New Social Security study on claiming it too early

[joeea]

The Trust Fund having outstanding debt which is incorporated into the general national debt also means it will never be paid back.

The Trust Fund does not have outstanding debt. In fact, it cannot have any debt.

We have been screwed in the past such as when Clinton signed into law taxing SSA benefits.

The taxation of Social Security began in 1984 following passage of a set of Amendments in 1983, which were signed into law by President Reagan in April 1983.

 

[jebmke]

The underfunding is because Congress "borrowed" from the SSA Trust fund roughly $3 trillion dollars and will never restore it. https://theseniors.center/2018/06/0...cial-security-to-use-for-government-spending/

lol; every pension in the country has loaned money to the US treasury - by buying Treasury notes. I buy them myself. They are the safest investment on the planet. I would guess that every bank in the world loans money to the US. That is why interest rates on US Treasury notes are so low. Everyone wants to loan the US money.

 

[pb4uski]

I was trying to say that the potential changes by Congress to reduce SSA benefits which was rampant when I was turning 62 affected my decision. Thankfully, as it turns out it hasn't happened yet. But, it looked imminent as both parties were decrying it at that time. I am sure it will come up again. The Trust Fund having outstanding debt which is incorporated into the general national debt also means it will never be paid back. The $21 Trillion debt will never be paid and it will continue to grow and with interest building the potential for insolvency moves into the realm of more than potential should more of the world stop using petrodollars. This seems likely given current trends in sanctioning almost the entire world and the resultant loss of confidence in the US. So, the dollar itself might be devalued to be difficult to maintain parity with other currencies. I speak from experience having experienced 2 separate devaluations of the dollar while working in the military overseas. Both were 50% devaluations and it hurt us badly as we didn't get extra money to help pay rent for off post housing. This is being announced heavily again this past week so I believe it is likely to happen again. This is one thing I have gleaned from watching Congress for years, when they start beating the drums for something, such as reducing SSA benefits, ultimately it happens. We have been screwed in the past such as when Clinton signed into law taxing SSA benefits. I do not see any reason to believe they won't do something similar again. Retirees are low hanging fruit. ....

The first part... I am sure that Congress would have spent that general fund money one way or the other so whether it was funded by bonds issued by the general fund to the SS Trust Fund or by bonds issued to the public doesn't really matter. Whether the $21T national debt will ever be paid back or not isn't relevant to a thread on SS. The Trust Fund doesn't have any outstanding debt... by statute it cannot issue debt.. it holds debt in the form of special bonds issued to it by the general fund.

On the part about taxing SS retirement benefits, while there was a long time that they were not taxed, it never made sense compared to similar situations like contributory pension benefits, withdrawals from non-deductible IRAs, life contingent annuity benefits, etc where return of principal is not taxed but growth is taxed.... and to make benefits either 85% taxable was a practical expedient that is roughly the percentage that would taxable if the taxes and benefits were in a payout annuity. The 0% and 50% taxable were added as a benefit to lower income people.

 

[PatrickA5]

I think Congress will kick this can down the road until the road almost ends. At which point, they will come up with a fix that will have little effect on current retirees (and those close) and will have a much more negative effect on those under 55ish. Cutting current retirees benefits 30+% is a non starter for anybody wanting to be re-elected. Won't/Can't happen, in my opinion.

 

[GenXguy]

Not only are SS benefits being taxed, but a greater percentage of benefits are being taxed every year. It's really a raw deal for SS benefit recipients.

Social Security after-tax "net" benefits are already being "cut" and have been for years, but most people aren't aware of how this is being done.

The SS formula for determining how much of your SS benefits are taxed is NOT indexed to inflation, so that threshold has not increased since it was first introduced in 1983. For a single person, if your income combined with half your SS benefits exceeds $25,000, you have to pay income tax on up to 50% of your SS benefits. If it exceeds $34,000, you have to pay income tax on up to 85% of your SS benefits. $25K in 1983 is worth a lot more than $25K in 2018. Since your retirement distributions and SS benefits will be adjusted with inflation, but NOT the $25,000/$34,000 thresholds, a greater percentage of your SS benefits will become taxable as each year passes (for married filing jointly, the thresholds are $32,000/$44,000.) It's a built-in tax increase, reducing "net" SS benefits, hurting seniors further. The greater your combined income and SS/2, the more you will be affected by this up to a max of 85% of your benefits being taxed! It's absurd, and those thresholds should be increased to reflect inflation since 1983.

The ways it is, you should play it safe by estimating that 85% of your SS benefits well into the future will be taxable. More information about this can be found in these references:

https://www.fool.com/retirement/gen...ear-old-social-security-rule-is-wreaking.aspx
http://www.foxnews.com/story/2007/03/25/double-whammy-taxation-social-security-benefits.html
https://www.ssa.gov/policy/docs/issuepapers/ip2015-02.html

 

[scrabbler1]

Not only are SS benefits being taxed, but a greater percentage of benefits are being taxed every year. It's really a raw deal for SS benefit recipients.

Social Security after-tax "net" benefits are already being "cut" and have been for years, but most people aren't aware of how this is being done.

