Social Security

[joeea]

Well, under current rules it really never makes sense to go past 69.

Never? How did you come to that conclusion?

I’ve never read about anyone thinking it was worth paying back that last year for the small increase. But if you found out you will have a shorter lifespan in that last year, you might feel somewhat justified.

You think a shorter lifespan justifies taking benefits at 70 rather than 69? How does that make sense?

 

[RunningBum]

Well, under current rules it really never makes sense to go past 69. Collect from 69-70, and then decide if it is worth paying back the last year to start over at the highest rate. I’ve never read about anyone thinking it was worth paying back that last year for the small increase. But if you found out you will have a shorter lifespan in that last year, you might feel somewhat justified. According to SS, if I claim at 69, I should get $42k, vs $46k at 70. Pretty tough decision at that point. DW would be 76.

Huh. I didn't realize you can still do a one-time, one year pay back and reset of SS benefits. Form SSA-521. It does seem that you might as well take at 69, and decide over the next year whether to keep it or reset. OTOH, I'd worry about paperwork delays and mess ups. If I decide to reset at age 70, would I really get the increased benefit right away, and if not, would they make it up? I don't know that it's worth the trouble? It would let you invest a full year's worth of SS benefits basically for free.

 

[Spock]

... I don't know that it's worth the trouble? It would let you invest a full year's worth of SS benefits basically for free.

To be picky: On average it would only be 6 months worth of benefits since they are paid monthly throughout the year (last payment is only invested 1 month, etc).
I only point it out because it makes the "is it worth the trouble" question even less compelling.

 

[RunningBum]

Valid point.

 

[jldavid47]

To be picky: On average it would only be 6 months worth of benefits since they are paid monthly throughout the year (last payment is only invested 1 month, etc).
I only point it out because it makes the "is it worth the trouble" question even less compelling.

And you would be gambling that the investment would be worth more than what you would have to pay back. There are no guarantees. The market is not always up year-over-year. If you stuck it into a savings account or T-bills it would not be worth it at current interest rates.

 

[RunningBum]

And you would be gambling that the investment would be worth more than what you would have to pay back. There are no guarantees. The market is not always up year-over-year. If you stuck it into a savings account or T-bills it would not be worth it at current interest rates.

It's really not gambling because you don't have to pay it back. If the market dropped, you probably want more invested, so you don't want to repay and take it out of the market. If the market did well, pay the year back and get the higher monthly benefit.

 

[jldavid47]

It's really not gambling because you don't have to pay it back. If the market dropped, you probably want more invested, so you don't want to repay and take it out of the market. If the market did well, pay the year back and get the higher monthly benefit.

All that matters is where you would be after that one year. Of course it is gambling.

 

[RunningBum]

All that matters is where you would be after that one year. Of course it is gambling.

Not in my book, because you aren't forced to pay it back, like you would be if you took out a margin loan, perhaps.

There are probably some scenarios where if the market crashed hard later in the year, you probably would've been better not taking it at all until after the crash.

By your definition, any investing is gambling. You probably aren't the only one, but I don't think that way.

 

[N02L84ER]

If you are planning to do Roth conversions until age 70, taking the SS benefit at age 69 and repaying it might also involve filing an amended federal tax return. Maybe if your first payment was received in January, you repaid by the end of December, and no 1099 for SS was generated for that tax year, you would not have to redo your taxes. We are not planning to apply for the larger SS benefit at age 69 because of the potential hassles. Of course, health changes or a major bear market at that time will change our plans.

 

[jldavid47]

Not in my book, because you aren't forced to pay it back, like you would be if you took out a margin loan, perhaps.

There are probably some scenarios where if the market crashed hard later in the year, you probably would've been better not taking it at all until after the crash.

By your definition, any investing is gambling. You probably aren't the only one, but I don't think that way.

Um, no. I don't even think that short-term trading is gambling if you are managing risk correctly. In this case you are literally placing a bet that taking the money and investing it will do better than the guaranteed 8% return you would get over the year if you didn't take it and invest it. It might work, or it might not, but over that time frame you are gambling. And since you are getting the amount to invest spread evenly over 12 months you need one hell of a return to beat that 8%. Good luck.

