When to start taking Social Security

[New Thinking]

Yes..More to come (hopefully) as well.

[haha]

Originally Posted by New Thinking

I respectively disagree with this post. As we have discussed before and I have written about, there is still a tremendous tax saving for a typical single individual to tap qualified assets for income and delay SS to 70.

New Thinking, would you comment on this situation?

I, a single man, have X net invested income producing assets. Roughly (1/3*X) in IRAs, (2/3*X) in taxable accounts. I will soon be 67, and do not yet draw SS. Nor have I ever withdrawn from my IRAs.

I live solely on interest and (mostly) dividends from my taxable accounts, plus sometimes some capital withdrawal from these same taxable accounts. Since retirement more than 20 years ago I have never had a down year in investments, but I have had down years in assets after withdrawing for living expenses.

I rent, so my expenses are not lumpy, and I don't plan on expensive trips or any other foreseeable large expenses.

What is my optimum strategy, regarding both SS and timing of asset withdrawals?

Much thanks,

Ha

[ats5g]

Originally Posted by New Thinking

Yes..More to come (hopefully) as well.

And where's that calculator you promised.

[UncleHoney]

In all the discussions about delaying SS until fra or 70 and pulling from your nest egg to supplement the difference no one ever discusses a low end safe limit for the nest egg. Surly there has to be a danger zone for some people on how far to pull down the nest egg because once you start taking SS you only replace the spent money one check at a time.

For most on this board SS will be small potatoes compared to the total retirement income picture. In my own situation if I delay SS till 70 it would require about $150k in todays dollars if I replace the money dollar for dollar from my nest egg. For me that's no problem. But if I only had $200K or $300K savings I would get more than a little squeamish about burning it down waiting for a bigger check down the road.

Just curious if anyone has given any thought to where the low end might be.

[rs0460a]

Originally Posted by UncleHoney

But if I only had $200K or $300K savings I would get more than a little squeamish about burning it down waiting for a bigger check down the road.

Just curious if anyone has given any thought to where the low end might be.

I would think that those that have little/nothing invested for retirement would not even consider delaying their age 62 benefit (even by one day).

Those that are persuing the delay (as my DW/me are) feel confident in delaying. We plan to delay (at least me) till 70. If my plan dosen't work out, I simply file earlier. It's that simple...

- Ron

[rayvt]

I just flat-out do not understand this. The SS administration itself says " early or late retirement will give you about the same total Social Security benefits over your lifetime. However, if you retire early, the monthly benefit amounts will be smaller to take into account the longer period you will receive them."
An analogy would be debating whether it's best to buy a two-liter of Coke for $3 or two one-liter bottles for $1.50 each.
Huh

If your total lifetime amounts are the same, then what's the significant advantage of getting a larger payment when you are trading it off for a longer period of proportionally smaller payments? I just don't get it. If you "need" the higher payment of the delayed time, then what are you living on in the years before 70?

I can see not taking SS at 62 as long as you are still working and collecting a paycheck. But if you aren't---what's the benefit of collecting $0 for 4-8 years and then collecting a higher amount vs. collecting the reduced amount for all the years. Given the fact that the total collected in your lifetime will be the same whichever way you take it.

[haha]

Originally Posted by rayvt

I just flat-out do not understand this. The SS administration itself says " early or late retirement will give you about the same total Social Security benefits over your lifetime. However, if you retire early, the monthly benefit amounts will be smaller to take into account the longer period you will receive them."
An analogy would be debating whether it's best to buy a two-liter of Coke for $3 or two one-liter bottles for $1.50 each.
Huh

If your total lifetime amounts are the same, then what's the significant advantage of getting a larger payment when you are trading it off for a longer period of proportionally smaller payments? I just don't get it. If you "need" the higher payment of the delayed time, then what are you living on in the years before 70?

I can see not taking SS at 62 as long as you are still working and collecting a paycheck. But if you aren't---what's the benefit of collecting $0 for 4-8 years and then collecting a higher amount vs. collecting the reduced amount for all the years. Given the fact that the total collected in your lifetime will be the same whichever way you take it.

Some answers to your questions are found in several posts above.

The actuarial benefits come from several areas. Since benefits are the same for a man or a woman even though women live longer, this is free money for any woman. The greatest extra amount is harvested on average by waiting till 70 to begin benefits.

Also, the SS annuity has a 100% survivor benefit, for which you pay nothing. This is found money for a married couple, especially where the woman is younger than the man, or to some extent when the man is younger.

Other benefits may come from timing of tax deferred accounts withdrawals, and carefully coordinating these with mandatory minimum distributions which begin in the year in which you turn 70.5.

