When to delay pension or SS

[lowflyer]

In another thread, CutThroat recently said: "This is one of the reasons I am electing to delay S.S. to age 70. This will allow me to spend more money before age 70 knowing that I've got a bigger paycheck in older years, if I live that long."

Oddly enough, DW and I were just talking about this topic yesterday and I'd be interested in other opinions.

My thought has always been that I would take any pension or SS distributions as soon as I can, regardless of any reduction due to early withdrawal. I really don't have a good reason for this thinking, but I just figured if I can get my grubby hands on it, I'll take it. IOW, I'd rather take $1200/mo at age 62 than wait for $1700 at age 67. Again, not knowing how long I will be around, I'd rather get a smaller distribution now than risk not getting it at all.

If this has been discussed previously, feel free to direct me to other threads.

 

[Cut-Throat]

Re: Delay Pension and/or Social Security

Yes, I'm going to delay. That way I can spend more while I'm young. If I'm dead and never get to collect it, who cares, I'm dead!

Read this thread.

http://early-retirement.org/forums/index.php?topic=10189.0

 

[d]

Re: Delay Pension and/or Social Security

if you're still living beyond age 67, the increased amount is not insubstantial. if you're dead, you won't really miss it, but your spouse (assuming your ss to be greater then hers) will certainly appreciate it.

 

[lowflyer]

Re: Delay Pension and/or Social Security

.... That way I can spend more while I'm young....

I'm trying to understand that, but seem to be missing the point. Please say more about spending more when you are young. Do you think you will need the extra $$ at 70? Wouldn't that idea theoretically reduce your pile and your potential earnings, therefore leveling things out in the end?

 

[Cut-Throat]

Re: Delay Pension and/or Social Security

I'm trying to understand that, but seem to be missing the point. Please say more about spending more when you are young. Do you think you will need the extra $$ at 70? Wouldn't that idea theoretically reduce your pile and your potential earnings, therefore leveling things out in the end?

Study the thread and run the numbers. But basically here is the Logic. For me I can get about $16K a year at age 62, if I wait until age 70, I'll get about $29K a year. This is an extra $13K a year. - If you believe it takes about 25 times the $13K to generate this income - that would be about $325K a year less than you'd have to have in your retirement portfoilo to be in the same position at age 70. IOW - you could spend down $325K before age 70. You have to figure in the lost $16K per year and investment income etc.

Also there are tax advantages by taking IRA withdrawals and not getting SS early.

I used to think I'd take it early, because I thought about the break-even point and how big the pile would be. After I started thinking in terms of how much I could spend earlier - It was a whole new ballgame!

 

[cute fuzzy bunny]

Re: Delay Pension and/or Social Security

Its another one of those fun debates.

The correct answer is "it depends", and like some of those other debates, some people already have their minds made up and are simply looking for the 'facts' to support the decision.

Facts:

- More people spend more money proportionally in their 60's than their 80's
- If you take social security early and just invest the money vs taking it late, you'll be in your mid 70's before you'd break even by taking it late
- By the IRS tables, you'll be dead a few years later than that
- By taking it early you can defer taking money from other places if you'd rather not
- By taking it later, your spouses benefits may be higher
- By taking it later, you may pay less in taxes if you have lots of other sources of income

Basically if you're loaded or think your spouse will substantially outlive you or if you're planning on working or having some other form of earned income in your early to mid 60's...then it probably doesnt matter either way but deferring benefits may be to advantage.

What C-T is saying is that he can blow more money when younger and count on that higher guaranteed payout to bail him out in his 70's if he overspent.

However, I would differ with that strategy by pointing out that plugging in the SS income starting as early as possible allows, according to firecalc, a higher withdrawal for each and every year from now until then, because you can count on that guaranteed income stream showing up at that time...well...more or less.

I did the calcs once on one of the many social security threads...IIRC for me at age 45, counting on taking SS early at 62 and plugging that into firecalc tells me that I can spend an extra couple of grand a year starting right now at 45 and going forward. Deferring SS until as late as possible results in more guaranteed income in my 70's and beyond, but reduces my available withdrawal dollars for the next 25 years.

