Why am I struggling? - Social Security Question

[Sunset]

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.

You don't "have to" take SS at 62, just because your pension is reduced by what SS would pay at 62.

The two events are actually separate.
You could have your pension reduced at 62 , and wait until 70 to collect SS.

However, if your Pension is reduced by whatever SS will pay each year, then possibly it does not matter when you take SS. If the pension is much greater than whatever SS would be at any age.

 

[Sunset]

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.

When the actuaries made the rules, it was years ago, and people do live longer on avg now, so the table is tilted a little in favor of waiting.

 

[pb4uski]

I was thinking the same thing.... the pension will reduce whether Freedome starts SS or not... that reduction is built in and is common to both alternative of take or not take so it isn't a relevant factor since it isn't a differential cash flow.

That said, Freedom is pretty savvy financially so if he says that his analysis favors taking at 62 vs 66 or later I suspect that he is correct.

 

[pb4uski]

When the actuaries made the rules, it was years ago, and people do live longer on avg now, so the table is tilted a little in favor of waiting.

+1, the discount or premia for taking early or deferring haven't changed for a long time... since the early 1980s I think, but meanwhile longevity has improved dramatically since the early 1980s with medical advances.

 

[cooch96]

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.

+1. If neither option is wrong, then trust the coin to decide.

 

[MarieIG]

We will take DH SS at age 70 for longevity insurance, and a further (for the most part) reliable income stream.

Does OP have a pension stream which is supporting a couple which will disappear or be reduced upon his death?

With regard to managing a nest egg, one thing I don't see taken into consideration is the ability of both spouses to manage a nest egg. Now, some obviously have very financially savvy spouses, but I suspect that not all here do.

In addition, there have been studies (no I'm not going to look for them) that a percent of people loose the ability to manage their finances as they get older. SS at least, would be an income stream that is on autopilot.

 

[Sue J]

You say you are struggling with the options of taking it at 65 or at 66 and 4 months. That's only 16 months difference. You don't have to make the decision at 65. You could get to 65, start Medicare and pay for it outside of SS and see how you feel about it. Go a couple of months and at any time you can decide you are ready and start your SS benefit. Every month that you wait your benefit will increase a little. You can check this at your social security site. You may find that it increases enough to make you want to wait a while. Or maybe the increase just isn't worth it and you're ready to start. You can reevaluate every month or every quarter. You may get close enough to your FRA that you reset your goal.

If we only knew our end of life date we could all make better informed decisions about SS and maximize our benefits. I'm glad not to know my expected date of death, I can only hope I planned well enough.

 

[Exchme]

The tables are also tilted in favor of waiting for couples, since the chance that one out of two will live longer than average is greater than any one person beating the odds. So it often ends up that the one with the larger benefit should wait until 70 since that benefit will continue for the lifetime of the longer lived.

But varying the claim date by a year or so rarely makes a huge difference, if you explore the results at opensocialsecurity.com, you are often within a couple percent of the total lifetime maximum when small changes to claim dates are made.

 

[Exchme]

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.

If your pension has a COLA and is from government or a rock solid company that will never give you a haircut on the benefits, then yes, taking SS early sounds better for you as at least 15% of SS is not subject to income tax.

 

[Time2]

I have run opensocialsecurity.org and it tells me to collect at 70 and my wife at 62. This is so she gets the higher check after I die.
But this leaves out the idea that we want to maximize Roth Conversions.
If we have to add in her SS, that will reduce the amount we can Roth Convert and stay in a lower ta bracket. So I question whether it might be better to delay her SS until 70 so we can keep maximizing Roth Conversions in a low tax bracket.
Someone needs to develop a calculator that will compare taking SS or not, taking vs delaying SS, Doing Roths in 12% and 22% brackets, Doing Roth Conversions or not and RMDs. And output taxable and non taxable networth.
Creating some way to get an answer.

 

[jollystomper]

After three years of retirement, I have a better handle on our retirement expenses. So I will more likely based when I take SS, in terms of the coverage it adds for our expenses.

I had to redo our expense projections because I realized that going into retirement the projections included a mortgage payment. I decided to pay off the mortgage last year but forgot to take it out of our expense projections until a couple of weeks ago, silly me .