 

[Perryinva]

It's really not gambling because you don't have to pay it back. If the market dropped, you probably want more invested, so you don't want to repay and take it out of the market. If the market did well, pay the year back and get the higher monthly benefit.

Ding ding ding. Exactly. Hopefully I don’t have to respond to joeea ‘s questions as the answers are now self evident. I was discussing in general, assuming no contributions past age 62, and I guess I should have said rarely, not never. Never say never.

And there is no 8% return. You receive 0.667% of the monthly amount of your FRA for each month you delay, ie a fixed amount increase per month, cumulative. The 8%/yr bandied about is a convenient way to express it but not correct. And that increase must be measured against the checks not received so there is certainly never an 8% ROI. At age 69, the .667% of FRA translates to about 0.57% of the last months. Each month of delayed filing corresponds to a smaller percentage of the previous months payment. (This of course assumes you stopped contributing to SS by age 62. ). And yes, I did not, but should have mentioned pay back in the same year, so no refile of taxes. My birthday works out so that is what I would do, assuming I decide to delay to 69.

The premise was that its far easier to talk about delaying, and projected income from it when one is much younger, But I believe that when you ARE 69, and with each month that passes you are staring at another $3200/mo check not being received so you can see a $20/mo increases per month, it’s going to be a darn site harder to not file. Your (and spouses) health, financial situation, the economy etc, will be staring you in the face so it should be easier make an informed decision then, if you have the option formulated.

 

[joeea]

But I believe that when you ARE 69, and with each month that passes you are staring at another $3200/mo check not being received so you can see a $20/mo increases per month, it’s going to be a darn site harder to not file.

Delayed gratification can indeed be hard for some.

Your (and spouses) health, financial situation, the economy etc, will be staring you in the face so it should be easier make an informed decision then, if you have the option formulated.

That's one of the best parts of delaying - you can re-evaluate year to year (or I guess month to month if you so choose).

 

[Perryinva]

Yup. Exactly right. Month to month. With a 6 month do over if you never filed, or up to a year if already collecting. There is a problem with delayed gratification. When does it make sense to stop delaying and finally enjoy the fruits of your labor and sacrifices? The whole “unable to blow the dough” issue is very real. I have no desire to delay gratification in order for my heirs to thank me for my sacrifice. The total increase per year of delayed SS is roughly equal to the previous months single payment. Is it worth getting an extra $3000/yr, to miss out on the $36k in your hand? At some point , the absolute dollar difference is diminishing returns vs the reality of a defined life span. I may have trouble at delaying past 68, who knows. That’s an almost $40k/yr sacrifice at that point. I really won’t know till I get there in 6 1/2 years. I will never REQUIRE my SS to live, just like most here, but I did not retire very early like many here, (61) so I feel I have delayed gratification plenty (in order to get my retirement income in order which includes max SS) and it is plainly stupid to not take advantage of a benefit I have been paying in to for 40 years, that is fairly substantial. If I was single and and did not need the Roth conversion room, I would file at 63. (I have a severance that pays me through most of 2020, so absolutely no SS any earlier than 2021 when I am 63). The difference is just not substantial filing early or later for anyone that handles money well. As it is, it is prudent to delay through 2025 to take advantage of the current reduced tax rates to lower RMDs, and provide my spouse with a higher tax advantaged fixed income should I depart first. She can’t invest or make financial decisions worth a darn.

 

[GenXguy]

If I was single and and did not need the Roth conversion room, I would file at 63.

I'm single but am loosely planning to wait until 65 so that I can keep my MAGI lower for better ACA subsidies until I qualify for Medicare. This assumes the ACA, subsidies, and Medicare don't change over the next decade, which isn't a given, either. So, I'll see how it plays out when the time comes.

 

[Rianne]

I'm single but am loosely planning to wait until 65 so that I can keep my MAGI lower for better ACA subsidies until I qualify for Medicare. This assumes the ACA, subsidies, and Medicare don't change over the next decade, which isn't a given, either. So, I'll see how it plays out when the time comes.

You're preaching to the choir. Most of us in the same boat, just hoping for the best.

 

[Perryinva]

I am lucky in that my retirement package from megacorp included an excellent Anthem BC/BS PPO for $280/mo with a $185/yr ded, through age 65. DW is already on Medicare, so ACA is not even on my acronym list. Matter of fact, I just maxed out my $3000 OOP for the year thanks to hernia surgery so I will be maxing my medicals for the rest of year, while they are “free.”.

