Would you delay taking SS?

[Clone]

Many of the claims of "longevity insurance" strike me as special pleading. Somebody who had enough income & assets to forego 100% of their SS benefit for 8 years suddenly fears that their independent income/assets will disappear and they'll be dependent on a (higher) SS benefit?

Right now, I expect that my wife will draw her SS at her FRA. I will probably draw at age 70. We do not need the SS to finance our lifestyle.

If we draw before FRA, we will be giving back some of the SS because we still have earned income. After FRA, she/we can earn without affecting the SS payment.

If I pass before her, then my pension benefit will drop to 75% for her. I view the age 70 SS as longevity insurance for her benefit. My pension does not have COLA. Would there be a risk of her running out of money if I pass early? Probably not. But having a plan that shows a larger SS payment makes her more comfortable at this time.

We are roughly the same age, and about 5 years away from FRA. If the rules change, or we feel differently in the future, we can change our plans. It is nice to have options.

 

[pb4uski]

Why wouldn't you make the best decision for yourself, even if the difference is small? There's no guarantee which way that is, but you can still make an educated decision, or at least a guess.

+1 We found something to agree on... amazing!

 

[RunningBum]

+1 We found something to agree on... amazing!

 

[mathjak107]

we wanted a balance between taking on more market risk or more longevity risk as well as giving up a 340 a month spousal benefit added to my wife's early benefit for every month we delayed . just filed so i will collect in october at 65

 

[Perryinva]

Giving up a spousal kicker typically negates most reasons to delay.

Sounds to me like rayvt is victim of his own argument..a heck of a lot of justification on why it doesn't make sense to delay filing...I'm not ER yet, so I am not making excuses for a decision. Facts are facts, regardless of how they are distorted for "what if " scenarios. A two earner couple that makes $300k total, inflation adjusted most of their careers SHOULD have a huge nest egg. But I can think of a heck of a lot more reasons why they wouldn't than they would. And what percentage of people fit that description? Much more likely far less, as Which Roger said, where the SS benefit is practically the same, but savings is also far less. And for some reason rayvt assumes everyone can invest smartly and beat the averages? Again, maybe here, where it is a self fulfilling prophecy that a successful FIRE means successful investing.

The number of successful investors I know with incomes over 100k pales compared to unsuccessful ones. Years ago, when bank rates were 5-6-7 percent, and longevity was 5-7 years shorter, it was easy to dismiss delayed filing. The SS delayed benefit has not changed but rates are much lower and expectancies are way up. Maybe he is 75 and glad he filed at 62, but that is in no way any type of justification for some one that is 60-62. People with identical incomes and savings and living scenarios can easily have opposite conclusions just because they are 8 years apart in age. It is impossible to say for sure what is better until the time comes and the financial, political, and personal health issues are addressed. You have a fixed benefit definition that ignores all the current variables. Right now, it appears the variables favor a cheap annuity from SSA.

Means testing for SS? Its already there. Nothing is guaranteed in the world, but right now, SS is still the most guaranteed income one can get. There are more people that will live on just SS with minimal savings, than will ER with huge savings, by an order of magnitude or 2. I certainly agree that a wealthy, high income, FIRE retiree, that had been living for 15 years with no SS income while their NW has doubled in that time, may as well take SS at 62. It means little to them either way. Again, what percentage of the populus are we talking about here? Where I came from, the difference of $24k/yr and $43/k a year in guaranteed, lower taxed income is huge. At age 82, the difference between filing at 62 vs 69 can be enormous depending on COLA. Based on my number crunching, if I delay until 69, I will not have to depend on market returns for anything for many many years, because RMDs will exceed any SWR I require. Until inflation erodes my pension to the point where we require more.

Apparently he missed entirely the emotional justification that my wife believed. My WIFE'S argument was $300/mo in 4 years was diddly. That the $1200 now would finance those things. I'll spell it out: It makes her FEEL like she is contributing because she is already retired. But our current lifestyle changed not one iota the years she's been collecting, except now I have to work 4'months more to equal the COLA income that $300/m would have given us, since my SS is already topped out, and the difference has to be made up in pension/savings. As they say, money is fungible, as long as there is plenty to go around. She parks that SS in the credit union where it earns 0.5% because she likes to see it there, where it is safe and available. At tax time we move 6500 in to her IRA. Whether the money comes from my savings or hers makes no difference except that mine earns way more as I can stomach volatility. She can not. At all.

