When to take Social Security

[haha]

Re: When to take SS

In a country that has transformed from primarily manufacturing dependent and more of a dependence on service... what would you think the critical ingredient to be?

Try reading my post. Failing that try reading some economics. Long time ago I learned not to debate if I have nothing to gain, so think whatever you want to think, unmolested by data.

Ha

 

[chinaco]

Re: When to take SS

Try reading my post. Failing that try reading some economics. Long time ago I learned not to debate if I have nothing to gain, so think whatever you want to think, unmolested by data.

Ha

I reread your post! Just to make sure I did not misinterpret. I got it. I just do not agree. You are welcome to your opinion. Immigration made this nation what it was yesterday and what it is today. Our openness is our strength.

Sorry about the diaper comment if that is what raised your hackles. It probably sounded a bit more derisive than intended... It was not intended directly at you, rather at all of us boomers since a number of us will wind up in a NH. The point is: we have (and will increasingly have) a shortage of low skilled (and therefore low paid) health care workers (as one example).

I am not an economist, and I may not be the brightest bulb in the pack... but I do have an MBA. I studied and understand most of the established (accepted) economic theories and the rationale behind them.

Immigration just needs to be done is a sane and controlled way (legally). My only gripe about the current run at increasing immigration is the proposal to grant amnesty to illegals. I prefer opening the process to people who enter the US in a legal way and to crack down on people/businesses that hire illegal immigrants.

 

[Bikerdude]

Re: When to take SS

since 80 million voting retiring baby boomers carry a huge political clout i feel the baby boomers are safe from any drastic changes. at 44 all bets are off for you my friend! ha ha ha

Boomers, 1946-1964. Age 44 is the tail end. That doesn't mean he's safe though.

 

[New Thinking]

Re: When to take SS

Here is a summary of my recent paper on the subject presented at the Pension Research Council http://www.pensionresearchcouncil.org/pdf/news/49.pdf

 

[bssc]

Re: When to take SS

Here is a summary of my recent paper on the subject presented at the Pension Research Council http://www.pensionresearchcouncil.org/pdf/news/49.pdf

Interesting paper. While I hadn't heard it called the tax torpedo, the current rules for IRA/401(k) made me lean towards deferral.

 

[cute fuzzy bunny]

Re: When to take SS

Having the biggest pile does not interest me. Delaying to age 70 will allow me to spend more in my 60's than taking the SS at age 62.

Except we already proved that the math behind this fallacious assumption is incorrect.

To be fair, I'd have to fall into the water and a fish would have to become trapped in my pants for me to 'catch it'.

We all have our particular strengths and weaknesses.

Basically if you know when you're going to die, it becomes a far simpler equation.

Aside from that, introducing the smaller income stream earlier in your planning cycle means a reduced withdrawal load on your portfolio, which means a higher withdrawal rate, a higher survival rate, and the ability to retire earlier with less money.

How much is left when I die doesnt matter much to me. Financial independence for my kid, or maybe i'll blow it in my 80's on Anna Nicole Smiths granddaughter.

Last aside, if your retirement planning is so sparse that your wife has to depend on social security after you die, you need to revise your plan until it doesnt suck.

If you dont need the money, invest it. You'll be well into your 80's before you'd get a break even by taking it 'later'. I'll bet that money's a lot more fun to spend in your 60's than in your 80's.

If you really want a no-brainer, take the money, put it into 7 year cd's, give the principal back to the government when you're 70 and keep the interest, while getting the new revised higher 'late' rate.

Or, you can use some funny math to allow you to blow your dough now because its what you wanna do, leave your widow wondering what the #$$@% happened to all the money, secure in the knowledge that she has big social security bucks to spend. Except that its 30 years from now and social security just aint payin' anymore...

Looking at the whole financial picture, just using the SS income at 62 to offset withdrawals from my Roth, allowing that to grow tax deferred and tax free...is worth WAY more than a few extra chump bucks at 70.

 

[Martha]

Re: When to take SS

Last aside, if your retirement planning is so sparse that your wife has to depend on social security after you die, you need to revise your plan until it doesnt suck.

Unfortunately, a lot of people are in that position. The idea that the older and higher earner can sign up and then defer SS so the lower earner can start collecting on the higher earner's record is a neat trick that I didn't know about until NewThinking brought it up some time ago.

