Social Security Decision

[sengsational]

I ignored these threads until DW started creeping up on 62. I analyzed the crap out of it and decided to take hers ASAP (her lifetime SS earnings are much less than mine). I'm bullish on the long term stock market, in which I plan to participate. If the historical returns hold, and we "live a long time", I'll get LESS from Social Security, pay more income tax, but actually be able to spend MORE! That was the surprising result for me. Now I have a few years to chill on the question because DW's decision has been made, and I'm not old enough to apply.

 

[Jerry1]

It appears the most common SS strategy employed is the lower earning spouse taking it at 62 and the higher one at 70.
Everything else is up for grabs.

That’s what I thought too, but when I looked at it with my CFP, a twist came in. Which just confirms that this is a very individual decision. We’re not claiming yet but DW, the lower earner is 62 so the decision is on the table. The twist is my pension and her age.

If a take the pension with a 2/3rd’s survivor benefit, then if DW takes at 62 and passes my income will drop. To smooth that out, we’re planning on DW taking at FRA and me at 62. That plus the pension will yield a good living. If DW passes first, I’ll take her SS which will be higher than mine (taken at 62) which will somewhat offset the reduction in income from the pension.

Point being to OP is to make sure you run some scenarios where either of you pass first and see how that works in your plan.

 

[Rianne]

T
Point being to OP is to make sure you run some scenarios where either of you pass first and see how that works in your plan.

Precisely. I'd like to figure out all the angles.


Both take at 62, what happens if DH or me dies
Both take at FRA, what happens if either dies
I take at 62, DH waits until FRA - what happens if either die
I take at 62, DH waits until 70 - what if DH dies before he reaches 70


These are pretty complicated questions.

 

[MarieIG]

Retired Major. Do you get a pension? Did you make provision for your wife to continue to receive your pension if you die first?

It is not just about getting the biggest income during your lifetime. It is also about protecting your spouse.

 

[pb4uski]

I think opensocialsecurity.com is the best of the tools that I have used. I even looked at some of the reports for the for-pay tools and was not impressed at all.

What I did is with OSS is too compare the EPVs for their optimal solution vs alternatives of DW now/me FRA, both 65, both FRA and DW FRA/me 70... and with SS reductions on and off... with same mortality and discount rate assumptions.... the differences between the EPVs were insignificant enough that I concluded that it doesn't realy matter much.

So for now, we plan to wait for FRA for DW and 70 for me unless the stock market tumbles to a point of discomfort.

I happened to run across the results of the opensocialsecurity.com analysis that I did. As background, DW and I were both born in 1955 and I was the higher earner since she was a SAHM. My PIA is about 3.6x hers.

Discount rate: 3.3%... 2017 non-smoker preferred mortality

	No haircut	Haircut
Optimal solution*	100.0%	100.0%
Both now	96.7%	98.0%
Both 65	99.2%	99.6%
Both at FRA	98.5%	95.9%
Me 70/DW FRA	99.2%	98.9%
* DW at 64, me at 67 1/2 for no haircut, DW now, me at 65 1/2 for haircut

Since we both plan on waiting to 65, the differences between both at 65 and other alternatives are close enough that anything would be fine.

 

[gerntz]

I've been using various SS Optimization tools and have decided that the strategy we will use for me and my wife is for her (lower lifetime earnings) to claim at age 62 and for me to claim at FRA (66 & 4 mos). The tools showed me that the highest lifetime income strategy is for her to claim at age 65 and for me to wait until age 70, but the difference over approx. 28 years (longevity estimate) is $48,000. Given the vagaries of time, health and Government idiocy, I can't see waiting that long.


Am I crazy?

No. But I think those that plan to live longer on average do live longer. I plan to live to 88-90,

 

[CardsFan]

I happened to run across the results of the opensocialsecurity.com analysis that I did. As background, DW and I were both born in 1955 and I was the higher earner since she was a SAHM. My PIA is about 3.6x hers.

Discount rate: 3.3%... 2017 non-smoker preferred mortality

	No haircut	Haircut
Optimal solution*	100.0%	100.0%
Both now	96.7%	98.0%
Both 65	99.2%	99.6%
Both at FRA	98.5%	95.9%
Me 70/DW FRA	99.2%	98.9%
* DW at 64, me at 67 1/2 for no haircut, DW now, me at 65 1/2 for haircut

Since we both plan on waiting to 65, the differences between both at 65 and other alternatives are close enough that anything would be fine.

I noticed you used a higher discount rate than the default (Tips at 1%). I presume your assumption is you can get a real ROR of 3.3% on your savings, correct?

