Social Security Questions

[skipro33]

Taking SS early at 62 compared to 70 or even FRA is just like retiring early. Why retire early when you can work and be worth even more money at 70? Because there's much more to life at 62 than there is at 70.

I'm taking at 62 because there are adventures I want to do while I can. Stuff like ski and kayak. Could I at 70? Maybe. Maybe not. Can I at 62. I sure can.

I retired early to enjoy life, not get richer or have a bigger estate for my heirs. $2,000 now compared to $3,000 at 70 sure sounds like a great way to improve my quality of life to me while I'm able to appreciate that quality of life.

 

[jim584672]

Statistically, based on the IRS life expectancy tables, SS will pay the same amount of $ to a person with an average lifespan, whether they retire early (62), on time (FRA), or wait until up to age 70 (at an 8% premium per year), by the time they pass at their predicted year. If you live longer than your life expectancy, then you would get more by waiting.

I never understood this. Since men have shorter life spans on average than women, then shouldn't men take it sooner and women take it later? Since both are lumped together is is giving a skewed result.

 

[Badger]

If a couple has enough retirement savings to last well beyond the lifespan of a human and your combined SS and pension is enough to easily cover all the annual expenses and you want to leave an inheritance as well as give to charities then why not take SS early and let your investments grow? Even with dipping into savings for new cars, non-taxible gifts to the children, charities, travel, etc. the savings continue to grow then why wait? In this case use the SS as soon as it is available. You will probably never get as much as you and your employer have put into your account given any growth all those years.


I don't know how many fall into this category but probably a few here anyway taking into consideration the posts on "blow that dough".


Cheers!

 

[DougB]

Seems like you're ignoring the last sentence. You would incur two penalties by claiming before FRA and while still working, and only the latter would be offset by a later adjustment. And for what? If your main concern is job security, you can wait, and claim only if you lose your job.

I think there are two separate issues here. 1) I want to claim early because I like the idea of getting $100K cash before I'm 66 in exchange for a 5K per year less benefit long term. My breakeven is at minimum age 82, longer if you consider potential investment income from the $100K. 2) The issue of me possibly earning a high income for at least some of the years between 62 and 66. All that happens in this case is I don't receive the full $100K from SS during this period, but as per the nolo.com site, I will get every penny back, because at FRA, SS will recalculate my monthly payment and return all monies withheld from me, albeit gradually over the the rest of my expected life span.

I find it amazing that no one seems to be aware of this critical fact. I been googling all over looking for a calculator that will show me exactly how much my benefit will increase, for example in the following case.

Let's say after I claim early (2,000 per month), I am able to earn enough W2 income during two of the four years between 62 and 66, that half of my benefit (48,000) is withheld. When I reach FRA, how much exactly would SS raise my benefit to compensate me for the $48,000 lost?

Thanks for everybody's input on this.
Doug

 

[Independent]

Taking SS early at 62 compared to 70 or even FRA is just like retiring early. Why retire early when you can work and be worth even more money at 70? Because there's much more to life at 62 than there is at 70.

I'm taking at 62 because there are adventures I want to do while I can. Stuff like ski and kayak. Could I at 70? Maybe. Maybe not. Can I at 62. I sure can.

I retired early to enjoy life, not get richer or have a bigger estate for my heirs. $2,000 now compared to $3,000 at 70 sure sounds like a great way to improve my quality of life to me while I'm able to appreciate that quality of life.

Why do you think you can't defer SS to 70 and also ski and kayak at 62?

If you follow the 4% guideline, or use FireCalc, you'll probably find that you can prudently spend more at 62 if you defer SS to 70.

 

[Independent]

If a couple has enough retirement savings to last well beyond the lifespan of a human and your combined SS and pension is enough to easily cover all the annual expenses and you want to leave an inheritance as well as give to charities then why not take SS early and let your investments grow? Even with dipping into savings for new cars, non-taxible gifts to the children, charities, travel, etc. the savings continue to grow then why wait? In this case use the SS as soon as it is available. You will probably never get as much as you and your employer have put into your account given any growth all those years.


