Social Security - When to start benefits..

[Finance Dave]

Yeah, everything is easier if you know just when you are going to die. But nobody does, hence the use of actuary tables. Despite what age your grandparents lived to, all it takes is for one 18-wheeler to cross the centerline to mess up your calculations.

I sense sarcasm in your response. I'm sorry you feel you have to attack people that way.

I did not say that you needed to know when you were going to die. I think many people have an indication of whether they will live longer than the average. Do you have a lot of family ancestors that lived long lives? Do you have diabetes? Are you obese? Do you exercise regularly? Are you a smoker? Heavy drinker? The list goes on. Putting some thought to these things will give you an indication (not a guarantee) of whether you will live longer than the average, and therefore when you should take SS.

I did not think it was necessary to fully explain the above, but now I hope my post becomes more helpful.

 

[jclarksnakes]

What I got from the link the OP posted as it pertains to married couples:
1. Spouse with lower SS numbers should start taking SS early.
2. Spouse with higher numbers at full retirement age (66 to 67 for most of us) should start taking spousal benifit which is half of the amount the lower numbers spouse is drawing.
3. Spouse with higher numbers should switch to their own full SS at age 70.
4. Spouse that took SS early should then look at the numbers and decide whether to pay their benifits back and start over as if they had waited till 70.
Seems like the right plan for my DW and I. I find it interesting that so many married posters here are talking about a different path. Everyone has a different situation but I think people should more carefully consider what that link has to say on this subject.

 

[Free To Canoe]

It's right there on the SSA web site, where they describe the early/late options.


Yeah, everything is easier if you know just when you are going to die. But nobody does, hence the use of actuary tables. Despite what age your grandparents lived to, all it takes is for one 18-wheeler to cross the centerline to mess up your calculations.


First off, it's not a "return" at all, not real and not nominal. All it is is changing the timing of receiving the money. The present-value is the same. That's what "actuarially equivalent" means. You get the same total amount of money spread over fewer years, so of course the monthly amount is larger.
Second, it's not "guaranteed" at all. Congress can change it at any time -- as they have several times in the past. Anyway, it's already by law slated to be automatically cut by ~25% if/when SS collections run the trust fund dry.

I worked up a spreadsheet for early/late comparisons, using a couple of different methods. https://spreadsheets.google.com/ccc?key=0AlyWRtMroxvgdDI2MlY0UDR4WFRQRFE0Tkw0d19pTnc&hl=en
You can plug in your own assumptions & figures.

BTW, the SSA life-expectancy tables show an average age at death is about 83-84 years old. With the assumptions I used, 3% earnings rate and 2.8% COLA, the break-even age is 87. So, on average, you don't breakeven in your lifetime.
If you can earn 6%, the break-even age is 104.
A well-diversified portfolio of investment-grade bonds & preferred stocks can easily earn 6%. Mine is currently earning 7.4%.

Thanks for the spreadsheet. One thing I noticed is that it COLAs the benefit at the 62 amount (75%) when it starts. It goes on being COLAed for 4 years (at 2.8%) while the 100% amount stays at 100%. If this is valid, then by the time 66 years rolls around you are collecting about 84% of original and not 75%.

 

[Alan]

What I got from the link the OP posted as it pertains to married couples:
1. Spouse with lower SS numbers should start taking SS early.
2. Spouse with higher numbers at full retirement age (66 to 67 for most of us) should start taking spousal benifit which is half of the amount the lower numbers spouse is drawing.
3. Spouse with higher numbers should switch to their own full SS at age 70.
4. Spouse that took SS early should then look at the numbers and decide whether to pay their benifits back and start over as if they had waited till 70.
Seems like the right plan for my DW and I. I find it interesting that so many married posters here are talking about a different path. Everyone has a different situation but I think people should more carefully consider what that link has to say on this subject.

This is what we plan to do also.

Note that you can no longer do #4 and pay back your benefits. That loophole has since been closed by SS.

 

[jclarksnakes]

This is what we plan to do also.

