When to start taking Social Security

[Want2retire]

Originally Posted by aenlighten

It is about behavior and genetics. As long as you aren't an alcoholic, don't smoke, or exhibit other risky behaviors, genetics puts real limits on your lifespan. These limits are often much tighter than any statistical distribution. All those in my mothers family died within 3 years of one another even though they lived fairly different lives and the proximate causes differed. In my fathers family, after removing alcholics and smokers, everyone died within 6 years of one another. Neglecting information like this can be hazardous to your financial wealth.

Genetics does put real limits on your lifespan. However, I really do think that very few of us approach our maximum lifespan.

Anecdotal evidence aside, there are a myriad of environmental factors that can shorten one's life and aren't involved in drinking, smoking, or exhibition of other behaviors that are conventionally thought of as being risky. I believe you may be underestimating these. Well, unless you consider walking across the street, contracting a fatal disease, or taking a stressful job to be a risky behavior, which in a sense these are.

[jedelfelt]

One data point helpful in deciding when to take your Social Security benefit, is to calculate your benefit break-even point. Your break-even point, according to the Social Security Administration, is the age at which the total dollars you receive from Social Security, assuming you take your benefit at age 62, equals the total dollars received, assuming you take your benefit at full retirement age.

A simple way to calculate your break-even point is to determine the total amount of benefits you estimate you’d receive between age 62 and full retirement age, then divide the sum by the difference between your age 62 benefit and your full retirement age benefit. The quotient will be the number of months after your full retirement age that you’ll break even.

However, this analysis by the Social Security Administration is mathematically simplistic because it fails to consider cost-of-living increases in Social Security benefits and other factors. It also fails to consider the time value of money, that is, the fact that a dollar received today is worth more than a dollar received in the future. The extremely mathematically inclined among you might want to read Robert Muksian’s article, “The Effect of Retirement Under Social Security at Age 62,” published in the January 2004 issue of the Journal of Financial Planning. He makes a compelling case based on mathematics for waiting until full retirement age to collect Social Security benefits.

Jonathan Edelfelt
Author, Who Said You Need Millions? Retirement Strategies for the Rest of Us

[ronin]

Muksian's breakeven calculators are freely available here:
Robert Muksian

[Rustic23]

I looked at my statement. There is $1,300 difference a month between taking it at 62 and 70. Assuming you don't need the cash and you would save it all at say a safe rate of 4%, you would have about $150,000 at age 70. Now seeing as my wife's family is a long living family both parents lived past 95, she would have to treat the cash as a safe rate withdrawal. So she could take about $500 a month out. Add that to here $1,300 and she gets $1,800.

Now if she can live on $1,800 a month and she lives to 95 she will beat the clock. However, if she can't live on $1,800 a month, it would be better for me to wait till 70 and get $2,600 a month. I matters not when I die, or how much we might miss out on. If she can't live on the amount SS would pay it matters not. Now if I ran the savings out to my expected life 85, the savings would be larger, and it might work. At this point my head begins to hurt. I'm not trying to maximize what I get from the government, but the amount DW or I will have to live on should the other die.

[REWahoo]

Originally Posted by Rustic23

I'm not trying to maximize what I get from the government, but the amount DW or I will have to live on should the other die.

Me too, at least up to a point. Right now (age 61) I'm leaning towards the strategy outlined in the following link, but I might pull the final trigger at age 66-67 rather than wait until age 70: http://www.early-retirement.org/foru...tml#post585787

[aenlighten]

Originally Posted by Want2retire

Genetics does put real limits on your lifespan. However, I really do think that very few of us approach our maximum lifespan.

After all, may die of accidents. But when you look at the longest lived in families, those that die of natural causes, these seem quite limited. There are many environmental effects, but often even these have a genetic component in what one chooses to eat, how one chooses to live, etc.

Some people seem to think just because some people live to 100 they have an equal chance. I vehemently disagree. Too many things run in families that circumscribe our limits. Stories such as the runner that dies of a heart attack in his 30s, brothers that die within months of each other in their 50s, are quite common. Our biological clocks are driven by our genetic heritage. This ageing is very significant. Our efforts may extend it slightly or shorten it considerably, but can't generally extend it much.

