Started Social Social Security at age 62 but my break even date is well into my 80s

[Retired and Restless]

Five years ago when I was 61 years old I read everything I could about what is the best age to start collecting Social Security. ALL the experts told me that I should wait until I am seventy to start collecting because I would make 134% of what I would get at age 66.

I lost my job at age 62 and have not worked since. I am not married and have no kids.

I had two choices:

1) Not apply for Social Security until I was seventy (70)- as per the experts- and pull $ out of my investments to cover the amount of what I would get in Social Security from age 62-70. ($1400 a month adjusted to inflation for eight years (about $134,000 plus unknown inflation increases)

This option would take that money out of circulation and I would not have it to invest in the stock and bond market.


2) Start collecting the reduced early Social Security at age 62 and get $1400 a month to add to my pension and retire comfortably.

After much thought, I decided to ignore the experts and collect at age 62 and invest the money I would have pulled out of savings and my 401k account to pay for my living expenses if I would have waited until I was 70 to collect.

So far with great investment returns I am doing great and my projected break even date has moved into my mid 80s.

(Has anyone else considered that if you use invested assets to pay living expenses while waiting to get to age seventy to collect Social Security, you are losing the value of those assets? Even if I don't get a 7% annual increase promised if I wait to collect, I move my break even date up significantly by getting more checks and investing the money I would have spent.)

Your thoughts?

 

[gauss]

If you know the market is going up up up then sure this works.
The only problem is that you don't know that in advance.

Since hopefully I won't need the money at 62, I plan to wait until age 70 (or later if they allow it and bump up the DRCs accordingly). Delaying SS draw is the lowest cost "life annuity" that is available to purchase. I like the diversification of income streams and the robustness to long life that this strategy brings.

I am happy that it worked out for you -- especially considering the involuntary job loss, but you can't assume this will happen in all scenarios IMHO.

You will likely see counter-comments to mine below pointing out that over long periods of time the market does go up on average. I sure hope it continues, but I also wish to be as defensive as possible to the scenario were it does not.

It helps me sleep at night and that is priceless.

-gauss

 

[braumeister]

No matter when you start, break even date is somewhere in your 80s for most people. That's what they mean when they call it "actuarially neutral."

 

[NW-Bound]

Five years ago when I was 61 years old...

I lost my job at age 62 and have not worked since. I am not married and have no kids...

After much thought I decided to ignore the experts and collect at age 62 and invest the money I would have pulled out of savings and my 401k account to pay for my living expenses if I would have waited until I was 70 to collect...

So, you started to draw SS 4 years ago in 2012. The market has been doing great since, so it worked out well.

And if you were to start retirement back in 2009 right when the market crashed, you definitely should draw SS instead of selling your pummelled stocks for dirt cheap.

If someone is to start retirement right now at 62, with the market at an all-time high, should he sell his stocks to live on and delay SS, or should he still draw SS early?

What one gains by delaying SS is known. What one gains or loses in the market is unknown, and hard to balance against the gain in SS. In some cases, such as during 2009, the answer is clearer.

 

[Retired and Restless]

No matter when you start, break even date is somewhere in your 80s for most people. That's what they mean when they call it "actuarially neutral."

What ever I get from the money I am investing by not pulling out assets from my retirement accounts will increase my break even date. If I average 4% over the eight years my break even date will advance 3 years, till my mid 80s.

Even if you have enough money to wait until you are seventy to collect, you are still pulling money out of your investment accounts to pay for expenses if you are retired, not working, which is lost to investments.

The stock market has been near an all time high many times and that has not stopped it from going up, up, up.

I am old enough to remember when the Dow Jones hit 1000, and back then everyone said that stocks were too high. Now it is just points from 20,000.

 

[jonat]

My wife (almost 65) just did the calculation and found breakeven at 82. We have sufficient assets that it doesn't make sense to wait until 70. I am younger (will be 62), but I too will wait until "full retirement age" (66 and 10 months) to collect.

