Social Security - When to start benefits..

[rescueme]

I love these SS discussions ...

Really, there is no "correct" answer for the masses. It's not only a financial decision based upon SS marriage rules, an indivudials health - both physically and also financially, but often more of an emotional one (as is the case for DW/me, in our situation).

My/our only comments:

- Money is for the living, not the dead. We're not concerned with "break even", regardless of how you want to compute it. And as far as investing the proceeds trying to beat the longevity credits, if we take it early? No thanks, we have enough of a challange with our joint portfolio; we're retired (well, I am, DW will be next month) and don't need the hassle.

- We would rather die with money, than live without it. Thus, we chose to delay SS in our case.

And maybe it's just due to our age (both 64), but we have no fears of SS being eliminated in the future. Taxed more? Sure. Qualifications based on income? Sure. However, if we're lucky enough to have the money, we don't have a problem with paying the tax or qualifying (how those taxes get used, is another discussion )...

Just our simple POV.

 

[TromboneAl]

What can you do on 57k that you can't do on 53k?
.

Vacation in Hawaii.

------------

Not outliving your money and having friends and family say "You see, he shouldn't have retired early": Priceless.

 

[jclarksnakes]

I love these SS discussions ...

Really, there is no "correct" answer for the masses. It's not only a financial decision based upon SS marriage rules, an indivudials health - both physically and also financially, but often more of an emotional one (as is the case for DW/me, in our situation).

My/our only comments:

- Money is for the living, not the dead. We're not concerned with "break even", regardless of how you want to compute it. And as far as investing the proceeds trying to beat the longevity credits, if we take it early? No thanks, we have enough of a challange with our joint portfolio; we're retired (well, I am, DW will be next month) and don't need the hassle.

- We would rather die with money, than live without it. Thus, we chose to delay SS in our case.

And maybe it's just due to our age (both 64), but we have no fears of SS being eliminated in the future. Taxed more? Sure. Qualifications based on income? Sure. However, if we're lucky enough to have the money, we don't have a problem with paying the tax or qualifying (how those taxes get used, is another discussion )...

Just our simple POV.

+1. Everyone is different. This discussion is somewhat like the mortgage one that is currently running. I learn from these threads taking a bit from the varied opinions. Before this thread started I had never really looked closely at SS. At age 59 I know it was getting time to think about the choices. For us the take one early and delay the other and take the spousal benefit in the middle seems right. It does seem that some people have an attitude that what works for themselves has to be the right answer for everyone. I can certainly understand that attitude. They probably did not get to FI by being stupid. They made smart financial decisions (LBYM for example) while all around them they saw friends and aquaintances making seemingly poor decisions. Most of those people making the poor decisions never even had the good sense to ask for advice. Now they (we) are on a board where people actually ask each other about financial decisions.

 

[jeffmete]

It's not a "rate of return". You can easily demonstrate that isn't by asking yourself, "7% of what?"
It's a higher monthly benefit, which is a completely different thing than a rate of return.

And this completely ignores something that you can't ignore -- the time value of money. You can't compare $750 today against $1320 eight years from now. You have to compute the Present Value of each, which means you have to discount the $1320 to get it's PV.

In fact, if you discount $1320 at 7.25% rate for 8 years you get the PV of $754. But that's not a 7.25% return, it's the discount rate. Of course, that is a very generous discount rate. A more realistic one is 4%, which gets a PV of $965. Granted, $965 is more than $750, but it's not a life-changing amount.

----------
And do I think that I can beat 4% growth? Yes.
I think I can easily get 7% with just bonds & preferred stocks.

And don't forget the 8 year head start. That's a biggie.
From my spreadsheet (using the COLA-adjusted age 70 benefit amount) the break-even age is 87.4 years. Which is 3.4 years beyond the life-expectancy of a 70 year old.
If I can get 8%, the BE gets pushed out to age 91.
9% is age 100.
10% (the long-term S&P500 average) the BE is never.

I think you and I are the only ones who look at SS in the manner of an overall stream of income. Money you get today is worth more than money you get tomorrow. I'm not as fluent in money as some, but not even considering the time value of money, my break even point between taking it at 62 versus 66 is 78 years old. and like you say, even a modest 4% return on current money, pushed the break even back into our late 80's.

 

[Running_Man]

I am really struggling to understand what the best course to take with this should be. The question that runs through my mind is:
60 year old man
375,000 in savings
Plans on one of two scenarios:

Scenario 1: Work until age 62 increasing savings to a little over 400K and take social security of 20K plus 4% withdrawal of savings for another 16K giving his needed 36K per year of income.

