Social Security~ Pays to delay says Scott Burns

[hogwild]

If you begin taking SS at 62, isn't your total SS eqivalent cash flow at 90 the sum of your annual SS payment (determined when you started at 62 plus COLA's) plus the investment income from prudently investing all those dollars received since you started collecting at 62? That is, to keep the comparison apples to apples, you have to assume that SS income collected from 62 onward is retained and invested and available when you are 90.

I prefer to keep my pension/SS separate from my investments for analysis purposes. Anyway, I think that the increased cash flow will be investment dollars I don't have to touch. But that is not the way I think about it.

For one thing, in my case, I will have a 10 year pension. So if I retire at 60, the pension will allow me to defer my SS to 66 or 70. All the scenarios I have modeled show a better residual, at age 90 (my planning limit) with deferring SS while keeping all other factors the same within each scenario.

 

[youbet]

Another complicating factor is that most people are spending down their nest egg at that age. To assume that you will be investing ALL of your SS payment seems a bit of a stretch - since this will require you to be selling/withrawing from your taxable and IRA accounts to fully fund your living needs in order to not touch your SS payments.

Peter,

My thinking is that if you can defer SS and not need the the $$$, you can take SS and invest the $$$. Either way you don't have the income to spend.

 

[youbet]

Spanky's results would be correct if he had specified that the 6% was the real (after inflation) return. I have done similar calculations comparing taking SS at age 62 instead of 66 and found:

Real Return Break-even Age
0% 78
1% 80
2% 81
3% 83
4% 85
5% 88
6% 94
7% 115

These results also assume you achieve these returns in the first four years from 62 until 66.

I got similar results. For me, breakeven was in my mid-80's if I delay SS until 66. Not knowing:

(1) How long I'll live or
(2) what actual returns I'll get on incremental portfolio dollars available because I'm collecting SS at 62

make all this a real crapshoot.

 

[REWahoo]

I'm working on a spreadsheet for this analysis...I just need a few items clarified:

Can someone please clarify how SS is taxed?

http://www.irs.gov/publications/p915/index.html

 

[JohnEyles]

Why not look at the question of whether to delay SS in terms of SWRs ?

If I wait from 63yo til 64yo, my benefit goes from $1393 to $1509/mo, an
increase of $1392/yr. At the 4% SWR, I'd need $34,800 more in my portfolio
to handle the shortfall if I start early. But I only give up 12*1509= $18108
in missed benefits for the year I skipped. (Ala Scott Burns, waiting that year
is the moral equivalent of putting that $18K into a SPIA that has an initial payout
of 7.7% and is COLA'ed). The effects of inflation and investment gain over a
one-year period are insignificant. A similar calculation shows that it makes sense
to keep waiting one more year. But the comparison gets closer, plus, as age gets
closer to 70yo, the SWR should probably be increased, making things closer still.
Even so, for waiting from 69yo til 70yo, assuming a 6% SWR, it's about even.

So it seems clear that, putting asides issues of health or faith in the SSA, it makes
sense to wait beyond 62yo, but maybe not all the way 'til 70yo.

 

[WilliamG]

Future tax treatment is a big factor for me. The Guv has just introduced means testing for Medicare. Can't believe the 85% maximum taxability of SS will last, it will go to 100%. In our case we are in the maximum taxability area and would like to take advantage of this tax benefit while it lasts. Also, taxability at state level can change. We live in NC and are taxed on general income at 7% rate, but ZERO rate on SS. However, this is possible to change in future. I have calculated would save over $1,700/year in taxes in first year of SS (vs IRA income). To me it is similar to the advantage of spending already taxed income before deferred. If you assume similar tax treatment down the road, perhaps that outweighs the preferential treatment now, but that is a risky assumption IMO.

 

[sgeeeee]

. . .So it seems clear that, putting asides issues of health or faith in the SSA, . . .

Unfortuanately, citing this condition is a little like preceding your conclusions with, "Neglecting reality, . . ."

 

[JohnEyles]

Unfortuanately, citing this condition is a little like preceding your conclusions with, "Neglecting reality, . . ."

