My Social Security filing epiphany

[imoldernu]

Recent article on "file and suspend"
Mass confusion over new Social Security rules

 

[pb4uski]

...but for those who choose to wait, our thanks, echoing pb4uski's comment:

..... and we appreciate your contribution to the sustainability of SS

Funny imoldernu.... but to be clear.... my comment was directed to someone who didn't need to but take SS at 62 but was "because they can" and as a result have their benefits permanently reduced.... not to those who wait.

 

[nun]

Funny imoldernu.... but to be clear.... my comment was directed to someone who didn't need to but take SS at 62 but was "because they can" and as a result have their benefits permanently reduced.... not to those who wait.

Of course the individual payment will be reduced if taken at age 62, but for many people the lifetime benefit will be better or as good as with deferring. Being single I will be taking SS at age 62.

 

[imoldernu]

Funny imoldernu.... but to be clear.... my comment was directed to someone who didn't need to but take SS at 62 but was "because they can" and as a result have their benefits permanently reduced.... not to those who wait.

Yeah... ... and I'm thinking that their waiting leaves more money in the system so it doesn't "run out", before I do....

 

[youbet]

Point: Seems like "nobody" models that there is any chance that they'll die before the break-even point (i.e. seems like "nobody" models the bell curve of when they'll expire). Instead, they pick an age to use in their model. One age.........

That seemed in contrast to modeling investment returns.

It's also seems that few model the time value of money and potential investment gains into the "when to take SS" decision. For example, I began SS in 2010 at 62. All those monthly payments have been continuously invested (DCA into TSM fund) and have done quite well due to the favorable market conditions that have existed during most of the time since then.

If things don't tank from here, the stash I'll have accumulated by the time I reach 70 will be more than large enough to cover the difference between my SS and what my SS would have been had I delayed.

Of course, things might have gone against me. The markets might have sucked and the accumulated stash would be much less. We all get to roll the dice........... I got lucky and actually have better longevity insurance and protection for DW than had I delayed.

 

[nun]

For example, I began SS in 2010 at 62. All those monthly payments have been continuously invested (DCA into TSM fund) and have done quite well due to the favorable market conditions that have existed during most of the time since then. If things don't tank from here, the stash I'll have accumulated by the time I reach 70 will be more than large enough.

Even if take SS at 62 and just spend the money many single people and a lot of couples will end up taking more from SS that if they deferred to age 70. Like any annuity it all depends on how long you live. If you invest the SS you might do even better, or worse.

To get significant gains from deferring to age 70 you have to live into your late 80s. It's more probable that you'll die before then so do that calculation for your particular circumstance and go with the higher probability. If you are single I'd say take SS early.

 

[pb4uski]

Yeah... ... and I'm thinking that their waiting leaves more money in the system so it doesn't "run out", before I do....

Got it. Good one. I like your sense of humor.

 

[samclem]

The benefit of taking SS later than 62 only starts to assert itself if you live into your late 80s.

I would say that a person/couple who waits to collect SS in order to make himself/ the surviving spouse more secure in old age begins deriving benefits immediately, they don't need to wait to be 80. The benefit: They know every day that their spouse has a reduced chance of being financially strapped in old age or in the event of a big market decline.

Do I/my family benefit from having term life insurance only if I die and collect? Clearly the answer is "no." Every day I owned that policy and it assured my family would be okay if I died, I was getting a benefit. A "real" benefit and an emotional benefit. One tangible benefit was that I could take more risk in my investments (= more likely gain) knowing that if I died that investment money wouldn't be needed immediately. SS benefits are similar: If I can count on a higher % of my baseline true spending requirements to be met by SS, my investments can be slightly more volatile and I'll be okay. That can improve returns.

The decision about when to take SS should not be about maximizing dollars received from SS (where these discussions too often end up), it should be about maximizing the utility of this benefit/asset. It has characteristics that make it unique, and of high utility in certain situations.

 

[rayvt]

Only question that popped in my head was whether a surviving spouse would remain financially secure if the other died along with their Social Security benefits.

If it requires both SS benefits to be financially secure, then by definition you are not financially independent. That's this board, right? F.I. & R.E.

