Stern Advice: New services help boomers max out Social Security

[SumDay]

There are a numbers of reasons why Social Security optimization is a new trend. The retirement program's rules are complex, allowing for a variety of claiming strategies. The boomer generation is the first to have dual-income households for most of its working years, so spouses have more options for coordinating benefits. Members are being told to delay drawing on them as long as possible, even while many people are being forced into early retirement. And the Internet's ability to present sophisticated analytics and optimizing algorithms makes these strategies a numbers game for anyone who wants to play.

Full article:

New services help boomers max out Social Security - CNBC

I know I've seen this discussed on here before, but thought I'd post since this was all over the place yesterday. Anyone taken advantage of this? Our FP suggested waiting a few more years before we avail ourselves of this service.

 

[grasshopper]

I will be 62 soon, I used the $19.95 version at Social Security Solutions. and got a plan that works for me.

 

[Chuckanut]

I will be 62 soon, I used the $19.95 version at Social Security Solutions. and got a plan that works for me.

This could be a good deal. It seems to me that most of the complications and confusion occur with married couples especially when both worked. Single people seem to have easier choices. Or am I missing something?

 

[pb4uski]

This could be a good deal. It seems to me that most of the complications and confusion occur with married couples especially when both worked. Single people seem to have easier choices. Or am I missing something?

My understanding is that for singles that the payments are supposed to be actuarially equivalent so a single person should be indifferent. However, it seems that the growth of payouts are the same for single men as for single women. Since women generally outlive men I would think it would be advantageous for women to draw early but I've never seen anything on it.

 

[MasterBlaster]

My understanding is that for singles that the payments are supposed to be actuarially equivalent so a single person should be indifferent. However, it seems that the growth of payouts are the same for single men as for single women. Since women generally outlive men I would think it would be advantageous for women to draw early but I've never seen anything on it.

The other issue for married couples is the taxation of social security income depending on your provisional and other income. Also, depending on your (dual) incomes, your respective ages, years worked, and survivorship options it can get a bit tricky optimizing your after tax expected joint payout.

 

[grasshopper]

This could be a good deal. It seems to me that most of the complications and confusion occur with married couples especially when both worked. Single people seem to have easier choices. Or am I missing something?

Sorry, yes figured a plan for Ms G and I.

 

[Finance Dave]

This could be a good deal. It seems to me that most of the complications and confusion occur with married couples especially when both worked. Single people seem to have easier choices. Or am I missing something?

I agree. And if the spouses both make incomes not exponentially different, then it's even more complex. If one spouse makes $200k/year for their life and the other works PT minimum wage...it's easier to figure than our situation...where I make about 30% more than my DW. We're still 12-15 years from SS, so not yet paying for any analysis of what works best...but likely will when we get closer.

 

[Khufu]

My understanding is that for singles that the payments are supposed to be actuarially equivalent so a single person should be indifferent. However, it seems that the growth of payouts are the same for single men as for single women. Since women generally outlive men I would think it would be advantageous for women to draw early but I've never seen anything on it.

Not really true. It is true that if you live the average life expectancy for a SS benefit recipient then the amount you collect whether you start at Full Retirement Age or delay and earn Delayed Retirement Credits should be the same. This means that there is no cost for allowing DRCs to the SSA. However, the individual recipient is not exactly "indifferent" since by delaying he gets more insurance, meaning that he has greater protection against the costs of living longer than expected. The increase in insurance is a benefit even if the recipient dies before he collects a dime. This is because insurance relieves you of the necessity of self-insuring by increasing savings. So, if your car is necessary for your livelihood and you can't get car insurance then you have to keep the price of a new car in savings.

This is another way of saying that applying a break-even analysis to the decision to delay SS is the wrong analysis, since it is insurance, not an investment.

 

[haha]

Not really true. It is true that if you live the average life expectancy for a SS benefit recipient then the amount you collect whether you start at Full Retirement Age or delay and earn Delayed Retirement Credits should be the same.

Even looked at as an investment, it is a win for a woman to wait, since the actuarial data is sex neutral, but women as a class live quite a bit longer.

