Suze Orman SS payments advice

[imnontrad]

The 8% is NOT a return... it is the increase in your monthly SS if you defer benefits for a year... but not anything close to a return.

I took your chart and expanded. I started with collecting $1,000 at age 66 and I factored in a COLA for each year. I used 1%, 2% and 3% COLA.

That made a difference - the "break even point" changed by at most one year for each increase. But the cumulative amount received added up. Putting in a different amount like $24,000 to start changed the cumulative amount but did not change any of the break even years.

My life expectancy (based on the outdated tables currently being used) is 83. But most in my family live longer. My mother lived to 89 and I am better health at this age than she was. So (as long as I survive 2020), I expect to live longer.

In addition, waiting until 70 means I will have more time to do Roth conversions. That will mean lower RMD starting at age 72 and possibly lower income taxes and lower Medicare premiums.

0% COLA
Break even age
67 79
68 80
69 80
70 81

Cumulative income at age 100
66 420,000
67 440,640
68 461,894
69 483,729
70 506,102

1% COLA
Break even age
67 80
68 81
69 81
70 82

Cumulative income at age 100
66 499,923
67 521,740
68 544,042
69 566,781
70 589,898

2% COLA
Break even age
67 81
68 82
69 82
70 83

Cumulative income at age 100
66 599,934
67 622,518
68 645,414
69 668,560
70 691,881

3% COLA
Break even age
67 82
68 83
69 83
70 84

Cumulative income at age 100
66 725,545
67 748,183
68 770,914
69 793,660
70 816,337

 

[Oakster]

The thread never had a chance (I only made it through page 2)

No fair discussion from the get go.

 

[Global Wizzo]

When I looked at mine, taking anything before FRA cost me a big % due to income. At 66, nothing was paying much interest. I built a spreadsheet and ran the numbers. Crossover between starting at 66 and waiting to 70 was about 9 years for me. I actually started in Dec to get the COL raise. Difference between Dec and Apr did not make it worth delaying and losing the COL increase.

 

[RobbieB]

Since the covid is gonna kill us early, might as well take it early.

 

[pb4uski]

.... I took your chart and expanded. I started with collecting $1,000 at age 66 and I factored in a COLA for each year. I used 1%, 2% and 3% COLA. ...

An interesting point I hadn't thought about... since the cash flows increase with inflation then the returns in the chart that I posted are real rather than nominal... so that 4.5% if you live to age 90 is pretty good if it is real. The addition of inflation also cuts back the breakeven point by a couple years.

 

[Perryinva]

Why would increased COLA cause the break even to take longer? (Not that I care one whit about break even). It should be a wash, as the delayed amounts increase by the same COLA as the claimed early amounts. Of course the total amounts collected increase, but without knowing true inflation it matters not, as actual personal inflation can be totally whack compared to inflation used by SSA. And again, without taking personal tax (both as income tax and Roth conversion gains) situations and incomes in to account (impossible) you may as well be comparing the same gross dollar gains in a tIRA with those in a Roth....apples and kumquats. Silly comparisons.

Though the gains are real gains, the larger the difference is in absolute dollars, then the larger a percentage of overall income is tax reduced. Taken to an extreme, a couple both living entirely off of age 70 claimed SS and a modest portfolio of Roth and taxable that fills the zero% bracket can have a tax free $120k income, for life, while a 62 filer could easily pay 12/15 for life on that same income. Everyone’s situation can be so totally different, comparisons like this are just another data point that may not even apply. Though I agree most here are likely always looking at 85% of SS taxed, either way. The higher your tax bracket, the less delaying means to you in real dollars as a percentage of your working income.

 

[ceciledian]

The ACA has certainly added another consideration for when to start taking ss, as if it weren't enough of a decision already for many folks.

In our case, the ACA made the decision for us, at least until DH starts Medicare at 65, then we reconsider.

 

[jazz4cash]

I can't believe I'm posting to a thread with Suze in the title

But, I guess we've moved on from there.

I'm sorry clobber left as I wanted to hear more on his interpretation. I actually agreed with him after re-reading the article carefully but the article written so poorly it's splitting hairs to analyze some statements and others are clearly overblown. That corny attempt to be witty obscures the author's point that filing early and investing the payments beats waiting to file even with the 8% increase in payments from FRA to age 70. I'd like to hear some informed opinions from the forum on any holes in that specific point. Eventually I'll take a deep dive into the author's math but for now it is pulling on me to file 30 months ahead of FRA.

