Taking Social Security at 62 - Point to Ponder

[Alan]

Spend down the accounts that belong to you and are in your own name, and depend on receiving SS money that you have no ownership of, and which can change considerably at the whim of Congress?
Especially when it is virtually certain that SS is going to have to change, because it is on shaky financial footing.

I think that the least dangerous course is to take the "free" money first, and spend down your own money later.

Right, your own investments are never going to go down in a shaky financial environment.

 

[MichaelB]

If you look at the Consumer Expenditure Survey, spending drops down significantly after age 75. Taking it earlier aligns your income more with your likely outgo.

I don't disagree with your post but do wonder one thing. The decline in spending is mirrored by a similar decline in income. Is this spending decline voluntary or is it the consequence of insufficient income?

 

[Katsmeow]

I don't disagree with your post but do wonder one thing. The decline in spending is mirrored by a similar decline in income. Is this spending decline voluntary or is it the consequence of insufficient income?

I could see 2 primary causes of reduced income. One, household size becomes smaller at older age because more 2 person households become one person households which results in one less SS.

The other thing for those people who have portfolio is that "income" is highly tied to how much spending one does during the year. That is, DH and I first spend income we receive outside the portfolio and then withdraw from the portfolio whatever we need to withdraw to make up the difference.

So if, for example, if DH and I each received $X in SS and we need another $30,000 income to meet our desired spending for the year then I would withdraw $30,000 from the tax-deferred portfolio. It might appear to someone else have that our income was "less" in that year than it was the year before when, say, we withdrew $40,000 from the tax-deferred portfolio. However, to us, in the second year we withdrew less not because we were running out of money but because our expenses that year happened to be less. It would be ludicrous to say that we had "insufficient income" in year 2 since our "income" is whatever we say it is based upon how much we chose to withdraw from the portfolio.

I've known a lot of family members who spent much less in late retirement and in their case it wasn't due to insufficient income so much as no desire to spend more. I've seen people who actually continue to build up money in the bank because they spend less than their SS and RMDs combined.

 

[mickeyd]

If you do not need the $ @ age 62 and you will live a long time~ Take the delay and the 8%.

 

[youbet]

I don't disagree with your post but do wonder one thing. The decline in spending is mirrored by a similar decline in income. Is this spending decline voluntary or is it the consequence of insufficient income?

I don't think there is much doubt that some older folks spend less as they age due to poverty driven by declining health, declining mental abilities and just plain old runnin' outa money. We've helped a couple of relatives of my parent's generation in just those kind of circumstances.

Most of the articles I read about the financial status of American seniors don't talk about geezers with pots of gold hidden unspent because they've lost interest in spending but rather talk about the financial plight of many seniors and the importance of continuing safety nets such as SS, Medicare, SNAP, rent subsidies, Medicaid, etc.

My guess is that if you identified the millions of Americans 75 or over who are living at or near the poverty level and gave them some additional income, many of them would choose to spend it and average spending for the overall group would increase.

Seems like it's probably a mixed bag between seniors with plenty of money choosing to spend less and seniors without money (say living on SS only having depleted savings) who would spend more if they had it.

 

[travelover]

...........
Seems like it's probably a mixed bag between seniors with plenty of money choosing to spend less and seniors without money (say living on SS only having depleted savings) who would spend more if they had it.

Exactly. It is a human foible to project that the rest of the 7 billion people on Earth are more or less like themselves, when in fact this forum represents a tiny tail of the overall distribution.

 

[youbet]

If you do not need the $ @ age 62 and you will live a long time~ Take the delay and the 8%.

Yeah, but that "If you will live a long time" part is hard to nail down! There are several planning areas I could do a better job with if I had that information!

 

[ERD50]

For me and DW, it is much more important NOT to be a financial burden on our kids should one of us live to a ripe old age rather than leave them an inheritance. Waiting on SS will accomplish that objective for us.

That's exactly why I plan to delay SS and even my pension as long as is feasible (TBD at the time).

It's also why I plan to budget for us to age 100 and beyond. Not that I'm expecting to live that long, just trying to plan in case it happens.

-ERD50

 

[clifp]

I don't think there is much doubt that some older folks spend less as they age due to poverty driven by declining health, declining mental abilities and just plain old runnin' outa money. We've helped a couple of relatives of my parent's generation in just those kind of circumstances.

Most of the articles I read about the financial status of American seniors don't talk about geezers with pots of gold hidden unspent because they've lost interest in spending but rather talk about the financial plight of many seniors and the importance of continuing safety nets such as SS, Medicare, SNAP, rent subsidies, Medicaid, etc.

