Theory Behind taking Social Security Early?

[FI_RElater]

I can't answer OP's question, but here's our plan and reason.

Plan: Grab early and go!

Reason: DW was a SAHM and is a few years older than me. Under the SSI reforms of 2016, there is no "File and Suspend" option. Ergo, not a dime for her until I file (or die). I ran an analysis not long ago. Our break even point is mid 80's for me and late 80's for her. F that! DW has a few health issues that will only worsen with age and I'm already a member of the myocardial infarction club.

As some of the more sage* members have stated, it's very personal. Hey... what's the best color??!!



*I am not sage - - - more like parsley.

Red, it’s “thyme”
for you, it appears that you might meet the conditions that suggest early claiming...notably health conditions

for us, both having about the same PIA , with mine only marginally lower, we will probably claim mine at Jan of year past FRA ( to maximize credits and have credits immediately resulting in benefits) { could also wait until 70, if we wanted} and for the other to wait until 70 for maximum survivor benefits

this will be revisited each year, and I always have the choice to claim that year rather than deplete the taxable/IRA, which goes to the surviving spouse

{yep, also was too young for “file and suspend”, just like when pension formula was changed for the worse.... but we’re also only drawing under 2% in retirement now ( without SS) }

 

[6miths]

If your FA is paid by AUM, then you will be spending your SS money instead of your AUM. More $$ for him/her, I plan to take at 70, with DW applying just before she turns 65 for her own benefits, so she can have Medicare taken out of her check. DW is older and has a lower benefit than I.

Folks I think we have our winner!

 

[LXEX55]

I really like this answer

In the overall scope of things I don’t think it really effects much. Sure if you take it at 62 it’s a lower payment, but the break even point is a long ways out. Usually around age 82. Feeling lucky? Then wait.

I say there are many “fun advantages to taking early”. Perhaps you have a job you are miserable in, perhaps you are financially comfortable...take it and have fun. It’s the sure thing. So what if you wait and your monthly check is a few hundred higher? You probably won’t be in condition to have fun with it anyway.

I know way to many who told me they were waiting to get the bigger check who skimped and croaked not long after starting it. Ugh, always thought what a shame.

I love this answer. I truly do. Thanks so much for clarifying my thinking. I salute your simple eloquence. Live long.

 

[kaneohe]

A possible way to look at this issue: assume both E and L have enough assets to live on whether they claim SS or not.
1) E claims at 62 and gets reduced benefit
2) L claims at 70 and get enhanced benefit.

They both invest the proceeds of SS but pay the taxes, if any, due from the
SS proceeds. They also pay the taxes from the investment from the SS proceeds. The variables then are the marginal tax rate for the SS income and the investment return(which is different from the marginal rate when adding ordinary income), and the investment return rate. Calculate the crossover point where the after tax value of L overtakes E. This is not solely the proceeds of SS but how much E can grow them with his head start.

This crossover point will vary w/ the assumptions chosen and so could be different for different folks. Decide where expected life is with respect to
crossover point. Realize that you don't know anything w/ certainty here including life expectancy, tax rates,investment return.

Retiring now........homework for the spreadsheet folks.

 

[mountainsoft]

Will the market go up or down? Will I live to 70 or 90? Either way, nobody knows for sure. All this stuff about break even points and decreased benefits doesn't matter much to me. The way I look at it, if you need the money take SS at 62. If you don't, wait until you need it.

I've run our numbers in Flexible Retirement Planner and find my portfolio actually does better if we claim at 62 instead of 67. Waiting to claim SS means we are spending down our savings further. If you have a huge savings that may not be an issue, but for us there's a point where our savings gets uncomfortably low by waiting to claim SS. So, our plan is to claim at 62, but we'll wait and reevaluate when the time comes. If our savings is in good shape, we'll wait for SS. If not, we'll start our benefits.

 

[joeea]

In the overall scope of things I don’t think it really effects much. Sure if you take it at 62 it’s a lower payment, but the break even point is a long ways out. Usually around age 82. Feeling lucky? Then wait.

I say there are many “fun advantages to taking early”. Perhaps you have a job you are miserable in, perhaps you are financially comfortable...take it and have fun. It’s the sure thing. So what if you wait and your monthly check is a few hundred higher? You probably won’t be in condition to have fun with it anyway.

I know way to many who told me they were waiting to get the bigger check who skimped and croaked not long after starting it. Ugh, always thought what a shame.

