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Collecting Social Security at age 62 is the best decision, here is why:
Old 10-24-2017, 06:42 AM   #1
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Collecting Social Security at age 62 is the best decision, here is why:

In October 2012, I turned 62 years old and had just been fired from my job. The last few years were hell. My bosses had done everything that they could to make my life miserable and get me to quit. I refused to quit because I was told by experts that I should work until I was 67, close to my regular retirement age to get full Social Security benefits. Well on my 62nd birthday- of all days- I was formally fired.

One side of me wanted to get right back on the rat race but another said it was time to call it a day and a career and retire and go on Social Security. (Early benefits at age 62) My friends and financial planner kept telling me that if I waited until 67 (or 70) I could get more money. But I kept telling them I did not have enough savings to stop work and not collect Social Security. Assuming a 4% average annual withdrawal from my $700,000 in savings and investments, I would need to collect both Social Security and take the annual 4% withdrawals to pay my living expenses.

So after much thought, I decided to retire and start collecting benefits and do the annual withdrawals.

Now 5 years later, I have done significant analysis and have determined that I will have more money up to my late 80s because I started to collect SS benefits at age 62 vs waiting until I was 67 years old. Here are the details:

On a 60/40 Stock Bond portfolio my $700,000 nest egg in October 2012, the month I turned 62 and was fired, with annual 4% withdrawals is now worth $1,036,551 today.

IF I would have waited to collect SS until I was 67 and have pulled out an additional $1300 a month out of the $700K to cover the lost Social Security benefits, above and beyond the 4%, to cover my expenses, I would have $933,638.00 today. ($102,913.00 less)

Yes, I would be getting $600 a month more in SS if I waited until I was 67 to collect. But it would take me 15 years to break even assuming no investment return from the additional $102,913. If I could get a 5% return going forward with my extra money, it would be 18 years before I broke even.

Yes, this all shows that unless you live well into your late 80s, it is better to collect your SS benefits at age 62 if you are not working.
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Old 10-24-2017, 06:54 AM   #2
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Originally Posted by Glad to be retired View Post
Yes, this all shows that unless you live well into your late 80s, it is better to collect your SS benefits at age 62 if you are not working.


Good analysis. Others here have computed similar results. It's good to know that several people have arrived at the late 80's break even point.

But I'm still on track to begin SS at 66 years 2 months. But that could change.
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Old 10-24-2017, 06:58 AM   #3
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I also started taking my social security early, at 63. This is not what I initially planned. I stopped working just a few months before. The stock market is doing so well, I did not want to take any funds out at this time. I will have a long life based upon my family's and my health, and I am sure that my account will support me for my life now that I am not taking much money out of it.
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Old 10-24-2017, 07:02 AM   #4
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deleted, double post
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Old 10-24-2017, 07:03 AM   #5
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Originally Posted by Glad to be retired View Post
On a 60/40 Stock Bond portfolio my $700,000 nest egg in October 2012, the month I turned 62 and was fired, with annual 4% withdrawals is now worth $1,036,551 today.
This is true since your portfolio when up about 45% in the last 5 years... but what would have happened if your portfolio was down 25%?
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Old 10-24-2017, 07:04 AM   #6
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Yes, this all shows that unless you live well into your late 80s, it is better to collect your SS benefits at age 62 if you are not working.[/QUOTE]
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Old 10-24-2017, 07:04 AM   #7
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I am in a similar circumstance as you, in that I have no pension income, so I have to live off of my nut and SS. Well, if I don't take the SS now ( I started a few months after 62nd birthday) I have to spend more of my nut, most of which is in various IRAs. If I wait until 67 I will have spend down my IRAs, and will be taking more of my SS income when in the required minimum distribution years, and will be paying more income tax on it, pushing the "break-even" date even farther down the road.

On top of all of that, my state does not tax SS benefits, but would be more than happy to tax my IRA income. By the time I get to my IRA withdrawals , I may well be a resident of a state that does not tax them.
I strongly suspect that for retirees with significant pension income, who are not spending down their nut, waiting may make a lot more sense than for you and me.
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Old 10-24-2017, 07:05 AM   #8
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Yes, this all shows that unless you live well into your late 80s, it is better to collect your SS benefits at age 62 if you are not working.
[/QUOTE]



Does it show this or does it show that under a particular set of circumstances it is better to collect at 62?
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Old 10-24-2017, 07:15 AM   #9
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I create a retirement scenario in personal capital drawing SS at 67. The scenario was automatically calculated based on historic annual returns of my portfolio (8.6%). I then created and saved another scenario drawing SS at 70. I was surprised and found it counter-intuitive that drawing at 67 gave me a larger portfolio at 75 and 80 than drawing at 70.
I then created and saved a scenario starting SS at 62. Low and behold my portfolio was hardly different than drawing SS 67 or 70. It then dawned on me that giving up the 8% yearly increase by waiting on SS was better than withdrawing from my portfolio pulling 8.6%. Now I realize that my portfolio may not always pull 8.6% but postponing SS will always pull around 8%. Someone on here actually did the math but you still get the point. And by drawing SS at 62, it lets me avoid pulling from the portfolio in a down market. Works for me.
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Old 10-24-2017, 07:18 AM   #10
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I think there are many different best cases and it depends on personal circumstances. There are many variables... such as if and how one's SS is taxed, investment performance, amount and location of other assets, etc. I still have not sorted what is best for us. Early SS is at least 5 years away. I do have some time to decide.

