01:56 PM   #7
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I go back and forth, but right now it doesn't matter.

When I turn 62 later this year, I could take SS. But if I wait until I'm 70, my dear wife, who is 5 years younger and in exemplary health, will be able to get the increased amount for a long time. And, we won't really need it for a few years because of other investments.

On the other hand, and I suspect like many of you, I have been delaying or deferring the fruits of being relatively frugal for a long time. The prospect of "free money", ie, SS, that isn't critical to maintain lifestyle, will be an attraction. Think of what you could do with another $2,500 or whatever a month of totally discretionary, disposable income!

My best guess right now is that I will probably not take it until 66 at least and then seen how I feel. But I know my wife will take hers at 62, which is 67 for me, so maybe around then. It will all depend on finances, health and whatever the government does to all of us.
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Old 03-07-2011, 02:09 PM   #8
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When I turn 62 later this year, I could take SS. But if I wait until I'm 70, my dear wife, who is 5 years younger and in exemplary health, will be able to get the increased amount for a long time. And, we won't really need it for a few years because of other investments.
I'm delaying till age 70 for the same reason - the long term benefit for DW.

However, unlike you we are the same age (within 5 months). When she turns FRA at age 66 I'll claim 50% of her benefit, which I'll get for 3.5 years while my deferral will gain 8% annually (plus any unanticipated COLA's) for the period.

Different strokes - different folks. No answer is right/wrong, depending on your personal situation and your personal beliefs related to the viability of SS, tax rates, and possible means testing in the future IMHO...
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Old 03-07-2011, 02:30 PM   #9
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If I were 70 years old and had been collecting SS for 8 years since 62, and I had the option to give the government back the $160,000, what would I do?

A) Give them the money and effectively purchase a very good annuity?
B) Buy a SPIA privately?
C) Keep the $160,000 invested in equities?

I would probably do C. Just because I don't trust the government to meet their obligation. They are already looking at ways to save SS. I don't like the sound of having to "save" my source of income.

Taking mine at 62, don't even need it, so it will be mad money.
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Old 03-07-2011, 02:48 PM   #10
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I turn 62 next month and as long as Mr. Market is in this area and not dumping out I'm going to hold off for a while. Best guess is I'll take it in Dec. of 2012 when DW turns 62. That should give me about $2800 a month total. Mine should be about 2K and 800 for DW.
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Old 03-07-2011, 02:53 PM   #11
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I turn 62 next month and as long as Mr. Market is in this area and not dumping out I'm going to hold off for a while. Best guess is I'll take it in Dec. of 2012 when DW turns 62. That should give me about $2800 a month total. Mine should be about 2K and 800 for DW.
That a nice little chunk of change to have coming in, takes a little stress off having to dig into the investments when times may be tough in the markets.

For me, I guess I don't have the optimism to see myself getting to be 105-110. More like a nice lobster dinner, with some chardonnay at about 98 years old, go to bed, fail to report for breakfast, that's my idea of a checkout. And be bouncing checks for about 4-5 months previous.
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Old 03-07-2011, 02:55 PM   #12
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I'm gonna take SS right after I pay off my mortgage. But should I pay off the mortgage early?
Wait until just before you start SS.
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Old 03-07-2011, 03:16 PM   #13
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Yeah, I also plan on waking up dead. I keep checking my body of an expiration date but none found yet.
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Means Testing Implemented in 1983
Old 03-07-2011, 04:12 PM   #14
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Means Testing Implemented in 1983

Saw something the other day that was news to me and since there is often speculation in this forum on means testing for SS I thought it might be of interest. The March 4th issue of Retirement Weekly had some Q&A on the taxation of SS benefits and contained the following:

Quote:
The taxation of Social Security benefits was first instituted as part of the 1983 ammendments to shore up the Social Security system. It is essentially a means testing program that reduces benefits for higher-income beneficiaries, but it does so through the imposition of a tax rather than an outright reduction of benefits.

Because the taxation thresholds are not adjusted for inflation, more and more retirees will have part of their benefits subject to tax in the years ahead.

