When to start taking Social Security

[megacorp-firee]

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]

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]

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]

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]

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]

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]

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..


For me, taking SS at 62 is a no-brainer. There is no downside. At worst case, I break even. At best case, my BEP is 15-20 years. And if I die before NRA of 66 my heirs get to keep the accumulated savings account.

Monthly @62  $1,691       Monthly @66  $2,286    Monthly @70   $3,051  
                                
Break-even period, saving early pymnt & use it to supplement delayed pymnt.

Interest rate earned on savings accnt:    0%      3%      4%      6%
Total accumulated--age 62 to 66:        $81K    $86K    $88K    $91K
Reduction vs.66         $595                            
# months to use up supplement:          136     180     204     294
# years                                 11.4    15.0    17.0    24.5
Age when all used up:                   77.4    81.0    83.0    90.5
                                                
Total accumulated--age 62 to 70         $162K   $183K   $190K   $207K
Reduction vs.70         $1,360                          
# months to use up supplement:          119     164     190     289
# years                                 9.9     13.7    15.8    24.1
Age when all used up:                   75.9    79.7    81.8    90.1
                                                
Total accumulated--age 66 to 70         $81K    $86K    $88K    $91K
Reduction vs.70         $765                            
# months to use up supplement:          106     132     145     183
# years                                 8.8     11.0    12.1    15.2
Age when all used up:                   74.8    77.0    78.1    81.2

 

[FIRE'd@51]

For me at least, another factor is that I do not want to bet against my own longevity. It isn't that I think I will necessarily live to 95; it's just that I don't want the bad karma of betting against that possibility.

Isn't it funny how differently we look at things? I see the karma working the opposite way, that is betting on a longer life (i.e. delaying SS) will likely lead to my not making it to the actuarial average. Hence, I would take it early and hope to be wrong (outlive my actuarial average) - a kind of utility hedge.

 

[aenlighten]

It isn't about chronic problems

Unless you have untreatable cancer, all those other chronic problems are not very meaningful to an individual, as opposed in an actuarial sense to a group.

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.

 

[W2R]

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]

When to take your Social Security? Calculate Break Even Point

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]

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/forums/f28/novel-social-security-question-31734.html#post585787

 

[aenlighten]

Many don't

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]

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]

Taxes

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]

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]

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]

Riding the tide...

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]

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]

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.

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.