If you are not working, why would someone wait until 70 to collect Social Security?

[Forced to Retire]

I know a person with $600K to his name and he is just turning 62 next month. He is trying to figure out what to do. He can't work any longer in any job because of an injury and arthritis. So no more income from employment.

His minimum spending needs is $4000 a month. His SS at age 62 would be $1300 a month and at age 70 would be $2200 a month in 2016 dollars

Option One: Wait until he is seventy to collect Social Security and use his IRA Money ($600K) to pay for 100% of his $4000 a month living expenses from age 62-70. That would be $48,000 a year or $384,000.00 over time period, with additional uncertain amounts for inflation. To pay for his expenses without Social Security he would have to take an annual inflation adjusted withdrawal of 8% a year. So is it likely the principal of his $600K in his IRA would shrink in the coming 8 years.

But once he starts collecting Social Security at age seventy, he can drop his withdrawal to 3% of the 2016 figure, because of the larger Social Security Check for waiting until he is 70. But it is highly likely he will not have $600K in his IRA account in eight years because of this 8% annual withdrawals.

OPTION TWO: Take Social Security at age 62 and collect $1300 a month and take 4% withdrawals with minor adjustments for inflation and needs for the rest of his life. (His withdrawals are smaller because of getting Social Security)


Which option is best for my friend:

Wait until seventy and take huge annual 8% withdrawal per year for the next 8 years but smaller 2-3% withdrawals starting at age 70, or start to collect Social Security at age 62 and take smaller checks but only four percent withdrawals going forward? Your choice.

 

[Lcountz]

How about.....ask you friend if he needs a room-mate?

Is he single? Maybe he would be open to this.....after all, it sounds like you could jhelp each other !!!!

Then you BOTH could win!!!! Lessen expenses for both, and make your money last a L-O-N-G time!!!

Or if you REALLY want to game the system, get "married". Then you'd be spouses with all that implies SS wise!!!!! (just kidding....you'd also be exposed to any judgements, liens or medical bills too).....

 

[Teacher Terry]

I did read about a year ago that many people assume they will work until 65 but then illness ( themselves) or a spouse or getting laid-off happen and they find themselves not having enough $ hence taking SS earlier then originally planned.

 

[RunningBum]

I know a person with $600K to his name and he is just turning 62 next month. He is trying to figure out what to do. He can't work any longer in any job because of an injury and arthritis. So no more income from employment.

His minimum spending needs is $4000 a month. His SS at age 62 would be $1300 a month and at age 70 would be $2200 a month in 2016 dollars

Option One: Wait until he is seventy to collect Social Security and use his IRA Money ($600K) to pay for 100% of his $4000 a month living expenses from age 62-70. That would be $48,000 a year or $384,000.00 over time period, with additional uncertain amounts for inflation. To pay for his expenses without Social Security he would have to take an annual inflation adjusted withdrawal of 8% a year. So is it likely the principal of his $600K in his IRA would shrink in the coming 8 years.

But once he starts collecting Social Security at age seventy, he can drop his withdrawal to 3% of the 2016 figure, because of the larger Social Security Check for waiting until he is 70. But it is highly likely he will not have $600K in his IRA account in eight years because of this 8% annual withdrawals.

OPTION TWO: Take Social Security at age 62 and collect $1300 a month and take 4% withdrawals with minor adjustments for inflation and needs for the rest of his life. (His withdrawals are smaller because of getting Social Security)


Which option is best for my friend:

Wait until seventy and take huge annual 8% withdrawal per year for the next 8 years but smaller 2-3% withdrawals starting at age 70, or start to collect Social Security at age 62 and take smaller checks but only four percent withdrawals going forward? Your choice.

Your friend is ~$1400/month (not $700 as I first said) short in option 2. You're comparing apples to partially eaten apples. He better figure out how to live on less than $4000/month.

 

[samclem]

I know a person with $600K to his name and he is just turning 62 next month. He is trying to figure out what to do. He can't work any longer in any job because of an injury and arthritis. So no more income from employment.

