Social Security at 62, 66 or 70?

[Bikerdude]

Originally Posted by jdw_fire

The answer to this question really depends on several things, some of which follow. First, how you are funding your retirement i.e. do you have a large pension and almost no portfolio or are you funding via a portfolio only? Second, do you want to maximize your spending early in your retirement? Third, how healthy are you? Fourth, do you want to leave an inheritance to someone?

Ditto! Also, remember the 25K single and 32K couple cut-off for "other" income is not indexed for inflation. So the longer you wait the more SS will be taxed just based upon inflation. On the other hand, some people don't care about this as all their SS is already taxed based on income. It's not one shoe fits all.

[cute fuzzy bunny]

A really excellent article that manages to outline the criteria, minus the BS. It also references just about every other major article on the subject.

http://www.findarticles.com/p/articl...n17190994/pg_1

Gotta love a 9 page paper of which 3 pages is notes and attributions.

I also havent heard anyone mention the no-brainer option thats come up a few times. Unless something has changed or prior posts were mistaken, you can take social security early and then at 66 or 70 give them the cumulative payments back and restart at the higher payment level.

In other words, you can take the benefits and either invest them in cash or TIPS and enjoy the free dividend, then give the principal back. Or put the $ into a higher returning but more risky portfolio with a higher return.

This is only a problem if you're still working into your 60's and the tax issues overwhelm the rate of return.

[MasterBlaster]

CFB:

That paper is the first comprehensive analysis that I have seen on this subject.

The paper has some figures that are not included in the linked web-pages though that I would have liked to have seen.

I will though reserve judgement on this issue until I have some time to ponder this and other papers on the subject.

[jdw_fire]

Originally Posted by Cute Fuzzy Bunny

A really excellent article that manages to outline the criteria, minus the BS. It also references just about every other major article on the subject.

http://www.findarticles.com/p/articl...n17190994/pg_1

Gotta love a 9 page paper of which 3 pages is notes and attributions.

The paper only treats the decision from the motivation of getting the maximum amount of money from SS, where as the thread I referenced in my last post points out that some peoples motivation is to spend more money earlier in retirement (between the ages of 62 & 70) without reguard to how much the retiree ultimately receives from SS. A change in a person's motivation can change what the correct answer is for any given person.

Originally Posted by Cute Fuzzy Bunny

I also havent heard anyone mention the no-brainer option thats come up a few times. Unless something has changed or prior posts were mistaken, you can take social security early and then at 66 or 70 give them the cumulative payments back and restart at the higher payment level.

In other words, you can take the benefits and either invest them in cash or TIPS and enjoy the free dividend, then give the principal back. Or put the $ into a higher returning but more risky portfolio with a higher return.

This is only a problem if you're still working into your 60's and the tax issues overwhelm the rate of return.

Actually there is a problem doing this if you are paying taxes on the SS, whether you are working or not.

[cute fuzzy bunny]

Of course. Theres always a problem with not doing it the way ones head has preordained it.

This study seems to imply that almost everyone will be dead before they'd get any benefit out of taking a larger payment later.

With regards to the first point, firecalc says that one gets the most out of their early retirement spending by taking the payments as early as possible. As has been determined 97,000 times in various discussions, and highlighted nicely in ESRBobs book, a little income stream helps an ER greatly. According to the data, a smaller stream early is better than a larger stream later.

About the only scenario floated so far to puncture that is the one where you blow all your money on fishing trips in your 50's and hope the later, higher SS payments bail you out if you live too long. Or the one where you dont care if you die with money on the table, because you're dead. And I thought this game was about getting the hell out of the working world and enjoying your life, not hoping you die before you run out of money.

This document appears to reduce the matter to the most contained calculations, while the aforementioned firecalc runs make it an integral part of the whole lifetime financial picture. Same answer both ways.

Which apparently is the wrong one if it isnt the one you've already decided on.