Ha

 

[growing_older]

Since women generally outlive men I would think it would be advantageous for women to draw early but I've never seen anything on it.

That's backwards. Since women live longer, they will (on average) beat the sex neutral life expectancy tables and do better by delaying and getting a larger payout for their (unexpectedly long) lifetime.

It is still the case that individual variation will be what matters to any individual taking or delaying their own individual social security.

 

[pb4uski]

...This is another way of saying that applying a break-even analysis to the decision to delay SS is the wrong analysis, since it is insurance, not an investment.

While I agree that SS is insurance, the decision whether to take at 62, FRA or 70 is more similar to an investment decision - what matters is expected present value of the cash flows of each alternative decision.

 

[haha]

While I agree that SS is insurance, the decision whether to take at 62, FRA or 70 is more similar to an investment decision - what matters is expected present value of the cash flows of each alternative decision.

It may be what matters to you, but there are other equally or more valid ways of framing it. Unles you are so wealthy and so confident of your abilities that you absolutely do not want longevity insurance, for anyone except someone who is terminally ill the deal is to wait.

Ha

 

[gerntz]

Just went to local SS office earlier in week to discuss options. DW is 65.5 & will start to take her benefits (well lower than mine) for Dec this year (Actually comes in Jan so counts as 2013 income) . Meanwhile, when I hit FRA (after her), I'll start taking spousal benefits from her (Was told I can't do earlier b/c my own benefit is larger) till I decide to take my benefit. Right now my plan is to wait till 70, but that could change. She'll then switch over to 1/2 my FRA which is aobut $100 more than her benefit.

 

[pb4uski]

It may be what matters to you, but there are other equally or more valid ways of framing it. Unles you are so wealthy and so confident of your abilities that you absolutely do not want longevity insurance, for anyone except someone who is terminally ill the deal is to wait.

Ha

You're preaching to the choir Ha. There is longevity in my family so I am planning to wait, but the reason is that is the alternative that I believe results in the highest expected present value.

 

[mathjak107]

Even looked at as an investment, it is a win for a woman to wait, since the actuarial data is sex neutral, but women as a class live quite a bit longer.

Ha

thats because with men our wedding vows of until death do us part arent as much a wedding vow as they are a goal lol

 

[grasshopper]

thats because with men our wedding vows of until death do us part arent as much a wedding vow as a goal lol

Thank you, what line made my day. I will send it to Ms G's mail box.

 

[MooreBonds]

It may be what matters to you, but there are other equally or more valid ways of framing it. Unles you are so wealthy and so confident of your abilities that you absolutely do not want longevity insurance, for anyone except someone who is terminally ill the deal is to wait.

Ha

Well, with the growing field of delayed annuities/longevity insurance, it could add another variable in the complex equation mix to possibly make an argument for taking SS early or at FRA while simultaneously forking over a lump sum for longevity insurance (payable starting at 80/85), and be 'better off', depending on the numbers involved...although you are hoping inflation doesn't increase dramatically over the next 20-30 years with the fixed delayed annuity.

 

[Khufu]

While I agree that SS is insurance, the decision whether to take at 62, FRA or 70 is more similar to an investment decision - what matters is expected present value of the cash flows of each alternative decision.

Not correct. What matters is can you afford to take the risk? That's why it remains an insurance question like, "Can I afford to replace my house if it burns down and I don't have fire insurance?" It's always cheaper not to buy insurance at least in the short term, but if you cannot afford to self-insure (and most retirees cannot) then it is not a prudent decision.

I notice in these discussions those who announce their intention to start SS benefits at 62, never provide us with their plan to fund their cost of living if they unexpectedly live to 102, for instance. That tells me that they do not understand what it means to self-insure in this context.

 

[youbet]

I notice in these discussions those who announce their intention to start SS benefits at 62, never provide us with their plan to fund their cost of living if they unexpectedly live to 102, for instance.

That's not true. (Bold mine.) Perhaps you've only read a sampling of the posts.

 

[mathjak107]

Not correct. What matters is can you afford to take the risk? That's why it remains an insurance question like, "Can I afford to replace my house if it burns down and I don't have fire insurance?" It's always cheaper not to buy insurance at least in the short term, but if you cannot afford to self-insure (and most retirees cannot) then it is not a prudent decision.

