when should you take social security article

[GregLee]

My and my wife's SS work histories are very similar, and when we retired, our conversations with an SS agent suggested to me that there was no prospect of me ever receiving benefits from my wife's account, nor her from mine. But I certainly don't understand the ins and outs of the SS system, so maybe that's wrong. If it might be wrong, I hope someone will alert me.

 

[jdw_fire]

I plan to wait until full retirement age (66 and 10 mths for me) but I've decided not to wait until 70, despite the larger payout. What's missing from this discussion is the fact that most people will want to be able to enjoy that extra money when they receive it, and if i have to wait til age 70, who knows what my health will be like or if i'll have the energy to do all that travel i want to do.

I think full retirement age is a happy medium to increase your SS benefits at a time when you'll more likely be able to enjoy the $$.

lets examine this a little, but 1st the assumptions:
1) you would like to maximize your income without increasing your risk. to meet this assumption we will use a SWR of 4% in all cases examined and assume your income from SS is as risky as your income from your portfolio.
2) since i dont know your SS or porfolio amounts i will have to assume numbers here but as the math is fully scaleable, i dont need your exact numbers. i will assume at your FRA age you will get $20,000/yr in SS and your portfolio is $1,000,000.

there are 3 income cases i would like to examine, the 1st has you taking SS at your FRA. the second and third have you taking SS at your FRA+3 (almost 70 yo). in all cases i will be using real (inflation adjusted) dollars.

case 1: your income = 4% * $1,000,000 + $20,000 = $60,000 for life

case 2 & 3: your SS income will be 24% higher or $24,800. to make your after FRA + 3 yo income in these cases equal to your after FRA +3 yo income from case 1 you will need to devote $880,000 of your portfolio to the 4% rule and you do this when you are at your FRA. now you need to replace the $24,800/yr for the 1st 3 yrs which takes another $74,400; $49,600 of which you put in CDs that keep up with inflation and come due at the time you need them. that leaves you $45,600 of your porfolio.

case 2: if you spend that $45,600 evenly over the next 3 years your income stream look like:
from FRA to FRA + 3: $75,200/yr
from FRA + 3 till you die: $60,000

case 3: apply the 4% rule to that $45,600, giving you an income stream of $61,824 from FRA for your whole life.

this analysis shows that (unless you doubt the security of SS) you can get a higher income by waiting to take SS as long as you can get that 8%/yr increase.

 

[albundyz]

it seems there are so many variables that there is no one correct answer. Everyone's situation is different.

One thing that has always made an impact for me is that if you delay your SS until age 66 (instead of 62), you are basically getting an extra 6% benefit every year. This is guaranteed. 6% In times where CDs are giving 2% or less, that seems great to me. Of course, my situation is probably different from yours.

A lot of people may be afraid that Congress will change the SS rules. I don't understand why this "unknown" would impact your decision. This could happen, but if you're 62 years old, you can take a "wait and see" approach. If Congress does change the rules, you could file for SS just before the new rules are in place. Once you've filed and your benefits are set, you're grandfathered, and I don't think your benefits can be reduced. Anyway, I just don't see the point of filing at 62 for that reason. You may find that Congress makes no changes that impact you.

 

[GregLee]

One thing that has always made an impact for me is that if you delay your SS until age 66 (instead of 62), you are basically getting an extra 6% benefit every year. This is guaranteed. 6% In times where CDs are giving 2% or less, that seems great to me.

The 6% vs. 2% comparison doesn't appear to take account of the 4 lost years of SS payments when you delay.

 

[meierlde]

There could be another possible tax angle to consider. If you face RMD's at 70.5 from an IRA or 401K consider that they add to income, waiting till 70 for SS could cost you more taxes also.

 

[HFWR]

There could be another possible tax angle to consider. If you face RMD's at 70.5 from an IRA or 401K consider that they add to income, waiting till 70 for SS could cost you more taxes also.

Though your RMD would be somewhat lower, if you were spending down tax-deferred accounts in lieu of earlier SS. A possible reason for some Roth conversions?

 

[haha]

If Congress does change the rules, you could file for SS just before the new rules are in place. Once you've filed and your benefits are set, you're grandfathered, and I don't think your benefits can be reduced.

I agree with your action point-just wait. In fact I paid back my benefits, hoping to restart later at a higher level. However, the quote above I believe is just a guess. There are many ways that net SS benefits might be trimmed, and a change that would allow grandfathering I believe is one of the less likely possibilities.

Wouldn't it be much more attractive to our rulers to punish wealth (as defined by them) than merely a certain position in the queue?