Optimizing SS benefits this way is how people who are not F.I. are able to retire.

 

[nun]

The decision about when to take SS should not be about maximizing dollars received, it should be about maximizing the utility of this benefit/asset. It has characteristics that make it unique, and of high utility in certain situations.

I agree. Whether to defer, or not, depends on individual circumstances and the absolute possible amount of benefit should not be the major factor. That's the argument I always make when people scorn the SPIA. Being married makes the assessment of benefit a little more complicated, but for the single person the chances are that you won't see much of an advantage from deferring. So as a rule of thumb I'd advise single people to take SS as soon as they can. The combinations and permutations of market returns, longevity and spending patterns are an enormous space, but for my situation as a single male I value having SS income at 62 over waiting until 70 and expecting to live well passed my mortality age to see the gain. Deferring is a better bet if you are a woman. I won't have quite as much SS if I live into my 90s, but I have a pension and a UK SS check (at 67) so I don't need it. At 66 I expect to get around $20k in SS and assuming 3% annual inflation here are the numbers.

Starting Age	Starting Amount ($)	Total at 83 ($)	Total at 90
62	15k	458k	678k
66	20k	468k	729k
70	26.4k	451k	757k

 

[pb4uski]

....Optimizing SS benefits this way is how people who are not F.I. are able to retire.

and how people who are FI optimize their charitable giving and inheritances to their beneficiaries.

 

[r2021t]

I went ahead and started drawing at age 62, mostly because financially I didn't need to and decided to bank the $$. We decided to help out our granddaughter with college apartment expenses her last two years of college. I send her $1K a month for rent, utilities and rest toward groceries. She's a straight A student and working two jobs. I'm glad to be able to help her, don't know that we would have offered to be so generous if we didn't have the SS as extra $$$.

That is a really nice thing to do.

 

[sanfanciscotreat]

69.5 now waiting till SS will give me 40K per annum in another couple of months.

 

[HadEnuff]

My wife will take hers in a few months when she turns 62....WHY....because she can.

I did this. Well, almost. I waited a few months because I wasn't quite done w*rking...I had several thoughts.

1. If I don't take it, I'll have to take more of my assets out of investments ,in order to support my lifestyle

2. When someone puts money on the table, take it. They may change their minds later. Or change the rules. Or not have it. Take it. (My approach, not saying it should be everyone's)

 

[misanman]

69.5 now waiting till SS will give me 40K per annum in another couple of months.

This is my situation too. Turn 70 in July. Spending down IRA and doing Roth conversions while drawing spousal benefit (DW started SS at 62). Goal is to avoid future "tax torpedo" with RMDs, especially important when one of us dies. Also trying to leverage how SS/investment-income blend affects overall taxation.

 

[Clone]

Point: Seems like "nobody" models that there is any chance that they'll die before the break-even point (i.e. seems like "nobody" models the bell curve of when they'll expire). Instead, they pick an age to use in their model. One age.

I think the reason we use all the data and modeling up front when we are trying to decide if we can retire is because we don't want to run out at the end of the game. Or rather- we don't want to run out of money before we expire.

With the social security decision- many of us look at the delayed start/ higher annual payment as a way to buy some inflation hedged income until our expiration date. If we expire before that, who cares? We expired. But the fear is outliving the initial stash.

The folks that are taking the big picture approach and trying to leave a legacy- that is where we see the great debate. Take SS early and invest it- minimize withdrawals, etc. These are discussions more complicated, and similar, to the big 'can I retire early' type discussions.

 

[Andre1969]

I just ran some numbers through FireCalc, and it doesn't look like when I take SS really has a huge impact on the chance of success. In my case though, I plan on retiring long before 62, so SS isn't as big of a factor for my success as it might be for others.

My ideal retirement is age 50 in 2020, but the recent turmoil in the stock market has made that a bit iffy, as I'd prefer to go out with a 95% chance of success, or greater. Anyway, here's what delaying SS does to the success rates, for retiring in 2020, at age 50...

87.9%: take SS at 62 in 2032
90.1%: take SS at 67 in 2037
90.1%: take SS at 70 in 2040

So, it does benefit me a little to wait until 67 versus 62, but there seems to be no benefit of waiting until 70.

