Opinois needed: I delayed SS, now 63 = Mistake?

[Bikerdude]

Sorry, but there is not a simple answer. In the end, if you can afford to wait (money wise), you will need to make the decision based on your expectations of what the future holds.

I tend to agree with this. If I defer SS at 62 and at 63 we enter a bear market (20% down or more) I would apply for SS. The average bear market lasts about 18 to 24 months, so I would protect my capital by reducing my SWR.

Doing this would help to avoid the dreaded down years early in my retirement IMHO. But each person must decide on their own. No "one size fits all" in this decision.

 

[cute fuzzy bunny]

So if we were having a huge bull market, would you immediately apply for SS so that you could reduce your withdrawals and your invested portfolio could continue to grow at the bull market rate?

 

[megacorp-firee]

There are very few irreparable decisions we make in life (like taking that last drink before driving or pulling a trigger ...). This is definately NOT one of them. If you take it now, you didn't miss out on much. If you take it later, ...well that could be ok too.
As stated many times previously,
... if you NEED the money ... take it now
... if you WANT the money ... take it now
otherwise flip a coin.
There are many pros and cons on either side. In the long run, unless you are in conditions 1 or 2 above, .. it really won't make an appreciable difference. Do what feels right to you and don't look back. IMO, I differ from most in that I am not as analytical and a .01 difference is not signifcant to me. One should not exceed the precision of the model. It only leads a lot of agonizing and your hair hurting.
my 2 cents worth

 

[kaneohe]

As many have said, this decision may depend on your particular circumstances such as your financial status and longevity in your genes.
There are various mathematical models, some of mind-blowing complexity, but in the end, they depend on your actual lifetime which cannot really be known for sure. In the end, I decided, perhaps irrationally, that I wanted
to diversify my risk by taking SS early. If I had a short life, then I got something back instead of nothing. If I had an average life, I probably did as well as the person who took it late. If I had a long life, then I didn't do as well as the person who started it late but I did get a long life.

The worst thing in my mind would be to live a short life and get nothing back from SS which is the gamble you take when you decide to take SS
at 70, for example. Maybe that's why I don't walk under ladders either.
Irrational and superstitious. I prefer to think of it as risk diversification
----to reduce the risk of a bad outcome rather than going for the highest
return.

 

[Martha]

The worst thing in my mind would be to live a short life and get nothing back from SS which is the gamble you take when you decide to take SS
at 70, for example.

Well, you will be dead and it won't matter to you. And on your death bed I will bet you won't give a thought to any failure to take SS early.

 

[kaneohe]

Well, you will be dead and it won't matter to you. And on your death bed I will bet you won't give a thought to any failure to take SS early.

Very true, Martha, but this is the "leaving the bigger pile" school of thought while I can still think.

 

[cute fuzzy bunny]

I guess if death resolves everything, get your revolver out now. Anything that might have come after that then becomes irrelevant?

SS payments will provide about 18k/yr (in todays dollars) at about the time my son is going off to college, and the deferral of withdrawals from our portfolio means a larger nest egg to leave him when we're gone.

But I guess if you've got no kids and cant think of anyone you want to leave your money to...

 

[Bikerdude]

So if we were having a huge bull market, would you immediately apply for SS so that you could reduce your withdrawals and your invested portfolio could continue to grow at the bull market rate?

Interesting point. However, I would say I'm not interested in protecting myself from good times. So I would say no, I would not apply for SS in a bull market and 8%/yr. plus inflation is a fair return for waiting.

 

[cute fuzzy bunny]

Interesting. So in a bull market where returns are pulling 15-25+% per year for an average of 7 years vs the social security adjustment of ~8%, you'd sit tight. But in a bear market of -10-15% for an average of 3 years, you pull the trigger?

 

[EngineeringMyFinances]

You haven't provided a lot of information about your personal situation. How long can you live on your savings if you don't take retirement?

As others have pointed out, you have not screwed yourself out of benefits because your future monthly benefits will be larger and eventually you'll break even and come out ahead. Unless you're hit by a bus in which case you won't care anyway.

