Wait to Age 70 to Collect SS?

[REWahoo]

This MarketWatch article makes a case for waiting until age 70 to begin collecting SS, when benefits reach their maximum.

Delaying Social Security benefits can be "very tax efficient for a lot of people, but it also helps protect against the post-retirement risks they face because Social Security has the annual inflation adjustment, it's going to be payable for life so there's no longevity risk, there's no investment risk, and there are no expenses,"...

<snip>

"If I were to delay my Social Security benefit, in essence I can more than double" the benefit, he said. "My spouse could start her benefit earlier. Then, if I predecease her, and that often happens, I will pass that higher benefit that I've earned on to her. [That's] a lot of survivor income protection."

When planning for retirement, don't focus solely on break-even points, Mahaney said. Those points "ignore the cost-of-living adjustments. They ignore the survivor protection."

http://tinyurl.com/9q4ll

For those of you planning to start collecting at 62, does this change your thinking?

 

[Cut-Throat]

I think it depends on when you start collecting it. Right now, it may make a lot of sense to delay it considering fixed interest rates are down. But In a high interest rate environment, it may make sense to take the SS and invest it at 8% or 10% or ?? - Not exactly sure what interest rates would have to be to make taking SS earlier pay off?

Anyone here run these numbers before?

 

[LOL!]

My impression is that folks want to collect sooner rather than later because they believe the money or the laws will change over time, so that they will get less if they wait.

 

[retire@40]

Never.  Take the money as soon as you can.  I've seen too many cases where people waited until 70, only to die at 68 or 69.

Although, if more people didn't follow my advice and we had more people waiting and dying before collecting any money, we wouldn't have the entitlement problem we have today.

 

[Nords]

I think they're trying to make the point that waiting for another eight years of wage indexing will be more profitable than taking it at age 62 and being restricted to CPI-U COLAs.

But I think taking eight years of payments and investing them in a small-cap stock ETF will prove to beat both the CPI and the ECI.

Besides, this year the CPI is probably bigger than the ECI. I wonder how many times that happens?

Finally, wage indexing has been offered up as one of the sacrificial SS "fixes". If there's no wage indexing, only CPI indexing, then the first argument is moot.

 

[haha]

I think they're trying to make the point that waiting for another eight years of wage indexing will be more profitable than taking it at age 62 and being restricted to CPI-U COLAs.

Maybe check that; my memory is that at age 62 you stop getting wage indexing whether you are drawing or not, retired or not. At age 62 your CPI-adjusted real "full retirement age" benefit is fixed, except for additional earnings. And these earnings are not adjusted by wage indexing. These earnings improve your benefit by bumping up the "full retirement age benefit", which is then adjusted by CPI. Then the actual benefit that you get is scaled either up or down from the full retirement age benefit, depending on what age you actually retire.

Another interesting thing I noticed is that the annual increment between your full retirement age amount and age 70 is not compounded. It is a simple interest increase from full retirement age. So in effect, if your FRA is for example 66, you get the same additional $ amount for every year that you delay, but a marginally larger percentage increase for delaying to age 67 than you do for delaying an additional year to age 68, etc. until age 70 when there are no further increments. At this point, if you can breathe, take the damn benefit!

Ha

 

[education]

I'm with you, Retire at 40!!!!! Screw 'em. I'll take the money and run. It always amazes me that people can put a spin on anything to make the case they want to sell. I think we are all independent enough here to know what is best for each of us without listening to propaganda. And for me, a "bird in the hand" is better. I'll chart my own course in my own way.

Professor

 

[CZAR 8]

I'm with you, Retire at 40!!!!! Screw 'em. I'll take the money and run. It always amazes me that people can put a spin on anything to make the case they want to sell. I think we are all independent enough here to know what is best for each of us without listening to propaganda. And for me, a "bird in the hand" is better. I'll chart my own course in my own way.