The only way to reduce or avoid the tax is to reduce other taxable income...
Anyway, it hadn't occurred to me but apparently we've had means testing for many years.
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Old 03-07-2011, 04:53 PM   #15
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Saw something the other day that was news to me and since there is often speculation in this forum on means testing for SS I thought it might be of interest. The March 4th issue of Retirement Weekly had some Q&A on the taxation of SS benefits and contained the following:


Anyway, it hadn't occurred to me but apparently we've had means testing for many years.
The issue I see with that type of means testing is that it does nothing to shore up the SS finances. Those taxes just get tossed to the big spending government.

I'd like to see SS means testing for anyone making just slightly more than I will and just cut back on that persons benefits so that it stays in the SS pot.

My means plus about 10% would be a great place to draw the means line.
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Old 03-07-2011, 05:20 PM   #16
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Originally Posted by 67walkon View Post
I go back and forth, but right now it doesn't matter.

When I turn 62 later this year, I could take SS. But if I wait until I'm 70, my dear wife, who is 5 years younger and in exemplary health, will be able to get the increased amount for a long time. And, we won't really need it for a few years because of other investments.

On the other hand, and I suspect like many of you, I have been delaying or deferring the fruits of being relatively frugal for a long time. The prospect of "free money", ie, SS, that isn't critical to maintain lifestyle, will be an attraction. Think of what you could do with another $2,500 or whatever a month of totally discretionary, disposable income!

My best guess right now is that I will probably not take it until 66 at least and then seen how I feel. But I know my wife will take hers at 62, which is 67 for me, so maybe around then. It will all depend on finances, health and whatever the government does to all of us.

For us single folks, I don't think it matters that much. However, for you married folks especially in the somewhat common situation of older husband with higher earnings. I think delaying makes so much sense since she will get your higher payments for the rest of her life. Although I have to say waiting until you turn 70 seems psychologically real tough, cause free money is very tempting.

One interesting possible wrinkle in the calculation is Health Insurance subsidies that are part of ObamaCare. I imagine the premium for insurance at the 62 will be particularly high, and so the subsidies would be quite large. My guess is that SS payments will count as income and reduce the subsidy. Of course, I am not betting big bucks that I or anybody else on this forum in ER will actually be be able to collect them.
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Old 03-07-2011, 06:03 PM   #17
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Originally Posted by misanman View Post
Saw something the other day that was news to me and since there is often speculation in this forum on means testing for SS I thought it might be of interest. The March 4th issue of Retirement Weekly had some Q&A on the taxation of SS benefits and contained the following:


Anyway, it hadn't occurred to me but apparently we've had means testing for many years.
The means testing of SS benefits comes in the amount of SS income that is (income) taxed. The levels are not indexed for inflation and thus have been creeping up each year with inflation and biting harder every year. Note that the level of taxation goes up with income.

Benefits Planner: Taxes and your Social Security benefits
Quote:


file a federal tax return as an "individual" and your combined income* is
  • between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
  • more than $34,000, up to 85 percent of your benefits may be taxable.
file a joint return, and you and your spouse have a combined income* that is
  • between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits
  • more than $44,000, up to 85 percent of your benefits may be taxable.
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Old 03-07-2011, 06:11 PM   #18
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You're getting an income. Why shouldn't you pay income tax like everyone else?
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Old 03-07-2011, 06:13 PM   #19
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The means testing of SS benefits comes in the amount of SS income that is (income) taxed. The levels are not indexed for inflation and thus have been creeping up each year with inflation and biting harder every year. Note that the level of taxation goes up with income.
Many/most of us probably will be taxed the full 85%. I know I will be. So, the effect of inflation eating away at this will be felt most sharply by those with lesser income, those of us who can least afford it.
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Old 03-07-2011, 06:14 PM   #20
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You're getting an income. Why shouldn't you pay income tax like everyone else?
Well, At one time the thinking was.... You already paid income taxes on your income before SS was levied. In other words SS is taken from "after-tax" money. So the benefir was untaxed (again).

Then they said - We'll your company paid half of the SS taxes so you should pay income taxes on half the benefit.

Then they said, Well the "rich" should pay more taxes. And they income taxed up to 85% of the benefit for the "rich". When they did this $34k (single) and $44k (married) was quite a bit of income. But they didn't index it for inflation, so now (due to inflation) people of modest means are paying taxes on much of their SS benefit.

This is one of those stealth taxes that they don't advertise much. Yet in reality they have cut your benefit.
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