SS at 66 or 70 - not such an easy question?

[Texas Proud]

Yes, I started looking at that. The preliminary work is in the latest version of the spreadsheet that I uploaded.
It gets very complicated very fast.
The biggest complexity was in the file-and-suspend scenario -- but that was just eliminated.

My current impression is that in most (not all, but most) cases, there is little interplay between the spouses, that changing the filing strategy for spouse A does not change the optimal filing strategy for spouse B. If that is indeed the case, then A should do whatever filing strategy is best for him, and B sould do whatever filing strategy is best for her.
All this is different than your family financial stuff up to now. We are still getting our heads around the fact that (on Medicare) we no longer have family health insurance -- we each have our own policy that incompletly independent from the other's. Even thought it's the same Medicare Supplement policy form from the same company.

In broad terms, the lower-earning spouse get the higher of their own SS benefit or half the higher-earning spouse's benefit. There are some minor tweaks you can make revolving around the cutoffs at FRA, but the monetary effect in actual dollars is small. Certainly nowhere near the "This little trick will get a married couple an extra $15,000/yr {click here}".

Most of the confusion about all this is that so many people ignore the time value of money.
They think that $750 today is less money than $1000 in 4 years which is less than $1320 in 8 years -- when actuarially and proper discounted, they have (approximately) the same NPV.

And as we just found out withe 2016 Medicare increase and the "hold harmless" rule, deferring can cost you actual cash money. That's something that I've never read about before.

Just a few disagreements with what you say....

If there is a very large benefit vs a very small (or non existing) benefit, then the large needs to take into account what is best for BOTH parties...

As an example, say husband was the only one who worked... and wife has family history of living a long life... then it is better to wait till 70 to get the max benefit for spouse... (I did not calculate if taking at 62 with spousal at the same age is better, but I doubt it... this is if both are the same age)...

Now, take the above and make wife 8 years or more younger... since both starting at 62 is out, then waiting till 70 is even a smarter decision for both... not neutral as you say...


I also take exception to saying $750 today is worth the same as $1000 in 4 years.. that is a 10% return.... you cannot get that today... in today's rate it is closer to $800... so waiting is better by $200 in real income....

 

[Independent]

In broad terms, the lower-earning spouse get the higher of their own SS benefit or half the higher-earning spouse's benefit. There are some minor tweaks you can make revolving around the cutoffs at FRA, but the monetary effect in actual dollars is small. Certainly nowhere near the "This little trick will get a married couple an extra $15,000/yr {click here}".

I'd say that "lower-earning spouse gets the higher of their own SS benefit or half the higher-earning spouse's benefit" as long as they are both alive. If the higher earning spouse dies sooner, the lower earning spouse "steps into the shoes" of the higher earning spouse after that death.

 

[youbet]

Most of the confusion about all this is that so many people ignore the time value of money.

+1

It's a risk, but it's entirely possible that the value of a portfolio created by taking SS at 62 and investing the monthly payments will, at age 70, be large enough to more than compensate for the difference between age 62 and age 70 SS payments. That is, (age 62 SS + 4% accumulated portfolio) = or > (age 70 SS).

I appreciate your analysis and spreadsheet work. Although, I'd guess that more passive investors will likely pass on the opportunity to actually come out ahead by starting SS at 62 and favor the more conservative SS as an age 70 annuity approach. Each to his own. Being comfortable in your investments and your investment style is key. Your spousal situation always plays a large role.

 

[rayvt]

I also take exception to saying $750 today is worth the same as $1000 in 4 years.. that is a 10% return.... you cannot get that today... in today's rate it is closer to $800... so waiting is better by $200 in real income....

All this runs into the statement from the SSA that, by design, the lifetime benefit is approximately the same no matter where between 62 and 70 you start. And indeed when you run the figures, the break-even point is pretty close to the life expectancy. Women, of course, get the best end of the deal and men the worst, because the payouts are the same for either sex but women live longer.
On the racial side,blacks get the worst deal and hispanics the best. The age 62 LEs are 21 yrs (blacks), 25 years (hispanics), and 23 years (white).
All of these total payout differences are larger than the differences between filing ages.

