Social Security future? Applying at 62?

[Ronstar]

This is an informative thread for retirees. The moderator team understands that social security is a government program and therefor somewhat political in nature. Rather than discuss the political aspects of social security, please concentrate on the personal benefits or pitfalls of taking SS at various age levels. Please refrain from discussion of the fairness of the system or the political pondering that goes into it. We understand the difficulty in separating politics out of such a discussion, but please do so such that the thread can continue.

 

[martyp]

This is an informative thread for retirees. The moderator team understands that social security is a government program and therefor somewhat political in nature. Rather than discuss the political aspects of social security, please concentrate on the personal benefits or pitfalls of taking SS at various age levels. Please refrain from discussion of the fairness of the system or the political pondering that goes into it. We understand the difficulty in separating politics out of such a discussion, but please do so such that the thread can continue.

Thanks. I understand. I’ve tried not to refer to political parties or ideologies. I am appealing to future confidence in the structure of the system.

 

[RunningBum]

First class tickets aren't the issue I replied to in my post. I replied to the comment of not taking SS at 62 in order to not run out of money.

First class tickets gets to the issue of maximizing money if one lives beyond the break even point. For our household, we're more interested in income stream diversification maintaining the current NW and lifestyle.

OK, fair enough.

If someone past the breakeven point is able to make it with a benefit from taking at 62, they'll also be able to make it with the higher benefit from taking at 70. The inverse is not always true. Someone who can make it with the 70 benefit can't necessarily make it with the lower 62 benefit.

 

[AndyS]

Thanks. I understand. I’ve tried not to refer to political parties or ideologies. I am appealing to future confidence in the structure of the system.

As was I .... someone in a previous comments suggested future benefit cuts as a possible reason to take SS earlier rather than later.

 

[Ronstar]

Thanks. I understand. I’ve tried not to refer to political parties or ideologies. I am appealing to future confidence in the structure of the system.

As was I .... someone in a previous comments suggested future benefit cuts as a possible reason to take SS earlier rather than later.

No problem. Nothing out of line yet. Just a reminder to keep political discussion from escaping to partisan politics.

 

[Perryinva]

85 year old Dad just complained last week that he's sorry he took his at 62 instead of waiting.

DF is 77 and said the same thing many times. He never understood that delaying increased your SS, and always assumed 62 was when you were supposed to file. (But he is an immigrant that only went to school up to 5th grade. Finances were never even remotely a strong suit in our family) He understood that Only “rich” people delayed filing for some kind of tax reason. My late DM took care of filing for them, both at 62, and she was as financially ignorant as he was, just spoke better english) He lives with his current SO (unmarried) whose SS is her late husbands amount (she never worked, and was a SAHM) which is more than double what his is because her husband delayed his until his age 68. He only lived until he was 76 and she was 73. DF told me that she had to exlain it to him 50 times before he understood why hers was so much larger., even though she never worked. He was amazed that SS worked like that.

Basically, he would rather have lived off more of his savings when he had more, so that at 77 and up he would have more income and wouldn’t need any savings. He lost much if it on “bad investments with Merril Lynch” and now has a lower fixed income and lower savings.

 

[Perryinva]

First class tickets aren't the issue I replied to in my post. I replied to the comment of not taking SS at 62 in order to not run out of money.

First class tickets gets to the issue of maximizing money if one lives beyond the break even point. For our household, we're more interested in income stream diversification maintaining the current NW and lifestyle.

So the issue is that you want to maintain your current NW (which is a valid personal decision) rather than purchase an enhanced COLA annuity (which is all that delaying SS is), but I fail to see how taking it at 62 helps your income stream diversity or lifestyle. Most all FAs will recommend delayed filing if you can afford the annuity and it allows a higher net income stream with lower risk. Of course, if ones SS is small, say less than $1k/mo. because of early retirement, then the point is almost moot. Whether it’s $900 now or $1800 later is not that big a deal, in absolute dollars. But for those with max SS, $2000 now or $4000 later IS a big deal, especially since only 85% of that extra $24k is taxed federally and none state, vs all if from tIRA, which can easily be a net $2500/yr extra, equal to needing an added $3600 withdrawal from a tIRA, which ups ones WR. Lower RMDs also help. Hold Harmless absolute amounts are same whether low SS or high SS, so as a percentage of net gain, those with lower SS see a larger percentage reduction.

