New Social Security study on claiming it too early

[starry night]

Quote:

Originally Posted by pb4uski Finally, to the degree they tweak benefits it will naturally be to constrain rather than expand benefits given that they have a well known underfunding problem... you better get used to it. The discounts and premia from your PIA amounts were designed to be actuarially neutral, which is why the crossover point of age 82 is the same as the average life expectancy for a 65 year old of 82... so you're barking up the wrong tree on that one too.

These are my points exactly. SSA policies are not constructed to be a bonus to late filers. Benefit structure is actuarially neutral, and overseen by some of the best actuarial calculations on the planet.
To me, the critical factor in choosing early-, FRA-, or delayed-filing has more to do with one’s alternate sources of income if one chooses to delay benefits.

[pb4uski]

I dunno about the last part about needing alternative sources of income... I only have a small pension as a source of income but will delay because it is likely to be beneficial for us... I have savings that I can live on for those years and in effect buy a COLA adjusted annuity.

There are numerous nuances to actuarial neutrality to be considered. The discounts and premia are based on uni-sex mortality so women, who tend to live longer all else being equal, have a natural advantage. Wealther people tend to live longer than those of low wealth, so all else being equal the wealthy have a natural advantage. For married couples where one spouse had much higher eanings than another so benefits include a significant spousal benefit then joint motality comes into play.

Finally, there have generally been mortality improvements since the current discounts and premia were put in place so current beneficiaries have a slight advantage.

[starry night]

Quote:

Originally Posted by pb4uski Finally, there have generally been mortality improvements since the current discounts and premia were put in place so current beneficiaries have a slight advantage.

I apologize if I have been misunderstood in my rambling posts. I am merely trying to say that the SSA policies of discounting benefits for filing early and delayed credits for filing later are constructed to be an EQUITY, NOT AN ADVANTAGE. SS was originally a simple “at age 65 old age pension”. When it evolved that some people need their benefit before age 65, and others don’t want it until after age 65, they instituted the “present value of future benefit” for the early-file discounted benefit, and “future value” of the benefit to achieve the delayed credits.

Regarding “mortality improvements “, there is a difference between mortality and life expectancy. Overall mortality rates have indeed improved in past century, largely due to improved infant mortality. Life expectancy, however, is in decline (see item below) due to drug overdose, suicide, health and environmental stresses. Still, they can do great things medically to improve our chances of longevity.

https://www.aafp.org/news/health-of-...xpectdrop.html

[Niuatoputapu]

My situation (not relevant to my question, but I thought I'd share):
Wife is a 2nd grade teacher who wants to teach forever. She will claim when she stops working probably in the age 64-66 range. Due to WEP, her SS will be $450-$500/month.
I will claim at age 70, $3,600+/month before inflation adjustments. For us, the potential spousal survivor benefit tips the scales. If I collect at FRA or thereabouts, GPO would almost eliminate the survivor benefit due to her half-pension (only 15+ years service). If I let my SS benefit grow to age 70, the GPO adjustment will be less encompassing and only reduce roughly half of the benefit.

My question
I understand the arguments about claiming at age 62 and those about claiming at age 70. I also understand the arguments of a "wait and see" strategy that does not claim at 62 but is willing to pull the trigger if something happens (market, health, etc.) before age 70.

I also understand an age 65 target to coordinate SS with Medicare premiums.

I do not understand the FRA claiming target. If I understand the rules correctly, for someone born in 1957 (me) my benefit is increased 6.67%/year for the 36 months between age 62 and 65 (5/9th% per month). Then between 65 and FRA it is increased 3.33%/year for the 18 month period (5/18th% per month). After FRA it is increased 8% per year (8/12% per month) for the 42 months to age 70.

Given the puny benefit increases between age 65 and FRA, weathering that period makes sense to me if you plan to delay past FRA and get those 8% increases. Otherwise, waiting until FRA seems meaningless. Why not 18 months earlier or five months later? What is magic about FRA?

I understand the arguments for 62, 65, 70, and "wait and see". But understand less why one would choose FRA. Why do some of you advocate claiming at FRA?

(Note, I understand that age 62 to 65 is actually a 6.67% annual reduction of FRA benefits (not a 6.67% increase of the age 62 benefit) and FRA to 70 is not exactly an 8% annual increase, but an 8% of FRA benefit increase per year, even so, hopefully my narrative is not misleading. Also, I acknowledge my question is nit-picking. Delay from 65 to FRA, or not, probably makes little difference to anyone. Just thought I would question the logic. Everyone should do what makes them happy).

[Rianne]

^^I've been nit picky on opensocialsecurity.com, plugging all different ages and scenarios. Because of pension and survivor benefits I keep leaning towards 70 to claim. We're healthy (now anyway) and have longevity on both sides. I totally understand missing out on the years not claiming and that our portfolio can grow by claiming earlier. All the discussion and arguments make sense. I enjoy reading every post and every position. I just keep an open mind and keep reading.