His minimum spending needs is $4000 a month. His SS at age 62 would be $1300 a month and at age 70 would be $2200 a month in 2016 dollars

Option One: Wait until he is seventy to collect Social Security and use his IRA Money ($600K) to pay for 100% of his $4000 a month living expenses from age 62-70. That would be $48,000 a year or $384,000.00 over time period, with additional uncertain amounts for inflation. To pay for his expenses without Social Security he would have to take an annual inflation adjusted withdrawal of 8% a year. So is it likely the principal of his $600K in his IRA would shrink in the coming 8 years.

But once he starts collecting Social Security at age seventy, he can drop his withdrawal to 3% of the 2016 figure, because of the larger Social Security Check for waiting until he is 70. But it is highly likely he will not have $600K in his IRA account in eight years because of this 8% annual withdrawals.

OPTION TWO: Take Social Security at age 62 and collect $1300 a month and take 4% withdrawals with minor adjustments for inflation and needs for the rest of his life. (His withdrawals are smaller because of getting Social Security)


Which option is best for my friend:

Wait until seventy and take huge annual 8% withdrawal per year for the next 8 years but smaller 2-3% withdrawals starting at age 70, or start to collect Social Security at age 62 and take smaller checks but only four percent withdrawals going forward? Your choice.

He has $600K now which he can safely withdraw at a rate of roughly 4% per year, so $16K per year or $2000 per month.

Option 2 (take SS now, at age 62): Won't work out. He says he needs $4K per month, but his age 62 SS check is $1300 per month and he can only safely withdraw $2000 per month, so he'll have a total of $3300 per month. He'll have to make cuts to get down to $3300/mo in spending regardless of which option he chooses.

Option 1 (wait until 70 to take SS): If he withdraws at $3300 per month (same as he gets under Option 2) for 8 years. Then, when he's 70, he'll have $283K left in his account (assuming it grows at zero above inflation, which makes things simple, isn't unlikely, and is conservative). Withdrawn at 4% per year, it will give him $944 per month. Added to his SS check ($2200 per month), he'd have $3100 per month from age 70 onward.

Option 1 is what I would choose. Easily. After age 70 a higher percentage of my monthly check would be guaranteed by the government and entirely inflation adjusted, not subject to market ups and downs, and I can't outlive it. With Option 1, the SS check provides about 2/3rd of the amount he needs too live on every month, with Option 2 it covers just about 40%. That may mean that under Option 1 he'd feel comfortable with a little more annual variability in his returns (i.e. a higher percentage in equities) than he might under Option 2. That would be expected to lead to higher overall returns.

But your friend needs to cut his expenses.

Note--edited to correct a math error.

 

[ivinsfan]

How about.....ask you friend if he needs a room-mate?

Is he single? Maybe he would be open to this.....after all, it sounds like you could jhelp each other !!!!

Then you BOTH could win!!!! Lessen expenses for both, and make your money last a L-O-N-G time!!!

Or if you REALLY want to game the system, get "married". Then you'd be spouses with all that implies SS wise!!!!! (just kidding....you'd also be exposed to any judgements, liens or medical bills too).....

best post on this thread...I'm not loving the judgement of people on this forum that keeps coming from Forced to Retire posts.

 

[ivinsfan]

The reason most people take their social security before age 65 is they need the money!

They were not able to save enough money when they were working full time to cover their day to day expenses from the standard 4% withdrawal.

Yes, many people on this board are quite proud of yourself and had great careers, made wonderful financial decisions, saved lots of money and had great skills and a wonderful career and were able to retire early and can support yourself strictly on pension and savings and can wait until you are seventy to collect Social Security. (And you are convinced you will live to 100.) But that is not typical.

Most Americans are thrown out of the work force well before they are seventy years old. Maybe their spouse is ill. Or they are ill, or just can't get the energy to do a full time job and a two hour commute anymore. Or they are fired, like me, for being old and due to age discrimination in hiring, just can't find another career job.

Collecting Social Security at age 62 is completely logical for one very good reason- Most people at age sixty two plus are not working in their peak income job anymore and NEED THE MONEY NOW!

Wow, what's with the mocking nature of this post? the words great and wonderful aren't really what you mean are they? If you think everyone here is so smug and full of themselves why are you still posting here?

I happen to think you are getting lots of thoughtful replies but I'm not sure why you are engaging here as it seems to make you mad.

 

[pb4uski]

I know a person with $600K to his name and he is just turning 62 next month. He is trying to figure out what to do. He can't work any longer in any job because of an injury and arthritis. So no more income from employment.

