Collecting Social Security at age 62 is the best decision, here is why:

[rayvt]

Historically, the worst 20 year period of a 60/40 portfolio was 6.3% annual return.
Plug that into a SS comparison spreadsheet, using 2.5% annual COLA, and compare the total SS payments for the 62 and the 70 start.

The break-even age is 86.7 years.

Consider a person with an above average FRA (at 66) benefit of $2000/mo.
Let's be very generous and say they live to 95. At 95 the total SS benefit for the 62 start is $2,652,909. For the 72 start is $2,954,143.

You have to look real close to see the differenece, don't you?
Just under three million dollars, either way.

In raw numbers, the age 70 collects $300,000 more over their lifetime.
But both are 2 3/4 million plus/minus a few percent.

Living to 95 is rare. More likely is living to 90. At 90 the total SS benefits are $1,776,157 and $1,873,433. Not really much of a difference.

And note that this is using the returns of the _worst_ 20 year period for a 60/40 investment. The median return was 9.1% and the breakeven is age 107.

To paraphrase Humphrey Bogart, "the difference doesn't amount to a hill of beans in this crazy world."

 

[pb4uski]

+1 You can sort of test it out using SSAnalyze with various scenarios and various discount rates (opportunity cost of using your nestegg while you are delaying).

If one is married and SS benefits are not similar, the analysis becomes more complicated and that is where SSAnalyze comes in real handy in looking at various scenarios.

For us, if I use a reasonable discount rate, the difference in scenarios are not very extreme... PVs are within 10% of each other. At this point, we plan to delay to FRA or possibly even age 70 for me but SS is a nice relief value that we can invoke at any time from here on out if investment returns lag or the market gets wacky.

I used SSAnalyze and looked at rayvt's scenario of a single person who gets $2k per month at their FRA of 66 and 2 months (my FRA) and a 2.5% COLA. If they live to 95 and the opportunity cost is 6.5% then the PV of benefits for 62, FRA and 70 are $309k, $331k and $344k, respectively. If they live to 85 and the opportunity cost is 6.5% then the PV of benefits for 62, FRA and 70 are $252k, $254k and $244k, respectively. So for singles, when to claim is generally much ado about nothing.

 

[joejetski]

I think this hurt the SS fund?

Hi All,

New member on the site, following for a while, and getting a lot of good info. I have been thinking a bit about the SS conundrum, as many here have, and I would like to throw in my 2 cents for feedback. A few things about me, age range 50-55, salary mid 100s, will likely have pension, mid 600-750 401k, real estate investments, and retirement goal is 60-62.

There are many good ideas floated here, but as many said, ultimately your individual circumstances dictate the age at which you take SS, and no calculstor in the world can predict your life events between 62-70. My father passed age 67 from his 3rd heart attack. My mom is going on 86, generally healthy, but no spring chicken.

Given it takes till about age 84 to catch up on the 8 year delay, and the general quality of life for a person aged 84, it presents a strong case to take SS early.

I am leaning towards taking early, and hopefully doing Roth conversions to help me later on.

As far as ways to "fix"the SS system, my perspective is one of progressive corrections so as to minimize impacts to those affected, and obviously no retroactive regressive policies. With that here are my ideas:
1. Means testing COLA, based on you PIA/35 yr record.
2. Means testing benefits after age 67 or whatever FRA is at the time policy is implemented. The idea being that you max your benefit at age 67, no addtl benefit for waiting. This would be directed at folks with higher earners based on 35 yr average record.
3. Increasing $$ income threshold before losing $$. Currently ~$16,000. Increase to 25-30k for folks taking SS at age 62. Decrease threshold based on year you take SS, and means test the income threshold.
4. The obvious one, slide the SS range one year to the right 63-71.

 

[Carpediem]

You can sort of test it out using SSAnalyze with various scenarios and various discount rates (opportunity cost of using your nestegg while you are delaying).

I don't really understand what Discount Rate is on SSAnalyze. Should I just use zero when looking at different scenarios or am I missing some important piece of analysis by not using it?

