Why am I struggling? - Social Security Question

[Retiredmajor]

I'm soon to be 65 and will sign up for Medicare next month. I'm deciding when to take Social Security. I will either do it when I sign up for Medicare or wait until my FRA of 66 and 4 months.



EVERY retirement calculator I use (Firecalc + 3 others) and our Financial Advisor tell me that either way, we are financially fine and, at some point, are splitting hairs. A simple spread sheet tells me that the difference between taking SS at 65 versus 66 is $38,000 over 30 years. I'll be honest, I like the idea of drawing less from our Nest egg each year and taking SS earlier accomplishes that.



Plus, I'm hearing that SS may get a fairly large COLA increase in 2022 in the vicinity of 5 to 6%. Of course that makes all my numbers look better, but also makes me feel better about taking SS at age 65.


Why am I struggling with this? It seems that I'm letting it become an emotional issue when it's just math!



All advice is welcome! Major

 

[Amethyst]

Major - bear in mind that a COLA increase is only a reaction to inflation. It's not a raise; more of a way to help one tread water. Thank goodness it exists - not knocking t.

Plus, I'm hearing that SS may get a fairly large COLA increase in 2022 in the vicinity of 5 to 6%. Of course that makes all my numbers look better, but also makes me feel better about taking SS at age 65.


Why am I struggling with this? It seems that I'm letting it become an emotional issue when it's just math!



All advice is welcome! Major

 

[SnowballCamper]

IMHO the reason people struggle with this is because the actuaries over at social security have done a fine job of making the decision to take SS early or late irrelevant in the aggregate, meaning there isn't a sure fire way to game the system against SS for personal advantage.

There are however personal (emotional) considerations such as what you think your life expectancy is, and how much need you have for current income. So, I don't think it's just math.

 

[MichaelB]

Why am I struggling with this? It seems that I'm letting it become an emotional issue when it's just math!

Don’t be so hard on yourself. When to take SS is the most discussed topic here, and after 2 decades of debates it’s safe to say the answer is “it depends”.

 

[bobandsherry]

My ability to draw from SS is still a number of years away, but for me the longer I wait the more my wife will get should I pass before she does. A calculator I used showed it's beneficial to have her draw at 62, keeping our assets earning. Me waiting until 70. With life expectancy for her to be more than me she draws my benefit, which is significantly higher than hers, after my passing. Each case is different, but something to consider.

 

[O2Bfree]

I think your post tells you what to do. The spreadsheet shows a hair-splitting difference, you like the idea of drawing less from your nest egg, the possible bump in the SS makes you feel better about taking it early, and it's just math! Also, think about how you'll feel when you get that first SS check in a few months vs not getting it. Does that agree with the other pros for taking it early?

It's easy to get worked up about possibly leaving money on the table. But really, there are so many variables in our financial worlds that hair-splitting decisions tend to get lost in the noise and aren't usually worth the angst they can cause.

 

[Gumby]

IMHO the reason people struggle with this is because the actuaries over at social security have done a fine job of making the decision to take SS early or late irrelevant in the aggregate, meaning there isn't a sure fire way to game the system against SS for personal advantage.

There are however personal (emotional) considerations such as what you think your life expectancy is, and how much need you have for current income. So, I don't think it's just math.

Yes, actuarially it is a wash in aggregate. But there are some relatively rare circumstances where the math is clear. In my case, the young wife was a public school teacher for 30 years and never paid into social security. So she is not eligible for social security on her own record. Since she gets a government pension as a consequence of her teaching, she is also subject to the GPO (government pension offset). That means that she does not get a spousal benefit based on my record and, crucially, that she will not get a survivor benefit after I die. So when I cease, the social security input to our household budget ceases.

Since she is younger and female, from a relatively long lived family, it is likely that she will survive me, only to face a sudden loss of about 25% of our current income. Under those circumstances, it makes more sense for me to take social security at 62 to preserve our nest-egg for her use after I'm gone.

 

[Chuckanut]

Here is my 2¢. I took SS at 70. (Yes, I am one of those people.)

I think of SS at 70 as two types of 'insurance'.

1. Longevity insurance - If I live long enough it might save my bacon. Who else is going to give me this deal on a COLA'd annuity other than my Uncle Sam? It also frees me up to spend more earlier knowing the future is more secure.