Ha

 

[rescueme]

Though your RMD would be somewhat lower, if you were spending down tax-deferred accounts in lieu of earlier SS. A possible reason for some Roth conversions?

Although you did not ask the question of me, I'll respond since we are in this situation.

Our income is such (I'm retired/DW will probably also be this year) that we are at the top of the 15% marginal rate.

The great majority of our respective retirement portfolio's are in tax-deferred funds. We're of the age (e.g. retirement investment "tweeners") that had pensions up till our mid-30's, but they were eliminated and replaced by 401(k) and TIRA contributions, if we wished. There was no Roth option at the time, only taxable and tax deferred. Of course, the thrust was to delay taxes, so that's what we did.

While we do have Roth IRA's, they are a very small portion of our overall retirement portfolio. Also, since we maximized our 401(k)/TIRA's over the years, we don't have much in taxable to pay the tax due for conversion. Taxes would have to come from our tax-deferred fund, which is generally not advised.

An additional point is that it is expected that a great deal of our tax-deferred holdings will go to charity. That is one of the reasons that we are in no hurry to convert. Assuming non-profit chartable bequests will pass nearly tax-free upon our death (based upon current laws), we would rather see as much of our bequest used to continue the "good works" of our named organizations.

The last point is we wish to delay/defer taxes for as long as we can. We don't feel we're obligated to pay tax just for the honor of converting (very little, due to our income) funds that may never be used/needed.

As I posted, the delay of SS (in our case) will allow us to drawdown from our tax-deferred funds rather than have to take out "excess RMD's" - that is RMD's that are required in excess of our expected normal income needs.

For me, the period of drawdown is expected to be eleven years. For my DW (assuming she retires on her next birthday), it will be three years.

From a tax planning perspective (discussed with our elder-law attorney), it is a way to reduce/minimize taxes and use those funds in a manner that you see fit, rather than what is dictated by the government.

That's just our situation...

 

[Fireup2020]

I plan on taking SS at 62 (2032) - because it will probably go belly up shortly thereafter - so, I'd like a little bit of my $$ back. Fortunately, this $$ will be gravy over other retirement monies. If those already collecting happen to be grandfathered in, I'd rather be "in" than postponed/cancelled against my will.

As others have mentioned, who knows what my health will be if I decide to wait until 66 or 70. Just got my SS statement and it appears there is only a several hundred dollar difference per month between age 60 and 66.

 

[rescueme]

I plan on taking SS at 62 (2032) - because it will probably go belly up shortly thereafter.

Probably, so will I ...

 

[Zero]

Waiting till 70 is clearly the best choice under some circumstances and given some assumptions. Trouble is that the circumstances are different for each or us and the assumptions we each might make are probably different.

I'm taking SS on the first day I can because of my paranoia. The fear of government not acting in my best interest but of acting in their own best interest. When I consider whether waiting is best I can't see me winning in any scenario that makes sense.

 

[clifp]

I had intended to take SS at 62 and then refile around 70 depending on my health at such. Now that the do over option is kaput, I am not sure what to do.

I feel pretty confident that things will change in the next 10 years so I am not going to worry about until I turn 60.

 

[rayvt]

All (most??) articles showing how much better off you'd be if you waited until 70 are ignoring the most important factors. The time-value of money and the alternative use for the money collected early.

Sure, you get more money each month if you wait until 70 vs. 62. But they almost always neglect--or mention only in passing--the fact that you've collected 96 more months of payments.

Almost all of these articles and discussions do a lot of handwaving and simplistic math. Simplistic math doesn't cut it for complex financial scenarios.

Here is a spreadsheet I worked up, feel free to plug in your own numbers & assumptions:
https://spreadsheets.google.com/ccc?key=0AlyWRtMroxvgdDI2MlY0UDR4WFRQRFE0Tkw0d19pTnc&hl=en

The "quick BE" worksheet is pretty easy to understand. Depending on your assumptions for long-term average gain, the 62 vs. 66 breakeven is about 17 years. From 12 years if you "invest" in a non-interest bearing account to 30 years if your investments pay 6%.

BTW, the life expectancy for a male at 62 is 19 years. That's the breakeven time at 4% earnings. So, the question you have to ask yourself is "Can I invest and earn at least 4%?"

 

[73ss454]

You forgot one other questions to ask yourself.

"will I live that long"

When I turn 62 in April I'll either take it then or wait till DW turns 62 in Dec of 2012. According to the info I received this month from SS I'll get $1737 a month this April. According to my calc's if I wait till Dec of 2012 I should be around 2K a month. Add about 800 a month for DW and that's not a bad deal. I will not be waiting one second past Dec of 2012. I'm not even sure I'll wait till then, if the market dumps out I'll be in ASAP.

