when should you take social security article

[REWahoo]

If I read this table correctly, the maximum amount at age 62 was $1803 in both 2010 and 2011.

Maximum-taxable benefit examples

As to why your benefits are lower than the max, here's how benefits are calculated: Social Security Retirement Benefit Calculation

Good luck in figuring out the reason for the shortfall...

 

[GregLee]

That seems about right. Here's an article on the expected benifits, based upon income:

Social Security - Estimated Payments Chart

My SS payments are substantially higher than indicated in that table. Well, my birth year is one year before the 1943 starting date of the table, but the disparity seems odd.

 

[73ss454]

Thanks, according to W2R the max would be $1774 yet the chart says about $1714 and my letter says $1737.

Rew, I guess there's no point trying to figure out why I'm more on the chart yet less on the 25% factor. Yet I paid the 35 years and always the max, go figure.

 

[rayvt]

>> the problem with the "break even" type of an analysis when determining when to start taking SS is that when you are retired most people are in a decumulating phase

Agreed, a BE analysis isn't without problems. But it's a pretty good tool to help you see the big picture.
But also realize that the 62 vs. 66 issue does not arise for somebody who *must* decumulate. If you need the money at 62, then you don't have the option of delaying until 66 or 70----so all the calculations showing the benefit of waiting are moot.

The debate/discussion is relevant ONLY to people who don't need the money at 62!
And for those people, a good method of comparison is to save the early money until you hit 66 (or 70) and then when you do start collecting SS withdraw enough from that side account to cover the shortfall, so that the total you get is equal to the amount you'd have gotten if you would have waited.

Eventually the savings account will be depleted--that's the BE point. And that is generally about 15 years, depending on what earnings you get on the account.

>> delaying the start of SS from age 62 to age 70 will increase your monthly income by ~76% + whatever the CPI goes up those 8 years (in other word a real 76%) is hard to beat.

There are several factors you are leaving out.
1) Both the 62 & the 70 SS payments will be increased by the CPI, This is a wash in the comparison and therefor can be ignored. So it's 76% exactly.
2) For the 2nd year in a row, the SS CPI has been ZERO. So retirees are being screwed, since their cost of living has, in fact, gone up -- even though the SSA says it hasn't.
3) The 76% higher check is only what you get from SS. To arrive at the total income you have to add in the withdrawal from the side account.

This last is what I meant by people ignoring major important factors when making the comparisons. You look at the higher amount at age 70, but ignore the 8 years of collecting the lower amount. When the age 62 person hits 70, he has collected an extra $72,000, which has grown to around $85,000 to $95,000.
Drawing that down, he will get the same total income as the age 70 SS for 15 to 25 years. That's a huge hurdle for the "wait until 70" proponent to overcome. That's a very long time before break-even.

4) You must take into account your life expectancy. LE at 62 is age 81. LE at 70 is age 83. The "age 62 side account" method break-even point is AFTER your expected mortality age.

5) You must take into account your life expectancy. According to the SSA mortality table, only 86% of 62 year olds are still alive at 70. IOW, 14% of the people who are 62 won't be collecting ANYTHING at 70---they're dead.

 

[jdw_fire]

I’m still planning to take as soon as possible – both due to the bird in the had philosophy and also because I think I have a shot at getting a better return by investing the early payments then waiting for SS to increase my payments.

Of course my penalty will be a little greater since my full retirement isn’t until 67, but I took the example in the article of someone you turns 62 this year and would receive $1803/month if they started collecting at 62; $2442/month if they start collecting at 66; and $3526/month if they wait until 70 to start collecting. This was all in today’s dollars.

The scenario they had did not consider inflation increases to SS or investment returns for the people collecting SS earlier.

So I ran my own scenarios:

• person A starts collecting at 62 and invests all the money until they turn 70
• person B starts collecting at 66 and invests all the money until they turn 70
• person C starts collecting at 70

I assumed that the SS payments increased by 3% each year. At age 70, all three people spend the amount that person C receives each year.

