Theory Behind taking Social Security Early?

[Fedup]

One reason for me to NOT taking SS early is not just longevity insurance but fraud insurance. Last year, Money magazine had an article regarding a widow who lost 7 figure nest egg through scamming, this is after her husband had died and she felt lonely, went online and talked to someone and he swindled her money, the money that her late husband worked so hard to save. At least with taking SS at 70, I will have a large monthly check to live on, no need for cat food.

But seriously, I’ve been actively converted my IRA to Roth, up to 22%, because I suspect with all the loosening with retirement withdrawal rates and alike, taxcut version 2.0 in the proposals phase, SS might be taxed at 100% to help the program. It will be soaked the rich. I rather not have a large traditional IRA, if I can help it.

 

[Fedup]

By the way, countries all around the world are raising retirement age. The demographic effect of people living longer affects more than the US, as one can reasonably surmise.

Russia is increasing the retirement age from 60 to 65 for men, and 55 to 63 for women. There have been public demonstrations and protests. Ireland is increasing retirement age from 66 to 68, etc...

The good news: You may live longer. The bad news: You will work longer.

People in other countries do not get a large SS check, an example is my husband’s best friend, he only gets about $150 per week, that’s less than $800 a month. He has been working as an oil engineer, so not a low income person at all.

 

[sengsational]

Time will tell, but if the SHTF it is nice to know that we can start at any time of our choosing.

I've got one decision now (DW's) and mine decision is in just over 2 years. This immediate decision to take take DW's lower amount now at 62 is supported by putting less than 3% or so in the discount rate of that calculator (and in some other analysis that I've done). It advises "now" even at a lower discount rate if configure for the default SS cuts. But as to having SHTF as a guide, I'd define that as having to sell equities to keep the lights on. I hope my AA is sufficient that doesn't happen. But my decision at the time will probably largely influenced by the PE10.

Can you be specific, quote what you don't understand. I'll attempt to clarify, thanks.

In the eye of the beholder. I usually grok your posts with ease.

 

[JustCurious]

People in other countries do not get a large SS check, an example is my husband’s best friend, he only gets about $150 per week, that’s less than $800 a month. He has been working as an oil engineer, so not a low income person at all.

Be careful not to generalize. One of my family members lives in a different country and she receives their equivalent of social security and the benefit is more generous than social security.

 

[joeea]

Between all the SS posts on this site and Bogleheads, this appears to be the one topic in which there is truly no real consensus.

There are plenty of topics here there is no real consensus. Paying off mortgages, for example.

IMHO, lack of consensus is not necessarily a bad thing.

 

[joeea]

I'm stuck with the psychology of taking SS at FRA. It feels like a financial loss because I'm using our hard earned savings/portfolio.

I compare it to that marshmallow experiment of delayed gratification.

I feel like I"m the child who has to eat her marshmallow as quickly as possible.

LOL! You certainly aren't alone in that.

And the fact that you are self-aware of the psychology probably leaves you in a better position than many.

 

[joeea]

My husband will be 62 in four years. We also have a minor child (I'm 12 years younger). The calculators I run tell us for him to collect at 70 and me to collect at 62. However, it seems like it's in our best interest for him to collect SS early because of that minor benefit. I read that it's half of the FRA, not half of what it would be at 62.


We can almost live on that amount without having to touch our portfolio.

Have you tried https://maximizemysocialsecurity.com/ ?

While not free, it's more comprehensive than other calculators, and will take your specific scenario into account correctly.

 

[joeea]

The take away from this... the benefit of those first 8 years of collection left to compound at the long term average 6.615% of the market won't be overtaken by the later higher figure (collecting at age 70) until age 101.

Interesting.

I assume you are single?

And I assume you are 100% invested in the equities and plan on doing so no matter your age?

And I assume you believe the market will continue to return 6.615% going forward, despite the lower returns predictions of some?

 

[Lukeee]

I'm stuck with the psychology of taking SS at FRA. It feels like a financial loss because I'm using our hard earned savings/portfolio. Yet, running the numbers, one would think SS is a guaranteed income (even if they reduce the benefit down the road).

