Modelling when to take Social Security and other pensions

[pb4uski]

Here my complexities which I assume many others have.


I don't need any income.

I want to do maximum Roth conversions before I turn 72 yrs old.

I want my younger wife to get my maximum SS benefit when I'm gone.


I have not run any analysis, but these 3 items make me think I should wait until 70. My wife is 5 years younger, I don't know whether delaying hers will help us keep Roth converting in a low tax bracket or not. I expect about $32k of SS at 70, not including COL adjustments over the next 4 years.


Do any of the programs use these type of complexities in their calculations?

opensocialsecurity.com uses the third one.

I am with you... we don't need the income and the longevity insurance might be helpful... and I definitely want to mazimize Roth conversions and taking SS early gets in the way of that.

That said, as excited that we tend to get about SS in our case the decision isn't life changing looking at the range of expected present values... just a bit of tweaking for optimization.

 

[pb4uski]

... No calculator that I am aware of will sift and sort all of your possible claiming options to arrive at the "best" scenario for you. ...

Actually, opensocialsecurity.com does exactly that. You provide your and your spouse birthdates and PIA amounts. The software determines every possible claiming strategy by month between 62 or your current age if you are over 62 and age 70 for you and your spouse and what you would receive in benefits for each claiming strategy. It then adjusts the cashflows for your probability of being alive to receive it to get an expected cash flow. It then discounts the expected cash flows for the time value of money using a real discount rate that you provide.

So each possible claiming strategy is boiled down to a single number... and expected present value for that claiming strategy. The claiming strategy with the higher expected present value is the optimal solution.

Pretty cool.... and did I mention that it is free?

 

[pb4uski]

Does open social security have provisions to take into account spouse “child-in-care” and disabled dependent benefits ? I’m pretty sure since I qualify for those at 62 , it’s pretty much a no brainer for me to start at 62 since spouse is ten years younger than me, But it would be nice to use something to verify it.

Yes, I think it does... if you check the box at the top of the page and then a checkbox for Children you'll see something like this to input children's ages and if they are disabled.

 

[Out-to-Lunch]

Does open social security have provisions to take into account spouse “child-in-care” and disabled dependent benefits ? I’m pretty sure since I qualify for those at 62 , it’s pretty much a no brainer for me to start at 62 since spouse is ten years younger than me, But it would be nice to use something to verify it.

Yes, at least for the second factor. (I don't know what the first one is.) But you have to click the button near the top that says "CCertain situations require additional input. Click here to select situation(s) that may apply to you (and/or your spouse, if filing jointly)."

Then you get to choose the following factors for consideration:

Disability Currently receiving Social Security disability and expecting to stay on disability until full retirement age.
Still working
Pension from employment not covered by Social Security taxes
Mortality Table other than the 2017 Social Security Period Life Table. See the "About" page for information about mortality tables.
Children under age 19 or permanently disabled
Discount Rate other than the default (currently -0.26%)
Possible Future Cut in Social Security benefits

 

[mh]

Yes, at least for the second factor. (I don't know what the first one is.) But you have to click the button near the top that says "CCertain situations require additional input. Click here to select situation(s) that may apply to you (and/or your spouse, if filing jointly)."

Then you get to choose the following factors for consideration:

Thanks for the responses. I will check it out

 

[chassis]

This is pretty succinct, if a person "does not need" Social Security:

"If you are wealthy enough to delay taking Social Security until age 70, you're wealthy enough to take it at 62, and save and invest the monthly benefit."

https://retireearlyhomepage.com/SS_delay_70.html

I ascribe to the above idea.

 

[latexman]

This is pretty succinct, if a person "does not need" Social Security:

"If you are wealthy enough to delay taking Social Security until age 70, you're wealthy enough to take it at 62, and save and invest the monthly benefit."

https://retireearlyhomepage.com/SS_delay_70.html

I ascribe to the above idea.

That linked article fails to mention you only have 12 months after you begin receiving benefits to file Form SSA-521. It will not work the way described.

 

[chassis]

That linked article fails to mention you only have 12 months after you begin receiving benefits to file Form SSA-521. It will not work the way described.

OK, shame on me for providing the source link. What I connected with is the one sentence quote.

I ascribe to taking Social Security at age 62 and investing it, if SS is not needed to achieve a successful portfolio at one's life expectancy.

 

[Out-to-Lunch]

OK, shame on me for providing the source link. What I connected with is the one sentence quote.

I ascribe to taking Social Security at age 62 and investing it, if SS is not needed to achieve a successful portfolio at one's life expectancy.

Context is everything. That quote, in full, reads

The Social Security Withdrawal of Application option allows beneficiaries to have their cake and eat it, too. If you are wealthy enough to delay taking Social Security until age 70, you're wealthy enough to take it at 62, and save and invest the monthly benefit.