If I assume a conservative return of 5%, person A runs out of money at 82 and person B runs out of money at 84. Well – at least they can’t spend as much as person C anymore – they have to reduce their expenditures to what they receive in SS because they run out of money in their investment account.

If I assume a reasonable return of 7%, person A runs out of money at 85 and person B runs out of money at 87.

If I look at some more aggressive portfolios, a 10% return (quite possible for a somewhat aggressive portfolio), person A runs out of money at age 99 and person B runs out of money at age 105.

If I look a 12% return (high volatility but still a very real possibility). Person A and B have portfolios that grow faster than they take money out. At age 100, person B as over $1M and person A has over $2M.

well i ran the take it at 62 scenerio you mention above except instead of using "$3526/month if they wait until 70" i took the "$1803/month if they started collecting at 62" and multiplied it by 1.76 equalling $3155.25/mo (which provides the increase obtained by waiting to start SS at age 70 but does not include the inflation adjustment) and then inflated that number by the inflation rate you used (3%) which in this case means at age 70 the SS benefit would actually be $4019.81/mo. i didnt run the take it at age 66 case.

case 1) (5% nominal, after tax return) the cross over, including spending the entire savings account, happens between ages 79 and 80

case 2) (7% nominal, after tax return) the cross over, including spending the entire savings account, happens between ages 80 and 81

case 3) (10% nominal, after tax return) the cross over, including spending the entire savings account, happens between ages 84 and 85

case 4) (12% nominal, after tax return) the cross over, including spending the entire savings account, happens between ages 89 and 90

so it is obvious to me that you didnt inflate the amount received at age 70 figure for inflation the 8 years between age 62 and age 70.

as an aside there are a number of things wrong with your assumed rates of return but the most obvious is that they have to be after tax and there is no way an average person is gonna pull down returns like that over an 18-28yr period that is being used here. if you really could get those consistant returns over those extended periods you could have the very high SWRs shown below.

case 1) (5% nominal, after tax return) SWR = 4.34%

case 2) (7% nominal, after tax return) SWR = 5.48%

case 3) (10% nominal, after tax return) SWR = 7.39%

case 4) (12% nominal, after tax return) SWR = 8.74%

and NO ONE believes these (maybe with the exception of 4.34%) are Safe WR.

therefore i think your analysis is not realistic for multiple reasons, two of which are fleshed out above

 

[Independent]

There are several factors you are leaving out.
1) Both the 62 & the 70 SS payments will be increased by the CPI, This is a wash in the comparison and therefor can be ignored. So it's 76% exactly.
2) For the 2nd year in a row, the SS CPI has been ZERO. So retirees are being screwed, since their cost of living has, in fact, gone up -- even though the SSA says it hasn't.
3) The 76% higher check is only what you get from SS. To arrive at the total income you have to add in the withdrawal from the side account.

Everyone has his/her personal inflation rate. The best the gov't can do is use an average.

The relevant numbers they are using (CPI-W for third quarter of calendar years) are:
2006 199.067
2007 203.596
2008 215.495
2009 211.001
2010 214.136

So yes, prices were up in 2010 compared to 2009. But they were still lower than in 2008. Since SS benefits ratchet up, there was no decrease on 1/1/10. SS beneficiaries were effectively overpaid in 2010, so there is no increase on 1/1/11.

 

[freebird5825]

My status: Born in 1958, widowed with only my own SS to draw on (husband was in federal CSRS retirement system). I'm still single so I have no spouse benefit issues to deal with...unless Mr B gets some wild matrimonial ideas after I turn 55 and am eligible to remarry without losing that CSRS survivor pension/health benefits.
I will draw my own deferred FERS pension at age 56, and unless taking SS at age 62 will greatly reduce my FERS pension, I'm going for it at age 62.
I will be on a much better financial playing field with the addition of whatever my SS benefit turns out to be.

