Theory Behind taking Social Security Early?

[Jkstrudwick]

Excellent point. Spend down your IRA/401K account balances NOW to reduce the RMD at age 70 1/2.

The Taxman Cometh!

 

[MI-Roger]

Unfortunately, we all must make a prediction regarding our end of life. I think it's perfectly reasonable to plan for a long life and end up leaving more if we die sooner. But when I do that, I use the same predicted age for all my pools of income. I don't understand why one would ever use more than one.

One major difference is that uncollected income from your investments pass to your heirs, whereas uncollected SS benefits do not pass to your heirs. I know, I know; filing early means a smaller monthly check as compared to filing later, and filing later with a long life will yield the greatest total benefits received. But the early smaller check means less needs to be removed from your investments to cover your monthly income needs in the first years of retirement.

The SSA Actuaries have set the formula as equal as possible for filing early or filing late.

 

[joeea]

I understand that if I wait, once I hit 79, I will have get more. My question is, to do what with? What am I going to be spending money on in my 80s? New cars? Trips? More collectibles? How many people at that age are physically and mentally in great condition? So, that leaves what, medical bills and health care? If you have money, the government will take it all at that point anyway. I don't have any heirs or family to leave anything to. So, I'm not saying its not worthwhile to wait until 66.6 put I'm just curious as to what people think they need the extra money for?

Imagine you have some money now. You'd like to spend it on lots of fun things since you are so young and feel that you wish to enjoy your life.

But you know that later on you'll have to pay for medical bill and health care, as most do.

Would you feel more comfortable spending on fun now if you know you'll have more money coming in later? Or would you spend more now if you have less coming in later?

 

[Beer-man]

Im in favor of reducing taxes as much as possible so I’ll probably try to hold off as long as possible and burn that IRA to the ground.
Anyone consider setting up certain psychological triggers for claiming early? Such as market drop greater than 30% or total portfolio below 250k? Either of those would probably get me to pull the SS safety Shute early.
This is all theoretical of course as I’m a few decades out.

 

[HunterAdvisor]

So much about taking SS early is influenced by whether you have active - reportable income which will cause your SS to be taxed. In addition your confidence in the governments’ ability or desire to return the money you put into your SS. I have chosen to take mine early and love getting my $1,585 every month, it’s less I draw from my IRA. I’m less concerned with Medical as we live in Mexico where healthcare costs run about 20% of that north of he border. We have private health insurance here for about $1,800 / yr for both of us in our 60s.

 

[Islandtraveler]

Little did anyone know that Spock had the answer to the SS riddle figured out years ago, “Live long and prosper”

 

[Bankgirl0157]

Like you, I have pretty good genes with my father just passing at 87 and my Mom still living at almost 86. Regardless, I will be applying for my SS next month and taking it at 62, against the advice of our financial advisor. My husband and I have done the math and if I wait, I will need to live until I'm 82 to reach the BREAKEVEN point. Now, because of my family genes, I could live to 82 and beyond, but I'm not risking it. Best of luck to you!

 

[Independent]

I understand that if I wait, once I hit 79, I will have get more. My question is, to do what with? What am I going to be spending money on in my 80s? New cars? Trips? More collectibles? How many people at that age are physically and mentally in great condition? So, that leaves what, medical bills and health care? If you have money, the government will take it all at that point anyway. I don't have any heirs or family to leave anything to. So, I'm not saying its not worthwhile to wait until 66.6 put I'm just curious as to what people think they need the extra money for?

I hope you understand that people who defer SS are not saying they are planning to buy less stuff during the time they are deferring.

They are saying they will spend just as much by they will fund it by withdrawing more from their investments during that time.

In fact, if they use the 4% SWR, or use FireCalc to compare their options, they find they can "prudently" spend a little more in the early years if they defer SS.

Of course, none of them are intentionally impoverishing themselves. I suppose if I were really focused on living off the gov't dole after age 80, it would make sense to spend down all my assets by then, sell my house and spend all the proceeds, and start SS as soon as possible and spend all that. I'm not comfortable with that plan.

 

[Independent]

.

However, even though at 91 I will have collected $200,000 more (if I make it that long) I am being realistic about my ability to spend the extra $20K/year when I'm in my 80's. My view is that the 8 years from 62-70 are going to continue to be active and I will have the energy and desire to travel, remodel the house, etc. so I would rather put those funds to use while I can best enjoy them.

Please see post above. People who defer think that it's okay to spend their invested assets on fun things early in retirement, knowing that they don't need to conserve those assets for their old age.