Professor

The Professor is wise for his age.
May the wind be always at your back***

 

[ProfHaroldHill]

Taking SS at age 62 turns out to be a really bad idea for lots of people. Make your assumptions, including interest rates and life expectancy, and do the numbers -- proverbial back of the envelope. If you plan on living past 82 or so, or if your spouse plans on living past 82 or so (survivor's benefit), you may find that waiting til 70 for SS is a clear winner. Judging from other posts to this board re life-expectancy calculators, lots of posters here might well live long past 82. My point -- do the numbers yourself -- don't rely on somebody's else's take-it-now, this-is-spin opinion.

HH

 

[retire@40]

Taking SS at age 62 turns out to be a really bad idea for lots of people.  Make your assumptions, including interest rates and life expectancy, and do the numbers -- proverbial back of the envelope.  If you plan on living past 82 or so, or if your spouse plans on living past 82 or so (survivor's benefit), you may find that waiting til 70 for SS is a clear winner.  Judging from other posts to this board re life-expectancy calculators, lots of posters here might well live long past 82.   My point -- do the numbers yourself -- don't rely on somebody's else's take-it-now, this-is-spin opinion.

Yup, run all the numbers you want.  If you live until 90, how much more ahead are you in income in those extra 8 years of life breathing?  If you die at 69, how much of those 7 years of your life have you sacrificed for nothing?

 

[Spanky]

I think it is better to start collecting ASAP since life is too short. You may not able to collect at 70 either SS may run out of money or you may not be there to collect it.

 

[ProfHaroldHill]

Yup, run all the numbers you want.  If you live until 90, how much more ahead are you in income in those extra 8 years of life breathing?  If you die at 69, how much of those 7 years of your life have you sacrificed for nothing?

This question is just another financial tradeoff, involving a rather unique inflation-adjusted annuity vs other opportunities. So, yes, run the numbers, and make an informed decision. BTW -- Other related questions might be: if your investments fail prematurely, would you like to live on $15,000 per year in SS for the rest of your life, or on $30,000? If you have a surviving spouse, which would be better for him or her? The question involves joint life expectancy. Do you know the likelihood that either or both of a 62YO couple will live to 100? Might be interesting information to have before making a decision.

HH

 

[Cut-Throat]

Never.  Take the money as soon as you can.  I've seen too many cases where people waited until 70, only to die at 68 or 69.

That's basically the idea. If you're dead you won't care! :

However if you're alive in your old age you may be better off collecting a much larger check. You just have to run the numbers when you are 62, Look at the interest rates and figure out if it makes sense for you.

 

[Michael]

If SS looks secure in 20 plus years, I may wait until 70. I look at SS as sort of an emergency back up plan in case all else fails.

 

[SteveR]

The way I look at it is that I have been "contributing" to SS for over 37 years. I plan on getting some of that back at the earliest possible moment. Waiting until the value is high enough to me makes no sense unless I was going to have to live on it. SS will be gravy on my meat and potatoes retirement income. In the long run it will save me a few bucks by reducing the total $$ I need to withdrawl from my other accounts and the long term effect of DCA of this money.

Waiting for the "magic" number to show up will only reduce the total you can take from the system over time. Take it early as you can and invest it. The end result will be much better than if you wait until 70 to start taking it. Beside, with the COLA feature even early SS payments will still increase over time.

Eat, drink, be merry for tomorrow.............well you know the rest.

 

[HFWR]

I'll probably go for 62, to allow the portfolio time to keep growing; i.e. reduce drawdown in the earlier years.

 

[New Thinking]

If I may add my comments to your board. There are a couple of points being made in the article.

1. A higher delayed retirement benefit can be passed on to your spouse when you predecease her/him

2. COLAs add up over time and are rarely factored into the "break-even" equation. Factor those in and the break-even age is often reduced to 77 or 78. Therefore there is a dramatic difference in income in your early 80's and beyond.