Me, I'm not going to look at the issue until Greg (the older of the two of us) turns 62.

 

[JPatrick]

Re: When to take SS

Quite a number of posts here relate to putting off SS so as to provide the surviving spouse a higher benefit. While it is true that anything after full retirement age (mine 66) flows to her bottom line, it is not true that taking benefits prior to full retirement (me 66) reduces her benefit. In other words, if you retire at 62, go tits up die at 63, my spouse will receive my full age 66 benefit, not my age 62 benefit, provided she waits until HER full retirement age .
This is one of the key reasons it would take a team of wild horses on steroids to keep me from applying prior to age 66.

 

[73ss454]

Re: When to take SS

JP, I'm 58 and DW is 56. Let's say I take SS at 62 and die at 64 1/2, if DW took her's at 62 would she still get my higher benefit? Would she have to give back the money and wait till full benefit time.

 

[JPatrick]

Re: When to take SS

JP, I'm 58 and DW is 56. Let's say I take SS at 62 and die at 64 1/2, if DW took her's at 62 would she still get my higher benefit? Would she have to give back the money and wait till full benefit time.

<<<there's this from SS::::If you are getting benefits based on your own work, call or visit us, and we will check to see if you can get more money as a widow or widower. You will receive the higher benefit, not a combination of the two types of benefits. You will need to complete an application to switch to survivors benefits, and we will need to see your spouse’s death certificate. >>>>

I'm assuming, she will get the higher benefit based on her age at the time of application.
No paybacks involved. I would suppose that if she waited to apply for widow benefits until she was 66 she would get your full benefit at that time.
Lots of assuming on my part. Probably need another opinion.

 

[Texas Proud]

Re: When to take SS

Quite a number of posts here relate to putting off SS so as to provide the surviving spouse a higher benefit. While it is true that anything after full retirement age (mine 66) flows to her bottom line, it is not true that taking benefits prior to full retirement (me 66) reduces her benefit. In other words, if you retire at 62, go tits up die at 63, my spouse will receive my full age 66 benefit, not my age 62 benefit, provided she waits until HER full retirement age .
This is one of the key reasons it would take a team of wild horses on steroids to keep me from applying prior to age 66.

Are you sure of the money I ask because my sister just started to get SS at age 66 and she is getting the spousal amount, not based on her own earnings.... However, they said that her 'full' benefit is being reduced because her husband started to withdrawl early... if she had started to withdrawl at 62, then she would have only received a reduced benefit based on a reduced benefit... a double whammy...

 

[jdw_fire]

Re: When to take SS

Except we already proved that the math behind this fallacious assumption is incorrect.

Bunny you have proved no such thing, in fact I proved Cut Throat correct here http://early-retirement.org/forums/index.php?topic=12870.msg240069#msg240069. If you don't want to believe the facts thats fine but don't mislead the others reading this thread with your false statements.

To all the others reading this thread, to get more info for your decision on when to start taking SS please read some of the earlier threads (like the one I link to above). Delaying is not just for married people.

 

[JPatrick]

Re: When to take SS

Are you sure of the money I ask because my sister just started to get SS at age 66 and she is getting the spousal amount, not based on her own earnings.... However, they said that her 'full' benefit is being reduced because her husband started to withdrawl early... if she had started to withdrawl at 62, then she would have only received a reduced benefit based on a reduced benefit... a double whammy...

Now here's an extract from a pamphlet that contradicts the web site::
<<How much your family would receive in benefits depends on your average lifetime earnings. The higher your earnings were, the higher their benefits would be. We calculate a basic amount as if you had reached full retirement age at the time you die. (If you already receive benefits when you die, survivor benefits are based on that amount.) >>

 

[chinaco]

Re: When to take SS

Except we already proved that the math behind this fallacious assumption is incorrect.

Bunny Dude:

I will admit one thing. I am struggling with the decision a bit. Of course, it is a ways off so I have some time to ponder, calculate what-ifs, and wait until the realities of the day emerge... them make my decision.

I agree with a few of the ideas/thoughts that you put out there, but I do not necessarily think your conclusions are correct. I think they could be for some people in certain circumstances.