 

[pb4uski]

+1 For single people since it is actuarially neutral in theory it doesn't much matter whether you start at 62 or a FRA or at 70. Even for singles, if one is in good health and have longevity in the family then it would be better to wait... if your health is not so good and/or family longevity is poor then it would be better to start at 62.

For singles, I think a better way to frame the deferral decision is as an opportunity to purchase a COLAed immediate annuity.

In the OP's case if their age 62 benefit was $1,400/month then their FRA benefit was probably about $1,867 and their age 70 benefit was probably ~$2,464 (assuming an age 66 FRA). So if the OP had waited until 70, they would have in essence been paying $134,400 for an COLAed SPIA that pays $1,064/month... a 9.5% payout rate. Even if you assume a 5% interest rate the "premium" paid by forgoing early SS is $160k, the payout rate is ~8%. From research that I have done on COLAed annuity pricing for a 70 year old, the payout rates are about half that (4% range), so "buying" a COLAed annuity from the SSA is a pretty sweet deal if one has the money to buy one.

I think what I would have done (and will do) is wait and see... once I turn 62, if investment results lag then I can start SS anytime that I want to.

 

[2017ish]

OP, glad it is working out for you. Hopefully it will continue.

.
...
Since hopefully I won't need the money at 62, I plan to wait until age 70 (or later if they allow it and bump up the DRCs accordingly). Delaying SS draw is the lowest cost "life annuity" that is available to purchase. I like the diversification of income streams and the robustness to long life that this strategy brings.

....

-gauss

I agree with gauss under my particular circumstances. Best longevity insurance around and DW is from long-lived stock, has graduate degree, always assiduous about staying in shape, no health issues, etc.--and a 45-50 year retirement offers possibilities of portfolio disaster.

Of course, we are not looking at an involuntary job loss either--and have not incorporated Social into our retirement planning yet (other than that, after whatever means testing might be imposed, it will likely be spent on educations of hypothetical grandchildren). Like with most things, everyone's mileage can vary.

 

[FiveDriver]

The "break even" calculation ignores the impact of taxes, which is not insignificant.

The Social Security paycheck enjoys favorable treatment -- the reportable amount is often 50% of your total check, and never higher than 85%. That's a good discount.

The increased value of your IRA or 401K is going to be taxed upon withdrawal. -- this could be enough to bump you into a higher Tax Bracket.

To be fair, you must also realize that your Medicare Premiums are going up each year that you don't draw SS. The Hold Harmless clause in action.

Every body makes their own call on this. There's no one size fits all approach. Some folks place a premium on the Present Value of Money.
And the answer is not a 62 vs 70 decision.....you can start to draw at any point along the way. I think DRC's are applied only in December or January, and not during the year.

 

[Retired and Restless]

So many of my friends seemed so healthy, lived a good lifestyle and were college educated professionals, and I was completely shocked when they died suddenly in their 60s and 70s. (Many of them died before getting much or any money from Social Security because they took the experts advice and waited until they were 70 to collect.

Now their children did not get much of of an inheritance because their parent spent down a lot of their assets and investments from age 62-70 because they were not working and waited until they were 70 to collect the larger Social Security Check.

 

[jazz4cash]

I think it's not a huge difference because I would spend from a bucket of cash/fixed income assets and let the equities run. Also I don't have to choose between 62 and 70. Once I get to 62 I'll go year by year but likely not beyond FRA.

 

[niven]

I think it's not a huge difference because I would spend from a bucket of cash/fixed income assets and let the equities run. Also I don't have to choose between 62 and 70. Once I get to 62 I'll go year by year but likely not beyond FRA.

+1
I don't know why so many present it as 62 or 70 only. While I would like to wait until 70, I'll start when I decide the time is right since I can't see into the future very well.

 

[Chuckanut]

Hopefully, I will collect on my ex's SS for a few years while mine build up. That's another factor that some of us have to take into consideration.

Like many say, there is no requirement to choose 62 or 70. One can choose anywhere in between. One advantage to not taking SS at 62 is that you still have the choice of when to take SS available. Once you decide, however, it's done. It's a very individual decision.

