Social Security at 62, 66 or 70?

[d]

There are valid reasons to delay SS or take it early.

ditto

[Corporateburnout]

I ran my numbers on Firecalc and It shows that I get 100% success rate at 62 and 66 and 97% at 70.

Since that I plan to leave some money for my heirs I'll take it at 62.

Again the decision will depend on the retiree's own circumstance....

[ziggy29]

The right answer for any individual may vary. And the right answer isn't ALWAYS the one that produces the maximum expected income.

[haha]

Originally Posted by Corporateburnout

I ran my numbers on Firecalc and It shows that I get 100% success rate at 62 and 66 and 97% at 70.

Since that I plan to leave some money for my heirs I'll take it at 62.

Again the decision will depend on the retiree's own circumstance....

Since FireCalc assumes 70/30 S&P/commercial paper; and since equity returns as well as interest rates have been reasonably good during the 20th century taken as a whole it would be odd indeed if this were not the result returned by Firecalc.

This really cannot be made into a quantitative exercise, because the two paths have fundamentally different goals. One is for greater security and an element of insurance against out of sample outcomes, as well as "longevity insurance". The other is "pedal to the metal it worked before it will work again".

I think for a "do-it-yourselfer" who can afford to wait beyond 62, it is a generally good decision to wait until a) you need the money now b) equity premia have gotten much higher or c) your health has deteriorated meaningfully. I believe this is an even better strategy if you are a woman or the higher earning half of a married couple.

Ha

[Mwsinron]

I always figured it would be better to take it early if you are a high income earner. The difference doesnt seem to be as big if you are a lower end or middle income person.

[haha]

Originally Posted by Mwsinron

I always figured it would be better to take it early if you are a high income earner. The difference doesnt seem to be as big if you are a lower end or middle income person.

This is something I hadn't thought of. Could you explain the reasoning underlying this approach?

Ha

[Mwsinron]

Originally Posted by HaHa

This is something I hadn't thought of. Could you explain the reasoning underlying this approach?

Ha

What I am talking about is explained here. It made sense to me .

http://www.retireearlyhomepage.com/soc_security.html

[haha]

Originally Posted by Mwsinron

What I am talking about is explained here. It made sense to me .

http://www.retireearlyhomepage.com/soc_security.html

I get it. But it seems that this pertains more to when to retire, rather than when to start receiving benfits.

Ha

[d]

I get it.

i don't.

[jdw_fire]

Originally Posted by d

i don't.

The article quoted

Originally Posted by Mwsinron

What I am talking about is explained here. It made sense to me .

http://www.retireearlyhomepage.com/soc_security.html

has nothing to do with

Originally Posted by Mwsinron

I always figured it would be better to take it early if you are a high income earner. The difference doesnt seem to be as big if you are a lower end or middle income person.

Instead it talks of what effect stopping work before you have 35 years of payment into the SS system has.

[New Thinking]

If I may, I will reiterate my findings that have been debated before - but seem to be missed. I will be presenting these next month at The Pension Research Council at Wharton..The working paper will be available for free on their website shortly thereafter.

First and foremost, the calculations for an age 70 amount appear to be wrong when you are putting them in FireCalc..I am just eyeballing them, but there is confusion here. The age 70 amount should not be 76% more than the age 62 amount because the 8 years of COLAs will create a much larger benefit at age 70. So if you are going to compare $13,488 at 62, I would not use $23,738 at 70, but assume a number of inflation such as 3% which puts the age 70 amount up to $30,083..You do not do FireCalc in Today's dollars, so you cannot use the un-inflation-adjusted amount at age 70 either. This is the most common mistake made in calculations and the Spitzer paper may also be making this mistake..I have to review his numbers, but he does state a 76% increase between age 62 and 70, so that is probably what he is doing..As did the University of San Diego professor's article which CFB linked to before (and I am sure he will harrass me for bringing it up again)..But a starting point of $30,083 bersus $23,738 at age 70 is a huge difference..Plug these into FireCalc and rerun the numbers.

• Point number two is that Spitzer ignores the spouse's benefit. You cannot do this and provide an accurate break-even since the spouse will inherit a higher delayed retirement benefit..It must clearly be part of the equation..It also means that the spouse should start her/his benefits sooner rather than later.

• Point three - I think it is not the best way to analyze Social Security break-even points to look at it as a present value..Social security has risk management characteristics and there is a "value" on the fact that it pays someone income for a longer time if they outlive a life expectancy.
  • Point four - Spitzer's paper says that taxes don't matter and he is 100% incorrect on this..And this is probably where our research is unique and we have discussed it on this forum before..You cannot look at the taxation of SS benefits in a vacuum. IRA or pension income causes the taxation of SS income..Marginal federal tax rates of 46.25% and heading higher when Bush's tax cuts sunset. Higher (delayed SS) reverses this "tax torpedo" because IRA income is lesser or eliminated and SS goes into the Combined Income formula at a 50% rate..And even then it is the lesser of three tests, which means that income after age 70 can have dramatically less taxes..This information will be laid out and cites our work in the upcoming book "The Wall Street Journal's Complete Retirement Guide"
  • Point Five - Everyone says that waiting to take SS is for those who don't care as much about leaving a legacy, but I disagree. Sure, it is possible to receive higher returns with the stock market over time, but if you are paying much higher taxes, the returns are often diluted. And we are assuming that we will have the staying power to stay in stocks as we age. Further, Spitzer does cite William Reichenstein's work that SS should be part of the asset allocation equation...and I fully agree. Use a higher amount of SS to lower your bond holdings..That way you don't have to live with lower returns in our current low-yield world and you won't have to live with lower short-term yields in MM if/when short-term rates go lower again..The potential to leave a legacy (or at least the probability) may be increased by waiting to take SS.
    
