Theory Behind taking Social Security Early?

[Independent]

...or as I've pointed out, they don't need it at all, which was our case. We view our age 62 SS as free money ($40K between the two of us) to do extra stuff while we're young.

This works for people who are in great shape financially.

For others, with more moderate assets, they can view their age 70 SS as even more free money that allows them to do even more extra stuff while they are young.

 

[marko]

This works for people who are in great shape financially.

For others, with more moderate assets, they can view their age 70 SS as even more free money that allows them to do even more extra stuff while they are young.

Right. My earlier post wondered about a bell shaped curve where those with no choice AND those who didn't need the money at opposite ends and those with moderate assets in the middle who need to maximize their imcome.

 

[samclem]

I just know that by the time I hit say 68 in 8 years, I will be certainly wondering the sense of delaying when I am passing by say $3100-3200/mo so that I can get what seems a small benefit as it will increase about $20/mo for every month delayed. It’s far easier to justify delaying based on pure math, but when it is that kind of in your face income, I know it will be much harder.

Delaying SS will just require the same type of mindset that allowed many of us to get to FI in the first place--doing without something now in order to make things better for the future. That $20 extra per month, every month, for as long as you live, inflation adjusted, is worth something. It would take $4800 to $6000 of additional savings (5% or 4% WR) in your nest egg to generate that $20 per month. So, by foregoing the $3200 of immediate SS payments at age 68, you get the same increase in monthly payments later that $4800 to$6000 would produce. Not too shabby.
Obviously, there's a limit to this, but if you've got a normal life expectancy, you haven't reached that point by age 70.

 

[MrLoco]

Delaying SS will just require the same type of mindset that allowed many of us to get to FI in the first place--doing without something now in order to make things better for the future. That $20 extra per month, every month, for as long as you live, inflation adjusted, is worth something. It would take $4800 to $6000 of additional savings (5% or 4% WR) in your nest egg to generate that $20 per month. So, by foregoing the $3200 of immediate SS payments at age 68, you get the same increase in monthly payments later that $4800 to$6000 would produce. Not too shabby.
Obviously, there's a limit to this, but if you've got a normal life expectancy, you haven't reached that point by age 70.

While I agree with your premise and I will most likely delay myself somewhere between FRA and 70; it becomes a huge psychological barrier. The reason many give to take benefits before FRA is they are younger, healthier and want to enjoy the money for perhaps travel.


By delaying, there is a greater chance those increased benefits will be used for healthcare costs, assisted living , nursing home care. And that's not fun!!!

 

[Cut-Throat]

By delaying, there is a greater chance those increased benefits will be used for healthcare costs, assisted living , nursing home care. And that's not fun!!!

--- There's a new one! ... Services are free for healthcare costs, assisted living , nursing home care if you take S.S. early.

 

[jimbee]

By delaying, there is a greater chance those increased benefits will be used for healthcare costs, assisted living , nursing home care. And that's not fun!!!

Money is fungible.

 

[ShokWaveRider]

One way of thinking about delaying SS is it actually cost you double your benefit to delay. This can be calculated from 62 and up.

Here is my logic (Well not logic I suppose, a theory perhaps, no real facts):

Say one's benefit at 62 is $1500 a month. Delaying one month for that year till 63 would cost one the $1,500 SS Payment they did not get PLUS another $1,500 from personal savings to make up the shortfall. So $3000 pm or $36k for the first year.

Say at 63 SS would now be $1,600 same applies for that given year. How this works out for 4 years up to FRA could be quite significant. I do realize that one gets more for waiting, but they also forfeit what they would have got in the meantime, plus whatever they needed to pull from savings to make up the short fall up to the SS payment.

Assuming one is not w*rk&ng The shortfall is purely a monetary number as opposed to a mandatory withdrawal from one's savings. One has to use some kind of income to pay the bills, even if it is a withdrawal from one's own savings.

Just food for thought, no rational explanation here. I could be wrong.

 

[kaneohe]

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

Say one's benefit at 62 is $1500 a month. Delaying one month for that year till 63 would cost one the $1,500 SS Payment they did not get PLUS another $1,500 from personal savings to make up the shortfall. So $3000 pm or $36k for the first year.

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

wonder if you're double-counting?

A) start w/ 1500 savings. spend 1500 1st mo, get 1500 SS
Balance 1500
B) start w/ 1500 savings. spend 1500 1st mo. no SS
Balance 0

A>B by 1500 = SS income

 

[ShokWaveRider]

wonder if you're double-counting?

