Social Security Benefits

[Red Corvette]

Hello,
The estimates I have seen from the Social Security website for ages 62, 66 and 70 assume one is still working but if you retire at 62 and are no longer contributing is there still a benefit to waiting?

 

[DrRoy]

If you retire at 62, but do not start taking your SS benefit then there is still a benefit from waiting. You might benefit more if you were still working and adding to your total career earnings that are also part of the basis for your benefit, but delaying the start of your payments will increase the benefit, up to age 70.

 

[Al18]

Your SS benefits are based on your highest earning 35 years of work, indexed for inflation. If you were born after 1960, your full retirement age is 67 and if your retire earlier, SS pays a percentage of this amount based on this table https://www.ssa.gov/planners/retire/1960.html

 

[marko]

Hello,
The estimates I have seen from the Social Security website for ages 62, 66 and 70 assume one is still working but if you retire at 62 and are no longer contributing is there still a benefit to waiting?

My own personal view is this (YMMV):
-Whether you take it at 62, 65, 67 or 70 the 'breakeven' is about age 77 or 78.

-If you're not working and have to withdraw from your IRA, there are tax advantages of taking SS. SS Fed and state income taxes are generally lower than an IRA withdrawal and in some instances not taxed at all.

In my personal situation, taking SS vs an IRA withdrawal allowed me to 'bank' about $2500 in Fed and State income tax, PLUS (in a good year) gain another $1000 in investment growth that I would otherwise have to have withdrawn. So, on average I have an annual $3500 motivation to have taken SS earlier than later.

-I also believe that its a matter of time before SS, Medicare etc as we know it become social targets; my feeling is 'get in as soon as possible and hope to be grandfathered' in to any future changes.

There have been thousands of gallons of digital ink spent on this subject in this forum alone but the one thing everyone agrees on is: "Every situation/person is different"; as noted YMMV.

 

[Red Corvette]

I found this chart on Motley Fool. Looks like the differences in benefits between starting at 62 or 70 do not become significant until around 85.

 

[marko]

I found this chart on Motley Fool. Looks like the differences in benefits between starting at 62 or 70 do not become significant until around 85.

Nice chart. I wonder if the age 85 takes into consideration my earlier assessment of tax benefits and portfolio opportunity gains.

My excel sheet came out at 78 y.o. using straight SS benefits only; but why quibble...if I make it to 78 I'll be so thrilled I won't complain about 'losing' the break even game.

 

[gauss]

Hello,
The estimates I have seen from the Social Security website for ages 62, 66 and 70 assume one is still working but if you retire at 62 and are no longer contributing is there still a benefit to waiting?

@Red,

On the SS web site, if you enter '$0' for last years wages it will not assume that you continue working until SS age. It will assume $0 for all future years and give projections on what you have earned to date. This will actually be a conservative estimate in that last years wages are not included in the estimate.

-gauss

 

[Red Corvette]

Nice chart. I wonder if the age 85 takes into consideration my earlier assessment of tax benefits and portfolio opportunity gains.

My excel sheet came out at 78 y.o. using straight SS benefits only; but why quibble...if I make it to 78 I'll be so thrilled I won't complain about 'losing' the break even game.

Here is a link to the article: 3 Reasons It's Smart to Take Social Security Benefits at 62 -- The Motley Fool

You may have found another reason to take the benefits early

 

[keegs]

By drawing down on tax advantaged accounts prior to age 70, there's a reduction in additional tax liability from RMD.

For every year SS benefits are deferred you earn about 8% on that asset.

Wondering how these factor in to the decision.

 

[misanman]

Biasing income toward social security can result in significant tax savings depending on the sources and magnitude of your income streams.

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[Options]

By drawing down on tax advantaged accounts prior to age 70, there's a reduction in additional tax liability from RMD.

For every year SS benefits are deferred you earn about 8% on that asset.

Wondering how these factor in to the decision.

They do. As do roth conversions prior to taking SS @ 70.

 

[keegs]

I'm planning to retire in a few months @ age 59... the Mrs. in a few years @ age 63. I've been trying to get my head around the factors going into this decision about when to take SS. Don't mean to highjack the thread but if anyone can point me to some kind of calculator or reference.. it would be much appreciated. TIA.. .CK

 

[pb4uski]

My own personal view is this (YMMV):
-Whether you take it at 62, 65, 67 or 70 the 'breakeven' is about age 77 or 78.