I compare it to that marshmallow experiment of delayed gratification.

"The marshmallow test is one of the most famous pieces of social-science research: Put a marshmallow in front of a child, tell her that she can have a second one if she can go 15 minutes without eating the first one, and then leave the room. Whether she’s patient enough to double her payout is supposedly indicative of a willpower that will pay dividends down the line, at school and eventually at work. Passing the test is, to many, a promising signal of future success."
I feel like I"m the child who has to eat her marshmallow as quickly as possible.

https://youtu.be/JSRmdzofkio

 

[pb4uski]

Have you tried https://maximizemysocialsecurity.com/ ?

While not free, it's more comprehensive than other calculators, and will take your specific scenario into account correctly.

I did look at it but was not impressed.... the big flaw IMO are that their analysis doesn't factor in the probability of living to receive those benefits... at least based on what I saw of the output on their website and the detailed guide.

opensocialsecurity.com is free and the only product that I am aware of that takes mortality into account in its analysis... though you can turn it off by giving it an attained age assumption in which case it will not use the mortality tables.

 

[pb4uski]

Interesting.

I assume you are single?

And I assume you are 100% invested in the equities and plan on doing so no matter your age?

And I assume you believe the market will continue to return 6.615% going forward, despite the lower returns predictions of some?

That would be my concern.... long-term equities return is about 10%... long-term inflation is about 3%... so real is 7%.... 6.6% doesn't leave a lot of room for lower future returns that some pretty smart people predict.

 

[Chuckanut]

I also suck at the distribution phase, and here's another emotional reason for taking early. Government seems even more arbitrary than usual these days. Maybe I am reading way too much history but I can imagine scenarios shy of total social breakdown where the existing rules for social security, retirement accounts, and even ownership of "wealth" get changed. Take the money and run holds more appeal for me now.

Sadly, given the state of politics in this country, I must admit you have a point. Still, I think SS will survive and be healthy, though probably not as 'profitable' as it was for my parents or even me.

 

[hausfrau]

Have you tried https://maximizemysocialsecurity.com/ ?

While not free, it's more comprehensive than other calculators, and will take your specific scenario into account correctly.

I just bought this and am playing around with it. If only I knew exactly how long we'll both live, lol. Generally, it does say to wait longer, even with a minor child. I understand the lure of collecting early though.

 

[hausfrau]

I did look at it but was not impressed.... the big flaw IMO are that their analysis doesn't factor in the probability of living to receive those benefits... at least based on what I saw of the output on their website and the detailed guide.

opensocialsecurity.com is free and the only product that I am aware of that takes mortality into account in its analysis... though you can turn it off by giving it an attained age assumption in which case it will not use the mortality tables.

You can manually enter the maximum expected age. It made me feel a bit morbid though.

 

[Fedup]

Be careful not to generalize. One of my family members lives in a different country and she receives their equivalent of social security and the benefit is more generous than social security.

U.K. is middling for wealth, but I gave an example, I didn’t mean to generalize. What country are you refer to in your post?

 

[Fedup]

Interesting.

I assume you are single?

And I assume you are 100% invested in the equities and plan on doing so no matter your age?

And I assume you believe the market will continue to return 6.615% going forward, despite the lower returns predictions of some?

I also wonder if tax has been taking into account for the SS If taking at 62 and the larger tax payment on the RMD of the larger IRA.

 

[pb4uski]

You can manually enter the maximum expected age. It made me feel a bit morbid though.

Yup, just like I said... you can turn off the mortality tables by providing an age assumption.

 

[kaneohe]

Ran across this by accident: https://www.kiplinger.com/article/r...e-may-want-to-take-social-security-at-62.html

The claim is that by claiming early at 62 ,instead of at 66, you end up ahead because of lower taxation on the SS. Anybody able to agree w/ their numbers?

