Best time for SS withdraw is age 67 not 70?

[Spock]

My latest spreadsheet gymnastics shifted from "take it ASAP" to take it at 70 in order to max a tax bracket with Roth conversions for the 5 years post-ACA/start of Medicare.
Then I had the thought that it would be entirely within the realm of expected behaviors that the "eat the rich" crowd that will be in charge of SS by then will likely include X years income prior to SS start as part of the means testing...
But then the same crowd is looking to apply current account balances (unrealized gains) as part of their tax calculation. So either way the $ would appear in the benefit calculation.
Of course that is all speculation.

A thought exercise for the "wait until 70 to start SS" camp:
What if: The age 70 cap was lifted and your delayed benefits continued to grow (on the current rate curve "just because") for as long as you delay start of benefits.
Would you delay to age 75? 80? Would you not take it at all and use it as an increasing survivors benefit (survivor claims when you die)?

 

[fishfactory]

pb4uski, the point is not who told them, the point is that they do not believe the benefits will be there for them, and they will be the large voting block when time to cut benefits or raise payroll taxes on them to maintain benefits for boomers.

See Nationwide's 2022 Social Security Consumer Survey. "nearly half of Millennials, 47%, strongly or somewhat agreed that “I will not get a dime of the Social Security benefits I have earned"

 

[CRLLS]

It seems that the closer one gets to SS age, the more they believe in SS being there. It is a natural progression. Remember the phrase "Don't trust anyone over 30"? I trust that Millennials will change their tune over time.

 

[GenXguy]

On the topic of SS taxes, there's a flaw in how taxes are calculated for Social Security benefits that results in after-tax "net" SS benefits being "cut" every year and have been for years, but most people aren't aware of this.

The SS formula for determining how much of your SS benefits are taxed is NOT indexed to inflation, so that threshold has not increased since it was first introduced in 1983. For a single person, if your income combined with half your SS benefits exceeds $25,000, you have to pay income tax on up to 50% of your SS benefits. If it exceeds $34,000, you have to pay income tax on up to 85% of your SS benefits. $25K in 1983 is worth a lot more than $25K in 2023. Since your retirement distributions and SS benefits will be adjusted with inflation, but NOT the $25,000/$34,000 thresholds, a greater percentage of your SS benefits will become taxable as each year passes (for married filing jointly, the thresholds are $32,000/$44,000.) It's a built-in tax increase, reducing "net" SS benefits, hurting seniors further. The greater your combined income and SS/2, the more you will be affected by this up to a max of 85% of your benefits being taxed! It's absurd, and those thresholds should be increased to reflect inflation since 1983.

The ways it is, you should play it safe by estimating that 85% of your SS benefits well into the future will be taxable. More information about this can be found in these references:

https://www.marketwatch.com/story/p...-punished-by-social-security-taxes-2019-01-07
https://www.fool.com/retirement/gen...ear-old-social-security-rule-is-wreaking.aspx
http://www.foxnews.com/story/2007/03/25/double-whammy-taxation-social-security-benefits.html
https://www.ssa.gov/policy/docs/issuepapers/ip2015-02.html

I'm not one to support tax increases, but I would be open to paying higher FICA taxes to help shore up SS to prevent cuts to benefits and to prevent increasing the FRA for people within a decade of collecting SS.

At some point, the FRA will need increased for younger workers (perhaps those under 55 today) also as lifetime durations increase over time.

There was a bill introduced quite a while back to address the problem of SS benefit taxation threshold levels to some degree, but it still wouldn't index it to inflation going forward. It never went anywhere.

https://www.congress.gov/bill/116th-congress/house-bill/860

 

[target2019]

Fortunately for us, younger voters don't turn out as expected. And the public won't get a vote on social security measures. Elected representatives vote on bills last time I looked.

And there is no legislation, so the topic can't be discussed, I think.

 

[4legsgood]

...See Nationwide's 2022 Social Security Consumer Survey. "nearly half of Millennials, 47%, strongly or somewhat agreed that “I will not get a dime of the Social Security benefits I have earned"

It's possible as they get closer to benefits age they'll change their views. That's one of the reasons I hope the attempt to keep Soc Sec solvent does not involve raising retirement age, especially minimum age to receive benefits.

 

[RunningBum]

Yes, some pension benefits aren’t 100% taxed based on the employee contributions.

OK, but I don't think the public is going to see that as a broad equivalence.

85%->100% won't move the needle much but for some looking for a tie breaker, it might be enough.