 

[jdw_fire]

>> the problem with the "break even" type of an analysis when determining when to start taking SS is that when you are retired most people are in a decumulating phase

Agreed, a BE analysis isn't without problems. But it's a pretty good tool to help you see the big picture.
But also realize that the 62 vs. 66 issue does not arise for somebody who *must* decumulate. If you need the money at 62, then you don't have the option of delaying until 66 or 70----so all the calculations showing the benefit of waiting are moot.

first, unless the retiring person is extremely wealthy (i.e. using an inflation adjusted WR of 2% or less) or is still working (i.e. not retired) this person is going to be in the decumulating phase of his/her financial life.

second, i did mention the case where a person has no savings

i can think of 2 scenerios that possibly lean toward taking SS early: 1) a person doesnt have a portfolio and therefore they need to start taking SS as soon as they retire because they have no other source of income
...
and on second thought, if you fall in 1) you will probably need to work till at least age 70 anyway and then start taking SS, so actually even these 2 scenerios will probably lean toward taking SS at age 70.

and third not much savings is needed to challenge the argument of someone "need the money at 62". if for example if person A is due to receive $1K/mo from SS at 62 then A would receive $1760/mo at age 70 (for simplicity i am asuming 0% inflation). if A has a portfolio of $169k s/he could have an inflation adjusted retirement income at 62 yo of $18758/yr if s/he starts taking SS at 62 and using the 4% rule for the portfolio. but if s/he puts the portfolio in an account or CDs that just keep up with inflation s/he can spend $21,120/yr for 8 years and then at age 70 start drawing SS which will provide $21120/yr for the rest of life, all inflation adjusted.

>> the problem with the "break even" type of an analysis when determining when to start taking SS is that when you are retired most people are in a decumulating phase

...

The debate/discussion is relevant ONLY to people who don't need the money at 62!
And for those people, a good method of comparison is to save the early money until you hit 66 (or 70) and then when you do start collecting SS withdraw enough from that side account to cover the shortfall, so that the total you get is equal to the amount you'd have gotten if you would have waited.

Eventually the savings account will be depleted--that's the BE point. And that is generally about 15 years, depending on what earnings you get on the account.

no, as i pointed out in multiple posts above and on previous threads the BE method is not appropriate for the analysis of when to start taking SS

>> delaying the start of SS from age 62 to age 70 will increase your monthly income by ~76% + whatever the CPI goes up those 8 years (in other word a real 76%) is hard to beat.

There are several factors you are leaving out.
1) Both the 62 & the 70 SS payments will be increased by the CPI, This is a wash in the comparison and therefor can be ignored. So it's 76% exactly. it is 176% of what the payment stream that started at age 62 would have been at age 70. in doing the analysis you have to assume an inflation rate (0% if you are ignoring it) and you have to use that rate appropriately in your calculations, which Aeowyn didnt.
2) For the 2nd year in a row, the SS CPI has been ZERO. So retirees are being screwed, since their cost of living has, in fact, gone up -- even though the SSA says it hasn't. this has no bearing on the example i gave in my 1st post
3) The 76% higher check is only what you get from SS. To arrive at the total income you have to add in the withdrawal from the side account. i dont know what you are getting at here. in my example i fully consider the case of the person taking SS at age 62. that person spends it.

This last is what I meant by people ignoring major important factors when making the comparisons. You look at the higher amount at age 70, but ignore the 8 years of collecting the lower amount. When the age 62 person hits 70, he has collected an extra $72,000, which has grown to around $85,000 to $95,000. this is a red herring, the person in my example is spending his SS not saving it so there is no "extra $72,000"
Drawing that down, he will get the same total income as the age 70 SS for 15 to 25 years. That's a huge hurdle for the "wait until 70" proponent to overcome. That's a very long time before break-even.

4) You must take into account your life expectancy. LE at 62 is age 81. LE at 70 is age 83. The "age 62 side account" method break-even point is AFTER your expected mortality age. see my above post and notice at any investment rate of return even close to reality the cross over is before age 81. also i think you are missing my point about using SS as longevity insurance i.e. what if you live longer than your "life expectancy"?