His minimum spending needs is $4000 a month. His SS at age 62 would be $1300 a month and at age 70 would be $2200 a month in 2016 dollars

Option One: Wait until he is seventy to collect Social Security and use his IRA Money ($600K) to pay for 100% of his $4000 a month living expenses from age 62-70. That would be $48,000 a year or $384,000.00 over time period, with additional uncertain amounts for inflation. To pay for his expenses without Social Security he would have to take an annual inflation adjusted withdrawal of 8% a year. So is it likely the principal of his $600K in his IRA would shrink in the coming 8 years.

But once he starts collecting Social Security at age seventy, he can drop his withdrawal to 3% of the 2016 figure, because of the larger Social Security Check for waiting until he is 70. But it is highly likely he will not have $600K in his IRA account in eight years because of this 8% annual withdrawals.

OPTION TWO: Take Social Security at age 62 and collect $1300 a month and take 4% withdrawals with minor adjustments for inflation and needs for the rest of his life. (His withdrawals are smaller because of getting Social Security)


Which option is best for my friend:

Wait until seventy and take huge annual 8% withdrawal per year for the next 8 years but smaller 2-3% withdrawals starting at age 70, or start to collect Social Security at age 62 and take smaller checks but only four percent withdrawals going forward? Your choice.

Look at posts #94 and #111

In this case your friend is paying $1,300/month for 8 years ($124,800) to receive an additional benefit of $900/month for life (8.65% payout rate) This $124,800 is using 20% of his savings to buy a COLAed annuity that pays him $900/month for the rest of his life.

Another way to think of it, if your friend defers SS and segregates the $2,200 a month that he would receive if he took at 70 for the 8 years that he is not collecting (62-70), that would be $211,200, so say $225k to provide for inflation increases. If he took a 4% WR on the remaining that is another $1,250/month so between the two pots of money and his SS at 70 he would have COLAed income of ~$3,350/month. If he collects at 62 he has $1,200/month from SS and $2,000 from his retirement savings at a 4% WR for a total of $3,200/month. So it doesn't matter hugely, but deferring is 5% better.

 

[Forced to Retire]

Good Analysis in the post below and in posts 94 and 111.

I think in the final analysis, if you are not working from age 62 onward and don't get a pension or annuity, and are living on withdrawals from your Savings, investment accounts and 401k and IRA, it is hard emotionally to not just start collecting Social Security as soon as it is open to you.

Yes, the posting below shows how it is possible but if his $4000 a month spending figure is set in stone and he defers Social Security until he is 70, he has to take out 8% + a year in distributions for the next 8 years. That is a scary annual withdrawal amount. Yes, he will need less money in principal and need significantly smaller distributions when he becomes seventy (70), but who knows how much money he will have left in his retirement accounts by the time he is 70. After a bear market and high 8% withdrawals eat into his money.

It would be easier to take the smaller 4% withdrawals and collect Social Security right at 62. With 2-3% dividend yields in a basket of stock and bond funds, he would only have to take 1-2% of his principal each year. That is how I see it.

In the final analysis, here is the question: If his spending and assets were fixed, should he take 8% withdrawals from age 62-70 and then collect Social Security at age 70 with the higher Social Security benefits amount going forward- that will allow him to reduce distributions after age seventy to the bone? OR: Should he take 4% withdrawals and early reduced Social Security benefits starting at age 62 to cover his expenses if he is NOT WORKING?

This is the bottom line question about waiting for age seventy to collect. (To wait if you are not working, unless you have lots of money in your retirement account, you have to have large withdrawals from age 62-70 to cover your expenses. Much larger than the suggested 3-4% withdrawal rates during those 8 years.)

Look at posts #94 and #111

In this case your friend is paying $1,300/month for 8 years ($124,800) to receive an additional benefit of $900/month for life (8.65% payout rate) This $124,800 is using 20% of his savings to buy a COLAed annuity that pays him $900/month for the rest of his life.

Another way to think of it, if your friend defers SS and segregates the $2,200 a month that he would receive if he took at 70 for the 8 years that he is not collecting (62-70), that would be $211,200, so say $225k to provide for inflation increases. If he took a 4% WR on the remaining that is another $1,250/month so between the two pots of money and his SS at 70 he would have COLAed income of ~$3,350/month. If he collects at 62 he has $1,200/month from SS and $2,000 from his retirement savings at a 4% WR for a total of $3,200/month. So it doesn't matter hugely, but deferring is 5% better.