3. (And this is what most of you will find most interesting) Taking IRA income first and delaying SS is very tax efficient. Why? As most of you folks know, taking IRA income causes taxation of those IRA dollars AND taxation of SS dollars...at very low levels ($32k and $44k for married couples). You start to see marginal tax rates on those incremental dollars of 46% in 2005. Scott Burns calls this the Tax Torpedo. But when you take IRA income first and higher SS income later a couple of things happen. You pay slightly higher taxes early, but when your higher SS kicks in, your taxes often shrink or are eliminated. The IRA taxes aren't there and SS only counts at a 50% rate when determining Combined Income (Provisional Income). Therefore, you can take much higher income in the form of SS with less taxes.

The only thing that matters is how much you keep in your pocket after taxes. That is why delaying SS makes sense tax wise for many individuals. It will be very hard to take SS early and invest the money to overcome lower COLAs and higher taxes without taking huge investment risk.

 

[ProfHaroldHill]

I'll probably go for 62, to allow the portfolio time to keep growing; i.e. reduce drawdown in the earlier years.

 Unless you're 100% in stocks, you can draw from the cash/bond component of your portfolio to bridge to 70, and let the stocks grow (presuming they do) for the duration.  So the tradeoff, in my view, is between the cash/bond part of the portfolio, and the value of the SS annuity.

HH

 

[ProfHaroldHill]

NewThinking -- good points! -- Welcome to the forum . . ..

HH

 

[TromboneAl]

I've got 10 years to go before I need to start considering this, but it's going to take at least 2.0 birds in the bush for me to not eat the bird that is in my hand at 62.

 

[nwsteve]

Greenspan's remarks from yesterday may provide some insight for all our future planning.  The following excerpt is from his testimony to Joint Economic Committtee of Congress
We owe it to those who will retire over the next couple of decades to promise only what the government can deliver. The present policy path makes current promises, at least in real terms, highly conjectural. If fewer resources will be available per retiree than promised under current law, those in their later working years need sufficient time to adjust their work and retirement decisions.

Does not look to me like he has a lot of confidence the bucks are there for the current promised payouts.  Time to adjust the FIRE calculations??
nwsteve

 

[SteveR]

Greenspan's remarks from yesterday may provide some insight for all our future planning.  The following excerpt is from his testimony to Joint Economic Committtee of Congress
We owe it to those who will retire over the next couple of decades to promise only what the government can deliver. The present policy path makes current promises, at least in real terms, highly conjectural. If fewer resources will be available per retiree than promised under current law, those in their later working years need sufficient time to adjust their work and retirement decisions.

I just love Greenspan speak....it is like its own unique language. Translated:

The current working stiffs need to belly up and give more to SS so those retiring in the next 20 years will have at least something to live on.

The current system is broken and we cannot say you will get any $$ when you retire.

You have been warned! Save your money now because SS won't be there to bail your butt out later on.

 

[thefed]

lol! i JUST WENT TO THE SS.gov WEBSITE, AND USED A CALCULATOR TO PREDICT MY RETIREMENT BENEFITS.

Just for the heck of it, i put my current wages at 20k, and increasing 2%/yr. I'm 22.

When 67 I'd be collecting $56k/yr (2050's dollars) at this rate!
That's a lot of $$$, regardless of inflation, especially with the wage i entered. Especially if you dont have a mortgage.

Someone making 30k would collect 72k in 45 years.

I make about 35k now and that'd net me 78,000/yr in 2050

 

[TromboneAl]

Another translation: take the money at 62.

 

[ProfHaroldHill]

Greenspan's remarks from yesterday may provide some insight for all our future planning. 

Greenspan is a shameless shyster.  This is the same guy who was just yesterday extolling the virtues of variable-rate mortgages, knowing full well that intertest rates were headed up.

There is no problem with social security that can't be readily solved.  The problem is Medicare, which none of our present "leaders" cares to comment on.  According to the US Comptroller General, the unfunded liability for SS is about $5 trillion.  The unfunded liability for Medicare is about $30 trillion, including about $8 trillion for the unfortunate new prescription-drug benefit.

HH