New Social Security study on claiming it too early

[Audie Murphy]

I hope your treatment is successful and that you are a happy and long-lived cancer survivor.

I would like to echo this sentiment.

 

[jebmke]

As a funeral director for the last 34 years, I meet family’s everyday and heard the stories for unexpected death of a loved one. I am retiring at 62. Enjoy your heathy early years. By age 70 things start going bad and you don’t want to do much after that age. I am living before I die. I hope to not be one of the hundreds of stories I have heard.

Good luck with your decisions in FIRE. I’m out at 62

I was out at 55 and still plan to wait until 70. For those who need SS to make it work at 62, I don't think there is any disagreement about taking at 62 if they intend to retire at 62.

 

[kimcdougc]

As a funeral director for the last 34 years, I meet family’s everyday and heard the stories for unexpected death of a loved one. I am retiring at 62. Enjoy your heathy early years. By age 70 things start going bad and you don’t want to do much after that age. I am living before I die. I hope to not be one of the hundreds of stories I have heard.

Good luck with your decisions in FIRE. I’m out at 62

Puts things in perspective for me. Nothing like hearing from someone who has been there listening to others for 34 years. Thanks for sharing. Filing at 62 for DH and myself. Life is short. Rather have the $ to spend in the early years. Let the portfolio grow.

Interesting thread to me.

 

[Cessna152]

Counter-intuitively, for some people waiting to take SS at 70 allows them to immediately begin spending more per year for every year in retirement than taking SS at 62. For others, the reverse is true.

Consider the example of "Colleen" from this Fidelity page: https://www.fidelity.com/viewpoints/retirement/social-security-at-62

She can begin taking SS at 62 and get $1450/month ($17200/year) or at 70 and get $2560/month ($30720/year).

I'll use the "Investigate" feature tab of FIRECalc to "Search for settings that will get a success rate of as close to 100% as possible (usually within 1%) by changing... [*] Spending Level"

In "Start Here" I varied "Portfolio" in the following table, entered any non-zero value in spending (cause the selected investigation doesn't use that value - it's trying to find its maximum value), and set "Years" to 40 for this set. In "Other Income/Spending" I set "Your Social Security" values to the following values to get the maximum "safe" spending level of 100%. All other FIRECalc variables were left in their default values.

Portfolio ($)	SS ($)	Starting In	Spending Level ($)
2,000,000	17,400	2020	83,623
2,000,000	30,720	2028	87,773
1,000,000	17,400	2020	50,210
1,000,000	30,720	2028	52,900
500,000	17,400	2020	33,503
500,000	30,720	2028	34,624
300,000	17,400	2020	26,823
300,000	30,720	2028	23,440
100,000	17,400	2020	16,000
100,000	30,720	2028	7,813

• In this scenario, stock/bond assets under about $400k favors taking SS early. Note the difference for the retiree with only $100k to start vs the retiree with $2M.
• The situation is more complex for spouses but probably favors delaying in a fair number of scenarios. This is sometimes referred to as longevity insurance. E.g. going from $34,800 to $17,400 is fiscally more difficult than going from $61,440 to $30,720. In the latter case the surviving spouse is arguably better off.
• When I used a planning period of 20 instead of 40, not surprisingly taking at 62 is the better choice in almost all cases. Sometimes the difference was negligible. This is left as an exercise for the reader to verify.
• It clearly pays to use financial planning tools to run the permutations for your particular starting parameters and assumptions. The study referenced in the OP didn't actually say the optimum SS starting age was always 70. It merely said that when analyzed a lot of retirees took SS at less than the optimal age - which for some would be 62.

 

[pb4uski]

..... Consider the example of "Colleen" from this Fidelity page: https://www.fidelity.com/viewpoints/retirement/social-security-at-62

She can begin taking SS at 62 and get $1450/month ($17200/year) or at 70 and get $2560/month ($30720/year). ...
[/LIST]

Yes, it can also be illustrated with a WR approach. Let's say that in addition to the above that Colleen has $1 million of retirement savings and is comfortable with a 4% WR.

SS at 62... $17,200 of SS plus 4% of $1 million = $57,200 annual spending

SS at 70... set up side fund of $254,760 to fund $30,720/year for age 62 to 70 when SS starts... remainder of $745,240 at 4% is $30,170 starting at age 62... The $30, 170 of withdrawals + $30,720 of SS from the side fund at ages 62-70 and from SS after age 70 = $60,890 in annual spending.

