Theory Behind taking Social Security Early?

[Dtail]

Only if she's 40 or older...

Also depends on the doctor's age.

 

[mistermike40]

In the overall scope of things I don’t think it really effects much. Sure if you take it at 62 it’s a lower payment, but the break even point is a long ways out. Usually around age 82. Feeling lucky? Then wait.

I say there are many “fun advantages to taking early”. Perhaps you have a job you are miserable in, perhaps you are financially comfortable...take it and have fun. It’s the sure thing. So what if you wait and your monthly check is a few hundred higher? You probably won’t be in condition to have fun with it anyway.

I know way to many who told me they were waiting to get the bigger check who skimped and croaked not long after starting it. Ugh, always thought what a shame.

Agree with all of this, which is why I'll be taking SS at 62 (well, 99% certain).

 

[sengsational]

Taking SS at age 62 of $1500 in March 2009, invest in the S&P500 and it would be worth $297,184 today. One who turned 62 in March of 2009 and started SS at age 70 in March of 2017 will be very unlikely to ever be able to financially catch up to the early SS investor.

Start in December 1999 and by March 2009 you would have less than the payments only $103,612 which is a loss of $47,000 on invested monies.

That's a very instructive set of examples. Two extremes, but it highlights what often gets ignored. So it's all about "do you feel lucky?"

 

[rayvt]

At 62, if you decide to defer until 70, you are making an investment that has won't be showing a profit for about 12 years. How do you feel about making an investment that takes that long to break even?

That extra SS benefit is not "free". It costs a lot. It costs you 100% of your age 62 benefit for 8 years.

If your investment portfolio returns 5% above inflation, the breakeven point is age 91. What is that higher (deferred) SS benefit going to buy you? A better grade of gruel in a nursing home? A better grade of lithium-ion batteries in your electric scooter?
Every time I see George Bush the elder in his electric scooter, I think about this.

 

[daylatedollarshort]

We've run all the different scenarios in spreadsheets and like the numbers with SS @ 62 and pension @ 55 planned out to us both living well over 100. Those claiming ages keep our retirement income streams diversified the best and keep the portfolio growing. Plus, it is really cool getting the pension and SS bank deposits. It is like getting steady paychecks without having to do any work.

 

[Dtail]

At 62, if you decide to defer until 70, you are making an investment that has won't be showing a profit for about 12 years. How do you feel about making an investment that takes that long to break even?

That extra SS benefit is not "free". It costs a lot. It costs you 100% of your age 62 benefit for 8 years.

If your investment portfolio returns 5% above inflation, the breakeven point is age 91. What is that higher (deferred) SS benefit going to buy you? A better grade of gruel in a nursing home? A better grade of lithium-ion batteries in your electric scooter?
Every time I see George Bush the elder in his electric scooter, I think about this.

Nice post. I find the many SS discussions quite interesting. For me, I go back and forth with the different age payouts. We have most of our assets in TIRA, so there is the tax torpedo effect of RMD's to also factor in if not spending the TIRA down somewhat and some minor Roth conversions.

 

[JustCurious]

If your girlfriend is 40....... you better take the SS right now. You aren’t going to keep up with her too long before you are on oxygen!

The joke is not that my girlfriend is 40, but that she has the body of a 40 year old.

 

[JustCurious]

Come again? How does your doctor know about the body of your girlfriend?

He met her in the waiting room.

 

[Chuckanut]

What is that higher (deferred) SS benefit going to buy you? A better grade of gruel in a nursing home? A better grade of lithium-ion batteries in your electric scooter?

It buys some of us (not all, of course) the ability to spend more every year starting at 62.

The link below explains the math better than I can:

http://www.early-retirement.org/for...off-maximize-my-ss-com-77660.html#post1604411

For those that have a Big enough Portfolio and can afford to wait until 70 to take SS, you'll have more to spend every year of retirement.

 

[Chuckanut]

The joke is not that my girlfriend is 40, but that she has the body of a 40 year old.

Actually I have the 40 year old body in the trunk of my car. But, my loyal nephew Guido says he will remove it in a day or two.

Take SS when it works out best for you.

 

[sengsational]

It buys some of us (not all, of course) the ability to spend more every year starting at 62.

The link below explains the math better than I can:

http://www.early-retirement.org/for...off-maximize-my-ss-com-77660.html#post1604411

For those that have a Big enough Portfolio and can afford to wait until 70 to take SS, you'll have more to spend every year of retirement.