 

[Another Reader]

So the issue is that you want to maintain your current NW (which is a valid personal decision) rather than purchase an enhanced COLA annuity (which is all that delaying SS is), but I fail to see how taking it at 62 helps your income stream diversity or lifestyle. Most all FAs will recommend delayed filing if you can afford the annuity and it allows a higher net income stream with lower risk. Of course, if ones SS is small, say less than $1k/mo. because of early retirement, then the point is almost moot. Whether it’s $900 now or $1800 later is not that big a deal, in absolute dollars. But for those with max SS, $2000 now or $4000 later IS a big deal, especially since only 85% of that extra $24k is taxed federally and none state, vs all if from tIRA, which can easily be a net $2500/yr extra, equal to needing an added $3600 withdrawal from a tIRA, which ups ones WR. Lower RMDs also help. Hold Harmless absolute amounts are same whether low SS or high SS, so as a percentage of net gain, those with lower SS see a larger percentage reduction.

I'm taking the annuity today because my bet with the Social Security "insurance company" is that I will collect more from that annuity because of family history alone. I'm investing the money in paying off rental mortgages, which is a 5.875 percent return before taxes on the highest interest rate loan. Finally, the Social Security "insurance company" has warned me that in 17 years, I should expect a 25 percent cut in my annuity payment. If I waited until I was 70 to take it, I would only get the full annuity for 11 years. So much for that "enhanced COLA annuity" in my later years.

 

[atmsmshr]

We plan on retiring next year when we are 60/58 and immediately start spending our hard-earned savings on world travel (first class), fine dining and expensive booze. Then at about 65-ish, we will settle down and become conservative homebodies, maybe live off the land some (grow a little weed in the woods perhaps...), dine on cat food occasionally and aim to become wards of the state shortly before dementia sets in and/or dirt nap time.


So I will take SS at the right time to support the plan above.

 

[garyt]

I waffle back and forth about whether I will take at 62. I think for me, it will boil down to whether the ACA is still around when I'm 62. If it is, I will likely hold off until I can get on Medicare. Health insurance premiums are my main financial concern for the future.

That's the only way I don't take it at 62. I have two years. We'll see if the ACA lasts.

 

[Perryinva]

I'm taking the annuity today because my bet with the Social Security "insurance company" is that I will collect more from that annuity because of family history alone. I'm investing the money in paying off rental mortgages, which is a 5.875 percent return before taxes on the highest interest rate loan. Finally, the Social Security "insurance company" has warned me that in 17 years, I should expect a 25 percent cut in my annuity payment. If I waited until I was 70 to take it, I would only get the full annuity for 11 years. So much for that "enhanced COLA annuity" in my later years.

Well, certainly if you don’t expect to live long, it makes sense to take it as soon as possible. That’s not debatable. The concern about the solvency of SSA and cuts in SS based on the predicted shortfall in 2034 is very low in my just as valid opinion, based on more qualified opinions and history. Lower than say, another housing bubble bust causing rentals to lose 40% of value.

 

[VanWinkle]

IMO, this is a conservative way to increase your retirement spending. Let's take and example of 62 yo a retiree with $1 million saved and SS of $25k a year at their FRA of 66.

If they take SS at 62 and use a conservative 3.5% WR, then their inflation-adjusted spending can be $53,750 ($35,000 from portfolio and $25,000*75% or $18,750 from SS).

Alternatively, they carve out 8 years worth of age 70 benefits into a separate fund of $264,000 to provide $33,000 a year for ages 62-70 since their age 70 SS benefit will be $33,000 ($25,000 * (1+(8%*4))). They have $736k left and at a 3.5% WR that is $25,760... add the $33,000 and the total is $58,760.

So with some minimal financial engineering they have increased their retirement spending by 9.3%!

(I'm assuming that the $264k side fund earns the inflation rate so the $33,000 a year can be increased for inflation, but even if you bumped the $264k up a little bit to consider inflation more explicitly, it is still a winning strategy.)