But, as Latexman points out, you CANNOT have your cake and eat it too. Your article is from 2008, and it says that you can start claiming at 62, and decide at 70 to take a "do-over" and withdraw your application, pay back the funds, and start over with a new (higher) benefit. Maybe you could back then? But you cannot now. Therefore, the conclusion that the article draws, and that you appear to take stock in, is founded on a false premise.

 

[Navigator]

When I retired I obsessed over the right time to take Social Security, going so far as to see how taking it at 70 compared to taking it at 62 and investing it. I used actual historical returns since 1928 to get a real sense of which is better. Through age 92, taking SS at 62 was better 77% of the time. However, when the P/E of the S&P 500 was above average, this dropped to 50%. For a married couple, the high earner taking at 70 and low earner at 62 seemed to work well.

Since I retired, I’ve come to the conclusion that anyone who has enough assets to worry about taking SS at 62 or 70 will be fine no matter what they do.

 

[youbet]

Since I retired, I’ve come to the conclusion that anyone who has enough assets to worry about taking SS at 62 or 70 will be fine no matter what they do.

Yeah, me too. I've been collecting SS for about 12 years. Started at 62. My main motivation for starting at 62 was to provide financially for a person who cannot collect SS based on my record. In my case this was my wife who is impacted by GPO. But it could be anyone you want to provide something for but who doesn't qualify for any portion of your SS.

Because market returns on the money I invested every month were excellent those 8 years, the extra stash provides more than enough to compensate for the reduced benefit. But, to your point, unless those 8 years had been a complete bust investment-wise, there would have been little impact on our retirement one way or the other.

Everyone's situation and goals are different.

 

[FI_RElater]

...seems no one answered you... the answer is NO,

Maybe we are talking about two different things. My point is my wife's benefit after I die.

"When a Social Security beneficiary dies, his or her surviving spouse is eligible for survivor benefits. A surviving spouse can collect 100 percent of the late spouse’s benefit if the survivor has reached full retirement age",
From, https://www.aarp.org/retirement/social-security/questions-answers/social-security-spouse-dies.html

And,

• The rules are different for survivor benefits. A widow or widower whose spouse waited until 70 to file for Social Security is entitled to the full amount the deceased was getting — including the delayed retirement credits — so long as the surviving spouse has reached full retirement age.
• From, https://www.aarp.org/retirement/soc...ximizing-spousal-social-security-benefit.html

She doesn't need to collect 50% of my benefit, her benefit will be more than 50% of mine.

Are you saying she could collect 50% of mine before FRA, then when she is FRA, she can collect on her own at full benefit?

Sorry... but NO in both cases
that situation was eliminated in legislation a few years ago (and due to your recent addition of info that she already had greater than 50% of your benefit, she currently is not eligible)...

it's called "deemed filing"
{see:https://secure.ssa.gov/apps10/poms.nsf/lnx/0200204035} .. .for any benefits she applies for she is filing for ALL potential benefits she could be entitled to... in this case it would be for her own SS benefits (since it's over the 50% of yours and therefore not eligible). What you referred to was the old "file and suspend" which was what was eliminated in the legislation... and yeah, it would have been nice for those with a few years difference in age (but we missed out on it too, and it was part of our original possible plan).

One last thing: much of the thread assumes an older male has the higher PIA and should wait until 70...ain't necessarily so
In our case, older male has slightly lower PIA ... will probably file just after FRA (some "mortality credits, but more importantly time to do some Roth conversions on current IRA (some being after tax variety, so pro-rata issues)... then will convert other 401k to IRA and start withdrawals from it to supplement/and do RMD's at 72+ ). Spouse (slightly higher PIA) will wait until 70....
if I predecease her, then SURVIVING SPOUSE gets the benefit I was already drawing (that I delayed to get at FRA+)... and can then at 70 apply for her LARGER social security benefits (it's unlikely that I, if she predeceases before 70, would get any increase... but if after her 70 start, then I would be eligible for the higher benefit, since I had waited until my FRA)

 

[Time2]

I just ran opensocialsecurity.com and it says My wife should retire at 62, two months from now and collect $13k I should wait until 70 and collect $31,900.


However, I wonder how the $13k will affect the amount I can Roth Convert.
Obviously it will reduce it, that will increase the amount of RMDs I have.

 

[chassis]

Context is everything. That quote, in full, reads

But, as Latexman points out, you CANNOT have your cake and eat it too. Your article is from 2008, and it says that you can start claiming at 62, and decide at 70 to take a "do-over" and withdraw your application, pay back the funds, and start over with a new (higher) benefit. Maybe you could back then? But you cannot now. Therefore, the conclusion that the article draws, and that you appear to take stock in, is founded on a false premise.

Yeah, that's not my point.

