Social Security at 62 - Yes or No

[Perryinva]

If you invested all of age 62 SS at 6.5, and then compared that to all of age 70 SS at 6.5, they do not break even until you are about 100. By the time you start SS @70 the age 62 claimant has already amassed $365k, for someone expecting $25k/yr at 62.

 

[pb4uski]

I dunno... I think a better analysis is to adjust the cash flows for mortality to reflect the likelihood of actually receiving those payments. I put my info into opensocialsecurity.com and played with different real discount rates using 2017 CPO Nonsmoker Preferred mortality and taking at 62 or 70. At a 2.75% real rate of return the expected present value (EPV) of benefits were equal.... at a higher real rate of return taking at 62 has a higher EPV... at a lower real rate of return deferring results in a higher EPV.

If I use the conservative 3.3% real rate of return that I use for my planning, I get a EPV difference of ~3.5 months worth of benefit payments or EPVs are within 2.5% of each other... given family longevity and our current good health, I'll take the chance that I'll outlive the 2017 CSO Nonsmoker Preferred mortality table.

I guess the fact that the EPVs are so close tends to confirm that the benefits are designed to be actuarially equivalent.

ETA: I was curious about the EPVs of our joint benefits (me and DW)... interestingly the EPV difference at a 3.3% real rate of return between us both claiming as early as possible (62), both of us claiming as late as possible (FRA for her, 70 for me) and claiming immediately are all within 0.2% of each other.

 

[indiajust]

Sooner is better. I have another 8 years to survive and see if the boomers leave any crumbs on the table.

 

[Perryinva]

Troll

The better ones financial shape, the less important delaying is. One is usually in better shape because they have a better handle on investments and returns. That enables them to actually take advantage of fungiblity, and tax advantages and earn on their SS income regardless. If I was single, I would undoubtedly file at FRA, or FRA+1. But unless I get widowed by then, I know the higher guaranteed $20k/yr tax free income if I do die first will make a bigger difference to DW than an extra 200k in CDs in the portfolio generating a smaller taxable income. Its a no brainer in my case.

 

[daylatedollarshort]

Pensions at 55 and SS at 62 cover all our basic retirement expenses, including mortgage interest which will go to zero eventually, so that's pretty much our plan. We'll reinvest the portfolio for mainly capital preservation and the kids, charity, long term care or whatever. Our longevity insurance is low overhead relative to our total retirement income more than when to take SS.

 

[OHjosh]

I haven't read a post on this yet in this thread: the effect of RMD at age 70. I am not taking social security although I will turn 63 next week. I figure that living off my nest egg for 3+ years (reducing total value by about 5%) will lower my RMD when (if) I should get there. Waiting until FRA is my best "investment" during those years. (When I take SS, it will cover 2/3 of my yearly expenses.)

 

[Perryinva]

There are many references to just that. One of the main points of filing later especially if there are fixed incomes and taxes will always be a factor, is to USE the money that is in pretax accounts, that you saved & invested, to provide a higher income now and later with tax reduction. Using those funds serves three purposes -taking advantage of the lower income on no SS which should be a lower effective tax for those dollars withdrawn, reducing future RMDs so that one is not forced to withdraw unwanted funds at a higher rate, and increasing the amount of SS income that is tax free (many states) and advantaged (85% taxes at most). Sure, the amounts are not huge, at most about $20k/yr, (for a max SS income individual, with an about $250k reduction of pretax tIRA) but that $20k can end up with a differential in equivalent NET proceeds (after 70) compared to taking at 62 of as much as $5-6k/yr, which increases with COLA adjustments.

The other side of the coin is that some believe they can earn more net after tax long term by hanging on to that $250k, so the tax advantages are negated by the earnings. One doesn’t care if you pay more taxes as long as the net is higher after all. But you have to do a lot better than 4% net inflation, just to reach that level and that ignores the survivor benefits of increased SS, and has to be consistent your entire life, so ignores the sequence of risk factor as well.

There are scenarios on boths sides that for each it is a no brainer. There is no single right answer.

 

[Dtail]

There are many references to just that. One of the main points of filing later especially if there are fixed incomes and taxes will always be a factor, is to USE the money that is in pretax accounts, that you saved & invested, to provide a higher income now and later with tax reduction. Using those funds serves three purposes -taking advantage of the lower income on no SS which should be a lower effective tax for those dollars withdrawn, reducing future RMDs so that one is not forced to withdraw unwanted funds at a higher rate, and increasing the amount of SS income that is tax free (many states) and advantaged (85% taxes at most). Sure, the amounts are not huge, at most about $20k/yr, (for a max SS income individual, with an about $250k reduction of pretax tIRA) but that $20k can end up with a differential in equivalent NET proceeds (after 70) compared to taking at 62 of as much as $5-6k/yr, which increases with COLA adjustments.

The other side of the coin is that some believe they can earn more net after tax long term by hanging on to that $250k, so the tax advantages are negated by the earnings. One doesn’t care if you pay more taxes as long as the net is higher after all. But you have to do a lot better than 4% net inflation, just to reach that level and that ignores the survivor benefits of increased SS, and has to be consistent your entire life, so ignores the sequence of risk factor as well.