The numbers bear out your strategy:

264,000 @2% less 33,000(annual withdrawal for 8 years) = ending balance of 26,125.
736,000 @6% less 25,760(annual withdrawal for 8 years) = ending balance of 922,730
At 70, SS of 33,000 plus 33,209(3.5% of 948,855) = income of 66,209

1,000,000@6% less 35,000(annual withdrawal 8 years) = ending balance of 1,203,973.

At 70, SS of 18,750 plus 42,139(3.5% of 1,203,973) = income of 60,889

This is roughly 8% less income than the wait to 70 approach.

Your heirs may prefer the take at 62 approach as it leaves them almost 300,000 more, but you live off of 6000 less per year to make that happen.

The person that claimed at 62 would need to increase his WR to 4% to match the income of the person that waited til 70. 1,203,973 x 4% = 48,158 plus 18,750 SS = 66,908.

VW

 

[Another Reader]

Well, certainly if you don’t expect to live long, it makes sense to take it as soon as possible. That’s not debatable. The concern about the solvency of SSA and cuts in SS based on the predicted shortfall in 2034 is very low in my just as valid opinion, based on more qualified opinions and history. Lower than say, another housing bubble bust causing rentals to lose 40% of value.

Whose "more qualified opinions?"

The stock market and the rental values may vary. What markets do and what the underlying businesses do can be very different. Some of my rentals dropped in value more than 60 percent the last go around. However, the tenants kept paying the rent, more people needed places to live because of foreclosures and short sales, and the rents went up. Had some cash, bought a few more rentals at the very depressed prices. Income went up some more. Other than the banks, most companies continued to pay dividends. My income, other than the RMD on the inherited IRA, was not negatively impacted.

I have no idea what the politicians will do about the shortfall. Likely they will cut the annuity to some extent, directly or indirectly. I'll take the cash today and build another annuity in the form of additional paid off rentals. Whatever happens, I will have used the money received now to further insulate myself from the consequences.

 

[daylatedollarshort]

So the issue is that you want to maintain your current NW (which is a valid personal decision) rather than purchase an enhanced COLA annuity (which is all that delaying SS is), but I fail to see how taking it at 62 helps your income stream diversity or lifestyle. Most all FAs will recommend delayed filing if you can afford the annuity and it allows a higher net income stream with lower risk. Of course, if ones SS is small, say less than $1k/mo. because of early retirement, then the point is almost moot. Whether it’s $900 now or $1800 later is not that big a deal, in absolute dollars. But for those with max SS, $2000 now or $4000 later IS a big deal, especially since only 85% of that extra $24k is taxed federally and none state, vs all if from tIRA, which can easily be a net $2500/yr extra, equal to needing an added $3600 withdrawal from a tIRA, which ups ones WR. Lower RMDs also help. Hold Harmless absolute amounts are same whether low SS or high SS, so as a percentage of net gain, those with lower SS see a larger percentage reduction.

If we take SS at 62, then we are using up less of our portfolio money, the money we control and won't be subject to a 23% future cut. And then we also have the Medicare cap at 65. If something happened to us our kids would get a bigger inheritance now when they are younger and don't have a huge amount of savings of their own yet. One actually mentioned that last night - he could take more career risks than many of his friends because his worst case option is moving back to his old room where he knows he is always welcome. If something happened to us he would have an inheritance to help see him through any financial setbacks.

I have a detailed spreadsheet and can run the numbers on taxes and SS at different ages. We're not into following one size fits all general maxims by financial writers, if that's what you mean by qualified opinions. We pay more attention to the results of my spreadsheets and what works best for our particular financial situation.

 

[pb4uski]

If we take SS at 62, then we are using up less of our portfolio money, the money we control and won't be subject to a 23% future cut. ....

emphasis added

I don't think you are right on that... if they fail to act from everything that I have read both current and future benefits will be be haircut... essentially across the board.

 

[joeea]

Consider attempts to repeal the ACA. Members of Congress seem to be very willing to vote to take away health care benefits and protections that people already have.

These two sentences seem to contradict one another.

Congress attempted to repeal the ACA, but has completely failed so far.

 

[joeea]

Well, certainly if you don’t expect to live long, it makes sense to take it as soon as possible. That’s not debatable.

It's very debatable.

It depends on how you define "live long", and your situation with your significant other.

I consider living to 100 as "long".
I consider living to 70 as "not long".
There's a lot of gray area in between.