 

[badatmath]

Wrong again with these "62" comments. I'm single, and 62 would be a horrible decision. It has nothing to do with worrying about someone outliving me. If I took it at 62, would lose any hope of ACA subsidies at that age and pay much more in healthcare premiums and out of pocket costs - assuming the ACA is still around by the time I get that old. So 65 would be the earliest age that would make any sense for me to take it.

Some of us will not be on ACA so not a factor for all. I hope to use retiree medical.

 

[TheWizard]

WADR, he didn't "lose" that money. He effectively made 60 monthly premium payments to purchase a COLA life annuity with a monthly benefit for the increase in the monthly benefit.

If someone doesn't want to buy that COLA life annuity then that is fine, but please don't twist it into losing money to promote a particular view.

I also disagree with Bigdawg's phrasing, but I think it's more accurate to say the money spent in lieu of SS for those 60 months was on LIVING EXPENSES, which is the whole reason for having a good sized retirement nest egg.

With that in mind, we might look at what sort of withdrawal rate was necessary during that timeframe, compared to the 4% SWR rule of thumb.
In my case, for example, I withdrew $3000/month in lieu of SS for seven years and that amount, annualized, was less than 3% of my 403(b) accumulation.
So we could say it was a safe maneuver...

 

[audreyh1]

It seems that the closer one gets to SS age, the more they believe in SS being there. It is a natural progression. Remember the phrase "Don't trust anyone over 30"? I trust that Millennials will change their tune over time.

When I retired super early, I assumed no SS for me. Once I reached 55 I started thinking that DH and I would be receiving some. Until then it was never part of my retirement financial plan.

 

[TheWizard]

...A thought exercise for the "wait until 70 to start SS" camp:
What if: The age 70 cap was lifted and your delayed benefits continued to grow (on the current rate curve "just because") for as long as you delay start of benefits.
Would you delay to age 75? 80? Would you not take it at all and use it as an increasing survivors benefit (survivor claims when you die)?

Yes, I've encountered this thought exercise before.
I'm 73 and did wait until age 70 to claim.
I'm not sure what I would have done in that open-ended example.
The 8% of PIA increase per year isn't enough for over age 70; it would have to be a larger percentage to make it feasible...

 

[pb4uski]

pb4uski, the point is not who told them, the point is that they do not believe the benefits will be there for them, and they will be the large voting block when time to cut benefits or raise payroll taxes on them to maintain benefits for boomers.

See Nationwide's 2022 Social Security Consumer Survey. "nearly half of Millennials, 47%, strongly or somewhat agreed that “I will not get a dime of the Social Security benefits I have earned"

I think many of us would have responded the same way in our 20s and 30s. That and I think SS is way down their priority list so I think your post has negligible validity.

 

[fishfactory]

pb4uski, when we were in our 20s and 30s the math was different. There were a lot more workers supporting fewer recipients. That ratio has changed for the worse. Looking back to how they handled shortfalls in the 80s and what we thought in our 20s is apples and oranges to the situation today and 10 years from now.

 

[Chuckanut]

Another example is a few years ago where they closed the loophole that allowed one spouse to claim early based on their spouses word record and allow their delayed benefit to grow. Was that change closing an unintended loophole or a benefit cut? You say potato and I say potatoe. We were directly impacted by that change... 1 year off... but I viewed it as them finally closing a loophole vs cutting benefits.

My understanding is this was an unintended loophole. Like gasoline at 99¢ a gallon the word spread quickly through the retirement community.

Another way to look at SS payments is the Take SS at 70 and have more money to spend every year starting at age 62 plan. The math is compelling, but one needs the assets to pay for one's lifestyle from 62 to 70. And one may not leave much of an estate to the heirs. Neither is an easy hill to overcome for most people.

One of the best things about SS is that it offers us a lot of options.

 

[rodi]

One more less common consideration that factored into our household decision. DH is almost 10 years older than me. We were both older than normal when we met, married, had kids. DH retired and took SS at 62 and because the kids were still minors and were dependents, they qualified for SS benefits. We had to file annual statements showing the money was used for their benefit, but that's pretty easy. It definitely swung the calculation to hubby taking SS at 62. It ended at the end of their senior year of high school.

He's got longevity in his family history (his mom is 96 and his dad died at age 91). His SS amount is a lot less than mine will be because I had a higher paying career and plan to take it at age 70... I don't have longevity on my side (mom died at 67, dad died at 77, 3 of 4 grandparents didn't make it to age 80). By waiting to claim it, if I die first he'll get my amount instead of his - either the full benefit of 67 if I die at or before age 67, or the age 70 amount if I live longer than 70 (which I fully plan to do.) That solves a lot of the 'floor of income' worries for surviving spouse.

