Taking Social Security at 62 - Point to Ponder

[youbet]

[QUOTE=beowulf;1328803]

Quote:

Originally Posted by youbet I had to start SS at 62 to protect my DW because she is impacted by WEP. No other viable choice. Having a spouse you want to protect financially who is impacted by WEP makes SS an interesting game. I likely would have waited until 70 otherwise. QUOTE] I don't quite understand how your DW being affected by WEP would force you to start SS at 62 (I assume that you are not affected by WEP). The Windfall Elimination Provision reduces any earned SS she receives on her own earnings by at least $385 or more (depending on when she turned 62). It has nothing to do with your SS benefit. As a retired CSRS fed, my SS benefit has been reduced by about 35%. The longer your DW waits to claim, the larger the penalty (you didn't think the gov would give you a free pass for longevity ?). Are you referring to the Government Pension Offset, or GPO? The basic rule is that GPO will reduce the amount of your Social Security spouse's, widow's or widower's benefits by two-thirds of the amount of your government pension. This means that, if her pension from her non SS employment is anywhere near your SS benefit, she will receive nothing. There are exceptions and other rules, but when you claim SS is irrelevent to this rule. In fact. your best bet is to wait as long as possible (70?) as she will not get any of your benefit - probably ever. Am I missing something that you left out? See my earlier post for what I did in a similar situation.

No, you're not missing anything. I just made a simple typing too fast error. I was thinking GPO, but typed WEP. DW is impacted by GPO, will never receive any SS based on my earnings and will get approximately zero based on her earnings (few SS earnings reduced further by WEP).

Bottom line........ I needed to start my SS at 62 to protect her in the event I predecease her. She won't collect any SS based on my earnings, but she will have the nest egg funded by whatever I collect and invest between 62 and death.

An example of what I needed to avoid:

I'm waiting until 70 to collect SS. I die at 68. Neither I or DW would have collected a penny from SS and never would. Since I started at 62 and so far have received excellent returns on the invested SS dollars due to the market recovery, my death at 68 would probably yield her an extra $200k or so ($21k x 7yrs + earnings) in our portfolio. Because of GPO, that's the only way to provide her with some longevity protection.

Thanks for spotting my typo. Yep, I meant GPO (and know better!) but typed WEP.

[omni550]

[QUOTE=youbet;1328807]

Quote:

Originally Posted by beowulf No, you're not missing anything. I just made a simple typing too fast error. I was thinking GPO, but typed WEP. DW is impacted by GPO, will never receive any SS based on my earnings and will get approximately zero based on her earnings (few SS earnings reduced further by WEP). Bottom line........ I needed to start my SS at 62 to protect her in the event I predecease her. She won't collect any SS based on my earnings, but she will have the nest egg funded by whatever I collect and invest between 62 and death. An example of what I needed to avoid: I'm waiting until 70 to collect SS. I die at 68. Neither I or DW would have collected a penny from SS and never would. Since I started at 62 and so far have received excellent returns on the invested SS dollars due to the market recovery, my death at 68 would probably yield her an extra $200k or so in our portfolio. Because of GPO, that's the only way to provide her with some longevity protection. Thanks for spotting my typo. Yep, I meant GPO (and know better!) but typed WEP.

youbet,

Wouldn't your spouse be eligible to collect SS even if you had an untimely death and had not yet started collecting SS?
Retirement Planner: Benefits For You As A Spouse

omni

[youbet]

[QUOTE=omni550;1328808]

Quote:

Originally Posted by youbet youbet, Wouldn't your spouse be eligible to collect SS even if you had an untimely death and had not yet started collecting SS? Retirement Planner: Benefits For You As A Spouse omni

No, she won't collect a penny based on my SS earnings due to GPO. In our case, the only way to use SS as financial protection for her is to start SS early and invest the money.

[beowulf]

youbet-

OK, now I understand why you took SS at 62. If you die without taking it, you and your wife would lose any chance to enjoy the money, even if there is less of it than if you live longer and waited. It is a craps shoot and, if I had stopped working at 62, I might have done the same thing. Since I worked until 64, I waiting until January of the following year and then took a 9% decrease from what I would have gotten at 66.

[daylatedollarshort]

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Originally Posted by freebird5825 It is kind of like investing your money at an 8% growth rate per annum. If you are just going to let it sit in a Savings Account, CD or Money Market earning the current .75 or 1 percent you are better off letting it sit growing at 8%.

One reason to take it at 62 would be if you want to leave an inheritance. If you die before you collect, your heirs or favorite charities will never see any of the money. It is an annuity, not a CD or savings account.

Another reason to take it early is to not deplete your nest egg. If you need nursing home care of have some other big expense at age 69, and you have not collected SS, your nest egg may have dwindled down and you may not have the cash reserves you need for emergency expenses.

A third reason would be if you want to spend the money on travel or vigorous hobbies, you are more likely to be in shape to do more of that before age 70 than in your later years. If you look at the Consumer Expenditure Surveys, spending drops down significantly after age 75. Taking it earlier aligns your income more with your likely outgo.

There are many factors to consider, and no one right answer for every household. But these are some of the reasons we might take ours early rather than later.

