Collecting Social Security benefits at age 62

[VanWinkle]

I see your point and agree that we must compare apples with apples. And we can do that, IMHO.

I am sure anybody with a financial calculator or computer can come up with the equivalent compounded return. I think the equivalent is about 5.75% compounded. Perhaps the financial wizards can confirm that, or show me the error of my ways.

The only reason the comparison should be apples to apples is that the argument is always that the person would take the SS early and invest it. They would allow it to compound and not take any money from the investment. I am not sure if this is reasonable, but it is the argument for reaching the "break even". In that situation, claiming that SS is an 8% return a year is disingenuous. It is done by many financial planners and educators.

The same could be said for the increase in SS benefits due to inflation (cola) that would affect the SS payout, and lessen the return on invested capital.

 

[Floridatennisplayer]

As the OP, I want to thank everyone for their replies. All of the information and discussion was very thoughtful and informative. After much consideration, DW decided to file at 62.

The reason she decided to file at 62 is because I receive a pension and am affected by GPO/WEP. If she were to past before me, I would get absolutely no SS benefits at all.

She did have one additional question though, since she has applied for Social Security and submitted her application, what is the next step? How long will it take for her to start receiving her benefits?

Please let us know, from your own application experience, how the next stage of the process plays out. Thanks!

Letter within a week From Social Security confirming your decision then once you send that in it usually takes 60 days for your first check

 

[CRLLS]

DW applied online before Xmas. She applied for her benefits at FRA (mid-Feb). She was following the application on-line. It said "processing" or some wording like that. Yesterday she received a phone call from SSA. They said that everything was good and her application was complete. They went thru everything including the Medicare change from self pay to automatic payment from SS and how much we wanted to withhold for taxes. They said that everything would be confirmed in a letter being sent to her.

With her birthdate in mid-Feb, the full month of Feb is covered. SS doesn't prorate the 1st month. However, payments are made the month following, on the 2nd 3rd and 4th Wednesday of the month. So her deposit for Feb will be made on the 3rd Wed of March.

While you won't be in the Medicare plan, I suspect the rest will go along the same schedule.

 

[523HRR]

We're still in our 50s, so there is more time for us to consider this. But, assuming 3% inflation, the SS break-even for 67-vs-62 is age 83 for us. And the break-even age for 70-vs-67 is 87 for us. We don't have any specific longevity concerns, but we'll probably just split the difference and start our SS payments at age 67, full retirement age for us.

 

[marko]

Just for kicks, I ran FireCalc with the following inputs:
$3MM portfolio,
One person taking SS at 62 @$21,000 annually vs taking SS at FRA of 67 @$30,000. (DW's actual SS numbers)

The result on Spending Level with a 30 year success was just over a 2% difference: $138K vs $141K; ~$3000 per year.

For some that $3K might make a be an issue, but at ~$140K income plus or minus, IMO, I don't see any real difference when factoring in other considerations like lower taxes, missed portfolio opportunity etc.

In the end it all gets down to longevity doesn't it?

 

[Music Lover]

Don't forget that 100% of the people who delayed taking SS (or CPP) and died too early or who are no longer have the ability to use their computer are not available to comment on this topic.

The CPP break even point is earlier than SS but I've still decided to take CPP early. My reasons are that I don't know a single person past the break even point who regrets taking it early, and that I'm far more likely to make better use of the money in my younger years based on what I observe around me, and health care expense is not as much of an issue up here. Also, my pension is tied to CPP and gets reduced at 65 whether I take CPP or not.

If I live past the break even point, I'll have a small celebration recognizing that I beat the actuary tables. If I'm still capable, of course...

 

[Perryinva]

Just for kicks, I ran FireCalc with ....

For some that $3K might make a be an issue, but at ~$140K income plus or minus, IMO, I don't see any real difference when factoring in other considerations like lower taxes, missed portfolio opportunity etc.

In the end it all gets down to longevity doesn't it?