The SS formula for determining how much of your SS benefits are taxed is NOT indexed to inflation, so that threshold has not increased since it was first introduced in 1983. For a single person, if your income combined with half your SS benefits exceeds $25,000, you have to pay income tax on up to 50% of your SS benefits. If it exceeds $34,000, you have to pay income tax on up to 85% of your SS benefits. $25K in 1983 is worth a lot more than $25K in 2018. Since your retirement distributions and SS benefits will be adjusted with inflation, but NOT the $25,000/$34,000 thresholds, a greater percentage of your SS benefits will become taxable as each year passes (for married filing jointly, the thresholds are $32,000/$44,000.) It's a built-in tax increase, reducing "net" SS benefits, hurting seniors further. The greater your combined income and SS/2, the more you will be affected by this up to a max of 85% of your benefits being taxed! It's absurd, and those thresholds should be increased to reflect inflation since 1983.

The ways it is, you should play it safe by estimating that 85% of your SS benefits well into the future will be taxable. More information about this can be found in these references:

https://www.fool.com/retirement/gen...ear-old-social-security-rule-is-wreaking.aspx
http://www.foxnews.com/story/2007/03/25/double-whammy-taxation-social-security-benefits.html
https://www.ssa.gov/policy/docs/issuepapers/ip2015-02.html

Minor point: the 85%/$34k tax/threshold came about in 1993, not 1983. From 1983-1993, the 50%/$25k tax/threshold was the only one applicable. But yes, it has not been adjusted for inflation, unlike the main income tax brackets.

 

[Gearhead Jim]

So a "money management firm" for retirees generated a report finding that retirees missed out on additional money by taking it too early:



https://www.bloomberg.com/news/arti...paign=news&utm_medium=bd&utm_source=applenews

No mention of balancing longevity risks or opportunity cost from not claiming earlier, which would require having other financial resources to pay for living expenses before claiming at age 70.

Specifically, how are you suppose to determine the bolded?

But 2000 households took part in a long Univ. of Michigan study!

Since the stock market has been on a roar for the last 10 years, I wonder if a person who took early SS in 2009 and therefore took less from their other investments during that time, would be equal or ahead of someone who didn't?

The calculations for that are beyond my ability, and of course only allow us to plot results up until today.

 

[RunningBum]

Since the stock market has been on a roar for the last 10 years, I wonder if a person who took early SS in 2009 and therefore took less from their other investments during that time, would be equal or ahead of someone who didn't?

The calculations for that are beyond my ability, and of course only allow us to plot results up until today.

Most likely ahead. The challenge isn't to look backward 10 years, but rather to look forward 10 years.

 

[Oz investor]

my crystal ball is broken , and plenty of economists agree we are in uncharted territory

( i can't even tell you how many medical appointments i will have this month , one is confirmed ... BUT , today is only the 7th )

good fortune to anyone who can predict ( exploit ) changes still to come in 2019

 

[GenXguy]

Minor point: the 85%/$34k tax/threshold came about in 1993, not 1983. From 1983-1993, the 50%/$25k tax/threshold was the only one applicable. But yes, it has not been adjusted for inflation, unlike the main income tax brackets.

That is correct, and all 3 of the webpages I linked to mention that second tier being added in 1993 as well. It's sort of "piling on" to what is already a "taxing" problem.

 

[Caskem]

Taking it early?

I just ran the numbers to make the decision...take at 62 or 66.5 or 70 based on the SSA annual report. The amounts intersected about age 83. Then I start to "lose" SS money. Since I have a good retirement portfolio, I'll take mine at 66.5. My spouse took SS at 62 and retired. I basically work for healthcare since my spouse had a cancer scare.

 

[haha]

SS benefits also increase with the cost of living, and those COLAs do compound. In fact the delayed retirement credit, which doesn’t compound, is computed using the COL adjusted value, not on the unadjusted value. This article has a clearer explanation:

https://www.kiplinger.com/article/retirement/T051-C000-S004-delaying-social-security-boosts-the-value-of-colas.html

As a result, the inflation adjusted SS increases over that 8 year period are on a par with (and slightly beat) the long-term inflation adjusted value of the U.S. stock market (7% per S&P 500: Total and Inflation-Adjusted Historical Returns) Kind of like investing in a guaranteed bull market.

Good post, thank you. I took mine at 70, and considered and still consider that to be the only sensible choice, if one has savings and no immediate need for the payments, and does not have a definite short life expectancy. And this is before any consideration of dependents since I was divorced and my children were both adults.

Ha

 

[Fireup2020]

Birth father died at 34/birth mother died at 45 - I've got my own health issues - thanks genetics If I'm around at 62, will probably start drawing my SS. Less for the actual $$ - more of a matter of principle.

 

[haha]

Birth father died at 34/birth mother died at 45 - I've got my own health issues - thanks genetics If I'm around at 62, will probably start drawing my SS. Less for the actual $$ - more of a matter of principle.

What principle?