If I delay just one year, and retire in 2021 at age 51, I get the following results:

96.7%: take SS at 62
98.9%: take SS at 67
98.9%: take SS at 70

There's still a benefit to delay until 67, but all three scenarios break the 95% success rate.

Now, if I wait just one additional year, retiring in 2022 at age 52, I get the following:

98.9%: take SS at 62
100%: take SS at 67
100%: take SS at 70.

Regardless, in any of these scenarios, it doesn't look like there's a right answer or a wrong answer. While there is a higher chance of failure if I take SS at 62 versus 67/70, it's really a small chance.

 

[Running_Man]

..... and we appreciate your contribution to the sustainability of SS.

There is not much effect upon Social Security trust funds itself whether an individual takes it at 62 or 70. The largest hits are first of all to survivors if any and secondly to the taxability of other income that occurs for the remainder of your life if you have cash, which effects the annual US government operational deficit more than the Social Security Trust fund.

Example presume your SS at age 62 would be 1500 per month and 3000 per month if you deferred to age 70. Now assume this is a couple with a million dollars in 401/IRA and both do take SS at age 62 , so you have $3,000 per month coming in from SS and 3,300 per month from the portfolio for a 4% withdrawal for total income of $75,600 per year.

Under current law when they file income taxes $17,560 of the Social Security will be taxable and they will owe $4,391.50 dollars in Federal Tax (assuming standard deductions and exemptions) leaving $71,208.50 in spendable money. Were they to defer Social Security and withdraw $75,600 per year from their 401K/IRA to age 70 they would pay $7,232.50 in taxes or $2,841 more in taxes per year leaving $68,367.50.

At age 70 the portfolio, assuming only increase equal to inflation would be drawn down to $396,000 and only support a $16,000 per year withdrawal. However Social Security would now provide $72,000 in income to the couple and after age 70 they would have income of $88,000 $72K from SS and 16K from Portfolio and pay only $710 in income taxes for spendable income of $87,390 or $16,181.50 more after age 70 than taking social security early.

Now there are millions of potential outcomes and future of social security and tax law is very uncertain of course and the odds of one dying of a couple is another issue. But if a healthy couple is determining at age 62 what course of action to take and decides on investing results over social security, you really have to be a lot better than inflation in order to equal what Social Security and present tax law provides

 

[nun]

I just ran some numbers through FireCalc, and it doesn't look like when I take SS really has a huge impact on the chance of success. In my case though, I plan on retiring long before 62, so SS isn't as big of a factor for my success as it might be for others.

My ideal retirement is age 50 in 2020, but the recent turmoil in the stock market has made that a bit iffy, as I'd prefer to go out with a 95% chance of success, or greater. Anyway, here's what delaying SS does to the success rates, for retiring in 2020, at age 50...

87.9%: take SS at 62 in 2032
90.1%: take SS at 67 in 2037
90.1%: take SS at 70 in 2040

So, it does benefit me a little to wait until 67 versus 62, but there seems to be no benefit of waiting until 70.

If I delay just one year, and retire in 2021 at age 51, I get the following results:

96.7%: take SS at 62
98.9%: take SS at 67
98.9%: take SS at 70

There's still a benefit to delay until 67, but all three scenarios break the 95% success rate.

Now, if I wait just one additional year, retiring in 2022 at age 52, I get the following:

98.9%: take SS at 62
100%: take SS at 67
100%: take SS at 70.

Regardless, in any of these scenarios, it doesn't look like there's a right answer or a wrong answer. While there is a higher chance of failure if I take SS at 62 versus 67/70, it's really a small chance.

How many years do you plan to spend in retirement?

 

[nun]

Now there are millions of potential outcomes and future of social security and tax law is very uncertain of course and the odds of one dying of a couple is another issue. But if a healthy couple is determining at age 62 what course of action to take and decides on investing results over social security, you really have to be a lot better than inflation in order to equal what Social Security and present tax law provides

I think the decision comes down to whether you need the extra longevity insurance. If SS is your only "guaranteed" lifetime income source and you feel you need the extra income if you live into your late 80s then deferring might be best. But most people will die before they see any significant benefit from deferring and if they have other lifetime benefits like pensions or annuities deferring becomes less attractive.