...[disagree that] $750 today is worth the same as $1000 in 4 years.. that is a 10% return

Actually, it's 7.5% return.

I always start out with simple back-of-envelope math. Average LE at 62 is 21.2 years, to age 83.1.
$750 * 12 * (83.1 - 62) = $190K.
$1000 * 12 * (83.1 - 66) = $205K

Big picture, $190K and $205K are pretty close.

As comparison vs. sex: 62 YO Female LE is 22.7 yrs, male is 19.8 yrs
$750 * 12 * (22.7) = $204K
$750 * 12 * (19.8) = $178K

The lifetime payout difference due to sex is larger than the difference due to filing age. The difference due to something you cannot change is larger than the difference from optimizing the filing age. So why bother? The little tweaks you make are overshadowed by a thing that you have no control over.

(And, no, Bruce Jenner didn't add 3 years to his life expectancy when he became Caitlin.) ;-)

I'd guess that more passive investors will likely pass on the opportunity to actually come out ahead by starting SS at 62 and favor the more conservative SS as an age 70 annuity approach.

Only people who are extremely well-to-do even have the option of delaying to 70. And people who are extremely well-to-do don't fret about a trivial (in percentage terms) amount of extra money. Donald Trump doesn't drive across town to save 5 cents on a gallon of gas.

 

[misanman]

Well to do?

Only people who are extremely well-to-do even have the option of delaying to 70.

Wow, never thought of myself as extremely well-to-do. Guess I should thank my lucky stars!

 

[Texas Proud]

All this runs into the statement from the SSA that, by design, the lifetime benefit is approximately the same no matter where between 62 and 70 you start. And indeed when you run the figures, the break-even point is pretty close to the life expectancy. Women, of course, get the best end of the deal and men the worst, because the payouts are the same for either sex but women live longer.
On the racial side,blacks get the worst deal and hispanics the best. The age 62 LEs are 21 yrs (blacks), 25 years (hispanics), and 23 years (white).
All of these total payout differences are larger than the differences between filing ages.


Actually, it's 7.5% return.

I always start out with simple back-of-envelope math. Average LE at 62 is 21.2 years, to age 83.1.
$750 * 12 * (83.1 - 62) = $190K.
$1000 * 12 * (83.1 - 66) = $205K

Big picture, $190K and $205K are pretty close.

As comparison vs. sex: 62 YO Female LE is 22.7 yrs, male is 19.8 yrs
$750 * 12 * (22.7) = $204K
$750 * 12 * (19.8) = $178K

The lifetime payout difference due to sex is larger than the difference due to filing age. The difference due to something you cannot change is larger than the difference from optimizing the filing age. So why bother? The little tweaks you make are overshadowed by a thing that you have no control over.

(And, no, Bruce Jenner didn't add 3 years to his life expectancy when he became Caitlin.) ;-)


Only people who are extremely well-to-do even have the option of delaying to 70. And people who are extremely well-to-do don't fret about a trivial (in percentage terms) amount of extra money. Donald Trump doesn't drive across town to save 5 cents on a gallon of gas.

Opps... only did 3 years... yep 7.5%


But, the neutral part was put in place with a normal rate environment.... we have not been in a normal rate environment for 8 years...


I also do agree that the difference is not that great for a single person... however, it can be HUGE for a married person... my DW is about 10 years younger than me.... she will get more SS off my record over her lifetime than I will get... there really is a no brainer decision when it comes to me... most people on this board are married... most are not as clear cut as me, but when you throw a spouse in the calculation it is not neutral... when you take it can make a big difference....

 

[ducky911]

Hi,

This thread is, well, funny. Seems like every two to three months the topic comes up and it goes viral.