5) You must take into account your life expectancy. According to the SSA mortality table, only 86% of 62 year olds are still alive at 70. IOW, 14% of the people who are 62 won't be collecting ANYTHING at 70---they're dead. and in my examples of using an income approach to deciding when to take SS if they wait to take it till age 70 they get to spend more while they are still alive. but if you wanna spend less, by all means do so

 

[Texas Proud]

2) For the 2nd year in a row, the SS CPI has been ZERO. So retirees are being screwed, since their cost of living has, in fact, gone up -- even though the SSA says it hasn't.

You and others seem to conviently forget that huge increase the year prior for the high gas prices that was short lived but baked into the SS increase... seems to me that retirees got more money than they deserved these past two years and now their inflation is catching up to their payout...

 

[jdw_fire]

My status: Born in 1958, widowed with only my own SS to draw on (husband was in federal CSRS retirement system). I'm still single so I have no spouse benefit issues to deal with...unless Mr B gets some wild matrimonial ideas after I turn 55 and am eligible to remarry without losing that CSRS survivor pension/health benefits.
I will draw my own deferred FERS pension at age 56, and unless taking SS at age 62 will greatly reduce my FERS pension, I'm going for it at age 62.
I will be on a much better financial playing field with the addition of whatever my SS benefit turns out to be.

i think i can show you that (unless you doubt SS) you will be better off waiting till age 70 to start SS. you will need to have a portfolio for this to work so to show you i will need your numbers (portfolio size, income streams, projected SS at age 62 and 70 and expenses/desired spending)

 

[freebird5825]

i think i can show you that (unless you doubt SS) you will be better off waiting till age 70 to start SS. you will need to have a portfolio for this to work so to show you i will need your numbers (portfolio size, income streams, projected SS at age 62 and 70 and expenses/desired spending)

Yes, I doubt SS in terms of the amount of benefit I will receive in 10 years. I'm a natural cynic.
Yes, I have a portfolio (untouched) and a TSP derived fixed annuity (using that right now for COL and continued building of retirement portfolio) besides my current and in-the-near-future pensions.
It all depends on how much of an effect drawing SS at 62 will have on my own deferred FERS pension. I will get that calculation done by a specialist (or online calculator) at OPM retirement services when the time draws nearer.
But thank you for the offer.

 

[GregLee]

no, as i pointed out in multiple posts above and on previous threads the BE method is not appropriate for the analysis of when to start taking SS

But perhaps not everyone agreed with you. Money is worth more the sooner you get it, and calculating the investment value of early SS payments is a reasonable way to estimate how much more the early payments are worth. It really doesn't matter whether anyone actually invests the money and collects interest or whether people spend it early and so get the benefit that way.

 

[jdw_fire]

Yes, I doubt SS in terms of the amount of benefit I will receive in 10 years. I'm a natural cynic.
Yes, I have a portfolio and a TSP derived fixed annuity (using that right now for COL and continued building of retirement portfolio) besides my current and in-the-near-future pensions.
It all depends on how much of an effect drawing SS at 62 will have on my own deferred FERS pension. I will get that calculation done by a specialist (or online calculator) at OPM retirement services when the time draws nearer. But thank you for the offer.

your welcome but something you said confuses me, why would drawing SS at age 62 (or any age for that matter) affect your FERS pension? many years ago i spent quite a bit of time studying the FERS and i dont remember anything about taking SS affecting the FERS pension (maybe i forgot). as i remember, they are supposed to be additive.

sounds like the only one of your retirement income streams (maybe with the exception of your portfolio) that is fully COLAed will be SS, another reason to maximize its payout (i.e. wait till age 70 to start drawing it).

well the offer is still open, i cant see why me showing you what i think i would be showing you would in any way be bad for you (more information makes for a better decision, right? you could always take my analysis to your "specialist") but if you dont want it, no problem

 

[rsingh6675]

Not sure of Departure Date, starting SS right away

I just turned 62 last month & have applied for social soc. benefits. Because, I can't say for sure how long my life span will be. I know someone who retired 6months back and passed away at the age of 63. I am sure if I survive after 76, my monthly expenses should be much less than they are now. So I am going to start my social security right away.