Similar to the point I made, with the caveats that unlike your case, my SS is double DWs. She filed at 62, purely on emotional “I want it now”. At $1150/m the difference in delaying was in real dollars not a make or break difference. So the difference if longevity does occur and she survives me is significant. It also matters that we are less concerned about maintaining the maximum inheritance vs more income. If income is what matters, then a break even calculation only has merit if you spend as if you were to die before that break even and then die. Otherwise, you are going to spend assuming you will live., ie the lower safer amount. If delaying (assuming you can afford it, and a 2-3M portfolio qualifies) allows you even just $3k/yr (in todays dollars, so that could be $6k when you are 80) tax advantaged net more from age 62, and up, at the cost of say a $200k reduction at 69, then its not just IF longevity occurs, but more net at all times, dying in 2 years or 30. And at any time while delaying, you can change your mind, and get 6months retroactive.

Its not much different than choosing an extra $750k in ones portfolio or a $40k pension with a survivor benefit. Which you prefer totally depends on what is more important. Low risk slightly higher income, or inheritable assets. People choose a cash out of their penson all the time for the “I want it now”, “What if I die young” , and “More to leave my kids” bird in the hand attitude. And I’m sure some go throught it before they die and have financial issues afterwards, & others invest wisely and come out ahead. I am not an advocate of filing later or earlier. I am an advocate of more income and less risk for both of us. I am sure I would take it sooner and retire sooner if I was single.

 

[Perryinva]

Don't forget that 100% of the people who delayed taking SS (or CPP) and died too early or who are no longer have the ability to use their computer are not available to comment on this topic.

The CPP break even point is earlier than SS but I've still decided to take CPP early. My reasons are that I don't know a single person past the break even point who regrets taking it early, and that I'm far more likely to make better use of the money in my younger years based on what I observe around me, and health care expense is not as much of an issue up here. Also, my pension is tied to CPP and gets reduced at 65 whether I take CPP or not.
:

Also can’t hear from 100% of the people that filed early and died regretting it. So not a reason at all. And while I’ve never met anyone that regretted filing later and living, I know quite a few that did regret taking it early and then lost large amounts of their portfolios in the 2008 panic, and will have reducing income for life, too afraid to gamble on the market.

So your reason to “make better use of the money now while you are younger” works how? That statement clearly implies by filing early you will have more income now and less later. And that filing later means you will have more income later and less now. While the first MAY BE true, the second is not, if you can afford to live at the higher income off your investments while delaying, knowing that once you file, your dependence on your portfolio drops the same amount or more. If by not filing at 62 you can’t live at the lifestyle you want, then the decision is to live it up now, hoping you will not need more later or hope you die younger. I dislike both those choices. As per the above post, how much of a gamble that is depends on how much more your income exceeds your expenses, and how confident you are that your portfolio will always be there and grow. After a 9 year bull run and low inflation too many people think this is the norm and it will be this way when they need it to be. No one knows. Statistically it will not. A bear of some kind will occur, sooner or later.

Again, I am not trying to sway anyone’s thoughts, but pointing out that trying to use some of the “financial” reasons presented are not true based on the math. Other reasons are far more valid.

 

[pb4uski]

I see your point and agree that we must compare apples with apples. And we can do that, IMHO.

I am sure anybody with a financial calculator or computer can come up with the equivalent compounded return. I think the equivalent is about 5.75% compounded. Perhaps the financial wizards can confirm that, or show me the error of my ways.

Obviously, it depends on how long you live but you are in the ball park.

The returns below are based on a single with a FRA of 66. In our case, my FRA benefit is over 3 times DW's so survivorship and joint mortality are factors in the decision. Since it is lilely that one or the other of us will live to our 90s we are leaning towards delaying.