 

[Texas Proud]

I started contributing to SS at the tender age of 14.

I sure wish I would have had my hands on the money that I contributed over a total of 44 years. The government just lost money on it all those years.

Well, they did not lose money on it since it was never invested (back then)... it was spent.... the newer money, which they did invest a small part of, was in US bonds and they made money....

 

[pb4uski]

I don't really understand what Discount Rate is on SSAnalyze. Should I just use zero when looking at different scenarios or am I missing some important piece of analysis by not using it?

The discount rate is the rate used to present value the cash flows... in other words, to adjust the expected cash flows for the time value of money. Since the cash flows are adjusted for inflation, the discount rate would be a nominal rate of return rather than a real rate of return. So for example, for this decision, it would be the expected nominal rate of return on the money that you are tapping while you are delaying.

If you put the discount rate at zero then you would get nominal cash flows, unadjusted for the time value of money.

 

[gabrewer]

You do not “Make” or “earn” 7 percent by deferring Social Security, you increase payments in a future time by an average of about 6.8% compounded annually.

Thanks -- I've never liked that view as well. No one has a savings or investment account with social security that is earning anything. Once we file, all we will ever having coming to us is our next payment.

Likewise, describing delaying payment as a "raise" as some do is to me also a fallacy. If my employer came to me today and said he's going to give me a X% raise in five years in return for not taking a paycheck between now and then, I would decline the offer to say the least.

 

[pb4uski]

It is best to characterize the delayed retirement credits as your benefits increase 8% per year simple interest... so increase is delay in years times 8%... if your FRA is 66 and you delay to 70 then you get 132% of what you would have received at 66 (32% add on is 8%/year times 4 years from 66 to 70).

 

[BeachOrCity]

Everyone’s case is different.
Mike piper a respected accountant and blogger wrote a book called social security made simple. I think everyone should read it prior to age 62
You can get it on amazon or via his blog the oblivious investor.

 

[RunningBum]

I'm curious if anyone who is taking SS benefits before age 65 is taking themselves out of an ACA subsidy with that extra income? Or do you all either have medical from your job (retiree or otherwise), or wouldn't qualify for the subsidy anyway? Or you still get the subsidy, but it is reduced by that income? Or you take SS to keep you out of medicaid?

 

[Z3Dreamer]

I'm curious if anyone who is taking SS benefits before age 65 is taking themselves out of an ACA subsidy with that extra income? Or do you all either have medical from your job (retiree or otherwise), or wouldn't qualify for the subsidy anyway? Or you still get the subsidy, but it is reduced by that income? Or you take SS to keep you out of medicaid?

I am in that boat. I have a few sources of income/cash flow that I can manage. I have Roth, regular IRA, and SS. I also have a HELOC that is prime less 1/2%. My goals are: Roth convert, qualify for ACA subsidy, get the most from SS, keep debt low, have a decent life style. Obviously, some goals contradict others.

 

[RunningBum]

I am in that boat. I have a few sources of income/cash flow that I can manage. I have Roth, regular IRA, and SS. I also have a HELOC that is prime less 1/2%. My goals are: Roth convert, qualify for ACA subsidy, get the most from SS, keep debt low, have a decent life style. Obviously, some goals contradict others.

Which boat? Maybe I should start another thread with a poll to make it more clear?

 

[RunningBum]

I did start a poll: http://www.early-retirement.org/forums/f28/poll-aca-subsidy-and-taking-ss-before-65-a-89013.html

 

[Doc0]

I think the politicians are going to stand back and watch the "law" as it's written do its work. By then we will be a gazillion in debt so there won't be any wiggle room. I'm not taking till 70 so my wife's spousal portion, whatever that is, will be maxed after I'm dead.

 

[Sunset]

.....

So anyway, I find myself more in the camp of the OP -- especially since longevity does not seem to be a strong point of men in my family. Speaking of, I know that many here seem to view social security as a type of longevity insurance, without a lot of concern that they might not ever receive as much as they've contributed over the years. I don't know that I could ever reach the point of that way of thinking. I would have to have significantly more assets that I do now, and my blue collar family roots pretty much instilled the idea of social security being a promise of some retirement income.
.....