[Khan]

Originally Posted by aenlighten

After all, may die of accidents. But when you look at the longest lived in families, those that die of natural causes, these seem quite limited. There are many environmental effects, but often even these have a genetic component in what one chooses to eat, how one chooses to live, etc.

Some people seem to think just because some people live to 100 they have an equal chance. I vehemently disagree. Too many things run in families that circumscribe our limits. Stories such as the runner that dies of a heart attack in his 30s, brothers that die within months of each other in their 50s, are quite common. Our biological clocks are driven by our genetic heritage. This ageing is very significant. Our efforts may extend it slightly or shorten it considerably, but can't generally extend it much.

My particular concern is that I'll live into my 80s, but the physical deterioration started in my 40s (an inherited pattern).

[New Thinking]

A big issue is taxes and for those who have not read our discussion before, the problem for many people will be that they will face high marginal rates on their IRA income when they couple that income with Social Security. Referred to as "The Tax Torpedo" by Scott Burns and others, most people think that it is unavoidable and that 85% of their SS benefits will be taxable..Remember that the current tax brackets are going to sunset in 2011 and the 25% rate will be applicable at around $40k of income..Thus many of you will pay a 46.25% federal rate on your IRA withdrawals. "The Tax Torpedo" can be diffused by taking more of your income in retirement in the form of SS.

This is because the formula treats SS income much more favorably and IRA taxes are reduced and SS taxes are reduced. This is why, along with the risk pooling nature of SS, one can retire much earlier by delaying SS.

In my mind, the two main issues are 1) how much after-tax income will you need and 2) minimizing the risk to that income for life.

If you really hate the idea of "losing out" if you delay SS and die before the break-even point, you can easily eliminate this risk by buying a low-cost level term life insurance policy for 15 years, which takes you to the break-even point (from age 62-77)..This arbitrage puts you way ahead and mitigates risk. Food for thought.

[packrat44]

Originally Posted by New Thinking

A big issue is taxes and for those who have not read our discussion before, the problem for many people will be that they will face high marginal rates on their IRA income when they couple that income with Social Security. Referred to as "The Tax Torpedo" by Scott Burns and others, most people think that it is unavoidable and that 85% of their SS benefits will be taxable..Remember that the current tax brackets are going to sunset in 2011 and the 25% rate will be applicable at around $40k of income..Thus many of you will pay a 46.25% federal rate on your IRA withdrawals. "The Tax Torpedo" can be diffused by taking more of your income in retirement in the form of SS.

This is because the formula treats SS income much more favorably and IRA taxes are reduced and SS taxes are reduced. This is why, along with the risk pooling nature of SS, one can retire much earlier by delaying SS.

This is one of the reasons why IMO it is beneficial to convert TIRAs to RIRAs upon retiring and prior to receiving SS, if a person is in good financial shape.

[Independent]

Originally Posted by aenlighten

After all, may die of accidents. But when you look at the longest lived in families, those that die of natural causes, these seem quite limited. There are many environmental effects, but often even these have a genetic component in what one chooses to eat, how one chooses to live, etc.

Some people seem to think just because some people live to 100 they have an equal chance. I vehemently disagree. Too many things run in families that circumscribe our limits. Stories such as the runner that dies of a heart attack in his 30s, brothers that die within months of each other in their 50s, are quite common. Our biological clocks are driven by our genetic heritage. This ageing is very significant. Our efforts may extend it slightly or shorten it considerably, but can't generally extend it much.

I've seen a couple things that suggest there really is some set of "anti-ageing genes". The book "Living to 100" by Tohmas Perls talks about studies of very old people. In lots of cases, these people have always looked "young for their age". The looked like they were 50 when they were 65. Now that they're 95, they look like 80. They also have very old siblings. In fact, they found many more such pairs than you'd expect if genes (or some shared childhood environment) weren't a big part of longevity.

[Planner Steve]

Wow, I've been really impressed by the collective knowledge expressed through this discussion. I exposed me to some interesting works I'll need to study harder. Here is a link to the Robert Muksian works on social security that seems to be current.

Robert Muksian

I'd agree that this decision is highly individual and needs a look at several factors. In some cases, it is a no brainer. In others it can be a pretty involved analysis of tax situation, life expectancy, investment assumptions, and time value of money. If you don't really understand how the various calculators work, get some help from someone who does.