Here are some things that I am struggling with:

1) Risk vs Gain: In this case I am trying to balance out (make sense) of the variety of risks involved in investing in securities (and volatility) versus risk of outliving my money. I think there could be several situations that might arise that would influence the ultimate decision. Obviously I would like to wring every last penny of gain out of my investments and income streams. How do I best do that (taking it today or tomorrow)?

For example Let's say I am 62. The market goes to hell in a hand basket. If DW and I both take SS then, it would probably put less stress on the portfolio (this depends a bit on my allocations at the time). If the down-turn is protractive. It might have been a better move for the portfolio to survive. On the other hand, if the market is going gang busters... DW might draw her's @ 62, If I wait till say 66.x, the survivor will have an larger COLA'd annuity no matter how long they live (another form of risk).

2) Depending on your situation, taxes could be a factor. We will ER @ 55. 7 Years later, we will be eligible for SS. What does the net look like in the tax situation? Depending on my tax strategy and my tax deferred vs taxable mix... It seems that It might be possible that I might be better off delaying in certain circumstances.


I agree that longevity is the unknown variable. Right now my personal leaning is that DW should take it @ 62 and I will take mine @ 66.x as a hedge against one of us outliving our portfolio and having a slightly higher cola'd income stream. I agree that SS is not a huge amount, but it is a critical source of income if things ever go wrong.


I suspect you are still in the mindset of gain, gain, gain... and many of us are in the reduce risk, reduce risk, reduce risk mindset.

Reducing risk has an opportunity cost!!! The question is whether or not that suspected opportunity cost is real or just a possibility.

 

[mathjak107]

Re: When to take SS

as we get close to retirement remember "ITS NOT ABOUT GETTING RICHER AND SQUEAKING OUT EVERY GAIN. ITS ABOUT NOT GETTING POORER!

 

[REWahoo]

Re: When to take SS

JPatrick, 73ss454 & Texas Proud, this may help answer your question:

"Q. If my wife collects social security at 62, I expect to be already collecting since I'm five years older. As I understand it, since half of my benefit exceeds her benefit, she would collect on her own record plus some additional on my record. Most would be on her record. My question is: If I were to die before her, would her widow's benefit be reduced because she started collecting at 62 even though most of what she receives is on her record? Would the timing of my death matter (i.e., before or after her full retirement age)?

A. When you wife applies for Social Security benefits to begin, her application will cover both her own benefit and any benefit she is due as a spouse. Either benefit must be reduced for months of early retirement. At age 62, for example, she would receive 75 percent of her own full retirement age benefit. Her spouse benefit would be 35 percent of your full benefit. She will in effect, receive the greater of the two.

The age at which she applies for a widow benefit will determine the amount she receives. If your wife is full retirement age or more before being widowed, her widow benefit will rise to the full benefit you would receive if still alive. If she is less than full retirement age, any widow benefit she is due would be reduced for months she is still less than full retirement age. Whenever she is widowed, her own early retirement would no longer be a factor. "

"Q. I'm curious about some information my lady friend received last fall from her local social security office. When her husband died (age 65), she (age 62) was told to take the widow benefit now and when she turned 70 piggyback her own social security payments onto her widow's benefits. I thought it was one or the other, not both.

A. Your friend received excellent counseling from her local Social Security office. A widow(or widower) has the option of choosing which benefit to begin—her own worker benefit or a survivor benefit based on her deceased husband's earnings. She can even switch from one to the other if it is to her advantage to do so.

Many times it is to a widow's long-term advantage to begin her own reduced retirement benefit at or after age 62 and switch to an unreduced widow benefit at full retirement age. In reverse, if her own benefit will ultimately be larger, she can begin a reduced widow benefit and switch to her own benefit at any time it becomes larger. Her own benefit does not “piggy-back” on her widow check—her own benefit replaces her widow check.

A worker's own benefit reaches its maximum at age 70. Delayed retirement credits (the opposite of early retirement reductions) are added to a worker's own benefit for each month benefits are deferred after full retirement age up to age 70."


Those two questions pertained to widow/widower's benefits. If you take that out of the equation...

"Q. Is it correct that if my wife draws based on her own earnings at 62 she cannot switch to 50% of my benefit assuming I draw later than she (which would be more in our case)? ...