Based on the monthly increase tables at ssa.gov, as it looks now:
- at my age 64 years 6 months, my SS + spousal SS + my pension will cover our projected expenses.
- At my age 69, my SS survivor benefit +my pension will cover the expenses of the surviving spouse.

So, currently, assuming I reach these ages, the earliest I would look to take SS would be at 64 years 6 months. But given our investments + cash, I will more likely delay to at least 69.

This increase the odds of most of the growth and earnings from investments, cash savings (HA!) and RMD after tax amounts to go towards inheritances to others or LTC self-insurance.

 

[Midpack]

When to take it is actuarially a wash for all beneficiaries collectively of course, so when each of us starts depends on:
- ability to wait, e.g. you have adequate other sources of income while waiting, and
- more importantly, what YOU think your likely longevity will be. Getting hit by a bus or whatever isn't likely, only a remote possibility.

We're both waiting until age 70 to start because well above average longevity (far past any SS breakeven) runs in both our families, so it's likely we'll do better $ benefits wise by waiting. If we were in poor health and/or poor longevity was likely for us, we'd definitely start SS earlier. No one can predict, you can only know your odds...

 

[W2R]

As everyone has been saying, when to take SS really depends on your circumstances and probably doesn't matter a whole lot in the end.

I took mine at age 70 for several reasons, some of which simply would not apply to most forum members:

1) I am female (and, although the average lifespan for females is longer than that for males, SS is computed the same for females as it is for males). So, there's a slight advantage to waiting, there.

2) I am single with no dependents so I don't have to be concerned with their nest egg size after I pass away.

3) I have genes for extreme longevity, with several ancestors that lived to be over 100. My mother lived to age 98. So, I need to make sure that I will have enough to support myself if I should live to be extremely old. It's not likely, since I am extremely obese and that's been a huge battle for me. But who knows and I know for sure that I don't want to be both old AND broke at the same time.

4) My SS would have been smaller than most, had I taken it at 62, because I did not have to contribute to SS for several years while I was on the faculty at LSU (and stupidly chose not to). I know, that's a rare situation but there are actually a few full time good paying jobs that don't require SS contributions. This was one of them, and I could put that money in my 401K instead, so I did. Bad decision but oh well.

5) Diversification of income sources: Taking it later means that a little more of my income after age 70 is coming from SS and a little less from my portfolio, than if I took it earlier. In my case this helps diversity my income sources so that if the market tanks completely (in an "end of the world as we know it" scenario), I can still survive on just SS. Or, if SS craters (equally unlikely!) I can still survive on just my portfolio.

 

[Gumby]

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.

I suspect the application of the GPO to the survivor benefit is calculated when you die. However, I never bothered to dig deeper into it, and here's why:

My social security (which I started at 62) is currently $25,932. At FRA (66 years and 10 months), it would be $36,627. My wife's pension is currently $59,056. 2/3 of that is $39,567 which is greater than my FRA amount, so her survivor benefit would be completely wiped out even if I waited to FRA. And, importantly, her pension is COLA'd at the same rate as social security, so her pension amount relative to my FRA amount won't ever change.

 

[LRDave]

^^^ Thanks Gumby. You indeed have a lead-pipe cinch scenario. ^^^

 

[ivinsfan]

W2R If I remember correctly you were also getting a spousal SS which let you that the Sur SS at full retirement and also allowed your own benefit to continue to grow.


So that alone could be considered a no brainer. Might not apply to anyone reading here but you never know. Just had a dear friend sign for survivors benefit at her FRA... I realize spousal and survivor have different rules and the rules for spousal have tightened up since they applied in your case/

 

[walkinwood]

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.

In this scenario, what happens if the person planning to defer SS till 70 dies before starting SS? Thanks.

 

[RetiredHappy]

In this scenario, what happens if the person planning to defer SS till 70 dies before starting SS? Thanks.

The survivor benefit will be calculated using the date of the death of the spouse. So if spouse dies at 68, that is the amount that will apply.

 

[Winemaker]

+1, the discount or premia for taking early or deferring haven't changed for a long time... since the early 1980s I think, but meanwhile longevity has improved dramatically since the early 1980s with medical advances.

I think the overall improvement in longevity is not because people are living longer, it is because younger people are not dying as early as in the past. Witness the recent change in longevity rates because of the opioid crisis.