2 LTC insurance - The current LTC plans available to me are a poor deal, IMO. If I need it, the extra monthly funds will help cover the charges, though it is still expensive. Besides, If I stay healthy, then I have more money for wine, women and song.

You may notice that a lot of the reasoning is more psychological in nature than just pure number crunching.

OTOH, it's foolish to fuss too much over this decision since none of us can predict the future. Most important is to enjoy your most valuable asset - time. The earlier you retire, the more time you have to live your life without work raising its ugly head. Having lost a number of good friends and a few close relatives in their 50s and early 60's, that lesson is not lost on me.

 

[REWahoo]

It's easy to get worked up about possibly leaving money on the table. But really, there are so many variables in our financial worlds that hair-splitting decisions tend to get lost in the noise and aren't usually worth the angst they can cause.

^ This

I stopped agonizing over trying to determine the best time to take SS when I realized I might not know until after I was dead.

 

[frayne]

Flip a coin and go with it, not worth worrying over. And besides, do you really think you are going to live until you are 95 or 96 and if you do, I seriously doubt money will be your biggest concern.

 

[MRG]

Yeah after all I'll be really ticked off if I take it at 70 and die before I break even.

 

[ncbill]

Probably will take at 67 assuming we're both still around since, IIRC, spousal benefit doesn't increase past FRA.

 

[skyking1]

without the forum here and the opensocialsecurity.org
site, I would be the grab it at 62 guy.
Because of how it affects my younger wife, now I am the wait until 70 guy. Gumby's decision above was the complete flip of that.
I would not sweat it too much for only a 16 month difference.
In one hand you have to cover the difference for 16 months out of the nest egg.
~$35,000?
Weigh that against the egg and go for it.

 

[LRDave]

Yes, actuarially it is a wash in aggregate. But there are some relatively rare circumstances where the math is clear. In my case, the young wife was a public school teacher for 30 years and never paid into social security. So she is not eligible for social security on her own record. Since she gets a government pension as a consequence of her teaching, she is also subject to the GPO (government pension offset). That means that she does not get a spousal benefit based on my record and, crucially, that she will not get a survivor benefit after I die. So when I cease, the social security input to our household budget ceases.

Since she is younger and female, from a relatively long lived family, it is likely that she will survive me, only to face a sudden loss of about 25% of our current income. Under those circumstances, it makes more sense for me to take social security at 62 to preserve our nest-egg for her use after I'm gone.

Gumby:

There is a GPO timing question I don't think I understand and based on your response, you've must've already sussed the answer.

When is the 2/3 government pension minus survivor benefit amount calculated? At the time of your passing?

We are in a similar situation as yours, except DW's pension is humbler (retired with about 23 years service) and she is only 2 years younger. We both come from relatively hardy stock and longevity insurance is high on our priorities.

 

[ShokWaveRider]

If Medicare age is reduced to 60 per some ideas that are in play, (DW utilizes the ACA) I will take mine as soon as that occurs, I am 68 at the moment.

 

[skyking1]

Probably will take at 67 assuming we're both still around since, IIRC, spousal benefit doesn't increase past FRA.

that is not correct.
In a nutshell, if your wife draws X amount and you wait till 70 and your benefit is 1.2X, the both of you now have 2.2X.
If you pass first, she gets the larger of the two benefits as survivor, in this case 1.2X
The key is you have to survive to that 70 number and start drawing for that to work exactly as planned.

 

[Bamaman]

If someone's in good health and they can get by without having to start their Social Security, go for putting it off until later. The effective ROE by delaying the start is very good.

If they have a non-working wife that is eligible for 50% their husband's Social Security, they might want to start drawing SS earlier.

 

[pb4uski]

I'm soon to be 65 and will sign up for Medicare next month. I'm deciding when to take Social Security. I will either do it when I sign up for Medicare or wait until my FRA of 66 and 4 months. ...

I suggest that you look into opensocialsecurity.com. You'll input your and your spouse's primary insurance amount (SS benefit at your full retirement age), and if you check the little box at the top you can select the mortality table that is used and a real discount rate.

I prefer the 2017 CSO Preferred mortality over the SS mortality table and I use 3% for a discount rate which assumes a 5% nominal rate or return on my conservative capital preservation portfolio less 2% inflation (I don't really agree with the author's suggestion of using the 20 year TIPs rate).

