Social Security-Take It Now Or Later?

[haha]

We discussd this topic a few months ago. I felt that it was better to delay, if dire necessity was not a factor, and ignoring any fear that something might happen to those who are not yet getting it that people already drawing would be spared.

I wasn't sure about the soundness of the methodology I used in arriving at that conclusion.

Today I tried something that I think is valid. I just entered into an annuity quote machine the (paltry) monthly amounts that my SS statement tells me I will get at age 62(already passed), age 66, and age 70. Since I have been retired a long time, these amounts DO NOT reflect any future earnings on my part. The calculator gves a fixed immediate annuity quote, whereas SS payments are a very special kind of immediate annuity, one that has a COLA. I couldn't find an annuity underwriter who was even willing to enter into a similar contract.

I believe that the SS COLA makes the findings I will present even stronger in favor of delaying.

Here are the figures:

Age.......................62..............66.................70
Monthly Amt........$645...........$821.............$1061
Quote..................$104426...$121468........$142,035

I reason that if these SS annuity payments were in fact a tossup, then the annuity quotes should be roughly identical. As you can see, the later you begin, the more that annuity would cost you to buy. And this is for a man. The effect should be even stronger for a woman, although I did not check this.

Clearly, the insurance companies are operating with current assumed earnings on your premium, and the results would be altered if one were to assume for example that he could make 15% a year in gold or stocks or rental houses or whatever. This sort of optimist might prefer to get the money now.

My conclusion is that as is usual in life, if you can afford to wait, you do better.

Any problems spotted?

Mikey

 

[Nords]

My conclusion is that as is usual in life, if you can afford to wait, you do better./quote]

My conclusion is that you do better if you're still ALIVE when the payback period ends. We'll have to check back in what, another decade?

I'm not sure that the annuity method reflects the profit of taking SS as early as possible and saving/investing it. Does anyone have any data from that approach?

But FWIW, if you're going to spend it as early and as fast as you can get it, then Bud Hebeler recommends delaying so that your surviving spouse gets the max of your benefit. But that's not for YOUR benefit...

 

[wabmester]

Mikey, are those annuity quotes assuming that your *current* age is 62, 66, and 70?   If so, then I don't think you can compare it to social security benefits.

You already bought your social security annuity, so the SSA is playing a slightly different game than the insurance company.

If you are 70 at the time you purchase the annuity, the insurer figures you will live for another 13 years, and they price the annuity accordingly.

SSA figures there's a good chance you'll never make it to 70, so they can afford to offer you more if you delay taking advantage of the product you already purchased.

Edited to add that those SSA guys are not stupid.   I'm sure they play with the same actuarial tables as the insurance companies.   The only way you can win at this game is if you know you'll live longer than the tables predict you will.

You may very well have insider information about your lifespan that the SSA doesn't have, in which case it's a good bet for you.   Unfortunately, that bet doesn't generalize to others.

 

[sgeeeee]

Two big issues I see:

1) If you only live to age 65, your final two cases are meaningless.

2) If Congress reduces benefits, decides to tax benefits, reduces or eliminates COLA, abolishes social security, or . . . before you begin to collect, the calculations have little meaning.

 

[cc]

We are both my record, so I want to go for the MFB (1.75 x my PIA).

My tentative plan is to delay until 70, and have my wife start when her benefit equals the gap between my age 70 benefit and the MFB. As near as I can tell that would be about age 64.

The chance of one of us living to 90+ is fairly good, and this strategy gives the survivor a high benefit. When I looked at this in FIREcalc the results were very encouraging.

I don't see the rules changing much - Kerry for one has given his solemn vow to completely ignore the problem. But if they do change, the most likely are removing the earning cap - there was no outcry when they did that for Medicare; and reducing the age 62 benefit to get more people to work and pay into the system longer.

 

[farmerEd]

>>But if they do change, the most likely are removing the earning cap - there was no outcry when they did that for Medicare;

That to me seems like a no brainer...but I wonder, has anyone seen any calculations that show how much revenue that would raise? (removing the cap that is).

 

[cc]

USAToday had a big spread on this earlier this week - I think they said that cap removal would address about 20% of the shortfall but I'm probably remembering incorrectly - that seems too high to me. Of course tax increase projections always overlook any changes in taxpayer behavior the changes might cause.

Also, to maintain the system's illusion of "fairness", they might provide a nominal increase in benefit for those affected.