YOLO!

 

[donheff]

These social security threads solidify my faith in mankind. None of us need ever be bored or lonesome, we can always come to ER.org and find an active argument about when to take SS.

Ha

I feel compelled to read these SS timing threads just for amusement. I don't even qualify for SS.

 

[Independent]

In the overall scope of things I don’t think it really effects much. Sure if you take it at 62 it’s a lower payment, but the break even point is a long ways out. Usually around age 82. Feeling lucky? Then wait.

I say there are many “fun advantages to taking early”. Perhaps you have a job you are miserable in, perhaps you are financially comfortable...take it and have fun. It’s the sure thing. So what if you wait and your monthly check is a few hundred higher? You probably won’t be in condition to have fun with it anyway.

I know way to many who told me they were waiting to get the bigger check who skimped and croaked not long after starting it. Ugh, always thought what a shame.

I agree that for many people here, the difference between sooner and later isn't a really big deal.

But, then you say that taking it earlier allows people to have more fun. Why?
People with adequate assets who want to spend money on fun stuff at 62 can do that by withdrawing from their savings just as easily as by taking SS.

Maybe you're thinking about people who don't have enough assets to have that option.

 

[Rianne]

I always read SS threads. There's usually a unique way to look at taking early or waiting, a tidbit of wisdom, if you like, that didn't show up in the hundreds, if not thousands of posts on the subject. Might be a unique calculation or interesting view on life/longevity/risk/reward. These posts never bore me because we have not taken SS yet, too young.

 

[corn18]

I finally got around to completing the "I'm dead" portion of my finance spreadsheet to account for loss of pension and SS benefits. I use that to see if my wife will be a pauper when I die.

I found this interesting with regards to SS survivor benefits:

If your deceased spouse had already begun benefits and had begun benefits before they reached their FRA, then you as the surviving spouse are entitled to the larger of what your deceased spouse was getting, or 82.5% of their PIA amount, (this is the amount they would have received had they begun benefits at their FRA). This benefit amount is subject to a reduction if you have not yet reached your FRA. (82.5% of their PIA will be more than what they would have gotten if they began benefits at age 62, so this rule is in place to protect a surviving spouse from a permanently lower income if their other half began benefits at age 62.)

I think this is referred to as the Widower's Limit or RIB-LIM.

Using this math, my wife will be fine regardless of the age I claim. This 82.5% rule greatly mitigates the survivor benefit issue of taking SS early for the older, higher earning spouse.

If I take SS @ 62 and then die, my wife could start taking SS when she is 60 (at a reduced amount). Without the above 82.5% rule, she would be entitled to $15,556 / year in survivor benefits. With the above rule, she is entitled to $25,641.

Am I correct in my interpretation of this?

 

[kaneohe]

interesting that SS doesn't seem to mention that rule in its brochures so this is the first time I've heard about it. Even if true, I am skeptical that your numbers are correct since they differ so much. If you took SS at 62 your benefit would be reduced by 25% from your PIA so you would get 75% of PIA.
My prior understanding was that your surviving spouse would get what you were getting (75% of PIA) reduced by a factor if she took early but she wouldn't get more than you were getting. I could accept that the survivor might replace the 75% by the 82.5% you mention (so 10% higher base) but that would be reduced by her taking early.

Do you have a link to that 82.5% ? I found an article but it was kinda long so I fell asleep.

 

[corn18]

interesting that SS doesn't seem to mention that rule in its brochures so this is the first time I've heard about it. Even if true, I am skeptical that your numbers are correct since they differ so much. If you took SS at 62 your benefit would be reduced by 25% from your PIA so you would get 75% of PIA.
My prior understanding was that your surviving spouse would get what you were getting (75% of PIA) reduced by a factor if she took early but she wouldn't get more than you were getting. I could accept that the survivor might replace the 75% by the 82.5% you mention (so 10% higher base) but that would be reduced by her taking early.

Do you have a link to that 82.5% ? I found an article but it was kinda long so I fell asleep.

Here's a link that is shorter than the ssa.gov diatribe:

https://www.thebalance.com/social-security-for-widows-and-widowers-2388284

And here's my spreadsheet:

 

[kaneohe]

from your link:

"If your deceased spouse had already begun benefits...
and had begun benefits before they reached their FRA, then you as the surviving spouse are entitled to the larger of what your deceased spouse was getting, or 82.5% of their PIA amount, (this is the amount they would have received had they begun benefits at their FRA). This benefit amount is subject to a reduction if you have not yet reached your FRA. (82.5% of their PIA will be more than what they would have gotten if they began benefits at age 62, so this rule is in place to protect a surviving spouse from a permanently lower income if their other half began benefits at age 62.)"