My guess is that if you identified the millions of Americans 75 or over who are living at or near the poverty level and gave them some additional income, many of them would choose to spend it and average spending for the overall group would increase.

Seems like it's probably a mixed bag between seniors with plenty of money choosing to spend less and seniors without money (say living on SS only having depleted savings) who would spend more if they had it.

I tend to be suspicious of the census bureaus reporting of financial info, since the way they collect the info is through lengthy phone and in person interviews. Plenty of 75+ year old folks have trouble remembering what they had for dinner last night much less recalling how much money they spent for medicine last month.

I have little doubt that seniors have less desire to buy things as they age, that has been true for me for years. I expect to buying more services as I get older. In services, I'm including things like business class flying, because it is more painful to sit for 6 hours as you get older, meals prepared by others, etc. I think many seniors would spend more for services if they had the money and they weren't part of the greatest generation and still have memories of the depression.

For the poorest 25% of seniors Social Security represent 79% of their income, for the middle 50% 70% of their income. The remaining 20-30% comes from small pensions and depleting savings. There going to save that money for a some necessity down the road, not pay somebody someone to clean their house.

I also have observed that even affluent seniors tend really resistant to purchasing service. If a new refrig costs $1200, well that is what it costs. But if the fence he put up 30 years ago is falling down and he gets a quotes of $1,200 to replace, he'll think that is ridiculous $100 worth of lumber, paint, and hardware and I could do it myself. Of course at 80 he really can't.

 

[Katsmeow]

For the poorest 25% of seniors Social Security represent 79% of their income, for the middle 50% 70% of their income. The remaining 20-30% comes from small pensions and depleting savings. There going to save that money for a some necessity down the road, not pay somebody someone to clean their house.

The problem I have with numbers I see like that is that people who have portfolios, particularly tax deferred portfolios spend from SS first (plus of course any RMDs).

Let's say that you are a married couple and you have combined SS income of $50000. Let's make you age 69 so no RMDs yet. Your spending that you want to spend to be perfectly happy is $70,000. So you withdraw $20,000 from your IRA which is income to you. Total income is $70,000 of which 71% is SS. It sure looks like high dependence on SS. However, in reality you have a portfolio of $3,000,000 and you figure you could have safely withdrawn $120,000 in which case your income would have been $170,000 for the year and SS would have been a much smaller percentage.

 

[rayvt]

+1

I track my monthly draws religiously each month. My target draw this year (actual amounts are bogus, but the ratios are accurate) is $4000/mo and to date the actual average is $2900/mo. I'll have to draw $5100/mo for the last half of the year to hit my target.

And we both started taking SS at 62.

 

[imoldernu]

Googling

"Net Present Value Social Security"

brings up dozens of analytics by the financial community. Example:
http://www.forbes.com/sites/advisor/2013/03/22/what-is-the-present-value-of-your-social-security-benefits/
While many are self serving, the future dollar value calculation is presented with different presumptions of current situation, inflation, future needs, and in some cases more directly tailored to net worth. While never a "one size fits all" solution, looking at some more detailed projections tied to personal situations could make a significant difference over the long haul.

While we took SS @ 62, it was not a decision based on calculation, but need.
As it turned out, because of the higher interest rates at the time, 15 years ago, we are well ahead of the game, and it allowed us to minimize our taxes. Based on the rates for the past five years, the same savings would not apply. (CD rates)

[/URL]

 

[mickeyd]

Googling

"Net Present Value Social Security"

brings up dozens of analytics by the financial community. Example:
What Is The Present Value Of Your Social Security Benefits? - Forbes
While many are self serving, the future dollar value calculation is presented with different presumptions of current situation, inflation, future needs, and in some cases more directly tailored to net worth. While never a "one size fits all" solution, looking at some more detailed projections tied to personal situations could make a significant difference over the long haul.

While we took SS @ 62, it was not a decision based on calculation, but need.
As it turned out, because of the higher interest rates at the time, 15 years ago, we are well ahead of the game, and it allowed us to minimize our taxes. Based on the rates for the past five years, the same savings would not apply. (CD rates)

[/URL]

That's a really dramatic snapshot of CD rates over that last few years. Makes me doubly glad that I did not take SS early or @ 66 and stash it in a CD. Instead I am delaying until age 70 and cranking up my future payout 8% annually for four years.

 

[youbet]

That's a really dramatic snapshot of CD rates over that last few years. Makes me doubly glad that I did not take SS early or @ 66 and stash it in a CD. Instead I am delaying until age 70 and cranking up my future payout 8% annually for four years.

It hasn't been too bad a time for buying into the TSM every month though..........