Collecting Social Security benefits at age 62

[North Texas Cajun]

Yes.
And, how would that hypothetical means testing work? Would it be based on private assets and income only? Or, would it include SS? And, where would the cut-off, or grade-off begin?

I can construct a "plausible" means testing where it's best to defer SS, spend down assets, and have lower private "means" at the time.

I won't speculate on whether that's the most likely political result.

There are many ways means testing could work. I can construct a "plausible" means testing where it's best to take SS early and not spend down assets.

IMO, wealthy retirees - especially those with nest eggs of $2 million or more - have a much greater risk of receiving less than full retirement benefits than those with small or moderate savings. I have read this argument from economists, politicians, and CFAs.And I’ve read it from both sides of the political spectrum.

 

[Independent]

This is an interesting thought. Is there any chart out there that shows at what ages people die?

e.g.
60-65 4%
66-70 8%
71-75 11%
76-80 22%
81-85 25%
86+

You've had two responses so far, and they are both good. If you're married, the Kitces piece is relevant.

Note that any such table is based on the experience of some group of people. I would like to pick a group that is "mostly like me".

The Social Security or national population data isn't the best because it includes too many people who aren't like me.

I have a discussion here: http://www.early-retirement.org/forums/f28/longevity-77386.html

Fortunately, table differences are noticeable, but not overwhelming.

 

[Independent]

There are many ways means testing could work. I can construct a "plausible" means testing where it's best to take SS early and not spend down assets.

IMO, wealthy retirees - especially those with nest eggs of $2 million or more - have a much greater risk of receiving less than full retirement benefits than those with small or moderate savings. I have read this argument from economists, politicians, and CFAs.And I’ve read it from both sides of the political spectrum.

Yes, I can also construct plausible means testing rules where it's best to take SS early.

My point is that it's not clear which set Congress will pick (if any).

 

[misanman]

Note that any such table is based on the experience of some group of people. I would like to pick a group that is "mostly like me".

For kicks I did an analysis of my 20 cousins on my father's side (mother was only child).
1 died in 30's, 1 in 40's, 1 in 60's, 3 in 70's, and 3 in 80's (84 average for these three).

Twelve survive, 2 in 70's, 7 in 80's (86 average current age for these), and 3 in 90's (94 average, oldest is 98). Two of the surviving are living in assisted living, one has dementia. The other ten are living independently, in some cases with outside aid.

Anyway, interesting for me. Maybe not so much for others.

 

[North Texas Cajun]

Yes, I can also construct plausible means testing rules where it's best to take SS early.

My point is that it's not clear which set Congress will pick (if any).

It is clear to me that wealthy retirees have a much higher chance than non-wealthy retirees of losing some of their SS benefits once Congress does act. Politicians from both parties have already suggested that possibility. IMO, wealthy retirees should consider that chance when making a decision about when to take SS.

Most of the advocates promoting delayed SS benefits have assumed full SS benefit availability in their analyses. I do not believe that is a prudent assumption.

Please understand that it is not your thinking I am trying to change, but rather that of others who may not have considered the difficult choices that Congress may very soon have to make. SS is already cash flow negative, and the largest segment of baby boomers are just now turning 62.

 

[misanman]

I delayed until 70 (DW took at 62) and had a number of friends that took at 62 citing many of the reasons posted here. We are quite comfortable living with the larger amount we've been getting for the last 18 months. I completely agree that everyone should make the decision that is best for them but we were with some of those friends over the weekend and they were complaining about their paltry SS checks. Well, duh? IMO taking early is fine, just don't complain to me later about it.

 

[skipro33]

I delayed until 70 (DW took at 62) and had a number of friends that took at 62 citing many of the reasons posted here. We are quite comfortable living with the larger amount we've been getting for the last 18 months. I completely agree that everyone should make the decision that is best for them but we were with some of those friends over the weekend and they were complaining about their paltry SS checks. Well, duh? IMO taking early is fine, just don't complain to me later about it.

