Theory Behind taking Social Security Early?

[joeea]

Quote:

Originally Posted by rayvt Since our goal is to be Finanically Independent such that we could Retire Early, and since we could forego collecting SS for the 8 years from 62 to 70, then I would say that the marginal benefit to the SS income is, um, marginal.

If you believe taking SS early and thus giving up the additional benefits for the rest of your life furthers your goal of being financially independent and retiring early, then your decision is clear.

Others would do the math and come to different conclusions. Some would argue that having a larger inflation protected guaranteed income stream coming your way would mean you can spend more of your portfolio now and retire early with more confidence.

Quote:

Almost all the discussions focus on the extra SS you get each month, and ignore the 8 years of SS you gave up.

I disagree that "almost all the discussions" ignore this aspect.

[PatrickA5]

Quote:

Originally Posted by pb4uski If you're going to set the bar low, then why not set it that you collect what you paid in rather than just one check?.... for me that would be to collect for a little over 5 years if I started at age 62.

I don't want to appear greedy.

[daylatedollarshort]

Quote:

Originally Posted by rayvt It's the delta, not the absolute magnitude. It's not "$1200/mo", it's "$1200 more a month". If your SWR + pension income is $5000, and your FRA benefit is $2095, that at 70 your income will be $5000 + $1571 ($6571) if you filed at 62 or $5000 + $2765 ($7765) if you filed at 70. That's 18% more in total income, even though the SS is 75% more. The higher your non-SS income is, the less difference the extra SS makes. Since our goal is to be Finanically Independent such that we could Retire Early, and since we could forego collecting SS for the 8 years from 62 to 70, then I would say that the marginal benefit to the SS income is, um, marginal. No, they just treat it as negligible. Almost all the discussions focus on the extra SS you get each month, and ignore the 8 years of SS you gave up.

If 80 is the break even point, and one gets $1.2K more a month after that, then living to 90 would be 12 months X 10 years X $1.2K= $144K (if one lives long enough to collect). That would equal enough for one extra year in a nursing home.

We're taking SS at 62, but for us the bigger impacts for longevity insurance have been cutting our expenses over $100K a year from when we were working and raising kids ($100K X 40 years = $4M). We don't have expensive hobbies, no RV, no boat, no vacation home in Lake Tahoe, no Maserati, we don't ski or play golf, our kids went to community college and in state public schools in financially self supporting majors, etc. We live in a high cost of living area so in our particular situation relatively low overhead compared to many of our peers has had a much bigger impact on not outliving our money than when to take SS.

[Fedup]

Yeah, but long term care cost is an expense that is not a hobby that can be cut. In my hood, it’s $120k per year in today’s dollar.

[Floridatennisplayer]

Like many have said, their break even point is around 81. I visit my mother pretty much daily as she lives close. She is 86. I honestly don’t see how an additional $1,200 a month would change anything for her. It would just sit in the bank. Others will have different situations I’m sure.

[ERD50]

Quote:

Originally Posted by Floridatennisplayer Like many have said, their break even point is around 81. I visit my mother pretty much daily as she lives close. She is 86. I honestly don’t see how an additional $1,200 a month would change anything for her. It would just sit in the bank. Others will have different situations I’m sure.

Yes, and it is unpredictable. For some, an extra $1,200 a month could make a big difference in supporting their quality of life. But they may not know until they get to that point, and then it's too late.

-ERD50

[ncbill]

I have to say I've come around to collecting early...

relatives on both sides have proven to be much more mobile & able to enjoy their retirement in their 50s/60s vs. 70s/80s.

And considering what happened with my mom & her siblings I'll be taking a hard look at LTCi as well.

[pb4uski]

This whole collecting early allowing you to spend more while you can enjoy if is a totally false premise.... how come people don't get it?

You're just using some of your stash to collect more later. You spend what you want... you're just using some of your stash. After all, you saved it for your retirement... not to hoard it!

In fact, we've proven that you can spend more with the same risk by delaying.

[PatrickA5]

I imagine that when I hit 62 in a couple of years I'll probably delay even though the calculators suggest I take and 62 and DW at 70. I doubt it will make much difference in the long run either way. I doubt I make it to 80, but who knows - Dad lasted to 97.

[Perryinva]

If it was only $1200/m more when I am 80, in 20 years, same as DF now, I probably would consider taking it earlier. He wouldn’t be doing much more with $1200/m extra. He doesn’t do much of anything with the $1400/m he gets now. He banks half of it, “just in case I need it later”. He didn’t do anything really to enjoy life except bowl and fish because he was always worried about spending too much, with only about a $1000 SS as his only income. He watched his savings drop each year as he drew down because when he was younger he didn’t have enough retirement income. He never invested wisely, panicked easily and has most everything now in CDs. If he needs LTC, his income will certainly not cover it, and his savings may last a few years at best.

But for me, its more like $1500/m@70 & what, $1900/mo more at 80? . I have to wonder, what would I rather have: an extra $22.8k/yr COLA, of which only $19.4k is taxed, or POSSIBLY an extra $200k saved, if markets cooperate. I imagine whether I have $1M or $1.2M at 80 will make little to no difference. At 80, even if I draw down that “extra” principal to zero at 90, it’s a non cola $2k @ 4%. Except the $1.9k from delayed will have grown every year to $2300/m. And all those numbers assume only 2% COLA from inflation. My pension is non COLA. If I delay to 70, my SS will pass my pension before I’m 80. If I need LTC that income will buy me more longer than that extra savings. If DW needs it before me, same thing. The income keeps coming, while the extra “ break even” principal would be depleted. I haven’t grown my stash to hoard it, or leave it behind. It was to generate more income diversity, choices, and for our enjoyment.