 

[joeea]

When does it make sense to stop delaying and finally enjoy the fruits of your labor and sacrifices?

I'm currently doing both at the same time. Some aren't lucky enough to be able to do both simultaneously.

I have no desire to delay gratification in order for my heirs to thank me for my sacrifice.

That's your choice, along with your spouse. Others who aren't worried about leaving a legacy choose to delay their guaranteed, inflation-protected benefits in order to be able to spend down more of their retirement assets before claiming.

Is it worth getting an extra $3000/yr, to miss out on the $36k in your hand?

Of course that depends on the additional utility the immediate $36k provides, compared to how many years you have remaining in your life.

but I did not retire very early like many here, (61) so I feel I have delayed gratification plenty

Okay. Everyone has a level of delayed gratification that makes them comfortable. Some can wait longer, others cannot.

and it is plainly stupid to not take advantage of a benefit I have been paying in to for 40 years, that is fairly substantial.

Okay, so you want to get yours before 70, because you have been paying in to it for 40 years. I think it's a mistake to use the word "stupid" for those who choose differently, yet have also been paying in for 40 or more years.

If I was single and and did not need the Roth conversion room, I would file at 63.

Okay. I have no idea why 63 would be the right number for you if you were single, but if you had no spouse that would be solely your decision to make.

The difference is just not substantial filing early or later for anyone that handles money well.

We each have our own definition of "substantial".

 

[Perryinva]

The difference in net amount to you is not substantial because it is close to actuarially neutral. It also depends on how much and what percentage of your income it will be. If someone retired at 45, due to smart investing and fewer years of very high income and opportunities, they didn’t pay much in to SS, so their benefit difference from 62 to 70 might only be $500/mo where their income is $200k/yr. Clearly, it is easier to delay an amount that makes very little difference to your bottom line. It is also easier to take it whenever, as again, it makes little difference. For the record, I am a delay proponent, but it has little to do with delayed gratification. I am thoroughly enjoying my retirement and spend as I please with no sacrifice any longer. My point is that age changes perception, and at some point, delayed gratification seems futile when you already won.

Not many here have paid in to SS for 40 years, since it appears most here retired well before age 60. I will have paid in from 1974 through 2020. Naturally I know the last 35 are all that count, as they are the highest indexed years, (except 2020) and 38 of those years exceeded the max SS income. I have years of paying the max in to SS for zero benefit.

I did not remotely infer that anyone is stupid for not delaying. If you correctly read the post, the “stupid” part was referring to not counting a substantial SS as part of my planned retirement income regardless of whether it is needed or not. I’m sorry if that wasn’t clear to you. Perhaps you should read twice before assuming the negative and making comments? Everyone has their reasons, some valid, some not. It has been shown many times that delaying until 70 may be a smarter move mathematically because you can have a higher income from day one of retirement, knowing that the savings depleted generating that income will be replaced by the larger tax advantaged SS income later. The trade off is minimum portfolio size and recovery time, which is if course life span dependent.

I stated age 63 for me because as previously stated, despite being retired, I have high taxed income in the form of a monthly severance through age 62, and simultaneous pension, so filing at 62 would be futile as it would all be returned anyway. Many here argue that they can do better taking the smaller funds up front and investing them vs the limited gains of delaying. They have been living off investing for so long they know pretty well what they will earn on the extra early SS income. I can not say that, as I have not done that, nor will most of my income ever come from that. Possibly as little as $30-40k/yr from my portfolio. But as I watched my mother pass at age 69, & my father failing rapidly at 80, I certainly do wonder in the logic of delayed gratification as long as possible for what means to what end, despite grandparents that lived in to their 90s and my health superior to any of theirs at this same age, coupled with more advanced medical improvements.

In my world, $42k is still a lot of money to not be claimed in order to see an extra $240/mo in future checks, starting at age 70. I will not pretend that I am so all fired sure I will resist that despite the math.