I notice in these discussions those who announce their intention to start SS benefits at 62, never provide us with their plan to fund their cost of living if they unexpectedly live to 102, for instance. That tells me that they do not understand what it means to self-insure in this context.

the reality is most married couples shoot themselves in the foot when they have a choice taking it early or later.


few are able to get those returns on their own and one member of a couple usually makes it well past break even .


the damage done to survivor benefits is huge by filing at 62 especially if your spouse is younger and they will need to file before full retirement age if you die.


a widow who has a husband who files at 62 and dies shortly after and she herself is forced to file at 60 gets a double cut of about 1/3 off what the husbands full retirement benefit would have been had he waited to file,then because she herself has to file early she is hit again with another almost 1/3 cut from the already cut amount and that stays for life.
a surviving spouse can be left with a fraction of the benefits to carry on with.


way to much thought goes into the what if i die scenerio and not enough into the what if one of us lives scenerio.

the truth is like any insurance if you have a choice the only couples that should take it early are those that can really self-insure in case one of them beats methuslas record.

the opposite usually is true , those that can least afford to take it early end up being those that do.


some either have to because of illness or lack of a job or when they have a choice they get the what if i die scenerio in their head and subject the surviving spouse to a low low benefit.


singles are no problem if they want to take it early but couples really need to think good,long and hard at the effects.

 

[growing_older]

Originally Posted by pb4uski
While I agree that SS is insurance, the decision whether to take at 62, FRA or 70 is more similar to an investment decision - what matters is expected present value of the cash flows of each alternative decision.

I don't think this is a fully accurate way to look at the question. If you had a large community of potential recipients, and they all planned to share whatever they received, then perhaps this analysis would make sense, but most people are not in that situation. Even those who plan to leave some legacy generally do not value money they intend to leave behind equally to money they plan to use for themselves.

For me, the key consideration is the cost/benefit analysis of the various scenarios. For example, if I take my SS early, but then I die early, I have a small benefit of receiving at least something, but it is very small since I had more than enough money saved in anticipation of a long retirement that didn't happen. If I plan to take my SS late but I end up dying early, then I have a small loss of not getting as much SS, but since I had enough to live on from my savings and am dead, I don't miss the loss. If I take my SS early and end up living a long long time, then I have put myself in a position where I could run low of funds and my SS is less than it could have been. Potentially a large cost. If I take my SS late and I end up living a long long time, then I am getting the max benefit that I could in the situation where I might need the max benefit, potentially a large advantage.

What this tells me is that I avoid a large cost and gain a large advantage in the scenarios where I take SS late. In the scenarios where I take SS early I risk incurring the large cost and have potential for a small gain, but the only benefit of that (small) gain is to heirs since I have to die to get it. Consideration of each specific scenario and cost/benefit of each matters because I care more about results when I am living than I do about results where I am dead. The absolute size of the dollars received is outweighed by the utility of those dollars in each of the scenarios.

 

[rescueme]

(snip)...I care more about results when I am living than I do about results where I am dead.

+1

For me/DW, that's the most important artifact of the decision on when to file, with our personal situation.

 

[pb4uski]

Not correct. What matters is can you afford to take the risk? That's why it remains an insurance question like, "Can I afford to replace my house if it burns down and I don't have fire insurance?" It's always cheaper not to buy insurance at least in the short term, but if you cannot afford to self-insure (and most retirees cannot) then it is not a prudent decision. ......

I don't think this is a fully accurate way to look at the question. ......

I suppose we'll just agree to disagree.

BTW, I plan to take SS at age 70 since there is longevity in my family. As a result of that longevity, taking SS at age 70 results in the highest expected present value for me (compared to taking SS at 62 or FRA). If my health was poor or my family longevity was poor, I would take SS earlier because that would have a higher expected present value than taking SS at 70.

 

[growing_older]

If my health was poor or my family longevity was poor, I would take SS earlier

Agreement!

 

[pb4uski]

Just curious - why did you leave the

because that would have a higher expected present value than taking SS at 70

off?