I'm concerned that means testing might be a cap, not across the board or a sliding scale. Mostly because friends like you described will throw your fat check under the bus to save their own paltry check and make that point to their representatives who write the laws. It's an argument I'm sure will be considered when that time comes. I see it with how government pensions are attacked. No one goes after the smaller checks, just the fat ones. Regardless of the merit that earned the pension.

****EDIT****
That got me to thinking; an early SS draw may keep the size of payment under the radar, so to speak. Another possible reason to take SS earlier rather than later. Like taxes, the first $1,000 a month is exempt and then a scale of percentage as the amount goes higher.

 

[North Texas Cajun]

I'm concerned that means testing might be a cap, not across the board or a sliding scale. Mostly because friends like you described will throw your fat check under the bus to save their own paltry check and make that point to their representatives who write the laws. It's an argument I'm sure will be considered when that time comes.

I think that high income SS beneficiaries are likely to be screwed the most. But I’m not sure eliminating 100% of their benefits will be enough to make up the shortfall.

That got me to thinking; an early SS draw may keep the size of payment under the radar, so to speak. Another possible reason to take SS earlier rather than later. Like taxes, the first $1,000 a month is exempt and then a scale of percentage as the amount goes higher.

If, by cap, you mean a cap on benefits, then I agree that has a chance. But consider those who saved nothing but are counting on $2,000 to $3,000 monthly in SS benefits. I think they are also going to be writing Congress to argue that their benefits shouldn’t be capped in order to save something for millionaires.

IMO, means testing to elminate benefits for top 10% of retirees has a better political chance than suffering shared by all.

 

[Mdlerth]

Past performance does not guarantee future results

I won't speculate on what Congress will do, but a lot of SS policy developments over the past 70 years revolved around it applying equally to everyone.

They called it "the contract between the generations" on purpose. There had been a reluctance to turn it into just another welfare program lest support for it erode.

 

[ncbill]

There are many ways means testing could work. I can construct a "plausible" means testing where it's best to take SS early and not spend down assets.

IMO, wealthy retirees - especially those with nest eggs of $2 million or more - have a much greater risk of receiving less than full retirement benefits than those with small or moderate savings. I have read this argument from economists, politicians, and CFAs.And I’ve read it from both sides of the political spectrum.

How would they know?

I've seen it pointed out on another website (bogleheads?) that the government really only has verifiable data on income, not assets, so means testing would necessarily be based on income.

So I can see another situation (similar to ACA subsidies) where retirees minimize their non-SS income to ensure they get their full SS retirement check, even with 7 figures in assets.

 

[Independent]

For kicks I did an analysis of my 20 cousins on my father's side (mother was only child).
1 died in 30's, 1 in 40's, 1 in 60's, 3 in 70's, and 3 in 80's (84 average for these three).

Twelve survive, 2 in 70's, 7 in 80's (86 average current age for these), and 3 in 90's (94 average, oldest is 98). Two of the surviving are living in assisted living, one has dementia. The other ten are living independently, in some cases with outside aid.

Anyway, interesting for me. Maybe not so much for others.

Yep, genes matter and I share more genes with my cousins than I do with the total population.

Lifestyle matters, too. Sometimes we have more similar lifestyles with our cousins than with the general population.

I have 20+ first cousins on my Mom's side. I can't say that I see a strong trend other than higher incidence of diabetes (both genes and lifestyle, probably). I've never had any problems with sugar levels. So, ...

My comment was more aligned with the fact that general population tables include people who are currently residing in hospices, hospitals, and nursing homes. And, people living independently but with serious, life threatening, conditions.

People asking "should I defer SS?" are hardly ever in that group. So it would be nice to narrow the group to those in "normal good health". Also, the people here tend to be higher income, and more "prudent" in general. The first is known to correlate with greater lifespans, the second probably does.

