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Social Security~ Pays to delay says Scott Burns
Old 10-01-2006, 03:27 PM   #1
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Social Security~ Pays to delay says Scott Burns

I thought that Scott's analysis of how much a person is rewarded when they delay starting SS until later on was right on the money. If you do not need the monthly cash to live on, you should consider delaying it as long as possible if you understand the possible negative aspects of your desision.

I wonder how Scott gets "My Social Security representative?" Do we all get one or do we have to share?

The opportunity is very simple. You don't have to make bets on the economy, future corporate earnings or the direction of the yen, euro or renminbi. Nor do you need insight into the direction of natural gas prices or interest rates.

Just defer taking your Social Security benefits.

Each month of deferral will increase your benefits by a small amount. But the increases add up. And there isn't an investment anywhere in the world that will deliver as high a "return" with no risk.

Needless to say, this option isn't available to everyone. Many men take their benefits early because they simply don't have a choice. They need the cash.




http://www.dallasnews.com/sharedcont...1.317990e.html
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Re: Social Security~ Pays to delay says Scott Burns
Old 10-01-2006, 07:23 PM   #2
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Re: Social Security~ Pays to delay says Scott Burns

This was a no-brainer for me. A) I need the cash........ and B) I don't believe in counting on being around to collect in the future (I may be I just don't plan on it). That is completely alien to how I
live. Thus, I signed up in July. First check due 11-08-06. BTW, I would
follow this procedure even if the "discount" from full benefits was more
than 25% (the reduction at my age level).

JG
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Re: Social Security~ Pays to delay says Scott Burns
Old 10-01-2006, 07:57 PM   #3
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Re: Social Security~ Pays to delay says Scott Burns

Per the article "And there isn't an investment anywhere in the world that will deliver as high a "return" with no risk."

Did he forget the risk of dying before you collect your first check? Or is that not a risk?

Maybe I just have known too many people that have decided to wait and died in the meanwhile before enjoying any benefits.

Sometimes the widow makes out since she can take over what would have been his benefits if her benefits are not higher.

Sometimes the government wins when the guy is not married and it all stays in the government pot.

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Re: Social Security~ Pays to delay says Scott Burns
Old 10-01-2006, 09:19 PM   #4
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Re: Social Security~ Pays to delay says Scott Burns

Quote:
Originally Posted by retire@40
Per the article "And there isn't an investment anywhere in the world that will deliver as high a "return" with no risk."
Did he forget the risk of dying before you collect your first check? Or is that not a risk?
To my way of thinking at least, that is not a risk. You are seeking financial insurance against running out of money as you age. If you are dead, problem solved!

Ha
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Re: Social Security~ Pays to delay says Scott Burns
Old 10-01-2006, 09:27 PM   #5
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Re: Social Security~ Pays to delay says Scott Burns

Quote:
Originally Posted by HaHa
To my way of thinking at least, that is not a risk. You are seeking financial insurance against running out of money as you age. If you are dead, problem solved!

Ha
Yes, but there is a risk that the 70 year old version of you will not be healthy enough to enjoy the social security benefit as much as the 62 year old version of you. There is also a risk that tax and beneift rules become less generous as time progresses.
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Re: Social Security~ Pays to delay says Scott Burns
Old 10-02-2006, 04:07 AM   #6
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Re: Social Security~ Pays to delay says Scott Burns

After running the numbers many times with many different scenerios for us 62 is the choice. Although we could get a bigger monthly draw by waiting we probley wouldnt spend more as our expenses are already set.

The fact was on about a 2 million dollar portfolio to start the best calculation of waiting to 65 gave us about 50,000 bucks extra at the end of both our lives in the estate. Thats figuring all investments in the case of taking it early, and spending our investments in the early years before ss kicks in ,in the case of taking it later.

50,000 bucks in 30 + years will be worth what 5000.00 is today. Certainly not waiting for and playing the ill beat the system game by living longer.

We want to figure the ss money right from day 1 in our plans
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Re: Social Security~ Pays to delay says Scott Burns
Old 10-02-2006, 04:59 AM   #7
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Re: Social Security~ Pays to delay says Scott Burns

I was surprised he didn't run the numbers on taking the $$$ early and investing all of those SS payments.

Using his numbers, if you started taking the payments at 62 and invested them all with a modest 5.6% annual return, you'd have about $141,000 extra after the 54 months.

If you then switch to drawing the interest only from that $141,000, combined with your reduced SS payment, the net would be the same as if you waited for the higher SS payments. AND you (or your heirs) would have the $141,000 principal.

