Draw social security early or not?

[photoguy]

SS is designed to be actuarially neutral but this cannot be true for an individual. Some demographic groups have significantly longer life expectancies (e.g. asian and hispanic females) and correspondingly others must be less.

A family history of longevity would obviously push one to taking SS at 70 and of course the opposite would be an argument for taking SS early.

I've seen various life expectancy tables but they only report the mean (or conditional mean). E.g. if you are 62 you can expect to live on average an addition 23 years. Has anybody seen a table that gives the distribution of outcomes given a starting age?

E.g. the table would have information that at age 62, 50% would live to 82, 15% would live to 90, 1% would live to 100 etc. I think this would be key to determining longevity risk. Even better if this is broken down by race and gender.

The closest information I've been able to find are tables in this paper ( http://goo.gl/lVDiXU ) which give life expectancy as of a specific age and standard deviation (it's around 10-11 years at 62).

 

[easysurfer]

For me, the situation will depend on my health when I'm near eligible age.

If I'm still healthy, then I'll wait later. Otherwise, I'll take SS early. I've seen too many folks who had they waited, they wouldn't have drawn any SS or only a year or two.

 

[Chuckanut]

I think the smart play is to wait because you might outlive the mortality table and waiting is cheap longevity insurance. If your retirement funds perform poorly you can always opt to start at anytime of your choosing after 62. Or stop/defer benefits if they recover.


The oft-mentioned 8% growth in the benefit is only from FRA to age 70. From 62 to FRA the annual growth is more modest but still substantial. Also, the 8% growth is simple (not compounded) growth, so if one's FRA is age 66 then the age 70 is 132% of the age 66 PIA. From age 62 to FRA, the growth is between 6-6.7% depending on when you were born. See Retirement Planner: Benefits By Year Of Birth

Thanks for some good information and links.

I agree that it is cheap longevity insurance. And, as I states before, it's my best option for LTC, though certainly not enough.

On the growth rate, you're right that it is not compounded, but I also figure that the COLA's will be based upon the higher amount. That has to be a very big plus as the years roll on. I did a quick spread sheet using 3% inflation and my projected SS benefit at 62 and 70. After 20 years the difference is over $2100 a month. At 30 years, it's almost $2900 a month.

 

[haha]

SS is designed to be actuarially neutral but this cannot be true for an individual. Some demographic groups have significantly longer life expectancies (e.g. asian and hispanic females) and correspondingly others must be less.

Clearly true. IMO, this "actuarially neutral" claim is basically impossible, given the design of the time adjustments.

How can the same annual bump-up be "actuarially neutral" in markedly different interest rate environments? Hint: it cannot be. In a less formal way, would your take or wait decision be different at S&P PE10 levels of 7, 15, and 25?

If not, why not?

IMO, there are a few valid reasons for taking SS early under current bond and stock market
conditions. 1)Special considerations regarding spouses, other pensions, etc. These are beyond my understanding. 2) Near term need for the money. 3) Definite and marked bad health. 4)Fear that the conditions, taxes, etc. will be changed in such a way that taking a bird in hand seems the only prudent path. 5) Strong emotional needs to "get the money", which generally in most people will trump anything else anyway.

Ha

 

[Car-Guy]

Even though I didn't really need the money, I began taking it last year at 62. Lot of reasons for taking it then but the one that push my decision over the top was what happened to a good friend of mine about 3 years ago and then to my BIL just last year. Both were in very good health "until" they were both diagnosed with pancreatic cancer. Both only lived about 9 months after they were diagnosed. My friend was in his late 50's so he never saw a dime from SS. My BIL was 63 so he collected it for about a year.

OK, it's possible that either the DW or I (or both of us) could live to be 100. That's always been my financial planning basis but I seriously doubt that will be anywhere near the real case. So, even though we don't need it, I'm taking it now and just adding it to the pile. Worse case (for us) is our heirs inherit more money early. If we both live to 100, we have enough to live comfortably without the extra money that delaying SS would have given us.

As many have said, it depends. Every case is different.

 

[Lancelot]

5) Strong emotional needs to "get the money", which generally in most people will trump anything else anyway.

Ha

True. So many folks are convinced that "SS won't be there when I retire" so they grab the money at the first opportunity.

I've debated with friends about the merits of postponing SS, but most folks are on automatic, its hard wired in to their DNA

Personally speaking, I've come to the conclusion that the more people that opt for early SS, the better it is for the long term sustainability of the program, since most will probably receive a lower total amount of benefits compared with those that delay.