Good one. But I don't think so. Since I'm advocating making the decision
year by year, each year you can look at your own prospects for living long
(and prospering) and what the politicians are saying about "saving" Social
Security.

 

[sgeeeee]

Good one. But I don't think so. Since I'm advocating making the decision
year by year, each year you can look at your own prospects for living long
(and prospering) and what the politicians are saying about "saving" Social
Security.

Yeah. I'm convinced that there is no advantage to making the Social Security benefit call early. The only thing I'm really confident about is that things are likely to look pretty different in 10 years when I reach age 62.

 

[bobbee25]

Is there any advanatage for the younger spouse in delaying ?

If I understand it correctly, if I pass away my spouses benefit is based on a percentage of what my benefit would have been at 66, regardless of when I started (62). However, I often see articles stating that there is a benefit to the spouse if I delay until 66.

 

[REWahoo]

Is there any advanatage for the younger spouse in delaying ?

If I understand it correctly, if I pass away my spouses benefit is based on a percentage of what my benefit would have been at 66, regardless of when I started (62). However, I often see articles stating that there is a benefit to the spouse if I delay until 66.

bobbee, when to take SS has been one of the most hotly contested popular topics on the forum. I suggest you use the search button and put in "delay SS" (be sure to enclose in quotations as I did). That will bring up several threads on the topic.

 

[bobbee25]

I looked at quite a few of those posts but didn't see a clean answer to the question I asked.

 

[REWahoo]

I looked at quite a few of those posts but didn't see a clean answer to the question I asked.

I'm not sure there really is a clean answer. Maybe this will help: http://tinyurl.com/83wug

...or this: http://early-retirement.org/forums/index.php?topic=8338.0

 

[d]

it seems that i too have seen both answers ... i'd suggest you go directly to soc.sec. to get the answer.

 

[OAG]

Sorry I put a couple of responses into the topic "At What Age will you take Social Security" which maybe would have been better placed here:

One is a direct quote to an email reply I received today from SSA regarding the ability to withdraw a application at age 66 that you submitted, and received benefits under, at age 62.

A second on is a bit on the tax impact of doing something this late.

 

[Cb]

Yeah. I'm convinced that there is no advantage to making the Social Security benefit call early. The only thing I'm really confident about is that things are likely to look pretty different in 10 years when I reach age 62.

Do you really think so? Looking back over the past 10, 20, 30 years I don't see much of a change having been imposed on those within 10 years of retirement. I think the likelihood of dramatic change for someone already 52 is pretty remote. You're nearly in the 55+ group that seems to be exempted from most of the SS proposals I've seen, and I can't imagine this administration or the next getting anything done before you're 55. They don't call it The Third Rail for nothing.

We're 46 & 47, and to be conservative I reduce our currrent SSA estimates by 75%, plan as though 100% our benefits will be subject to tax, and use a wage-growth escalator of only 2.5%.

Cb

 

[sgeeeee]

Do you really think so? Looking back over the past 10, 20, 30 years I don't see much of a change having been imposed on those within 10 years of retirement. I think the likelihood of dramatic change for someone already 52 is pretty remote. You're nearly in the 55+ group that seems to be exempted from most of the SS proposals I've seen, and I can't imagine this administration or the next getting anything done before you're 55. They don't call it The Third Rail for nothing.

We're 46 & 47, and to be conservative I reduce our currrent SSA estimates by 75%, plan as though 100% our benefits will be subject to tax, and use a wage-growth escalator of only 2.5%.

Cb

I don't think for a minute that social security benefits will go away. But we have seen changes in the benefit COLA calcualtion and the way social security gets taxed. I think we are likely to see more of that. But the other thing that may change for me in the next 10 years is the lifestyle and health of my wife and I. Right now we are both very healthy and spend about 1/3 of our time traveling, camping, doing volunteer archaeology work for various government agencies, etc.

In 10 years, if we are both still healthy & active and Washington has taken some action to secure social security benefits, I think we will be more likely to postpone benefits. This will insure that we receive a larger COLA'd benefit and helps insure against longevity risk.