 

[freebird5825]

your welcome but something you said confuses me, why would drawing SS at age 62 (or any age for that matter) affect your FERS pension? many years ago i spent quite a bit of time studying the FERS and i dont remember anything about taking SS affecting the FERS pension (maybe i forgot). as i remember, they are supposed to be additive.

sounds like the only one of your retirement income streams (maybe with the exception of your portfolio) that is fully COLAed will be SS, another reason to maximize its payout (i.e. wait till age 70 to start drawing it).

well the offer is still open, i cant see why me showing you what i think i would be showing you would in any way be bad for you (more information makes for a better decision, right? you could always take my analysis to your "specialist") but if you dont want it, no problem

I did a voluntary separation (resigned) after 18 years 3 months of federal service at age 48. I will apply for my MRA+10 deferred FERS at age 56. So any 20 year service FERS benefits will not apply to me. I knew this before I FIREd.
The CSRS survivor pension is COLAd. My future FERS pension will have some sort of mini-COLA applied.
The HR personnel specialist who helped me FIRE said it may be possible that taking SS at age 62 will affect my FERS deferred pension because I am already drawing a CSRS pension (survivor). The two pensions should not have any punitive overlap, but one never knows. It is not a normal situation.
I have 10 years before I am eligible for SS at age 62. I have 4 years before I can apply for the deferred FERS pension.
My confidence in the current CRSR pension and the in-the-near-future FERS deferred pension is absolute.
My uncertainty lies in what happens in Congress with regard to SS between now and 10 years hence.
Life has taught me to always expect the unexpected.

If you feel like doing some research, I'd be interested in the results.

Please PM me so we can return the thread to the original topic.

 

[jdw_fire]

But perhaps not everyone agreed with you. Money is worth more the sooner you get it, and calculating the investment value of early SS payments is a reasonable way to estimate how much more the early payments are worth. It really doesn't matter whether anyone actually invests the money and collects interest or whether people spend it early and so get the benefit that way.

financially planning for retirement is about planning income streams that in many cases need to last a life time, so it is totally appropriate when deciding when to start one of those income streams (SS) that an income stream analysis be done. all i am trying to do with my posts is to help make peoples retirement more secure and/or show a way to spend more money with the same or less risk.

the only ways the BE method shows that for a single person taking SS at age 62 is better than delaying till age 70 are 1) using a totally unrealistic constant rate of return for that "savings account" or 2) the person dies young. however in case 2) since the person actually gets to spend more money before s/he dies the only disadvantage is that the estate s/he leaves is smaller. so, do you want to spend more while you are alive with less risk or do you want to maximize the estate you leave?

 

[jdw_fire]

I did a voluntary separation (resigned) after 18 years 3 months of federal service at age 48. I will apply for my MRA+10 deferred FERS at age 56. So any 20 year service FERS benefits will not apply to me. I knew this before I FIREd.
The CSRS survivor pension is COLAd. My future FERS pension will have some sort of mini-COLA applied.
The HR personnel specialist who helped me FIRE said it may be possible that taking SS at age 62 will affect my FERS deferred pension because I am already drawing a CSRS pension (survivor). The two pensions should not have any punitive overlap, but one never knows. It is not a normal situation.

thank you for the explanation and i can now understand why i hadnt heard of this potential, i didnt look into the effects on a CSRS survivor pension of taking SS.

I have 10 years before I am eligible for SS at age 62. I have 4 years before I can apply for the deferred FERS pension.
My confidence in the current CRSR pension and the in-the-near-future FERS deferred pension is absolute.
My uncertainty lies in what happens in Congress with regard to SS between now and 10 years hence.
Life has taught me to always expect the unexpected.

the good thing about this is that you dont have to make the when to start taking SS decision now. it gives you plenty of time for analysis.

i still think that taking SS at age 70 would be financially advantageous to you (unless it turns out to be worse for your CSRS pension to take SS at age 70 instead of age 62)

 

[Arnie]

A popular topic ... seems a new article is written on this every day. Here is one from Forbes yesterday.

The Big Decision: When To Take Social Security - Janet Novack - Taxing Matters - Forbes

Some of the main points:

• If you’re still working, don’t claim benefits before your full retirement age
• Don’t take Social Security until you’re sure you want it.
• Consider your family genes and general health.
• Don’t get hung up on the break-even date.
• Understand the couples game.

