Draw social security early or not?

[youbet]

Part of what makes when to draw SS a challenging proposition are the conflicting factors.

Although we often focus on the break-even point and our expected mortality, maximizing our 'take' from Uncle Sam oftentimes misses the larger point.

The retirement years from age 62 to FRA are, for most of us, qualitatively superior to those after FRA. We're younger, we have more energy, our health is better, and we have yet to receive that today-is-the-day-you-die wildcard that some morning we will receive.

Similarly, the retirement years from FRA to age 70 are qualitatively superior to any that will follow.

So the first factor is whether drawing SS is necessary in order to retire in the first place. If it is, then that quickly becomes a powerful argument for taking it sooner, than later. Why trade away those "best" retirement years?

The answer why one might, of course, is written in the second, conflicting, factor: longevity and survivorship risk. If drawing SS early means an essential bet that one or both of a couple will check out fairly early - because the longer term financial horizon looks pitiable - then you hold off drawing SS. You trade away those "best" retirement years hoping not to have to eat dog food in your later years.

For some, SS is rather icing on the cake - they could retire without it. For most, however, it truly is a conundrum.

I think you're missing something Jeff.......

Your "safe" annual spend rate between 62 and 70 doesn't change much, if at all, whether you start SS at 62, 66 or 70. Try it in FireCalc. You should see little difference in portfolio survival rates whether you plug in your smaller SS at 62 or your larger SS at 70.

See post #62 by NW-Bound (above) for some examples.

There are lots of legitimate and sound reasons to start SS at 62, but having more money to spend while you're younger isn't one of them because it isn't true.

 

[Jager]

I think you're missing something Jeff.......

Your "safe" annual spend rate between 62 and 70 doesn't change much, if at all, whether you start SS at 62, 66 or 70. Try it in FireCalc. You should see little difference in portfolio survival rates whether you plug in your smaller SS at 62 or your larger SS at 70.

See post #62 by NW-Bound (above) for some examples.

There are lots of legitimate and sound reasons to start SS at 62, but having more money to spend while you're younger isn't one of them because it isn't true.

I wasn't thinking in terms of portfolio survival or safe withdrawal rate. But rather contemplating the question for most people, who don't have such esoteric considerations. For most people, the availability of SS, and when to take it, very much affects when/if they are able to retire.

You're absolutely right that SS-age-of-withdrawal has minimal effect on portfolio survival. But the universe for whom that is an important consideration is, alas, a significant minority.

 

[Which Roger]

Not to turn this into a political discussion, but I am surprised that no one has really mentioned the issue of future changes to SS and how that impacts the decision process. Personally our current thinking is to wait to FRA at a minimum, and then reassess the political SS landscape.

I don't put too much weight on this in my decision process for the following reasons:

1. If and when SS reform happens, it will likely have a bigger impact on younger people than older people.

2. I'm guessing that however the older folks are impacted, the changes will mainly impact the "wealthy". If I'm "wealthy" when I turn 70, then I will have won the game, and will easily be able to deal with the impact. If I'm struggling at that age, and need every penny of SS, then I won't likely be impacted by the changes.

 

[haha]

I don't put too much weight on this in my decision process for the following reasons:

1. If and when SS reform happens, it will likely have a bigger impact on younger people than older people.

2. I'm guessing that however the older folks are impacted, the changes will mainly impact the "wealthy". If I'm "wealthy" when I turn 70, then I will have won the game, and will easily be able to deal with the impact. If I'm struggling at that age, and need every penny of SS, then I won't likely be impacted by the changes.

What has already been done questions these assumptions. Look at the low income thresholds for Medicare premium increases. This is so far from "wealthy" that it is laughable.
The first step-up comes at $85k for a single taxpayer. That is adjusted AGI, and all the adjustments increase AGI, not decrease it. This amount, and the higher steps are not inflation adjusted.

Ha

 

[NW-Bound]

I have told this story before, but need it here to lead to what I want to say.

I told another engineer who was 15 years my senior that I wanted to travel when I was young, so that on my deathbed I would not regret not traveling enough. He shook his head and said "Many people on their deathbed just wanted the pain to stop".

About when to take SS, let's take these two extreme suboptimal cases that one may end up in.

1) You took SS at 62, then find out that at 80 you are still going strong. It is highly likely that, due to human nature, you will regret not delaying it so that you would have more now. You will forget all the good stuff or experience you bought with that SS money. You will lament the "wrong choice" to anyone who listens, and tell them to learn from your "mistake".

2) You delay SS till 70, and at 71, find out that you do not have much longer to live. Are you going to regret not taking SS earlier, to spend it on that fancy car, taking that world cruise when you were younger? No, you will be so sad and too busy being scared to think about the unfulfilled bucket list.