What the tool then does is to calculate the expected present value of each possible combination of claiming ages from the later of now or when you are first eligible to claim and age 70.... so thousands of possible claiming strategies in some cases. For each possible claiming strategy it looks at the benefits that you would receive under that claiming strategy, then multiplies it by the probability of your being alive to receive that benefit to get the expected cash flows and then discounts those expected cash flows back to today to get a single number expected present value for that scenario. The scenario with the highest expected present value is referred to as the recommended strategy.

The tool then provides a heat map of the possible choices based on their EPVs in relation to the highest EPV.

I just reran the tool for us... DW is already on SS... started in May 2021, but I have yet to file. According to the tool the optimal strategy is for me to file at 67 and 9 months. Our plan is for me to file at age 70... according to the tool that leaves about $7k of EPV on the table. OTOH, if I filed now or at my FRA I leave less than $5k of EPV on the table compared to the optimal solution

Bottom line, in our case when I claim doesn't matter much since all other alternatives are within 1% of the EPV of the optimal alternative, so I'll probably stick with age 70 and hope that we outlive the 2017 CSO Non-smoker Preferred mortality table (which is a distinct possibility given that we are both pretty healthy).

If you're interested in seeing the value of your benefits undiscounted just change the discount rate to zero.

 

[pb4uski]

... If they have a non-working wife that is eligible for 50% their husband's Social Security, they might want to start drawing SS earlier.

I don't agree with this last part. We are in that situation... DW was a SAHM so her SS is ~30% of mine and all the calculators suggest that I wait.

 

[mystang52]

without the forum here and the opensocialsecurity.org
site, I would be the grab it at 62 guy.
Because of how it affects my younger wife, now I am the wait until 70 guy. Gumby's decision above was the complete flip of that.
I would not sweat it too much for only a 16 month difference.
In one hand you have to cover the difference for 16 months out of the nest egg.
~$35,000?
Weigh that against the egg and go for it.

The only reason I deferred an extra year or 2 was because DW very likely will live a lot longer than I. I took it at age 65 because at that point it became an either-or decision. OP: if you're at that either-or stage, I vote to take it now.

 

[RetiredHappy]

that is not correct.
In a nutshell, if your wife draws X amount and you wait till 70 and your benefit is 1.2X, the both of you now have 2.2X.
If you pass first, she gets the larger of the two benefits as survivor, in this case 1.2X
The key is you have to survive to that 70 number and start drawing for that to work exactly as planned.

ncbill was referring to spousal benefit, which is correct. You are thinking of survivor benefits, which is also correct.

 

[RetiredHappy]

If someone's in good health and they can get by without having to start their Social Security, go for putting it off until later. The effective ROE by delaying the start is very good.

If they have a non-working wife that is eligible for 50% their husband's Social Security, they might want to start drawing SS earlier.

If you meant draw earlier, as per before FRA, then the spousal amount is reduced. Spouse has to wait until FRA to get the full 50% spousal benefit (based on husband's FRA/PIA), assuming that the husband starts at FRA or after.

 

[skyking1]

Thanks RetiredHappy

 

[pb4uski]

I'm soon to be 65 and will sign up for Medicare next month. I'm deciding when to take Social Security. I will either do it when I sign up for Medicare or wait until my FRA of 66 and 4 months. ...

An additional thought for you Major. You can also boil down the SS decision to effectively buying a COLA adjusted life annuity from the U.S. government.

Say that your PIA is $1,000/mo. Your age 70 benefit would be $1,293/mo so the difference would be $293/mo.

So if you wait until 70 you will forgo $44,000 (44 months at $1,000/mo) in exchange for receiving $293/mo for the rest of you life (and in some cases both your and your DW's life). That's an 8% payout rate.

The payout rate for a fixed (non-COLA) annuity for a 70yo male according to immediateannuities.com is 6.7%.... so that 8% payout rate, with a COLA is a screaming deal... and $44,000 isn't a huge investment given the benefits.

 

[Freedom56]

I have to start taking SS at 62 as my level income pension will be reduced by the amount of my SS at age 62. My break-even analysis clearly indicates taking SS at age 62 vs age 66 or later is a smart move. My pension covers all our expenses except for income tax on investment income from taxable accounts.