[youbet]

Quote:

Originally Posted by beowulf youbet- OK, now I understand why you took SS at 62. If you die without taking it, you and your wife would lose any chance to enjoy the money, even if there is less of it than if you live longer and waited. It is a craps shoot and, if I had stopped working at 62, I might have done the same thing. Since I worked until 64, I waiting until January of the following year and then took a 9% decrease from what I would have gotten at 66.

Not exactly.

I took SS at 62 to provide financial protection for DW.

[pb4uski]

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Originally Posted by daylatedollarshort One reason to take it at 62 would be if you want to leave an inheritance. ....

For me and DW, it is much more important NOT to be a financial burden on our kids should one of us live to a ripe old age rather than leave them an inheritance. Waiting on SS will accomplish that objective for us.

[daylatedollarshort]

Quote:

Originally Posted by pb4uski For me and DW, it is much more important NOT to be a financial burden on our kids should one of us live to a ripe old age rather than leave them an inheritance. Waiting on SS will accomplish that objective for us.

If your priority is longevity insurance, then delaying SS is the wiser course for your household.

[rayvt]

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Originally Posted by RunningBum Are you simply unable to grasp that we can spend down more of our accounts early, knowing we have a bigger SS check coming later?

Spend down the accounts that belong to you and are in your own name, and depend on receiving SS money that you have no ownership of, and which can change considerably at the whim of Congress?
Especially when it is virtually certain that SS is going to have to change, because it is on shaky financial footing.

I think that the least dangerous course is to take the "free" money first, and spend down your own money later.

[Independent]

Quote:

Originally Posted by daylatedollarshort 1) One reason to take it at 62 would be if you want to leave an inheritance. If you die before you collect, your heirs or favorite charities will never see any of the money. It is an annuity, not a CD or savings account. 2) Another reason to take it early is to not deplete your nest egg. If you need nursing home care of have some other big expense at age 69, and you have not collected SS, your nest egg may have dwindled down and you may not have the cash reserves you need for emergency expenses. 3) A third reason would be if you want to spend the money on travel or vigorous hobbies, you are more likely to be in shape to do more of that before age 70 than in your later years. If you look at the Consumer Expenditure Surveys, spending drops down significantly after age 75. Taking it earlier aligns your income more with your likely outgo. There are many factors to consider, and no one right answer for every household. But these are some of the reasons we might take ours early rather than later.

I agree that the 8% quote in the OP badly misstates SS.

But, these three reasons for starting at age 62 aren't persuasive to me.

1) Depends on date-of-death. If I die before age X, my heirs will get a bigger inheritance if I start SS early.
If I die after age X, my heirs will get a bigger inheritance if I defer SS.

2) Also depends on date-of-death. If I have a big expense at 69 and die at 73, I'm less likely to run out of money if I started SS early.
If I have a big expense at 89 and die at 93, I'm less likely to run out of money if I deferred SS.

3) Depends on my SWR conservatism. If I act on an SWR rate of 4% or less, I can spend more money in the early years of retirement by taking SS early.
If I act on an SWR rate of 6% or more, I can spend more money in the early years of retirement by deferring SS.
(This is true even if I plan on decreasing spending.)

[Alan]

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Originally Posted by rayvt Spend down the accounts that belong to you and are in your own name, and depend on receiving SS money that you have no ownership of, and which can change considerably at the whim of Congress? Especially when it is virtually certain that SS is going to have to change, because it is on shaky financial footing. I think that the least dangerous course is to take the "free" money first, and spend down your own money later.

Right, your own investments are never going to go down in a shaky financial environment.

[MichaelB]

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Originally Posted by daylatedollarshort If you look at the Consumer Expenditure Survey, spending drops down significantly after age 75. Taking it earlier aligns your income more with your likely outgo.

I don't disagree with your post but do wonder one thing. The decline in spending is mirrored by a similar decline in income. Is this spending decline voluntary or is it the consequence of insufficient income?

[Katsmeow]

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Originally Posted by MichaelB I don't disagree with your post but do wonder one thing. The decline in spending is mirrored by a similar decline in income. Is this spending decline voluntary or is it the consequence of insufficient income?

I could see 2 primary causes of reduced income. One, household size becomes smaller at older age because more 2 person households become one person households which results in one less SS.

The other thing for those people who have portfolio is that "income" is highly tied to how much spending one does during the year. That is, DH and I first spend income we receive outside the portfolio and then withdraw from the portfolio whatever we need to withdraw to make up the difference.

So if, for example, if DH and I each received $X in SS and we need another $30,000 income to meet our desired spending for the year then I would withdraw $30,000 from the tax-deferred portfolio. It might appear to someone else have that our income was "less" in that year than it was the year before when, say, we withdrew $40,000 from the tax-deferred portfolio. However, to us, in the second year we withdrew less not because we were running out of money but because our expenses that year happened to be less. It would be ludicrous to say that we had "insufficient income" in year 2 since our "income" is whatever we say it is based upon how much we chose to withdraw from the portfolio.

I've known a lot of family members who spent much less in late retirement and in their case it wasn't due to insufficient income so much as no desire to spend more. I've seen people who actually continue to build up money in the bank because they spend less than their SS and RMDs combined.