A. Your wife may begin her own reduced Social Security benefit and still qualify for an additional spouse benefit when you begin your benefit. However, a wife who retires early never receives the full 50 percent. Her own early retirement must be taken into consideration. A very simple example may help. Assume your wife's full retirement age benefit is $400 and your full-retirement age benefit is $1,400. If she begins her benefit at age 62, her early retirement reduction will reduce her benefit to approximately $300. Assuming she is full retirement age when you retire, her $300 will increase by $300 – the difference between her full benefit ($400) and half of your full benefit ($700). Her new monthly payment would be $600. "

http://www.ncpssm.org/contact/ask/earlyretirearchive/

 

[New Thinking]

Re: When to take SS

While it is true that anything after full retirement age (mine 66) flows to her bottom line, it is not true that taking benefits prior to full retirement (me 66) reduces her benefit. In other words, if you retire at 62, die at 63, my spouse will receive my full age 66 benefit, not my age 62 benefit, provided she waits until HER full retirement age .
This is one of the key reasons it would take a team of wild horses on steroids to keep me from applying prior to age 66.

This is incorrect. If you start at 62 and die at 63, you have permanently reduced your wife's survivor benefit. You "lock it in" if it is higher than what she would earn in SS benefits on her work record. Now, if she is younger than HER Full Retirement Age when she starts that widow's benefit, she may see a further reduction. If she was over her FRA once she "inherited" the widow's benefit, she would assume the amount you were receiving. All of these amounts mentioned would be adjusted for COLAs each year.

 

[New Thinking]

Re: When to take SS

Let me share with you again the tax efficiency angle. If you don't "get it", don't let it bother you because none of the experts got it before either. Let me first ask whether you would be interested in converting your IRA to a Roth without paying taxes on the conversion? Or, what if you could provide yourself with tax-free income from your 401k? This is somewhat similar because you can construct an income stream in retirement made up of IRA and Social Security income and pay much less in lifetime taxes (than what nearly everyone does) under current law.

And when you talk about income, wealth, and risk, in my opinion it helps to work backward. What matters is AFTER-TAX income and if you are married it is while you both are alive and then it is for the remaining life of the widow or widower. Since it is AFTER-TAX income that matters, the more you have to pay in taxes, the more you have to draw down your portfolio. This results in a lower standard of living, lower potential wealth, and higher probability of running out of money.


In a nutshell, most people will take IRA income along with SS at a reduced rate. since the thresholds under the Combined Income forumula (which determines the taxation of SS) are not indexed for inflation, many future retirees will pay high marginal tax rates on their IRA withdrawals because it will "force" the taxation of their SS benefits. Thus IRA income gets taxed and up to 85% of SS gets taxed.

If you delay SS and create larger SS income streams, you take advantage of the way the law is written to reduce taxes. You may pay a little more tax on your income in the early years of retirement because you are taking only IRA income. But when your higher SS kicks in, your taxes may be substantially reduced. You take advantage of three critical items. First, you have less IRA income so the taxes are reduced. Second, your SS income goes into the Combined Income formula at a 50% rate, so you can get much more income into the formula. Third, and this is critical, the SS tax is determined based on the least of three tests. And the test that will apply usually is 1) 50% of the Combined Income overthe first threshold plus 35% over the second threshold. Since the first threshold is $32,000 for married, you could get $64,000 of SS into the formula before ever reaching that threshold. Factor in exemptions and deductions and you could receive over $115,000 in SS (theoretically) before a typical couple would pay taxes.

For a widow, the tax angle is even sharper because she is now faced with lower tax brackets and SS taxation thresholds so allowing her to inherit a large SS survivor benefit provides much more after-tax income than a lower SS benefit and IRA income.

Thus, one could create a much more tax-efficient income strategy.. Remember that FireCalc ignores taxes and this may be a better way since it is AFTER-TAX income that matters...If you pay less taxes in retirement, can you not retire sooner because your nest egg can be smaller??

 

[cute fuzzy bunny]

Re: When to take SS

Bunny you have proved no such thing, in fact I proved Cut Throat correct here

You did in fact prove that using cut-throats inaccurate numbers in an implausibly slanted way, that you can produce a desired outcome. What was it again? Using a lower 62 number and a higher 70 number than SSA sent out, then insisting that the firecalc results last until you're 120 while not factoring in any risk assessment for social security benefits being reduced in the future?