	At 62 cash flow	At 70 cash flow	Difference	IRR
62	750	0	-750
63	750	0	-750
64	750	0	-750
65	750	0	-750
66	750	0	-750
67	750	0	-750
68	750	0	-750
69	750	0	-750
70	750	1,320	570
71	750	1,320	570
72	750	1,320	570
73	750	1,320	570
74	750	1,320	570
75	750	1,320	570
76	750	1,320	570
77	750	1,320	570
78	750	1,320	570	-1.82%
79	750	1,320	570	-0.57%
80	750	1,320	570	0.46%
81	750	1,320	570	1.32%
82	750	1,320	570	2.05%
83	750	1,320	570	2.66%
84	750	1,320	570	3.19%
85	750	1,320	570	3.64%
86	750	1,320	570	4.03%
87	750	1,320	570	4.37%
88	750	1,320	570	4.67%
89	750	1,320	570	4.93%
90	750	1,320	570	5.16%
91	750	1,320	570	5.37%
92	750	1,320	570	5.55%
93	750	1,320	570	5.71%
94	750	1,320	570	5.86%
95	750	1,320	570	5.99%
96	750	1,320	570	6.11%
97	750	1,320	570	6.21%
98	750	1,320	570	6.31%
99	750	1,320	570	6.39%
100	750	1,320	570	6.47%

 

[Music Lover]

Also can’t hear from 100% of the people that filed early and died regretting it. So not a reason at all. And while I’ve never met anyone that regretted filing later and living, I know quite a few that did regret taking it early and then lost large amounts of their portfolios in the 2008 panic, and will have reducing income for life, too afraid to gamble on the market.

I doubt there are very many people who died early that were sorry they took SS or CPP while they were able. As to the market crash...that's a fair point for some, but not everyone relies heavily on the market, and not every one is hurt severely when it goes down for a while.

So your reason to “make better use of the money now while you are younger” works how? That statement clearly implies by filing early you will have more income now and less later. And that filing later means you will have more income later and less now. While the first MAY BE true, the second is not, if you can afford to live at the higher income off your investments while delaying, knowing that once you file, your dependence on your portfolio drops the same amount or more. If by not filing at 62 you can’t live at the lifestyle you want, then the decision is to live it up now, hoping you will not need more later or hope you die younger. I dislike both those choices. As per the above post, how much of a gamble that is depends on how much more your income exceeds your expenses, and how confident you are that your portfolio will always be there and grow. After a 9 year bull run and low inflation too many people think this is the norm and it will be this way when they need it to be. No one knows. Statistically it will not. A bear of some kind will occur, sooner or later.

Again, I am not trying to sway anyone’s thoughts, but pointing out that trying to use some of the “financial” reasons presented are not true based on the math. Other reasons are far more valid.

I already have the lifestyle I want at 55 collecting a modest pension, so it's not a gamble taking CPP early. Taking it early gives me the opportunity to spend more in my younger years...more golf, more trips, more outings, maybe a newer car. I don't expect to have those same desires or spending requirements (at least at the same level) 20 years down the road.

Several people have commented that they look at SS ( or CPP in Canada) as insurance. I don't...I consider CPP to be income and won't care if I pass the break even point while still completely healthy. It's not about maximizing the most money before I die...it's more of a "value for the dollar" equation of getting the most benefit from that additional income while I'm more likely to enjoy it.

 

[rayvt]

The formula mixes percentages and actual dollars. So the results vary between individuals.

Indeed. I am now paying the full Medicare and got a net ~$2 increase in my SS check. My wife is still paying less that full Medicare and (of course) got no increase--her COLA went entirely to Medicare.

From what I heard, about 2/3'rds of the people who were in the HH group last year are now paying full boat and 1/3'rd are still HH. I wouldn't be surprised if it didn't happen like it did for us a lot--husband now paying full and wife still under the HH group.