Glad it worked for you.
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Old 10-24-2017, 07:18 AM   #11
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Quote:
Originally Posted by ChiliPepr View Post
This is true since your portfolio when up about 45% in the last 5 years... but what would have happened if your portfolio was down 25%?
+1

This is an anecdote, not a sound strategy.
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Old 10-24-2017, 07:38 AM   #12
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Originally Posted by ChiliPepr View Post
This is true since your portfolio when up about 45% in the last 5 years... but what would have happened if your portfolio was down 25%?
When was the last occurrence of 25% reduction in the market for 5 year period?
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Old 10-24-2017, 07:46 AM   #13
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Due to my personal circumstances, I am in the 62 camp.

Just ran Firecalc twice. First time was drawing SS at 62, second at 70. The average portfolio at "the end" was about 10% higher drawing at 62.
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Old 10-24-2017, 08:02 AM   #14
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Say I have a $1,000,000 portfolio that drops 25% to $750,000. I would rather draw less from a $750K portfolio with the help of SS. If SS provides $30,000/yr at 62, ours does, I would be taking @ $40,000 rather than $70,000 from my portfolio if I wait to FRA. Historically, the market may drop but it rebounds. My state does not tax SS. We would be guaranteed $44K at FRA, provided politics does not interfere.

All things staying the same, $750K - $315K = $435K, that's what I'm left with starting SS at FRA. Take that out 30 years. Simple math leaves me with 14.5K/year until 95. $44K + $14.5 = 58.5K. We don't know the inflation rate of the future, don't know if SS will be there in the future or be less than what it is today. The market could drop even more or it could be over 25,000 in 2020.

Simple math shows without guessing RR or inflation, there are so many variables it's ridiculous. All you can really do is guesstimate your comfort zone. Is it the market or is it SS?
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Old 10-24-2017, 08:04 AM   #15
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An intangible benefit to the OP's strategy is that the risk of a future haircut is diminished. (This assumes current retirees will be somewhat less likely to get reduced benefits at the time of the haircut as opposed to future retirees.....not sure if that's true, but it will be a hard sell to not grandfather in everyone already in the game IMO.)
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Old 10-24-2017, 08:05 AM   #16
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I'm still a couple of years away from 62, so I'm not sure which way we'll go. Right now, I suspect I'll take at 62 and DW (higher earner) at 70.

But, last week I ran several scenarios through TurboTax and was somewhat surprised to see just how much taxes I was saving in the early years by taking SS early. Our effective tax rate is 3.4% lower with both of us taking SS early due to the 15% not taxed on Federal and none of it being taxed in my state. That is a several thousand dollar increase in income due to less taxes (on our projected income). Of course, the flip-side of that is if we wait until 70 an even larger SS payment will enjoy those same tax savings, so it's probably a wash over time. But, I imagine if you add in the tax savings of taking SS earlier, it will increase that break even age out a little bit.
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Old 10-24-2017, 08:13 AM   #17
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Hopefully you collected unemployment after you left your job, which would have made the SS comparison even better.

You may have done OK, after all, SS is actuarial neutral.

I do not think you can do the final analysis yet. Only after you expire can you determine what age was actually better. And then, only after seeing your various investments. Would a SS check at 62 allow for more equities? What did equities do for the period that you were invested in them, etc.

Currently I plan on waiting until 70. My health is good, I have a surplus of funds, and I cannot collect anyway. Once I get to age 62, the decision gets tougher.
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Old 10-24-2017, 08:15 AM   #18
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Quote:
Originally Posted by Glad to be retired View Post
In October 2012, I turned 62 years old and had just been fired from my job. The last few years were hell. My bosses had done everything that they could to make my life miserable and get me to quit. I refused to quit because I was told by experts that I should work until I was 67, close to my regular retirement age to get full Social Security benefits. Well on my 62nd birthday- of all days- I was formally fired.

One side of me wanted to get right back on the rat race but another said it was time to call it a day and a career and retire and go on Social Security. (Early benefits at age 62) My friends and financial planner kept telling me that if I waited until 67 (or 70) I could get more money. But I kept telling them I did not have enough savings to stop work and not collect Social Security. Assuming a 4% average annual withdrawal from my $700,000 in savings and investments, I would need to collect both Social Security and take the annual 4% withdrawals to pay my living expenses.

So after much thought, I decided to retire and start collecting benefits and do the annual withdrawals.

Now 5 years later, I have done significant analysis and have determined that I will have more money up to my late 80s because I started to collect SS benefits at age 62 vs waiting until I was 67 years old. Here are the details:

On a 60/40 Stock Bond portfolio my $700,000 nest egg in October 2012, the month I turned 62 and was fired, with annual 4% withdrawals is now worth $1,036,551 today.

IF I would have waited to collect SS until I was 67 and have pulled out an additional $1300 a month out of the $700K to cover the lost Social Security benefits, above and beyond the 4%, to cover my expenses, I would have $933,638.00 today. ($102,913.00 less)

Yes, I would be getting $600 a month more in SS if I waited until I was 67 to collect. But it would take me 15 years to break even assuming no investment return from the additional $102,913. If I could get a 5% return going forward with my extra money, it would be 18 years before I broke even.

Yes, this all shows that unless you live well into your late 80s, it is better to collect your SS benefits at age 62 if you are not working.
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Old 10-24-2017, 08:26 AM   #19
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... Yes, this all shows that unless you live well into your late 80s, it is better to collect your SS benefits at age 62 if you are not working.
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".

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Old 10-24-2017, 08:28 AM   #20
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When was the last occurrence of 25% reduction in the market for 5 year period?
From Jan 1 2000 to Jan 1 2009, Dow dropped 24%.

Hindsight is 20/20.
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