 

[Independent]

It is clear to me that wealthy retirees have a much higher chance than non-wealthy retirees of losing some of their SS benefits once Congress does act. Politicians from both parties have already suggested that possibility. IMO, wealthy retirees should consider that chance when making a decision about when to take SS.

I agree with this.

I was trying to point out that it's possible that deferring SS moves you from the group that has enough private assets/income to trigger a reduction down into the group that doesn't have quite that much.

People who defer have to have enough current assets to live during the deferral period, but probably not enough that they can just shrug off longevity risk. They might be hanging on the border between losing and not losing benefits.

There is also the slim possibility that the rules explicitly recognize the impact of deferred retirement. I'm sure the SS actuaries understand that issue, I'm not so sure it carries weight with policymakers.

I'll admit, however, that if I were just turning 62 this year, I'd guess that future means testing rules are more likely to favor starting early than to favor starting late. It's definitely something to consider.

 

[North Texas Cajun]

I agree with this.

I was trying to point out that it's possible that deferring SS moves you from the group that has enough private assets/income to trigger a reduction down into the group that doesn't have quite that much.

People who defer have to have enough current assets to live during the deferral period, but probably not enough that they can just shrug off longevity risk. They might be hanging on the border between losing and not losing benefits.

Well, I understand your point. We may disagree about how many people means testing will hit. IMO, any couple with total retirement income over $150k annually will be at risk for partial reduction in benefits. If they lose half their $35k SS benefit due to means testing, they’ll still survive. But I don’t think they should ignore a possible 10% reduction in living standard.

On the other hand, if they take SS at 63 or 64, I think they could end up with more in total lifetime SS benefits even if they live to age 86. That is, assuming they are hit by means testing.

When I was referring to wealthy retirees, I was meaning a couple with total annual income - SS plus pensions plus IRA distributions - in excess of $150K. Perhaps I should have said “high income” rather than “wealthy”.

 

[daylatedollarshort]

How would they know?

I've seen it pointed out on another website (bogleheads?) that the government really only has verifiable data on income, not assets, so means testing would necessarily be based on income.

So I can see another situation (similar to ACA subsidies) where retirees minimize their non-SS income to ensure they get their full SS retirement check, even with 7 figures in assets.

Asset testing is done now for various government programs including Medicaid for long term care.

 

[North Texas Cajun]

How would they know?

I've seen it pointed out on another website (bogleheads?) that the government really only has verifiable data on income, not assets, so means testing would necessarily be based on income.

So I can see another situation (similar to ACA subsidies) where retirees minimize their non-SS income to ensure they get their full SS retirement check, even with 7 figures in assets.

At present, you are correct in that government can more easily track income. I guess I should have said “high income” rather than “assets above $2 million”.

I think most Americans with $2 million in assets hold most of it in tax-deferred accounts. With RMD, the government will know exactly who to target for means testing.

As I see it, those with $2 million in tax deferred accounts - or with $1.5 million in tax deferred accounts plus significant pensions - will not be able to minimize non-SS income. And many boomers will have significant non-SS pensions. One study revealed that 40% of Boomer couples have at least one such pension.

 

[ncbill]

Asset testing is done now for various government programs including Medicaid for long-term care.

Solution: gift assets to an irrevocable trust.

Already done to qualify for Medicaid, you just have to wait out the 5-year look-back.

You can bet the above will only become more popular should anyone suggest asset-based means testing for SS retirement.

Again, since it is far easier for the government to match/verify income, so that's the approach I would expect.

 

[JustCurious]

As I see it, those with $2 million in tax deferred accounts - or with $1.5 million in tax deferred accounts plus significant pensions - will not be able to minimize non-SS income.

Why not? Someone under the age of 70 can take out as much or as little as they want from tax deferred accounts. RMDs don't kick in until age 70.5.

 

[pb4uski]

.... SS is already cash flow negative, and the largest segment of baby boomers are just now turning 62.

