Theory Behind taking Social Security Early?

[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]

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Originally Posted by ERD50 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]

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Originally Posted by samclem 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]

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Originally Posted by rayvt 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.

[daylatedollarshort]

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Originally Posted by Music Lover 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.

That is a good analogy. And I might be dead in 20 years and not have gotten any marshmallows at all. Our longevity insurance is still the same path that got us to ER, continuing to live a fun for us life but well below our financial means in retirement, with SS at 62 and pensions at 55.

[joeea]

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Originally Posted by Music Lover 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.

It's like 1 marshmallow per month now, or 1.75 marshmallows per month in 8 years, for the rest of your life. And it's like you can fund your retirement with marshmallows and pass on your other candy to your heirs. And it's like your spouse gets the higher marshmallow rate when you pass. And it's like marshmallows keep up with inflation so they never shrink like most other tempting treats.

Other than that your analogy is spot on.

[joeea]

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Originally Posted by daylatedollarshort And I might be dead in 20 years and not have gotten any marshmallows at all.

Dead people don't know that they didn't get marshmallows.

[Music Lover]

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Originally Posted by joeea Dead people don't know that they didn't get marshmallows.

And, unfortunately, none of them are around to comment on how they wished they had taken those marshmallows when they had the chance. And, there might be others that are still around who wished they had taken them early but due to their health, they're unable to comment.

[Cessna152]

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

Previous polls on this website indicate many would answer “yes” to that question, even among some Early Retirees.

Our own case in point: by retiring at 62 and 63, my wife and I probably don’t qualify as Early Retirees, but the SS we would receive jointly by delaying till 70 (about $6000/month) just about matches our monthly average expenses for the last 3 years. It somewhat astounded me when I discovered our expenses could be covered by SS benefits alone. Taking SS early would mean drawing moderate amounts from savings in perpetuity vs drawing a lot for only 8 years followed by almost no draws after that.

[daylatedollarshort]

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Originally Posted by joeea It's like 1 marshmallow per month now, or 1.75 marshmallows per month in 8 years, for the rest of your life. And it's like you can fund your retirement with marshmallows and pass on your other candy to your heirs. And it's like your spouse gets the higher marshmallow rate when you pass. And it's like marshmallows keep up with inflation so they never shrink like most other tempting treats. Other than that your analogy is spot on.

It really depends when you die. If you die before collecting SS, your heirs won't get any of it. It is not like 1.75 in eight years because the breakeven point for delaying is usually around 80.

With either delaying SS or simply not spending to the point of having to worry about running out of money, both can provide longevity insurance. The marshmallow test can be applied to spending too much as well. If a retiree is living on half or less of total retirement income with SS at 62 there isn't a huge risk of running out of money since one is still saving and investing in retirement.

[daylatedollarshort]

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Originally Posted by Cessna152 Taking SS early would mean drawing moderate amounts from savings in perpetuity vs drawing a lot for only 8 years followed by almost no draws after that.

Then there are those with no portfolio draws on SS at 62 so no one size fits all answer.

[Fedup]

Yeah, but what about one of the couple is dead. Can you survive well with both taking SS at 62.

[Floridatennisplayer]

I just want to say that pic of the girl and little guy crack me up. He is struggling so bad!!!! Cute as can be. They remind me of my grandkids

[daylatedollarshort]

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Originally Posted by Fedup Yeah, but what about one of the couple is dead. Can you survive well with both taking SS at 62.

One of us could. We have run the numbers on that out to over age 100. YMMV.

[lawman3966]

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Originally Posted by LXEX55 Some people believe that due to the fact that my dad passed at age 97, my mom is still alive at 96, and three of my four grandparents lived till their 90's, I have "good genetics". I personally don't believe this one bit. If a truck runs me over, it is not going to do a genetic scan. I would be dead no matter what. Anyway, a financial advisor told me that with my heredity, I should claim SS early. Can someone explain the logic to that? I guess my "great genetics" did not carry over to understanding finances very well. Thanks for your time and expertise.

Yet another way to think about this. Your SS benefit is like a CD or other financial account, whose ultimately monthly payout grows by a growth rate equal to the sum of two factors: (a) the COLA adjustment; and (b) the mortality credit for the period, between now and the time when you reach 70 years old, over which you did NOT receive SS benefits.

If you don't need the money now, and have a good financial cushion with which to pay for your basic expenses, waiting to take benefits enables the total value of your account to grow by more than it will if you start taking benefits prior to age 70. Obviously, if you need the money for basic expenses now, you don't have the luxury of waiting.

Your financial advisor's reasoning makes no sense, and seems designed to benefit him, not you. I'd dump him like a hot potato.

[TwoByFour]

Just to re-emphasize something I said a while back.... The question of taking SS is not just a question of less money early vs. more money later. If you have a portfolio of stocks that you are also drawing from, taking SS changes how you take money from those equities. Because of sequence-of-returns effects, that becomes a bit complicated and can only be resolved by re-running a RIP calculation for the 2 scenarios. I did many of those calculations and the results are very dependent upon ones AA and withdrawal rate. Taxes also affect things; for instance, an equity heavy portfolio that has lots of cap gains is generally more tax efficient than paying tax on SS, depending on your total income.

Bottom line: If you don't want to run RIP calcs and crank a lot of numbers, the safest bet is to take SS early. But safest does not mean optimal in the sense of maximum total money you wheedle out of the government.

[joeea]

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Originally Posted by daylatedollarshort It is not like 1.75 in eight years because the breakeven point for delaying is usually around 80.

It's exactly like 1.75 in eight years. That has nothing to do with a breakeven point.

[joeea]

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Originally Posted by TwoByFour If you don't want to run RIP calcs and crank a lot of numbers, the safest bet is to take SS early. But safest does not mean optimal in the sense of maximum total money you wheedle out of the government.

If it doesn't mean maximum amount of money, then what does "safest bet" mean to you in this context?

[ERD50]

Quote:

Originally Posted by rayvt Quote: Originally Posted by ERD50 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?

Sure, it isn't an all or nothing thing for most of us. I don't think that invalidates the illustrative purpose of my analogy.

And even if you had those two 5-gallon jerry-cans of gas in the trunk, wouldn't you still want to avoid the inconvenience, delay, maybe even danger, of running out of gas in the main tank, having to stop in traffic, and fill up on the side of the road? Seems it is still better to plan for something beyond averages.

Maybe that's stretching the analogy too far... but maybe not?

-ERD50