Unless you meet the criteria above...for an actual early retiree living off their portfolio, there arent many arguments for not taking it as early as possible.

 

[Cut-Throat]

Re: Delay Pension and/or Social Security

What C-T is saying is that he can blow more money when younger and count on that higher guaranteed payout to bail him out in his 70's if he overspent.

Actually I am counting on Overspending before age 70. By delaying SS to age 70 it will allow me to spend at least another $200k between the ages of 62-70 and still be in the same portfoilo position as if I took the SS at age 62. And it will decrease exposure to the stock market after age 70.

Also Spending money in my 60's is also one way to alleviate the 'problem' of dying with the big pile of money while you deprived yourself in your 60's.

Also, I'm not saying this is for everybody. You just have to run the numbers. For me it works and I now understand why most 'financial experts' recommend delaying SS.
They usually say delay the spouse with the highest earnings to age 70 and take the other at age 62. (mostly because you can only collect one if one should die early)

 

[cute fuzzy bunny]

Re: Delay Pension and/or Social Security

You should re-run the firecalc runs, and then tell me what you put in where, because i've done the SS early and SS late factors a bunch of times and the spend early benefit lies with taking SS early. By having the guaranteed income show up at 62, a lot of runs wont fail, resulting in a higher withdrawal rate. The much higher figures 8 years later cause some runs to fail, reducing the full term withdrawal.

I did mine as being 45, putting in my spending figures and portfolio figures, then introducing the smaller social security income at 62 and then rerunning with the larger social security amount at 70. The smaller, earlier number gave me a higher 95% withdrawal rate.

When I factor in (with ORP) the tax free growth via deferral of taking funds from my Roth IRA, the gap widens. I'd be tapping my Roth 5 years earlier by delaying SS, on average.

I'm also going to dispute the "most" financial experts recommending delaying. With a few caveats, as I mentioned, most of the experts i've seen not selling annuities or other financial products recommend taking it early.

Note that i'm talking about traditional early retirees and not people who have so much money that when you take it really doesnt matter, people who plan to have earned income past their 60's, or someone who expects to drop dead 20 years before their spouse.

 

[jdw_fire]

Re: Delay Pension and/or Social Security

Maybe the difference lies in the fact that CT has fewer years between now and age 70 than CFB does. In fact I believe the number is significant, something like 10 years difference.

 

[youbet]

Re: Delay Pension and/or Social Security

Whether or not you have a spouse who will benefit from the larger SS at 70 or not is also key. If you're single or if your spouse has a government pension and is ineligible for SS due to the GPO (Government Pension Offset) can make a big difference when running these numbers.

 

[cute fuzzy bunny]

Re: Delay Pension and/or Social Security

Maybe the difference lies in the fact that CT has fewer years between now and age 70 than CFB does. In fact I believe the number is significant, something like 10 years difference.

It should have an effect, but it should just be a difference in the amount of improved benefit. I cant see any way being closer to retirement would have the inverse effect.

In any firecalc run, the introduction at any time of any additional income source creates a positive effect on portfolio survivability and withdrawal rate. In any ORP run, the same produces a deferral of first line withdrawals, which are almost always from a Roth IRA (if available), which produces an extremely beneficial compounding effect.

By the way, should I point out at this point that we're dabbling with maybe a thousand bucks a month over maybe a 10-15 year period? Certainly not chump change, but a small enough amount that it very nearly invokes the "bird in the hand" rule.

I'd also point out that while the "what the hell, i'm dead anyways?" line of thinking works for someone without prospective heirs, both C-T and I have kids that would very likely benefit from a nice inheritance. While I have no plans to make a trust fund baby out of my son, I sure wouldnt mind helping him with financial independence in his 40's. I can do that by introducing the earlier income stream and holding off on taking withdrawals from my other portfolio elements.