Scenario 2: Retire today at age 60 placing all $375,000 in treasury bills and living on 36K per year for 10 years and then take social security at age 70 @ 37K per year with only a minimal savings plan remaining.

There is no doubt Scenario 2 provides a plan for the most time in retirement and with very few financial decisions to be made, but can one be comfortable in placing trust in the government? I question whether this is really a safer or more sure plan than scenario 1??

 

[haha]

I think you and I are the only ones who look at SS in the manner of an overall stream of income. Money you get today is worth more than money you get tomorrow.

Only true if your assumed discount rate is higher then the experienced inflation COLA. If you assume a higher discount rate, you are implicitly saying that your portfolion will beat inflation, with risk no worse that that of SS payments.

Since there really are no risk => SS investments available other than TIPS, which give a guaranteed real loss, I don't know how you can do this.

You position is not from your superior understanding.

Ha

 

[rayvt]

$375K at age 60 is not really enough to retire early -- unless your living expenses are really really low.

I doubt you'll get $20K of SS at 62, either. According to this: U.S. Social Security Retirement - Estimated Monthly Payments Chart the maximum would be 20K, but that's for somebody who has been pulling down a salary of $150K. And if you've been making 150K then you should have a lot more than $375k in savings at 60.

 

[MichaelB]

I am really struggling to understand what the best course to take with this should be. The question that runs through my mind is:
60 year old man
375,000 in savings
Plans on one of two scenarios:

Scenario 1: Work until age 62 increasing savings to a little over 400K and take social security of 20K plus 4% withdrawal of savings for another 16K giving his needed 36K per year of income.

Scenario 2: Retire today at age 60 placing all $375,000 in treasury bills and living on 36K per year for 10 years and then take social security at age 70 @ 37K per year with only a minimal savings plan remaining.

There is no doubt Scenario 2 provides a plan for the most time in retirement and with very few financial decisions to be made, but can one be comfortable in placing trust in the government? I question whether this is really a safer or more sure plan than scenario 1??

Are there seperate savings for emergencies or large unplanned expenses, and is health care covered?

Scenario 2 will for sure result in a loss of purchasing power for the savings because inlation is running 1-2% ahead of interest rates. Some risk assets have to be included in the portfolio to avoid this.

Scenario 1 has the advantage of building the savings but still letting you defer SS, but at the expense or working longer.

 

[Khufu]

I am really struggling to understand what the best course to take with this should be. The question that runs through my mind is:
60 year old man
375,000 in savings
Plans on one of two scenarios:

Scenario 1: Work until age 62 increasing savings to a little over 400K and take social security of 20K plus 4% withdrawal of savings for another 16K giving his needed 36K per year of income.

Scenario 2: Retire today at age 60 placing all $375,000 in treasury bills and living on 36K per year for 10 years and then take social security at age 70 @ 37K per year with only a minimal savings plan remaining.

There is no doubt Scenario 2 provides a plan for the most time in retirement and with very few financial decisions to be made, but can one be comfortable in placing trust in the government? I question whether this is really a safer or more sure plan than scenario 1??

$375k wouldn't seem to be enough to retire on. If it's the case that you cannot keep working for some reason, then you should investigate annuitizing much of your assets since you are not in the position to self-insure against outliving your money. You would then have the problem of finding a place where you could live on your SS and annuity income. Could be some tough choices there.

 

[Koolau]

I am really struggling to understand what the best course to take with this should be. The question that runs through my mind is:
60 year old man
375,000 in savings
Plans on one of two scenarios:

Scenario 1: Work until age 62 increasing savings to a little over 400K and take social security of 20K plus 4% withdrawal of savings for another 16K giving his needed 36K per year of income.

Scenario 2: Retire today at age 60 placing all $375,000 in treasury bills and living on 36K per year for 10 years and then take social security at age 70 @ 37K per year with only a minimal savings plan remaining.

There is no doubt Scenario 2 provides a plan for the most time in retirement and with very few financial decisions to be made, but can one be comfortable in placing trust in the government? I question whether this is really a safer or more sure plan than scenario 1??

I think I would be much more concerned about inflation torpedoing either of these two scenarios than whether SS will be around or dramatically changed in the next 10 years (especially for someone who has limited funds - i.e., little chance of being means test out of SS payments).

As others have suggested, it could be wise to w*rk a little longer to add some insurance to the plan (assuming w*rk is an option for you). For me, belt-and-suspenders guy that I am, I would not contemplate ER just yet - but that's just me. Good luck! YMMV

 

[Running_Man]

$375k wouldn't seem to be enough to retire on. If it's the case that you cannot keep working for some reason, then you should investigate annuitizing much of your assets since you are not in the position to self-insure against outliving your money. You would then have the problem of finding a place where you could live on your SS and annuity income. Could be some tough choices there.