-If you're not working and have to withdraw from your IRA, there are tax advantages of taking SS. SS Fed and state income taxes are generally lower than an IRA withdrawal and in some instances not taxed at all.

In my personal situation, taking SS vs an IRA withdrawal allowed me to 'bank' about $2500 in Fed and State income tax, PLUS (in a good year) gain another $1000 in investment growth that I would otherwise have to have withdrawn. So, on average I have an annual $3500 motivation to have taken SS earlier than later.

-I also believe that its a matter of time before SS, Medicare etc as we know it become social targets; my feeling is 'get in as soon as possible and hope to be grandfathered' in to any future changes.

There have been thousands of gallons of digital ink spent on this subject in this forum alone but the one thing everyone agrees on is: "Every situation/person is different"; as noted YMMV.

I have a very different view. Marko's approach reduce taxes from ER until RMDs start, but you get nailed with taxes later in life as you have much higher RMDs because of growth and more of your SS is taxed... you save taxes for 8 years (62 to 70) but then get nailed for the rest of your life.

I'm doing the opposite.... deferring SS and doing Roth conversions and paying low taxes on those conversions (about 8% each of the last 3 years) and more importantly, avoiding being in the 25% tax rate in my 70s. That 17% difference is a big del for me.

 

[Al in Ohio]

I'm planning to retire in a few months @ age 59... the Mrs. in a few years @ age 63. I've been trying to get my head around the factors going into this decision about when to take SS. Don't mean to highjack the thread but if anyone can point me to some kind of calculator or reference.. it would be much appreciated. TIA.. .CK

If you are a Fidelity account holder, I recommend their Retirement Calculator. I think you can maybe run it online even if your not an account holder. You can plug in all your retirement investments, expected soc security ( after running your numbers on SSN.gov), your expected expense budget Etc and then run it for collecting at 62, 64, 70 whatever and it gives you a nice color bar graph of how much soc security kicks in vs. retirement income or pensions for each year. Any shortfalls are flagged and it runs a Monte Carlo simulation on your returns based on asset allocation.

I was unsure myself, but after running mine and knowing my situation regarding family life expectancy and wife also having a career and soc security benefit but being 6 years younger, I am leaning to collecting at 64.


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[Red Corvette]

Thanks for all the great ideas!
One other thought regarding the Motley Fool chart is that at age 93 it looks like the age 70 line is around $375k and the age 62 line is around $275k. That $100k difference may not seem like so much 30 years from now.

 

[bingybear]

Thanks for all the great ideas!
One other thought regarding the Motley Fool chart is that at age 93 it looks like the age 70 line is around $375k and the age 62 line is around $275k. That $100k difference may not seem like so much 30 years from now.

The MF chart is overly simplified. If you take SS early, then you don't have to use other assets to live on, or you could invest the early SS and live on what you would have if you hadn't taken it. This is a time value of money question.

What it the best thing to do? I think there are too many variables to just guess it. One big one is how long are you going to live. But how your retirement $ are positioned is significant as others have noted when presenting "roth conversions".

 

[Theseus]

The MF chart is overly simplified. If you take SS early, then you don't have to use other assets to live on, or you could invest the early SS and live on what you would have if you hadn't taken it. This is a time value of money question.

What it the best thing to do? I think there are too many variables to just guess it. One big one is how long are you going to live. But how your retirement $ are positioned is significant as others have noted when presenting "roth conversions".

I've been constructing a spreadsheet model to better understand how the variables might affect us in regard to "timing" SS. And "market timing" is what it seems to amount to in the end. If market returns, interest rates, and inflation were all static the decision would be easy, and the simple straight line breakeven point analysis would be useful. For now I consider wait and see to be a strategy. Spending down assets to delay SS runs a risk of poor sequence of returns/inflation leading to excessive dependence on SS in later years. Or claiming SS early runs the risk of the same issues leading to not having enough assets remaining for potential long term care needs in the later years. Attempting to optimize the decision at this point makes me feel like I'm trying to hit a very small target that is a long, long ways away. Best thing to do, IMHO is to at least be aware of the risks/rewards of making the choice, and delay it until any yet unknown future changes warrant taking a certain path. And I sure hope that time isn't too late to have made the right choice for our situation.