 

[pb4uski]

Why would increased COLA cause the break even to take longer? (Not that I care one whit about break even). It should be a wash, as the delayed amounts increase by the same COLA as the claimed early amounts. Of course the total amounts collected increase, but without knowing true inflation it matters not, as actual personal inflation can be totally whack compared to inflation used by SSA. And again, without taking personal tax (both as income tax and Roth conversion gains) situations and incomes in to account (impossible) you may as well be comparing the same gross dollar gains in a tIRA with those in a Roth....apples and kumquats. Silly comparisons.

I worded it awkwardly and you misread it... it makes the breakeven shorter rather than longer. Not alot... just a couple years. I suspect due to compounding... what you forgo only has 4 years of compounding whereas what you receive has a lot more.

But since you think it is a silly comparison then just chose to ignore it.

Table below is same as previous but with benefits increased 2% annually.

	No COLA					2% COLA
Age	SS at 66	SS at 70	Diff	IRR		SS at 66	SS at 70	Diff	IRR
66	100	0	(100)	NM		100	0	(100)	NM
67	100	0	(100)	NM		102	0	(102)	NM
68	100	0	(100)	NM		104	0	(104)	NM
69	100	0	(100)	NM		106	0	(106)	NM
70	100	132	32	NM		108	143	35	NM
71	100	132	32	NM		110	146	35	NM
72	100	132	32	NM		113	149	36	NM
73	100	132	32	NM		115	152	37	NM
74	100	132	32	NM		117	155	37	NM
75	100	132	32	-186.6%		120	158	38	NM
76	100	132	32	-9.8%		122	161	39	-7.1%
77	100	132	32	-7.0%		124	164	40	-4.2%
78	100	132	32	-4.8%		127	167	41	-2.0%
79	100	132	32	-3.1%		129	171	41	-0.2%
80	100	132	32	-1.7%		132	174	42	0.3%
81	100	132	32	-0.5%		135	178	43	2.5%
82	100	132	32	0.5%		137	181	44	3.5%
83	100	132	32	1.3%		140	185	45	4.3%
84	100	132	32	2.0%		143	189	46	5.0%
85	100	132	32	2.6%		146	192	47	5.6%
86	100	132	32	3.1%		149	196	48	6.2%
87	100	132	32	3.5%		152	200	49	6.6%
88	100	132	32	3.9%		155	204	49	7.0%
89	100	132	32	4.2%		158	208	50	7.4%
90	100	132	32	4.5%		161	212	51	7.7%
91	100	132	32	4.8%		164	217	52	7.9%
92	100	132	32	5.0%		167	221	54	8.2%
93	100	132	32	5.2%		171	225	55	8.4%
94	100	132	32	5.4%		174	230	56	8.6%
95	100	132	32	5.6%		178	234	57	8.7%
96	100	132	32	5.7%		181	239	58	8.9%
97	100	132	32	5.8%		185	244	59	9.0%
98	100	132	32	6.0%		188	249	60	9.1%
99	100	132	32	6.1%		192	254	62	9.2%
100	100	132	32	6.2%		196	259	63	9.3%

 

[Perryinva]

When I looked at mine, taking anything before FRA cost me a big % due to income. At 66, nothing was paying much interest. I built a spreadsheet and ran the numbers. Crossover between starting at 66 and waiting to 70 was about 9 years for me. I actually started in Dec to get the COL raise. Difference between Dec and Apr did not make it worth delaying and losing the COL increase.

You always get the COLA, whether filed in Dec or April. Its never lost. What you do lose is earned delayed credits (called DRCs). Which is related to when your birthday day is relative to the first of the year and when you claim. The only exception after FRA is at age 70, when all credits are applied regardless of your birthday.

If your birthday is in July & you claim at age 68 in Nov, then you lose the credits earned from Jan through Oct for both Nov & Dec payments, with them starting in Jan of the next years payment. No retroactive payments. So a “loss” of 20 month-credits. If you claim in Jan of the following year all those credits are applied in Jan, plus the credits for Nov & Dec. No lost credits, but of course 2 less monthly payments. Apply in March, and you lose the Jan & Feb credits for 10 months until the following year. The credits are earned monthly but only applied annually.

 

[pb4uski]

Interesting. So my birthday is in November and I plan to wait until 70 to claim SS so if I claimed "on-time" as I understand it the first benefit payment would be in December for the month of November since SS is paid in arrears.

So if I apply "on-time" and get a payments in December and January for November and December they would not reflect the 8% delayed retirement credit for my last year of delaying? But if I wait and apply a month or two later retroactive to when I turn age 70 then they would?