Anyone in a (financial) position to wait is probably also in a financial position to invest the early payments, and to take the risk that 5.6% won't be attainable.
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Re: Social Security~ Pays to delay says Scott Burns
Old 10-02-2006, 05:26 AM   #8
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Re: Social Security~ Pays to delay says Scott Burns

Quote:
Originally Posted by dory36
I was surprised he didn't run the numbers on taking the $$$ early and investing all of those SS payments.
What I've not yet been able to wrap my mind around are the tax consequences of taking SS at 62 vs delaying until 66 or later. In Burn's and your example, how much of that $141,000 and $50/month would be eroded by higher taxes on your SS income?

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Re: Social Security~ Pays to delay says Scott Burns
Old 10-02-2006, 05:43 AM   #9
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Re: Social Security~ Pays to delay says Scott Burns

Oops - forget that $50 -- it was a leftover from an earlier calculation. At 6%, you'd have $150,000 and $50 a month more than if you waited. At 5.6%, you break even.

The $50 comment (since edited out) was a leftover...

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Re: Social Security~ Pays to delay says Scott Burns
Old 10-02-2006, 05:51 AM   #10
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Re: Social Security~ Pays to delay says Scott Burns

Dory - you are right on. 5.6% return is the current LOW of the past 15 years for safe, insured, savings.

REWahoo - Don't forget inflation but even if you ignore it for a minute do not forget taxes and Medicare. I'm 66 and taxes and MC take fully 25% out of the benefit.

Take the money and run is the only way -- besides I think it is 2017 or some time about that when SS will be receiving less annually than the annual payout. I think it is written in the last big study group and congressional law that whenever the payout exceeds the intake (in just pure dollars (no vodoo stuff)) that the rate of benefits CAN BE reduced (reverse COLA?). I doubt that that will ever happen, but I am old enough, to never say never.
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Re: Social Security~ Pays to delay says Scott Burns
Old 10-02-2006, 06:10 AM   #11
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Re: Social Security~ Pays to delay says Scott Burns

Quote:
Originally Posted by Old Army Guy

Take the money and run is the only way
Couldn't disagree more.

It might be best for your set of circumstances, but there are certainly other scenarios where it is far better to wait til full retirement age or even age 70.

My suggestion would to be to read the thoughts of Henry Hebeler on analyzenow.com before making a decision one way or the other. He agrees with Burns.
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Re: Social Security~ Pays to delay says Scott Burns
Old 10-02-2006, 06:22 AM   #12
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Re: Social Security~ Pays to delay says Scott Burns

jeff2006 -- Sorry, went back and read my post, should have added "For us it was" take the money and run. I can see where one size does not fit all.
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Re: Social Security~ Pays to delay says Scott Burns
Old 10-02-2006, 06:54 AM   #13
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Re: Social Security~ Pays to delay says Scott Burns

For jeff2006 and old armyguy...........

Any issue can be debated of course, and the scope of opinion is
unlimited on any subject (part of what makes this forum so interesting).
On this issue, for many of us it's a "gut call" and thus no reading
or number crunching is necessary. If you don't plan/expect to be here
or functional at age 70, why would you wait? In my own case, I almost
never follow the advice of others anyway.

JG
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Re: Social Security~ Pays to delay says Scott Burns
Old 10-02-2006, 08:44 AM   #14
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Re: Social Security~ Pays to delay says Scott Burns

RE:
Quote:
What I've not yet been able to wrap my mind around are the tax consequences of taking SS at 62 vs delaying until 66 or later. In Burn's and your example, how much of that $141,000 and $50/month would be eroded by higher taxes on your SS income?
I shared this with the board before and someone had posted a link to the white paper I wrote on this. The tax benefits for delaying SS are signficant for many andd have been posted about many times here. But delaying SS has a dramatic effect...By "trading" IRA income for higher SS income, a double benefit often appears. First, the IRA dollar is gone, so no tax there. Then, SS isn't taxable at the same level because the IRA dollar disappeared. SS goes into the "Provisional Income formula" at a better rate and thus SS often will often escape taxation....

I am cutting and pasting here (so hope it looks okay), but here is how it might work after age 70 between taking an IRA dollar (because SS is taken early) which forces the taxation of a SS dollar and comparing to taking an SS dollar (due to delaying SS).