A) start w/ 1500 savings. spend 1500 1st mo, get 1500 SS
Balance 1500
B) start w/ 1500 savings. spend 1500 1st mo. no SS
Balance 0

A>B by 1500 = SS income

No, my point is you are losing the $1500 from SS that you are not taking and also spending your own $1500. ($3k)

 

[joeea]

No, my point is you are losing the $1500 from SS that you are not taking and also spending your own $1500. ($3k)

If you are assuming that you spend $1500, then you must also assume you spend $1500 in the case where you choose to take SS.

You are double counting.

Taking SS = +1500 - 1500
Not taking = 0 - 1500

The difference is still $1500 no matter how you look at it.

 

[samclem]

One way of thinking about delaying SS is it actually cost you double your benefit to delay. This can be calculated from 62 and up.

Here is my logic (Well not logic I suppose, a theory perhaps, no real facts):

Say one's benefit at 62 is $1500 a month. Delaying one month for that year till 63 would cost one the $1,500 SS Payment they did not get PLUS another $1,500 from personal savings to make up the shortfall. So $3000 pm or $36k for the first year.

No, this is double counting. You are only "down" by the $1500 you withdrew from your savings.

 

[ShokWaveRider]

No, this is double counting. You are only "down" by the $1500 you withdrew from your savings.

PLUS what you did not get from SS.

 

[Cut-Throat]

PLUS what you did not get from SS.

You are thinking of this like a Bet..... If you Bet the S.S. Agency $1500 and lost, you would be out $3 Grand..... But this is not a bet... You just failed to get $1500...


So, yes, you are double counting.


Think of it this way...... Your expenses per month are $1500.... To cover them, you either take the S.S. and spend it... Or you take $1500 from your savings to cover the expenses.... At the end of 1 month your savings are depleted only $1500.

 

[kaneohe]

another way of thinking about it......don't spend the SS so both parties are the same.....except A gets 1500 deposited in bank acct each mo.

 

[ShokWaveRider]

another way of thinking about it......don't spend the SS so both parties are the same.....except A gets 1500 deposited in bank acct each mo.

Yes, I see what you all are getting at. It was just a theory. I suppose it does seem like it is counted 2 times. But not getting a SS payment does incur a shortfall in income by that amount, that one MAY need to get that from from somewhere (One's Stash), so it "Appears" that one is spending $1500 from their stash and NOT getting $1,500 from SS thus losing $1500 for that given month. It is virtual.

 

[pb4uski]

I think the best way of thinking of deferring SS is that you are "investing" what you chose not to receive in deferred annuity that starts payments at age 70.... if you are entitled to $750/month at 62 and defer to 70, economically, you have made 96 monthly premium payments of $750 or $72,000 in total.

Then from 70 onwards, rather than get $750/month you'll get $1,320/month.... or an extra $570/month or $6,840/year for life.

With 0% interest, the payout rate is 9.5% ($6,840/$72,000) and the payout is inflation adjusted.... the equivalent of buying and inflation adjusted annuity of $570/month for life for $72,000... a screaming deal in the annuity world. For comparison, $72,000 would only buy a SPIA with a monthly benefit of $464 and the $464 is not COLAed.

One could argue that the 96 payments of $750/month would have earned interest... ok, let's say that it grew to $80,000... that is still an 8.55% payout rate and much better than the 7.74% payout rate for a fixed annuity and the COLA is the cherry on top!

 

[Sunset]

But if that drop occurs after I hit 70, it would further push out the break-even point, beyond any likely life expectancy.

Also, SS benefits and retirement ages could be pushed out again. Many variables.

If the market drops after someone has delayed SS until they are 70, then they are far better off than someone who took SS at 62 so they could save their 401K for the 8 years for heirs, as the 401K will lose years of value.

 

[Perryinva]

I think the best way of thinking of deferring SS is that you are "investing" what you chose not to receive in deferred annuity that starts payments at age 70.... if you are entitled to $750/month at 62 and defer to 70, economically, you have made 96 monthly premium payments of $750 or $72,000 in total.

Then from 70 onwards, rather than get $750/month you'll get $1,320/month.... or an extra $570/month or $6,840/year for life.

With 0% interest, the payout rate is 9.5% ($6,840/$72,000) and the payout is inflation adjusted.... the equivalent of buying and inflation adjusted annuity of $570/month for life for $72,000... a screaming deal in the annuity world. For comparison, $72,000 would only buy a SPIA with a monthly benefit of $464 and the $464 is not COLAed.

One could argue that the 96 payments of $750/month would have earned interest... ok, let's say that it grew to $80,000... that is still an 8.55% payout rate and much better than the 7.74% payout rate for a fixed annuity and the COLA is the cherry on top!

Excellent summary. It really is just that simple. It is a bet on longevity by using the annuity. If you die a year later, you are dead and it matters not to you, only your heirs.