It seems the higher discount rate results in a recommendation to file sooner, at least in my case.

 

[sengsational]

Yes, if you can earn a nice rate on your investments, then optimal is taking it earlier. With a historical ROI from a 60/40 AA, taking both early is optimal even if you are on the far side of the age bell curve. But most analysis I've seen presumes low returns, so suggests taking it later.

 

[pb4uski]

I noticed you used a higher discount rate than the default (Tips at 1%). I presume your assumption is you can get a real ROR of 3.3% on your savings, correct?

It seems the higher discount rate results in a recommendation to file sooner, at least in my case.

Yes, my view is just different from Mike Piper for this assumption. I think that using the Tips rate is unduly conservative since I am a total return investor.... I expect my 60/40 portfolio to earn about 6% nominal in the near term (a significant haircut to the historical return of 8.8% for a 60/40 portfolio)... and IIRC the historical long-term rate of inflation is about 2.7% so a real rate of 3.3%.

I actually suspect it will do better but I am being intentionally conservative.

Or put another way, to the extent that I am delaying SS I think the money that I will use rather than collecting SS early would earn 6% nominal (3.3% real) so that is my opportunity cost for the analysis.

 

[Doc0]

Our solution is for my wife to claim at 62 and I will claim spousal. At 70 I will claim my age 70 benefit and she will continue at the age 62 rate. I'm older and more likely to die sooner so upon my death she will claim survivor on my money and relinquish her 80% money. If the scheduled 2034 cut happens the cut will take me to about FRA income anyway.

 

[CardsFan]

Yes, my view is just different from Mike Piper for this assumption. I think that using the Tips rate is unduly conservative since I am a total return investor.... I expect my 60/40 portfolio to earn about 6% nominal in the near term (a significant haircut to the historical return of 8.8% for a 60/40 portfolio)... and IIRC the historical long-term rate of inflation is about 2.7% so a real rate of 3.3%.

I actually suspect it will do better but I am being intentionally conservative.

Or put another way, to the extent that I am delaying SS I think the money that I will use rather than collecting SS early would earn 6% nominal (3.3% real) so that is my opportunity cost for the analysis.

I played with this over the last few days, and even with a 2% Real ROR, it points to earlier dates. Upon further review, I may join you at 65. The reduction is miniscule, and have to have the medicare payments taken care of just makes it simpler.

After using it a while, and reading the background, this program does make the most sense. Take out the "when will I die" unknown. Pure mathematical probabilities.

 

[imoldernu]

Not very good with numbers, and never looked at the long term effect.

Thing was, that by the time we turned 62, we had been retired for 10 years, and were burning through our savings pretty fast. As I recall, we were getting about 8+% on our CD's at the time, so the money from SS looked pretty good.
Don't remember if we did the numbers, but it seemed like it worked for us.

No complaints... 20 years now of getting the checks. Thank you Uncle Sam.

 

[Original Wally]

Here was our approach: Retired @ 55+. Pensions w/ cols now $64K. We took SS ASAP. Reasoning:
1) More $$ in our younger retirement years (spend on foolish things like travel and such.)
2) If Congress gets real wacky it will be easier to exclude new recipients than to kick off existing recipients.
3) The rough "pay back" (not counting a PV analysis) was somewhere around age 84.



So for 20 years we get more $$ and potentially lose some after age 84. Money in the pocket today is worth more.

 

[zaqxsw]

My wife (15 mos. younger) is the significantly lower earner and claimed at 62. I'm waiting until 67 1/2 as that will put her at FRA so she can get the maximum spousal benefit (reduced somewhat by her own filing at 62). Her spousal benefit will not go up after that (max is 50% of my PI at her FRA), so I claim and she gets to add a max spousal benefit to her own. Plus, this also gives her a very good survivor benefit on my earnings, but not as much as if I delayed until 70.

Our "simple" breakeven is around age 79 (actual would be later). If we both are alive after that, we lost, but who the heck cares at 80? With our current income (is more than we actually take), plus future SS and RMD's, we will never be able to spend our income after 70 anyway, short of some catastrophic medical disaster that Medicare + Medigap can't handle. We should also have the assets left at the end to cover any long term care. If we pass in our sleep, the kids win!

It is becoming really clear to me that taxes and medical surcharges are going to be a bigger issue in the future. I expect the government is going push more means testing. I'm sure glad that I am finishing up multi-year ROTH conversions while I'm in a lower income tax bracket.