Larry's general premise is that "if you've won, quit the game". So the quote is absolutely true for his scenario. If you've pulled your chips off the table and you're basically just getting a whiff more than inflation, then waiting is better.

But if you're still in the game (owning equities), the quote is simply not always true. It CAN be true, if the equities markets are unfavorable. But if the equities markets are favorable, you'll have more to spend every year of retirement by taking SS as early.

Presuming your equities are invested in something like the S&P 500, taking SS later might actually not be such a bad idea given the PE10 / CAPE ratio is so high right now. It's a matter of opinion whether "it's different this time", but if you think that having this indicator high means a greater likelihood of an historically low return on equities in the next 8 years, then waiting might be a good idea. But, like I said before, if you "feel lucky" and you get a more typical return from equities, "you'll have more to spend every year of retirement" by taking it now.

 

[TwoByFour]

I spent a lot of time looking at the SS early/late question and here are my observations:
- There is no one-size-fits-all answer.
- The person needs to define his/her important goals to answer the question. (1) Is the most important thing to have a better chance of not running out of money? (2) Is the most important consideration to have a higher annual income? (3) Is the most important thing to have more money to pass on to kids? (4) Is the most important thing to maximize the total amount of money you squeeze out of the government?

When I calculated it out, I found that some of the above goals are in tension with each other. For instance, for me, taking SS late increased the risk of running out of money (in the sense of a FIRECalc type of calculation) but it also increased the average ending balance. That is, I was more likely to die with more money but I also had a slightly higher chance of running out. Reason is, the distribution of outcomes had a higher mean but fatter tails. It is the tails which generate risk of running out.

I also found that for people who are at, or over, a 4% annual withdrawal rate, they are better off taking SS early as it decreases their chance of running out of money, again, in the sense of a RIP (Retirement Income Planner) calculation. If your withdrawal rate is closer to 3% you are better off delaying SS.

One other thing is that SS usually triggers a change in tax bracket. We will get a nice boost in income but we also get a huge boost in taxes so a large percentage of the SS goes to paying taxes. All that has changed with the new tax law.

 

[Independent]

"you'll have more to spend every year of retirement" by taking it now.

Let's take the simplest example. Single, 62-year old has $1,000,000 in IRA and a
$20,000 SS benefit (stating at 62) or a
$35,000 SS benefit (starting at 70).

How much can/should this person spend in the first year of retirement if he/she
A. Starts at 62
B. Plans to start at 70

 

[daylatedollarshort]

It buys some of us (not all, of course) the ability to spend more every year starting at 62.

That is why there is no one right answer to the best age. Spending more isn't everyone's goal. If I wanted to spend more I could do that now. We're trying to have a more sustainable and less consumer oriented lifestyle with more fun, less stuff. But we would like to leave money to the kids and charity. And taking SS and pensions early smooths out our estate value the best while diversifying our income streams in the present.

 

[Cut-Throat]

Let's take the simplest example. Single, 62-year old has $1,000,000 in IRA and a
$20,000 SS benefit (stating at 62) or a
$35,000 SS benefit (starting at 70).

How much can/should this person spend in the first year of retirement if he/she
A. Starts at 62
B. Plans to start at 70

+1 .............

 

[Cut-Throat]

But, like I said before, if you "feel lucky" and you get a more typical return from equities, "you'll have more to spend every year of retirement" by taking it now.

And that is a BIG IF .......


You have no clue how your investments will do when you are age 62, so you spend less in your 60s, and maybe in your 70s you'll spend more, IF your investments did very well in your 60s...


This thinking is like "If I would have bought Microsoft, Google, Facebook etc. etc. etc ......................Nice Try!

 

[Dtail]

I spent a lot of time looking at the SS early/late question and here are my observations:
- There is no one-size-fits-all answer.
- The person needs to define his/her important goals to answer the question. (1) Is the most important thing to have a better chance of not running out of money? (2) Is the most important consideration to have a higher annual income? (3) Is the most important thing to have more money to pass on to kids? (4) Is the most important thing to maximize the total amount of money you squeeze out of the government?

When I calculated it out, I found that some of the above goals are in tension with each other. For instance, for me, taking SS late increased the risk of running out of money (in the sense of a FIRECalc type of calculation) but it also increased the average ending balance. That is, I was more likely to die with more money but I also had a slightly higher chance of running out. Reason is, the distribution of outcomes had a higher mean but fatter tails. It is the tails which generate risk of running out.