 

[Perryinva]

Bad timing. Took me a long time to post that. I was referring to @ imnontrad who showed increased breakeven date with increased COLA, not @pb4uski, who just mathematically showed what I was trying to get across, that it should be a wash or an increase due to Compounding of the differential & makes a difference.

 

[Perryinva]

Interesting. So my birthday is in November and I plan to wait until 70 to claim SS so if I claimed "on-time" as I understand it the first benefit payment would be in December for the month of November since SS is paid in arrears.

So if I apply "on-time" and get a payments in December and January for November and December they would not reflect the 8% delayed retirement credit for my last year of delaying? But if I wait and apply a month or two later retroactive to when I turn age 70 then they would?

Yes. Insane as that sounds, that is sort of correct, because you actually can apply for full credit at age 70 in advance (like 3 months) and lose nothing. But if you filed poorly and claimed at age 69 & 11 months, you WOULD lose those credits earned that year until the following Jan.

 

[pb4uski]

Sounds like and easy decision... and close to a free lunch... an 8% bump on my November and December benefit payments for waiting a month or two to get them.

 

[Shardo]

I did a quick and dirty calc totaling the SS$ received each year and saw that the lines crossed at 78 years old whether starting benefits at 62 or 66.7 yrs.

Since none of my mom's family made it to 78, I started benefits at 62.

Didn't really need it and still don't but wanted to try and get my share of what I had put in.

 

[harley]

Yes. Insane as that sounds, that is sort of correct, because you actually can apply for full credit at age 70 in advance (like 3 months) and lose nothing. But if you filed poorly and claimed at age 69 & 11 months, you WOULD lose those credits earned that year until the following Jan.

Now that's the kind of information I hang around here for. Free money. And I only had to read 10,000 meaningless posts to find it.

 

[pb4uski]

Now the only question is whether I'll remember this in 5+ years when I turn 70. It seems that sometimes I have trouble remembering what we had for dinner last night, so remembering this neat trick might be a stretch... I guess I'll have to write it down.

 

[ivinsfan]

Now that's the kind of information I hang around here for. Free money. And I only had to read 10,000 meaningless posts to find it.

The good news is gems like this do get repeated in fact , we used this info when deciding when to apply for DH's SS...

 

[RunningBum]

But, I guess we've moved on from there.

I'm sorry clobber left as I wanted to hear more on his interpretation. I actually agreed with him after re-reading the article carefully but the article written so poorly it's splitting hairs to analyze some statements and others are clearly overblown. That corny attempt to be witty obscures the author's point that filing early and investing the payments beats waiting to file even with the 8% increase in payments from FRA to age 70. I'd like to hear some informed opinions from the forum on any holes in that specific point. Eventually I'll take a deep dive into the author's math but for now it is pulling on me to file 30 months ahead of FRA.

It depends what investment rate of return you use. The higher the rate you assume, the more risk you are undertaking. There certainly isn't a guarantee you'll get a good enough return to offset the increased benefit as you wait. You certainly might though.

 

[Perryinva]

A shorter family history expiration date is definitely the good reason to file early. Both my parents filed at 62, and DM passed at 69, DF at 81, though both were smokers, never exercised, had other health issues, so they chose wisely. Their parents except my grandmother (Died young from untreated pneumonia) on DM’s side lived in to their 90’s, and none of them were any pictures of healthy living. I see 90, health wise as a base for me to plan with until I find otherwise.

 

[Perryinva]

There is another small little often unrealized twist to the arcane way SS figures everything. It is published that all projections are always in todays dollars and ignore any predicted inflation. Unfortunately, few people realize that while your actual bend points for calculating your benefit are fixed at 62, with the PIA at your FRA used as the base for calculating your benefit, the PIA number changes every year after the new year, just on COLAs. While it should be a wash, it isn’t if there is a spousal benefit based on that PIA. Once you file, the 50% of PIA used for the base to calculate the spousal is fixed at that dollar amount. The COLA increases only affect your own benefit. So with a larger PIA, your spouse could end up qualifying for spousal or get a larger spousal than planned.

It’s not a lot if course, but in our case, if I file at 63, DW gets no spousal adder, as her own PIA based on her benefit, was barely larger than mine would be. By delaying to 70, assuming 2% COLA, when I file she would get about a $70/M adder. Even with no COLA the whole time, she still comes out getting something.

 

[SnowballCamper]

... That corny attempt to be witty obscures the author's point that filing early and investing the payments beats waiting to file even with the 8% increase in payments from FRA to age 70. I'd like to hear some informed opinions from the forum on any holes in that specific point. Eventually I'll take a deep dive into the author's math but for now it is pulling on me to file 30 months ahead of FRA.