 

[skipro33]

At 62 cash flow At 70 cash flow  Difference IRR
62 750 0 - 750
63 750 0 -750
64 750 0 -750
65 750 0 -750
66 750 0 -750
67 750 0 -750
68 750 0 -750
69 750 0 -750
70 750 1,320 570
71 750 1,320 570
72 750 1,320 570
73 750 1,320 570
74 750 1,320 570
75 750 1,320 570
76 750 1,320 570
77 750 1,320 570
78 750 1,320 570 -1.82%
79 750 1,320 570 -0.57%
80 750 1,320 570 0.46%
81 750 1,320 570 1.32%
82 750 1,320 570 2.05%
83 750 1,320 570 2.66%
84 750 1,320 570 3.19%
85 750 1,320 570 3.64%
86 750 1,320 570 4.03%
87 750 1,320 570 4.37%
88 750 1,320 570 4.67%
89 750 1,320 570 4.93%
90 750 1,320 570 5.16%
91 750 1,320 570 5.37%
92 750 1,320 570 5.55%
93 750 1,320 570 5.71%
94 750 1,320 570 5.86%
95 750 1,320 570 5.99%
96 750 1,320 570 6.11%
97 750 1,320 570 6.21%
98 750 1,320 570 6.31%
99 750 1,320 570 6.39%
100 750 1,320 570 6.47%

This table is incorrect. For it to reflect actual cash flow, there should be a -750 under the At 70 column where the retiree is drawing down their personal savings during years 62 through 69.

 

[pb4uski]

No skipro33.... the table is correct... you are just misinterpreting it.

From 62 to 70 you are not receiving the $750 that you would have received had you taken at 62... then from 70 onwards you are getting $570 more than you would have received if you took at 62.

The minus $750 is coming out of savings in the early years and is offset by $570 that doesn't need to come out of savings in the later years.

The IRR is the discount rate where the differential cash flows are equal. It is negative in the early years because if you die before 80 then you never recover what you gave up. It is positive in the later years because you get back more than what you gave up.

 

[ivinsfan]

But social security income can affect your Medicare premiums and Medicare premiums are taken out of SS once you start drawing it. You also may be held harmless by Medicare premiums being drawn from SS.

That's true but it's not permanent..as soon as a big enough COL kicks everyone will be at the same medicare amount...it defers the rise but does not makes never happen.

 

[pb4uski]

I post #184, I neglected to mention that the true nominal returns are higher since SS retirement benefits increase for COLA... below is a table but with benefits increases 2.5%/annum for inflation.

2.50%	At 62 cash flow	At 70 cash flow	Difference	IRR
62	750	0	-750
63	769	0	-769
64	788	0	-788
65	808	0	-808
66	828	0	-828
67	849	0	-849
68	870	0	-870
69	892	0	-892
70	914	1,608	694
71	937	1,648	712
72	960	1,690	730
73	984	1,732	748
74	1,009	1,775	767
75	1,034	1,820	786
76	1,060	1,865	805	-2.95%
77	1,086	1,912	826	-0.96%
78	1,113	1,960	846	0.63%
79	1,141	2,009	867	1.92%
80	1,170	2,059	889	2.98%
81	1,199	2,110	911	3.86%
82	1,229	2,163	934	4.60%
83	1,260	2,217	957	5.23%
84	1,291	2,272	981	5.77%
85	1,323	2,329	1,006	6.23%
86	1,357	2,388	1,031	6.63%
87	1,390	2,447	1,057	6.98%
88	1,425	2,508	1,083	7.29%
89	1,461	2,571	1,110	7.56%
90	1,497	2,635	1,138	7.79%
91	1,535	2,701	1,166	8.00%
92	1,573	2,769	1,196	8.19%
93	1,613	2,838	1,226	8.36%
94	1,653	2,909	1,256	8.50%
95	1,694	2,982	1,288	8.64%
96	1,736	3,056	1,320	8.76%
97	1,780	3,133	1,353	8.87%
98	1,824	3,211	1,387	8.96%
99	1,870	3,291	1,421	9.05%
100	1,917	3,374	1,457	9.13%

 

[ivinsfan]

Indeed. I am now paying the full Medicare and got a net ~$2 increase in my SS check. My wife is still paying less that full Medicare and (of course) got no increase--her COLA went entirely to Medicare.