In 10 years if we have health problems, have slowed down considerably and Washington is overrun with neo-cons who want to eliminate or reduce social security benefits, I think we will be more likely to take anything we can get as fast as we can.

So I see no advantage to deciding today what I am going to choose to do 10 years from now.

 

[TromboneAl]

What would be nice is a SS-Delay calculator on the web. You puts in your info, including an assumed rate of return on any money you take out as well as tax info, and you gets the expected payments with breakeven points and totals, etc.

Tried a search, but didn't find anything like this.

 

[Nords]

So I see no advantage to deciding today what I am going to choose to do 10 years from now.

I agree, but I appreciate the efforts of all the research ferrets who've identified the issues and helped me refine my thinking on them.

The best thing about this board is being able to explore all the paths without having to do a lot of personal backtracking.

 

[donheff]

doing volunteer archaeology work for various government agencies, etc.

Total hijack - but can you expand on that. It sounds interesting.

 

[New Thinking]

Why not look at the question of whether to delay SS in terms of SWRs ?

That might be one way to do it. But if you are married and you delay, you could be passing on a much, much larger benefit to your widow down the road. She/He then wouldn't need to take out as much withdrawals. Most are not using this logic in their thinking.

 

[Cb]

I don't think for a minute that social security benefits will go away. But we have seen changes in the benefit COLA calcualtion and the way social security gets taxed. I think we are likely to see more of that. But the other thing that may change for me in the next 10 years is the lifestyle and health of my wife and I. Right now we are both very healthy and spend about 1/3 of our time traveling, camping, doing volunteer archaeology work for various government agencies, etc.

In 10 years, if we are both still healthy & active and Washington has taken some action to secure social security benefits, I think we will be more likely to postpone benefits. This will insure that we receive a larger COLA'd benefit and helps insure against longevity risk.

In 10 years if we have health problems, have slowed down considerably and Washington is overrun with neo-cons who want to eliminate or reduce social security benefits, I think we will be more likely to take anything we can get as fast as we can.

So I see no advantage to deciding today what I am going to choose to do 10 years from now.

Gotcha...the way I interpreted your previous replay was that you thought SS would look dramatically different, not your personal situation.

That's pretty much my M.O....make no decision before you absolutely have to, if even then.

Cb

 

[REWahoo]

What would be nice is a SS-Delay calculator on the web. You puts in your info, including an assumed rate of return on any money you take out as well as tax info, and you gets the expected payments with breakeven points and totals, etc.

Tried a search, but didn't find anything like this.

Agreed. We discussed it here and so far New Thinking is the only poster who says that particular animal exists...

...I believe that the software we created is the only one in the country that does this all correctly. It gets very complicated as the information for all income needs to be precise. It is not available in a public domain and (as I posted a while back) we use to share the value of our "bridge" product.

Not sure you will recall mention of this software as it was buried in the flame war lively annuity dicussion surrounding the Prudential White Paper thread...

 

[sgeeeee]

Total hijack - but can you expand on that. It sounds interesting.

Hi donheff,

The most accessible government archaeology volunteer program is the Passport In Time (PIT) program -- http://www.passportintime.com/

These programs are run out of the USDA Forest Service. There are opportunities in forests all over the country. Some opportunities involve excavation, some involve survey and mapping, etc. The projects range from historic sites to paleolithic sites.

Many states have archaeology volunteer programs too, but they are all different. In Arizona we have a site steward program and once you get trained, you go visit archaeology sites to monitor vandalism, reduce errosion, post signs, etc.

After you've done this kind of work for long enough, you get to know a lot of archaeologists and find yourself involved in all kinds of projects.

 

[hogwild]

What would be nice is a SS-Delay calculator on the web. You puts in your info, including an assumed rate of return on any money you take out as well as tax info, and you gets the expected payments with breakeven points and totals, etc.

Tried a search, but didn't find anything like this.

This site has a free SS-delay calculator:

http://www.analyzenow.com/