 

[nun]

Example presume your SS at age 62 would be 1500 per month and 3000 per month if you deferred to age 70.

Wouldn't deferring to age 70 give $2760?......as things stand now.

 

[Andre1969]

How many years do you plan to spend in retirement?

For the numbers above, I plotted out living to 100, which would mean 48-50 years of retirement depending on when I quit working, and either 38, 33, or 30 years of SS, depending on when I took it. I realize that's not totally realistic though, as FireCalc is only drawing from 54-year timeframes, and there could be many shorter timeframes that failed.

I just went back and re-ran a couple numbers, to see how things change. If I retire at 50, and plan out a 40 year timeframe on FireCalc, which would be 4 years of working and 36 years of retirement, and having me dead at 86, I get the following success rates:

86.7%: take SS at 62
90.5%: take SS at 67
90.5%: take SS at 70.

Using a 30 year timeframe which is 4 years of working and only 26 years of retirement, and having me dead at 76, I get the following:

95.7%: take SS at 62
94.8%: take SS at 67
93.9%: take SS at 70

So, even with these shorter timeframes, when I take SS doesn't seem to make a huge difference.

 

[nun]

For the numbers above, I plotted out living to 100, which would mean 48-50 years of retirement depending on when I quit working, and either 38, 33, or 30 years of SS, depending on when I took it. I realize that's not totally realistic though, as FireCalc is only drawing from 54-year timeframes, and there could be many shorter timeframes that failed.

I just went back and re-ran a couple numbers, to see how things change. If I retire at 50, and plan out a 40 year timeframe on FireCalc, which would be 4 years of working and 36 years of retirement, and having me dead at 86, I get the following success rates:

86.7%: take SS at 62
90.5%: take SS at 67
90.5%: take SS at 70.

Using a 30 year timeframe which is 4 years of working and only 26 years of retirement, and having me dead at 76, I get the following:

95.7%: take SS at 62
94.8%: take SS at 67
93.9%: take SS at 70

So, even with these shorter timeframes, when I take SS doesn't seem to make a huge difference.

That is what I found as well.....so I'm going to take SS as soon as I can. For probable life expectancies it works out better and I don't need the extra longevity insurance of deferring.

 

[youbet]

That is what I found as well.....so I'm going to take SS as soon as I can. For probable life expectancies it works out better and I don't need the extra longevity insurance of deferring.

To be clear, deferring SS does not guarantee maximizing "longevity insurance," although it certainly might. You need to know (or assume) what the investment returns on the money received early were and then compare early SS + bucket of investment return dollars vs. deferred SS. And, if using FireCalc for your testing, you need to believe that future investment returns will be no worse than the worst of history for your chosen AA.

During periods of good market returns, early SS can beat deferred SS at providing longevity insurance.

Regardless, I certainly agree with your decision to start SS early (as I did) given your personal circumstances and outlook. Others need to consider their own circumstances and the extent to which they value the subjective/emotional factors involved in the decision.

 

[Sunset]

I agree. Whether to defer, or not, depends on individual circumstances and the absolute possible amount of benefit should not be the major factor. That's the argument I always make when people scorn the SPIA. Being married makes the assessment of benefit a little more complicated, but for the single person the chances are that you won't see much of an advantage from deferring. So as a rule of thumb I'd advise single people to take SS as soon as they can. The combinations and permutations of market returns, longevity and spending patterns are an enormous space, but for my situation as a single male I value having SS income at 62 over waiting until 70 and expecting to live well passed my mortality age to see the gain. Deferring is a better bet if you are a woman. I won't have quite as much SS if I live into my 90s, but I have a pension and a UK SS check (at 67) so I don't need it. At 66 I expect to get around $20k in SS and assuming 3% annual inflation here are the numbers.

Starting Age	Starting Amount ($)	Total at 83 ($)	Total at 90
62	15k	458k	678k
66	20k	468k	729k
70	26.4k	451k	757k

Seems like self selection of the ages in the chart.
Your chart has a big gap between 83 and 90, I think it would look like a different answer if you picked 84 and 85 as the ages. It seems to me that waiting until 70 would win for total return at 85 and possibly 84.