There are scenarios on boths sides that for each it is a no brainer. There is no single right answer.

Excellent summary.
To me this decision is probably the most challenging financial decision for MY retirement. Adding in Roth conversions/ACA income management to the mix.

 

[urn2bfree]

Not sure if someone pointed this out, (I may have missed a post) but Social Security is not SS. It is SSI. The "I" means Insurance. So when I see people talking about "getting" their money back it ignores the Insurance part of the equation. In particular disability insurance. All those years of paying in are not just building your old age benefit, they are "buying" you disability insurance. Insurance premiums are not something you get back So don't forget to subtract out yearly disability insurance premiums while calculating how much you "should" be getting back.

 

[Perryinva]

Very good point. Nearly everyone only looks at their SS premiums with an ROI in mind. There is no ROI on your car or home insurance UNTIL it is needed. Same with all the non income benefits of SS, so the final SS benefit is a better bargain still.

Fortunately unfortunately for me, we have pensions that automatically put us in the 22% bracket. so ACA subsidies is not an option anyway. (But I have employer healthcare DB for pre Medicare of about $300/mo) it also means limited Roth conversions before the top of 22% and 2026, when rates are scheduled to go back up. But every little bit adds up. Even if I can only convert $200k at 22%, even the 3% saved is still $6000. I can always use an extra $6000.

 

[daylatedollarshort]

If we would die before the break even point, delaying does not maximize our potential estate for our kids, which is more our focus than longevity insurance for ourselves.

 

[Lawrencewendall]

I may be rethinking my strategy. If I start taking SS at 62 and something happens to me, DW will only get 100% of my REDUCED benefits at her FRA. If I wait to my FRA she'll get 100% of my FRA. If I don't reach FRA, she still gets 100% since I never started withdrawing. She is getting disability which will switch over to normal benefits and spousal survivor benefits at her FRA.

"If the person who died was receiving reduced benefits, we base your survivors benefit on that amount."

https://www.ssa.gov/planners/survivors/ifyou.html

 

[Perryinva]

As mentioned, everyone has different priorities. I have zero focus on what heirs may inherit, especially if I die younger. Same as it has been for me as an heir. Anything inherited is found bonus money. I tell my DF to enjoy his money and life on his terms.

I have a coworker that is reducing his retirement nest egg by about $400k so his 3rd kid can get his degree from Cornell debt free. That is beyond my comprehension of reasonable aid. He thinks I have my priorities screwed up. But he is still working at 67 and expects to work until 69. His pension maxed out 5 years ago, and he had 35 max SS years at 60. To each their own.

 

[RunningBum]

If we would die before the break even point, delaying does not maximize our potential estate for our kids, which is more our focus than longevity insurance for ourselves.

OTOH, if you die after the break even point, delaying DOES maximize your estate. Also, I figure if I die early, I won't have spent that much of my assets, so I'll still leave behind a lot.

 

[daylatedollarshort]

OTOH, if you die after the break even point, delaying DOES maximize your estate. Also, I figure if I die early, I won't have spent that much of my assets, so I'll still leave behind a lot.

We have given it a lot of thought, and are more comfortable preserving our portfolio as much as possible than we are running down the portfolio more by delaying and then trusting future SS benefits to not be cut in some way. Taking SS and pensions early gives us the most diversified income steams.

 

[joeea]

If I start taking SS at 62 and something happens to me, DW will only get 100% of my REDUCED benefits at her FRA. If I wait to my FRA she'll get 100% of my FRA. If I don't reach FRA, she still gets 100% since I never started withdrawing.

And if you delay until 70, she'll also get your delayed retirement credits in her survivor benefits. For me, that would be 132% of my full benefit.

 

[Lawrencewendall]

And if you delay until 70, she'll also get your delayed retirement credits in her survivor benefits. For me, that would be 132% of my full benefit.

Not so.

"The monthly amount you would get is a percentage of the deceased's basic Social Security benefit. It depends on your age and the type of benefit you are eligible to receive."

FRA amount

 

[Perryinva]

No, that is incorrect. Joeea is correct. The survivor always ends up (just with the greater of their own or) with the deceased’s beneficiaries full amount if filed after FRA. The only time it is a percent of the deceased ‘s BASIC amount is if the deceased filed before FRA.

 

[joeea]

Not so.

"The monthly amount you would get is a percentage of the deceased's basic Social Security benefit. It depends on your age and the type of benefit you are eligible to receive."

FRA amount

Sorry, you are confused. Perhaps you are conflating spousal benefits with survivor benefits? (You did use the term "spousal survivor benefits".)

Social Security is complicated, it's easy to get confused.

https://www.thebalance.com/social-security-survivor-benefits-for-a-spouse-2388918
"You can maximize the survivor benefit that is available by having the highest earner of the two wait until age 70 to begin Social Security benefits. It creates a larger monthly benefit amount that becomes the survivor benefit when the first spouse passes."