The point is to take SS at 62 if you "don't need it". Invest the money and you will be ahead, or no worse than, waiting until FRA or longer. It's a simple. Take it at face value.

So much groupthink and "conventional wisdom" on the personal finance topic is not good. It's meant for people who are not willing or able to carry out the financial analyses themselves. Always look under the covers. Always test and question and dig deeper. I don't see enough of that on this board and the "B" board. Too many people drinking the kool-aid.

 

[Chuckanut]

Since I retired, I’ve come to the conclusion that anyone who has enough assets to worry about taking SS at 62 or 70 will be fine no matter what they do.

I tend to agree but not because of the size of their pile of dollars. Rather, they probably have developed the financial and spending habits that will increase their chances of success no matter when they choose to take SS.

We've been riding a huge Bull market, pretty much since the crash of 2008 ended. And many of us have not seen a viscous sustained BEAR market like that of 73-74. The Bear knocked people down, chewed off a good part of them. Then it dragged people into the bushes, and repeatedly came back to chew up more of it's helpless victims.

It took over 20 years for the US stock market to get back to where it was before the Bear in real terms.

Also, I don't like these snappy one line sayings that pretend to have taken all factors into account.

"If you are wealthy enough to delay taking Social Security until age 70, you're wealthy enough to take it at 62, and save and invest the monthly benefit."

Really? That is true for everybody?
What nonsense.

 

[TheWizard]

I delayed SS until age 70 a year ago so I could do larger Roth conversions for seven years as well as spend down a bit of my tax-deferred 403(b) accumulation.

Having succeeded in that, I no longer need to withdraw $$$ from my various portfolio sectors for spending on a regular basis. It's a good situation to be in...

 

[RetMD21]

Also, I don't like these snappy one line sayings that pretend to have taken all factors into account.
Really? That is true for everybody?
What nonsense.

Well, people know what worked for them. The confidence that people have in offering advice doesn't necessarily correlate with their knowledge. I'm not just referring to the "nonsense" you cited.That's why I suggest that people read a book mentioned in this thread:
https://www.early-retirement.org/forums/f28/bob-carlsons-book-wheres-my-money-109380.html

https://www.simonandschuster.com/books/Wheres-My-Money/Bob-Carlson/9781684510504

Many of the posters on this forum seem to have enough assets that claiming ages don't matter much. I think that the higher survivor benefits from delayed claiming could make a real difference for some folks.

 

[pb4uski]

I just ran opensocialsecurity.com and it says My wife should retire at 62, two months from now and collect $13k I should wait until 70 and collect $31,900.


However, I wonder how the $13k will affect the amount I can Roth Convert.
Obviously it will reduce it, that will increase the amount of RMDs I have.

Your thinking is correct that her SS earnings will reduce your Roth conversions if you are converting to the top of a defined tax bracket.

A minor nit though is that opensocialsecurity.com is suggesting that your wife start collecting SS at 62... retirement is a separate issue though if she earns too much her benefits will be temporarily reduced.

 

[pb4uski]

Yeah, that's not my point.

The point is to take SS at 62 if you "don't need it". Invest the money and you will be ahead, or no worse than, waiting until FRA or longer. It's a simple. Take it at face value.

So much groupthink and "conventional wisdom" on the personal finance topic is not good. It's meant for people who are not willing or able to carry out the financial analyses themselves. Always look under the covers. Always test and question and dig deeper. I don't see enough of that on this board and the "B" board. Too many people drinking the kool-aid.

It all depends on what the money that you would otherwise be using because you are deferring benefits is earning and how long you live... see post #27... so the reality isn't that simple.

 

[pb4uski]

.... Since I retired, I’ve come to the conclusion that anyone who has enough assets to worry about taking SS at 62 or 70 will be fine no matter what they do.

Totally agree. And while we fret and debate when to take SS at least in our case and I suspect many others it is not a life changing decision but more just a tweak.

In 2020 I ran opensocialsecurity.com under various scenarios and compared the expected present values of the results of taking at their optimal, as early as possible (we were both over 62 in 2020), at 65, at FRA and as late as possible.... and all the expected present values were within 9% of each other. While 9% isn't chicken feed it isn't life changing either.

	No haircut	Haircut
Optimal solution	100.0%	100.0%
Both now	91.2%	94.0%
Both 65	92.3%	94.9%
Both at FRA	94.5%	96.6%
Me 70/DW FRA	100.0%	100.0%

Assumptions were 2017 non-smoker preferred mortality and 0% real rate of return (since we have so little in equities now).

I did the same exercise in 2019 with a 3.3% real rate of return (discount rate) and the results were much narrower.

