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Social Security Benefits
Old 12-28-2015, 07:37 AM   #1
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Social Security Benefits

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?
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Old 12-28-2015, 07:58 AM   #2
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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.
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Old 12-28-2015, 08:19 AM   #3
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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
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Old 12-28-2015, 01:09 PM   #4
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Originally Posted by Red Corvette View Post
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and State income tax, PLUS (in a good year) gain another $1000 in investment growth that I would otherwise have to have withdrawn.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.
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Old 12-28-2015, 02:38 PM   #5
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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.
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Old 12-28-2015, 02:54 PM   #6
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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.
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Old 12-28-2015, 04:23 PM   #7
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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
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Old 12-28-2015, 06:26 PM   #8
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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
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Old 12-28-2015, 07:08 PM   #9
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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.
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Old 12-28-2015, 07:24 PM   #10
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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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Old 12-28-2015, 07:34 PM   #11
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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.
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Old 12-28-2015, 07:42 PM   #12
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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
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Old 12-28-2015, 08:24 PM   #13
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Originally Posted by marko View Post
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.
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Old 12-28-2015, 11:59 PM   #14
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Originally Posted by keegs View Post
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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Old 12-29-2015, 07:35 AM   #15
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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.
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Old 12-29-2015, 08:12 AM   #16
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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".
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Old 12-29-2015, 08:34 AM   #17
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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.
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Old 12-29-2015, 09:05 AM   #18
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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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Old 12-29-2015, 09:09 AM   #19
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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.
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Old 12-29-2015, 09:24 AM   #20
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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.
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