 

[tango2]

You get 8% a year till age 70 garenteed. Plus you get whatever raise the govn adds on. I may be wrong but I do not know if any other no risk investment that will do that. For me, I am glad I waited.

 

[pb4uski]

pb4uski, when we were in our 20s and 30s the math was different. There were a lot more workers supporting fewer recipients. That ratio has changed for the worse. Looking back to how they handled shortfalls in the 80s and what we thought in our 20s is apples and oranges to the situation today and 10 years from now.

Yeah, but so what? There are still a number of reasonably viable options available to extend benefits out another 50 years to begin with if there is only a little political courage out there. You view the glass as half empty whereas I view it as half full.

 

[fishfactory]

pb4usky, if the gov't knows that the millennial generation expects little or nothing from SS, what incentive does the govt have to make the changes ? Look, I hope I am wrong and you are right, but given a choice of trusting the govt will do the right thing or taking what I can get as early as possible, I choose the latter.

 

[Bigdawg]

Does it?

I thought the tool applied a discount rate, which I assumed (yeah, I know) was for the time value of money.

I wasn't refering to an actual discout rate. For me it is utility. For DW and I, all SS money's will be discretionary. I have many more choices in what to do with those discretionary dollars up to age 82 (break even point between taking at 62 or 70). If a person makes more lifetime SS dollars starting at age 82, I don't care. My experience and statistics tell me I will not be spending discretionary $'s after that age. Go-Go, then Go Slow then No-Go years. Feeling that I will not care about a larger SS check when I'm 82. My 82+ year old relatives spent less (discrectionary) by a large % after 82 than they did at 62-80. DW and I are fortunate that we have excess pension $ so will not depend on nor need our SS money. Full disclosure, I plan to take at 65 and I am pushing DW to take at 70. She is 6 years younger.

 

[Jerry1]

Take SS at 70 and have more money to spend every year starting at age 62 plan.

So what plan was that? I seem to recall a plan where you pay yourself the 70 rate out of your portfolio and then claim at 70 but I forget the math or why that made sense. Of course I don’t remember it well enough now to run the numbers for myself.

 

[Chuckanut]

So what plan was that? I seem to recall a plan where you pay yourself the 70 rate out of your portfolio and then claim at 70 but I forget the math or why that made sense. Of course I don’t remember it well enough now to run the numbers for myself.

Here's the plan as presented by the guy who posted it on this site.

https://www.early-retirement.org/forums/f28/laurence-kotlikoff-maximize-my-ss-com-77660.html#post1604411


It's an interesting option for working SS into a retirement income plan, and not one I hear discussed very often. My guess is for most people it's not a good option. Either they can't afford to fund the years from 62 to 70 from their savings and investments. Or they want to leave an estate for their heirs. Or both.

 

[RunningBum]

It's an interesting option for working SS into a retirement income plan, and not one I hear discussed very often. My guess is for most people it's not a good option. Either they can't afford to fund the years from 62 to 70 from their savings and investments. Or they want to leave an estate for their heirs. Or both.

You keep mentioning leaving an estate for heirs as a rationale for taking SS early. Why?

Taking at 62 only helps if you die before the breakeven point. After that, taking later leaves more for your heirs, assuming you spend the same no matter when you take SS.

And btw, for those of us well enough off to have the option to delay SS until 70, if you die early most likely you'll still leave a decent estate.

Another thing, as someone stated earlier, taking early means you're more likely to run out of money and have to sponge off your offspring if you live a very long time.

 

[Chuckanut]

You keep mentioning leaving an estate for heirs as a rationale for taking SS early. Why?

I never said that.

Below is the author's comment on who can make use of this plan. Make of it what you will.

Here is a pretty simple calculation for those that wish to spend more money in retirement and do not care about leaving an estate. For those that have a Big enough Portfolio and can afford to wait until 70 to take SS, you'll have more to spend every year of retirement.

 

[RunningBum]

Edited, starting over:
OK, I misinterpreted what you said, but what you said is easy to misinterpret.

The Kotlikoff plan can't force you to spend more. But what it can do is let you delay taking SS but let you spend like you are taking SS at 62. Spending more under that plan will leave your heirs left, but it's the "spending more" part that does it, not taking it at 70. I've seen people say it's taking at 70 that leaves them less, but that depends on when you die.

 

[Jerry1]

Here's the plan as presented by the guy who posted it on this site.

https://www.early-retirement.org/forums/f28/laurence-kotlikoff-maximize-my-ss-com-77660.html#post1604411

Thanks.