	No haircut	Haircut
Optimal solution	100.0%	100.0%
Both now	97.8%	98.9%
Both 65	99.0%	99.7%
Both at FRA	99.2%	99.2%
Me 70/DW FRA	98.7%	96.3%

 

[Running_Man]

I tend to agree but not because of the size of their pile of dollars. Rather, they probably have developed the financial and spending habits that will increase their chances of success no matter when they choose to take SS.

We've been riding a huge Bull market, pretty much since the crash of 2008 ended. And many of us have not seen a viscous sustained BEAR market like that of 73-74. The Bear knocked people down, chewed off a good part of them. Then it dragged people into the bushes, and repeatedly came back to chew up more of it's helpless victims.

It took over 20 years for the US stock market to get back to where it was before the Bear in real terms.
.

This is a good point, and even 2008 was reversed rapidly, another point that is missed is that a couple that both are earning the maximum from Social Security, if that was their only income would have 94K in income and pay zero federal income tax. But at an all time high with no more than a 1 or 2 year bear market for 40 years, investing appears bullet proof.

 

[Time2]

Your thinking is correct that her SS earnings will reduce your Roth conversions if you are converting to the top of a defined tax bracket.

A minor nit though is that opensocialsecurity.com is suggesting that your wife start collecting SS at 62... retirement is a separate issue though if she earns too much her benefits will be temporarily reduced.

We're not working for income, and have about $10k of dividends, so all other income is chosen. We do some Roth conversions and sell some LTCGs
to pay for taxes and expenses.

 

[Time2]

Yeah, that's not my point.

The point is to take SS at 62 if you "don't need it". Invest the money and you will be ahead, or no worse than, waiting until FRA or longer. It's a simple. Take it at face value.

Does this include a high tax bracket individual in California wanting to do Roth Conversions? Does your one size fits all theory take into account taxes now and taxes after SS and RMDs?

So much groupthink and "conventional wisdom" on the personal finance topic is not good. It's meant for people who are not willing or able to carry out the financial analyses themselves. Always look under the covers. Always test and question and dig deeper. I don't see enough of that on this board and the "B" board. Too many people drinking the kool-aid.

I would think yours is just a different flavor kool-aid.

 

[chassis]

@pb4uski You mean longevity, correct? Is this what you mean by "how long you live"?

@Time2 Taking SS early applies to people, for example, who "don't need" SS. A high tax bracket individual in California hopefully doesn't need SS to have a successful portfolio to their life expectancy. Hopefully they are living below their means and not frittering away their resources. I am anti-Roth conversions for a similar reason as delaying Social Security. The Roth benefit is non-existent for many people, and negligible for many other people. Any benefit, if present, breaks even very late in life. Not worth the machinations. Juice not worth the squeeze.

Roth conversions are part the mainstream Kool-Aid passed around in plastic cups by financial advisors, custodian firms and financial news sites.

 

[FI_RElater]

...and think of less portfolio hit if one passes early

Totally agree. And while we fret and debate when to take SS at least in our case and I suspect many others it is not a life changing decision but more just a tweak.

In 2020 I ran opensocialsecurity.com under various scenarios and compared the expected present values of the results of taking at their optimal, as early as possible (we were both over 62 in 2020), at 65, at FRA and as late as possible.... and all the expected present values were within 9% of each other. While 9% isn't chicken feed it isn't life changing either.

	No haircut	Haircut
Optimal solution	100.0%	100.0%
Both now	91.2%	94.0%
Both 65	92.3%	94.9%
Both at FRA	94.5%	96.6%
Me 70/DW FRA	100.0%	100.0%

Assumptions were 2017 non-smoker preferred mortality and 0% real rate of return (since we have so little in equities now).

I did the same exercise in 2019 with a 3.3% real rate of return (discount rate) and the results were much narrower.

	No haircut	Haircut
Optimal solution	100.0%	100.0%
Both now	97.8%	98.9%
Both 65	99.0%	99.7%
Both at FRA	99.2%	99.2%
Me 70/DW FRA	98.7%	96.3%

I have already done a similar estimate, but in actual dollars expected per year (using a 25% haircut) and saw, dollarwise, that FRA (or shortly thereafter) vs 70 didn't move the needle that much for life expectancy of 85 or even 92... but that with even modest returns (3-5% for portfolio) the benefit for the surviving spouse of the portfolio, which could then likely be drawn at a higher rate than (even) 4% would mean a better outcome (since those returns would be at long term rates versus ordinary income...and Roths could be drawn tax free)
hence...FRA (slightly after, to beginning of next year, so as to allow for Roth conversions) for me. [70 for her]

we still have to presume a last-2-die of almost 30 years, as it's highly unlikely that I would come anywhere close to that but that the "either" for joint mortality still pushes it out that far, but we also only use a 3.5% wr as max {that's what would be pumped up... likely to 6%... if I passed before and spouse was below 80... otherwise it could still go higher if it's later.