How combined IRA income and Social Security income is taxed:
IRA Income $1
Tax Rate x 25%
IRA Tax (A) = .25

PLUS

Additional Social Security Subject to Tax $1
% of Social Security Income Subject to Taxes x 85%
Taxable Social Security Income = .85
Tax Rate x 25%
Social Security Tax (B) = .2125

Total Tax in Cents (A + B): = .4625
Total Tax in Percentage: OR 46.25%


VERSUS

How every dollar of “delayed” Social Security income is taxed:
Social Security Income $1
Combined Income Formula x 50% = .50
% of Social Security Income Subject to Taxes x 85%
Taxable Social Security Income = .425
Tax Rate x 25%
Social Security Tax = .1062
Total Tax in Cents: = .1062
Total Tax in Percentage: OR 10.62%


It actually works out more favorably for many, but this is part of the equation. The reason it works out even more favorably is that the "test" for taxation of SS is the least of the formulas. One of those pieces says that the tax is due on "50% of the first threshold ($32k for married/$25k for singles) plus 35% of the excess over the second threshold." Thus, as SS counts in the Provisional Income formula at a 50% rate, one could take $64,000 of SS without triggering any SS taxation because you haven't reached the first threshold. (And this ignores deductions, credits, etc. )Figure in state tax and the story gets better for delaying. Again, not intuitive but beneficial when you realize how much more of your retirement income one can keep by lowering the effects of the "Tax Torpedo" Burns writes about.
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Re: Social Security~ Pays to delay says Scott Burns
Old 10-02-2006, 12:55 PM   #15
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Re: Social Security~ Pays to delay says Scott Burns

as the previous posts suggest, there's not one right answer on this one. it depends on marital status, health (of both), availability of other funds, tax status of those funds, etc. etc. etc. and, to throw a real money wrench into it, future tax treatment of s.s. and of iras
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Re: Social Security~ Pays to delay says Scott Burns
Old 10-02-2006, 03:02 PM   #16
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Re: Social Security~ Pays to delay says Scott Burns

Quote:
Originally Posted by New Thinking
Thus, as SS counts in the Provisional Income formula at a 50% rate, one could take $64,000 of SS without triggering any SS taxation because you haven't reached the first threshold.
This would only be true if you had no other AGI or municipal bond income. Is that what you are assuming?
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Re: Social Security~ Pays to delay says Scott Burns
Old 10-02-2006, 07:56 PM   #17
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Re: Social Security~ Pays to delay says Scott Burns

No - It is always true..SS always counts at a 50% rate in the formula. Don't be confused that up to 50% of SS can be taxed..That is a secondary part of the equation.
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Re: Social Security~ Pays to delay says Scott Burns
Old 10-02-2006, 08:59 PM   #18
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Re: Social Security~ Pays to delay says Scott Burns

Quote:
Originally Posted by New Thinking
No - It is always true..SS always counts at a 50% rate in the formula. Don't be confused that up to 50% of SS can be taxed..That is a secondary part of the equation.
As I understand it, Provisonal Income is all your other income (including muni's) plus 50% of SS. If your Provisional Income is over 32K, some of your SS benefits will be included in your AGI and may be taxed depending on your deductions/exemptions.

Take your example of a couple with 64K of SS income. Assume they have 12K of other income and take the standard deduction plus 2 exemptions:

Provisonal Income = other income + 0.5*SS = 12K + 32K = 44K

Taxable SS is 50% of the amount of Provisional Income over 32K which = 6K

AGI = 12K + 6K = 18K

Taxable Income = AGI - std ded - exemptions = 18K - 10.3K - 6.6K = 1.1K

Tax = $110

If your Provisional Income goes above 44K, then 85% of the Provisonal Income over 44K is added to your AGI, up to 85% of your SS.
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Re: Social Security~ Pays to delay says Scott Burns
Old 10-02-2006, 10:38 PM   #19
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Re: Social Security~ Pays to delay says Scott Burns

Here is a calculation that does not consider taxes.
Assumptions:
Age in 2005: 55
Income 2005: 75,000

Age 62 66 70
initial benefits: 15,919 21,226 28,018

Age Cumulative amount at 6% return
70 $182,930.26 $119,652.94 $28,018.00
75 $334,538.83 $279,775.55 $195,434.47
80 $537,425.31 $494,055.74 $419,475.48
85 $808,933.18 $780,810.96 $719,292.89
90 $1,172,271.95 $1,164,554.13 $1,120,516.22
95 $1,658,501.19 $1,678,089.06 $1,657,443.53
100 $2,309,185.59 $2,365,314.64 $2,375,973.40

Taking benefits at 62 seems to be a better deal especially the average life expectancy is 80. Obviously the amount will be significantly lower after taxes.
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Re: Social Security~ Pays to delay says Scott Burns
Old 10-03-2006, 08:28 AM   #20
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Re: Social Security~ Pays to delay says Scott Burns

Fire'd - I was only answering the first part of your question and wasn't clear to you. My bad. Yes, you appear to have it..The "other income" drives the Provisional Income up. I was saying that you could have $64,000 of SS income and no other income without triggering the tax (and this ignores the standard deductions and exemptions).
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