Folks, run firecalc with the numbers from your social security statement at 62, 66 and 70. Same scenario except with the SS thrown in at the different amounts and times. In all except a few unusual circumstances you will see a firecalc withdrawal rate and survival rate is higher for 62, THROUGHOUT YOUR RETIREMENT. Not just starting at 62, which for the 'retire and withdraw mechanically by the numbers' types (which I am not) means you should look at this decision BEFORE you're 62. You might be shortchanging yourself.

I've published the calculation results ad nauseum. If I made a presumption of receiving full social security benefits at 62, I can safely retire earlier and spend more money throughout a 45 year firecalc run than if I delay the benefit. This is nothing magical regarding social security. Bob Clyatts book quite thoroughly demonstrates that even a small income stream improves firecalc results immensely...and the earlier the better.

There definitely are some circumstances around tax situations and some specific conditions where it may pay to delay.

So run your own numbers, dont just take the BS from someone who has already made the emotional decision and then 'found' facts to suit, someone who wants you to buy annuities or someone who takes it personally when you find faults in their ideas and then hangs onto the anger. You all know who you are.

I suspect you are still in the mindset of gain, gain, gain... and many of us are in the reduce risk, reduce risk, reduce risk mindset.

Reducing risk has an opportunity cost!!! The question is whether or not that suspected opportunity cost is real or just a possibility.

Not at all true. I'm all for the reduction of risk. The best way I see to accomplish that is to get my hands on as much money as I can, invest it efficiently, withdraw it efficiently, and have my money last a full lifetime. And then some. The best defense is a good offense...not punting the ball on first down just to make sure your quarterback cant throw an interception.

I'm having a hard time correlating hoping that I receive a higher benefit from a floundering program 40-50 years from now vs taking a smaller amount and investing it or spending it to preserve my earnings. Especially when every single calculator, when fitted with the proper numbers and without tying both arms and legs behind the displeasing scenarios back produces the result that taking the benefit early produces the highest income, highest portfolio size and highest survival rate.

THAT'S safe.

But its a lot easier to make up numbers, manipulate the scenario, then throw out platitudes like "I dont care how much money I have when i'm dead" or "why will I care? I'm dead!".

Theres no free lunch here, unless you live well past when the IRS mortality tables say you will, AND you're in great health in your 80's and 90's and will be able to appreciate the extra money. Since I cant know any of that, i'll go with what the numbers and calculators tell me and I try to not spin the numbers or how they're applied to produce the results I want.

I'll eagerly take 8 additional years of unimpeded Roth growth vs less than a thousand bucks extra per month.

 

[FIRE'd@51]

Re: When to take SS

Here is a simple numerical example which illustrates the point CFB has been making. It also makes it clear why FireCalc prefers taking SS early.

Assume you have a 62 year-old married man (no pension) with a nest egg of $1.5 million. He needs 60K per year (4% SWR). His age 62 SS benefit is 15K. By taking it at 62, he reduces his SWR to 3% (100% safe according to FireCalc) with a 75/25 equity/fixed asset allocation. If his wife is also 62, she gets half of his SS, or another 7.5K. Now he only needs to withdraw 37.5K from his nest egg which further reduces his SWR to 2.5%, a rate than can probably be covered (in today's dollars) in perpetuity from the divs/interest thrown off from his portfolio. Heck, TIPS yield nearly this much.

To me the goal of ER should be to work your portfolio into a mode where you can live off the cashflow without ever being forced to sell securities in down markets. I believe taking SS at 62 helps one safely get to this "state" sooner.

 

[ERD50]

Re: When to take SS

IMO, this topic (and a few others) really needs a 'wiki' type entry. Summarize the pros/cons/opinions/POV in a single entry.

I've tried to follow some of this, and with the different calculations, scenarios and viewpoints spread over several multi-page threads, it is a challenge (and I'm failing).

The advantage of a wiki is, the article is on the main page, the endless bickering enlightened debate is on the 'talk' (discussion) page. The article itself always reflects the most up-to-date , consolidated views of the group. It does not mean the group needs to reach consensus (I won't live that long), but the views and conditions along with criticisms can be presented together. An example:

http://en.wikipedia.org/wiki/Value_investing

http://en.wikipedia.org/wiki/Talk:Value_investing

Any interest/thoughts on how we could a do a wiki on this? I could re-post this in the Forum Admin area if that makes more sense.