[mickeyd]

If you do not need the $ @ age 62 and you will live a long time~ Take the delay and the 8%.

[youbet]

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Originally Posted by MichaelB I don't disagree with your post but do wonder one thing. The decline in spending is mirrored by a similar decline in income. Is this spending decline voluntary or is it the consequence of insufficient income?

I don't think there is much doubt that some older folks spend less as they age due to poverty driven by declining health, declining mental abilities and just plain old runnin' outa money. We've helped a couple of relatives of my parent's generation in just those kind of circumstances.

Most of the articles I read about the financial status of American seniors don't talk about geezers with pots of gold hidden unspent because they've lost interest in spending but rather talk about the financial plight of many seniors and the importance of continuing safety nets such as SS, Medicare, SNAP, rent subsidies, Medicaid, etc.

My guess is that if you identified the millions of Americans 75 or over who are living at or near the poverty level and gave them some additional income, many of them would choose to spend it and average spending for the overall group would increase.

Seems like it's probably a mixed bag between seniors with plenty of money choosing to spend less and seniors without money (say living on SS only having depleted savings) who would spend more if they had it.

[travelover]

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Originally Posted by youbet ........... Seems like it's probably a mixed bag between seniors with plenty of money choosing to spend less and seniors without money (say living on SS only having depleted savings) who would spend more if they had it.

Exactly. It is a human foible to project that the rest of the 7 billion people on Earth are more or less like themselves, when in fact this forum represents a tiny tail of the overall distribution.

[youbet]

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Originally Posted by mickeyd If you do not need the $ @ age 62 and you will live a long time~ Take the delay and the 8%.

Yeah, but that "If you will live a long time" part is hard to nail down! There are several planning areas I could do a better job with if I had that information!

[ERD50]

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Originally Posted by pb4uski For me and DW, it is much more important NOT to be a financial burden on our kids should one of us live to a ripe old age rather than leave them an inheritance. Waiting on SS will accomplish that objective for us.

That's exactly why I plan to delay SS and even my pension as long as is feasible (TBD at the time).

It's also why I plan to budget for us to age 100 and beyond. Not that I'm expecting to live that long, just trying to plan in case it happens.

-ERD50

[clifp]

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Originally Posted by youbet I don't think there is much doubt that some older folks spend less as they age due to poverty driven by declining health, declining mental abilities and just plain old runnin' outa money. We've helped a couple of relatives of my parent's generation in just those kind of circumstances. Most of the articles I read about the financial status of American seniors don't talk about geezers with pots of gold hidden unspent because they've lost interest in spending but rather talk about the financial plight of many seniors and the importance of continuing safety nets such as SS, Medicare, SNAP, rent subsidies, Medicaid, etc. My guess is that if you identified the millions of Americans 75 or over who are living at or near the poverty level and gave them some additional income, many of them would choose to spend it and average spending for the overall group would increase. Seems like it's probably a mixed bag between seniors with plenty of money choosing to spend less and seniors without money (say living on SS only having depleted savings) who would spend more if they had it.

I tend to be suspicious of the census bureaus reporting of financial info, since the way they collect the info is through lengthy phone and in person interviews. Plenty of 75+ year old folks have trouble remembering what they had for dinner last night much less recalling how much money they spent for medicine last month.

I have little doubt that seniors have less desire to buy things as they age, that has been true for me for years. I expect to buying more services as I get older. In services, I'm including things like business class flying, because it is more painful to sit for 6 hours as you get older, meals prepared by others, etc. I think many seniors would spend more for services if they had the money and they weren't part of the greatest generation and still have memories of the depression.

For the poorest 25% of seniors Social Security represent 79% of their income, for the middle 50% 70% of their income. The remaining 20-30% comes from small pensions and depleting savings. There going to save that money for a some necessity down the road, not pay somebody someone to clean their house.

I also have observed that even affluent seniors tend really resistant to purchasing service. If a new refrig costs $1200, well that is what it costs. But if the fence he put up 30 years ago is falling down and he gets a quotes of $1,200 to replace, he'll think that is ridiculous $100 worth of lumber, paint, and hardware and I could do it myself. Of course at 80 he really can't.

[Katsmeow]

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Originally Posted by clifp For the poorest 25% of seniors Social Security represent 79% of their income, for the middle 50% 70% of their income. The remaining 20-30% comes from small pensions and depleting savings. There going to save that money for a some necessity down the road, not pay somebody someone to clean their house.

The problem I have with numbers I see like that is that people who have portfolios, particularly tax deferred portfolios spend from SS first (plus of course any RMDs).

Let's say that you are a married couple and you have combined SS income of $50000. Let's make you age 69 so no RMDs yet. Your spending that you want to spend to be perfectly happy is $70,000. So you withdraw $20,000 from your IRA which is income to you. Total income is $70,000 of which 71% is SS. It sure looks like high dependence on SS. However, in reality you have a portfolio of $3,000,000 and you figure you could have safely withdrawn $120,000 in which case your income would have been $170,000 for the year and SS would have been a much smaller percentage.