Social Security~ Pays to delay says Scott Burns

[New Thinking]

Spanky - You are doing what most do when people "spreadsheet" this. You are plugging in "today's dollars" for the amounts at age 66 and age 70. You need to bring those amounts up by the projected COLAs if you are doing your calcs in future dollars. For example, assuming a 3% COLA, you should be plugging in $23,890 at 66 (not $21,226) and $35,492 (not $28,018) at 70.

You also do not seem to be accounting for COLAs in your cumulative amounts. These are the big difference makers if you live longer than life expectancy.

[hogwild]

Quote:

Taking benefits at 62 seems to be a better deal especially the average life expectancy is 80. Obviously the amount will be significantly lower after taxes.

For me, the issue is one of cash flow, not cummulative amounts. Using your example, the cash flow at age 90 for SS at 62 would be over $4500 less than for SS at 66 and over $8400 less than for SS at 70. The difference increases each year.

[youbet]

Quote:

Originally Posted by hogwild For me, the issue is one of cash flow, not cummulative amounts. Using your example, the cash flow at age 90 for SS at 62 would be over $4500 less than for SS at 66 and over $8400 less than for SS at 70. The difference increases each year.

If you begin taking SS at 62, isn't your total SS eqivalent cash flow at 90 the sum of your annual SS payment (determined when you started at 62 plus COLA's) plus the investment income from prudently investing all those dollars received since you started collecting at 62? That is, to keep the comparison apples to apples, you have to assume that SS income collected from 62 onward is retained and invested and available when you are 90.

[MooreBonds]

I'm working on a spreadsheet for this analysis...I just need a few items clarified:

Can someone please clarify how SS is taxed? Is it 50% of your SS payments count towards calculating your AGI, then if you are over a certain threshhold, then 85% of your SS is subject to taxes? What percent of your SS payments are subject to taxes if you are under that threshhold?

If so, what are the threshholds (single/married joint/married separate)?

Another complicating factor is that most people are spending down their nest egg at that age. To assume that you will be investing ALL of your SS payment seems a bit of a stretch - since this will require you to be selling/withrawing from your taxable and IRA accounts to fully fund your living needs in order to not touch your SS payments. This will result in you increasing your taxable income by receiving SS at 62, but only using SS to reinvest and not to live off of. So I'm not so sure that the additional income taxes owed from receiving SS early "just so you can reinvest it" will be that beneficial once the numbers are spit out. But, I won't know until someone could give me a little assistance on the above...after which, I'll post my Excel (2000 format) spreadsheet for public scrutiny.

--Peter

[FIRE'd@51]

Spanky's results would be correct if he had specified that the 6% was the real (after inflation) return. I have done similar calculations comparing taking SS at age 62 instead of 66 and found:

Real Return Break-even Age
0% 78
1% 80
2% 81
3% 83
4% 85
5% 88
6% 94
7% 115

These results also assume you achieve these returns in the first four years from 62 until 66.

[hogwild]

Quote:

If you begin taking SS at 62, isn't your total SS eqivalent cash flow at 90 the sum of your annual SS payment (determined when you started at 62 plus COLA's) plus the investment income from prudently investing all those dollars received since you started collecting at 62? That is, to keep the comparison apples to apples, you have to assume that SS income collected from 62 onward is retained and invested and available when you are 90.

I prefer to keep my pension/SS separate from my investments for analysis purposes. Anyway, I think that the increased cash flow will be investment dollars I don't have to touch. But that is not the way I think about it.

For one thing, in my case, I will have a 10 year pension. So if I retire at 60, the pension will allow me to defer my SS to 66 or 70. All the scenarios I have modeled show a better residual, at age 90 (my planning limit) with deferring SS while keeping all other factors the same within each scenario.

[youbet]

Quote:

Originally Posted by Peter76 Another complicating factor is that most people are spending down their nest egg at that age. To assume that you will be investing ALL of your SS payment seems a bit of a stretch - since this will require you to be selling/withrawing from your taxable and IRA accounts to fully fund your living needs in order to not touch your SS payments.

Peter,

My thinking is that if you can defer SS and not need the the $$$, you can take SS and invest the $$$. Either way you don't have the income to spend.

[youbet]

Quote:

Originally Posted by FIRE'd@51 Spanky's results would be correct if he had specified that the 6% was the real (after inflation) return. I have done similar calculations comparing taking SS at age 62 instead of 66 and found: Real Return Break-even Age 0% 78 1% 80 2% 81 3% 83 4% 85 5% 88 6% 94 7% 115 These results also assume you achieve these returns in the first four years from 62 until 66.