In other words, case 1) makes you regret, and in case 2) you don't care. So, with my understanding of human nature as described above, it is probably safer to delay SS to avoid regret.

Caveat: The above assumes that you can live comfortably without SS, and are just debating whether you should take SS to buy more caviar and foie gras. If you are short of funds or if the market tanks, it is far better to take SS to reduce your WR.

 

[Chuckanut]

. This amount, and the higher steps are not inflation adjusted.

+1

You nailed it.

The tax increases are already built into SS.

Sort of reminds me of the alternative minimum tax rules.

 

[Lcountz]

NW-BOUND said:

"1) You took SS at 62, then find out that at 80 you are still going strong. It is highly likely that, due to human nature, you will regret not delaying it so that you would have more now. You will forget all the good stuff or experience you bought with that SS money. You will lament the "wrong choice" to anyone who listens, and tell them to learn from your "mistake".

2) You delay SS till 70, and at 71, find out that you do not have much longer to live. Are you going to regret not taking SS earlier, to spend it on that fancy car, taking that world cruise when you were younger? No, you will be so sad and too busy being scared to think about the unfulfilled bucket list."

I say: I like this line of thought. I'm single and intend to wait til 70 to start SS., but then again I don't care if I "leave anything" since I have no kids or spouse!

Plus Mom (93), her Mom (died at 85) her brother, and all her cousins ALL lived to 90+!

 

[43WorkYears]

I see that there have been 81 responses to this question, draw SS early or not, but as we all have read a lot of opinions, there is no right or wrong answer. I hope the opinions/suggestions keep coming, which in some cases we can relate to so we can make what we think is our best choice at 62, 65/66, 70 or somewhere in between. The responses have made me more knowledgable on the subject.


Sent from my iPhone using Early Retirement Forum

 

[NW-Bound]

I have recently given this subject quite a bit of thought, although I still have a few years to even being able to claim SS early. It turned out to be more complex than I first thought.

I think that even when one is strictly maximizing the amount to spend, the answer still depends on how young the person is when retiring early, the ratio of the stash relative to the SS payout, etc... Here, FIRECalc can give some guidance. And then, there's the question of leaving some money behind for the surviving spouse, tax at RMD time, etc...

I will definitely want to delay mine if at all possible, so that it acts as an insurance for my wife who most likely outlives me (by one or two decades easily though we are of the same age). We may claim hers early or not, depending on how the market acts the next few years. If the stocks are doing well, we will live off it: sell high and bank the SS. If the market tanks, we will claim at least my wife's SS to avoid selling the stocks low.

 

[Ally]

I may have replied before, but my husband and I will take it at about 64.5. At that time, we will both be retired and by taking it and with his pension, we won't have to draw from our investments until we are required at 70. We both have some health issues that make us think that we may not live long enough to make it worth waiting. But if we do live long lives, we are OK with taking that chance, because we will still be due to the money we have saved.

 

[43WorkYears]

Sounds like a good decision. Not taking it at 62 or 70. More closer to the middle based on the issues you stated.


Sent from my iPhone using Early Retirement Forum

 

[pb4uski]

What has already been done questions these assumptions. Look at the low income thresholds for Medicare premium increases. This is so far from "wealthy" that it is laughable.
The first step-up comes at $85k for a single taxpayer. That is adjusted AGI, and all the adjustments increase AGI, not decrease it. This amount, and the higher steps are not inflation adjusted.

Ha

Given that the median household income is about $54k, $85k for a single ($170k for MFJ) IS wealthy by comparison.

The lack of inflation adjustment is the stealth increase.

 

[imoldernu]

Didn't want to begin a new thread, so will pop this related article in here.
It may not affect anyone here, but the $1.3 Trillion in student loans will not disappear, and the compounding could affect many who will be expecting Social Security.

One would think that Janet Lee Dupree, 72, a self-professed HIV-infected alcoholic, would be slowly putting aside material worries as she prepares to set the intangibles in her life in order for one last time. One would be wrong.
Janet Dupree has had her wages garnished
As she admits, "I am an alcoholic and I have HIV," she tells the BBC. "That's under control." So what is the cause of most if not all consternation in the final days of Dupree's life? "I was sick and I didn't worry about paying back the debt." As a result, Dupree defaulted on her loan, and since she turned 65 she has had money withheld from her Social Security benefits.

Meet Janet Dupree:72, Alcoholic, HIV-Positive, $16,000 In Student Debt: "I Won't Live Long Enough To Pay It Off" | Zero Hedge

More info on what can be garnished, from BankRate:

http://www.bankrate.com/finance/retirement/social-security-garnished-1.aspx