Ha

[packrat44]

My plan is wait until about 70 to draw SS with DW drawing at 62 for the following reasons:

1) We are converting TIRAs to RIRAs so as to minimize the hassle with RMDs at 70.5. Taking SS at this time would mean paying taxes in a higher marginal tax bracket or reducing the amout of our conversions each year. By having the majority (or all) TIRAs converted to RIRAs prior to drawing SS will keep taxes lower and allow greater flexibility to control taxes.
2) DW is almost 9 years younger than me. Therefore; she will probably live about 12 years after I croak (ribbit; ribbit). When I die, she will draw my higher SS amount.
3) Parents are in their '90s. Grandparents on both sides lived to upper '90s. Odds are good we will live beyond the "average".

For us the benefit favors me waiting to draw SS since we do not need the income at this.

[OAG]

IMO three factors should be considered in the "do over" impact:

1. Earnings, if any, on early benefits over the time/years up to the do over date.

2. The income tax rebate for any taxes paid on SS benefits during the years of the early benefits.

3. Other taxable income high enough to make SS benefits 85% taxable regardless when SS benefits are taken.

[freebird5825]

in my pre-FIRE prep, i always viewed SS as the extra gravy. i am not an optimist about the health of the SS system when i hit 62 in 12 yrs.

i will start SS at age 62 for sure. my full SS benefit age is 66 yrs 8 mos. my crystal ball says that full benefit age could be increased by Congress by then (16+ yrs from now). ya never know. i don't like surprises so i'll start up at 62.

my reasoning - for 4 yrs 8 mos, i will take the lesser payments and invest it in an income generator fund, tax exempt of course. eventually the interest may approach some of the difference (age 62 vs age 66y8m) and i will have the funds in my hands, not leave it in theirs.

re: I can see not taking SS at 62 as long as you are still working and collecting a paycheck. But if you aren't---what's the benefit of collecting $0 for 4-8 years and then collecting a higher amount vs. collecting the reduced amount for all the years. Given the fact that the total collected in your lifetime will be the same whichever way you take it

i totally agree. very good observation.

[megacorp-firee]

Originally Posted by rayvt

I just flat-out do not understand this. The SS administration itself says " early or late retirement will give you about the same total Social Security benefits over your lifetime. However, if you retire early, the monthly benefit amounts will be smaller to take into account the longer period you will receive them."
An analogy would be debating whether it's best to buy a two-liter of Coke for $3 or two one-liter bottles for $1.50 each.
Huh

If your total lifetime amounts are the same, then what's the significant advantage of getting a larger payment when you are trading it off for a longer period of proportionally smaller payments? I just don't get it. If you "need" the higher payment of the delayed time, then what are you living on in the years before 70?

I can see not taking SS at 62 as long as you are still working and collecting a paycheck. But if you aren't---what's the benefit of collecting $0 for 4-8 years and then collecting a higher amount vs. collecting the reduced amount for all the years. Given the fact that the total collected in your lifetime will be the same whichever way you take it.

It's ONLY the same amount if you live to actuarial tables 'predictions'.
If you have a shorter life expectancy than normal, i.e. you have cancer or a poor family history ..., then you should probably take SS at 62 (and you may still not receive 'all' of your payments 'due'.
If you have a long life expectancy ... i.e. all of your relatives lived to be 90, then you should take SS at 70. You should expect to collect more than 'all' of your payments 'due'.

The above is true given that you don't need the SS payments at 62 and that you are not accident prone or have bad habits (like not looking both ways before crossing the street).

I guess the guvmnt is encouraging us to be gamblers.

Good luck to you.

[UncleHoney]

Originally Posted by rayvt

If your total lifetime amounts are the same, then what's the significant advantage of getting a larger payment when you are trading it off for a longer period of proportionally smaller payments? I just don't get it. If you "need" the higher payment of the delayed time, then what are you living on in the years before 70?

I think all the maneuvering and leveraging of the SS system for more money can be played only by people with what I call excess funds. The average Joe 6 Pack won't be able to play the game. Another version of the old adage, it takes money to make money.

Taxes are something else to be considered and by delaying SS may allow you to pull some tax deferred income out and stay below the 25% bracket. Another thing, SS COLA increases are based on the increased amount so delaying will give you more with each increase.

I just passed 62 and for now I'm delaying taking SS. DW started taking her SS at FRA while I was still working which allowed us to max out the 401K each year. I'm just playing the wait and see game right now knowing that I can start SS anytime.

[ziggy29]

Originally Posted by UncleHoney

I think all the maneuvering and leveraging of the SS system for more money can be played only by people with what I call excess funds. The average Joe 6 Pack won't be able to play the game. Another version of the old adage, it takes money to make money.

Well, sure. Anyone who can't make retirement funding "work" without the SS check between the ages of 62 and 70 will likely have little choice but to spend the money, and thus be unable to "return" their benefits at age 70 unless they come across a sudden windfall such as an inheritance.

It's most likely to be of use to people who are still working some, or people with good pensions, as I doubt too many other early retirees will have the ability to completely fund retirement out of their portfolios until age 70.

