New Social Security study on claiming it too early

[Rianne]

The spousal death benefit (SDB) is the concern for me. If we take at 62, SDB is $23,458. If we take at FRA, SDB is $29,144. We have a pension so we can float until 70.

If DH takes at 70, SDB is $41,196. It's worth it, for us to have a guaranteed SS income for either one of us if the other dies. Takes away risk of market collapsing.

 

[joeea]

The one big thing which may affect when I decide to claim SS is being diagnosed with Type 2 Diabetes 4 years ago. While it is under control (I am at the milder end of its spectrum of problems), I do wonder how much it will reduce my life expectancy.

You should talk to your doctor.

 

[joeea]

Preserve stash - in the event you die before age 77, you could leave more stash to your family by starting benefits early. Of course, if you live into your 80's, taking early can have the opposite effect.

So starting benefits early would mean betting on an early demise.

 

[marko]

A discount rate is an interest/investment gains rate representing a rate of return on your investments. "3% real" is an interest rate of 3% + inflation. So that might be an actual 6% gains but minus 3% inflation for a "real" gain of 3%.

Most SS claiming strategy discussions assume a 0% discount rate. That assumes that SS would have no impact on your investing, and that a $1 today is worth the same as an inflation adjusted $1 in 2040. So probably not a great assumption.

It seems much more reasonable to assume taking SS early would allow you to reduce the withdrawal rate from your investments, which would give you some rate of return. If you have a high enough rate of return early SS looks better. But then SS is presumably low risk, so should that assumed rate of return be more bond-like, match your total AA return, or what you would get at a bank?

Aha!! Thank you.
I knew the concept but didn't know what the reference was.

 

[marko]

The discount rate is to reflect the time value of money. The 3% real is net of inflation... a real discount rate is appropriate for something like SS because SS benefits increase by inflation so a real rate would be used.

Thanks once again, pb4!

 

[FI_RElater]

for those of us who retired later on the "early retirement" continuum, later SS allows for Roth conversions before claiming (with the usual caveat that one needs enough to delay claiming in the first place)

For me, specifically, there's also the factor of the impact of career (reduced life expectancy is well known, as life insurance companies wouldn't offer preferred rates), the fact that neither parent survived long enough to even claim early, and that (except one) all of my side were gone by early to mid-80's (if they were that lucky).
As noted above by other posters, claiming before 70 also preserves a greater portion of the portfolio for the surviving spouse, which in my case would have a slightly larger PIA (and would therefore claim surviving spousal at 60 and convert to their own higher level at 70). As I've already passed the 62 mark, still doing Roth conversions, and have already calculated that the adjusted breakeven is very low between about FRA and 70..... my current plan is starting the January just after FRA to give one more year of conversions. (once both of us are claiming, pension income, and 3.5% of portfolio.... it's over 200k, so waiting further really doesn't move the needle)

 

[ER Eddie]

I'm taking it at 62. I'm healthy now, but I took sh*t care of myself earlier in life, and so I expect to pay the fiddler, one way or another. If the household difference was 110K, and household means couple, then that's 55K for me, a single dude. If I understood pb4 right, the actual figure may be much less. And the point about opportunity cost is well taken also.

For me, there's also a non-rational but nevertheless real reason. I feel like I was forced to pay into this system for years, and I want my money back. I don't want to let the government keep it. I certainly don't want to hold out until 70, start taking it, and then croak 5 or 10 years later. Or even worse, croak at 69. The government walks away with it all. **** that. I want my money back, and I want it as soon as possible. I'll take the risk that I live to 100 and lose $50K or whatever. If I live that long, I'll be happy to be wrong.

 

[marko]

Interestingly, if I add in a 23% haircut beginning in 2034 then the difference is $0 (surprised me too).

.

I doubt this is an accident. I suspect that "they-who-figure-this-stuff-out" factored in the 2034 break-even with the same deviousness--and data--as those who came up with the original ~age 79 break-even.