This is not my scenario, yes my savings are considerably higher than $375,000 but this is a dual scenario I am grappling with to highlight Social Security issue for me in trying to decide what my strategy for this portion of my income needs will be in timing when to take Social Security. I have isolated it from the remainder of my portfolio and I view the issue as consuming $375,000 of my portfolio in order to defer the social security until age 70.

The portion of my retirement this portion of my strategy is to fund is 36K and I have to ask myself if this deferral is worth the value. In my mind then I ask myself if a 60 year old with $375,000 and 36K in annual expenses would be able to retire best on the scenario 1 or scenario 2 as a retirement strategy?

 

[jeffmete]

Only true if your assumed discount rate is higher then the experienced inflation COLA. If you assume a higher discount rate, you are implicitly saying that your portfolion will beat inflation, with risk no worse that that of SS payments.

Since there really are no risk => SS investments available other than TIPS, which give a guaranteed real loss, I don't know how you can do this.

You position is not from your superior understanding.

Ha

So your saying I should give up $172,000 of income (1,800/month from 62 to 70 years old) and that is superior to waiting till I'm 70 to start collecting $3300/month? What is the value of that 172,000? Even at a modest 4% return, that 172,000 is probably worth $205,000 when I turn 70. So that is a stream of income of $683/month plus I still have the 205,00 in the bank. I am not trying to be thick headed, but I can't see what I'm missing that makes waiting till 70 better financial sense?

 

[gerntz]

I looked at two scenarios, either at 62 or at 70. I modeled it as if I would invest 100% of my checks in S&P500. The criteria was "At what age would the accumulated amounts be greater?".

I used the S&P 500 and CPI data that Prof Shiller publishes and ran 30-40 cases.

Results showed that "when" you start taking it, e.g., 1928 vs 1990, dwarfs any other factor.

A person taking his/her SS at 62 in 1990 made out like a bandit, but that person would have lost bigtime had they taken it at 62 in 1930.

Agree on the 1930 thing since SS didn't start payments till 1940.

 

[Zero]

Agree on the 1930 thing since SS didn't start payments till 1940.

Yeah, but I needed at least one market disaster.

BTW, I deleted the message, I'm not even gonna get started on this topic, too much BP potential.

 

[jdw_fire]

I am really struggling to understand what the best course to take with this should be. The question that runs through my mind is:
60 year old man
375,000 in savings
Plans on one of two scenarios:

Scenario 1: Work until age 62 increasing savings to a little over 400K and take social security of 20K plus 4% withdrawal of savings for another 16K giving his needed 36K per year of income.

Scenario 2: Retire today at age 60 placing all $375,000 in treasury bills and living on 36K per year for 10 years and then take social security at age 70 @ 37K per year with only a minimal savings plan remaining.

There is no doubt Scenario 2 provides a plan for the most time in retirement and with very few financial decisions to be made, but can one be comfortable in placing trust in the government? I question whether this is really a safer or more sure plan than scenario 1??

quite some time ago i pointed out that by delaying SS to 70 any given 62 yo single retiree could increase his/her spending in the 8 yrs up to age 70 (that was back when MM interest rates were equal to or greater than the inflation rate) http://www.early-retirement.org/forums/f28/social-security-at-62-66-or-70-a-26354-3.html#post494511 . (as an aside, your use of a 4% WDR makes the WD from your portfolio more risky than your SS payment. if you want the same amout of risk in both scenerios your WDR should be much lower, eg. to get a 100% result out of FIRECalc your WDR would be about 3.59% and even that has stock and bond components that make it more risky than SS.)

your example is a little different though because in your 2 options the person is retiring at a different age. i am also a little wary of your SS numbers since when doing the above example i noticed that the multiplication factor to get from the SS payout number at 62 to the number at age 70 is about 1.76 and your numbers dont have that relationship. however, bottom line answer to your questions is scenerio 2 lets you retire 2 years earlier with the same spending ability as scenerio 1 so scenerio 2 is better. right now "ïnvestments" in the US government (i.e. treasuries) are considered the safest available so of course it is safer than scenerio 1.

but i feel that answer is too short, so lets explore it a little more. first, a few facts about the analysis 1) i will use the 1.76 factor to get the SS payout at age 70. 2) i will use a WR that is more safe and taking a que from this board (when it comes to SWRs) i will use a 3% WR. and, just to make it clear, 3) i am going to do this analysis using real (inflation adjusted) numbers so i dont have to guesstimate inflation (SS payouts and SWR are inflation adjusted). so, using 1) if SS starting at age 62 is $20k then SS starting at age 70 would be $35.2k. and now applying 2) to the spending rate required from the portfolio at age 62 in scenerio 1 ($16k) i get a required portfolio at age 62 of $533,333. and since this person saved $25k in the 2 yrs prior to age 62 the new starting parameters are:

60 year old man
508,333 in savings

Scenario 1: Work until age 62 increasing savings to a little over 533K and take social security of 20K plus 3% withdrawal of savings for another 16K giving his needed 36K per year of income.