The $254,760 would be in a CD ladder to help payments keep up with inflation.

 

[explanade]

But Colleen wouldn't have that higher spending budget until she turns 70?

So what is the value to her of having the 17,400 extra money starting at age 62?

 

[Cessna152]

But Colleen wouldn't have that higher spending budget until she turns 70?

She has the higher spending budget immediately. That's the counter-intuitive part - delay taking SS till 70 yet be able to spend a bit more each year for the rest of her life than if she took SS at 62. But that is the case only if she has more than about $400k starting assets in the default stock/bond allocation that FIRECalc sets. Under $400k she could spend more each year by taking SS at 62.

So what is the value to her of having the 17,400 extra money starting at age 62?

I think the monetary value is already addressed, though perhaps I'm not understanding your question. Psychological value of the proverbial bird in the hand is something others have already opined on.

 

[pb4uski]

But Colleen wouldn't have that higher spending budget until she turns 70?

So what is the value to her of having the 17,400 extra money starting at age 62?

Read it again. Coleen can start spending $60,890 from age 62 if she defers SS to age 70.... with the same risk of ruin.

 

[camfused]

Read it again. Coleen can start spending $60,890 from age 62 if she defers SS to age 70.... with the same risk of ruin.

Risk of ruin? She has COLA adjusted $60,890/year for the rest of her life! Nearly 5x the current "poverty level".

 

[VanWinkle]

Risk of ruin? She has COLA adjusted $60,890/year for the rest of her life! Nearly 5x the current "poverty level".

If I'm reading this right:

The risk applies to the portfolio withdrawals at 4% which is identical in both cases. The delay just shows that there was no price paid for the extra income from a cola SS benefit at 70. There may have been a price paid by the heirs, but it is minor.

 

[Running_Man]

Yes, it can also be illustrated with a WR approach. Let's say that in addition to the above that Colleen has $1 million of retirement savings and is comfortable with a 4% WR.

SS at 62... $17,200 of SS plus 4% of $1 million = $57,200 annual spending

SS at 70... set up side fund of $254,760 to fund $30,720/year for age 62 to 70 when SS starts... remainder of $745,240 at 4% is $30,170 starting at age 62... The $30, 170 of withdrawals + $30,720 of SS from the side fund at ages 62-70 and from SS after age 70 = $60,890 in annual spending.

The $254,760 would be in a CD ladder to help payments keep up with inflation.

$254,760 if left in the S&P500 eight years ago (7/10/2011) and instead draw SS would be worth $670,656 today. Today you would be looking at about 81K of annual income.

 

[VanWinkle]

$254,760 if left in the S&P500 eight years ago (7/10/2011) and instead draw SS would be worth $670,656 today. Today you would be looking at about 81K of annual income.

From Vanguard:

All investing is subject to risk, including the possible loss of the money you invest.

 

[Running_Man]

From Vanguard:

All investing is subject to risk, including the possible loss of the money you invest.

The point is, you cannot tell if waiting until 70 will provide more money for your retirement withdrawal or not without taking into account the performance of the investments you do not have to draw from if you take SS early (the advantage of taking at age 62) 4% withdrawal is used as a proxy for the amount of funds and 4% at age 70 as well and the increase in Social Security is referenced. However with the passage of time your investments will have changed as well.

Previous 8 years last 6 years and what the $254,760 would be worth:
2019 -
2018 - 203% - $771,922
2017 - 208% - $784,660
2016 - 208% - $784,660
2015 - 63% - $415,258 (this would have been taking SS and investing at start of great recession)
2014 - 85% - $471,306
2013 - 61.5%- $410,163

Now by year if you had retired in and waiting eight years for age 70:
2012 - 151% - 639,447
2013 - 101% - 512,067
2014 - 66% - 422,902
2015 - 53% - 389,782
2016 - 47% - 374,497
2017 - 26% - 320,998
2018 - 8% - 275,140

Now one thing that is abundantly clear is the financial results greatly depend on the year you hit 62 and the subsequent stock market return. But the waiting for SS is not just a theoretical exercise it has real effects on a portfolio - and this is the only sure thing - the portfolio will have a lower value in 8 years waiting for SS than if you take SS at age 62 if the spending is kept them same under both conditions.

In most cases your portfolio will be far larger forever taking SS at age 62 and investing the amount that is needed to defer SS to age 70 into all stocks.