Note that you can no longer do #4 and pay back your benefits. That loophole has since been closed by SS.

Thanks Alan, Taxes made it seem like a bad idea in our case anyway.

 

[Rustward]

Just for clarity, you still can do #4, but only within the first 12 months of receiving a benefit. I can think of a couple of cases in which this might make sense, and those would be unexpected events.

 

[Alan]

Thanks Alan, Taxes made it seem like a bad idea in our case anyway.

When that loophole was closed I confess that my immediate thought was, "Phew, one less scenario and calculation to worry about!"

 

[MichaelB]

When that loophole was closed I confess that my immediate thought was, "Phew, one less scenario and calculation to worry about!"

+1

Also fewer people [-]posting about[/-] running around telling others how to game the system.

 

[ziggy29]

One other potential consideration is that while many proposals to make SS a worse deal in the future would exempt folks over a certain age (usually 55), pretty much all of them would exempt people already collecting benefits. So if someone is on a "borderline" situation as to whether to take it now or delay it, getting in now would likely protect you from being screwed by future reforms.

 

[clifp]

Two comments. First, nothing is guaranteed, but a reduction in SS pension is a very low probability event. Second, the decision to delay is not to maximize return or break even but to minimize the risk of running out of money. That risk is real, and the value must be reflected in the choice.

Very important points. I think the primary reason to delay SS is to ensure that if you live to a ripe old age AND your investments/pension etc. don't do very well, that you have a decent income in your very old age. Many forum member don't really need SS to have a comfortable retirement as long as things (at either a national or personal level) don't go to hell and hand basket.

The thing that I am considering is that while I am certainly cocky enough to think I can make 4-5% real return at age 52, my confidence of being able to do at age 82 is much lower. Having watch my grandmother pay off the mortgage, and car of her handsome young financial adviser and make $100,000 donation to his sham charity, I have no illusions that I am immune to being duped. Heck if the girl is pretty enough, I may not even need to be suffering from dementia like Grandma was

So even if the total quantity of money maybe more for taking the SS early there is some advantages to having the certainty of larger check come in each month.


Frankly delaying SS is my preferred annuity choice by a country mile.

 

[jeffmete]

What I got from the link the OP posted as it pertains to married couples:
1. Spouse with lower SS numbers should start taking SS early.
2. Spouse with higher numbers at full retirement age (66 to 67 for most of us) should start taking spousal benifit which is half of the amount the lower numbers spouse is drawing.
3. Spouse with higher numbers should switch to their own full SS at age 70.
4. Spouse that took SS early should then look at the numbers and decide whether to pay their benifits back and start over as if they had waited till 70.
Seems like the right plan for my DW and I. I find it interesting that so many married posters here are talking about a different path. Everyone has a different situation but I think people should more carefully consider what that link has to say on this subject.

I don't want to keep harping on this. But again, all these calculations just deal with adding up dollars and don't talk about the current value of the money. As somebody posted earlier, if you do the calculations, for most scenarios you have to live well into your 80's to break even by postponing.

 

[Rustward]

One other potential consideration is that while many proposals to make SS a worse deal in the future would exempt folks over a certain age (usually 55), pretty much all of them would exempt people already collecting benefits. So if someone is on a "borderline" situation as to whether to take it now or delay it, getting in now would likely protect you from being screwed by future reforms.

Do you really think so? I don't.

SS is just full of "equalizers". Lower income worker, larger relative benefit. Take it early, get a smaller benefit. Take it later, get a larger benefit. Government Pension Offset. Windfall Elimination Provision.

I have to think that if some change affects those already eligible for a benefit, SS is going to "equalize" the change for those who have not started receiving a benefit with those who have already taken a benefit.

 

[ziggy29]

Do you really think so? I don't.

SS is just full of "equalizers". Lower income worker, larger relative benefit. Take it early, get a smaller benefit. Take it later, get a larger benefit. Government Pension Offset. Windfall Elimination Provision.

I have to think that if some change affects those already eligible for a benefit, SS is going to "equalize" the change for those who have not started receiving a benefit with those who have already taken a benefit.