I don't know how many fall into this category but probably a few here anyway taking into consideration the posts on "blow that dough".

I agree -- for people who have no concern about running out of money, but are just talking about the windfall that will eventually go to children or charities.

If you do the math on SS, using average stock returns, starting earlier leaves a bigger estate. (ignoring spousal complications) At 6% real return, deferring from 62 to 70 doesn't catch up until 95. At 7% real, age 112.

By the same reasoning, such people shouldn't limit themselves to a 4% withdrawal rate. They have enough money to start with a higher rate, and decrease if necessary, later.

Deferring SS is a defensive strategy, for people who can see scenarios where they run out of money before they die.

 

[Independent]

When I reach FRA, how much exactly would SS raise my benefit to compensate me for the $48,000 lost?

Thanks for everybody's input on this.
Doug

https://www.ssa.gov/pubs/EN-05-10069.pdf

 

[sengsational]

I'm not done with my decision making process yet, but neither of us is eligible yet either. We're in the 'not running out of money' category. But my last foray into the morass was "take it early".

So I ran those scenarios today. I started with my base numbers, turned-off Roth conversions (for simplicity) and varied the "plan duration" from age 80 to 105, all the while flipping SS initiation back and forth from 62 to 70.

I collected the "annual spend" (the bold number reported by i-orp), plus I added up taxes paid across all years and added up Social Security income across all years.

Although the "break even", looking at total SS $ collected, is age 80, the available spend is 3% higher if I take SS at 62. In other words, i-orp is saying that I can spend 3% more per year across the entire span of this 21 years if I take SS early.

Even extending the span to 31 years, to age 90, i-orp is saying I can spend 1% more. It's not until age 105, a 46 year span, that taking SS late (at 70) beats taking it early.

Something I noticed from this analysis was that the total taxes paid is between 5% and 10% higher for taking SS early. 5% higher at the short plan duration end and 10% at the long plan duration end. So by taking SS early, you're apparently able to leave your assets invested longer so you have more money to pay these taxes and spend more. Oh, by the way, I don't have any funky rate assumptions...I ran with the defaults for everything (asset class returns and inflation, and 40% stock allocation).

So what I've determined is that there's really no downside to taking SS early if you believe the i-orp simulation. I'm not quite done with the analysis, though. What I need to do is, rather than run my rather complicated "real numbers" through the tool, I need to try putting a simplified set through and chuck that output into a spreadsheet to make sure I agree with what it's doing.

 

[SumDay]

Opensocialsecurity.com (and every other SS calculator we've tried) tells us that I should start at 62. DH is 65 and was born before 1/1/54, so he can take 1/2 mine at FRA next summer. He was the higher earner, so we'll let his percolate until 70.


I'm glad this happens to be the best strategy for us, because I'm retiring in two weeks, and the thought of not having a paycheck coming in scares the $hit out of me. Yes, we have substantial investments to tap, but I just want to see that automatic deposit in my checking account each month. It's all about being able to sleep. Would taking it at 62 help you sleep?

 

[skipro33]

Why do you think you can't defer SS to 70 and also ski and kayak at 62?

If you follow the 4% guideline, or use FireCalc, you'll probably find that you can prudently spend more at 62 if you defer SS to 70.

Because the income from SS at 62 funds the physical activities I'm able to do at 62. There's no guarantee I physically can ski or kayak like I do at 70. It's rare that I find 70+ people skiing the steeps, deeps and bumps like I'm still able to do. I never see anyone in a kayak on the ocean fishing up to 2 or 3 miles off shore like I do. (I'm competative in kayak fishing tournaments mostly held on the ocean.)



I have run the #'s on using my investments as opposed to growing them and they always come out that my net worth is larger when I draw SS at 62. If I draw SS at 62, I won't need my investments (I have a cola pension) until forced to withdrawal at 70.5 years old. I consider that pot of money to be my long term medical fund if I or DW falls ill enough to need full time care, or to fund grand kid college or other charities.