I learned a lot of what not to do by watching my parents, in many ways, and especially finances (or lack). As long as I have health, I’ll enjoy using more of my stash earlier, knowing it won’t matter to me later on. I have no desire to maximize what I leave my step kids.

[joeea]

Quote:

Originally Posted by pb4uski This whole collecting early allowing you to spend more while you can enjoy if is a totally false premise.... how come people don't get it? You're just using some of your stash to collect more later. You spend what you want... you're just using some of your stash. After all, you saved it for your retirement... not to hoard it! In fact, we've proven that you can spend more with the same risk by delaying.

Well sure. But by collecting early I'm spending *their* money now, while saving *my* money!

The way you talk, you'd think money is fungible or something!

[street]

Quote:

Originally Posted by joeea Well sure. But by collecting early I'm spending *their* money now, while saving *my* money! The way you talk, you'd think money is fungible or something!

Exactly >>> Both ways have the pro's and con's. I'm taking it, to many risks not to, and my wealth will grow more so I have more in my 80's if I need it.

[daylatedollarshort]

Quote:

Originally Posted by joeea Well sure. But by collecting early I'm spending *their* money now, while saving *my* money! The way you talk, you'd think money is fungible or something!

I'm more comfortable spending money I have now than money I don't have yet, and if laws change years into the future, may never fully receive as promised.

Under the money is fungible category, I don't really understand all the posts of marshmallow test issues for people who don't delay SS until 70 vs. other options. There are many ways of ensuring one has an extra $144k+ after 80. One is simply to spend $144K+ less before 80. Other ways could be to have hobby income, downsize or move to a lower cost of living area, work a little longer, etc.

[audreyh1]

Hmmmm - I think that for a lot of folks it’s much harder to spend down their own stash. If they didn’t take SS early, they might not spend that “extra” anyway.

[REWahoo]

Quote:

Originally Posted by audreyh1 Hmmmm - I think that for a lot of folks it’s much harder to spend down their own stash. If they didn’t take SS early, they might not spend that “extra” anyway.

^ This.

One of the most common laments around here is how difficult it is to suddenly switch from growing your stash to spending it.

[Fedup]

Quote:

Originally Posted by daylatedollarshort I'm more comfortable spending money I have now than money I don't have yet, and if laws change years into the future, may never fully receive as promised. Under the money is fungible category, I don't really understand all the posts of marshmallow test issues for people who don't delay SS until 70 vs. other options. There are many ways of ensuring one has an extra $144k+ after 80. One is simply to spend $144K+ less before 80. Other ways could be to have hobby income, downsize or move to a lower cost of living area, work a little longer, etc.

All imperfect solutions in my mind. I won’t call them nonsense but tell this early retirement crowd to work longer is laughable, so why take SS early then, so you can work longer. What?

[Willers]

Very interesting thread even though much has been covered before. It is interesting how some think there is a "right answer". As many others pointed out, it depends. We looked at ours from our specific situation. We're married and plan to stay that way so ours is specific to that:

1) we don't have kids and our nephews don't need our money so remaining legacy will likely fund a worthy charity and is not our highest priority. The priorities are spending levels and planning for longevity.
2) We both have longevity in our family and we want to maximize security if we follow suit so "insurance" makes sense. One of us will wait until 70 to file to maximize the payout for the survivor. TBD which one.
3) We are in the ACA pool and HI is very expensive in our state/county so as long as the ACA is around we'll defer the other until 65. At that point we'll use some calculators to determine the right age to maximize spend. That could change if it goes away.
4) Post 65 may be a year by year decision. Market does well, continue to defer. 2008 repeats itself, file.

The "take it at 62 and spend it now not later" school of thought doesn't apply for us. We are happy spending from our nest egg or SS from 62-70; whatever the numbers say. If one of us dies before we "break even" we don't care. We live by the old saying that you shouldn't always judge the success of a plan by the results of that plan.

No regrets on our plan regardless of the outcome. You make your bets and you take your chances.

[Chuckanut]

Quote:

Originally Posted by REWahoo One of the most common laments around here is how difficult it is to suddenly switch from growing your stash to spending it.

Agreed.

The psychological issues are very real to all of us. They influence decisions like when to take SS, whether or not to buy an annuity, and what age to stop working, just to name a few. Good point.

Back to observing in my EZ chair.

[joeea]

Quote:

Originally Posted by daylatedollarshort I'm more comfortable spending money I have now than money I don't have yet

You cannot spend money you don't have yet. Your comfort isn't relevant.

[ragabnh]

It is one of two things:

Either you bet on taking SS early to avoid possible future cuts due to short funding issues and conserving your stash and allow to grow further through market positive returns to continue

or you cash the market positive returns now and allow future SS benefits to grow and bet on no cuts due to funding issues.

It is all speculation and I believe there is no one definite answer to this dilemma, do what your comfortable with and never look back.