From what I heard, about 2/3'rds of the people who were in the HH group last year are now paying full boat and 1/3'rd are still HH. I wouldn't be surprised if it didn't happen like it did for us a lot--husband now paying full and wife still under the HH group.

That would people whose SS increase didn't cover the enitee increase on Medicare costs, because their check was not large enough?

 

[Running_Man]

I post #184, I neglected to mention that the true nominal returns are higher since SS retirement benefits increase for COLA... below is a table but with benefits increases 2.5%/annum for inflation.

2.50%	At 62 cash flow	At 70 cash flow	Difference	IRR
62	750	0	-750
63	769	0	-769
64	788	0	-788
65	808	0	-808
66	828	0	-828
67	849	0	-849
68	870	0	-870
69	892	0	-892
70	914	1,608	694
71	937	1,648	712
72	960	1,690	730
73	984	1,732	748
74	1,009	1,775	767
75	1,034	1,820	786
76	1,060	1,865	805	-2.95%
77	1,086	1,912	826	-0.96%
78	1,113	1,960	846	0.63%
79	1,141	2,009	867	1.92%
80	1,170	2,059	889	2.98%
81	1,199	2,110	911	3.86%
82	1,229	2,163	934	4.60%
83	1,260	2,217	957	5.23%
84	1,291	2,272	981	5.77%
85	1,323	2,329	1,006	6.23%
86	1,357	2,388	1,031	6.63%
87	1,390	2,447	1,057	6.98%
88	1,425	2,508	1,083	7.29%
89	1,461	2,571	1,110	7.56%
90	1,497	2,635	1,138	7.79%
91	1,535	2,701	1,166	8.00%
92	1,573	2,769	1,196	8.19%
93	1,613	2,838	1,226	8.36%
94	1,653	2,909	1,256	8.50%
95	1,694	2,982	1,288	8.64%
96	1,736	3,056	1,320	8.76%
97	1,780	3,133	1,353	8.87%
98	1,824	3,211	1,387	8.96%
99	1,870	3,291	1,421	9.05%
100	1,917	3,374	1,457	9.13%

This table is correct if you assume the portfolio earns nothing..... at 7 percent nominal return and inflation of 2.5% it will not be until age 91 when age 70 beats the age 62 SS. At 5 percent nominal return it is age 85. And if all the portfolio earns is inflation it is age 81. At nine percent annual return of invested funds taking SS at age 62 can never be beaten by deferring to age 70. So if you can get that nine percent between 62 and 70 odds are you will never be beat by anyone that defers SS to age 70. If you could earn an average of 15 % per year by age 100 you would have cost yourself 6 million dollars using the numbers above. Versus the loss of 300K you would be saddled with at age 100 with money sitting in a coffee can.

 

[bobandsherry]

This table is correct if you assume the portfolio earns nothing..... at 7 percent nominal return and inflation of 2.5% it will not be until age 91 when age 70 beats the age 62 SS. At 5 percent nominal return it is age 85. And if all the portfolio earns is inflation it is age 81. At nine percent annual return of invested funds taking SS at age 62 can never be beaten by deferring to age 70. So if you can get that nine percent between 62 and 70 odds are you will never be beat by anyone that defers SS to age 70.

+1! I haven't double checked the math, but your approach is spot on to what I've been thinking.

 

[pb4uski]

This table is correct if you assume the portfolio earns nothing..... at 7 percent nominal return and inflation of 2.5% it will not be until age 91 when age 70 beats the age 62 SS. At 5 percent nominal return it is age 85. And if all the portfolio earns is inflation it is age 81. At nine percent annual return of invested funds taking SS at age 62 can never be beaten by deferring to age 70. So if you can get that nine percent between 62 and 70 odds are you will never be beat by anyone that defers SS to age 70. If you could earn an average of 15 % per year by age 100 you would have cost yourself 6 million dollars using the numbers above. Versus the loss of 300K you would be saddled with at age 100 with money sitting in a coffee can.

No... the table calculates the return on the decision (assuming 2.5% COLAs). Let's use the age 90 numbers as an example. Think of it as an investment.