 

[racy]

For me it's not about collecting the most money at some break even point. Rather, SS is my longevity insurance. The key consideration is the cost/benefit analysis of the 4 various scenarios (collect early or late / die early or late). For example:

If I take my SS early, but then I die early, I have a small benefit of receiving at least something, but it is very small since I had more than enough money saved in anticipation of a long retirement that didn't happen.

If I plan to take my SS late but I end up dying early, then I have a small loss of not getting as much SS, but since I had enough to live on from my savings and am dead, I don't miss the loss.

If I take my SS early and end up living a long long time, then I have put myself in a position where I could run low of funds and my SS is less than it could have been. Potentially a large cost.

If I take my SS late and I end up living a long long time, then I am getting the max benefit that I could in the situation where I might need the max benefit, potentially a large advantage.

What this tells me is that I avoid a large cost and gain a large advantage in the scenarios where I take SS late. In the scenarios where I take SS early I risk incurring the large cost and have potential for a small gain, but the only benefit of that (small) gain is to heirs since I have to die to get it. Consideration of each specific scenario and cost/benefit of each matters because I care more about results when I am living than I do about results where I am dead.

The absolute size of the dollars received is outweighed by the utility of those dollars in each of the scenarios.

 

[growing_older]

For me it's not about collecting the most money at some break even point. Rather, SS is my longevity insurance. The key consideration is the cost/benefit analysis of the 4 various scenarios (collect early or late / die early or late). For example:

If I take my SS early, but then I die early, I have a small benefit of receiving at least something, but it is very small since I had more than enough money saved in anticipation of a long retirement that didn't happen.

If I plan to take my SS late but I end up dying early, then I have a small loss of not getting as much SS, but since I had enough to live on from my savings and am dead, I don't miss the loss.

If I take my SS early and end up living a long long time, then I have put myself in a position where I could run low of funds and my SS is less than it could have been. Potentially a large cost.

If I take my SS late and I end up living a long long time, then I am getting the max benefit that I could in the situation where I might need the max benefit, potentially a large advantage.

What this tells me is that I avoid a large cost and gain a large advantage in the scenarios where I take SS late. In the scenarios where I take SS early I risk incurring the large cost and have potential for a small gain, but the only benefit of that (small) gain is to heirs since I have to die to get it. Consideration of each specific scenario and cost/benefit of each matters because I care more about results when I am living than I do about results where I am dead.

The absolute size of the dollars received is outweighed by the utility of those dollars in each of the scenarios.

This comes up from time to time and there is no end of calculating whether in up down or sideways markets there is a numeric advantage to taking SS early or late. But I think you have described the correct framing of the problem. In the cases where I die, but had money enough to live on, my heirs may get more or less, but for me the distinction is moot because I'm dead. In the cases where I do live a long time, then I am always better off starting SS at 70. If I have to "bet" on an outcome, the only outcome I care about if the one where I live.

If you need the income at 62, then by all means take SS early. If your heirs need to be sure to get at least a certain size of inheritance, you can use life insurance. But if you stop trying to calculate the meaningless break even point and consider what actually might matter in the cases where you care (long life) then the choice is clear.

 

[Katsmeow]

I have debated this endlessly over the years. DH took SS in 2010 at a few months shy of 63 when he retired. In his case, this was an extremely easy decision as we had too children under 18 at the time.

A few weeks I just applied to start receiving benefits in 2017 a couple of months before I turn 63.

I turned 62 earlier this year. I do a small amount of work from home but it was under the SS earnings threshold for benefit reduction this year and I expect to be so next year as well.

I've seen many people say that they are deferring collecting in order to build up benefits for a spouse whose benefits are so slow that spouse will be receiving only spousal benefits.

In our case that doesn't apply. My benefits are slightly higher than those of DH but we are very close to each other in terms of our individual benefits.

I decided to take benefits for 2 reasons:

1. On paper, I could have deferred and we could have withdrawn more from retirement funds over the meantime. However, that would have drawn down those funds more than I feel comfortable drawing them down. We could have done it, but it would have engendered anxiety on my part. I would prefer to keep a good cushion in the retirement funds. Other people might have felt differently.