I also found that for people who are at, or over, a 4% annual withdrawal rate, they are better off taking SS early as it decreases their chance of running out of money, again, in the sense of a RIP (Retirement Income Planner) calculation. If your withdrawal rate is closer to 3% you are better off delaying SS.

One other thing is that SS usually triggers a change in tax bracket. We will get a nice boost in income but we also get a huge boost in taxes so a large percentage of the SS goes to paying taxes. All that has changed with the new tax law.

Bolded - is your reference to the WR% after substituting investment asset drawdown for SS, or is the reference related to a current WR% before the decision at 62?

 

[Music Lover]

Don't forget that all the people who decided to wait to take SS (or CPP) and then unfortunately died early aren't here to comment.

My pension is more than enough to live on, so I'm taking early CPP at 60 so I can enjoy the use of the extra money while I'm younger and healthier. I may or may not reach the break even point, but if and when I do, then I still won't care about "lost income" because I would have already enjoyed all those years of extra income.

 

[Cut-Throat]

Don't forget that all the people who decided to wait to take SS (or CPP) and then unfortunately died early aren't here to comment.

Yes, indeed ! ............... I am sure they are rolling around in their graves right now lamenting the fact that their portfolios would have been a little larger for their heirs.


Cheers to you for remembering the dead!

 

[youbet]

But if you're still in the game (owning equities), the quote is simply not always true. It CAN be true, if the equities markets are unfavorable. But if the equities markets are favorable, you'll have more to spend every year of retirement by taking SS as early.

And there are factors outside of the strict financial return aspect...… Such as wanting to provide some financial protection/security for loved ones in your life who, by "da rules" can't collect on your SS. Examples include a DW impacted by GPO or a grandchild with disabilities.

Every case is different, although many seem to think their own circumstances apply to everyone.

 

[Music Lover]

Yes, indeed ! ............... I am sure they are rolling around in their graves right now lamenting the fact that their portfolios would have been a little larger for their heirs.


Cheers to you for remembering the dead!

Some may look at it that way. Others look at it from the perspective that they left money on the table during their final years that didn't need to be left.

 

[target2019]

Before reading this thread, I/we looked at the early SSB as a numbers-only game, complicated by the fact spouse is 3 years younger, and will work 3-5 years longer than I (for employer-supplemented health insurance, etc.).

As dear M-I-L is departing this life, some of the discussion rings true. It does not matter to her or F-I-L (left late last year) that they took SSB early. As life played out, they felt more secure, and preserved more for the heirs. They had their fun, too. I can look at their decision now, and think they should have traveled more. But I think each would have said they saw and did much more than their depression-era parents.

There is an emotional side to the early SSB decision, much like the pay-off-mortgage-early threads. It is math sense that I should wait as long as possible (70) to start collecting, to set up a higher benefit for surviving spouse. OTOH, emotionally, we would probably feel more secure taking off on an extended trip each year, and drawing down investable assets to a lesser extent.

It starts as a pure-calculation, but feelings get mixed in to the decision, for many of us.

It was not too long ago when I was sitting here thinking I should take it at 62, out of necessity from being un-employed. However, fate stepped in and I am approaching FRA now. Maybe I can wait until 70...

 

[marko]

This may have been covered somewhere but I wonder if there's a bell shaped curve.
Those with few resources have no choice but to take it early.
Those with a lot, take it early to pay for extra fun things earlier in life and don't care about maximizing (we're sort of in that camp). Free money sort of.
Those in the middle take it later to maximize the benefit because their NW or income is more moderate or less robust.
Just a musing....

 

[braumeister]

The one thing I think I've learned from all these discussions is that there is no rule of thumb.

Anyone can calculate it in any of a number of ways and feel good about their decision. Due to confirmation bias, very few will ever look back on their decision and feel bad about it.

 

[Independent]

This may have been covered somewhere but I wonder if there's a bell shaped curve.
Those with few resources have no choice but to take it early.
Those with a lot, take it early to pay for extra fun things earlier in life and don't care about maximizing (we're sort of in that camp). Free money sort of.
Those in the middle take it later to maximize the benefit because their NW or income is more moderate or less robust.
Just a musing....

I think there is some truth to this. Deferring SS amounts to buying some longevity insurance. People at the bottom of the asset curve don't have the assets to pay the premium (ie spend down). People at the top have no worries about running out of money.