That being said, I am still waiting to age 70 myself as I am conservative in nature.

 

[starry night]

From Vanguard:

All investing is subject to risk, including the possible loss of the money you invest.

And Social Security benefits are subject to adjustments as enacted by Congress.
You might want to review these provisions from the SSA website:

1) Adjustments to COLA.
https://www.ssa.gov/OACT/solvency/provisions/cola.html

2). Future benefit structure. Yes, a lot (most) of these apply to “newly-eligibles”, but lots of the folks on this ER site are in that situation as they consider their ‘s claiming strategies
https://www.ssa.gov/OACT/solvency/provisions/benefitlevel.html

3. Changes to retirement ages. Again, this will affect future-eligibles, but these are many of our ER subscribers.
https://www.ssa.gov/OACT/solvency/provisions/retireage.html

There are yet more categories you will find on those SSA posts.

My point being that SS benefits are also subject to risk.
Risk vs. reward, baby! That is the quandary.

 

[Cantwaitanylonger]

Thank you to everyone with the well wishes. It does help immensely to know that even strangers care.

Being an engineer, I have studied, calculated and spreadsheet'd this issue to death. In the end, I have come to the conclusion that it really boils down to your health situation. With that in mind, I think that the undertaker may offer the most experienced viewpoint.

 

[pb4uski]

$254,760 if left in the S&P500 eight years ago (7/10/2011) and instead draw SS would be worth $670,656 today. Today you would be looking at about 81K of annual income.

You little cherry-picker!

You aren't getting the point. In this instance the $254,760 is money that will be spent by Colleen form ages 62-70. Prudence would suggest that that near term money be invested conservatively... like in a CD ladder.

Your scenatio of putting the $254,760 in stocks adds a lot of risk to Coleen's situation.

She could invest it in stocks but there have been 8 year periods where the $254,760 invested in stocks with annual $30,720 withdrawals have not survived... 15% of the time according to FIRECalc (assuming 2% inflation).. the $60,890 spending has similar risk to taking SS at 62.

 

[Navigator]

Yes, it can also be illustrated with a WR approach. Let's say that in addition to the above that Colleen has $1 million of retirement savings and is comfortable with a 4% WR.

SS at 62... $17,200 of SS plus 4% of $1 million = $57,200 annual spending

SS at 70... set up side fund of $254,760 to fund $30,720/year for age 62 to 70 when SS starts... remainder of $745,240 at 4% is $30,170 starting at age 62... The $30, 170 of withdrawals + $30,720 of SS from the side fund at ages 62-70 and from SS after age 70 = $60,890 in annual spending.

The $254,760 would be in a CD ladder to help payments keep up with inflation.

There are some assumptions that go in to this analysis that skew the results to favoring taking SS at 70. First is the assumption that Colleen will live to 92, several years longer than normal. Second, it assumes the stock market/ sequence of returns will be at least as bad for Colleen than it has ever been in history.

While it is certainly fine to make such conservative assumptions, they are pessimistic and do not reflect likely outcomes.

 

[RunningBum]

There are some assumptions that go in to this analysis that skew the results to favoring taking SS at 70. First is the assumption that Colleen will live to 92, several years longer than normal. Second, it assumes the stock market/ sequence of returns will be at least as bad for Colleen than it has ever been in history.

While it is certainly fine to make such conservative assumptions, they are pessimistic and do not reflect likely outcomes.

I try to plan for all reasonable cases. Dying early, I'm not likely to run into money troubles no matter when I take SS. Likewise if the market does well or even average for the rest of my life.

Where I'm likely to run into trouble is if I live long, and the market doesn't do well. While this is unlikely, it's not so unlikely that I shouldn't consider it.

For me, this means waiting to take SS at either a big market downturn (in which I don't want to be taking as much money out of the market at a low for spending), or at 70 if that downturn doesn't happen between 62 and 70.

If one is trying to optimize their money across all cases, you could easily reach a different conclusion. My goal is to ensure against bad cases. I'm not as concerned if I don't get the most out of a bull market.

 

[pb4uski]

There are some assumptions that go in to this analysis that skew the results to favoring taking SS at 70. First is the assumption that Colleen will live to 92, several years longer than normal. Second, it assumes the stock market/ sequence of returns will be at least as bad for Colleen than it has ever been in history.

While it is certainly fine to make such conservative assumptions, they are pessimistic and do not reflect likely outcomes.