 

[joeea]

I certainly don't want to hold out until 70, start taking it, and then croak 5 or 10 years later. Or even worse, croak at 69. The government walks away with it all. **** that. I want my money back, and I want it as soon as possible. I'll take the risk that I live to 100 and lose $50K or whatever. If I live that long, I'll be happy to be wrong.

Yeah, because if you die before you are "paid back" you won't be able to live with yourself.

You were right. It's not rational.

 

[joeea]

I doubt this is an accident. I suspect that "they-who-figure-this-stuff-out" factored in the 2034 break-even with the same deviousness--and data--as those who came up with the original ~age 79 break-even.

Nope. That didn't happen.

 

[timo2]

In case anyone wants to read the actual report, instead of the clickbait summary, you can find it here:

https://unitedincome.com/documents/papers/RetirementSolutionHidinginPlainSight.pdf

thanks

 

[MarieIG]

Don't need this as an excuse to start means testing for SS. I also don't need the government assigning me my own, personalized DOD (yuck).

Sure, rename as minimum and maximum benefit.

Oh, and if you are really serious about "optimization" of benefits, provide a free, anonymous tool which would allow people to plug in their info for the alleged optimization - and then let the people claiming make up their own minds. The tool could also be available for them at the SS office, and they could be walked through it if they so desired.

As for the statement towards the end of the report that financial advisors have a motivation to encourage the early taking of benefits - that I believe to be true.

 

[joeea]

I also don't need the government assigning me my own, personalized DOD (yuck).

You don't really believe the government is doing that, do you?

provide a free, anonymous tool which would allow people to plug in their info for the alleged optimization

https://opensocialsecurity.com/

and then let the people claiming make up their own minds.

You have always been able to make up your own mind.

 

[Bir48die]

As I have mentioned before, I am flexible when considering when to take SS. I will be 64 in a couple months and will use these points to decide:

True out of pocket saving to the budget when I go on Medicare

Market Performance

Potential inheritance from MIL

I have no plans to take SS before FRA. I certainly will consider pulling the trigger if the market drop >25%. I will analyze WR at lower portfolio level with my medical savings and then will decide if to go to 70.

 

[joeea]

As I have mentioned before, I am flexible when considering when to take SS. I will be 64 in a couple months and will use these points to decide:

True out of pocket saving to the budget when I go on Medicare

How will that impact your claiming decision?

 

[MarieIG]

You don't really believe the government is doing that, do you?

According to the report - which in part called for "policy changes" one of the factors they considered when calculating social security optimization was a personalized DOD which they calculated using personal health information and included such as factors such as smoking, BMI, etc. Currently, it is my impression that the government calculates statistical likelihoods for the general population, not an individual at a time.



https://opensocialsecurity.com/


You have always been able to make up your own mind.

I didn't say otherwise. My point was, while I'm fine with persons claiming having all information to allow them to make the best decisions for themselves, I want the ability to decide kept with the persons claiming.

 

[joeea]

Yeh, I didn't say otherwise. My point was, while I'm fine with persons claiming having all information to allow them to make the best decisions for themselves, I want the ability to decide kept with the persons claiming.

It's difficult. In general, I'm for allowing people to make their own mistakes and live with the consequences.

But not everyone has the background needed to make an informed decision. There are for-profit entities that are happy to influence people to make poor decisions. And poor decisions often turn into shared, rather than individual, responsibility.

For example, I worry that my brother in law's poor claiming decision will turn into his family's responsibility.

There's nothing magical about allowing people to claim reduced social security benefits at 62. If everyone were required to wait at least until FRA, I don't think I would be bothered.

 

[MichaelB]

A question about the report. It compares two scenarios, actual income vs simulated, the difference based on the age participants began drawing SS.

There is an 8 year difference between min and max ages. When they conclude someone would have earned higher total income by beginning SS at age 70 compared with age 62, what other income do these people have to support themselves during those 8 years?

 

[MarieIG]

It's difficult. In general, I'm for allowing people to make their own mistakes and live with the consequences.

