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Old 05-31-2015, 08:40 PM   #361
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Am I missing anything or misunderstand this?]
Is DW collecting SS on her own record, or on the spousal benefit under your record? If you guys are close in age and of typical health, she'll probably outlast you. Her spousal benefit SS will be considerably larger if you wait to take your SS. That buys a lot of longevity insurance, and helps cover things if the market does poorly or she makes any investment mistakes after you are gone. Delaying SS is the cheapest inflation-protected annuity you can get.

Regarding your net worth and how it affected by taking SS early or not: If you include the NPV of your SS benefits, then taking SS at 63 or waiting should make no difference to your net worth--it will be about the same in both cases.
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Old 05-31-2015, 08:49 PM   #362
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She collects it as a spousal benefit under my record. She only worked outside the home while the kids were in college to help pay for that so we wouldn't have to downsize our retirement savings rate during those years. We are within 4 months of the same age, me slightly older. My health is typically better than hers. I suspect I'll outlive her, but took my pension to cover her at 100% if I do die first.

At 62, our combined SS is mine plus 34.38%
At FRA of 66 and 4 months, it's mine plus 50%

My SS by itself is $1875 at 62 and $2542 at FRA
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Old 05-31-2015, 11:15 PM   #363
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Originally Posted by skipro33 View Post
At 62, our combined SS is mine plus 34.38%
At FRA of 66 and 4 months, it's mine plus 50%

My SS by itself is $1875 at 62 and $2542 at FRA
So, if you wait until FRA to claim SS and then predecease her, her monthly benefit will be about $625 greater than if you'd started SS earlier ($1271 per month vs $645 per month). That monthly amount might not make a big difference to you guys, but to a lot of people it's important, especially because 1) she can't outlive it and 2) it will be adjusted for inflation, so will (roughly) retain its same value.

When a worker takes SS before FRA, he gets a reduced monthly amount. But the spousal benefit percentage is also reduced, so it is a "reduced percentage of a reduced amount." SS is supposed to be set up so that when a worker takes benefits is actuarially neutral : take 'em early or late, you'll wind up with the same benefit (on average). I don't think that's true once we look at the spousal benefit (I have not checked this).
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Old 06-01-2015, 05:49 AM   #364
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That makes a TRUE break-even of age 83 to really break even, where my savings and my SS draw are now at the same value. Actually, that doesn't even consider the lost growth of my own savings I'd be gaining for those years between 62 and FRA when I'd be on SS.

Am I missing anything or misunderstand this?
No, you got it right.

Myriads of people have gone through the same calculations, and come up with pretty much the same result -- the breakeven age is middle 80's, right around the life expectancy of a person between 62 and 70.

The amusing thing is, the SSA comes right out and says that it was designed to be actuarially neutral. But people keep running thru the numbers anyway -- only to discover for themselves that the SSA spoke true.

If (big IF) you can earn an average of 5% above inflation, the breakeven age is around 90. If you can earn 6% above inflation, breakeven is around 100.

My plan is to have enough in savings & investments so that whatever I get from SS will be effectively pocket change. And who cares about maximizing pocket change?

-------------
W/R/T Spousal & survivor:
I am enhancing my SS breakeven spreadsheet to incorporate these. It's quite complicated. (No surprise there.)

What it looks like to me so far is that as long as both are living, the decisions of early/deferred for each are independent of each other. The actual number change but not the relative amounts.

Survivor is where it gets complicated. The widows benefit base depends on when and if he filed. If he filed, widow base is his actual benefit (with reduction/increase for filing early/late). If he didn't file (or file & suspend), widow base is his benefit amount at his death, but not lower than his FRA amount.

To that is applied the widow reduction (reduction only, no extra credit for delaying). Widow can start as early as 60.

What all this amount to is that the optimal survivor choices depend on how their ages overlap in the range of 60-66 (her) and 62-70 (him).
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Old 06-01-2015, 09:36 AM   #365
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Am I missing anything or misunderstand this? Seems to me, that I live my expected life span and break even at age 83 and I get to protect my savings for my heirs if I draw SS at 62. Plus I get to keep my net worth at it's highest during the entire period.
.
As I've noted elsewhere, your break even could be even more like 85 if:

-You would otherwise be withdrawing taxable $$ from an IRA/401K
-You live in a state that would tax the IRA W/D but doesn't tax SS.
-Your total income is low enough to reduce your SS taxes.