No way they directly take benefits away from people already receiving them. They may do so indirectly through means testing -- greater taxation of benefits, increased means testing with respect to how much of it goes to Medicare and so on, but I feel confident that few in Washington would ever go on record supporting any SS reform that directly reduced the size of the monthly gross benefit people are already getting. They'll save that pain for us younger folks...

 

[Lsbcal]

This thread got me to thinking about our situation again. After running the tax scenarios, I'm thinking that it is nearly a wash. From the standpoint of keeping our Roth money growing, it is probably better to take SS early.

For sure, there are too many fine points in this to generalize. It is really up to individuals and couples to make the right decision.

Emotionally, I'm always trying to make savings grow. DW is a counterbalance as she wants it all now.

 

[rayvt]

I sense sarcasm in your response. I'm sorry you feel you have to attack people that way.

I did not say that you needed to know when you were going to die. I think many people have an indication of whether they will live longer than the average.

I wasn't being sarcastic, was trying to be realistic. We lived in an area of Chicago where there were a lot of gravel truck and cement trucks on smallish roads, and a lot of people in our towns were killed in accidents by the trucks over the years. Nothing says "bad day" like a gravel truck overturning during a left turn and dumping 20 tons of Illinois limestone on a couple of cars waiting at the light on the way to work. Every single one of those victims sincerely expected to live to a much older age.

The mortality tables include deaths for ALL reasons -- accidents, lung cancer, etc. as well as old age. Most everybody thinks that they'll life longer than the life expectancy, making the Lake Woebegone fallacy. You've got to be stone-cold realistic, and assume that you die at the average age.

 

[TromboneAl]

...the decision to delay is not to maximize return or break even but to minimize the risk of running out of money. That risk is real, and the value must be reflected in the choice.

This is important and simplifies everything. If you've saved enough to get you to age 70, and you're not trying to leave a lot for heirs, then there's no point in trying to maximize the money you get from SS. If you delay, die at 69, and get zero from SS, did you lose? No, because you're dead.

If your goal is to never run out of money, the game is simple: delay. You don't have to wonder how long you're going to live, or worry about rates of return and inflation.

If you need to deprive yourself to get to age 70 without SS, it's different, but few of us are in that boat.

 

[rayvt]

Thanks for the spreadsheet. One thing I noticed is that it COLAs the benefit at the 62 amount (75%) when it starts. It goes on being COLAed for 4 years (at 2.8%) while the 100% amount stays at 100%. If this is valid, then by the time 66 years rolls around you are collecting about 84% of original and not 75%.

Correct. See the note at J23. As I said, SSA is not clear, but I now think that by the time you get to 66 the actual benefit will have been COLA's upward from $1000 to $1117. So you'd plug that value into D15.

Trying to juggle all the different factors is difficult as it is. It's even harder when SSA is not clear about things like this.

 

[Lsbcal]

Correct. See the note at J23. As I said, SSA is not clear, but I now think that by the time you get to 66 the actual benefit will have been COLA's upward from $1000 to $1117. So you'd plug that value into D15.
...

The full retirement age benefit does get boosted by the SS inflation formula (which is a little unclear as to the exact method). See my post and Alan's post above. Roughly for the last 3 years that increase has been: 2.8%, 0.0%, and 3.6%.

 

[Khufu]

These discussions on on delaying SS always seem to fall into two camps: those who see the choice as an investment decision and those who see it as an insurance decision. Those who think investment proceed with a break-even analysis. But it is clear to me (and to the SSA) that SS is an insurance program. A break-even analysis is no more appropriate for SS decisions than it is for fire insurance on your home. (e.g. "If only I had one small kitchen fire I would recover all those premiums I have paid.") Therefore it doesn't matter if you delay SS and then die before receiving any SS benefits. That's because death is cheap--your own financial problems are decisively over. The normal rationale for buying insurance is to off-load to an insurance company a risk that you cannot afford to bear yourself. From this point of view, fire insurance is worthwhile for most people, but laptop insurance is probably not. The adverse financial outcome against which SS protects us is outliving our money, a dire outcome indeed. That consideration plus the fact that SS is actuarially fair, COLA'd, and has negligible operating overhead promote delaying SS as a cost-effective protection, by far the best available.