I spent a lot of time making spread sheets and reading, got pretty close to the right answer .

Than I spent 40 dollars to see how close I was and bought Maximize My Social Security....money well spent as it did tweak my plan for a few plus thousand with a fine tune trick.

I have no association with them.
https://maximizemysocialsecurity.com/

I would like to find 4 people to buy my old spread sheet mess for 10 dollars each.

 

[pb4uski]

Just curious, what was the fine tune trick and is it generally applicable to other's situations?

 

[ducky911]

Just curious, what was the fine tune trick and is it generally applicable to other's situations?

i'm 64 wife is 61.

there is a couple years that I can go on hers while (half of mine is more than hers) I am waiting for 70

That not it exactly and if I change the parameters it changes the recommendation. I have not looked at it lately plan to revisit it when I am 66 in two years.

The program has set me free from thinking about what is best and I can move on to other things.

Bob

 

[rodi]

i'm 64 wife is 61.

there is a couple years that I can go on hers while (half of mine is more than hers) I am waiting for 70

That not it exactly and if I change the parameters it changes the recommendation. I have not looked at it lately plan to revisit it when I am 66 in two years.

The program has set me free from thinking about what is best and I can move on to other things.

Bob

I think that's part of what was just legislated out. File and Suspend, deemed, etc.. So your few thousand dollar tweak is gone.

 

[ducky911]

i'm 64 wife is 61.

there is a couple years that I can go on hers while (half of mine is more than hers) I am waiting for 70

That not it exactly and if I change the parameters it changes the recommendation. I have not looked at it lately plan to revisit it when I am 66 in two years.

The program has set me free from thinking about what is best and I can move on to other things.

Bob

here is the current recommendation based on my info and assumptions

• Bob files for spousal benefits in Dec 2017, the year Bob turns 66.
• Bob files for retirement benefits in Dec 2021, the year Bob turns 70.

• Teri files for retirement benefits in Oct 2017, the year Teri turns 62.
• Teri files for spousal benefits in Dec 2021, the year Teri turns 66

It does state that they will soon be updating the program to cover any new laws on dec 5th....anyway I look at it my next time to visit this is in 2 years.

 

[haha]

All these things are worth paying attention to once, a few months before a decision point, making the decision, and repeat when/if there is another decision point.

The main thing to remember is that legislative or other changes to interpretation and implementation are much bigger than anything that might be called a "tweak".

Ha

 

[Alan]

All these things are worth paying attention to once, a few months before a decision point, making the decision, and repeat when/if there is another decision point.

The main thing to remember is that legislative or other changes to interpretation and implementation are much bigger than anything that might be called a "tweak".

Ha

Yes indeed. A "tweak" is a long time in politics.

 

[kimcdougc]

The problem being, how many 85 or 90 year olds have anything resembling "quality of life" versus "wish they were dead and probably would be better off dead"? We can all point to exceptions, but I have considerable actual experience with the very elderly and it is not a state that I look forward to (even though, at 66, I have zero health problems and am fitter than 99.9% of my peers). Most of the very elderly that I know are miserable regardless of whether they are in state-run warehouses or private facilities. Those who are happiest (relatively speaking) seem to be those who remain in their homes, even long after this is a safe alternative. I just don't see worrying about what my situation is going to be if and when I'm 87 or 93 as even being part of the equation.

I currently volunteer with the seniors at my local community center. I am 55 and have been retired since the age of 50. These lovely seniors (around 50 who come regularly) amaze me. I would say 90% of them have a great attitude towards life. They cease to amaze me at how physical they are. So, in my mind I have to disagree with you. They also give me inspiration to get up and go. They are a wonderful group of people from whom I have learned a lot about life and growing older.

 

[daylatedollarshort]

To me the only reason not to take it when your 70 is A) you don't plan to live very long due to current health issues B) you need the money now C) You have plenty of money and would rather have a "guarantee" of getting as much back out of the government as possible to leave your heirs should you pass early.