 

[OAG]

Re: Delay Pension and/or Social Security

First let me say I took it at 62; DW took it 3 years earlier (she is 3 years older than me). Hers was small to start and when mine started hers increased almost 100%. We did not really need the money and, thus far, saved it earning at or above a 6% rate.

From my research the break even point, for one born in 1940, is the age of 77. That does not consider all of the benefits received early will be invested at or above 6% for those 15 years (stepped based on year of receipt). That pushes the BE point beyond age 77 however; basically if I live past 77 I lose, before that I win (just like term life insurance).

Some of my reasoning to take it early was:

a. I have a full COLA Pension that makes at least 50% of SS taxable no matter what I did.

b. Having watched a lot of Tax Changes over the past I was not, and am still not, sure any future tax changes will work to my benefit, since most have not worked to my benefit, so far.

c. Changes to SS will be coming and changes to MEDICARE Premiums are here now and I am sure more are on the way -- Basically "A bird in the hand are worth more than two in the bushes".

I have read the past substantial thread on taking or delaying SS -- I also spoke to a SS representative and asked if it was possible to repay the amount already received (and in effect annul ones previously approved application). I was surprised learn it can actually be done (they have a form you can download for this specific purpose). Once it is approved and repayment is the major criteria (remember you also have to repay the Medicare costs too) it is like you never applied and then you can wait for age 67-70 to reapply like a new applicant. I asked also if the repayment would include an interest amount -- and was told no, it was a dollar for dollar repayment. So if one is up to the task and wanted to go though the work you can keep the interest, repay the amount received, and start all over at a later age.

 

[Cut-Throat]

Re: Delay Pension and/or Social Security

Regarding FireCalc. Remember this is a worst case historical planner. If you retired in 1929 or 1966 taking the SS at age 62 would be slightly worse than delaying to age 70. However, if you hit these 'bad historical spots' after you had been retired for 10 years or so delaying to age 70 would give you a much higher SWR. I did run these numbers and had to dig a little deeper for the info.

I used to always look at this problem as Old Army guy does - The 'break even point' way. After I looked at it from a new angle - 'The how much you get spend' I totally changed my mind. Keep an open mind on this and run your own numbers.

I am hoping not to leave anything to heirs BTW. - If you are planning on leaving a pile to your heirs, I would suggest taking the SS early.

 

[OAG]

Re: Delay Pension and/or Social Security

CT-The reason for my last paragraph was that after reading your comments re: delay, I just wondered if I could reverse my decision. I did not follow through on reversing everything because of the cost and hassle to do it and the thought that if I did it the system would change to my detriment. I do however, see your rational for delaying and agree it would be beneficial to many. Sometimes I wish I had found this forum six or seven years ago.

 

[Cut-Throat]

Re: Delay Pension and/or Social Security

CT-The reason for my last paragraph was that after reading your comments re: delay, I just wondered if I could reverse my decision. I did not follow through on reversing everything because of the cost and hassle to do it and the thought that if I did it the system would change to my detriment. I do however, see your rational for delaying and agree it would be beneficial to many. Sometimes I wish I had found this forum six or seven years ago.

Yes, You coulld look at this buyback like a Cola annuity. Figure out the amount it would cost you and look at the payout percentage. It might be as high as 9% - whereas vanguard is about 5.3%

 

[teejayevans]

Re: Delay Pension and/or Social Security

If you investments are down, take the SS to prevent drawing down your
savings, if up and you don't need it then why take it, postpone taking SS.
Tom

 

[hogwild]

Re: Delay Pension and/or Social Security

This is a subject I have spent more hours than I can to admit to on. I plan to retire in 1-2 years (probably 2). I have 2 options with my pension. I can take it for 10 years only or I can take it for life. If I take it for 10 years only, it is almost double the life amount. Another variable is SS. I, of course, can take it at 62 or 66. (I have ruled out 70 for no good reason).

The third variable is whether to pay off my mortgage or keep paying it. Ok that is three variables with two options on each. They produces 8 alternatives. I ran all eight using Fidelity's retirement planner and the same eight using the "Flexible Retirement Planner" found here: http://www.flexibleretirementplanner.com/

This gives me a total of eight results. Using the Fidelity planner: the top 4 runs were all with SS at 66, the bottom four had SS at 62.