But not everyone has the background needed to make an informed decision. There are for-profit entities that are happy to influence people to make poor decisions. And poor decisions often turn into shared, rather than individual, responsibility.

For example, I worry that my brother in law's poor claiming decision will turn into his family's responsibility.

There's nothing magical about allowing people to claim reduced social security benefits at 62. If everyone were required to wait at least until FRA, I don't think I would be bothered.

Just looking at the statistics thus far, I don't think that is going to be very popular. But I agree there is nothing (at all) magical about claiming a reduced benefit at 62. If I were single, my choice would be to put it off to 70 as a safety net for old age, more than optimization. If I didn't collect, oh well, I really wouldn't mind terribly; but if I did the income would be there when I might need it more, would in all likelihood be unable to earn, and less able to make financial decisions.

I would also postpone till 70 if I were the primary breadwinner of a couple (and sometimes I cringe when I read posts when high earner in a couple claims at 62 - pushing the income to the front end and ignoring the reduced benefits to the surviving spouse should they pass first).

Most entities which manage money/ funds favor the scenario which will get them the most money to manage as soon as possible.

Sorry about your BIL.

 

[Gulfbeach]

While there are many good opinions here, every couple or individual can only decide what will work best in their particular situation.

 

[njhowie]

Yes. I read the whole document, and saw the comment you quoted. That does not change, that at the end, they kind of advocated for legislation that would make it more difficult for those that do not have a "need" (need decided by who?) to take before FRA.

Sorry, I still see Big Brother.

Completely agree. When I read the article a few days ago and got to that last statement I was shaking my head.

For me, it's just another reason to take the money on the earliest date.

 

[Teacher Terry]

Some people take it at 62 because they need it. I was going to wait until FRA of 66 because I was working part time but when I lost my job I took it at 65 because there wasn’t much difference with waiting a year.

 

[gwraigty]

I would also postpone till 70 if I were the primary breadwinner of a couple (and sometimes I cringe when I read posts when high earner in a couple claims at 62 - pushing the income to the front end and ignoring the reduced benefits to the surviving spouse should they pass first).

A couple of examples:

1. FIL retired in 1994 at 61 and started SS at 62. Main reasons - SMIL had recently been diagnosed with cancer for the 2nd time and both were convinced she was not going to beat it this time and wanted to maximize time spent together. FIL had been teaching high school vocational electronics the same way for decades (vacuum tubes) and it had been decided that was no longer acceptable. He was told he'd have to learn how to teach via computer technology, which he was not willing to do. Adding up the numbers, he found that between SS and a pension, he was working for only 10% of his pay. FF to today, SMIL beat cancer for a 3rd time last year, but due to other long-standing health problems, was near death recently and may not be with us much longer. Thankfully, no financial issues due to FIL claiming at 62.

2. Neighbor had been working full time for a well known big box retailer. When he turned 62, his employer suggested he apply for SS and go to part time. Running the numbers, he'd make more, so he did. Seemed like a win-win. FF to a couple of years ago when he died at 70. Widow (2nd wife) was 60 or 61. No kids together. No relationship with his kids from 1st marriage. Left with a mortgage she could barely afford. Thought there was life insurance through his employer. There hadn't been. SS mistakenly took back his final check, though that was corrected months later when she applied for survivor benefits, way earlier than optimal, but necessary to survive, as one can't live on air alone. In the meantime, neighbors stepped up to pay her utilities for awhile. She wanted to move in with a recently divorced nephew and was rebuffed. She's managing somehow, still in the same house. What seemed like a win-win turned into a lose-lose for her.

 

[audreyh1]

Too many workers are unemployable by their 60s and just hanging on until they make it to 62.

 

[Teacher Terry]

G, scenario 2 is a tough one because if he kept working full time so she would have had a bigger SS considering how young he died he never would have retired which is not optimal either. It seems like selling the house and renting a tiny apartment might be best for her. No clue why she thought a nephew would want to live with her.