A working couple both a little over the limit, are already paying what - $20K+/yr, and one spouse is only buying the other half of the benefit they would get without paying anything! I have to think that at some point there WILL be an outcry.

 

[Cut-Throat]

I thought about this also and came to a very simple conclusion.

When you are eligible for SS, if you can get a higher interest rate safely than the return of delaying the SS payment, take it then.

If not, then always delay if you don't need the money. So what if you die earlier and don't collect as much, you're dead and it does not matter. However if you do live to be a ripe old age, you will have the higher checks coming in.

 

[haha]

...<Snip> then always delay if you don't need the money. So what if you die earlier and don't collect as much, you're dead and it does not matter. However if you do live to be a ripe old age, you will have the higher checks coming in.

This is exactly how I see it. My goal isn't to be sure I win the Social security game, it's to be sure I have enough money if I get really old. Another aspect is that when I am old, I may not be as successful at ferreting out unusual investment opportunities as I am now. I'll be forced to go on autopilot. So money that comes in come hell or high water will be very helpful to me I would think.

Mikey

 

[John Galt]

Well, the key is "if you don't need the money".
Obviously, if you don't need it and die before you collect
no harm done (maybe to your heirs). Doesn't apply to me as I could use the money right now. On the other
hand, I am not anxious for the next 2 years to fly by,
even though they will.

John Galt

 

[Cut-Throat]

Well, the key is "if you don't need the money".
Obviously, if you don't need it and die before you collect
no harm done (maybe to your heirs).  Doesn't apply to me as I could use the money right now.  On the other
hand, I am not anxious for the next 2 years to fly by,
even though they will.

John Galt

Think about it John. You don't like risk, and you are trying to find CD's that pay more than 4% interest.

Spending your money now and leaving the SS money to grow will probably result in greater than 6% interest. I think you are the perfect candidate to delay taking the Social Security money.

 

[wabmester]

Spending your money now and leaving the SS money to grow will probably result in greater than 6% interest.

So, if the SSA offered you $1M if you waited till you were 120, by your logic, that would be a good deal.

 

[Cut-Throat]

So, if the SSA offered you $1M if you waited till you were 120, by your logic, that would be a good deal.

I would not delay past the age where it continued to grow. I believe that age is currently 70. And if it was not age 70, I believe that I would start by age 70 anyway, in light of current average lifespans.

Also I am planning on dying before age 100. I think you were the one that is planning on living to age 120. But if the average lifespan of americans was 150, then yes I'd probably wait until age 120 to collect megabucks.

 

[Nords]

Living to 120.

Er, that would be me.

OK, back to reading "The Okinawa Diet Plan"...

http://www.amazon.com/exec/obidos/t...f=sr_1_1/102-4809014-3457702?v=glance&s=books

and the Walford shrine.

http://www.amazon.com/exec/obidos/t..._books_1/102-4809014-3457702?v=glance&s=books

 

[cute fuzzy bunny]

I think the key is augering into the part about whether you "need" the money or not.

In two ways.

One of which is I see 'need', 'dire need', etc bandied about above. I think the first part of the question is: would the social security money taken today improve your lifestyle in a meaningful way. Would you be able to take that highly optional extra trip a year that you otherwise wouldnt? Would you enjoy a 3lb maine lobster once or twice a month that otherwise would seem spendy? Would you fix up the kitchen and get some new appliances that you'd enjoy daily?

Then there would be some value in taking it today vs later.

The second "need" is the later one. So you've deferred and increased the payout against the risk of dying before you can make it pay off. Are you going to NEED that extra amount later and/or are you going to NEED that extra amount at a point in your life where you are likely to be less able to employ/enjoy it?

The idea that more extra money later is always better than less extra money today is the key question, I think. Especially when you really have to factor in the shorter lifespan.

My dad liked to do a lot of stuff in his 60's. Now that he's 70 there are some things he cant eat or drink. He gets pretty tired after a round of golf. He's probably not going to be going on any big trips going forward.

Not to mention statistically, none of us (on average) will live long enough to make the 'wait' approach pay off.

Unless I'd be just banking the money and clearly never spending it for an indefinite period, I'll be taking it about 00:00:00:00.01 seconds after its available. Of course, if thats the case, the decision is irrelevant. If I dont need the extra cash at all at 62, I sure as **** probably wont need even more extra cash at 67 or whatever.