 

[skipro33]

I agree -- for people who have no concern about running out of money, but are just talking about the windfall that will eventually go to children or charities.

If you do the math on SS, using average stock returns, starting earlier leaves a bigger estate. (ignoring spousal complications) At 6% real return, deferring from 62 to 70 doesn't catch up until 95. At 7% real, age 112.

By the same reasoning, such people shouldn't limit themselves to a 4% withdrawal rate. They have enough money to start with a higher rate, and decrease if necessary, later.

Deferring SS is a defensive strategy, for people who can see scenarios where they run out of money before they die.

+1 and why I'm drawing SS at 62. My lifetime earnings/final worth is larger taking SS now and growing my own assets. If I need them, fine. If not, at least I'll be thought of fondly. Ha!

 

[Independent]

Because the income from SS at 62 funds the physical activities I'm able to do at 62. There's no guarantee I physically can ski or kayak like I do at 70. It's rare that I find 70+ people skiing the steeps, deeps and bumps like I'm still able to do. I never see anyone in a kayak on the ocean fishing up to 2 or 3 miles off shore like I do. (I'm competative in kayak fishing tournaments mostly held on the ocean.)

I have run the #'s on using my investments as opposed to growing them and they always come out that my net worth is larger when I draw SS at 62. If I draw SS at 62, I won't need my investments (I have a cola pension) until forced to withdrawal at 70.5 years old. I consider that pot of money to be my long term medical fund if I or DW falls ill enough to need full time care, or to fund grand kid college or other charities.

This makes more sense.

As your post above indicates, you don't really need to start SS at 62 to fund your physical hobbies. You've got enough money to support them either way.

In fact, you have enough money that you aren't worried about the possibility of running out, so you can make plans based on your expected estate instead.

 

[ShokWaveRider]

Our decision is based purely on keeping MAGI to a point where DW gets Maximum ACA subsidies. We just take anything additional we need out of post tax funds.

 

[foxfirev5]

+1 and why I'm drawing SS at 62. My lifetime earnings/final worth is larger taking SS now and growing my own assets. If I need them, fine. If not, at least I'll be thought of fondly. Ha!

Exactly. I've made my own way by investing and taking advantage of opportunities my whole life. Why shut it down at ER and spend down assets to offset SS. To me it's just another source of cash flow. And I absolutely agree with your previous assessment of activity level at our younger age.

DM who at the age of 88 is telling me - are you nuts?
" Take the cash and quit worrying so much. You're not going to be climbing any mountains when you're my age."

 

[pb4uski]

Well, I've got $24,000 a year coming to me at age 62. My FRA is 66 and 4 months. So, I receive $102,000 extra if I declare early. If I forgo the $102,000 and claim at FRA, then my benefit rises to $29,000 a year. If I divide 102,000 by the $5,000, that equals 20.4 years. So, at age 82.4 I start 'losing".

A couple of things I'm am leaving out: what taxes do I have to pay on the $24,000? And what investment income can I get out of the $102,000.

Doug,

You need to check your numbers... they don't make sense.

If your FRA is 66 and 4 months then that means that you were born in 1956.

If you were born in 1956 then your age 56 benefit would be 73 1/3% of your primary insurance amount (PIA) at your full retirement age (FRA) of 66 and 4 months. See table linked below.

https://www.ssa.gov/oact/ProgData/ar_drc.html

If you have $24,000 a year coming to you at age 62, then your FRA benefit would be $32,727 ($24,000/0.73333), not $29,000.

Given that, the break even point would be ~78.25. $24,000*(78.25-62)=$390,000 and $32,727*(78.25-66.333)=$390,008.

 

[Independent]

Let's say after I claim early (2,000 per month), I am able to earn enough W2 income during two of the four years between 62 and 66, that half of my benefit (48,000) is withheld. When I reach FRA, how much exactly would SS raise my benefit to compensate me for the $48,000 lost?

First, note Pb4uski's comment:

If you have $24,000 a year coming to you at age 62, then your FRA benefit would be $32,727 ($24,000/0.73333), not $29,000.