 

[Bankgirl0157]

As a retired banker, I suggest three things:
1) Determine the age you want to be when you retire and estimate where your expenses will/should be at that age. For example, I determined I wanted to retire at 60 without taking any distributions from my 401-K. The only way I could do that was to have my mortgage paid off. THAT became my goal along with enough in savings to pay expenses until age 62.
2) Calculate your SS breakeven point and decide your personal risk. For example, my breakeven, if I wait to take my SS until age 66, is age 82. If I die before then, I leave money on Social Securities table instead of my own.
3) Last, 3-5 years before your projected retirement, determine the large expenses you may be able to eliminate prior to the big day. For example, I replaced my roof, A/C, appliances, did painting, etc., so I could avoid these huge expenditures during the gap period with little to no income. You can never avoid everything, but determining end-of-life on household maintenance and other necessities should be easy to accomplish.

Just my two-cents!

 

[Scott_Howard]

Do the math yourself. I found that if I wait until 67 to draw my SS, I would get $3000 more over my estimated life than if I started drawing at 62. Not that big a difference in monthly checks. (Based on my family, I estimated that I will live to 85). I assume that a longer life would increase that gap, but YMMV.

 

[pb4uski]

..... The SSA Actuaries have set the formula as equal as possible for filing early or filing late.

However, the discounts and premia for taking early or delaying, respectively, have not changed in many years (since the 80s I suspect) but with medical advances since the 80s people are living longer, so that is part of reason that I think it is preferable to wait/delay... the actuarial assumptions used to achieve neutrality are dated and conservative.

 

[PandaBear]

Slightly different perspective.....we plan on taking dh’s SS around 62. He’s 3.5 yers older than me and I won’t get social security. I also won’t get his. So it seems to make sense to take it ASAP.

 

[Chuckanut]

I understand that if I wait, once I hit 79, I will have get more. My question is, to do what with? What am I going to be spending money on in my 80s? New cars? Trips? More collectibles? How many people at that age are physically and mentally in great condition? /QUOTE]

As has been pointed out several times, by waiting until age 70, one can spend more every year starting at 62. This assumes one does not want to leave a pile of cash for others. So, in reality one can travel and enjoy life more starting at 62.

That said, it's an individual choice and I respect it. I would rather we spent our dollars (from SS or otherwise) having a nice chat over a good lunch, than quarreling over when to take SS.

 

[marko]

So, you have to wait 8 long years of your best senior health just to make little additional $.

I posted earlier in this thread that I think it's a bell shaped curve with those who have no choice taking it earlier on one end and those who don't need it on the other.

Folks in the middle want/need to maximize their benefit; they see it as a form of insurance.

Those with fewer assets need it asap just to make ends meet.
Those with a lot of assets see it as "fun money" to use while their healthy and don't care so much about maximizing their benefit.

 

[Chuckanut]

Like you, I have pretty good genes with my father just passing at 87 and my Mom still living at almost 86. Regardless, I will be applying for my SS next month and taking it at 62, against the advice of our financial advisor. My husband and I have done the math and if I wait, I will need to live until I'm 82 to reach the BREAKEVEN point. Now, because of my family genes, I could live to 82 and beyond, but I'm not risking it. Best of luck to you!

If breaking even is so very important, why not figure on dying by age 82 or whenever, and spending every penny from now until then? Allow an inheritance if one wishes, spend it all on whatever makes one happy, and by age 82 one can die perfectly penniless. The breakeven problem is solved!! Brilliant!

Seriously, Breaking Even is only one criteria for when to take SS.
And money is fungible.

Now back to the entertainment.

 

[NW-Bound]

Excellent point. Spend down your IRA/401K account balances NOW to reduce the RMD at age 70 1/2.

The Taxman Cometh!

Even if I don't spend it all, I still withdraw extra to stuff it in Roth.

 

[pb4uski]

As a retired banker, I suggest three things:
1) Determine the age you want to be when you retire and estimate where your expenses will/should be at that age. For example, I determined I wanted to retire at 60 without taking any distributions from my 401-K. The only way I could do that was to have my mortgage paid off. THAT became my goal along with enough in savings to pay expenses until age 62.
2) Calculate your SS breakeven point and decide your personal risk. For example, my breakeven, if I wait to take my SS until age 66, is age 82. If I die before then, I leave money on Social Securities table instead of my own.
3) Last, 3-5 years before your projected by peoplw feretirement, determine the large expenses you may be able to eliminate prior to the big day. For example, I replaced my roof, A/C, appliances, did painting, etc., so I could avoid these huge expenditures during the gap period with little to no income. You can never avoid everything, but determining end-of-life on household maintenance and other necessities should be easy to accomplish.

Just my two-cents!