You're half right... currently benefits paid exceed taxes collected... but taxes collected plus interest income exceed benefits paid... all per the 2017 Trust Fund Report Summary at https://www.ssa.gov/oact/TRSUM/index.html

.... Social Security's total income is projected to exceed its total cost through 2021, as it has since 1982. The 2016 surplus of total income relative to cost was $35 billion. However, when interest income is excluded, Social Security's cost is projected to exceed its non-interest income throughout the projection period, as it has since 2010. The Trustees project that this annual non-interest deficit will average about $51 billion between 2017 and 2020. It will then rise steeply as income growth slows to its sustainable trend rate as the economic recovery is complete while the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers.

After 2021, interest income and redemption of trust fund asset reserves from the General Fund of the Treasury will provide the resources needed to offset Social Security's annual deficits until 2034, when the OASDI reserves will be depleted. Thereafter, scheduled tax income is projected to be sufficient to pay about three-quarters of scheduled benefits through the end of the projection period in 2091. The ratio of reserves to one year's projected cost (the combined trust fund ratio) peaked in 2008, declined through 2016, and is expected to decline steadily until the trust funds are depleted in 2034. ....

 

[North Texas Cajun]

You're half right... currently benefits paid exceed taxes collected... but taxes collected plus interest income exceed benefits paid... all per the 2017 Trust Fund Report Summary at https://www.ssa.gov/oact/TRSUM/index.html

All that matters is cash flow. SS benefits cannot be paid from “interest” which is just an accounting entry in the Trust Fund.

The federal government understands that the Social Security Trust Fund cannot pay benefits.

From page 385 of the Analytical Perspectives section of President Obama’s FY2017 budget, prepared on February 9, 2016 by Obama’s Office of Management and Budget:

“When trust fund holdings are redeemed to fund the payment of benefits, the Department of the Treasury finances the expenditure in the same way as any other Federal expenditure—by using current receipts if the unified budget is in surplus or by borrowing from the public if it is in deficit. Therefore, the existence of large trust fund balances, while representing a legal claim on the Treasury, does not, by itself, determine the Government’s ability to pay benefits.”

https://www.govinfo.gov/features/featured-content/Budget-FY2017

Again, the only thing that really matters is where the cash comes from to pay SS benefits.

The special purpose securities held in the Trust Fund are IOU’s. Those IOUs were generated in two ways:

1. Surplus FICA collections from prior years;
2. An accounting entry labelled “interest earned” which is the T Bill rate times the average balance in the Trust Fund account.

But those special purpose securities (SPS) cannot pay SS benefits. SS beneficiaries want cash.

You should be able to understand why the Trust Fund is meaningless if you look at how benefits would be paid if it did not exist:

1. If the Trust Fund exists:
a. Treasury pays some SS benefits using FICA taxes;
b. SS sends SPS to Treasury in the amount of the shortfall;
c.Treasury borrows from the public in the amount of the shortfall and pays remaining benefits.

2. If the Trust Fund did not exist:
a. Treasury pays some SS benefits using FICA taxes;
b.
c.Treasury borrows from the public in the amount of the shortfall and pays remaining benefits.

The Special Purpose Securities (SPS) are meaningless.

 

[prototype]

Not sure if this link has already been posted but FWIW here is the link to a 4 old poll on this forum on when people here were planning to, or had already taken SS.

http://www.early-retirement.org/forums/f29/poll-when-will-did-you-draw-from-ssa-69230.html

 

[pb4uski]

All that matters is cash flow. SS benefits cannot be paid from “interest” which is just an accounting entry in the Trust Fund. .....
The Special Purpose Securities (SPS) are meaningless.

I guess that we will have to agree to disagree on this one. Interest does count. When the time comes the general fund will need to pay the SS Trust Fund, by issuing bonds if necessary. However, the national debt will not increase because the $20 trillion of national debt already includes the $2.8 trillion owed to the SS Trust Fund, so as debt is issued to outsiders and the proceeds used to pay the SS Trust Fund the net impact on the national debt will be a wash ($0). The SS Trust Fund will then use the proceeds to pay beneficiaries.