The flexible retirement planner (uses Monte Carlo modeling) were mixed as far as SS goes. It's results were mostly influenced by the mortgage option - the top four said to payoff the mortgage, the bottom four said to keep the mortgage. However, when holding the mortgage and pension the same and only comparing the change in SS age, SS at 66 won every time.

 

[lowflyer]

Re: Delay Pension and/or Social Security

Okay, thanks for all the comments. Interesting topic. I need to think about this a little more....

 

[FIRE'd@51]

Re: Delay Pension and/or Social Security

I also spoke to a SS representative and asked if it was possible to repay the amount already received (and in effect annul ones previously approved application). I was surprised learn it can actually be done (they have a form you can download for this specific purpose). Once it is approved and repayment is the major criteria (remember you also have to repay the Medicare costs too) it is like you never applied and then you can wait for age 67-70 to reapply like a new applicant. I asked also if the repayment would include an interest amount -- and was told no, it was a dollar for dollar repayment. So if one is up to the task and wanted to go though the work you can keep the interest, repay the amount received, and start all over at a later age.

This is fascinating if it really works that way. It means you could get an 8-year interest-free loan from the government, in additon to a higher benefit, if you live long enough. I guess the government figures the repayment will offset the lack of interest if you die early.

 

[MasterBlaster]

Re: Delay Pension and/or Social Security

So what's the conclusion ?

Do we have an optimal SS start age that maximizes your spendible income whilst you are alive ?

Does anyone have a link to someone who has analyzed this issue formally ?

 

[FIRE'd@51]

Re: Delay Pension and/or Social Security

So what's the conclusion ?

Do we have an optimal SS start age that maximizes your spendible income whilst you are alive ?

Does anyone have a link to someone who has analyzed this issue formally ?

Well, it seems like nothing is lost (other than the hassle factor) by taking it at 62, since that appears to be a free option, which eliminates the "die before 70" scenario. Then one can reassess the situation at age 70 to see if he/she wants the SS annuity.

 

[MasterBlaster]

Re: Delay Pension and/or Social Security

Well, it seems like nothing is lost (other than the hassle factor) by taking it at 62, since that appears to be a free option, which eliminates the "die before 70" scenario. Then one can reassess the situation at age 70 to see if he/she wants the SS annuity.

Well that is true but it's kind of sidestepping the issue. Somewhere along the line one must make a decision.

I guess the question becomes... If I were to die early is it worse to not have taken SS early or is it worse to die without having spent down my nestegg.

Still I'd like to see a formal analysis of the SS and pension withdrawal scenario.

 

[Moemg]

Re: Delay Pension and/or Social Security

Thanks cut throat .You just gave me something to think about. I would like to limit the amount I leave .This might do it .I'll have to run the numbers .

 

[Bikerdude]

Re: Delay Pension and/or Social Security

You should re-run the firecalc runs, and then tell me what you put in where, because i've done the SS early and SS late factors a bunch of times and the spend early benefit lies with taking SS early.

I've had similar results. I think it's due to the amount of total nest egg to the amount you will withdraw. No really, it makes a difference. A smaller portfolio is impacted more by the extra withdrawals needed to replace SS for the number of years you delay. In my case it's even worse because my pension is cut by a percentage of what I receive from SS so my withdrawals are even higher.

When I ran Firecalc the survivable rate was OK with either early or late SS but when I added the additional money to spend while I'm young the "take it early" (SS) scenario won out.

 

[FIRE'd@51]

Re: Delay Pension and/or Social Security

I guess the question becomes... If I were to die early is it worse to not have taken SS early or is it worse to die without having spent down my nestegg.

Why couldn't you do both, since you have the option of repaying SS if you need the annuity at age 70? If you delay SS and die before 70 you lose the SS forever. At least what's left of your nest egg can still go to charity or your heirs?