With married couples, like yourself, the idea is that the higher SS person would delay SS to age 70 because one of you will most likely live a long time to high 80's and nearly 1/2 of surviving spouses live into the 90's.

So I look at as insurance that one of us will get a higher amount per month, and if it's not needed because we both die at less than 88 then we won't miss it.

https://personal.vanguard.com/us/insights/retirement/plan-for-a-long-retirement-tool

"Couple. If the man and woman are married, the chance that at least one of them will live to any given age is increased. There's a 72% chance that one of them will live to age 85 and a 45% chance that one will live to age 90. There's even an 18% chance that one of them will live to age 95, as shown below."

 

[Cut-Throat]

Sorry, but NO, it does no such thing.

First, there is no "one size fits all" answer to this. Second, your calculations ignore far too many important issues. That's just a start.

You created a false scenario when you said you could not retire at 62 w/o SS because 4% withdraws from your portfolio would not cover your expenses. You certainly can take a higher % for the years until you get that higher (for the rest of your life) SS. And then a higher % of your income stream is COLA'd. You would need to make some estimates for your own situation - again, not one size fits all.

The "break-even point" of ~ 80 YO, while it may be a reasonable mathematical calculation based on reasonable assumptions, isn't really the relevant calculation. It has been discussed many times, treat the delay of SS as "longevity insurance". We don't really think in terms of car or fire insurance as "break even", it is there in case we need it, and we know that on average we will pay for that insurance. So one can choose to delay SS to gain some insurance in case they live a long time.

And if you have a spouse, survivor benefits play into it. The odds of one of two living to a ripe old age are greater than any one living that long. Check out the longevity calculator at Vanguard for that.

I think it was member "Cut-Throat" who said it this way: "You can withdraw more now, knowing you will be withdrawing less later".

-ERD50

Correct ! -- Most importantly, when you delay Social Security to Age 70, you can spend more in your 60s, because you know you have more money coming in later.

So, if your Objective is to pile up more money for your heirs, you may very well be better served by taking S.S. at age 62.... So, your heirs will get to spend more of YOUR money..... But if you desire to spend more of YOUR money, you probably are better served by Delaying your SS Benefit to age 70.

So the Question you need to ask yourself; Is do I want to Spend More Money in my Active Retirement years (60s and 70s) or Do You want to accumulate a Bigger Pile of Money for your Heirs to Spend?

 

[FREE866]

Haven't read all the replies, but before seeing this thread I was from the belief that delaying until 70 was the right move.

 

[REWahoo]

Haven't read all the replies, but before seeing this thread I was from the belief that delaying until 70 was the right move.

If you hang around this forum for a while you'll see the best time to start collecting SS depends on your individual circumstances. And FWIW, this thread was started by a serial troll, so be skeptical of the accuracy of the thread title.

 

[FREE866]

If you hang around this forum for a while you'll see the best time to start collecting SS depends on your individual circumstances. And FWIW, this thread was started by a serial troll, so be skeptical of the accuracy of the thread title.

thx rewahoo
i'm 51 so I'm far far away from having to make a decision...will evaluate circumstances as years go on

 

[Chuckanut]

If you hang around this forum for a while you'll see the best time to start collecting SS depends on your individual circumstances. And FWIW, this thread was started by a serial troll, so be skeptical of the accuracy of the thread title.

Trolls are almost always identified by over use of the 'you' word such as in "Why YOU should buy a vacation home in Lower Slobbovia" or "You heed to buy Venezuelan Beaver Cheese futures ASAP!" or "10 reasons why YOU should retire in one of these five flood plane cities", etc. etc. etc.

 

[Scrapr]

I think the politicians are going to stand back and watch the "law" as it's written do its work. By then we will be a gazillion in debt so there won't be any wiggle room. I'm not taking till 70 so my wife's spousal portion, whatever that is, will be maxed after I'm dead.