But then again, trillions of dollars and the best actuaries and financial minds available could all be wrong.

[teejayevans]

Originally Posted by Cute Fuzzy Bunny

I also havent heard anyone mention the no-brainer option thats come up a few times. Unless something has changed or prior posts were mistaken, you can take social security early and then at 66 or 70 give them the cumulative payments back and restart at the higher payment level.
In other words, you can take the benefits and either invest them in cash or TIPS and enjoy the free dividend, then give the principal back. Or put the $ into a higher returning but more risky portfolio with a higher return.

So, if you had to pay taxes on the early withdrawls, I'm guessing you don't get that back
and will end up paying tax on the same money twice, could be a real bad deal fro some.

[Cut-Throat]

Originally Posted by jdw_fire

The paper only treats the decision from the motivation of getting the maximum amount of money from SS, where as the thread I referenced in my last post points out that some peoples motivation is to spend more money earlier in retirement (between the ages of 62 & 70) without reguard to how much the retiree ultimately receives from SS. A change in a person's motivation can change what the correct answer is for any given person.

Actually there is a problem doing this if you are paying taxes on the SS, whether you are working or not.

Jonathan Clements as well as most every financial expert agrees with you on this one. The loudest blabbermouth in the chat room has built a up hairball so large that he can't learn anything anymore.

Live It Up in Retirement

Jonathan Clements, Wall Street Journal

July 24, 2005




Quick, hide this column from your children.

Sure, you would like to bequeath them a few bucks. But you also want to enjoy your retirement. And that, frankly, is a problem, because you really don't have enough saved.

You could fiddle with your portfolio, in an effort to eke out more income. But in the end, if you want to give your standard of living a significant boost, you need to consider three strategies. The downside: If you employ these strategies, you will likely die with precious few assets -- and that means a skimpy inheritance for the kids.

Immediate Gratification

Despite that drawback, I think the three strategies below will become increasingly popular. The reality is, as the baby boomers approach retirement, many will realize they can't generate enough income with a conventional portfolio of stocks, bonds and mutual funds.

Their choice: They can spend their remaining days pinching pennies -- or they can adopt some variation on what I call the three-check strategy. What's the strategy? The idea is to crank up your income by collecting three handsome checks each month.

One of those checks would come from an immediate annuity that pays lifetime income. With these annuities, you hand over a wad of money to an insurer, in return for which you get a check every month for life.

For instance, according to www.immediateannuities.com, if you are age 65, a $100,000 investment would buy annual income of $7,848 if you are a man and $7,392 if you are a woman. No other low-risk investment will give you that sort of income.

There are, of course, disadvantages. Annuity payments are usually fixed, leaving you vulnerable to inflation. You can sidestep this problem by purchasing the new inflation-indexed annuity offered by Vanguard Group in Malvern, Pa.

According to www.vanguard.com, a $100,000 investment would buy initial annual income of $5,531 if you are a 65-year-old man and $5,058 if you are a woman. Thereafter, your income would climb each year along with inflation.

Inflation, however, isn't the main reason retirees resist annuitizing. Rather, they hate the idea that they might buy an income annuity and die soon after. If that happened, their initial investment would be gone and they would have received scant income in return. Because of that risk, you shouldn't buy a lifetime-income annuity unless you are confident you will live well into your 80s.

It Pays to Delay

Vanguard's annuity might sound like a novel idea. But in fact, seniors have enjoyed the benefits of this sort of annuity since 1975, when Social Security retirement benefits were first linked to inflation.

Like the idea of inflation-indexed income? To collect even more, all you have to do is delay the start of your Social Security benefits. For instance, if you were born between 1943 and 1954 and you were eligible for a $750 monthly Social Security check at age 62, you could garner $1,000 a month by postponing benefits until age 66.

As sharp-eyed readers will notice, I am ignoring inflation. That doesn't affect the trade off, because inflation would give an equal percentage boost to both numbers.