 

[misanman]

A popular topic ... seems a new article is written on this every day. Here is one from Forbes yesterday.

The Big Decision: When To Take Social Security - Janet Novack - Taxing Matters - Forbes

This link doesn't work for me. Does it require membership or subscription?

Thx

 

[Arnie]

The link is publicly available, but is not working for me right now either. Maybe we overloaded their servers?

 

[Independent]

I didn't see that anyone has mentioned the tax implications. My understanding is that SS goes into the Provisional Income Formula at 50% and therefore delaying can result in lower taxes. There are a number of white papers that address this but I don't have a handy link. Maybe someone else can post one.

I followed up on the link rescueme provided. It seems to be that it's correct that you can reduce your after-70 taxes by deferring SS. The key is that more of your total income will be from SS, and some of your SS income doesn't get into taxable income.

OTOH, if you defer SS, then more of your 62-69 income will be taxable IRA withdrawals, so this increases your taxes during those 8 years.

The taxable SS formula is complex, and it interacts with the FIT tax brackets. It's not immediately clear whether the pre-70 or post-70 taxes dominate. I tried a simple model and it seemed to depend on the general level of income.

I tried a total income of $44k, with a SS benefit of $24k if taken at 62. That case seemed to say that deferring raised the lifetime tax.
Then I tried a total income of $90k, with a SS benefit of $30k if taken at 62. That case seemed to say that deferring lowered the lifetime tax. This is probably the frame of reference for the Prudential article.

Modeling this is complicated by the fact that the factors that determine how much of SS gets into taxable income are not inflation adjusted. So there's an additional variable of the inflation rate.

 

[haha]

Modeling this is complicated by the fact that the factors that determine how much of SS gets into taxable income are not inflation adjusted. So there's an additional variable of the inflation rate.

I think we can generally assume that if you have enough income to retire comfortably, you are going to pay tax on 85% of your SS income. If not this year, the year after. I did during the two years I received it, and I asked a few friends and they all do too. May be easier for marrieds, as they might need less money relative to the SS allowances to pay the bills.

Ha

 

[Independent]

I think 85% is a good conservative planning tool - I use it. But this hinges on the definition of "comfortably".

If I'm doing the worksheet correctly, a couple can have $25k of SS plus $25k of taxable income and only $2,750 of the SS is taxable. The median income for all couples over age 65 is about $46,000, so this would be a slightly-above-median couple.

Of course, if the cost of living doubles in the next Y years, and their nominal income doubles with it, then they'll have $50k of SS income and $32,350 of it will be taxable. That's about 65%.

FINC-02--Part 10

 

[Khan]

All (most??) articles showing how much better off you'd be if you waited until 70 are ignoring the most important factors. The time-value of money and the alternative use for the money collected early.

Sure, you get more money each month if you wait until 70 vs. 62. But they almost always neglect--or mention only in passing--the fact that you've collected 96 more months of payments.

Almost all of these articles and discussions do a lot of handwaving and simplistic math. Simplistic math doesn't cut it for complex financial scenarios.

Here is a spreadsheet I worked up, feel free to plug in your own numbers & assumptions:
https://spreadsheets.google.com/ccc?key=0AlyWRtMroxvgdDI2MlY0UDR4WFRQRFE0Tkw0d19pTnc&hl=en

The "quick BE" worksheet is pretty easy to understand. Depending on your assumptions for long-term average gain, the 62 vs. 66 breakeven is about 17 years. From 12 years if you "invest" in a non-interest bearing account to 30 years if your investments pay 6%.

BTW, the life expectancy for a male at 62 is 19 years. That's the breakeven time at 4% earnings. So, the question you have to ask yourself is "Can I invest and earn at least 4%?"

They are also assuming you will live much past 70.

 

[Arnie]

This link doesn't work for me. Does it require membership or subscription?

Thx

It seems to be working again this morning. No membership or subscription.

The Big Decision: When To Take Social Security - Janet Novack - Taxing Matters - Forbes