Being a woman with a long-lived heredity, chances are that you'll collect more over your lifetime by waiting. On my blog, I have a relevant post on delaying Social Security that concludes that it compares favorably to immediate annuities and the 4% SWR. At your age and life expectancy 4% may be too high.

Some of the other commenters have mentioned the possibility of a down market cutting into your nest egg. If you delay taking Social Security, you can change your plans and go back to work for a few years. On the other hand, if you take SS now and go back to work, then you'll have to start giving back benefits if your wages exceed $12,960.

 

[cute fuzzy bunny]

As others have pointed out, you have not screwed yourself out of benefits because your future monthly benefits will be larger and eventually you'll break even and come out ahead.

Statistically, you wont. Odds are that at best you've got a 50/50 chance, since the whole thing is geared to pay the same amount regardless of when you start, providing you die at the average age. However, since people who live longer tend to live a LOT longer, they skew the results. the data says that reinvestment of the benefit or reduction of withdrawals when taking it early means that you have about a 10-15% chance of making more money if you take the benefit later vs earlier. A nice benny if you live to 100. All 1% of you. *shrug*

Unless you're hit by a bus in which case you won't care anyway.

A perspective that continues to interest me. If nothing that has gone before or after matters after you're dead, then nothing matters. Spend it all now, have a great time, and reserve a few hundred bucks for a revolver or step in front of a bus.

Seriously. If theres an afterlife, its value probably has no differential based on how much money you spent and how much you enjoyed your life while you lived it. Will God step forward and turn you back from the pearly gates because you took a few extra trips, ate some better food and lived in a nicer house?

If there is no afterlife, then it's all valueless. Either way...enjoy it while it lasts.

I went through all of this in my "changing the balance of quality of life and financial independence" thread. If the best I've come down to is fervently protecting a marginal difference in quality of life when i'm in my 90's or worrying for 5 decades about whether I'll make it or not, then the whole plan sucks.

I mean...dont be stupid about it...but also dont be stupid about it.

My parting thought...

 

[haha]

I mean...dont be stupid about it...but also dont be stupid about it.

My parting thought...

You wouldn't be drinking would you?

 

[EngineeringMyFinances]

Statistically, you wont. Odds are that at best you've got a 50/50 chance, since the whole thing is geared to pay the same amount regardless of when you start, providing you die at the average age.

Life expectancy for a 63-year-old female is almost 84. Cross-over point for lifetime benefits is before the age of 81 when comparing benefit starting ages of 70 Vs 63. And what is the probability that you'll die when you reach your average age? For a 65-year-old, the probability of dying during any particular year in the future is less than 5%. Meaning the probability that you'll die at an other-than-average age is greater than 95%.

However, since people who live longer tend to live a LOT longer, they skew the results.

So you're saying that if I looked at a distribution curve of when people die, most would be before the average age because there's a few who live an extraordinary long time. What is your source for this? By how much do median and average life expectancies differ?

... if you live to 100. All 1% of you.

According to Social Security Administration 2003 mortality data, a 65-year-old female has a better than 2% chance of reaching 100.

... and reserve a few hundred bucks for a revolver ...

Given your approach, something you should consider. Just in case you turn out to be unlucky enough to live longer than average. I'm guessing your withdrawal rate is well above 4%. How does your withdrawal rate compare to the chart on my blog?

I mean...dont be stupid about it...but also dont be stupid about it.

Stupid is as stupid does.

 

[Bikerdude]

Interesting. So in a bull market where returns are pulling 15-25+% per year for an average of 7 years vs the social security adjustment of ~8%, you'd sit tight. But in a bear market of -10-15% for an average of 3 years, you pull the trigger?

My portfolio is a balanced one that returns 8 to 10% in a bull market so the return is close to a wash. As mentioned before I'm not trying to protect myself from success only possible portfolio failure.

If I'm lucky enough to begin my SS during a 7 year bull market I'll have more assets than I can spend in this world.