[Clone]

Quote:

Originally Posted by Niuatoputapu Otherwise, waiting until FRA seems meaningless. Why not 18 months earlier or five months later? What is magic about FRA?

One of the things about FRA that may or not apply: Earnings limits. If you are drawing SS before FRA, any earnings over $17,600 will result in a reduction in SS benefits. So for folks with on-going income, there may be a reason to wait.

[Rianne]

Quote:

Originally Posted by Clone One of the things about FRA that may or not apply: Earnings limits. If you are drawing SS before FRA, any earnings over $17,600 will result in a reduction in SS benefits. So for folks with on-going income, there may be a reason to wait.

Any earnings, income? Interest income, CG, dividends?

[Clone]

I believe it is W2 income or income that is subject to self employment tax.

[starry night]

Quote:

Originally Posted by Rianne Any earnings, income? Interest income, CG, dividends?

This may help....
https://www.ssa.gov/pubs/EN-05-10069.pdf

Also, please be aware that you will receive back any income that was withheld under the earnings limits. You would get it all back after you reach Full Retirement Age. See pages 6-7 in that link above.

[Rianne]

Quote:

Originally Posted by starry night This may help.... https://www.ssa.gov/pubs/EN-05-10069.pdf Also, please be aware that you will receive back any income that was withheld under the earnings limits. You would get it all back after you reach Full Retirement Age. See pages 6-7 in that link above.

Thank you, great link, easy to read and understand. Sorry font won't reduce.



"For the earnings limits, we don’t count income such as other government benefits, investment earnings, interest, pensions, annuities, and capital gains."

[sengsational]

Quote:

the model than follows a stepwise optimization sequence that seeks to minimize lifetime taxes and maximize Social Security income as a proxy for maximizing wealth (since retirement age and investment allocations are fixed in this analysis).

They didn't optimize on the right thing. My models indicate that, depending on market returns, many scenarios have me paying MORE tax but being able to spend MORE by taking SS early. They also don't disclose the rates of return they used, calling them "proprietary" (gimme a break!)


I don't want to maximize SS income. I don't want to minimize taxes. I want to have the most money to spend or pass on. The latter is not the same as the former pair.



It's trivial to build a model that makes take at 70 a slam-dunk: just make market returns horrible. And the opposite: great returns, take ASAP. This analysis doesn't disclose the rates of return so goes directly into the dust bin.

[daylatedollarshort]

When we use a probability tree type analysis on claiming age, after factoring in the odds of dying before the breakeven point and the very real possibility of future benefit cuts or additional SS taxes, especially on relatively higher income households, 62 wins out for us. Not due to a lack of psychological grit, but math and the very real SS forecast shortfall projections, which are stated pretty clearly on the Social Security web site.

If we were doing project estimates like SS at work in a project evaluation decision, we wouldn't ignore the possibility that future benefits are not 100% guaranteed.

[Janet from FIRE Planet]

Some split the age difference and take SS at age 66. DH took his at 67 and I took mine at 62. I like this Motley Fool article:

https://www.fool.com/retirement/gene...-70-to-ta.aspx

[joeea]

Quote:

Originally Posted by daylatedollarshort When we use a probability tree type analysis on claiming age, after factoring in the odds of dying before the breakeven point and the very real possibility of future benefit cuts or additional SS taxes, especially on relatively higher income households, 62 wins out for us. Not due to a lack of psychological grit, but math and the very real SS forecast shortfall projections, which are stated pretty clearly on the Social Security web site. If we were doing project estimates like SS at work in a project evaluation decision, we wouldn't ignore the possibility that future benefits are not 100% guaranteed.

It would be fun to see that probability tree.

As we all know, you can make a probability tree come to any conclusion you prefer by using different probabilities.

[pb4uski]

opensocialsecurity.com essentially takes that probability tree approach (without showing you the tree).

Quote:

For those just seeking a summary explanation, let's consider the simplest example scenario: an unmarried person, using the calculator prior to age 62. For such a person, the calculator: First assumes they file as early as possible, at 62. Calculates the amount of their monthly retirement benefit under such assumption. For each year up to age 115, the calculator multiplies the annual retirement benefit by the user's probability of being alive in such year, to arrive at a probability-weighted annual benefit. That probability-weighted benefit is then discounted back to age-62 value using the discount rate the user provided as input (i.e., to account for the fact that a dollar today can be invested and is therefore worth more than even an inflation-adjusted dollar in the future). All of those probability-weighted, discounted benefit amounts are summed, to arrive at a total "present value" for the assumed claiming strategy (e.g., claiming ASAP at 62). The above process is repeated for each possible claiming age (i.e., every month between 62 and 70). The claiming age that had the highest present value is then suggested to the user, and the present value associated with such claiming age is provided as well. If the person is older than 62 when using the calculator, claiming strategies that are no longer possible (i.e., filing in the past) are eliminated from the analysis. For a married couple, it's the same sort of process, but with more going on. Specifically: In addition to retirement benefits, spousal benefits and survivor benefits are included in the analysis. Probability weighting the various benefits each period involves separate calculations for "probability only Spouse A is alive", "probability only Spouse B is alive", and "probability both spouses are still alive." Each combination of possible claiming ages must be considered, for both spouses, and for both types of benefits (i.e., retirement and spousal). https://opensocialsecurity.com/about/