Thanks for getting back to the meat. As RunningBum pointed out, there is the market risk for whatever investment you use to try to try to beat the higher SS payments later on. But most of us are not 100% cash and bonds, so we're comfortable with that risk.

I think there is also the solvency risk, but this is rather low.

I think using a break even analysis puts the decision in much more realistic, commonly understood terms. Using future value analysis with a discount rate and so on, while good for actuarial types with that acumen, isn't helpful much for me. I can look at my and my family's health and longevity and make a decision based on how long I think I'll live much easier than evaluating the difference between $420,000 starting at 66 vs $506,000 starting at 70 (provided I live to 100, which has its own uncertainty).

I think it comes down to where do you want to put your risk?

Take SS early. Spend it as it comes in. Probably have higher risk that living expenses exceed SS+other income (now or later in life). This gives you lower risk of leaving money on the table if you're more likely to die at a younger age than average.

Delay SS. Spend it as it comes in. Lower risk that living expenses exceed SS+other income because you have the funds that enable you to delay receipt. There is higher risk of leaving money on the SS table because people are more likely to die when they are older. Potential to receive more later in life without market/investment risk. Don't have access to any SS funds until claim is made (presumably at FRA).

Take SS early. Invest it as it comes in. Trade the risk of leaving money on SS table for market risk. This has the advantage (according to clobber's linked article) of greater upside, but also access to SS funds earlier (depending on the investment tool) in the event of an unforeseen circumstance. Of course this access is subject to investment losses, but not having taken SS early would give you zero access.

So that's how I see the options... I'm still a couple decades from this decision, so maybe there is universal basic income by then

 

[RunningBum]

Delay SS. Spend it as it comes in. Lower risk that living expenses exceed SS+other income because you have the funds that enable you to delay receipt. There is higher risk of leaving money on the SS table because people are more likely to die when they are older. Potential to receive more later in life without market/investment risk. Don't have access to any SS funds until claim is made (presumably at FRA).

Let's be clear about this: if you die, it's not your money that's left on the table, because you are dead. Your heirs get less if you die before the breakeven. At least in my own case I figure if I die before the breakeven, I'll have more of my personal investment assets to leave my heirs, so I don't consider it a problem. Certainly I could've left more by correctly guessing I'd die early, but as of now I have no idea.

 

[Perryinva]

The thing that bothered me most about the article is the glib way that “of course I can make more money by investing my early SS”, essentially equalizing the risk vs the annuity. The discussion is purely academic while SS is far off “decades!!?!” @snoballcampers analysis is as good as any. No mention of spousal benefits or death benefits (maybe not married yet) or room for Roth conversions, etc. Like saying “when I have $10M, in 20years I’ll be married to Y & buying X”. Fun to discuss, but useless this far in advance, when the entire SS system may be different by then. Less useless for those of us that are either at SS doorstep or already there in our mid 60’s. No doubt there is less incentive to delay when single, especially if unhealthy. While in accumulation phase of life, the bottom line makes more sense. When fully retired, the income sources become more important.

Anyone that started collecting later is usually quite pleased they did, especially these past 2 months, with less dependency on their portfolio for income. When talking a $25k/yr ish DIFFERENCE at age 75, (About that for just me, 2 earners could double that) that sounds pretty nice right about now. Especially since the cost to do so is relatively low, and long forgotten by then.

 

[levindb]

It may not be just YOU...

A few folks have already mentioned this, but it bears repeating. The date you select may not just impact you...you need to consider your spouse and heirs.

Rather than just calculate a BREAKEVEN point based in the amount YOU receive from SSA, make sure you include your spouse benefits as well. Then, I would recommend you also include you savings/retirement account balances as well. You can then calculate which age would benefit you most...and where the crossover points would be.

When I did this, I found that my expected Return On Investments (ROI) had a significant impact on when to take SSA benefit. With higher ROI (i.e., 8% or more), it made more sense to take the benefit early because you may never reach a breakeven/crossover point. With lower ROI (about 3%), then taking SSA benefit later made sense. With the middle range of ROI, it is unclear which is the best time to take the benefit, and it really did not matter than much when you take your benefit...which many of you have suggested.

With these learnings in mind, remember that as you age, you may change your asset allocation and therefore reduce your expected ROI because you want to take on less risk...which makes the whole decision even more complicated.

So there you have it...I have just suggested you think more broadly when making the SSA decision, with no suggestion on when you should actually take it.