 

[Orchidflower]

Well, you guys surely have given me lots of thoughts. I so appreciate all your kindness...thanks...smooch, smooch!
The older my parent gets and the closer to the end during this eldercaring period--and the longer I am not working, which is going on 4 years now--the more I am thinking how much fun it is to start a business and work. Sick, eh? Yes, I am one sick puppy, but I do like to the challenge, the socializing with clients and all that building a small biz entails I guess.
You guys helped confirm in my mind that I actually did do the right thing by not taking it already. Thanks...that is what I needed.
So, despite many of the answers that were (intended or not) pretty darned funny, I have decided the smart thing for me is to wait until 70 if stay in good shape healthwise and financially.
I'll find some business to start when this phase of my life is over, and, if I don't make over $12,960, THEN I will be buying that revolver!
Now, should I get some dreaded fatal disease or hit by a passing bus, I just want you all to know I'll be really pissed then that I didn't go ahead and take it at 62. But, this Social Security thing, to me, is kinda like Russian roulette, anyway: Ya takes yo chances after paying yo money to Uncle Sammy for years and years.

 

[haha]

EMF in his post above points to an analysis that IMO simplifies and clarifies this issue very well.

Forget all the fancy stuff-assume you are at FRA of 66 and you are trying to decide to take it or wait another year. All figures are real, and we assume you get a real after tax return of 2.5% on the first year’s payments if you elect to take the payments now. Since those payments come in monthly, you get this rate for 6 months, not a full year. Also note that in the real world you are going to get this ROR before tax- taxes will further reduce it. At year end you plan to add this to your regular allocation and assume you can safely withdraw 4% pa on it.

For illustration we set the annual SS payment at $12,000. In year 2 you get this $12,000 again, plus $12,000 *1.0125*0.04= $486. So in year 2 you have available to spend $12,486 in real year-1 dollars.

Now look at the case where you hold off a year. Year 2=$12,000*1.08= $12, 960, because for those whose FRA is 66 years, each year beyond FRA that you begin gets you an extra 8%, also in real dollars. So merely by waiting one year, your annual spendable income goes up $474, or approximately 4%. What's not to like about this? And it goes on-you get to make this decision each year until you are 69, because at age 70 this game is over.

Other than dire need for the money right now or a terminal illness I can't imagine why one would not wait. You get more money, at less risk. Now if your main motivation is not spendable money, but to be sure that you don't die without finally getting to spend some of the money the government stole from you then this analysis is irrelevant because it does depend on economically rational motivation to maximize consumption for a living person.

Ha

 

[FIRE'd@51]

EMF in his post above points to an analysis that IMO simplifies and clarifies this issue very well.

Forget all the fancy stuff-assume you are at FRA of 66 and you are trying to decide to take it or wait another year. All figures are real, and we assume you get a real after tax return of 2.5% on the first year’s payments if you elect to take the payments now. Since those payments come in monthly, you get this rate for 6 months, not a full year. Also note that in the real world you are going to get this ROR before tax- taxes will further reduce it. At year end you plan to add this to your regular allocation and assume you can safely withdraw 4% pa on it.

For illustration we set the annual SS payment at $12,000. In year 2 you get this $12,000 again, plus $12,000 *1.0125*0.04= $486. So in year 2 you have available to spend $12,486 in real year-1 dollars.

Now look at the case where you hold off a year. Year 2=$12,000*1.08= $12, 960, because for those whose FRA is 66 years, each year beyond FRA that you begin gets you an extra 8%, also in real dollars. So merely by waiting one year, your annual spendable income goes up $474, or approximately 4%. What's not to like about this? And it goes on-you get to make this decision each year until you are 69, because at age 70 this game is over.

Other than dire need for the money right now or a terminal illness I can't imagine why one would not wait. You get more money, at less risk. Now if your main motivation is not spendable money, but to be sure that you don't die without finally getting to spend some of the money the government stole from you then this analysis is irrelevant because it does depend on economically rational motivation to maximize consumption for a living person.

Ha

Wouldn't C-T simply argue that by delaying one year, you could spend $24,000 (960x25) from your nest egg for a total of 96K over four years?