In my case, the state tax savings is about $1300 per year. The Fed taxation of only 85% of SS puts another $800 in my pocket.

IOW: an extra $2K pocketed vs if I took it out of my IRA.
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Old 06-01-2015, 10:09 AM   #366
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Am I missing anything or misunderstand this?
You need to PV the cash flows.
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Old 06-01-2015, 10:13 AM   #367
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As I've noted elsewhere, your break even could be even more like 85 if:

-You would otherwise be withdrawing taxable $$ from an IRA/401K
-You live in a state that would tax the IRA W/D but doesn't tax SS.
-Your total income is low enough to reduce your SS taxes.

In my case, the state tax savings is about $1300 per year. The Fed taxation of only 85% of SS puts another $800 in my pocket.

IOW: an extra $2K pocketed vs if I took it out of my IRA.
This example seems to be for years prior to age 70.
What happens after 70?

When I tried to do the numbers for myself, the tax impact pushed the SS breakeven out just a little.
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Old 06-01-2015, 10:24 AM   #368
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using A 2% cpi assumption and a 4% gross discount rate, I'm getting a breakeven PV somewhere between age 81 and 82 for a single maximum earner retiring in 2015 at age 62.

SS estimator gave me monthly benefit of $2025 in 2015 and $3606 deferred to 70.


Good vacation exercise.
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Old 06-01-2015, 10:51 AM   #369
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This example seems to be for years prior to age 70.
What happens after 70?

When I tried to do the numbers for myself, the tax impact pushed the SS breakeven out just a little.
Why would the tax implications be different over age 70. The state income tax is the same regardless of age.

Yeah, I could be overstating the "few more years" angle. The $2K+ per year from age 62 to 70 might not move the break even needle a lot ($16K) but it's still $2K a year that I have to spend during those years.

I may have factored in the added portfolio growth--which the OP already has done.
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Old 06-01-2015, 11:08 AM   #370
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One thing that has been on my mind regarding "taking it at 62" is will it really be still 62 when I get there?? I'm 54.5833 (not that I'm counting) and can ER at 55 at my Megacorp. We have a DB pension plan that gives us an option to take an accelerated income stream from 55-62. Then at 62 it drops down about $10K a yr until you expire.


Assuming I sprint to the SS office at 62 clearly. In theory I would still get a $10K a yr raise since my SS would be ~$20K annual.


BUT--what is the Fed Gov raises the min age to 63 or? I'd have a year gap. Then again although I'm counting on SS at 62 it's not "required" in my income stream. Hmm..
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Old 06-01-2015, 11:18 AM   #371
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One thing that has been on my mind regarding "taking it at 62" is will it really be still 62 when I get there?? I'm 54.5833 (not that I'm counting) and can ER at 55 at my Megacorp.
At 54.5833 I wouldn't worry. 53 maybe.

A lot of this talk about changes to SS get all hyperbolized (is that a word?) when what people generally talk about is making changes to age groups who will have time to re-coup or redirect. (i.e. people under 40)

Having said that, my belief is to get in early and hope for grandfathering to any changes down the road.
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Old 06-01-2015, 01:42 PM   #372
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Why would the tax implications be different over age 70. The state income tax is the same regardless of age.

Yeah, I could be overstating the "few more years" angle. The $2K+ per year from age 62 to 70 might not move the break even needle a lot ($16K) but it's still $2K a year that I have to spend during those years.

I may have factored in the added portfolio growth--which the OP already has done.
Your RMDs may be lower after age 70 because you spent down more of the IRA before 70.
Or, your SS benefit may be a larger fraction of your total spending after age 70 because you deferred SS. That gives you the 15% haircut on more dollars.

Those two things (probably just one of them in a particular instance) would make your taxes after age 70 lower if you deferred SS.
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Old 06-01-2015, 01:51 PM   #373
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One thing that has been on my mind regarding "taking it at 62" is will it really be still 62 when I get there?? I'm 54.5833 (not that I'm counting) and can ER at 55 at my Megacorp. We have a DB pension plan that gives us an option to take an accelerated income stream from 55-62. Then at 62 it drops down about $10K a yr until you expire.