 

[Lawrencewendall]

Sorry, you are confused.

Social Security is complicated, it's easy to get confused.

https://www.thebalance.com/social-security-survivor-benefits-for-a-spouse-2388918
"You can maximize the survivor benefit that is available by having the highest earner of the two wait until age 70 to begin Social Security benefits. It creates a larger monthly benefit amount that becomes the survivor benefit when the first spouse passes."

I guess I was confusing survival benefits with spousal benefits

"If you are already receiving reduced benefits when you die, survivors benefits are based on that amount."

https://www.ssa.gov/planners/survivors/onyourown.html

"Your benefits as a spouse do not include any delayed retirement credits your spouse may receive."

https://www.ssa.gov/planners/retire/applying6.html

Did find this:

"C. Spouse to widow(er)'s benefits
When a claimant is entitled to spouse's benefits as a legal spouse and notice is received that the number holder (NH) died, both benefits are terminated.

Convert to widow(er)'s benefits if the spouse is:

Full retirement age (FRA) or older;

Under FRA with an entitled child in care, see RS 00208.090; or

Age 62 through the month before FRA when the NH dies. An application is not necessary. If the spouse is also entitled to a retirement insurance benefit (RIB) or disability insurance benefit (DIB), a Certificate of Election (SSA-4111) is required to receive reduced benefits. Pending receipt of the certificate, the spouse is converted and placed in suspense (S-9) status so that he/she can be identified at FRA. If the widow(er) does not elect reduced benefits, he/she will be identified at FRA and awarded benefits.

https://secure.ssa.gov/poms.nsf/lnx/0300207005

And this:
"The basic Social Security benefit is called the primary insurance amount (PIA)."

https://www.ssa.gov/oact/progdata/retirebenefit2.html

So my original post

"The monthly amount you would get is a percentage of the deceased's basic Social Security benefit. It depends on your age and the type of benefit you are eligible to receive."
basic=PIA=FRA

 

[youbet]

Since now we're all talking of solutions to SS the simple and obvious one is to take the income limits off. Yes some may call it redistribution of wealth but we're already there now.

Better yet, just raise the percentage everyone contributes. That is, if we want something, pay for it! That would avoid creating yet another freeloader class where folks assume they can avoid kicking into, or kick in less, but still get full benefits. Equitable for all.

Another low hanging fruit would be to totally eliminate spousal benefits. Each person collects based on their own record, period. End the games.

And we could separate the welfare type benefits of SS from the retirement benefits. Use ongoing SS revenue to fund retirement benefits. Create new taxes (screwing whoever seems appropriate) to fund the current welfare type benefits that SS pays (such as disability benefits).

It's pretty simple really. Collect more or spend less or both.

I prefer methods which don't cause today's young workers to face higher taxes to subsidize FIRE'd geezers next BMW.

 

[joeea]

Another low hanging fruit would be to totally eliminate spousal benefits. Each person collects based on their own record, period. End the games.

You consider spousal benefits a game?

Sorry Mom. You stayed home to raise us rather than working your whole life. Sucks to be you I guess. Yeah, I know Dad divorced you for his secretary. Those things happen. What? You want me to help you pay your bills? Thanks for playing.

 

[youbet]

You consider spousal benefits a game?

Sorry Mom. You stayed home to raise us rather than working your whole life. Sucks to be you I guess. Yeah, I know Dad divorced you for his secretary. Those things happen. What? You want me to help you pay your bills? Thanks for playing.

To the extent that some well-to-do couples are able to game the system (some of the rules have changed making this tougher going forward) to maximize benefits between them, yes. Switching from taking a spousal benefit and then later your own benefit and those sort of things. Games. Not what FDR intended when SS was invented to keep "poo folk" from starving in retirement.

In the case of your mother, as you told the story, she should receive generous welfare benefits from the gov't, not retirement benefits. Mixing and blending social welfare aid and retirement benefits is one of the causes of today's SS funding crisis.

 

[Cut-Throat]

Mixing and blending social welfare aid and retirement benefits is one of the causes of today's SS funding crisis.

Actually there is no "today's SS funding crisis". You can look it up on the Social Security Website: https://www.ssa.gov/policy/trust-funds-summary.html



The 2017 annual surplus of $44 billion increased the asset reserves of the combined OASDI Trust Funds, bringing the total reserves to $2.89 trillion at the end of the year.

That is TRILLION with a "T"..... Let's stick to the real facts.

 

[youbet]

Actually there is no "today's SS funding crisis". You can look it up on the Social Security Website: https://www.ssa.gov/policy/trust-funds-summary.html



The 2017 annual surplus of $44 billion increased the asset reserves of the combined OASDI Trust Funds, bringing the total reserves to $2.89 trillion at the end of the year.

That is TRILLION with a "T"..... Let's stick to the real facts.

So, today's numbers aren't pointing to an upcoming "crisis" in funding and potential cut in benefits? Great! I wonder why we keep discussing how to fix "the problem?" It's time to get out there and "blow that dough!!"