 

[pb4uski]

Yup. Exactly right. Month to month. With a 6 month do over if you never filed, or up to a year if already collecting. There is a problem with delayed gratification. When does it make sense to stop delaying and finally enjoy the fruits of your labor and sacrifices? The whole “unable to blow the dough” issue is very real. I have no desire to delay gratification in order for my heirs to thank me for my sacrifice. The total increase per year of delayed SS is roughly equal to the previous months single payment. Is it worth getting an extra $3000/yr, to miss out on the $36k in your hand? At some point , the absolute dollar difference is diminishing returns vs the reality of a defined life span. I may have trouble at delaying past 68, who knows. That’s an almost $40k/yr sacrifice at that point. I really won’t know till I get there in 6 1/2 years. I will never REQUIRE my SS to live, just like most here, but I did not retire very early like many here, (61) so I feel I have delayed gratification plenty (in order to get my retirement income in order which includes max SS) and it is plainly stupid to not take advantage of a benefit I have been paying in to for 40 years, that is fairly substantial. If I was single and and did not need the Roth conversion room, I would file at 63. (I have a severance that pays me through most of 2020, so absolutely no SS any earlier than 2021 when I am 63). The difference is just not substantial filing early or later for anyone that handles money well. As it is, it is prudent to delay through 2025 to take advantage of the current reduced tax rates to lower RMDs, and provide my spouse with a higher tax advantaged fixed income should I depart first. She can’t invest or make financial decisions worth a darn.

Perhaps you need to reframe your thinking. Not sure of your numbers, but these are generic, assuming a FRA of 66 and a PIA of $1,000/month (if your FRA is 66 you can just scale the numbers, if it is not 66 then you'll n to do your own calculations). If you take at 62, you would receive $750/month.... if you wait until 70 you would receive $1,320/month...so if you delayed until 70 you would get $570/month or $6,840/year more... and you need to forgo $72,000 (8 years at $750/month) to receive that $6,840/year more.

So the question becomes.... would you be willing to buy a COLA-adjusted life annuity (joint-life if you are married) that pays you $6,840/year for life starting at age 70 for 8 years of payments of $750/month starting at age 62 (or $72,000 in total payments)?

Payout rate is 9.5% ($6,840/$72,000). For comparison, the payout rate on a FIXED annuity issued to a 70 yo is about 7.2% so a 9.5% payout rate for a COLA-adjusted annuity is a screaming deal. But if you don't want to buy it then that is fine.

 

[Perryinva]

I’m sure of my numbers, and am fully aware of the annuity value that SS offers. Let me suggest a corollary. If instead of only $6840/yr for $72k, what about $20k/yr for $210k (which are my numbers), for $3420/$36k. All the same percentages obviously, but vastly different out of pocket costs. It would be impudent to suggest that simply because all the percentages are the same, that anyone should be willing to always take the largest annuity. The average person would find it much easier to part with $36k vs $210k regardless of the equality. Plus, to be more exact as I explained earlier, unlike a normal SPIA where the payment is entIrely upfront, and done is done, every single month, you are reminded of what you are not getting as you make those “monthly annuity payments” by not collecting. This is not the same mentally as making a payment for annuity that starts immediately. Would you be comfortable making zero interest payments on a car for 8 years, but not get the new car until the last payment, even knowing you only paid the 8 year old price instead of the current price? It is the same mindset. I fully understand that the actual annuity cost is even better than you posted, because you can stop/start or regress any month you want, something not possible with a SPIA.

And since I cannot even start SS until age 63, my annuity cost is actually less, overall. As stated, the need to Roth convert through 2025 at least, for RMD reduction, means I should have no trouble justifying delaying until age 67, which is after my FRA, but after that it is the differential increase that I will have to mentally deal with. The largest percentage gain for delayed credits starts from FRA, and slowly decreases from there. That is why I doubt I will have any trouble delaying to age 68, assuming all else is well and holds true.

 

[Ian S]

Yep, it certainly does. I've always used the downloadable detailed SS calculator from ssa.gov that allows me to fine tune scenarios that I can't do with the online calculators, such as working for a few more years but delaying benefits until age 65 (or older) rather than 62 when first eligible. I use the output from it to enter into my spreadsheets to determine the amount of my expenses that will be covered by SS and the effect on taxes so as to determine how much drawdown I will need from my stash to cover the rest of my expenses. My stash will still need to cover everything else just as if SS never existed, so I make no changes in my AA due to SS. They cover separate parts of my expenses.

https://ssa.tools/ is good also.