You effectively write checks for the $750 at age 62, $769 at age 63, et al to age 69 because you forgo the age 62 benefits... that is your investment... your return is the extra $694 beginning at age 70 et al through the extra $1,138 received at age 90. Marginal costs and marginal revenues... elementary economics.

If you live until 90 then you receive a 6.98% overall return on your investment.... it is no different than calculating the return for any investment.

If I invest $1,000 today and in 10 years receive $1,967 I think we would agree that your return on the $1,000 invested is 7%... right? Same principle... the IRR is the rate of return at which the PV of the cash flows is zero. Just like when you did investment analysis at Megacorp and calculated IRRs and the PV of the cash flows at Mega's hurdle rate... if the PV of the cash flows discounted at Mega's hurdle rate was positive then it was a suitable candidate.

0	-1,000
1	0
2	0
3	0
4	0
5	0
6	0
7	0
8	0
9	0
10	1,967	7.00%

 

[pb4uski]

Happened across this in doing some other research and it seemed quite relevant to the topic.

https://www.kitces.com/blog/how-del...ong-term-investment-or-annuity-money-can-buy/

 

[daylatedollarshort]

We've run the numbers in a spreadsheet many times. Delaying SS does give us a higher net worth at older years under most likely inflation / real return scenarios, but it means a lower portfolio value and net worth in the earlier years when delaying means we have to draw down the portfolio for living expenses. Taking it earlier gives us "smoother" numbers for portfolio value and net worth throughout retirement, since SS and pensions will cover most of our expenses. We've looked at all sorts of filing combinations and both agreed we liked the "smoothed" numbers better than going for maximum terminal value (assuming we even live that long and SS isn't cut), so we will both likely claim at 62.

 

[joeea]

Happened across this in doing some other research and it seemed quite relevant to the topic.

https://www.kitces.com/blog/how-del...ong-term-investment-or-annuity-money-can-buy/

Good link!

Kitces knows his stuff. (Not that I think it would change anyone's mind...)

 

[pb4uski]

We've run the numbers in a spreadsheet many times. Delaying SS does give us a higher net worth at older years under most likely inflation / real return scenarios, but it means a lower portfolio value and net worth in the earlier years when delaying means we have to draw down the portfolio for living expenses. Taking it earlier gives us "smoother" numbers for portfolio value and net worth throughout retirement, since SS and pensions will cover most of our expenses. We've looked at all sorts of filing combinations and both agreed we liked the "smoothed" numbers better than going for maximum terminal value (assuming we even live that long and SS isn't cut), so we will both likely claim at 62.

Similar story here but different conclusion. Taking at SS would make our net worth smoother... a gently declining line.... taking at 66 results in a dip for four years, then a gently rising line... crossover point looks to be about age 83.

Since according to most longevity calculators there is a 75% chance that we will each live that long and one or the other of us will likely live to our 90s we think it will be a good decision for our kids.... or at least a smart bet. Probably +/- 5-10% one way or the other at the end of our days so not a huge decision but not inconsequential either.

 

[rayvt]

I wonder, does everybody assume that SS benefit formulas and laws will never change from what they are today? We've just seen that the laws can change suddenly and in a way that nobody would have predicted 1 or 2 years ago.

Kitces point about delaying SS is better than the equivalent annuity is true, but pointless. One broken arm is better than two broken arms, but is anybody going out and breaking one arm because of that? The SS "annuity" is a predermined amount, an amount determined by someone else who doesn't care if you would prefer a different amount or a different start date. And the monthly payout can be changed any time they feel like it.

 

[street]

So my thinking is take SS at 62 and invest it. Spend all the money you want from your investments and let your SS money that is invested earn and make you more money. Then at age 70 you will even have a bigger pay out. That is the case that most argue is you will have a bigger check if you wait till 70. You will have more if you take it early and invest it. Then you have both ends covered die early or live long you got everything that you could get.

Lots a ways to look at it I have no idea what is the best. One way is good for one and not the other.