Or put another way... since the Trust Fund already exists and owings to it are already included in the national debt your item 1 above would be different, as follows:

a. Treasury pays some SS benefits using FICA taxes;
b. SS sends SPS to Treasury in the amount of the shortfall;
c.Treasury borrows from the public the amount of the SPS (and the shortfall) and redeems the SPS from SS
d.SS uses the proceeds of the SPS redemption to pay remaining benefits.

 

[flintnational]

Actually, the longevity calculator indicates that DW and I have a 75% chance of living to 86/83 and our estimated life expectancy is 94/91 (which I suspect means a 50% chance of living to those ages).

See https://annuities.blueprintincome.com/tools/life-expectancy-calculator-how-long-will-i-live/

I like this longevity calculator. It says I will live to 98. On the other hand, that means I will have to listen to the forum members debate SS and SWR for the next forty years. On second thought, maybe the calculator is overly optimistic.

 

[North Texas Cajun]

I guess that we will have to agree to disagree on this one. Interest does count.

Sorry, but you are mistaken. Interest only counts if cash is moved as a result. Treasury never sends cash to SS for the accounting entry “Accrued Interest”.

When the time comes the general fund will need to pay the SS Trust Fund, by issuing bonds if necessary. However, the national debt will not increase because the $20 trillion of national debt already includes the $2.8 trillion owed to the SS Trust Fund, so as debt is issued to outsiders and the proceeds used to pay the SS Trust Fund the net impact on the national debt will be a wash ($0). The SS Trust Fund will then use the proceeds to pay beneficiaries.

Or put another way... since the Trust Fund already exists and owings to it are already included in the national debt your item 1 above would be different, as follows:

a. Treasury pays some SS benefits using FICA taxes;
b. SS sends SPS to Treasury in the amount of the shortfall;
c.Treasury borrows from the public the amount of the SPS (and the shortfall) and redeems the SPS from SS
d.SS uses the proceeds of the SPS redemption to pay remaining benefits.

Again, Treasury does not send cash to SS. Social Security checks are sent to SS beneficiaries directly from Treasury - either via paper in the past or electronically today. SS Administration is primarily an accounting and enforcement entity. They do tell Treasury who to send checks to and how much.

By not focusing entirely on cash flow, you are distorting - as the SS Adminstration has distorted - the true financial situation of the government’s SS program. The SS Trust “Fund” is very much like Enron’s Special Purpose Entities: both have hidden from investors/taxpayers the true picture of how underfunded or over-leveraged is the business/program.

 

[rayvt]

But..... but..... but..... I thought money was fungible?

Money if fungible, but not all money is the same. You can't compare money that you have in hand (IRA) with a promise to give you a monthly check (SS).

Most of the advocates promoting delayed SS benefits have assumed full SS benefit availability in their analyses. I do not believe that is a prudent assumption.

Yes!
Just look at what happened with the recent tax bill. How many people were counting on being able to deduct their state and local real-estate tax forever? How many people were counting on HELOC interest being deductible forever?

[re: means testing] How would they know? I've seen it pointed out on another website (bogleheads?) that the government really only has verifiable data on income, not assets, so means testing would necessarily be based on income.

The IRS knows the year-end balance of IRA accounts. That's probably a pretty good enough proxy as the first step to means testing SS. It wouldn't be hard for the government to make brokers report the year-end balances of non-IRA accounts, too.

Solution: gift assets to an irrevocable trust.
Already done to qualify for Medicaid, you just have to wait out the 5-year look-back.

Solution(s): 1) New law that counts an irrevocable trust against you. 2) Modify the current law and extend the lookback period to 20 years.

 

[Rianne]

I sense means testing is for the younger generation who has not contributed. The older population that contributed their whole life would throw a sh_t fit. I've contributed since age 14. DH, close behind. They need to raise the cap from $118K. What's wrong with that and save the entire program, right? Do kids know how to save better than we did? My experience says, not.