[Navigator]

Quote:

Originally Posted by sengsational They didn't optimize on the right thing. My models indicate that, depending on market returns, many scenarios have me paying MORE tax but being able to spend MORE by taking SS early. They also don't disclose the rates of return they used, calling them "proprietary" (gimme a break)

You hit upon a real weakness in the paper. The authors don’t explicitly say what asset allocations they used in their simulations, but do hint that it was fairly conservative. There are many other assumptions that must go into their models that were not explained, leaving me uncertain as to what to make of the paper. However, there was only a median difference of $31,000 in lifetime wealth between when people actually chose to take social security and what their “optimal” time would have been in the simulations. Since no one can know beforehand when their optimal age to take SS is, it leaves me wondering what the significance of the paper is.

[Old Microbiologist]

We took it when I reached 62 and I think it was a good decision. First, there is a constant whine from Congress about "entitlements", underfunding issues with constant impending doom about insolvency, threats to establish means testing and other such drivel so to me the actual existence of SSA seems to be in jeopardy. Having worked for the government for 40 years I know you take what you can get as early as you can as they might take it away at any time.

Our personal situation is such that my wife had not worked 40 quarters so was not entitled to SSA on her own. She is also 6 years older than I am. What I didn't know until we actually started receiving it (which was a serious problem to get and I will elaborate further) was she gets half of my SSA but as if I was retiring at her age. So, she was got half of what I would get at age 68 not age 62. This was a surprise and definitely changed the parameters for making the decision had we known. I took it early for the above reasons alone. We don't need it or actually even touch it but hell, the Congress decided in 1959 to add the military to its roles for SSA contributions so I paid into it all my life so I am taking it and to hell with Congress and their screw us attitudes.

To elaborate on getting the SSA at all was a hard thing to actually do. We retired to Hungary when I was 56. I filed for SSA 90 days before I turned 62 which is the required time to file. However, under Bush they removed all the SSA personnel from all Embassies around the world. For Europe there is only a single person working at the Consulate in Poland to process all the overseas US citizens. That person is of course overwhelmed. I filed at the Embassy in Budapest who forwarded it to the SSA specialist inKrakow where it sat. I tried calling them repeatedly for days and no answer. Finally, I reached the specialist who told me she was 18 months behind on applications. But, some kindly words and she put mine at the top and it got processed fairly quickly. Of course, a similar situation occurred as the office to process overseas applications is in Baltimore and they sat on their thumbs as well. IMHO SSA is hopelessly screwed up by design.

[maestro]

Quote:

Originally Posted by EarlyBirdly That was the most ridiculous, non-sensical, little blurb I think I have ever read regarding S.S. and distributions. To each his/her own - I'll take the Bird in the Hand and if I win the lottery I'll take the Lump Sum. Thank You. P.S. - Really "healthy" people die everyday. I'm sure they didn't expect the Bus to hit them or that undetected cancer to cut their lives short but, things happen I guess. Much like my extremely healthy 54 yr. old friend who played Hockey every time he could, was never an ounce overweight in his life, etc. Stage 4 Pancreatic Cancer gave him 18 months to get his collective junk together. He does not have to worry about his S.S. claiming strategy anymore...

+1

[clubmanstl]

I'm turning 62 this fall - not really seeing any good reason to put off my claim.

It will take many years for the "break even" point to occur from waiting, while the larger checks will likely just make my tax situation worse when I hit 70.5 - and have to take MRDs from my 401K, making that point even harder to hit.

I realize there are unforeseen/unpredictable aspects involved, but I figure it's best to "grab it while I can" - especially with no heirs to consider.

[joeea]

Quote:

Originally Posted by Old Microbiologist the actual existence of SSA seems to be in jeopardy.

There is absolutely no credible evidence that the existence of SSA is in jeopardy. None.

Quote:

Our personal situation is such that my wife had not worked 40 quarters so was not entitled to SSA on her own. She is also 6 years older than I am. What I didn't know until we actually started receiving it (which was a serious problem to get and I will elaborate further) was she gets half of my SSA but as if I was retiring at her age. So, she was got half of what I would get at age 68 not age 62.

You seem to be confused. That's not how it works.

Quote:

I took it early for the above reasons alone.

Then you took it early for the wrong reasons. Sorry.