When to start taking SS?

[TheWizard]

I'm new here, more commonly over at BH forums.
What's the general thinking here about when is the best time to start taking SS retirement income?

Let's assume the current time-frame with FRA = 66 and interest rates for "safe" investment what they are right now.
Let's simplify the discussion to a single person who has sufficient assets that he can terminate employment at age 58, 60, or 62 without desperately needing SS income.
Let's further assume that our early retiree is in nominally good health.

So our retiree's income consists of some combination of pension/annuity, supplemented by as-needed withdrawals from his good-sized nest egg. His SS income will be somewhere between $15K/yr and $30K/yr, depending on when he chooses to start receiving it.
So what starting-age between 62 and 70 would yield the best long-term nest egg results?
And what starting-age do most folks here in similar situations use?

 

[MasterBlaster]

I'm new here, more commonly over at BH forums.
What's the general thinking here about when is the best time to start taking SS retirement income?

Let's assume the current time-frame with FRA = 66 and interest rates for "safe" investment what they are right now.
Let's simplify the discussion to a single person who has sufficient assets that he can terminate employment at age 58, 60, or 62 without desperately needing SS income.
Let's further assume that our early retiree is in nominally good health.

So our retiree's income consists of some combination of pension/annuity, supplemented by as-needed withdrawals from his good-sized nest egg. His SS income will be somewhere between $15K/yr and $30K/yr, depending on when he chooses to start receiving it.
So what starting-age between 62 and 70 would yield the best long-term nest egg results?
And what starting-age do most folks here in similar situations use?

There isn't a definite answer for you. Some believe that you should wait until you are 70 to insure you get the highest payout. Others take the money at 62, invest it (or don't hit up the nest egg so much for income), and believe they come out better.

It gets more complicated with spousal benefits and survivor benefits involved.

But what it really comes down to is... Can your investments beat the sure thing of delaying SS and getting increased payments from them. Perhaps you can but you will be taking on additional risk to do that.

Also notice that present tax laws are kind of stacked against you in that SS benefits get (increasingly) taxed at higher incomes. When you do your analysis, the (correct) answer must include tax effects.

 

[73ss454]

Waiting is a good choice but you have to be alive for it to work. I'm 62 and my plan is to jump in when DW turns 62 in Dec. of 2012. If the market dumps out again I'll take it sooner. I don't think there is any one answer, you have to go with your gut.

 

[TheWizard]

There isn't a definite answer for you. Some belive that you should wait until you are 70 to insure you get the highest payout. Others take the money at 62, invest it (or don't hit up the nestegg so much for income), and beleive they come out better.

It gets more complicated with spousal benefits and survivor benefits involved.

But what it really comes down to is... Can your investments beat the sure thing of delaying SS and getting increased payments from them. Perhaps you can but you will be taking on additional risk to do that.

Also notice that present tax laws are kind of stacked against you in that SS benefits get (increasingly) taxed at higher incomes. When you do your analysis, the (correct) answer must include tax effects.

Right, you've pretty well summarized the issues.
If we could get "high-paying" CDs, then starting at 62 would make more sense.
Maybe the right answer is to monitor your nest egg and see how it goes?
With 40% in stocks, one could easily grow the nest egg even while withdrawing from it.
But if there's another downturn like 2008, then start taking SS income then?

Separately, I need to look at SS taxation vs taxation of similar net amount from 403b accounts...

 

[HFWR]

My current thinking is to take it at 62 - for both "bird-in-the-hand" and to enable retirement earlier issues. Subject to change...

One reason not often mentioned when discussing waiting as long as possible is to draw down retirement accounts, thereby reducing RMDs.

 

[fritz]

There isn't a definite answer for you. Some believe that you should wait until you are 70 to insure you get the highest payout. Others take the money at 62, invest it (or don't hit up the nest egg so much for income), and believe they come out better.

It gets more complicated with spousal benefits and survivor benefits involved.

But what it really comes down to is... Can your investments beat the sure thing of delaying SS and getting increased payments from them. Perhaps you can but you will be taking on additional risk to do that.

Also notice that present tax laws are kind of stacked against you in that SS benefits get (increasingly) taxed at higher incomes. When you do your analysis, the (correct) answer must include tax effects.

