timing SS start

[Boston_Bulldog]

I am currently 55 and DW is 57. We are a couple years away from a happy retirement. I just ran some Social Security retirement estimates for both of us and then ran a few simple models of taking the Social Security benefit at ages 62, 63, 64, 65, 66, 67 or 70. The short summary of my findings was that it is either better to take the benefit at age 62 or age 70...but nothing in between. I have often heard "wait until you reach 67", but my calculations do not support this. I have posted the model in a PDF here:

https://pdfhost.io/v/zv9u7qjc6_Social_Security_Modelerxlsx.pdf

Assumptions and Findings

As you know, based on your age, there is a "full benefit" age. For me, my full benefit comes at age 67. If I take the benefit early, e.g., age 62, there is a reduction schedule. Alternatively, if I take the benefit at 70, there is a relatively large increase of 8% a year for every year above full retirement age. The reduction schedule for those born 1960 or after is:

Age Percent of Full Benefit Monthly Benefit
62- 70.00%
63- 75.00%
64- 80.00%
65- 86.67%
66- 93.33%
67- 100.00%
70- 124.00%

The attached PDF shows an assumed full retirement benefit of $2,000 a month. I then show the cumulative earnings for every year, if you take it at 62, 63, 64, etc. I run this through age 100. I added a modest assumed rate of return of 3% on the money (impact of rate of return will be explained later).

My findings are you are better off taking the benefit at age 62 if you are going to live through age 76. If you live to age 77 or higher, you are better off taking the benefit beginning at age 70. THERE IS NO SCENARIO WHERE YOU ARE BETTER OFF TAKING THE BENEFIT AT AGE 63, 64, 65, 66 OR 67.

If you increase the assumed rate of return/interest rate (on SS income received) to a higher rate of return, it makes the age 62 distribution more advantageous into the later years. For instance, if you make the assumed rate of return 7% (vs. 3%), you are better off taking benefit at age 62 vs. 70 until age 82. Again, there is never a scenario that you are better off taking the benefit at age 63, 64, 65, 67.

This also doesn't factor in an early death, which would almost always make the age 62 benefit a better option.

I am sure there have been other discussions on this topic and I am sure I might be missing something in my thinking. If I am wrong in my assumptions, I would appreciate some feedback.

Please review the model and provide feedback.

Thanks!

I posted a spreadsheet and some commentary (above) a couple of weeks ago for which I have some revisions. Unfortunately, the Forum does not allow me to modify a previous post or take in down, so I am going to post a new sheet in the next post with some commentary.

 

[Boston_Bulldog]

I have a created a simple spreadsheet that shows the timing of a Social Security benefit of $2,000 at full retirement age and the cumulative cash flows by taking the benefit at various ages.

I show the cumulative cash flows with three different assumptions: 1) assuming a 0% rate of return on your money; 2) assuming a 3% rate of return on your money; and 3) assuming a 7% rate of return on your money.

This is a very simple example and doesn't take info account a spousal benefit, a husband and wife Social Security scenario, etc. Just an individual starting a benefit a different ages.

It simply calculates, the cumulative SS benefit and investment returns in taking the benefit at different ages. I shade the distribution year in green as the best year to take the benefit for every corresponding year of death.

You will note that once you get up to a 6% or 7% rate of return on the money, you would have always better off taking the benefit at age 62. Also, in many cases, the age 62 numbers and the number for age 65, 66, 67 are so close that it might make sense to take the age 62 benefit to hedge an early death and age 80, 81, 82, etc.

Some say that they won't have a "rate of return" because they will use the benefit right away. My reply is that this is the case for some. But for many, Social Security is just one income stream and whether you invest the SS benefit or use the SS and have the ability to invest an alternate stream, it may be safe to assume a modest to average rate of return -- and 6% to 7% is not unreasonable.

Finally, I am NOT a Social Security expert nor am I a wealth advisor, financial planner, etc. I am just calculating the time value of money.

0% Return Example
https://pdfhost.io/v/xpqc5qAEm_Social_Security_Modeler_1960_example_0pdf.pdf

3% Return Example
https://pdfhost.io/v/nKcuhf7om_Social_Security_Modeler_1960_example_3pdf.pdf

7% Return Example
https://pdfhost.io/v/CFCM1AYjJ_Social_Security_Modeler_1960_examplepdf.pdf

Take a look at these spreadsheets and provide any feedback.

 

[camfused]

The best thing you can do is use a tool, whether one of these online models, or a spreadsheet, whatever, to see what works for you and your situation.

My goal has always been to maximize what I pass on. For years, I said I would take out at 70, since I tried 62, FRA, and 70 in my spreadsheet model, and 70 was always best. Recently, looking at another model, it suggested that 68 was better. I laughed, but decided to plug that in, and dang, it was better than 70, for me.

So, don’t assume, and try all numbers from 62 to 70, and see what is best for you.

 

[pb4uski]

My apologies for not going through the 10 pages that follow the 2015 quote - But I can't wrap my head around the logic in post #20 in this thread for where the money comes from while waiting until 70.

Unless I have another source of spending dollars from 62-70, I need to draw down the $1M by $59,476 each year, not the 4%. By the time I hit 70, the fund has dropped to $475,808.

So 4% of what remains is $19,032, plus SS of $34,092 = $53,124

I'm new on this site, so is there an assumption Cut-Throat made that isn't called out?

Best regards,
Chris

Let me give it a try. If you take SS at 62 then you receive $19,476 of SS and $40k per year from the $1m portfolio for total safe spending of $59,476/year.