 

[Freedom56]

You don't "have to" take SS at 62, just because your pension is reduced by what SS would pay at 62.

The two events are actually separate.
You could have your pension reduced at 62 , and wait until 70 to collect SS.

However, if your Pension is reduced by whatever SS will pay each year, then possibly it does not matter when you take SS. If the pension is much greater than whatever SS would be at any age.

My level income pension remains constant from age 55 to 62. At age 62, they subtract the SS amount at age 62 and pay that amount for the rest of my life regardless if I choose to take SS at 62 or later or any COLA. I computed my break-even for deferring it to age 67 at age 81. Therefore I will start taking payments at age 62. My taxable and tax exempt accounts will continue to grow as I have no plans to withdraw for at least the next 10 years (if ever).

 

[finnski1]

The survivor benefit will be calculated using the date of the death of the spouse. So if spouse dies at 68, that is the amount that will apply.

Thanks. I have wondered about that scenario myself.

 

[Exchme]

I have run opensocialsecurity.org and it tells me to collect at 70 and my wife at 62. This is so she gets the higher check after I die.
But this leaves out the idea that we want to maximize Roth Conversions.
If we have to add in her SS, that will reduce the amount we can Roth Convert and stay in a lower ta bracket. So I question whether it might be better to delay her SS until 70 so we can keep maximizing Roth Conversions in a low tax bracket.
Someone needs to develop a calculator that will compare taking SS or not, taking vs delaying SS, Doing Roths in 12% and 22% brackets, Doing Roth Conversions or not and RMDs. And output taxable and non taxable networth.
Creating some way to get an answer.

There's waaay too many variables there for someone to do all the work for you, but there are tools out there that would let you do these kinds of studies yourself.

Where I recommend starting is i-orp.com (scroll down to Extended Input), its tax model has some gaps (last I checked it used the current year income instead of 2 years prior for IRMAA, no AMT, no NIIT), but it gives a whole life plan from some simple inputs. You would then run various cases with different SS claim ages and different inputs for Partial Roth conversions. It's designed to tell you how much you can spend each year and end up at zero at end of life, if you want to leave an estate, you enter your desired amount as Plan Surplus.

If you are spreadsheet savvy, you can use the Bogleheads Retiree Portfolio Model that is free at their wiki. It is more flexible in year by year entries, but everything is manual, so you would have work out your own plan. Personally, I find the input layout a little confusing and it still has some tax gaps like AMT (that can bite singles pretty easily), existing capital gains, HSAs, non-deductible contributions to t-IRAs. The new beta has a cool feature that allows you to see what happens if you put your bonds in your traditional IRA and your stocks in taxable and Roth - in general you don't need to convert as much to Roths when you do that.

Of the programs I've used, Pralana Gold ($99 1st year, $49 renewal, requires Excel, no substitutes) has the best tax model and flexibility. It has a huge amount of flexibilty, good menus and a good manual. Not as automated as i-orp, but much more automated than RPM. Some things are quite easy, for instance, you can set up your Roth conversions to a certain tax bracket/IRMAA tier and test different SS claim ages at the click of a button, or just scroll over the graph and see the percent of the optimum that different ages give you. You didn't mention ACA, but based on income and your Roth conversion inputs, it will decide if you should limit Roth conversions to get ACA subsidies. I feel like I've used it heavily and there are are still sections like withdrawal strategies, Rental Property and various Life Insurance options that I've never even clicked on.

So short of hiring an advisor, there are some workable options to give you the answers you want, though it will take effort.

 

[daylatedollarshort]

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....All advice is welcome! Major

We have many discussions on this forum on issues like when to take SS and whether to have a mortgage or not (as long as the mortgage amount is invested). The dollar amounts over 30 years are often not that much either way compared to other factors. Like checkbook.org had an article on how much people can save by shopping at discount stores vs supermarkets and the savings could be up to $3K a year. Over a 30 year retirement that is $90K in after tax money, not even counting reinvesting the savings each year. Yet the discussions on this forum on when to take SS far outnumber where to grocery shop. Go figure.

 

[GenXguy]

Like checkbook.org had an article on how much people can save by shopping at discount stores vs supermarkets and the savings could be up to $3K a year.

Save $3K? That's more than my entire grocery expense for a year. lol

 

[RobbieB]

Discount grocery stores?