I got similar results. For me, breakeven was in my mid-80's if I delay SS until 66. Not knowing:

(1) How long I'll live or
(2) what actual returns I'll get on incremental portfolio dollars available because I'm collecting SS at 62

make all this a real crapshoot.

[REWahoo]

Quote:

Originally Posted by Peter76 I'm working on a spreadsheet for this analysis...I just need a few items clarified: Can someone please clarify how SS is taxed?

http://www.irs.gov/publications/p915/index.html

[JohnEyles]

Why not look at the question of whether to delay SS in terms of SWRs ?

If I wait from 63yo til 64yo, my benefit goes from $1393 to $1509/mo, an
increase of $1392/yr. At the 4% SWR, I'd need $34,800 more in my portfolio
to handle the shortfall if I start early. But I only give up 12*1509= $18108
in missed benefits for the year I skipped. (Ala Scott Burns, waiting that year
is the moral equivalent of putting that $18K into a SPIA that has an initial payout
of 7.7% and is COLA'ed). The effects of inflation and investment gain over a
one-year period are insignificant. A similar calculation shows that it makes sense
to keep waiting one more year. But the comparison gets closer, plus, as age gets
closer to 70yo, the SWR should probably be increased, making things closer still.
Even so, for waiting from 69yo til 70yo, assuming a 6% SWR, it's about even.

So it seems clear that, putting asides issues of health or faith in the SSA, it makes
sense to wait beyond 62yo, but maybe not all the way 'til 70yo.

[WilliamG]

Future tax treatment is a big factor for me. The Guv has just introduced means testing for Medicare. Can't believe the 85% maximum taxability of SS will last, it will go to 100%. In our case we are in the maximum taxability area and would like to take advantage of this tax benefit while it lasts. Also, taxability at state level can change. We live in NC and are taxed on general income at 7% rate, but ZERO rate on SS. However, this is possible to change in future. I have calculated would save over $1,700/year in taxes in first year of SS (vs IRA income). To me it is similar to the advantage of spending already taxed income before deferred. If you assume similar tax treatment down the road, perhaps that outweighs the preferential treatment now, but that is a risky assumption IMO.

[sgeeeee]

Quote:

Originally Posted by JohnEyles . . .So it seems clear that, putting asides issues of health or faith in the SSA, . . .

Unfortuanately, citing this condition is a little like preceding your conclusions with, "Neglecting reality, . . ."

[JohnEyles]

Quote:

Originally Posted by sgeeeee Unfortuanately, citing this condition is a little like preceding your conclusions with, "Neglecting reality, . . ."

Good one. But I don't think so. Since I'm advocating making the decision
year by year, each year you can look at your own prospects for living long
(and prospering) and what the politicians are saying about "saving" Social
Security.

[sgeeeee]

Quote:

Originally Posted by JohnEyles Good one. But I don't think so. Since I'm advocating making the decision year by year, each year you can look at your own prospects for living long (and prospering) and what the politicians are saying about "saving" Social Security.

Yeah. I'm convinced that there is no advantage to making the Social Security benefit call early. The only thing I'm really confident about is that things are likely to look pretty different in 10 years when I reach age 62.

[bobbee25]

Is there any advanatage for the younger spouse in delaying ?

If I understand it correctly, if I pass away my spouses benefit is based on a percentage of what my benefit would have been at 66, regardless of when I started (62). However, I often see articles stating that there is a benefit to the spouse if I delay until 66.

[REWahoo]

Quote:

Originally Posted by bobbee25 Is there any advanatage for the younger spouse in delaying ? If I understand it correctly, if I pass away my spouses benefit is based on a percentage of what my benefit would have been at 66, regardless of when I started (62). However, I often see articles stating that there is a benefit to the spouse if I delay until 66.

bobbee, when to take SS has been one of the most hotly contested popular topics on the forum. I suggest you use the search button and put in "delay SS" (be sure to enclose in quotations as I did). That will bring up several threads on the topic.

[bobbee25]

I looked at quite a few of those posts but didn't see a clean answer to the question I asked.

[REWahoo]

Quote:

Originally Posted by bobbee25 I looked at quite a few of those posts but didn't see a clean answer to the question I asked.

I'm not sure there really is a clean answer. Maybe this will help: http://tinyurl.com/83wug

...or this: http://early-retirement.org/forums/i...p?topic=8338.0

[d]

it seems that i too have seen both answers ... i'd suggest you go directly to soc.sec. to get the answer.

[OAG]

Sorry I put a couple of responses into the topic "At What Age will you take Social Security" which maybe would have been better placed here:

One is a direct quote to an email reply I received today from SSA regarding the ability to withdraw a application at age 66 that you submitted, and received benefits under, at age 62.

A second on is a bit on the tax impact of doing something this late.