[jedelfelt]

As other posters have alluded to, ultimately the answer to the: "When Should I Take My SS Benefit?" question primarily boils down to your guess about your life expectancy. The odds that you’ll live past age 80 aren’t in your favor. But there are other factors you should consider in deciding when to take your benefit (some of which have been mentioned already). Here are my favorites:

• Your other assets: If part of your personal savings are tax-deferred investments such as accounts in 401(k) or 403(b) plans or IRAs, by taking your Social Security benefit early (to provide you with income), you may be able to delay liquidating those investments, allowing them to continue to grow tax-free and delaying the eventual tax consequences of selling.
• The future of Social Security: There’s no telling what will happen to Social Security. Congress may decide to reduce benefits or delay cost-of-living increases in order to keep the system solvent. Thus, the take-the-money-and-run approach at age 62 may be the better choice.
• Your health: Taking your Social Security at age 62 may allow you to finance travel and other activities while you’re still active. After you reach your full retirement age, you may not be as physically capable as you once were.
• The possibility of a decrease in expenses with age: Some suggest that because your annual expenses at age 62 (when you’re first eligible to take your Social Security benefit) will be significantly higher than they will be at age 78 (when you’ll probably reach your break-even point), you should take your benefit starting at age 62 and enjoy it. The life of a 78-year-old may not be quite as adventurous and expensive as the life of a 62-year-old. Although I personally know a few exceptionally hardy and active septuagenarians and octogenarians, few in that age group are climbing Mount Everest, hang-gliding in Patagonia, or backpacking through Europe. For some in their 70s and 80s, a great adventure may be as simple as a good bowel movement.
• The possibility of outliving your other retirement money: Assuming that the Social Security system will be there in the future, if you have concerns about outliving your money, you might want to consider taking your Social Security benefit later. That way, if you make it to the ripe old age of 90 or 100, you’ll have a much larger benefit than you’d otherwise have.
• Income needs of your spouse: While you’re alive, your spouse is entitled to collect the greater of ½ of your benefit or the benefit based on his or her own work history. If you precede your spouse in death, your spouse will be entitled to the greater of the benefit based upon his or her own work history or a survivor’s benefit equal to 100 percent of your benefit. In situations in which your spouse is much younger than you, and the survivors benefit is significantly greater than the benefit based upon you spouse’s own work history, it might be better for you to wait to receive the higher Full Retirement Age benefit so that your spouse receives the highest possible benefit after your death.

Jonathan Edelfelt
Author of Who Said You Need Millions? Retirement Strategies for the Rest of Us

[rjk514]

Am 63 now and have not yet applied for SS as don't need the $$$$ at this
time and if the Washington crowd decides to play with SS I will immediately
apply for it as it would take them more that 3 months to change it and I'm told that
it takes 3 mo. for SS to start

[haha]

[quote=jedelfelt;656194]As other posters have alluded to, ultimately the answer to the: "When Should I Take My SS Benefit?" question primarily boils down to your guess about your life expectancy. The odds that you’ll live past age 80 aren’t in your favor.

Jonathan, where do you get that idea? No decison is even possible until age 62. At age 62, the median expectation for men is 18.85 more years, for women 21.89 more years. So adding the to age 62, we have for men, age 80.85- so it looks that the odds of reaching 80 for men are a bit better than 1/2. But for women it is even better- 62+21.89 gives a median age of 83.89.

Actuarial Life Table

Ha

[rayvt]

Originally Posted by rjk514

Am 63 now and have not yet applied for SS as don't need the $$$$ at this
time

It's got nothiong to do with "need the $$$$".

It's got to do with pure financials----how long does it take to get to the break-even point.
Run your own SS-supplied figures through a spreadsheet. Try saving early pymnt & use it to supplement delayed pymnt until you've exhausted the saved money. At 4% interest (earnings), my break-even period is 204 months--17 years. That's much too long of a BEP to give any serious consideration to.

Originally Posted by rjk514

if the Washington crowd decides to play with SS I will immediately
apply for it as it would take them more that 3 months to change it and I'm told that
it takes 3 mo. for SS to start

At age 63, you still haven't realized the truth about Washington?!!!
They can and do and will change the rules at whim, and make the changes retroactive, too. You were certainly around to see what they did in 1986 when they changed the rules about real-estate investments.