Just as retirees resist immediate annuities, so they also dislike delaying Social Security. One reason: People fear they will die without collecting much in benefits. Indeed, you shouldn't postpone Social Security until 65 or 66 unless you think you will live until at least your early 80s.

For some reason, many seniors also assume that delaying Social Security means delaying retirement. That isn't necessarily so. You could retire at age 62 and then live off your savings until you start benefits at 66.

That may mean less money for your heirs. But it can be a smart move for income-hungry retirees, because Uncle Sam makes delaying benefits awfully attractive. To understand why, suppose you opted for the $750 monthly benefit at age 62.

But instead of spending the money, you invested it. Let's say that, over the next four years, your $750 monthly investment clocked a 3% annual return -- which would be a handsome gain, because I am assuming no inflation and no taxes.

That would give you $38,294 at age 66. If you then used that sum to buy an inflation-indexed lifetime-income annuity from Vanguard, you would get monthly income of $183 if you are a man and $167 if you are a woman.

A good deal? You could have done far better by simply delaying Social Security until age 66. That way, you would have received $1,000 a month, $250 more than at age 62.

Postponing benefits is especially appealing if you are married, says Henry "Bud" Hebeler, who runs www.analyzenow.com, a Web site devoted to retirement issues. "When the primary breadwinner dies, the spouse can get 100% of the breadwinner's benefit as a survivor's benefit," he notes. "For married people, it's a heck of a deal."

Reversal of Fortune

If you opt for both the annuity and delayed Social Security, you will get two handsome checks each month. Where will the third check come from? You could take out a reverse mortgage and, depending on the loan program, receive the proceeds as a lump sum, a line of credit or a monthly payment.

While I think all retirees should seriously consider delaying Social Security and annuitizing a portion of their savings, I am much less keen on reverse mortgages because the costs involved are pretty steep.

Indeed, before you consider a reverse mortgage, you should first trade down to a less-expensive home. That will not only free up home equity that can then be spent, but also it should trim your property taxes, maintenance expenses, homeowner's insurance and utilities.

If that still leaves you short of income, then consider a reverse mortgage. Look on the Internet at www.aarp.org/revmort and www.reversemortgage.org to learn more.

Yes, taking out a reverse mortgage means that, after your death, your kids may get little or no value out of your house. But as I see it, you get just one shot at retirement. For once in your life, maybe you should be a little selfish.

[OAG]

From the Clements information: So if you can invest the 62 SS at more than 3% the gap on waiting closes? If you bank the SS from 62 to 67 and can get a 5 years CD at say 6.0 or 6.25% does that make the case for taking it early? Who, today, is getting a 3% safe return and if they are why? I know this is picking out one thing and downplaying it. I see the wisdom in waiting for SS but it is just a thought.

[haha]

Originally Posted by OAG

From the Clements information: So if you can invest the 62 SS at more than 3% the gap on waiting closes? If you bank the SS from 62 to 67 and can get a 5 years CD at say 6.0 or 6.25% does that make the case for taking it early?

The 3% in Clements' example is after tax, after inflation. And backed by US Govt.

Not available anywhere right now, except by delaying SS.

If it takes too many words to explain this the "explanation" is an obfuscation.

Ha

[cute fuzzy bunny]

Originally Posted by Cut-Throat

Jonathan Clements as well as most every financial expert agrees with you on this one. The loudest blabbermouth in the chat room has built a up hairball so large that he can't learn anything anymore.

Actually, this is factually incorrect. I believe the percentage of scientists who dont believe in global warming is higher than the percentage of financial experts that agree on delaying social security. Perhaps you, as the math and investing whiz that you are, can point to the document that tells us what percentage of 'financial experts' supports delaying vs taking it early? I'm sure you read something, because you seem to be speaking of this as a strong fact.

And considering I just supplied a 10 page comprehensive document that explains why (in excruciating detail) , with several pages of linked articles from financial and economic experts, perhaps i'm not the one with a learning problem...