1) Why would one consider a 401k sacroscanct that it shouldn't be touched? Do people save for retirement in a 401k to spend that money in retirement or to hoard it? It is a common mistake by people frequenting this forum. Many of us have mortgages in retirement, but we also have the financial resources to make the mortgage payments. While I concede that Mr. Market has been kind in the 7 years since I retired, my investment results are way ahead of my 3.375% mortgage interest so having taxable investments equal to my mortgage when I retired was much better than having a paid of mortgage and lower monthly cash outflow.

2) SS is a complicated decision... I think the best analytical approach is expected present value of each alternative that takes into account the cash flows of each alternative, the probability of receiving those cash flows based on relevant mortality assumptions, and the time value of money. opensocialsecurity.com uses such an approach and allows users to select the mortality tables, set a real discount rate and even include future haircuts to the cash flows is desired.

3) Whether one has recently done the roof, A/C, appliances (and car replacements) or alternatively just has money saved sufficient to pay those when they arise doesn't really matter.

 

[pb4uski]

So, you have to wait 8 long years of your best senior health just to make little additional $. No thanks

Here's someone that has not read this thread at all !!

Yup... the slew of posts that preceded his demonstrated that you can spend more each year with the same risk by delaying... and while you are wating if the SHTF you can exercise that option and start SS if you get uncomfrtable with the extent of drawdowns.

 

[Niuatoputapu]

I don't plan on changing my spending by amping up once I start collecting SS at age 70. I have a desired income level that is steady and will be met by different income streams over the years - first my ......(IRAs), later adding SS which will decrease my withdrawals from (IRAs). But by drawing down my (IRAs) early on I'll be reducing my RMDs. I plan to spend more on travel early on and then later on healthcare.

+1

Agree that claiming at 70 is not about spending more at age 80, it is about spending more, period. A remote possibility benefit is the avoidance of means testing for SS benefits because your stash and RMDs are smaller at age 70 than they would have been if you started collecting earlier.

 

[StaceyR]

How much does (should) the increasing talk of future cuts to SS affect your decision to take early or late? Lately I've been hearing more and more about politicians targeting SS to make up for shortfalls elsewhere. Should we "take the money and run" sooner or gamble that benefits won't be cut for those who prudently waited to maximize their monthly benefit?

 

[pb4uski]

opensocialsecurity.com allows users to make assumptions as to the year haircuts begin and the percentage of the haircut if they wish to.

I ran our numbers with and without haircuts and was surprised that the change in EPV was not near as significant as I thought that it would be.

For example, if you run with just the default assumptions the EPV is $157,138.... if you then leave all assumptions the same and add in haircuts, the EPV is $122,483.... so a 23% haircut starting on 2034 reduces the EPV by 22%.

If I replace the default real discount rate of 0.85% with a more reasonable real discount rate of 3%, the without and with haircut EPVs change to $118,379 and $100,754, respectively.... a 15% reduction.

 

[sengsational]

It makes sense to follow odds in some situations- mostly when there will be many iterations and where your day to day life cannot be importantly negatively impacted.

In other situations, it is much better to use a fail safe approach.

Ha

I posted earlier in this thread that I think it's a bell shaped curve with those who have no choice taking it earlier on one end and those who don't need it on the other.

Folks in the middle want/need to maximize their benefit; they see it as a form of insurance.

Those with fewer assets need it asap just to make ends meet.
Those with a lot of assets see it as "fun money" to use while their healthy and don't care so much about maximizing their benefit.

Wise thoughts. Some people are in a position where they need the Fail-Safe. Others, not so much. Probably this contributes to the lack of consensus.


I noticed a lot of new members have made a post in this thread. Welcome to the board! Consider making a post Hi, I am... - Early Retirement & Financial Independence Community

 

[marko]

It makes sense to follow odds in some situations- mostly when there will be many iterations and where your day to day life cannot be importantly negatively impacted.

In other situations, it is much better to use a fail safe approach.

Ha

Said the guy who was almost shot yesterday.....

 

[daylatedollarshort]

I find it kind of interesting there is so much discussion here on when to take Social Security but often less discussion on other factors that might have even bigger impacts on retirement funding. We have someone in our social circle who likes to give unsolicited financial advice and was telling me the other day how I needed to wait to take SS until 70 so I didn't run out of money if I lived to a ripe old age. But he was projecting his own finances and fears onto me. Over the years he had more kids, an expensive divorce, a SAHM instead of a second white collar income, had less house appreciation, has more expensive hobbies now, doesn't have a pension, etc. and most of those factors alone would have a bigger influence on his retirement funding rather than SS claiming age, let alone added up together.