 

[RunningBum]

I'll be reading this for entertainment value only now.

 

[samclem]

Yes, the posting below shows how it is possible but if his $4000 a month spending figure is set in stone . . . .

There's problem number 1. Your friend does not have enough assets (savings or coming SS in any combination) to responsibly support a spending rate of $4000 per month. Period. Wishing it were different will not help him. No matter which option he chooses (SS at 62 or 70) the plan crashes and burns when he turns 70, or shortly thereafter.

Plenty of people live just fine on $36K per year, your friend needs to join them and he'll be fine.

Yes, he will need less money in principal and need significantly smaller distributions when he becomes seventy (70), but who knows how much money he will have left in his retirement accounts by the time he is 70. After a bear market and high 8% withdrawals eat into his money.

And that bear market will also hurt his savings if he only withdraws the smaller amount for 8 years. But, instead of getting a monthly SS check of $2200, he'll be getting one for $1300. For as long as he lives.

There's is a way for your friend to have a 45% chance of being able to safely take out $4K per month for the rest of his life.
1) Withdraw his savings.
2) Go to legal casino, find the roulette table and put the whole wad on red or black (this will require a discussion with management. They will allow him to do it.)
3) If he wins, he'll be in great shape and can put the winnings into CDs and be set for life (whichever SS option he chooses).
4) If he loses, he finds a nice overpass and a really good cardboard box.

Now, does he >really< need $4k per month, or would $3200 do alright?

Or, he could just spend what he wants to every month without a realistic plan for the future and just hope things work out (early demise, run up in stocks, unexpected tripling of SS benefits, etc). Lots of people do just this, so he won't be alone.

 

[ShokWaveRider]

thanks - I think i've counted about 23 threads on this subject js

That horse does not look Dead.

 

[Sunset]

......
Yes, many people on this board are quite proud of yourself and had great careers, made wonderful financial decisions, saved lots of money and had great skills and a wonderful career and were able to retire early and can support yourself strictly on pension and savings and can wait until you are seventy to collect Social Security......

You forgot: And didn't have a " outspoken eccentric personality " , which I interpret as mouth off weird stuff to management and other workers.

I know a guy with an " outspoken eccentric personality " and he tells me he told the drugstore clerk "Why I oughta smack you in the face" , and he gets banned for life from the store and cannot understand why they can't take a joke. ??

 

[Calico]

You forgot: And didn't have a " outspoken eccentric personality " , which I interpret as mouth off weird stuff to management and other workers.

I know a guy with an " outspoken eccentric personality " and he tells me he told the drugstore clerk "Why I oughta smack you in the face" , and he gets banned for life from the store and cannot understand why they can't take a joke. ??

+1000

All of the excuses and outward blaming in multiple threads from the OP have worn extremely thin.

I also happen to have what many consider an "outspoken eccentric personality" which actually resulted in losing two jobs in my twenties. Then, I grew up, learned to suck it up, and left the "eccentric" me at the doorstep at future jobs. If I were the boss, I probably could let my little "eccentricity" flag fly - but I am not the boss, so I furl that flag and bite my tongue frequently at work. I realized early on I had two choices: (1) I could indulge in my eccentricities (and enjoy long stretches of unemployment) or (2) remain employed and reach my long-term goals.

I don't care for sleeping in the park, so I chose door #2, and in 39 months (knock wood) I will be retired and have the rest of my life to fly my little eccentricity flag.

 

[Gumby]

As my mother advised me about getting along in the world of work -- "Never pass up the opportunity to keep your mouth shut."

 

[Calico]

As my mother advised me about getting along in the world of work -- "Never pass up the opportunity to keep your mouth shut."

A very wise woman indeed!

 

[jazz4cash]

While it's likely a good article,
"because most people (approximately 48% of women and 42% of men) start taking Social Security at age 62", is inherently inaccurate since either 42% or 48% of anything is most of the whole. Largest portion? Likely.

It was a very good piece but I got hung up on that too! Maybe the author figure 48+42=90% ?