 

[veremchuka]

i must be missing something, i'm not very knowledgeable about spreadsheets. to be honest about 0.01 on a scale of 1 to 100!

in post #38 i clicked on the link for the spreadsheet and it opened. i can't input my numbers in the green box. so i figured i had to save it. i did a save as but it is saved as hlm or htlm, i forgot which, and it is not a spreadsheet and i can't change anything. so i deleted that and clicked on the 2nd link to the right and it downloaded a spreadsheet. i had to read and click on submit but nothing happens.

how can i use this with my numbers? this looks like something i'd like to do but i'm lost.

thanks.

 

[rayvt]

You should be able to do File->Download as->Excel to download it as an Excel spreadsheet. Only useful if you have Excel or OpenOffice, of course. Or maybe you could then upload it into your own Google Docs account.

I think that if you have your own Google Documents account that File->Make A Copy would pull a copy into your account where you could freely enter your own numbers.

 

[veremchuka]

in the spreadsheet at google when i click on the file drop down menu there is no download option, i looked at import but that is not correct. i'm using mozilla not ie if that matters.

i have downloaded various files in the past like to listen to an internet radio broadcast. i even got the download of the link above the monthly at 70 green box to download and it opens open office calc and i see the text declaimer but when i click on the submit i get nothing.

any ideas? this looks like something i'd really like to use. anyone get to enter their numbers?

 

[veremchuka]

okay i got it! whew, how i figured this out is a mystery! maybe this will help someone else or maybe i'm the only one here that did not know how to do this. like i said my spreadsheet ability and knowledge is near zero but i'm learning.

the "file, download" rayvt told me to do is not in the "file drop down" menu in the mozilla browser as i thought. instead in the spreadsheet directly under the word "google" there is a drop down menu called "file" and when i clicked on that i saw "download as" and then i chose "open office". i said open with "opendocument calc" which was the default, and then i could see the spreadsheet but it is in read only mode. this is where i lucked out. i used the open office help to read up on read only documents. there is an icon on the tool bar but i don't see it in any of the drop down menus. it told me to: Use the Edit File icon to activate or deactivate the edit mode.

Edit File
and when i clicked on that icon i was able to input my numbers.

whew, simple when you know what to do, pretty frustrating when you have no clue. so i saved the spreadsheet on my c drive for future reference.

 

[jdw_fire]

All (most??) articles showing how much better off you'd be if you waited until 70 are ignoring the most important factors. The time-value of money and the alternative use for the money collected early.

Sure, you get more money each month if you wait until 70 vs. 62. But they almost always neglect--or mention only in passing--the fact that you've collected 96 more months of payments.

Almost all of these articles and discussions do a lot of handwaving and simplistic math. Simplistic math doesn't cut it for complex financial scenarios.

Here is a spreadsheet I worked up, feel free to plug in your own numbers & assumptions:
https://spreadsheets.google.com/ccc?key=0AlyWRtMroxvgdDI2MlY0UDR4WFRQRFE0Tkw0d19pTnc&hl=en

The "quick BE" worksheet is pretty easy to understand. Depending on your assumptions for long-term average gain, the 62 vs. 66 breakeven is about 17 years. From 12 years if you "invest" in a non-interest bearing account to 30 years if your investments pay 6%.

BTW, the life expectancy for a male at 62 is 19 years. That's the breakeven time at 4% earnings. So, the question you have to ask yourself is "Can I invest and earn at least 4%?"

the problem with the "break even" type of an analysis when determining when to start taking SS is that when you are retired most people are in a decumulating phase instead of the accumulating phase of your investment life. go check any of the threads on decumulation, SWR, etc and you will see that almost no one bases how much they can afford to spend in retirement on some thought process like "Can I invest and earn at least 4%?" 1 reason for this is because they believe that to keep up with inflation their investments must include the stock market and it just doesnt give a constant 6% or even 4% yield annually.

the real value of SS is to view it, once you take it, as an as guaranteed as you can get COLAed annuity. a life time income stream that provides you a solid floor of income in your retirement years. because of this the appropriate way to determine when to take SS is to do an analysis of how the different starting ages affect the amount of spending allowed with risk held constant. i did this in my earlier post using 1 decumulation methodology, using a SWR of 4% (inflation adjusted). there are other decumulation methods that could have been used and if you are using a different method then your analysis should use the one you are planning on using. all that being said, the fact that delaying the start of SS from age 62 to age 70 will increase your monthly income by ~76% + whatever the CPI goes up those 8 years (in other word a real 76%) is hard to beat.