My guess based on the link I provided in the earlier post:

There is a $17,040 annual exemption. If your $48,000 is equally spread over the four years at $12,000 per year, you don't lose any SS benefit and there is no recalculation at your FRA.

At the other extreme, if the $48,000 is all in one year, you will lose:

(48,000 - 17,040)/2 = $15,480. That is 7 or 8 months of benefits. I'm not sure which way they round. Let's guess 8.

In that case, when you get to your FRA, they will recalculate your benefit as if you had started benefits at age 62 + 8 months. The factor for that age is .73333 + .05 * 8/12 = .76667
So your annual benefit at FRA will go up to
$32,727 * .76667 = $25,091 (or $2,091 monthly).

Note that you would have received $2,091 every month if you had waited to age 62 + 8 months to start your benefits. Instead, you only get $2,000 per month before FRA. So starting at 62, then losing some months, then getting the recalculation at FRA costs you 32 months x $91 = $2,912 in benefits.

Note that the link also contains a section on special rules for the first year, which I did not consider here.

 

[joeea]

If a couple has enough retirement savings to last well beyond the lifespan of a human and your combined SS and pension is enough to easily cover all the annual expenses and you want to leave an inheritance as well as give to charities then why not take SS early and let your investments grow?

Because you can leave a larger inheritance by delaying your SS benefits?

 

[Offgrid Organic Farmer]

Because you can leave a larger inheritance by delaying your SS benefits?

No, Having more than enough income to support your family means that you are still investing.

Take SS early and you can continue to invest more from your other income sources.

 

[skipro33]

Because you can leave a larger inheritance by delaying your SS benefits?

Not according to FIRECalc. It consistently tells me supplementing my COLA'd pension with my SS benefit instead of equivalent IRA draws and letting my IRA's ride up to RMD age, I end up with a larger net worth at the end of my estimated life span.

I am quite satisfied with my current income/lifestyle and, barring any health emergencies, I imagine my income needs will drop as I get older and acquire a more sedentary lifestyle. When we downsize, we'll be selling a million+ dollar home (current market value in California), freeing up equity for even more liquidity. As the saying goes, "we can do anything we want, we just can't do everything we want. So choose wisely", applies to time rather than funds in our situation.

 

[pb4uski]

Hypothetical 62 yo retiree with $1m nestegg and 33 year time horizon (to age 95).

Retiree can take $24k SS a year at 62, $32k SS a year at 66 or $42.24k SS a year at age 70.

Spending at 95% level and ending net worth at $60k withdrawals per year under each alternative according to FIRECalc.

62..... $62,808 spending at 95% success rate or $2.211m NW at age 95
66..... $65,679 spending at 95% success rate or $2.285m NW at age 95
70..... $65,962 spending at 95% success rate or $2.279m NW at age 95

If we reduce the time horizon to age 85, then:
62..... $69,033 spending at 95% success rate or $1.178m NW at age 85
66..... $70,684 spending at 95% success rate or $1.733m NW at age 85
70..... $69,517 spending at 95% success rate or $1.631m NW at age 85

 

[Badger]

Because you can leave a larger inheritance by delaying your SS benefits?

I don't see a need for a larger inheritance. Our children have no idea of our savings or net worth. In the past 3 years it has increased by $200k for each year. Why be greedy for more. Shhhhhh! We have a very modest older home but in a highly desirable neighborhood of new homes 3-4X our size. Since it has been paid for years and all our medical bills are covered they will each receive an inheritance that will set them up for the rest of their lives (if they are not frivolous which is unlikely). Boy are they going to be surprised.


Cheers!

 

[Chuckanut]

Taking SS early at 62 compared to 70 or even FRA is just like retiring early. Why retire early when you can work and be worth even more money at 70? Because there's much more to life at 62 than there is at 70.

.

While I agree with your comments on the benefits of retiring early, do not confuse when to retire with when to take SS. For some there is no choice. Financially, they must take SS in order to afford to retire. But, for many people on this site who have taken LBYM to an art-form, they can and do put off taking their SS benefits.