That is a good list. I would add uncertainly over future benefit reductions / tax changes and income diversification. Taking SS at 62 has reduced SS benefits but leaves us with more portfolio income, and I think for us income diversification is the main consideration. If I was worried about running out of money then that would be the main consideration and I would delay.

 

[mathjak107]

if legacy money is an issue spending down assets while delaying can leave less for heirs if you die .

they can't inherit your ss check you didn't take while spending down your own money that could have been there for heirs .

 

[daylatedollarshort]

if legacy money is an issue spending down assets while delaying can leave less for heirs if you die .

they can't inherit your ss check you didn't take while spending down your own money that could have been there for heirs .

Good point. Or the money could be left to a charity as well.

The only thing I wonder about are medical advances and living to some crazy age well over 110. But DH says that is probably right up there with a book I had as a kid "You Will Go to the Moon". The closest I've ever gotten to the moon has been watching Star Trek reruns on Netflix.

 

[Golden sunsets]

if legacy money is an issue spending down assets while delaying can leave less for heirs if you die . they can't inherit your ss check you didn't take while spending down your own money that could have been there for heirs .

On the other hand spending down assets now while waiting to file until 70 can leave a bigger legacy as the legacy will be bigger if one outlives the LE charts.

 

[Independent]

if legacy money is an issue spending down assets while delaying can leave less for heirs if you die .

they can't inherit your ss check you didn't take while spending down your own money that could have been there for heirs .

Spending down assets while delaying can leave less for heirs if you die early .

OTOH, spending down assets while delaying, then rebuilding assets from your larger SS checks can increase your legacy if you die later.

Depends, of course, on your actual investment yield.

 

[Independent]

Only people who are extremely well-to-do even have the option of delaying to 70. And people who are extremely well-to-do don't fret about a trivial (in percentage terms) amount of extra money. Donald Trump doesn't drive across town to save 5 cents on a gallon of gas.

Of course, "extremely well-to-do" is a pretty subjective phrase.

It seems to me that anybody with enough financial assets to cover four years of SS benefits has the option of deferring from 66 to 70. If the average SS PIA is 40% of average annual earnings, that would mean savings of 1.6 years of earnings, or 2.1 years if you want to match the age 70 benefit.

For median incomes of just under $50k, that would take about $100k of savings.

I'd think that, with more people retiring with 401k savings and fewer with DB pensions, we'd be seeing more people with that level of savings.

 

[mathjak107]

Spending down assets while delaying can leave less for heirs if you die early .

OTOH, spending down assets while delaying, then rebuilding assets from your larger SS checks can increase your legacy if you die later.

Depends, of course, on your actual investment yield.

yep , you either trade market risk for longevity risk but you will always be betting on one or the other .

 

[walkinwood]

The main attraction of waiting until 70 is that my wife, who has never worked, will have her SS benefit or survivor's benefit calculated off of mine - so if I wait, hers will be correspondingly larger.

My understanding is that the spousal benefit is calculated as 50% of your FRA benefit, so there is no advantage there, of your waiting till 70.

 

[pb4uski]

The advantage would be is if you predecease your spouse that your spouse would inherit your benefit (with delayed retirement credits) if it is higher than her benefit. In Runner's case (and mine), since our DW never worked, that could be substantial since women tend to live longer than men.

 

[Animorph]

I'm not sure I even want to touch the SS part after all this.

But, OP is is living off income right now, not a portfolio, according to the OP. If it is the case that OP has very little savings, which seems unlikely but a possibility, it might be wise to go ahead and take the SS early and build up some savings.

If there is already a portfolio, then all the previously discussed stuff may apply.

 

[jpjr]

Social Security Misconceptions - interesting read

https://sites.google.com/site/ssmisconceptions/misconceptions-affecting-the-individual

Another analysis to add to the discussion and keep you awake at night. David Fromme provides some data regarding the effect of taxes on your decision to take or delay SS.