Totally disagree... if Colleen hasn't smoked and is of average health then her chance of living to 92 is about 40%.

You seem to be advocating withdrawals to an expected age (89 for Coleen)... but what if one lives longer?

 

[Navigator]

Totally disagree... if Colleen hasn't smoked and is of average health then her chance of living to 92 is about 40%

You seem to be advocating withdrawals to an expected age (89 for Coleen)... but what if one lives longer?

I’m not sure where your data is coming from, but according to the 2016 social security life expectancy tables, the probability of a 62 year old woman living to 92 is less than 25%. However this is not my main issue.

I probably didn’t explain my point clearly enough. Your post showed an interesting analysis that seemed to indicate one could spend more money over a 30 year retirement by taking social security at age 70 over age 62. However, if we look at historical returns since 1928 for a 60/40 portfolio, that has only been true about 23% of the time. (I actually did the calculations when I was trying to decide when to take SS). The reason your analysis looked different is because you used a 4% withdrawal rate, which is the historical worst case withdrawal.

 

[Navigator]

I try to plan for all reasonable cases. Dying early, I'm not likely to run into money troubles no matter when I take SS. Likewise if the market does well or even average for the rest of my life.

Where I'm likely to run into trouble is if I live long, and the market doesn't do well. While this is unlikely, it's not so unlikely that I shouldn't consider it.

For me, this means waiting to take SS at either a big market downturn (in which I don't want to be taking as much money out of the market at a low for spending), or at 70 if that downturn doesn't happen between 62 and 70.

If one is trying to optimize their money across all cases, you could easily reach a different conclusion. My goal is to ensure against bad cases. I'm not as concerned if I don't get the most out of a bull market.

You make a fair point. If a bad outcome is a real possibility, then taking social security at 70 is a good choice. The downside is that you need a fortitude of steel to watch your savings drop every year for 8 years.

 

[FreeBear]

Wow, what a discussion!

Looks like we're going to start pulling at 62. Right now we are living on an IRA and taxable accounts. We're mainly burning taxable funds and avoiding Roth conversions to chase after the ACA subsidy. The difficulty is that we'll run out of taxable funds before we're both on Medicare.

Early SS will slow the drain of our valuable taxable accounts and also allow us to Blow More Dough while we're still young enough to enjoy. As others have mentioned, my goal is not to get the most money from SS, but rather to enjoy as much as possible over the next 10-15 precious years without living under a bridge at the very end.

 

[RunningBum]

You make a fair point. If a bad outcome is a real possibility, then taking social security at 70 is a good choice. The downside is that you need a fortitude of steel to watch your savings drop every year for 8 years.

Not really.

For one thing I'll have been retired for 12.5 already at age 62 so I'm used to spending down my savings. Anyone who retires before 62 does this, and for others, even if you start at 62 you're probably cutting into savings as well. Besides, in many years the market does well enough that savings don't actually drop.

I look at my finances logically, so I totally understand that spending from savings a bit more now gets me more SS income later. IMO many people are far too emotional about their finances and if they'd just step back and look at the numbers they'd make sounder decisions. I'm not talking about just SS, I'm also talking about paying off the house, averaging in after a windfall, OMY, and so on.

 

[joeea]

Risk of ruin? She has COLA adjusted $60,890/year for the rest of her life! Nearly 5x the current "poverty level".

It doesn't imply that there is any high risk with either alternative.

Here, "same risk of ruin" could be reworded as "without any increase in risk at all".

 

[Dtail]

Not really.

For one thing I'll have been retired for 12.5 already at age 62 so I'm used to spending down my savings. Anyone who retires before 62 does this, and for others, even if you start at 62 you're probably cutting into savings as well. Besides, in many years the market does well enough that savings don't actually drop.

I look at my finances logically, so I totally understand that spending from savings a bit more now gets me more SS income later. IMO many people are far too emotional about their finances and if they'd just step back and look at the numbers they'd make sounder decisions. I'm not talking about just SS, I'm also talking about paying off the house, averaging in after a windfall, OMY, and so on.

Agree.
All good finance decisions needs to leave out the emotions.
We are spending down our taxable accounts to chase the ACA subsidy. At 65 (actually 66 due to lump sum Pension), we will do heavier Roth conversions, while then spending down the TIRA.
Goal is to then take SS at 70.
Who knows, perhaps with a huge market drop, I get emotional, but have lots of faith in historical sequences and the calculators.