2. I think that there is a possibility of benefits being reduced in the future. To be clear, I do NOT think that there is any benefit to being grandfathered in. That is, if a reduction would impact someone my age who wasn't taking benefits yet I think it will likely affect me even if I am taking benefits. However, by taking benefits now I stand to receive benefits at potentially a higher level (that is the current benefit level) for the period of time between now and whenever any future reductions might take place.

I think that choice of when to take SS is very individual and one size doesn't fit all.

 

[nvestysly]

As many have said, there are lots of ways to slice this and calculate what is/could/should be the outcome of taking withdrawals early vs. delayed.

I'm in OP's camp... take it early. At this point (I'm 57) I plan to start taking SS as early as possible and invest the money. I think I'll be perfectly happy with a sideways or even declining market - I'll be buying everything on sale!

When I die, assuming there is some money remaining, those funds will be used to continue doing things that my wife and I have participated in and supported during our lives. So having money in my name and allowing it to grow will definitely support things I believe in - even after I'm dead. To me, what my money does after I'm deceased is not a moot issue - it's a very real issue.

 

[daylatedollarshort]

We will probably both take SS at 62 for income diversification reasons. We'll live off SS, pensions, hobby income and 0 -1% of the portfolio. Our longevity insurance is our low overhead relative to our retirement income streams and lifestyle.

 

[alaska55]

So, you started to draw SS 4 years ago in 2012. The market has been doing great since, so it worked out well.

And if you were to start retirement back in 2009 right when the market crashed, you definitely should draw SS instead of selling your pummelled stocks for dirt cheap.

If someone is to start retirement right now at 62, with the market at an all-time high, should he sell his stocks to live on and delay SS, or should he still draw SS early?

What one gains by delaying SS is known. What one gains or loses in the market is unknown, and hard to balance against the gain in SS. In some cases, such as during 2009, the answer is clearer.

I guess you know when you're going to die.

 

[GoodWishes]

No one knows the future including the so call experts.

Make a well informed decision that one is comfortable with. Everyone's situation is different and has a different comfort level.

At this point (still 8 years to 62) I am thinking I will likely want to take SS early. DH and I did all our retirement planning without including any SS. We will evaluate when the time comes. As others pointed out, we can start any time between 62 to 70.

 

[NW-Bound]

I guess you know when you're going to die.

Touché.

I do not expect to live that long, but when including my wife, the chance of one of us getting to the 80s is better.

On the other hand, the survivor would lose one SS, and I should take that into consideration too.

 

[Sunset]

OP has been lucky the market has gone up, if it stayed flat he would not be so happy.

Myself, I'm going to take mine early at 62, buy the winning PowerBall ticket , and tell you all how smart I was, even though others say it's not the best choice.

 

[Bestwifeever]

We did something crazy and both took it at our respective FRAs.

 

[NW-Bound]

Here's a calculator so people can play different what-if scenarios: SSAnalyze - Bedrock Capital Management.

When I plug in our expected SS benefits, and play with different expected longevities, the calculator recommends both of us to delay to 70 only when we are both going to live beyond 85.

When I start to cut either of our lifespans from 85, the calculator cuts back my wife's claiming age. That makes sense because when one of us dies, the survivor will keep mine which is higher. As her lower SS is lost at either death, it makes sense to claim hers early.

When one of the lifespans is 75 or less and the other is at 85 or better, the calculator recommends claiming at 62 for her and 70 for me.

The above has been my thinking all along.

PS. If both of us are going to expire before 75, of course the calculator says we both should claim it ASAP, as it should be.

 

[NW-Bound]

I forgot to add that if both of us are going to die before 75, barring some catastrophic market events, we will be leaving behind quite a bit of money, even if we do not both claim it at 62.

It's because that means we will only have 15 years to spend our stash (we are 60 now), and that would require a WR of 100/15 = 6.7%. As we do not spend anywhere near that, even if we draw no SS until 70, my children will still get plenty of money.

In other words, I do not see the need for both of us to draw at 62. The argument for my wife to draw at 62 is a lot stronger.