 

[FIRE'd@51]

For illustration we set the annual SS payment at $12,000. In year 2 you get this $12,000 again, plus $12,000 *1.0125*0.04= $486. So in year 2 you have available to spend $12,486 in real year-1 dollars.

Now look at the case where you hold off a year. Year 2=$12,000*1.08= $12, 960, because for those whose FRA is 66 years, each year beyond FRA that you begin gets you an extra 8%, also in real dollars. So merely by waiting one year, your annual spendable income goes up $474, or approximately 4%. What's not to like about this? And it goes on-you get to make this decision each year until you are 69, because at age 70 this game is over.

Other than dire need for the money right now or a terminal illness I can't imagine why one would not wait. You get more money, at less risk.

I'm not sure this example is as obvious as you imply.

Wouldn't you still be able to spend down part of the previous year's 12K to supplement the next year's SS payment, making your total draw 12,960? Wouldn't this lead us back into a break-even analysis which would depend upon life expectancy?

 

[Orchidflower]

I guess that is what I was worried most about: a break-even situation.
However, I have just decided to screw the Dept. of Social Security over by living until I am 90. So there!!!!

 

[haha]

Wouldn't you still be able to spend down part of the previous year's 12K to supplement the next year's SS payment, making your total draw 12,960? Wouldn't this lead us back into a break-even analysis which would depend upon life expectancy?

I am not sure I understand what you mean. This stuff can twist me poor head up. So if you can explain where you think the mistake is, I am all eyes!

Ha

 

[MasterBlaster]

Ha:

If you hold off taking SS for a year you have foregone one years payments. That principal from that years payments need to be amortized over your remaining lifespan for a fair comparison.

So a fair comparison would take the higher SS payment (due to delaying one year) and subtract off the amortized amount that you have foregone.

 

[haha]

Ha:

If you hold off taking SS for a year you have foregone one years payments. That principal from that years payments need to be amortized over your remaining lifespan for a fair comparison.

So a fair comparison would take the higher SS payment (due to delaying one year) and subtract off the amortized amount that you have foregone.

I think we did that. Case 1, take it now, assumes that the payments are collected for one year, with interest, and then "amoritized" over the the expected retirement horizon by subjecting that amount to the 4% WR that we assume for most other purposes. There might be other ways, but since we are trying to comapare to a real income stream we might have to pick some time period- say 35 years and self annuitize TIPS over that period. Since there is no such animal as a 30 year TIPS, this would create lots of guesses.

It is my opinion that a 4% withdrawal rate is likely to be fully amortizing over 35 years anyway!

Ha

 

[aenlighten]

SS Design

At 66, median life expectancy is 20 years, or age 86. SS is designed to provide the same payout regardless of starting date for someone with a median life expectancy using a 4% real return. Other things being equal, longevity does suggest delaying benefits, just be aware it can be riskier than taking it early as the penalty for being wrong and benefit for being right are both greater. On the other hand, if you don't mind more market risk and take it early and invest it, if you receive a 6% real return on your investments, breakeven is pushed out to about age 95, at 7% age 105, and at 8% you can never make up for the delay. Take your risks and make your choices.

 

[FIRE'd@51]

I am not sure I understand what you mean. This stuff can twist me poor head up. So if you can explain where you think the mistake is, I am all eyes!

I'm not saying you made a mistake - just that there is a break-even point.

I plugged your numbers into my HP12C calculator as follows:

PV = 12,000

FV = 0

PMT = 960

I = 2.5%

I solved for N and got 16 years, so this would be the break-even point if you delayed one year.

 

[EngineeringMyFinances]

Who breaks even?

got 16 years, so this would be the break-even point if you delayed one year

I'm trying to decide where the break-even point comes in. After all, the retiree is spending more money. If there is a break-even point, it would be for the heirs. If the retiree delayed SS benefits, by one year, and got hit by the proverbial bus on the way to the SSA office to start his payments, then his heir get $12,000 less.

But will the heir ever "break-even"? Since the retiree is spending more money every year after having delayed SS benefits.