The short 'explanation' is this...your social security income is offsetting your portfolio withdrawals dollar for dollar. We've already exhaustively proven that you can get successfully get a 4% swr or better from that portfolio. Which means according to this 'delay supporter', you're better off not delaying because a 4% return is already all but guaranteed...unless the future is materially different from the past.

In which case we're all screwed.

Where we have a problem is when someone who already has their mind made up chooses to mitigate all of the risks on one side of the equation and magnify the risks on the other side of the equation.

[cute fuzzy bunny]

http://www.aarp.org/bulletin/socials...daysooner.html

I suppose AARP doesnt know what they're talking about and all have huge hairballs to boot...

[Eagle43]

IMHO this isn't even a jump ball. Take it as early as you can get it. Only exception is, if you intend to work until 70. Then waiting makes sense.

[OAG]

TeeJayEvans: No you do not pay taxes twice. When you repay you get a deduction for the repayment amount. Need to read the IRS instructions for exactly where it goes on the return (Instructions are contained starting on page 79 of the current IRS Publication 17).

[Bikerdude]

At age 62 my income will come from 3 sources, pension, IRA and SS (if I take it then). Megacorp cuts my pension by 4K at age 62 as a SS offset. This cut happens if I take SS or not. If I delay SS I must make up the lost pension and the deferred SS from my all taxable IRA. This will put me in excess of the 4% SWR and be draining my tax deferred savings currently 50/50 balanced earning an average 7 to 8% per year.

If I take SS at 62 most will not be taxable by the feds as I can stay below the 25K other income level. If I take a small amount from my Roth I can also stay under my state income level for taxing SS.

So, if I take SS at 62 my IRA keeps growing and I pay substantially less in taxes. For me it's an easy case to make.

[Achiever51]

Originally Posted by Bikerdude

At age 62 my income will come from 3 sources, pension, IRA and SS (if I take it then). Megacorp cuts my pension ... at age 62 as a SS offset. This cut happens if I take SS or not. If I delay SS I must make up the lost pension and the deferred SS from my all taxable IRA. ....

So, if I take SS at 62 my IRA keeps growing and I pay substantially less in taxes. For me it's an easy case to make.

I'm in the same boat. I'll be taking my SS as soon as I'm eligible. DH plans to delay until he stops his (self) employment.

[Independent]

Originally Posted by Cute Fuzzy Bunny

Of course. Theres always a problem with not doing it the way ones head has preordained it.

This study seems to imply that almost everyone will be dead before they'd get any benefit out of taking a larger payment later.

......

But then again, trillions of dollars and the best actuaries and financial minds available could all be wrong.

I'm curious about the reference to "actuaries" above. Can you point me to something written by one of them?

[cute fuzzy bunny]

Indeed. Pick any social security publication. The benefit amounts paid are determined to pay out, on average, exactly the same amount regardless of when you start receiving the benefits. Provided you die on time. Too soon, you lose. Too late, they lose.

I'm quite sure a couple of actuaries were involved in these determinations, although I cant say for sure any of them wrote something as an individual....

Of course, if you're one of the 5-10% of people who'll live longer than the mortality tables say you will, you're so godawful rich that getting the income early wont matter, you're still working through your 60's, you have an intractable tax situation at 62 that goes away at 65 or 70, you only invest in risk-free products, you want your surviving spouse to have a few extra bucks in his/her 90's, you're sure social security benefits wont be cut or the CPI calculation reduced ANOTHER 30%, or you think you'll enjoy the extra money more at 85 than at 62...you oughta wait.

If you'd like to retire earlier than planned, with a higher SWR for 10-20+ years, and get the money while the gettin' is good...then the numbers say its better to take it early. Unless you tie their arms behind their backs, cover them up with a blindfold and yell "la la la la la" while they try to tell you otherwise.