Current Strategy (acceptable risk)

 

[W2R]

There isn't a definite answer for you. Some believe that you should wait until you are 70 to insure you get the highest payout. Others take the money at 62, invest it (or don't hit up the nest egg so much for income), and believe they come out better.

It gets more complicated with spousal benefits and survivor benefits involved.

But what it really comes down to is... Can your investments beat the sure thing of delaying SS and getting increased payments from them. Perhaps you can but you will be taking on additional risk to do that.

Also notice that present tax laws are kind of stacked against you in that SS benefits get (increasingly) taxed at higher incomes. When you do your analysis, the (correct) answer must include tax effects.

Excellent answer, and I think fairly represents our members' division on this frequently discussed topic. I'd guess that our singles are more or less evenly divided on whether or not to claim at 62 or wait. We sometimes refer people who are making this decision to Bogleheads.

The crash of 2008-2009 inspired at least one of our members to change course and claim early, despite prior plans to wait.

Unknowns in this decision include future possible changes in taxation of SS.

 

[gerntz]

If one has the income, I think looking at SS as last chance safety net insurance is good. I.e., if all of your other sources of income go away for whatever reason, the one remaining is most likely SS. Net, you'd want that to be as large as possible. That's waiting till age 70 to take. What if you die early? Well then, what does it matter given you had enough other income sources.

 

[Independent]

One consideration is the size of your total retirement fund (including pensions).

Case 1. You have enough money that there's no risk that you will run out before you die.

In this case, we're talking about how to maximize your estate. Get that answer by accumulating the start-at-age-62 payments at your most likely accumulation rate and comparing to your start-at-some-later-age payments accumulated at the same rate, both to your most likely date of death. Adjust for taxes on your investment earnings and SS if you like.

Case 2. You see a real risk of running out of money before you die, particularly if you live to an unusually high age and experience unusually poor investment performance.

In this case I think of deferring SS as buying longevity insurance. Like any insurance, you test it against the unlikely events, not just the most likely. A good place to start the analysis is with FireCalc with some longer-than-average life span and insist on high probabilities of success. Run a start-at-62 scenario and a defer-to-later-age scenario. See which provides higher higher withdrawal rates or better probabilities of success. Back of the envelope calculations using the traditional 4% SWR say that you're better off deferring.

 

[MasterBlaster]

The Journal of Financial Planning did an in-depth analysis on this topic.

Their conclusion on when to take SS is........................It depends

1) Do you want to maximize income potential
2) or do you want to minimize the possibility of ever running out of money.

You can read about the details of the study here:

Social Security: When to Start Benefits and How to Minimize Longevity Risk

and here:

www.anchorfg.com/new/anchorfg/content.asp?contentID=2017413313

Executive Summary

• This study examines strategies for singles and couples who are deciding when to begin Social Security benefits.
• Two factors should affect individuals' decisions about when to begin Social Security benefits. First, which starting date for singles or starting dates for couples maximize the present value of benefits? Second, which date or dates minimize longevity risk?
• For single taxpayers with average life expectancies who will not be subject to an earnings test, present value of benefits is approximately the same no matter when benefits begin. Therefore, based on present value criterion, singles with short life expectancies should begin benefits early and those with longer life expectancies should delay. To minimize longevity risk, benefits should begin at 70.
• The decisions for couples revolve around spousal and survivor's benefits. For an average couple, present value is usually maximized when the lower-earning spouse begins benefits as soon as possible (as long as those benefits would not be lost due to the earnings test), while the higher-earning spouse delays benefits until age 70. Longevity risk is minimized when the higher-earning spouse delays benefits until 70.

 

[FANOFJESUS]

I like playing with this. You just got to guess your death in the ballpark.

Social Security Benefits Calculator

 

[TheWizard]

I'll read the JFP article later this evening, thanks.

In my case, I'm not too worried about running out of funds in later years. I think my goal is to have a comfortable excess of discretionary income to permit more elaborate SCUBA diving island travel than has been feasible to this point.

The major $$ uncertainty isn't so much on the SS side, but on the side of my personal nest egg investments. So, as someone else said, it's becoming clear that this will be a steer-it-as-you-go kind of plan, not something that can be cast in cement ahead of time...

 

[jebmke]

I like playing with this. You just got to guess your death in the ballpark.

Social Security Benefits Calculator

Unless you are willing to self-inflict, yes, you need to guess.

 

[TN_INVEST]

I've studied this topic fairly extensively.