 

[Johanson]

That's where I have a disconnect.

Playing with some back-of-envelope numbers...

Two highish-earners had working incomes of what? -- maybe $300,000/yr total? How large are their investments & retirement accounts when they retired at (say) 62? Surely significantly more than $1,000,000. $5,000,000? $8,000,000?

Drawing 4% SWR from $5M is $200,000/yr or $16,700/mo. Note that this is probably not much less than their working take-home pay (no FICA, no IRA or 401K contributions, etc.).

Maximum FRA SS benefit is $2,639. Let's say they'd get a bit less, so age 62 SS would be $1900 and 70 SS would be $3350, each.

At 62 their total income would be $20,500 (16,700 + 2*1900), or $246K/yr.
Or they could wait to 70 and get $16,700 ($200K/yr) now and $23,400/mo or $281K at 70.

Okay, so the amount of their " longevity insurance" is 60-70K/yr. Great. B.F.D. Compared to a $5,000,000 portfolio, that gets lost in the roundoff. Hopefully they are savvy enough to not invest their entire $5M in Enron stock or with Bernie Madoff.

The disconnect I have is -- what's the difference in their lifestyle between $20,500/mo and $23,400/mo? Heck, I would imagine there is not much difference in lifestyle between $16,700/mo and $20,500/mo.
Either way, you can do pretty much anything you want. (Well, maybe you can't buy your own Boeing 757 with your name emblazoned on it. )

People at that level don't even need any SS benefit, so what is the advantage to maximizing it?

BTW, these are just the people who are the greatest at risk for being hit with means-testing, if that gets put on SS. How'd you like to give up $3,800/mo for 8 years planning to get $6,700 and then get told "Nope, sorry, you have too much, you could get by without it for 8 years so you can get by without it forever."?

In my case, I'm single with just over a half million in retirement savings with nearly all of it in a 401K. I plan on doubling that before I retire in 5 or 6 years. I will also be getting a pension that should be worth about $240K as a lump sum or about $1200/month when I retire that will increase 5% every year I don't draw on it.

My thinking is to live off my 401K right away, perhaps start drawing on my pension after Cobra runs out around 60 years of age and draw SS sometime between FRA and 70 years old to minimize RMDs. But, if the economy completely tanks long before that, I might draw SS sooner. But, my goal is to hold off as long as I can.

 

[Perryinva]

One of the nicer aspects of delayed filing. Is that one can always file retroactive, and get 6 months lump sum. Or once you file, you have up to a year to use the money as you wish, then pay it back, w/o interest and start at the new higher rate. I'm surprised that doesn't get more discussion.

 

[joeea]

One of the nicer aspects of delayed filing. Is that one can always file retroactive, and get 6 months lump sum.

Of course that will reduce your Delayed Retirement Credits by 6 months worth for the rest of your life.

I'm not sure how nice that is, but it an option.

 

[Perryinva]

It's not a matter of nice or not, but as you said, its an option. No different than filing 6 months earlier. Also, after FRA, one can suspend and restart when desired. In practicality, few people do these things, but they ARE options. It's all about the options. If my spouse died before I filed, I would be much more likely to file right away. Same as a major health issue. It's not cut and dry, right or wrong, its about the options based on circumstances.

 

[mathjak107]

One of the nicer aspects of delayed filing. Is that one can always file retroactive, and get 6 months lump sum. Or once you file, you have up to a year to use the money as you wish, then pay it back, w/o interest and start at the new higher rate. I'm surprised that doesn't get more discussion.

if ss is taxable the trade off is you have to pay taxes on it .

 

[Perryinva]

Well, not exactly. It depends on your taxed income level fo each year, and the amount you pay back. If you repay less than $3000, then it is subject to the 2% AGI rule, so likely you do lose any tax paid on that. Once above the $3k amount (like a full years worth) then SS includes a 1099 that shows negative income. So if you are in the same tax bracket in the previous year and the year paid back, AND you can take advantage of the full deduction of the repaid amount, then you will get your SS taxed amount back.

It is a once a lifetime option, and makes the most sense from FRA to FRA plus one year, where the gain is the full 8%. I've been studing this a bit and still can't come up with a reason not to do it, (assuming one wanted to delay to FRA+1 anyway), meaning claim at FRA, then based on market, health, financial situation. etc, pay it back and at least refile for the new higher amount. It could even work to your advantage if you had a much higher income in the year paid back.