 

[old woman]

I am waiting for 70 while drawing on half my ex. I consider it longevity insurance. It will grow to enough to live off if I need to allowing me to invest more aggressively knowing I would be ok without my life savings.

 

[photoguy]

How can the same annual bump-up be "actuarially neutral" in markedly different interest rate environments? Hint: it cannot be. In a less formal way, would your take or wait decision be different at S&P PE10 levels of 7, 15, and 25?

That's a very good point. Although maybe by "actuarially neutral" the SS administration is just referring to lifespan under their assumptions for return ignoring market alternatives.

I'm also surprised when I read comments by others that based on Firecalc (or a similar program) they are going to take SS early. Usually this is because it results in more money but I suspect they haven't done much analysis into the return rate assumptions (I'd much rather have US historical returns than what people are projecting today).

 

[PandaBear]

My husband and I are currently age 56/52. If dh lasts the next 4 years in his job (layoff concerns) he will retire at 60. He is planning on taking SS at age 62 because there won't be a survivor benefit for me. Not sure it's the best plan, but it's a hard thing to figure out!

Panda


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[43WorkYears]

Your right. This is a hard thing to figure out. Actually you can't figure it out from the extensive reading and research I've done on this matter. The main undetermined factor on this website or that any other place is how long do you live. This would provide answers to this question. I would love to hear your responses. No answer is right or wrong. This is the most changeling question on this website. Love to hear responses, solutions. We, I'm sure many of us are in the same boat. Please advise.


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[RunningBum]

Your right. This is a hard thing to figure out. Actually you can't figure it out from the extensive reading and research I've done on this matter. The main undetermined factor on this website or that any other place is how long do you live. This would provide answers to this question. I would love to hear your responses. No answer is right or wrong. This is the most changeling question on this website. Love to hear responses, solutions. We, I'm sure many of us are in the same boat. Please advise.

Translation: There's no way to figure out the right answer, but please tell me what it is.

 

[43WorkYears]

It's gets down to not right or wrong, it gets down to hearing as many opinions and situations we can all read about and respond to make the best decision based on our situation. This is a thread that will go along for quit some time. Keep up your great ideas/opinions. This helps all of us in some way. Keep them coming. Thanks all very much. Keep them coming. I'm sure there are many out there that can add value to all of us. Please respond with your thoughts.


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[Animorph]

SS is designed to be actuarially neutral but this cannot be true for an individual. Some demographic groups have significantly longer life expectancies (e.g. asian and hispanic females) and correspondingly others must be less.

A family history of longevity would obviously push one to taking SS at 70 and of course the opposite would be an argument for taking SS early.

I've seen various life expectancy tables but they only report the mean (or conditional mean). E.g. if you are 62 you can expect to live on average an addition 23 years. Has anybody seen a table that gives the distribution of outcomes given a starting age?

E.g. the table would have information that at age 62, 50% would live to 82, 15% would live to 90, 1% would live to 100 etc. I think this would be key to determining longevity risk. Even better if this is broken down by race and gender.

The closest information I've been able to find are tables in this paper ( http://goo.gl/lVDiXU ) which give life expectancy as of a specific age and standard deviation (it's around 10-11 years at 62).

This is the one I use:

Actuarial Life Table

Only broken out by gender, but you can figure out quite a bit from it.

 

[43WorkYears]

Thanks. Would like our members to elaborate with actual situations/opinions, rather than statistics. We all seen those before, but we can all learn from our own opinions and life situations. Keep them coming. We can all benefit from what we read.



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[springnr]

Exploring the ins and outs of SS is an interesting endeavor. Social Security has quite a few nuances to its implementation, some matter, others are just that, nuances. If I forgo collecting SS until I'm 70, the monthly payout will become 1.75x the 62 amount, for the rest of my life. The total pay out I could collect from 62 to 70 would amount to ~175K counting cola increases. From reading here 175K is less than 12% of most portfolios.

Is the choice of what time period to collect this 175K crucial or akin to re-balancing strategery?

 

[travelover]

.......... Would like our members to elaborate with actual situations/opinions, rather than statistics..........

As an engineer, I definitely prefer anecdotes / opinions to boring ole statistics.

 

[harley]

Another tax issue to keep in mind. If you are drawing from your 401K without taking SS, you'll probably in a lower tax bracket than when you were putting the money in. If you take SS early, then start drawing from your 401K when RMDs start, you will probably be paying higher taxes on the withdrawals. Add to that, if you die and your wife is getting your (lower because you took it early) SS check, but then has to do RMDs from the 401K, she could be pushed into a significantly higher tax bracket, decreasing her spendable income.