Here is a good article on claiming where a couple differs greatly in earnings. It's heading is "The Problem With A Lower-Earning Spouse Delaying Retirement Benefits" about half way down the article:

https://www.kitces.com/blog/why-it-rarely-pays-for-both-spouses-to-delay-social-security-benefits/

 

[Which Roger]

It appears the most common SS strategy employed is the lower earning spouse taking it at 62 and the higher one at 70.
Everything else is up for grabs.

Unless there is no lower earning spouse. DW and I have almost identical earnings, which takes that out of the equation.

 

[steveark]

If your wife's benefit is less than yours then if either of you claims before 70 then if she outlives you she will receive less after you die than she would have had you both waited until 70. Actually it is 70.5 I think. The only way to max out the high earner benefit, which becomes the survivor benefit, is for both of you to wait until the high earner begins to draw at 70.5. At least I think that is currently the case.

 

[Doc0]

It depends on the age difference and SS payment. If she's 62 with a lower payout and you're 65, she can take at 62 for 80% plus you can take a 50% spousal benefit. So if she gets FRA of 1000 her 80% is 800 and your spousal is 400 for a net of 1200. In the 5 years till 70 your money grows. Lets say your FRA benefit goes from 2500 to 3600 or something. In the mean time your collecting the 1200. At age 70 you take 3600 and she continues at 800 for 4400 total. At your death she claims survivor benefits which would be about 3500 until she dies and abandons her 800/mo. So you made 1200 x 60 mos while your age 70 SS increased 1000/mo over your FRA level until you die. That extra 1000/mo improves the load on your remaining portfolio extending it's life. My numbers are based on my FRA of 66 and her FRA of 66 10 mos, so ymmv based on your specifics. If you do it right and have it built into your plan by having a alternative funding source while the SS money grows, it's free tax advantaged inflation protected money.

 

[MissMolly]

If your wife's benefit is less than yours then if either of you claims before 70 then if she outlives you she will receive less after you die than she would have had you both waited until 70. Actually it is 70.5 I think. The only way to max out the high earner benefit, which becomes the survivor benefit, is for both of you to wait until the high earner begins to draw at 70.5. At least I think that is currently the case.

This is not correct. Only one SS benefit survives when one spouse dies and it's the higher of the two. So only the spouse with the higher benefit should wait until 70 (not 70.5) to maximize the spousal benefit. It has nothing to do with when the spouse with the lower benefit claims.

 

[Carpediem]

It depends on the age difference and SS payment. If she's 62 with a lower payout and you're 65, she can take at 62 for 80% plus you can take a 50% spousal benefit. So if she gets FRA of 1000 her 80% is 800 and your spousal is 400 for a net of 1200. In the 5 years till 70 your money grows.

Isn't this the loophole that was closed a few years ago?

 

[MissMolly]

Isn't this the loophole that was closed a few years ago?

It was closed for anyone born after 01/01/1954. Not only that, several other comments in that post were incorrect. You cannot claim spousal and let your own grow to 70 until you are full retirement age - not at 65. AND, if you are full retirement age and claiming a Restricted Application, you receive 50% of the spousal FULL retirement age amount, not the amount they may be receiving if they filed early.

 

[levindb]

Taxes and ROI

While great Returns On Investment suggest taking SS benefits earlier to maximize growth of your assets, most people will adjust their AA lower as they age. Lower ROI suggest taking SS benefits later. Your average ROI could be much less than your current ROI.

Living longer than average would suggest delaying benefits. Our financial plan assumes we will live to age 105...and our last check will bounce. If we don't live that long, then our heirs will see a bit more. My DW's grandmother lived to age 101 and DW's mother is currently 96.

Finally, the most our SS benefits will be taxed is 85% (under current rules) which suggest, if everything else is a wash, getting income from SSA will provide more spending money than an equivalent amount from our tax deferred account, which will be taxed at 100%. SS benefits may be a bit safer (less volatility) than market returns...but that is subject to change. Also, 37 states do not tax SS benefits suggesting it may be better to maximize SS benefits to keep more of your money.

 

[walkinwood]

In the OP's scenario, what happens if the OP passes away before claiming SS?

 

[pb4uski]

Then the applicant will receive the higher of the benefit based on their work record or the benefit based on their spouse's work record when they start receiving benefits.

 

[MissMolly]

In the OP's scenario, what happens if the OP passes away before claiming SS?

It depends on many different factors- age of surviving spouse, whose SS benefit is higher, age of deceased spouse, has surviving spouse remarried, etc.

 

[joeea]

It appears the most common SS strategy employed is the lower earning spouse taking it at 62 and the higher one at 70.

No. The most common strategy is for both spouses to start at 62.

Common doesn't have anything to do with optimal.