If you defer SS at age 70 you'll receive $34,092... but you'll have a gap of $34,092/year for 8 years... a total of $272,736. So at time zero, you segregate your $1m of retirement savings into 2 parts... a $272,736 "side fund" that is in a savings account and that you will withdraw $34,092 a year for the 8 years between 62 and 70. The remaining $727,264 is subject to 4% withdrawals from age 62 just like the $1m in the first scenario... so that is $29,092.

So of the first 8 years you can spend $63,182/year with $34,092 coming from the side fund and $29,092 coming from retirement savings. From age 70 on, you can spend $63,182 with $34,092 coming from SS and $29,092 coming from the portfolio.

The way the 4% rule works is not 4% of your balance at any given year... it is 4% of your retirement date starting balance and then withdrawals are increased by inflation each year.

What you are effectively doing is buying a COLA adjusted annuity from SS... forgoing $155,808 (forgoing 8 years of $19,476 year 62 SS benefits) in exchange for an additional $14,616 a year of COLA adjusted benefits) starting at age 70.

 

[Markola]

The best thing you can do is use a tool, whether one of these online models, or a spreadsheet, whatever, to see what works for you and your situation.

My goal has always been to maximize what I pass on. For years, I said I would take out at 70, since I tried 62, FRA, and 70 in my spreadsheet model, and 70 was always best. Recently, looking at another model, it suggested that 68 was better. I laughed, but decided to plug that in, and dang, it was better than 70, for me.

So, don’t assume, and try all numbers from 62 to 70, and see what is best for you.

If your goal is to maximize your remaining portfolio at life expectancy, I can imagine 68 is the sweet spot in the calculators, because chopping off two years of larger portfolio withdrawals in one’s late 60s when the relatively smaller portfolio is shrinking faster would help.

By contrast, our goal is to know the maximum headroom for available spending, projecting $0 portfolio at life expectancy, though our lifestyle spend is about 20% below that now (plus there’s home equity value some relative or charity should be able to receive). The Monte Carlo-based calculators generally have us waiting until 70. Once we do, the bottom of the retiree portfolio value “smile shape” hits bottom and then the portfolio value starts ticking up again.

Seems like the RMD situation would be something to consider, too, e.g. it might make sense to wait until 70 for SS if it means a smaller IRA and, therefore, smaller RMDs. That’s a long way out for us so I’ll actually worry about it in my late 60s.

 

[TheWizard]

I'm single and started SS 12 months ago at age 70.
One big reason for doing this was that it gave me seven years from start of retirement at age 63 to spend down my tax deferred 403(b) a bit and also do Roth conversions from it.

Had I taken SS earlier than age 70, I would have had a lot less headroom for Roth conversions before getting into an even higher Medicare IRMAA tier.

As it turned out, stocks have gone up nicely since 2013, so I didn't really lower my 403(b) balance that much but I did keep it from getting even larger.

So if you have a comfortably large tax-deferred account, $1M per person or more, this is something to consider...

 

[BubbaChris]

Let me give it a try. If you take SS at 62 then you receive $19,476 of SS and $40k per year from the $1m portfolio for total safe spending of $59,476/year.

If you defer SS at age 70 you'll receive $34,092... but you'll have a gap of $34,092/year for 8 years... a total of $272,736. So at time zero, you segregate your $1m of retirement savings into 2 parts... a $272,736 "side fund" that is in a savings account and that you will withdraw $34,092 a year for the 8 years between 62 and 70. The remaining $727,264 is subject to 4% withdrawals from age 62 just like the $1m in the first scenario... so that is $29,092.

So of the first 8 years you can spend $63,182/year with $34,092 coming from the side fund and $29,092 coming from retirement savings. From age 70 on, you can spend $63,182 with $34,092 coming from SS and $29,092 coming from the portfolio.

The way the 4% rule works is not 4% of your balance at any given year... it is 4% of your retirement date starting balance and then withdrawals are increased by inflation each year.

What you are effectively doing is buying a COLA adjusted annuity from SS... forgoing $155,808 (forgoing 8 years of $19,476 year 62 SS benefits) in exchange for an additional $14,616 a year of COLA adjusted benefits) starting at age 70.

Thank you! Your last two lines are what finally got it to click into place, especially the part about setting your 4% rate after withdrawing the side fund.

I realize I'm at a basic Algebra level of understanding all the moving pieces, and many of the folks here could teach the Calculus level course.

I feel lucky that I'm not working from having just barely reaching a LBYM GTG number, instead we find ourselves starting ER with plenty of wiggle room. I can see the education available here enhancing our options.

Best regards,
Chris

 

[skyking1]

I'm single and started SS 12 months ago at age 70.
One big reason for doing this was that it gave me seven years from start of retirement at age 63 to spend down my tax deferred 403(b) a bit and also do Roth conversions from it.

Had I taken SS earlier than age 70, I would have had a lot less headroom for Roth conversions before getting into an even higher Medicare IRMAA tier.

As it turned out, stocks have gone up nicely since 2013, so I didn't really lower my 403(b) balance that much but I did keep it from getting even larger.

So if you have a comfortably large tax-deferred account, $1M per person or more, this is something to consider...

We have much smaller deferred accounts to convert and it still pencils out favorably for us.
It is truly all relative. Lower conversions = even lower tax bracket
The other helpful detail is we are a little long on cash and we can use that extra cash to pay those taxes so they don't come out of the proceeds of the conversions. It effectively lets us move the cash into Roths.

I want to thank you all for the great information. When I started this thread I was not even thinking of doing Roth conversions, now we have moved beyond that to maxing out DW's 403b contributions for the next two years, so we can pay taxes in a lower bracket when we do those conversions.