Besides, arent there some extra tax implications one needs to consider in spending some SS money and not having to withdraw from their IRA or is it just a wash?

 

[unclemick]

Yep

Early is better - for me - single(heh, heh, technically) - spend it early since the men in my family tree don't live into their 90's. Will run the numbers for the last time next year - 6 mo's prior to 62.

Note that - with the great benefit of hindsight due to unplanned events - I could have put off taking my age 55 pension and held out for the 'full' larger one at 65.

Soo - run the numbers - and make a decision - with the recognition that numbers don't control the future. My bent today - take the money and party now in my 60's - even though we're underruning our current spend plan.

 

[Zipper]

I took my Canada Pension Plan at 60, the earliest allowable. The second pillar, OAS or Old Age Security isn't available til age 65. "A bird in hand is worth 2 in the bush." I never thought twice about taking it.

 

[cc]

3-4 years ago I thought it was a no-brainer to grab the early benefit and "annuitize" it at 6-7% after-tax after-inflation. That would fully replace the "delay benefit" up to age 95+. Needless to say, that prospect is out the window now, and I'm looking at SS more as an insurance policy that will give me some flexibility in how I manage my assets and spending. If things go well the first few years, I won't need the "insurance" and will grab the benefit early. Holding out for the MFB would be my fallback position. Of course health issues could dictate jumping in earlier...

 

[Allan]

I'm 54, my plan is to not need it at 62, 65,66 or even 70.  Therefore I plan to wait until 70 unless something catastrophic happens between now and then.  Retiring at 56, as a couple, my wife and I will draw 30K at 62, 39K at 66, and 51K at 70.  I realize it takes years to recoup what you lose by not taking it early, but to me it's insurance, and if I happen to die early so be it.  The COLA will be higher too.  

I plan to spend my 60's converting my IRA to a Roth, the SOC SEC would put us in a higher tax bracket effecting that.  Does this make sense?

Allan

 

[Cut-Throat]

I’m 54, my plan is to not need it at 62, 65,66 or even 70.  Therefore I plan to wait until 70 unless something catastrophic happens between now and then.  Retiring at 56, as a couple, my wife and I will draw 30K at 62, 39K at 66, and 51K at 70.  I realize it takes years to recoup what you lose by not taking it early, but to me it’s insurance, and if I happen to die early so be it.  The COLA will be higher too.  

I plan to spend my 60’s converting my IRA to a Roth, the SOC SEC would put us in a higher tax bracket effecting that.  Does this make sense?

Allan

Absolutely! - This is what I have been saying. If you are dead - Who Cares, if you didn't get as much - You're dead! - But if you view delaying SS as withdrawing from your stash, while your SS is gaining interest at a rate probably higher than 6% (which is a lot more than you can get today) - Why not? I know that I am not planning on changing my standard of living when SS kicks in. I just view it as another income stream.

- All of us on this forum probably have assets on the fixed side of our portfolio that we would be happy to get 6-7% on? Right?

A bird in the hand is worth more than 2 in the bush, but do you really think that you can take your portfolio with you when you die?

I'm also thinking that the government may have some sweetners in the future for folks that wait to take their Social Security. On average they may be right, and once again if I die before I collect it all, it will not worry me in the least.

 

[Zipper]

No Cut-Throat, but my wife can use my portfolio when I'm gone, and my kids and grandchildren when she's gone. In the meantime, I'm enjoying the CPP direct deposit in my bank account each month.

 

[Cut-Throat]

No Cut-Throat, but my wife can use my portfolio when I'm gone, and my kids and grandchildren when she's gone. In the meantime, I'm enjoying the CPP direct deposit in my bank account each month.

I assume you are in Canada and I'm not sure how it works there. But if you are in the U.S. at least one of you should delay SS, because when one dies, you have the option of assuming the higher of the two SS amounts I believe.

 

[Zipper]

Mrs. Zipper would receive a survivor's benefit. You pay more into SS down there than we do to CPP, so your payouts are justifiably more. That is compensated by every Canadian receiving Old Age Security at 65 of around $C6000. FYI, CPP drastically ramped up payroll deductions several years back, and it is now actuarily sound. My mother still receives a survivor SS cheque each month of around US$1000 from my father, who worked for the Wabash RR(which became the Norfolk Western RR) running through St. Thomas ON. She hates it when the US$ weakens against our $Loonie. Like today!