Scenario 2: Retire today at age 60 placing $352,000 in treasury bills and living on 35.2K per year for 10 years and then take social security at age 70 @ 35.2K per year and for his whole life take a 3% WD from $33,333 of his remaining portfolio, providing another $1k/yr to spend. this makes the amount availible to spend equal to (actually a little greater than) scenerio 1 but it leaves $148k of portfolio unspent/unencumbered for an emergency fund, splurging, leave to kids OR to increase his lifetime spending by almost $4.5k/yr, whatever suits him.

so again i will say that scenerio 2 is the way to go for someone that wants to maximize safe spending for his entire lifetime at a lower risk. the only risky years in scenerio 2 are the 1st 10 and unlike scenerio 1, they arent that risky because the $352k isnt in the stock market. however in scenerio 1 $16k/yr is at higher risk because it is invested in the market.

 

[haha]

So your saying I should give up $172,000 of income (1,800/month from 62 to 70 years old) and that is superior to waiting till I'm 70 to start collecting $3300/month? What is the value of that 172,000? Even at a modest 4% return, that 172,000 is probably worth $205,000 when I turn 70. So that is a stream of income of $683/month plus I still have the 205,00 in the bank. I am not trying to be thick headed, but I can't see what I'm missing that makes waiting till 70 better financial sense?

I have been pretty casual about this thread because my decision is history, hence there is no pressing reason to be sure I understand or to spend time in re-analyzing. However yesterday while cleaning the kitchen I did think of a technique that I think will give a useful answer for those who do have a pressing need to understand. Your investment of the payments between age 62 and 70 will not be a lump sum available at the start, but only a monthly sum. So the correct framing is to do a sinking fund analysis, using each month's payment as it becomes available. Assume a reasonable real interest rate, which IMO today is not 4%. Mapping from 10 year TIPS you get the real rate of return to use for the sinking fund. Currently this is -0.35%. See what your sinking fund is worth in real terms at age 70. Price a fully COLA annuity for a 62 year old man, and a fully COLA annuity for a 70 year old man.

Compare the prices. This will tell you if you got a hit or a miss by waiting, ignoring the cheap and secure longevity insurance aspect of waiting for the higher monthly payout which IMO cannot be reasonably ignored.

Also remember that we are not all men, a woman gets more bang for her buck if she waits.

Ha

 

[Cut-Throat]

I'll give you another reason to delay S.S. to age 70......The Afordable Health Care Insurance reform that was passed by both houses of Congress and signed into law by the President specifies Health Care exchanges and Tax Credits for lower income people.

This all takes effect in January of 2014. When my wife retires then we will have very little income as we will be living on savings from taxable accounts. Our Health insurance will probably only cost us $1K with the tax credits. It is not tested on Net Worth, but A.G. Income.

When we start drawing S.S., we will be eligible for Medicare.

try this Calculator out........I for one am very thankful for this legislation.
Health Reform Subsidy Calculator - Kaiser Health Reform (Health Reform Subsidy Calculator - Kaiser Health Reform)

 

[MichaelB]

I'll give you another reason to delay S.S. to age 70......The Afordable Health Care Insurance reform that was passed by both houses of Congress and signed into law by the President specifies Health Care exchanges and Tax Credits for lower income people.

This all takes effect in January of 2012. When my wife retires then we will have very little income as we will be living on savings from taxable accounts. Our Health insurance will probably only cost us $1K with the tax credits. It is not tested on Net Worth, but A.G. Income.

When we start drawing S.S., we will be eligible for Medicare.

try this Calculator out........I for one am very thankful for this legislation.
Health Reform Subsidy Calculator - Kaiser Health Reform (Health Reform Subsidy Calculator - Kaiser Health Reform)

The exchanges are mandated for implementation in January of 2014, along with the subsidies. Other aspects are already being implemented.

 

[haha]

I'll give you another reason to delay S.S. to age 70......The Afordable Health Care Insurance reform that was passed by both houses of Congress and signed into law by the President specifies Health Care exchanges and Tax Credits for lower income people.