i can think of 2 scenerios that possibly lean toward taking SS early: 1) a person doesnt have a portfolio and therefore they need to start taking SS as soon as they retire because they have no other source of income and 2) they have a large portfolio and their main objective is to maximize the size of estate they want to pass to their heirs. if you fall in 2) then maybe a break even analysis is something you should consider, but then you should also consider a very large single premium life insurance policy which would probably maximize the amount your heirs get. the interesting thing with the insurance approach is that once you buy that policy then the decision as to when you start taking SS reverts to the income analysis and it will then probably be better to start taking SS at age 70. and on second thought, if you fall in 1) you will probably need to work till at least age 70 anyway and then start taking SS, so actually even these 2 scenerios will probably lean toward taking SS at age 70.

(BTW, as an aside, does your spread sheet take into consideration that delaying SS from age 62 to age 70 increases the monthly SS payment by ~76% + the cpi for those 8 years? so your 4% or 6% have to be real returns)

 

[Aeowyn]

I’m still planning to take as soon as possible – both due to the bird in the had philosophy and also because I think I have a shot at getting a better return by investing the early payments then waiting for SS to increase my payments.

Of course my penalty will be a little greater since my full retirement isn’t until 67, but I took the example in the article of someone you turns 62 this year and would receive $1803/month if they started collecting at 62; $2442/month if they start collecting at 66; and $3526/month if they wait until 70 to start collecting. This was all in today’s dollars.

The scenario they had did not consider inflation increases to SS or investment returns for the people collecting SS earlier.

So I ran my own scenarios:

• person A starts collecting at 62 and invests all the money until they turn 70
• person B starts collecting at 66 and invests all the money until they turn 70
• person C starts collecting at 70

I assumed that the SS payments increased by 3% each year. At age 70, all three people spend the amount that person C receives each year.

If I assume a conservative return of 5%, person A runs out of money at 82 and person B runs out of money at 84. Well – at least they can’t spend as much as person C anymore – they have to reduce their expenditures to what they receive in SS because they run out of money in their investment account.

If I assume a reasonable return of 7%, person A runs out of money at 85 and person B runs out of money at 87.

If I look at some more aggressive portfolios, a 10% return (quite possible for a somewhat aggressive portfolio), person A runs out of money at age 99 and person B runs out of money at age 105.

If I look a 12% return (high volatility but still a very real possibility). Person A and B have portfolios that grow faster than they take money out. At age 100, person B as over $1M and person A has over $2M.

 

[misanman]

I didn't see that anyone has mentioned the tax implications. My understanding is that SS goes into the Provisional Income Formula at 50% and therefore delaying can result in lower taxes. There are a number of white papers that address this but I don't have a handy link. Maybe someone else can post one.

 

[rescueme]

There are a number of white papers that address this but I don't have a handy link. Maybe someone else can post one.

Go to page six (e.g. page 8 of the PDF) of this document for some thoughts on taxes and withdrawl of TIRA vs. SS income:

http://www.prudential.com/media/managed/IB-InnovativeStrategies.pdf

BTW, since it's from 2010, it still mentions the file/repay option within the document, which of course was changed late in the year.

IMHO, it's a good overview of the SS options (based upon your situation) that should be considered, even if it is sponsored by a commercial company...

 

[73ss454]

Not to throw a curve ball here but does anyone know what the top amount is that one can receive at 62? I paid the top amount for over 35 years and according to my latest paperwork from SS I will receive $1737 as of this April when I turn 62. How could this amount be higher, and what is it based on if I did the full 35 years.

 

[rescueme]

Not to throw a curve ball here but does anyone know what the top amount is that one can receive at 62? I paid the top amount for over 35 years and according to my latest paperwork from SS I will receive $1737 as of this April when I turn 62. How could this amount be higher, and what is it based on if I did the full 35 years.

That seems about right. Here's an article on the expected benifits, based upon income:

Social Security - Estimated Payments Chart

 

[W2R]

Maximum Social Security retirement benefit

The maximum benefit depends on the age a worker chooses to retire. For example, for a worker retiring at age 66 in 2011, the amount is $2,366. This figure is based on earnings at the maximum taxable amount for every year after age 21.

So, the corresponding amount at age 62 would be $2366*0.75 = $1774/month.

All I can say is, "Lucky you!" My SS will be a lot lower. Still, it will be welcome.