I think this is consistent w/ my guess above. Survivor's base amount is 82.5% of PIA while you were getting 75% for taking at 62.......the base amount is 10% higher than your SS benefit. If survivor takes early , then benefit is reduced by early-take factor .....wasn't able to find factor as function of age but
think I saw earliest factor for age 60 as 0.715.

 

[sengsational]

I love this answer. I truly do. Thanks so much for clarifying my thinking. I salute your simple eloquence. Live long.

I liked that perspective too, although with traditional market rates of return and a healthy dose of equities in one's allocation, the break-even is much past 82.


There are a lot of "take it late" proponents, but I find that argument weaker each time I revisit this topic. If you model this completely (don't ignore modelable stuff), and your model presumes that you will own a good bit of equities, and it WON'T be "different this time" WRT for going forward (in other words, real return will continue as is has been doing), then the break even is almost certainly older than your likely age of passing. Aha! One might say, the age of likely passing leaves a 50% chance you'll live longer, but if you're just modestly optimistic about equity growth, the model produces ages in the mid 90s and by then, the spending of the "boom boom" 60's is behind you.

 

[ChrisC]

from your link:

"If your deceased spouse had already begun benefits...
and had begun benefits before they reached their FRA, then you as the surviving spouse are entitled to the larger of what your deceased spouse was getting, or 82.5% of their PIA amount, (this is the amount they would have received had they begun benefits at their FRA). This benefit amount is subject to a reduction if you have not yet reached your FRA. (82.5% of their PIA will be more than what they would have gotten if they began benefits at age 62, so this rule is in place to protect a surviving spouse from a permanently lower income if their other half began benefits at age 62.)"

I think this is consistent w/ my guess above. Survivor's base amount is 82.5% of PIA while you were getting 75% for taking at 62.......the base amount is 10% higher than your SS benefit. If survivor takes early , then benefit is reduced by early-take factor .....wasn't able to find factor as function of age but
think I saw earliest factor for age 60 as 0.715.

So, I'm taking a WEP reduced retirement benefit, which I started at 64. My spouse is taking spousal benefits at her FRA, which is WEP reduced but calculated at the benefit level of my FRA. If I croak before she takes her own SS retirement benefits, she then gets what I'm receiving in retirement benefits, which is now greater than her WEP reduced spousal benefits?

Also, just asking to confirm, a surviving spouse can't get survivor benefits and her own retirements at the same time? Thought I read some place, that a surviving spouse gets the greater of the benefit levels but not both.

 

[marko]

In the overall scope of things I don’t think it really effects much. Sure if you take it at 62 it’s a lower payment, but the break even point is a long ways out. Usually around age 82. Feeling lucky? Then wait.

I say there are many “fun advantages to taking early”. Perhaps you have a job you are miserable in, perhaps you are financially comfortable...take it and have fun. It’s the sure thing. So what if you wait and your monthly check is a few hundred higher? You probably won’t be in condition to have fun with it anyway.

I know way to many who told me they were waiting to get the bigger check who skimped and croaked not long after starting it. Ugh, always thought what a shame.

Here it is, IMO.
Roll the dice for a few more bucks when you're too old to enjoy it??
I used to think "it depends". Now I think "it doesn't matter"
We all know someone who worked that one extra year and then croaked just before retirement

 

[Rianne]

Now you're talkin.' I don't have to go find this stuff by myself. Priceless!

 

[DatumPoint5]

Anyway, a financial advisor told me that with my heredity, I should claim SS early. Can someone explain the logic to that?

Just my take on why an FA would say such a thing............

Financial Advisors usually get paid as a percentage of your assets. If you take SS payments early, it will keep your investment total assets higher for a longer time so he can skim whatever percentage he gets from AUM. (Assets Under Management) I think it is ALWAYS in the interest of the FA to get people to take their SS as soon as possible, so the FA will have more time to "skim".

edit: Winemaker already answered the OP in his earlier post. I did not see it.

 

[kaneohe]

................................

And here's my spreadsheet:

[.........................................