[haha]

Originally Posted by ziggy29

It's most likely to be of use to people who are still working some, or people with good pensions, as I doubt too many other early retirees will have the ability to completely fund retirement out of their portfolios until age 70.

Just a casual look at these boards suggests the opposite, many well to do people are here, retiring in their 40s or 50s. If they can get by until 62, they can likely get by until 70.

And many also seem to be able to live on very little which should help a great deal too.

Ha

[ziggy29]

Originally Posted by haha

Just a casual look at these boards suggests the opposite, many well to do people are here, retiring in their 40s or 50s. If they can get by until 62, they can likely get by until 70.

And many also seem to be able to live on very little which should help a great deal too.

I'm talking about the typical person, not the type who frequents this board. This is a grossly nonrepresentative slice of society.

[haha]

Originally Posted by ziggy29

I'm talking about the typical person, not the type who frequents this board. This is a grossly nonrepresentative slice of society.

Since you specified "early retirees", not "retirees" of normal age, I naturally assumed that the people you referred to would be those capable of early retirement.

So, I am not sure what you are talking about.

Ha

[ziggy29]

Originally Posted by haha

Since you specified "early retirees", not "retirees" of normal age, I naturally assumed that the people you referred to would be those capable of early retirement.

So, I am not sure what you are talking about.

I suspect many people who make the ER decision are only able to do it by starting SS at 62. That is, they may retire at 55 and have a high withdrawal rate between 55 and 61, only to ratchet it back at 62 when they can collect SS (and perhaps a pension).

These aren't people who are likely to be able to pay it all back when they hit 70 because they needed it for cash flow to make the ER math work.

[rayvt]

Enough with the handwaving and "I don't get it". If nothing else, I had to satisfy my own curiosity with some actual numbers. I dug out a "Your Benefits" statement from the SS Administration and plugged their figures into some calculations, using their actual numbers for monthly benefit at ages 62, 66, and 70.

All this presumes that you actually have a realistic choice between taking SS early or waiting until 66 or later; if you need it at 62 to live on, then this analysis is meaningless.


Take early, at age 62 vs. age 66 (NRA).
The first set of alternatives is:
1) Wait until 66 and collect $2286/month.
2) Start early at 62 and save up the payments of $1691. Then refile at 66, pay back the total payments collected so far, and then collect $2286/month.
3) Same as 2, but deposit the payments in some kind of interest bearing account.

Analysis, alternative 1 vs. 2:
There is no substantive diffrence between 1 & 2. You collected $81K and pay back $81K, which is the entire amount you've accumulated. That assumes you are still alive at 66! If you die before 66, then you will never collect $2286/mo. But if you start at 62 and then die before 66, your heirs will get to keep all your post-62 payments.

Analysis, alternative 1 vs. 3:
You get to keep whatever interest you've earned on the saved payments. If you've earned 4% PA compounded, you have $88K and must pay $81K, so you keep the difference of $7K.

Therefore----among these alternatives #3 it is financially best.


The second set of alternatives is:
1) Wait until 66 and collect $2286/month.
2) Start early at 62 and save up the payments of $1691, depositing them into an interest bearing account. At age 66, begin withdrawing enough from this account to make up the shortfall between the age 66 and age 62 payments. This is $2286 - $1691, or $595/month.

Analysis:
At some point after you begin the withdrawals, the account will become exhausted--this is the break even point (BEP). After that point, your net SS income will drop down to the early amount--$1691. The question is: where is this BEP?

At 0%, this will take 136 months, or 11 1/2 years, which is age 77 1/2.
At 4%, this will take 204 months, or 17 years, which is age 83.

But again, this presumes you live past the BEP. If you die sooner than the BEP, then your heirs will get to keep the balance of the assumulated savings account.

I also ran the calculations for age 62 vs. 70 and 66 vs. 70.

All this ignores COLAs and inflation, which would change the figures slightly, but not majorly.


Note:
Delayed increase past NRA to 70 is 0.6667% per month.
NRA of 66 to 70 = 32% increase.
Early decrease at 62 (vs. 66) is 0.5556% per month for 36 months, then 0.4167.
NRA of 66 to 62 = 25% decrease.

SS mortality table says (for male)
Age 62 is 18.85 yrs = Age 81
Age 66 is 15.96 yrs = Age 82
Age 70 is 13.27 yrs = Age 83


Editorial commentary:
When deciding between age 62 vs. 66, if you can earn about 3% on the accumulated savings the BEP is 15 years, which takes you to age 81, which is just about where the SS life expectancy table has you dying. If you die after 62 but before 81, your heirs get to keep the extra accumulated money. But if you live past 81, you drop down to a lower monthly payment.

When deciding between age 62 vs. 70, the BEP is about a year sooner. But you've accumulated a lot more money in your savings account for your heirs to keep depending on just when you die..