Here is a copy of a post by Cuthroat, IIRC, on why taking SS at 70 gives a person more money to spend each year assuming one does not wish to leave an estate to one's heirs.

Maximize SS how much you get to spend​

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.

Let's Say you retire this year at age 62 with the $1 Million Portfolio and decide to take a 4% SWR. You get Social Security of $19,476 per year at age 62 and delaying to age 70 would get you $34,092 per year. Let's assume no inflation for ease of calculations.

Scenario age 62. Your SWR is $40K per year and Social Security of $19,476 gets you a Spending total of $59,476 for each year of your retirement period.

Scenario age 70. You stash 8 years of $34,092 from your portfolio into a savings account for a total of $272,736. Your portfolio is now down to $727,264. Your 4% SWR is now $29,090 per year and you remove $34,092 from your savings account giving you a total of $63,182 to spend each year for the rest of your 30 year retirement period.

The Delay to age 70 gives you $3,706 more every year starting at age 62 with no more increased risk.

No need for any ... 'break even analysis'.

If your WR is more conservative, such as a majority of the people here and myself, the results are even more compelling. At a 3% WR plus SS at age 62 scenario is a total of $49,476 and the age 70 scenario is $55,910. The delay of SS to age 70 now increases your annual spending by $6,434.

http://www.early-retirement.org/forums/f28/laurence-kotlikoff-maximize-my-ss-com-77660.html#post160441

 

[Independent]

hypothetical 62 yo retiree with $1m nestegg and 33 year time horizon (to age 95).

Retiree can take $24k ss a year at 62, $32k ss a year at 66 or $42.24k ss a year at age 70.
....

When I posted

If you ... use FireCalc, you'll probably find that you can prudently spend more at 62 if you defer SS to 70.

I was thinking about the FireCalc runs in your post. We've seen that before.

But, skipro was probably doing something like this:


Fix withdrawals at $60,000, time horizon of 33 years, solve for ending assets:
............ Minimum .. Average ...... Maximum
@62 ... -171,226 ... 2,408,420 ... 6,530,110
@66 .... 372,386 ... 2,481,239 ... 6,342,382
@70 .... 280,258 ... 2,494,480 ... 6,300,672


Fix withdrawals at $50,000, time horizon of 23 years, solve for ending assets:
@62 .... 652,999 ... 2,384,073 ... 4,970,890
@66 .... 733,702 ... 2,339,268 ... 4,747,695
@70 .... 740,388 ... 2,237,169 ... 4,556,852

When we look to maximize annual withdrawals, subject to a 95% confidence, we use long life spans and FireCalc focuses on the worst investment scenarios.

Somebody else, who says "I've got more than enough resources to provide my target lifestyle, I'll just focus on leaving a nice windfall to children or charity", can use an average life span and average investment scenarios.

Taking SS later works better in the extreme scenarios in the 95% confidence.
Taking SS sooner works better in the average scenarios.

 

[Rianne]

All of this is helpful provided one lives an even, steady WD rate, good health and no large lump sum WD. Firecalc provides a vehicle where you can calculate extreme WD in the future for one year, then go back to normal spending. Or pockets of extreme WD over several years, then back to normal spending.



I find it helpful to throw in an xtra $20K-30K WD in future years to see where it brings me at end of 30 years. And what is an average lifespan? 30 yrs is a good guestimate but these averages change every year. I"m happy with 25 years to go, brings me to 85 and hopefully good health and a quick death without long term illness.

 

[sengsational]

Here is a copy of a post by Cuthroat, IIRC, on why taking SS at 70 gives a person more money to spend each year assuming one does not wish to leave an estate to one's heirs.

Ignoring inflation and the rate one gets on investments makes the analysis much less realistic.


If you are of the opinion that that the equity market will be doing roughly the same as it has been doing, and you plan to participate in those equities, then the answer seems to be "take it ASAP", even if you think you'll live to a ripe old age.


If you consider yourself having "won the game", and are stepping away from risk, that's a valid position. Your allocation, then, will be sans equities. If that describes you, then you fall in the "take it only if you need it" camp.