Using fairly reasonable assumptions, the general consensus is to take it as soon as you can (hint: the actuaries are better mathematicians than most of us).

 

[MasterBlaster]

I've studied this topic fairly extensively.

Using fairly reasonable assumptions, the general consensus is to take it as soon as you can (hint: the actuaries are better mathematicians than most of us).

No that's not the general consensus.

Would you care to expand on your thinking.

 

[ziggy29]

The decision to start at 62 (even if you didn't need it) used to be easier when the "do-over" was in place. Now that it's mostly going away, the decision to take it ASAP isn't as easy to make. There's also the possibility for couples where one takes it as early as possible and the other waits until 70, which can be advantageous in some situations.

 

[67walkon]

Most people I know who continue working past 62 don't take SS until they quit. I don't know of anyone who has actually waited until 70. I'm 61 and may quit next year or the year after. My wife is 5 years younger. It makes sense for her, and maybe for me, to delay taking SS until I'm 70 because I think she will live a long time. On the other hand, when I hit 66 or whatever, it sure would be nice to have that extra money coming in.

I think I'll play it by ear.

 

[Coolius]

After much deliberation, I have decided to take SS at 63. I believe that I can get a 4% return on the money if invested, so that my Breakeven time is about 83 years old.

I personally do not believe I will live to that age ( Parents died at 77 and 82 ) and I have High Blood Pressure and High Cholesterol to boot, so 83 is a reasonable age to take - perhaps a little on the optimistic side?

The reason for not taking at 62 is to minimize taxes for that final year before benefits start, and I intend to draw down my taxable accounts as much as I can.

IRAs will not need to be accessed until 70 1/2, so I have no issues there.

Everyone's approach to this is individual, depending on one's personal circumstances. Thus, I acknowledge that my plan is not for anyone except myself.

 

[TN_INVEST]

No that's not the general consensus.

Would you care to expand on your thinking.

One of the main issues I see with most folks and their break even analysis is they forget you can pass away before taking social security (let's say age 64). Had they started ss @ 62, they would have probably already pocketed $40K.

 

[TheWizard]

One of the main issues I see with most folks and their break even analysis is they forget you can pass away before taking social security (let's say age 64). Had they started ss @ 62, they would have probably already pocketed $40K.

Right, and I could be run over by a cement truck on the way home tonight and not even make it to early retirement.

But financial planning generally needs to take a longer view.
I will agree that the extent of one's "bequest motive" may influence how they structure their financial empire.
I personally have minimal concerns about leaving a large estate...

 

[MasterBlaster]

One of the main issues I see with most folks and their break even analysis is they forget you can pass away before taking social security (let's say age 64). Had they started ss @ 62, they would have probably already pocketed $40K.

You could make the same cooments about your nestegg.

What if you die before spending that extra $40k out of your nestegg.

Not only does it really suck to be dead, but what's worse you didn't spend enough !

 

[Independent]

One of the main issues I see with most folks and their break even analysis is they forget you can pass away before taking social security (let's say age 64). Had they started ss @ 62, they would have probably already pocketed $40K.

My observation is that most people who forget they can pass away before taking SS aren't posting here.

According to the SS actuaries, a man born in 1950 and reaching age 62 will have almost a 3% chance of dying in the next 2 years (most of those people probably know they have unusually bad health on their 62nd birthday). They have about the same chance of living to 99 and dying sometime after that. Equivalent numbers for a woman are 2% and age 103.

Good planning requires thinking about both possibilities.
Life table Tbl_7_1950

 

[mickeyd]

When to begin taking SS depends on two main things IMHO ~(1) Your health. (2) Your financial need for the income stream that SS provides.

If you are in excellent health and have a family history of longevity and have enough current income from other sources (pensions, royalties, work etc) to pay all of you current expenses, delaying SSA income stream looks very good to me.

 

[GregLee]

According to the SS actuaries, a man born in 1950 and reaching age 62 will have almost a 3% chance of dying in the next 2 years (most of those people probably know they have unusually bad health on their 62nd birthday).

So if you're 62 and you don't know you have unusually bad health, your chance of dying in the next 2 years is less than that 3%, so you will probably live longer than the SS actuaries anticipate.

 

[REWahoo]

I took SS at age 62 and sincerely hope to live long enough to make it a bad decision.