 

[1-31-18]

BTW, these are just the people who are the greatest at risk for being hit with means-testing, if that gets put on SS. How'd you like to give up $3,800/mo for 8 years planning to get $6,700 and then get told "Nope, sorry, you have too much, you could get by without it for 8 years so you can get by without it forever."?

Bingo. This is my biggest fear and is in my opinion the best reason to take SS early. Alternatively, take SS the minute SS reform gets any traction at all in Congress, and hope to be grandfathered if additional means-testing is part of the "fix."

(I say "additional" means testing because the government is doing it already.)

 

[bizlady]

Interesting thread. DH will be 62 next year and we are considering what to do. Don't need SS yet, and currently RMD will exceed need at 70. But, we do not have long term nursing home insurance. Currently, our thinking is how do we maximize income for the survivor if one of us needs long term care. I mean LONG term of 5 years or more. Longevity is good on both sides and our plan carries us to age 97, if one of us does not end up in a nursing home and by that age it is likely. So our consideration is not how do we get the most, but how do we preserve the most for a survivor. Current plan is to have DH take at 62 and take less each year from portfolio, and I will take SS at age 70 as mine is slightly higher. One SS check plus non-cola pension is then what the survivor has if assets are depleted....

 

[NW-Bound]

All this talk about SS made me rerun anypia.exe to see what my SS will be at 62, FRA of 66-1/2, and 70. I initially did this in 2014, but downloaded the latest program version from SSA.gov to see the effect of inflation adjustments.

The new program gives me numbers that are 8.5% higher than the 2014 numbers. Even at the recent low inflation level, the cumulative inflation factor can really add up.

I then repeated what I did with FIRECalc back in 2014, that is to enter these SS benefits along with my now larger stash to see what I can spend if I draw SS at the 3 ages. The result was the same as before, that is the spending levels for 100% success stay about the same whether I draw SS at 62, 66-1/2, or 70. Success in this case means being broke in 30 years.

Now, I did something new, that was to select the requirement that my stash will never be less than 50% of its value now, with inflation accounted for. Drawing SS at 62 wins big time! I guess that's the effect of bad sequence of returns at the early phase of retirement that early SS can really help.

And the price of keeping at least 1/2 of my stash at all times means that I can spend only 67% of the level where I allowed myself to possibly being broke in 30 years.

 

[RunningBum]

Now, I did something new, that was to select the requirement that my stash will never be less than 50% of its value now, with inflation accounted for. Drawing SS at 62 wins big time! I guess that's the effect of bad sequence of returns at the early phase of retirement that early SS can really help.

One thing you can do to offset this is to start taking SS when a downturn hits. Just because you don't take it at 62 doesn't mean you have to wait until 70, or decide years in advance when to take it. You can start at 63 or 64 or even 62 and a month if things start going south.

 

[NW-Bound]

One thing you can do to offset this is to start taking SS when a downturn hits. Just because you don't take it at 62 doesn't mean you have to wait until 70, or decide years in advance when to take it. You can start at 63 or 64 or even 62 and a month if things start going south.

Exactly!

FIRECalc presents a whole range of outcomes for the future, which is unknown. But as that future unfolds, one re-evaluates as more is known and the uncertainty is reduced.

 

[pb4uski]

That may be one of the best things about SS...after age 62 it is an option that can be exercised if desired if investment results go sideways.

 

[Koolau]

Interesting thread. DH will be 62 next year and we are considering what to do. Don't need SS yet, and currently RMD will exceed need at 70. But, we do not have long term nursing home insurance. Currently, our thinking is how do we maximize income for the survivor if one of us needs long term care. I mean LONG term of 5 years or more. Longevity is good on both sides and our plan carries us to age 97, if one of us does not end up in a nursing home and by that age it is likely. So our consideration is not how do we get the most, but how do we preserve the most for a survivor. Current plan is to have DH take at 62 and take less each year from portfolio, and I will take SS at age 70 as mine is slightly higher. One SS check plus non-cola pension is then what the survivor has if assets are depleted....

This was pretty much our plan - with the genders reversed. Hope it works for both our family units!

 

[always_learning]

I hope it isn't bad form to return to this thread so late in the game. Life got crazy busy so I haven't been back in a while.

I just wanted to thank everyone for the conversation. The thread is definitely longer than what I expected it would be. I've lots to consider!