 

[Katsmeow]

I took SS at 62 1/2. DH was similar. I have the slightly higher benefit but they are close enough together not to make a huge difference.

In the end, I looked at how much of our portfolio we would need to deplete by waiting to take it -- either for both of us or just me. We could have done that. And, again, I understand the longevity reasons to do that. But, I felt that doing it would deplete the portfolio to a point that I would feel uncomfortable. Right now, if SS were to get cut in the future we would still have a sufficient portfolio that things would be OK. But, if we depleted our portfolio and SS benefits were cut then that would really hurt. SO I felt more comfortable preserving more of the portfolio.

 

[ShokWaveRider]

I took SS at 62 1/2. DH was similar. I have the slightly higher benefit but they are close enough together not to make a huge difference.

In the end, I looked at how much of our portfolio we would need to deplete by waiting to take it -- either for both of us or just me. We could have done that. And, again, I understand the longevity reasons to do that. But, I felt that doing it would deplete the portfolio to a point that I would feel uncomfortable. Right now, if SS were to get cut in the future we would still have a sufficient portfolio that things would be OK. But, if we depleted our portfolio and SS benefits were cut then that would really hurt. SO I felt more comfortable preserving more of the portfolio.

Bingo! +10

 

[daylatedollarshort]

emphasis added

I don't think you are right on that... if they fail to act from everything that I have read both current and future benefits will be be haircut... essentially across the board.

Will they cut benefits retroactively? Otherwise the 23% cut isn't expected before 2034. Our portfolio is the money not subject to the 23% cut I was referring to by "money under our control".

 

[Accidental Retiree]

I took SS at 62 1/2. DH was similar. I have the slightly higher benefit but they are close enough together not to make a huge difference.

In the end, I looked at how much of our portfolio we would need to deplete by waiting to take it -- either for both of us or just me. We could have done that. And, again, I understand the longevity reasons to do that. But, I felt that doing it would deplete the portfolio to a point that I would feel uncomfortable. Right now, if SS were to get cut in the future we would still have a sufficient portfolio that things would be OK. But, if we depleted our portfolio and SS benefits were cut then that would really hurt. SO I felt more comfortable preserving more of the portfolio.

That’s my thinking: preserving our portfolio to cover that potential SS decrease in 2034.

I just turned 62 and am mulling over starting SS early next year.

My amount will be somewhat reduced by WEP since I have a small public sector pension.

My SS will add maybe $10,000 to next year’s income, but my filing will also allow DH to claim spousal benefits on my record at his FRA. His filing will recoup some of that WEP haircut and also allow him to let his own SS grow until age 70. His age 70 amount would provide an increase for me if he predeceases me, despite the GPO offset lurking out there.

I figure I can file and see what my actual benefit will be and then have a year to change my mind.

 

[pb4uski]

Will they cut benefits retroactively? Otherwise the 23% cut isn't expected before 2034. Our portfolio is the money not subject to the 23% cut I was referring to by "money under our control".

Yes, from everything I have read if congress fails to act benefits will be cut across the board, so if someone is collecting $100, then will then receive $77 as the taxes collected will only be sufficient to pay 77% of the promised benefits.

 

[daylatedollarshort]

Yes, from everything I have read if congress fails to act benefits will be cut across the board, so if someone is collecting $100, then will then receive $77 as the taxes collected will only be sufficient to pay 77% of the promised benefits.

I meant will they ask for the money back that we make from when we are 62 to 2034? We will be collecting benefits long before 2034 happens.

 

[ShokWaveRider]

Yes, from everything I have read if congress fails to act benefits will be cut across the board, so if someone is collecting $100, then will then receive $77 as the taxes collected will only be sufficient to pay 77% of the promised benefits.

My only concern is I do not consider SS & Medicare Payment a Tax. It is an investment/insurance in our future that We make from OUR OWN Pockets. Like an insurance policy it is a "Promise to Pay". I think any reduction in SS or lack of Medicare services is a result of lack of forethought. Therefore it is foreseen and should be corrected early. Just letting it break is not an option IMHO. If we know it will break in 2034, we are obliged to fix it, even if it means raising the percentages of what the pre-eligible folk are paying. I really hope and think that will be the eventual outcome.

 

[RunningBum]

Please go back and read post #126, and try to avoid getting this thread closed.