When I run my own analysis with Esplanner, which reflects inflation estimates along with the effects on RMDs and its tax implications, I come out ahead especially if I live a long life, but also if I die fairly soon. In fact, I benefit immediately even if don't live long, because locking in a higher future SS benefit enables me to spend my current assets at a slightly higher rate right now than otherwise.

As it happens I also have a strong legacy motivation because my wife is much younger than I. Even from this point of view delaying SS protects my legacy because I will not have to dip as deeply into assets to fund a longer life if that is how things turn out. Also, SS is itself inheritable, at least for the spouse.

I think a lot of the prejudice against delaying SS is the same resistance people have to buying an annuity even when it is shown to be mathematically advantageous. People irrationally value control, which they feel they would lose with an annuity. Companies take advantage of this irrationality when they entice prospective annuitants a lump sum payout that is not actuarially fair.

For married people, anyone who is motivated to leave a legacy, and those who are not obviously exposed to a significant medical risk, provided that they can fund their lifestyle until age 70, delaying SS would probably be better.

For those in this category, the only argument I can see against delaying would be if you thought the political risk to SS is substantial. I don't believe that myself, but the risk is certainly not zero.

 

[tightasadrum]

Well said, Khufu. That puts good logic to my choice to delay SS to sometime later. Not sure I'll want to wait until 70 though. We'll see. So far, so good.

 

[haha]

Heck if the girl is pretty enough, I may not even need to be suffering from dementia like Grandma was

When a woman is very attractive, all we men are at least temporarily demented. There is no real cure, but the best defense is to be aware that our brains cannot function during periods of heightened sexual interest, and to remind ourselves that acting on this feeling is likely to be costly.

Ha

 

[haha]

For married people, anyone who is motivated to leave a legacy, and those who are not obviously exposed to a significant medical risk, provided that they can fund their lifestyle until age 70, delaying SS would probably be better.

Good discussion, and it also is how I made my decision. One comment about medical risk- unless you are clearly on your way out, this can be misleading. My Dad had a number of medical conditions that were actuarily meaningful, but he lived into his late 80s in pretty fair health and died in his sleep. He was always thinking his time was limited, which in a very broad sense, it was. As are all of our times here on earth.

Ha

 

[Mulligan]

When a woman is very attractive, all we men are at least temporarily demented. There is no real cure, but the best defense is to be aware that our brains cannot function during periods of heightened sexual interest, and to remind ourselves that acting on this feeling is likely to be costly.

Ha

I hope I am smart enough if tempted, to remember to look in the mirror to remind myself no young pretty thing could me interested in me for my looks. When I head toward " dementiaville" that may no longer be the case though.

 

[gerntz]

Yes you can. Your reference pertains to those who are looking to supplement/replace their benefit with another. This is not the case.

Back to my situation (my wife/me same age - within a few months). My PIA amount is less than double of hers at age 66 (our FRA). There is no benefit for me to file & suspend at age 66 that she may receive a higher benefit.

When I file against her (50% of her PIA at age 66), I am going against her record alone - not a combination of records.

However, assuming I live till 70, claim my SS, and pass after that date since my total benefit will be much more than hers, she will get my full benefit amount when I pass. If I pass sometime between the ages of 66 - 70, she will claim a benefit equal to 100% of the benefit I would have received on the day before I passed.

I'm not understanding why it's important/relevant for the higher earner to wait till his/her FRA to apply for spousal benefits against the lower earner's record. Could someone explain? Thanks.

 

[Dave J]

I'm not understanding why it's important/relevant for the higher earner to wait till his/her FRA to apply for spousal benefits against the lower earner's record. Could someone explain? Thanks.

I believe that is the SS rule, you can not get it any earlier.