Have to confess that I didn't understand the spreadsheet......except your DW appears to be 4 yr. younger.

switching to a 3rd language:

Your benefit = F1 * PIA where F1 is your early claiming derating factor
where e.g. F1 = 0.75 if you claim at age 62

Surviving spouse benefit = F2 * F1a* PIA where F2 is surviving spouse early claiming factor and F1a= Max (F1, 0.825). Therefore if you claim at age 62,
and survivor spouse also claims early, there will be 2 derating factors....yours (modified) F1a and hers F2........if you claimed early, there is some lessening of your early penalty factor because it can't be less than 0.825.

btw......any chance that you are figuring the surviving spouse benefit without taking F1 or F1a into account?

 

[corn18]

Have to confess that I didn't understand the spreadsheet......except your DW appears to be 4 yr. younger.

switching to a 3rd language:

Your benefit = F1 * PIA where F1 is your early claiming derating factor
where e.g. F1 = 0.75 if you claim at age 62

Surviving spouse benefit = F2 * F1a* PIA where F2 is surviving spouse early claiming factor and F1a= Max (F1, 0.825). Therefore if you claim at age 62,
and survivor spouse also claims early, there will be 2 derating factors....yours (modified) F1a and hers F2........if you claimed early, there is some lessening of your early penalty factor because it can't be less than 0.825.

btw......any chance that you are figuring the surviving spouse benefit without taking F1 or F1a into account?

You nailed it. I was doing the math wrong. Your way is the right way and I updated my spreadsheet.

What was interesting that came out of all this is that if I claim @ 62 and die (wife 58), then the numbers indicate there is no reason for my wife to wait to age 67 (FRA) to claim survivor benefits. She will hit the widow limit at age 63 ish, so she should just claim then.

 

[kaneohe]

I know that it seems to be the sophisticated/learned way these days to claim at 70. However I had to decide in the olden days before I found the various forums. I knew about the breakeven idea and calculated it using some assumption (that I forget) to be early to mid-80s.

At one time I wanted to be a worst-case circuit designer.....design to avoid worst cases. The worst case seemed to be die early and collect nothing and deplete your resources in the meantime (of course probabilities were not factored in here...but I have since learned how hard it is to guess those).
So I chose early........my simple mind said it was a win-win. If I died early,
I still got some of my money. If I died late, I had extra life.......maybe it was a subconscious way to trick the Money Master into giving me extra years so he could show me the error of my youthful decision. No regrets........not sure if I would change that decision supposedly knowing more now.

 

[kaneohe]

................................
What was interesting that came out of all this is that if I claim @ 62 and die (wife 58), then the numbers indicate there is no reason for my wife to wait to age 67 (FRA) to claim survivor benefits. She will hit the widow limit at age 63 ish, so she should just claim then.

but she gets the widow limit from day 1 for F1a. F2 ,her own factor ,keeps increasing till FRA tho.

 

[joeea]

Using this math, my wife will be fine regardless of the age I claim. This 82.5% rule greatly mitigates the survivor benefit issue of taking SS early for the older, higher earning spouse.

If I take SS @ 62 and then die, my wife could start taking SS when she is 60 (at a reduced amount). Without the above 82.5% rule, she would be entitled to $15,556 / year in survivor benefits. With the above rule, she is entitled to $25,641.

Am I correct in my interpretation of this?

You may have missed the "This benefit amount is subject to a reduction if you have not yet reached your FRA." part.

At 60, your window wouldn't have attained her FRA.

 

[joeea]

Financial Advisors usually get paid as a percentage of your assets. If you take SS payments early, it will keep your investment total assets higher for a longer time so he can skim whatever percentage he gets from AUM. (Assets Under Management) I think it is ALWAYS in the interest of the FA to get people to take their SS as soon as possible, so the FA will have more time to "skim".

So do you thus assume that most FAs advise their clients to take SS at 62?

What about fiduciary FAs?

 

[corn18]

You may have missed the "This benefit amount is subject to a reduction if you have not yet reached your FRA." part.

At 60, your window wouldn't have attained her FRA.

but she gets the widow limit from day 1 for F1a. F2 ,her own factor ,keeps increasing till FRA tho.

Thanks everyone, I think I have it figured out.

So a philosophical question:

We don't need SS to meet our spending goals while I am alive. Now that I have completed my "I'm dead" spreadsheet, my wife doesn't need SS to maintain the same standard of living after I am dead. Seems like a good situation to take SS at the earliest possible opportunity and use the money to contribute to the blow that dough thread.