Assuming I sprint to the SS office at 62 clearly. In theory I would still get a $10K a yr raise since my SS would be ~$20K annual.

BUT--what is the Fed Gov raises the min age to 63 or? I'd have a year gap. Then again although I'm counting on SS at 62 it's not "required" in my income stream. Hmm..
Most of this discussion assumes that people have enough savings that they can always fill in any "gaps" or "shortages" via withdrawals from savings. You seem to be in that category.

The political risk is real, but we all have to make our own estimates. I turned 62 in 2009, and thought that, by the time they got any law passed on this, I'd be so old they'd just grandfather me into the old plan. Since then, looking at the way things don't get done in DC, my confidence has slipped.
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Old 06-01-2015, 02:06 PM   #374
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Am I missing anything or misunderstand this? Seems to me, that IF I live my expected life span and break even at age 83 and I get to protect my savings for my heirs if I draw SS at 62. Plus I get to keep my net worth at it's highest during the entire period.
I added a word to your post. It's pretty important in these discussions.

Most of us don't make withdrawals from our savings based on average returns and average lifespans, we consider the "what if" possibilities.

Also, note that because your wife "steps into your shoes" if you die before her, the relevant life span isn't yours, or hers, but the last-to-die of the pair of you.
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Old 06-05-2015, 05:26 PM   #375
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What happens to my Social Security benefit if I retire early?

If you are high earner working from 55 to 66 will not raise your SS by much All you will do is pay taxes to fund someone elses SS.

But waiting from 62 to 70 that WILL raise your SS by a ton.

So quit working early and take SS late my friends or get screwed by the system. I think in the way SS program is extremely favorable to high earners quiting any time after 50.
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Old 06-05-2015, 05:46 PM   #376
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What happens to my Social Security benefit if I retire early?

If you are high earner working from 55 to 66 will not raise your SS by much All you will do is pay taxes to fund someone elses SS.

But waiting from 62 to 70 that WILL raise your SS by a ton.

So quit working early and take SS late my friends or get screwed by the system. I think in the way SS program is extremely favorable to high earners quiting any time after 50.
By today's rules. Just sayin'
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Old 06-05-2015, 05:55 PM   #377
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This is how it worked for 50 years. You have 2 "Bend Points". Google it.

High earners pay benefits of low income people...at some point. This is how it works in almost all developed countries.

If you make your plans based on videos of Senator Cruz .... Good luck to you sir!

SS administration does not have the problem since most of the high earners drive BMWs and live in McMansion hence they will slave till 65 Getting minimal return on their investment as far SS goes. Better yet they will slave till 62 and collect SS at 62 so they can get screwed
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Old 06-05-2015, 08:10 PM   #378
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Many factors impact longevity insurance. Total retirement spending vs. retirement income is probably a much bigger factor overall than when to take SS, since basically the age tiers are meant to be actuarially neutral.

Twenty percent of the millionaires in The Millionaire Next Door were retirees. I don't recall when to take SS as being a big factor in that book or any of the successor books. The big factor in having enough money was usually a LBYMs lifestyle.

Our focus is mainly on trimming expenses that do not lower or maybe even raise the quality of our lives. We can control expenses. The best age to take SS is really unknowable in advance since none of us know how long we will live or what changes for the program and income taxes the future may hold.
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Old 06-07-2015, 07:09 AM   #379
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Just had a sit down with my CPA about taking SS at 62 starting next year. I will still have just enough earned income for a couple more years to kick in the SS penalty if I start at 62. The difference between 62 and 66 is $600/month according to the SS estimate.
So looks like I'll not start at 62 but continue to look at it each year. But I will move about $50k from IRA to taxable account until I do start.
And we'll probably start taking DWs SS when she reaches 62 in a couple years.
I had always planned to start at 62 but with the above info it doesn't make sense to let the penalty kick in.
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Old 06-07-2015, 07:41 AM   #380
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it all depends on how much damage is done by potentially spending down invested assets to delay instead off ss.

spending down in a down turn may make delaying even a poorer choice.

will your wife be giving up an adder to hers if she is collecting while you delay ?

in our case my wife gives up an additional 2-3k in spousal if i delay to fra.
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