-ERD50

 

[cute fuzzy bunny]

Re: When to take SS

Tremendously easy to get the value without any extra technology, although I like wiki's and so does bigmoneywikijim.

Just get everyone to state their position with actual numbers and reasonable parameters on all sides of the equation, select the ones that are truly different, get a consolidated 'counterpoint' post and then put up the 3-4 reasonable options and counterpoints in a sticky thread in 'best of'.

The problem is I think many people already have their minds made up and are just looking for a comfy rationalization. Or that despite planning ad nauseum, people will make an emotional decision perhaps while rationalizing that they're making a good sound financial decision for themselves and their family.

How else do you get someone to look at a government program thats reaching insolvency, states on paper they'll be unable to make payments in the future, and call that "ultra safe!"

 

[Mwsinron]

Re: When to take SS

"How else do you get someone to look at a government program thats reaching insolvency, states on paper they'll be unable to make payments in the future, and call that "ultra safe!"Huh"

Well people keep giving me the argument that taxes will be raised and immigrants will end up paying for it

Why I said ill take it while the getting is good...

 

[New Thinking]

Re: When to take SS

I'll give it with the numbers..I am no expert in FireCalc, but let me give it a shot as to how I would adjust my own plan if I was retiring early at 62 today. Here are my assumptions and you folks can also run the numbers to check my accuracy. We will ignore the tax efficiency of my approach since FireCalc cannot bring these into the equation.

Here are my assumptions: Married, both age 62 in July 2007 and I am eligible for SS at 62 of $1486 per month ($17,868 per year). Spouse is entitled to SS based on my work record. That means she is eligible for a reduced annual spousal benefit of $8,338 (35% of my FRA amount). We have $1 million in IRA assets and need $75,000 per year to live on. Asset allocation would be 50/50 stock/bond split. Using the FireCalc defaults of 18 bps expenses, long interest rate and performance since 1871. CPI inflation rate.

In a second run, I am also going to assume that I die in 20 years at age 82 to show the value of the SS survivor benefit. But let me hold off on that until the second run.

Taking SS early provides me with a 57.5% success rate with an average portfolio of $456,696.

Now if I wait to take SS until age 70 and then spouse takes at her Full Retirement Age of 66, I plug in $31,447 in year 2015 for me and $11,912 for spouse in 2011. This provides me with a 71.7% success rate and average ending portfolio value of $605,658. So it appears that the success rate improves with delaying SS.

Now, let’s add the SS survivor value when I die. If I take SS early, my survivor benefit, in 20 years is $31,656 (in future dollars & using SSA Cola projections). If I delay SS, my SS survivor value is $55,416. This is a $23,760 difference for my widowed wife at age 82. To put a lump sum value on that, we could use the Vanguard/AIG calculator to see that it would cost $228,723 to buy a CPI-indexed annuity paying $23,760 annually. Discounting that back at 3% gives a lump sum value of $126,600 in today’s dollars that we can plug into FireCalc in 2027.

That gets our success rate up to 86.8% and average terminal value of $814,650.

But I would take it one final step as I believe that asset allocation should be influenced by annuity/SS income because more of my portfolio is fixed. So, I shift from a 50/50 split to a 60/40 split as I weight more heavily to equities due to the higher SS increasing my risk tolerance. This improved my success rate to $87.7% and average terminal value of $1 million.

 

[ERD50]

Re: When to take SS

Tremendously easy to get the value without any extra technology, although I like wiki's and so does bigmoneywikijim.

Just get everyone to state their position with actual numbers and reasonable parameters on all sides of the equation, select the ones that are truly different, get a consolidated 'counterpoint' post and then put up the 3-4 reasonable options and counterpoints in a sticky thread in 'best of'.

Yes, that was my first thought, the wiki is just an example. As new info comes along, those sticky posts could be re-edited (by a moderator). It wouldn't take new wiki technology, just someone willing to play editor. End result would be similar. We could even reference the supporting 'discussion' for the 'interested student'.

-ERD50