As mentioned above, it is the psychological effect of both finally getting your “payoff” coupled with “how dang old do I have to be before delayed gratification becomes gratification!” Passing up $750/mo for another $570/mo is far easier psychologically because of the smaller impact to your bottom line than passing up $2150/mo for an extra $1634/mo even though the ratio is the exact same.

I’ve dealt with math my whole life, and love the black or white aspects of it. I fully understand the comparisons and fully plan to delay as long as possible. It is certainly very possible for me to delay until 70. But it does get harder every year you age, to make the psychological effect take a back seat to facts!

 

[dixonge]

If the market drops after someone has delayed SS until they are 70, then they are far better off than someone who took SS at 62 so they could save their 401K for the 8 years for heirs, as the 401K will lose years of value.

I should have mentioned - outside of our SS we don't have any other significant nest egg. Our primary income is non-COLA'ed pensions. The SS will be used to build a significant fund to offset inflation. We're basically building a COLA for the pensions. The longer we delay this, the more inflation eats away at the spending power of the pensions.

 

[Music Lover]

Nothing New

Except that the difference isn't 1 marshmallow now or 2 marshmallows in 20 minutes. It's 1 marshmallow now or 1.1 marshmallows in about 20 years.

And, just like the always shrinking food portions in the grocery stores, maybe the marshmallows will be smaller in 20 years.

 

[freetodream]

Wow, read most of these posts! Took SS at 63 and I am not looking back. For me not every decision in life is financial-

 

[PBAT]

So many different personal scenarios for claiming early. DH started SS two years ago at 62.5. He's had cancer twice although clean bill of health for 7 years now, was completely burned out in mental health career, and our DD will receive the dependent benefit for 7 years. That last was probably the biggest factor. Her college savings is fully funded, now in 8th grade so almost 5 years remaining of her benefit. Also my benefit will be about the same as his, so I'll be the one to claim later. It helps I'll have a pension at 60.

As others said, it may not end up being the best financial choice, but the best choice for us and our lives health and happiness.

 

[rayvt]

I agree with both of the above responses to rayvt. I'll throw in one more analogy/illustration:

Say you have a 100 mile trip to make, 5 gallons of gas in your car, and you average 20 mpg in your car. Are you fine, counting on the average, or do you want some 'insurance', and add to your tank?

A better comparison for us F.I.R.E.'d people is to also mention that you have two 5-gallon jerry-cans of gas in the trunk.

Are any of us here talking about retiring exclusively --or even largely-- on our SS benefit?

 

[rayvt]

Delaying SS will just require the same type of mindset that allowed many of us to get to FI in the first place--doing without something now in order to make things better for the future.

So that would be the same thinking that lead us to keeping our cars for 10-15 years instead of buying a new car every 5 years, right?

Which makes a lot of sense when you have 40 years ahead of you. But when you are 70, you don't have 40 years. All of a sudden you realize that you should start eating desert at the beginning of dinner
[*] and stop buying green bananas. The future isn't far off in the future anymore, the future is now.

Now, it makes more sense to get a new car every 5 years, otherwise you will be driving (and repairing) the same old clunker for the rest of your life.

------------[

[*] Funny to say, but it actually happens. In fact we were once on a cruise when a lady at dinner had a stroke and died right there at the table. Three tables away from ours.

 

[samclem]

But when you are 70, you don't have 40 years. All of a sudden you realize that you should start eating desert at the beginning of dinner
[*] and stop buying green bananas. The future isn't far off in the future anymore, the future is now.

Now, it makes more sense to get a new car every 5 years, otherwise you will be driving (and repairing) the same old clunker for the rest of your life.

You should do whatever makes you most comfortable. I'm not sure how your analogy applies to taking SS early or late, it could be used to argue for either approach.
Assuming our 70 year old doesn't know when he'll be checking out, he still needs to plan that he could still be around in 30 years or so (about 10% of 70 YO men will be alive at age 100). By delaying his SS until age 70, he has effectively "bought" himself an annuity that covers more of his regular living expenses. That, conceivably, lets him do more of what you are suggesting with the rest of his stash: go on that cruise, buy the 'vette, etc. Maybe he can spend every bit of his nest egg on fun, because the higher SS monthly check he gets will cover all his "must do" spending, and it is COLA'd. OTOH, if he started taking his SS at age 62, the resulting smaller SS payment every month would cover a smaller portion of his "must do" spending, meaning he has to preserve more of his nest-egg for an unknowably long time to cover the rent. Using the dough for a world cruise might be less fun if it exposes the retiree to the possibility of running out of money for heat, etc.


So, "eating desert first" may be made more feasible by delaying SS.