    Just some additional food for thought for the discussion.
  Everyone's situation is indeed unique but inflation, taxes, longevity and investment risk management, and a low fixed income world should be part of one's thinking.

[Running_Man]

Originally Posted by New Thinking

[list][*]Point Five - Everyone says that waiting to take SS is for those who don't care as much about leaving a legacy, but I disagree. Sure, it is possible to receive higher returns with the stock market over time, but if you are paying much higher taxes, the returns are often diluted. And we are assuming that we will have the staying power to stay in stocks as we age. Further, Spitzer does cite William Reichenstein's work that SS should be part of the asset allocation equation...and I fully agree. Use a higher amount of SS to lower your bond holdings..That way you don't have to live with lower returns in our current low-yield world and you won't have to live with lower short-term yields in MM if/when short-term rates go lower again..The potential to leave a legacy (or at least the probability) may be increased by waiting to take SS.

Of course this will be impossible for anyone in the sample that would die I would say between the ages of 62-75. If on the other hand you are assuming that stock market returns less the additional withdrawls needed to cover the SS @ 62 will more than offset the additional portfolio gains made by not needed the additional withdrawl, I would like to see those calculations.

[youbet]

[list]

Originally Posted by New Thinking

• Point number two is that Spitzer ignores the spouse's benefit. You cannot do this and provide an accurate break-even since the spouse will inherit a higher delayed retirement benefit..It must clearly be part of the equation..It also means that the spouse should start her/his benefits sooner rather than later.

If you have a legal spouse.

If your spouse doesn't die before you.

If your spouse is not disqualified from your SS by the GPO or other factor.

[youbet]

Originally Posted by New Thinking

The potential to leave a legacy (or at least the probability) may be increased by waiting to take SS.

Or the potential to leave a legacy (or at least the probability) may be decreased by waiting to take SS.

[FIRE'd@51]

NT,

I look forward to reading your paper when it is available on the web. It seems as if you are attempting to address a lot of interesting (and often-ignored) issues.

I do want to make a couple of comments, though.

While I'm not sure if FireCalc handles the delayed SS correctly, I agree with the 76% number used in the papers referenced by CFB. Both the age 70 amount and the age 62 amount grow at the inflation rate, so the factor (1+ I)^8 appears in both the numerator and denominator of this ratio, and thus, cancels out, keeping the ratio at 1.76.

With regard to the "tax torpedo", it is not obvious to me that it always favors delaying. You could also have a "tax torpedo" effect with the larger age 70 distribution. Also, the RMD's for those of us with large traditional IRA's (including Rollover IRA's) could push more of that extra SS income into higher brackets (even higher after the Bush tax cuts sunset).

I also would like to point out that someone who takes SS at 62 pays no Medicare Part B premium for the first three years. I believe that premium is currently $93 per month, and I read in another post (I think by OAG) that it is scheduled to increase 17% next year. Another tax issue could be the recently passed means-adjustment to the Medicare Part B premium. I believe this kicks in at AGI's of 80K for singles and 160K for joint returns.

Finally, I just want to point out that, as we age, there is, unfortunately, a higher probability that one spouse will die. The surviving spouse will have to file as a single taxpayer rather than joint. This means all the brackets will "kick in" at half the taxable income, thus greatly raising marginal rates for the suriving spouse. Additionally, the SS provisional income thresholds are lower for a single taxpayer. All of this makes the tax issue very difficult to analyze (at least for me).

[jdw_fire]

Originally Posted by New Thinking

First and foremost, the calculations for an age 70 amount appear to be wrong when you are putting them in FireCalc..I am just eyeballing them, but there is confusion here. The age 70 amount should not be 76% more than the age 62 amount because the 8 years of COLAs will create a much larger benefit at age 70. So if you are going to compare $13,488 at 62, I would not use $23,738 at 70, but assume a number of inflation such as 3% which puts the age 70 amount up to $30,083..You do not do FireCalc in Today's dollars, so you cannot use the un-inflation-adjusted amount at age 70 either. This is the most common mistake made in calculations and the Spitzer paper may also be making this mistake..I have to review his numbers, but he does state a 76% increase between age 62 and 70, so that is probably what he is doing..As did the University of San Diego professor's article which CFB linked to before (and I am sure he will harrass me for bringing it up again)..But a starting point of $30,083 bersus $23,738 at age 70 is a huge difference..Plug these into FireCalc and rerun the numbers.

It looks like this point is incorrect per Dory36 (FIRECalc's author) http://early-retirement.org/forums/i...8630#msg138630

[Cut-Throat]

Originally Posted by jdw_fire

It looks like this point is incorrect per Dory36 (FIRECalc's author) http://early-retirement.org/forums/i...8630#msg138630

Yeah, I was thinking this was not correct also. - Even tho, I am still leaning towards delaying to age 70.

[jdw_fire]

Originally Posted by Cut-Throat

Yeah, I was thinking this was not correct also. - Even tho, I am still leaning towards delaying to age 70.

CT, the fact that NT's first point is not correct only means to me that the rationale I gave in all the posts I made on the subject of delaying the start of SS have not improved, they are however still valid. His other points seem to add weight to the delay it argument, but the analysis of the tax picture would definately require some further study. I would think his post would only strengthen your leaning.

[Cut-Throat]

Originally Posted by jdw_fire

CT, the fact that NT's first point is not correct only means to me that the rationale I gave in all the posts I made on the subject of delaying the start of SS have not improved, they are however still valid. His other points seem to add weight to the delay it argument, but the analysis of the tax picture would definately require some further study. I would think his post would only strengthen your leaning.

His post does strengthen my leaning towards age 70! - My analysis of the problem always seemed like a 'slam dunk' for my personal situation to delay to age 70. But always willing to learn more!