 

[Dtail]

Ran across this by accident: https://www.kiplinger.com/article/r...e-may-want-to-take-social-security-at-62.html

The claim is that by claiming early at 62 ,instead of at 66, you end up ahead because of lower taxation on the SS. Anybody able to agree w/ their numbers?

It sounds like the assumption is all monies are in a tax deferred account vs. a Roth account, so that assumption can sway the results, plus is a 4.47% growth rate reasonable? Perhaps...

 

[Independent]

This is the "call to action" in the piece

As you can see, Social Security is a complicated topic. ... Talk to a financial adviser [like me]

He said you'd pay less tax from 62 to 66. What about from 70-80? Spending down IRA now means lower RMDs later.

In our case, taxes seemed to be "pay me now or pay me later".

As always, not enough information to analyze. How much money did they have in before tax and after tax investments? What was their target income? Are they looking at 85% taxable SS in almost all years and maybe squeezing out a couple at less?

I think the actual case would be technically interesting, but no way to agree or disagree without details.

 

[joeea]

I did look at it but was not impressed.... the big flaw IMO are that their analysis doesn't factor in the probability of living to receive those benefits... at least based on what I saw of the output on their website and the detailed guide.

You are correct, it does not attempt to do so.

opensocialsecurity.com is free and the only product that I am aware of that takes mortality into account in its analysis... though you can turn it off by giving it an attained age assumption in which case it will not use the mortality tables.

Well it uses mortality tables to attempt to factor in the probability of the average person living to receive those benefits.

Some would argue that you aren't an average person. You are unique, you are you. And the factors used in the mortality tables may or may not have anything to do with your own personal mortality (which is all that really matters).

There are lots of other things that opensocialsecurity.com doesn't use, which maximizemysocialsecurity.com does. For example, factoring in benefits due to minor dependent children (which was the factor of specific interest to the poster).

We each need to try and decide which model most closely uses factors relevant to our own unique situation.

 

[haha]

Ran across this by accident: https://www.kiplinger.com/article/r...e-may-want-to-take-social-security-at-62.html

The claim is that by claiming early at 62 ,instead of at 66, you end up ahead because of lower taxation on the SS. Anybody able to agree w/ their numbers?

I have at best medium income. Yet as a single person, I have never paid less than 85% rate on my SS payments.

Ha

 

[pb4uski]

You are correct, it does not attempt to do so.


Well it uses mortality tables to attempt to factor in the probability of the average person living to receive those benefits.

Some would argue that you aren't an average person. You are unique, you are you. And the factors used in the mortality tables may or may not have anything to do with your own personal mortality (which is all that really matters).

There are lots of other things that opensocialsecurity.com doesn't use, which maximizemysocialsecurity.com does. For example, factoring in benefits due to minor dependent children (which was the factor of specific interest to the poster).

We each need to try and decide which model most closely uses factors relevant to our own unique situation.

I like that opensocialsecurity.com provides 5 different mortality tables that you can select based on your health (preferred or super preferred) and whether you smoke or not to align with your personal health.... or you can provide an assumed age at death.

I agree that there are some situations, like minor dependent children, voluntary suspension and disability benefits that opensocialsecurity.com does not cover, but I know that Mike has them on a list of future enhancements.... however what is there now covers the vast majority of early retiree situations.

 

[sengsational]

I just bought this and am playing around with it. If only I knew exactly how long we'll both live, lol. Generally, it does say to wait longer, even with a minor child. I understand the lure of collecting early though.

Kotlikoff again. I was challenged last time I mentioned this, so I could be wrong, but I was left with the impression that Larry was much more into risk avoidance than I was, and more confident that very low risk was the way to go. And, of course, that tilts toward taking late.

I also wonder if tax has been taking into account for the SS If taking at 62 and the larger tax payment on the RMD of the larger IRA.

Not many calculators take into account the whole enchilada. i-orp does, but, as with all calculators, has it's limitations.

 

[RockyMtn]

here's an interesting article in Kiplingers that suggests those with significant assets may want to take SS early!

https://www.kiplinger.com/article/r...e-may-want-to-take-social-security-at-62.html