This all takes effect in January of 2014. When my wife retires then we will have very little income as we will be living on savings from taxable accounts. Our Health insurance will probably only cost us $1K with the tax credits. It is not tested on Net Worth, but A.G. Income.

When we start drawing S.S., we will be eligible for Medicare.

try this Calculator out........I for one am very thankful for this legislation.
Health Reform Subsidy Calculator - Kaiser Health Reform (Health Reform Subsidy Calculator - Kaiser Health Reform)

Cut-throat, if your figure above is annual rather than monthly, you should try to avoid going on Medicare, as Medicare and a Medigap and a Part D supplement for 1 person at today’s rates will cost roughly $100+$200+$40 per month. So $340*2 puts you at $680/month, or $8160 annually for the two of you.

 

[Cut-Throat]

Cut-throat, if your figure above is annual rather than monthly, you should try to avoid going on Medicare, as Medicare and a Medigap and a Part D supplement for 1 person at today’s rates will cost roughly $100+$200+$40 per month. So $340*2 puts you at $680/month, or $8160 annually for the two of you.

Mikey,

The above figure is for an annual amount and should hold until age 64, but if you notice in the calculator the premium tax credits are for ages 19-64, after that medicare takes over...

....And at any rate our income will be wayyyyyy over the FPL then when SS and our RMD from the Tax Deferred accounts start.

Are you sure of your figures for a couple on Medicare?......I very much doubt that the average couple on Medicare is shelling out over $8 Grand a year for health insurance.

 

[misanman]

Are you sure of your figures for a couple on Medicare?......I very much doubt that the average couple on Medicare is shelling out over $8 Grand a year for health insurance.

We are paying $6,600 but I've often thought it should be less.

 

[jeffmete]

I'll give you another reason to delay S.S. to age 70......The Afordable Health Care Insurance reform that was passed by both houses of Congress and signed into law by the President specifies Health Care exchanges and Tax Credits for lower income people.

This all takes effect in January of 2014. When my wife retires then we will have very little income as we will be living on savings from taxable accounts. Our Health insurance will probably only cost us $1K with the tax credits. It is not tested on Net Worth, but A.G. Income.

When we start drawing S.S., we will be eligible for Medicare.

try this Calculator out........I for one am very thankful for this legislation.
Health Reform Subsidy Calculator - Kaiser Health Reform (Health Reform Subsidy Calculator - Kaiser Health Reform)

So your saying that by defering social security, your retirement income is not taxed putting you below the poverty level so you get free/reduced health insurance? I just tried to read the 13 page summary, somebody must be paid by the word in congress!

 

[haha]

Mikey,

The above figure is for an annual amount and should hold until age 64, but if you notice in the calculator the premium tax credits are for ages 19-64, after that medicare takes over...

....And at any rate our income will be wayyyyyy over the FPL then when SS and our RMD from the Tax Deferred accounts start.

Are you sure of your figures for a couple on Medicare?......I very much doubt that the average couple on Medicare is shelling out over $8 Grand a year for health insurance.

The figures I gave for one are what I pay for Medicare Pt B (basic rate, it goes up if I have a big income year), Medigap, and slightly more than I pay for PtD, as I take the absolute minimum policy that doesn't cover much but allow you to not pay a surcharge if and when you do start a Pt D policy.

Nice to see you again!

Ha

 

[Cut-Throat]

So your saying that by defering social security, your retirement income is not taxed putting you below the poverty level so you get free/reduced health insurance? I just tried to read the 13 page summary, somebody must be paid by the word in congress!

I am saying by deferring S.S and not withdrawing from my tax deferred accounts ......I won't have much of an income. I'll be living off savings in our taxable accounts. Only Dividend, Interest and Capital Gains from the Taxable Account will be our only income.

You don't have to be poverty level for the premium discounts. You could be 400% of FPL and still get a discount.

 

[Running_Man]

I'll give you another reason to delay S.S. to age 70......The Afordable Health Care Insurance reform that was passed by both houses of Congress and signed into law by the President specifies Health Care exchanges and Tax Credits for lower income people.

This all takes effect in January of 2014. When my wife retires then we will have very little income as we will be living on savings from taxable accounts. Our Health insurance will probably only cost us $1K with the tax credits. It is not tested on Net Worth, but A.G. Income.

When we start drawing S.S., we will be eligible for Medicare.

try this Calculator out........I for one am very thankful for this legislation.
Health Reform Subsidy Calculator - Kaiser Health Reform (Health Reform Subsidy Calculator - Kaiser Health Reform)

If I entered the data right the penalty for increasing your income for a 58 year old from 80K to 100K is 14K more to pay for your health care with no tax credit! After taxes the impact after SS & state and federal will be over 100% of income can that be right?