Same here. I want Mrs Scrapr's next husband to be comfortable

 

[mathjak107]

Not everyone is in a situation where they have to choose to collect SS at 62 or draw down from one of their savings (IRA, 401K, etc.) accounts. What happens to the decision of when to start collecting SS when you have a pension that covers expenses during the early years of retirement?

for all purposes when you have a pension that covers most or all expenses in reality the pay check never stopped . you really never left the accumulation stage . so typical rules and ways of doing things when spending down won't apply .

 

[mathjak107]

Historically, the worst 20 year period of a 60/40 portfolio was 6.3% annual return.
Plug that into a SS comparison spreadsheet, using 2.5% annual COLA, and compare the total SS payments for the 62 and the 70 start.

The break-even age is 86.7 years.

Consider a person with an above average FRA (at 66) benefit of $2000/mo.
Let's be very generous and say they live to 95. At 95 the total SS benefit for the 62 start is $2,652,909. For the 72 start is $2,954,143.

You have to look real close to see the differenece, don't you?
Just under three million dollars, either way.

In raw numbers, the age 70 collects $300,000 more over their lifetime.
But both are 2 3/4 million plus/minus a few percent.

Living to 95 is rare. More likely is living to 90. At 90 the total SS benefits are $1,776,157 and $1,873,433. Not really much of a difference.

And note that this is using the returns of the _worst_ 20 year period for a 60/40 investment. The median return was 9.1% and the breakeven is age 107.

To paraphrase Humphrey Bogart, "the difference doesn't amount to a hill of beans in this crazy world."

every failure according to kitces happened over the first 15 years . 20 and 30 year real returns were decent in all cases of failure. but it was the poor real returns the first 15 years that did in those who retired in our worst cases

1907,1929,1937,1965 1966

suppose you were so unlucky to retire in one of those worst time framess ,what would your 30 year results look like :

1907 stocks returned 7.77% -- bonds 4.250-- rebalanced portfolio 7.02- - inflation 1.64--

1929 stocks 8.19% - - bonds 1.74%-- rebalanced portfolio 6.28-- inflation 1.69--

1937 stocks 10.12 - - bonds 2.13 - rebalanced portfolio -- 7.24 inflation-- 2.82

1966 stocks 10.23 - -bonds 7.85 -- rebalanced portfolio 9.56- - inflation 5.38

for comparison the 140 year average's were:

stocks 8.39--bonds 2.85%--rebalanced portfolio 6.17% inflation 2.23%
-------------------------------------------------------------------------------------------------

30 year numbers are not bad at all .

lets look at the first 15 years in those time frames determined to be the worst we ever had.

1907--- stocks minus 1.47%---- bonds minus .39%-- rebalanced minus .70% ---inflation 1.64%

1929---stocks 1.07%---bonds 1.79%---rebalanced 2.29%--inflation 1.69%

1937---stocks -- 3.45%---bonds minus 3.07%-- rebalanced 1.23%--inflation 2.82%

1966-stocks minus .13%--bonds 1.08%--rebalanced .64%-- inflation 5.38%

the 15 year real returns were so poor that even the 1965/1966 group which had the greatest bull market in history within its time frame could not be saved down the road .

 

[atmsmshr]

Everyone is different. Here is our plan.

Both of us are 56.
DW on modest SS disability.
I will work to 58/59 ish
More than 35 working years on my SS record
Almost 30 years max pay in to SS for me.

I claim at 67 because spousal benefit stops increasing at FRA (can't file and suspend anymore)
Use 401k for bridge
Claim earlier if economic Armageddon befalls us.
Both live to 95.

 

[gamboolman]

I'm 59.5 and waiting to see what happens to the market on the 62-70 SS decision, but for now plan to take it at full retirement age.
If the market does very badly, I would consider taking it early. If it continues going up and up, then might delay until 67, 68, 69, or 70.
It's kind of a put on the market--although I don't think it makes much of a difference, in the end. It is interesting listening to everyone's specific case, logic, and decisions.

I'm one year behind you RobLJ - Agree with all you said.

We are planning on waiting till FRA to take SS vs taking at 62.