Sent from my iPhone using Early Retirement Forum

 

[Lcountz]

Hey "Forced"....your friend's 4000.00 a month expenses is NOT "Set in stone".

Neither are YOUR expenses!

That mindset needs to be recalibrated TODAY.

 

[pb4uski]

There's problem number 1. Your friend does not have enough assets (savings or coming SS in any combination) to responsibly support a spending rate of $4000 per month. Period. Wishing it were different will not help him. No matter which option he chooses (SS at 62 or 70) the plan crashes and burns when he turns 70, or shortly thereafter. ....

+1 Putting his data in Firecalc with $4k/month spending, assuming he starts SS at 62 his success rate is 56%. Changing it to start SS at 70 instead of 62 increases his success rate to 59.5%. Both are too low.

Change spending to $3,300/month and his success rates are 95.7% if he starts SS at 62 and 99.1% if he starts SS at 70.

So in both cases deferring SS increases his success rate by about 3.5%.

And regarding your observation that he would have an outsized WR from 62-70... you are correct, but what is important is the "ultimate" WR once SS starts. Our WR is high from when we retired until my pension and our SS starts in 5-8 years... then it plummets and is much lower than 4%... the higher withdrawal rate is not unexpected and part of the price of freedom from work.

 

[mathjak107]

most folks can not really afford to delay safely from 62 to 70 without some sources of outside income . they have to spend their savings to far down in my opinion .

i hate to see more than 1/3 of savings used .

 

[samclem]

most folks can not really afford to delay safely from 62 to 70 without some sources of outside income . they have to spend their savings to far down in my opinion .

i hate to see more than 1/3 of savings used .

1/3 of savings seems arbitrary. Wouldn't it depend on what they've got now and what they need to spend?
The folks with a moderately-sized portfolio compared to their required spending are the ones who could benefit most from a relatively large SS check with respect to that required spending. They can tolerate less volatility in their portfolio value and can tolerate less volatility in their monthly income. Both factors argue for trading their portfolio for the best bargain in an inflation-adjusted lifetime annuity they can get--the "annuity" they buy by deferring SS.

 

[pb4uski]

What you would give up would be roughly your FRA times 75% (discount for taking at age 62) * 8 years.... so if your FRA is $2k a month they you give up ~$144k. 3 times that would be $432k saved.

 

[mathjak107]

1/3 of savings seems arbitrary. Wouldn't it depend on what they've got now and what they need to spend?
The folks with a moderately-sized portfolio compared to their required spending are the ones who could benefit most from a relatively large SS check with respect to that required spending. They can tolerate less volatility in their portfolio value and can tolerate less volatility in their monthly income. Both factors argue for trading their portfolio for the best bargain in an inflation-adjusted lifetime annuity they can get--the "annuity" they buy by deferring SS.

the 1/3 of savings is based on what they need to spend . it is the sheer draw down of their savings .

sequence risk effects us all the same so the size of the portfolio would not matter . it is all going to be about whether they leave themselves with to little left for comfort . the irony is those who can't afford to delay need the bigger checks the most .

but spending to far down ,especially today where unexpected emergency's and unexpected spending can cost big dollars can be to risky . my first year in retirement was last year . we both got whacked with a total of 20k in dental and our portfolio was up 1% while we spent down 4% .

the typical working class american with a relatively small savings really can not afford to delay usually because they end up having to spend down more than 1/2 of what they have .

 

[nubill]

Inspired by (Marko’s) post #167 and having read up page 10 of the responses to the OP. I fall in the camp of delaying SS. Here is a tally of reasons to delay SS up to age 70. Sorry if I missed any. My reasons for delaying SS are #’s 2,4,5,6,7,8 and 10. To me it is a personal decision based on my situation. YMMV.

1. It’s cheap longevity insurance.
2. Don’t need the money now.
3. Good health and family history of longevity.
4. Increase survivor benefit for lower benefit spouse.
5. Take advantage of spousal claiming strategies if still available.
6. Spend or convert to Roth tax deferred savings before RMD’s start.
7. Convert to Roth to leave heirs tax free income.
8. Allow more money to convert to Roth within marginal tax rate.
9. Avoid increase in ACA premiums.
10. Catastrophic market loss insurance.
11. Working part time and making above 15K.

 

[harley]

Wow! Excellent list. I can't think of anything I would add. Thanks.