 

[OrcasIslandBound]

If stocks remain strong it is better to wait to take SS. If stocks collapse, it is better to take SS early. If a compromise is desired, as in my own case, the lower wage earner can take SS at 62 the higher wage earner waits to 67 or 70. This way both are protected better as the higher SS is given to the sole survivor if one spouse dies.


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[marko]

I have a very different view. Marko's approach reduce taxes from ER until RMDs start, but you get nailed with taxes later in life as you have much higher RMDs because of growth and more of your SS is taxed... you save taxes for 8 years (62 to 70) but then get nailed for the rest of your life.

I'm doing the opposite.... deferring SS and doing Roth conversions and paying low taxes on those conversions (about 8% each of the last 3 years) and more importantly, avoiding being in the 25% tax rate in my 70s. That 17% difference is a big del for me.

This is a valid point for many. In my case, my projected RMD is actually less than my current (age 63) withdrawals.

 

[timo2]

Hello,
The estimates I have seen from the Social Security website for ages 62, 66 and 70 assume one is still working but if you retire at 62 and are no longer contributing is there still a benefit to waiting?

You don't say if you are single or married, and if your spouse will depend heavily upon the SS survivors benefit. The longer you wait to take it, the higher the survivor benefit will be. If that is important to you.

 

[bingybear]

I've been constructing a spreadsheet model to better understand how the variables might affect us in regard to "timing" SS. And "market timing" is what it seems to amount to in the end. If market returns, interest rates, and inflation were all static the decision would be easy, and the simple straight line breakeven point analysis would be useful. For now I consider wait and see to be a strategy. Spending down assets to delay SS runs a risk of poor sequence of returns/inflation leading to excessive dependence on SS in later years. Or claiming SS early runs the risk of the same issues leading to not having enough assets remaining for potential long term care needs in the later years. Attempting to optimize the decision at this point makes me feel like I'm trying to hit a very small target that is a long, long ways away. Best thing to do, IMHO is to at least be aware of the risks/rewards of making the choice, and delay it until any yet unknown future changes warrant taking a certain path. And I sure hope that time isn't too late to have made the right choice for our situation.

To do it right you really need either a back test or Monte-carlo analysis. You're results would really be a comparison of which approach would likely level you better off. Potentially a lot of work. I just ran a quick set of calculations with taking it early and investing + small Roth conversion and taking it later with larger Roth conversion. I'm going with the Roth conversions and later SS. I did not see the need in my case to go to statistical analysis in my case.

This is a valid point for many. In my case, my projected RMD is actually less than my current (age 63) withdrawals.

It actually my be useful to look at this. The bar for paying tax on part of your SS is actually quite low and half of your (and spouse if married) is counted toward the income test for getting to that limit.
For many on this site, paying tax on SS may be unavoidable due to pensions, RMDs, or investment distributions.

file a federal tax return as an "individual" and your combined income* is
between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
more than $34,000, up to 85 percent of your benefits may be taxable.

file a joint return, and you and your spouse have a combined income* that is
between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits
more than $44,000, up to 85 percent of your benefits may be taxable.

 

[marko]

It actually my be useful to look at this. The bar for paying tax on part of your SS is actually quite low and half of your (and spouse if married) is counted toward the income test for getting to that limit.
For many on this site, paying tax on SS may be unavoidable due to pensions, RMDs, or investment distributions.

Right but as noted earlier, I automatically pocket 5.15% of tax savings as Mass taxes IRA distributions on a flat tax basis but does not tax SS. Even with a higher income, SS is only taxed at 85% of full value.

My tax savings come out to be about $3700 per year vs taking it from my IRA.

 

[Dog]

I'm thinking the same strategy as OrcasIslandBound. DH retires next May and plans on taking SS at 62. We are the same age, but he was the lower wage earner and it appears may have a shorter life span due to a medical issue. Meanwhile, I will take a "wait and see" approach.


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[Chuckanut]

I found this chart on Motley Fool. Looks like the differences in benefits between starting at 62 or 70 do not become significant until around 85.

Yes. That is why many of us think of delaying SS to 70 as a form of old age insurance. Like any insurance policy, we may or may not collect on it.

 

[marko]

Yes. That is why many of us think of delaying SS to 70 as a form of old age insurance. Like any insurance policy, we may or may not collect on it.

If it plays out neutral till age 85, what's the debate?