Ha

 

[ncbill]

Good post, thank you. I took mine at 70, and considered and still consider that to be the only sensible choice, if one has savings and no immediate need for the payments, and does not have a definite short life expectancy. And this is before any consideration of dependents since I was divorced and my children were both adults.

Ha

May be different for those of us who will be receiving on the low end of benefits...we both were out of the workforce for over a decade (she raising the kids, me as caregiver to a terminally ill parent)

Because of the above using the opensscalculator results, IIRC, in a only a few thousand bucks lifetime difference between taking benefits at FRA vs. 62 vs. 70.

 

[joeea]

Good post, thank you. I took mine at 70, and considered and still consider that to be the only sensible choice, if one has savings and no immediate need for the payments, and does not have a definite short life expectancy. And this is before any consideration of dependents since I was divorced and my children were both adults.

Hmm. You might have been entitled to divorced spousal benefits before 70?

 

[razztazz]

May be different for those of us who will be receiving on the low end of benefits...we both were out of the workforce for over a decade (she raising the kids, me as caregiver to a terminally ill parent)

Because of the above using the opensscalculator results, IIRC, in a only a few thousand bucks lifetime difference between taking benefits at FRA vs. 62 vs. 70.

That's about how it works hour for me too. The actual dollar difference is fairly small. But even it were quite large that would mean I'd have a ton more assets in the first place and the age 62 amount would also be copious by comparison. Still no operational difference. No impact on life-style. It only amounts to anything if you've A) not made much and don't have much or B) whizzed it all away in the mean time. Then of course the most sensible choice would be wait as long as possible. But then the choice is made for you. It's not your choice

 

[daylatedollarshort]

Yes, it is the very last option under Advanced Options. The default is a 23% reduction starting in 2034 but you can change both of those inputs to whatever you want.

I had also run numbers for the alternatives in that post you liked with the haircut... the EPVs were 95.9-99.9% of the optimal EPV... so a little more variation but not a lot more. Largest variation was 4.1% with the haircut vs 3.3% with no haircut.

I tried it with 23% reduction and the optimal for us based on the calculator was 62 and 67, but that isn't a huge difference for us in total benefits with 62 and 62, which has been our plan. For us, other financial factors like making the house energy efficient and watching grocery prices closer have a much higher total life time $$ impact for our retirement.

 

[z777777z]

Don't Buy It...

Yet another article from basically, a left-leaning news co. [Mod Edit] touting to delay. SS has serious concerns, no doubt. Postponing any claim means less $ being taken from the system and in the meantime, a person may die before filing. I recently read that govt. most often posters similarly to Las Vegas; hold out for the big win. We know who the winner is the majority of the time. Claiming at 62 vs. FRA equals a break-even age of approx. 78 for total $ collected. Claiming at 70, well, I haven't calculated but I'll bet break-even is even further out. Claim early and you can let your investments grow longer, withdrawing less and you come out ahead if you get approx. 8% returns.

 

[joeea]

Postponing any claim means less $ being taken from the system

Or not:
"Social Security is losing money by allowing retirees to defer claiming benefits" https://www.marketwatch.com/story/s...etirees-to-defer-claiming-benefits-2019-07-08

I recently read that govt. most often posters similarly to Las Vegas; hold out for the big win.

I don't understand what "most often posters" means. Perhaps you can provide a link to where you read this?

 

[pb4uski]

....I recently read that govt. most often posters similarly to Las Vegas; hold out for the big win. We know who the winner is the majority of the time. ...

WTH?

 

[Cantwaitanylonger]

I have been mulling over this decision for some time. Sometimes, life events help clarify the issue as you get closer to the decision time. I have healthy parents and longevity in my gene pool. I am (was) a very healthy person until my life was turned upside down with a cancer diagnosis 3 months ago. If I make it to 62, my decision has now become crystal clear.

 

[joeea]

I have been mulling over this decision for some time. Sometimes, life events help clarify the issue as you get closer to the decision time. I have healthy parents and longevity in my gene pool. I am (was) a very healthy person until my life was turned upside down with a cancer diagnosis 3 months ago. If I make it to 62, my decision has now become crystal clear.

Sorry to hear about your diagnosis.

When I was diagnosed, I was similarly worried. But these days, treatments for cancer have made great strides. After a series of infusions over a year and a half, I am currently cancer-free. And I am still planning to delay SS to 70 - mostly to assure that my wife gets the largest survivor benefit.

I wish you luck.

 

[Monterey298sc]

As a funeral director for the last 34 years, I meet family’s everyday and heard the stories for unexpected death of a loved one. I am retiring at 62. Enjoy your heathy early years. By age 70 things start going bad and you don’t want to do much after that age. I am living before I die. I hope to not be one of the hundreds of stories I have heard.

Good luck with your decisions in FIRE. I’m out at 62

 

[footenote]

I have been mulling over this decision for some time. Sometimes, life events help clarify the issue as you get closer to the decision time. I have healthy parents and longevity in my gene pool. I am (was) a very healthy person until my life was turned upside down with a cancer diagnosis 3 months ago. If I make it to 62, my decision has now become crystal clear.

I hope your treatment is successful and that you are a happy and long-lived cancer survivor.