I assume you're talking about the anypia calculator. I've been using it for a number of years but just discovered something today that had resulted in my calculations using it being off for a significant period of time. Under "Assumptions" (Forms tab), below "Benefit increase assumptions", "No increase beginning with 2017 benefit increase" was checked off. I don't recall making that selection or whether the calculator defaulted to that (the help suggests that's the recommended option for projecting future benefits.) However, with me being two years past FRA and looking to start benefits in January next year, it doesn't take into consideration benefit increases over the last couple of years. The correct option for me is to select one of the other options that rely on actual post-2016 benefit increases that are documented in the most recent SS trustees' report. As a result, my monthly benefit will actually be ~$177 more than my older calculations were giving. Not an insignificant amount, IMHO.

 

[pb4uski]

I’m sure of my numbers, and am fully aware of the annuity value that SS offers. Let me suggest a corollary. If instead of only $6840/yr for $72k, what about $20k/yr for $210k (which are my numbers), for $3420/$36k. All the same percentages obviously, but vastly different out of pocket costs. It would be impudent to suggest that simply because all the percentages are the same, that anyone should be willing to always take the largest annuity. The average person would find it much easier to part with $36k vs $210k regardless of the equality. Plus, to be more exact as I explained earlier, unlike a normal SPIA where the payment is entIrely upfront, and done is done, every single month, you are reminded of what you are not getting as you make those “monthly annuity payments” by not collecting. This is not the same mentally as making a payment for annuity that starts immediately. Would you be comfortable making zero interest payments on a car for 8 years, but not get the new car until the last payment, even knowing you only paid the 8 year old price instead of the current price? It is the same mindset. I fully understand that the actual annuity cost is even better than you posted, because you can stop/start or regress any month you want, something not possible with a SPIA.

And since I cannot even start SS until age 63, my annuity cost is actually less, overall. As stated, the need to Roth convert through 2025 at least, for RMD reduction, means I should have no trouble justifying delaying until age 67, which is after my FRA, but after that it is the differential increase that I will have to mentally deal with. The largest percentage gain for delayed credits starts from FRA, and slowly decreases from there. That is why I doubt I will have any trouble delaying to age 68, assuming all else is well and holds true.

My numbers are similar to yours.... forgo ~$212k to get an additional $18k/year for life if I waited until age 70.... 8.4% payout rate... still a good deal that I plan to take advantage of.

There is nothing to remind me that I didn't take the monthly payment so that part of your argument is hollow.

And like you, part of the reason that I will wait is because I can do more tax-deferred withdrawals or Roth conversions if I'm delaying.

 

[jimandthom]

If I was single and and did not need the Roth conversion room, I would file at 63. (I have a severance that pays me through most of 2020, so absolutely no SS any earlier than 2021 when I am 63). The .

I'm single but am loosely planning to wait until 65 so that I can keep my MAGI lower for better ACA subsidies until I qualify for Medicare. This assumes the ACA, subsidies, and Medicare don't change over the next decade, which isn't a given, either. So, I'll see how it plays out when the time comes.

You're preaching to the choir. Most of us in the same boat, just hoping for the best.

Thank you for these.

These are probably the 3 reponses that have helped me the most regarding when to file. We are both 65 and a couple of months.

While I am married, spouse cannot collect a spousal/survivor benefit on my account due to a non SS pension(federal CSRS) yet I will get 1/2 of his pension. No problem with medical and we could still do around 10K of Roth conversions if we want to.

 

[joeea]

My numbers are similar to yours.... forgo ~$212k to get an additional $18k/year for life if I waited until age 70.... 8.4% payout rate... still a good deal that I plan to take advantage of.

Even better that it's inflation-protected for both your life, and perhaps your spouse's (assuming you are the higher earner).

Makes it a hard deal to pass up.

There is nothing to remind me that I didn't take the monthly payment so that part of your argument is hollow.

Some people lie awake at night worrying about having a mortgage. Others worry (monthly?) about delaying benefits, I guess.

 

[DogGone]

I just called them, waited on hold for 45 min while I did other things, then they told me... I’m in early 50s, just pulled the trigger and it surprisingly wasn’t much less