But for me the main reason to wait on taking SS is to guarantee my beloved spouse the highest income possible after dealing with my loss.

My Mom, who just passed a few weeks ago, was in the opposite situation. While both of them were alive, they had a significant income. He was on a retired full bird Col.'s pension, he had a SS check of about $1300, and she had a SS check of about $900. Then he died, and his 0% survivorship pension went away, and all she had left was his SS check. And a very little life insurance. Luckily he had been exposed to Agent Orange and died of lung cancer (lifetime smoker), so she got another $1000/month from the VA. But she went from being very well set up to being pretty financially strapped at the same time she lost her husband. It was hugely traumatic. If I had known he'd gone 0% survivorship AND took his SS early he'd have been dead long before. A-hole.

 

[daylatedollarshort]

It was hugely traumatic. If I had known he'd gone 0% survivorship AND took his SS early he'd have been dead long before. A-hole.

Sorry to hear about your mom. For our private pensions, my husband and I had to sign each others' pension application papers. I don't think either of us could have taken 0% survivorship without the other's consent. I took 100% survivorship on DH's pensions and I told him he could do whatever he wanted on mine, since I'd be dead then anyway. I can't remember if he took 50 or 75%.

 

[Chuckanut]

I thought the days of getting a 100% pension without the spouse's approval were over.

 

[photoguy]

This is the one I use:

Actuarial Life Table

Thanks Animorph. That has the information I need.

Just eyeballing it seems like 1/3 of women and 1/5 of men will live to 90 or more given that they've reached 62. That seems me a pretty big argument for delaying SS in the absence of a family history of shortened lifespans.

 

[harley]

I thought the days of getting a 100% pension without the spouse's approval were over.

I'm sure she approved it. She wasn't very smart financially. I give her a lot of the blame too. I just can't see why anyone would leave someone they loved in that position. When you're a team you have to consider both player's well being. IMHO.

 

[NW-Bound]

Thanks Animorph. That has the information I need.

Just eyeballing it seems like 1/3 of women and 1/5 of men will live to 90 or more given that they've reached 62. That seems me a pretty big argument for delaying SS in the absence of a family history of shortened lifespans.

The way I look at that table, I am not sure that the choice is so conclusive. It shows that out of 100,000 males 84,090 will make it to 62. And among that 84K, 46884 will make it to the age of 81, that break-even age. This means that 56% will live long enough to make it worthwhile to delay. It is a bit better than 50%, not overwhelming.

In my case, I seriously doubt that I will live till 81. Still, I will not claim early, just so that I will leave my wife with more to live on when I am gone.

If I were by myself, I would claim early even though I could live on my own savings, because of my own anticipated lifespan.

 

[photoguy]

If it's a break-even probability then why wouldn't one delay to get the longevity protection?

Medical issues obviously change the whole equation and of course the other reasons listed by haha and others.

 

[Independent]

Thanks Animorph. That has the information I need.

Just eyeballing it seems like 1/3 of women and 1/5 of men will live to 90 or more given that they've reached 62. That seems me a pretty big argument for delaying SS in the absence of a family history of shortened lifespans.

I'd say that this Social Security actuaries' table has somewhat higher mortality rates (shorter life expectancies) than most people who ask this question on this site will experience. This SS table is a "total population, period" table. I can think of three adjustments:

The table includes everybody, regardless of current health. For example, it includes people who were in hospices on their birthdays, and people who know they have serious diseases. People who ask the "should I defer SS?" question are usually in better health than the perfectly average American (simply because "average" includes those special cases).

The table does not distinguish by economic status. Other SS statistics show that people with higher lifetime average incomes tend to outlive those with lower lifetime average incomes. Most posters on this site are in the "higher" income group.

A "period" table is a snapshot based on current mortality. It assumes no future improvements in mortality rates. The general trend in mortality rates is downward. The SS actuaries use the "cohort" mortality tables, instead of "period" tables, when they are doing the projections for the SS trust fund.

 

[photoguy]

I'd say that this Social Security actuaries' table has somewhat higher mortality rates (shorter life expectancies) than most people who ask this question on this site will experience.

These are good points. Ideally I'd like some sort of regression model (that outputs quantiles) where I could put inputs like race, gender, education, etc.

The SS actuaries use the "cohort" mortality tables, instead of "period" tables, when they are doing the projections for the SS trust fund.

Is this a big effect (say more than 1 year)?