Why I am taking SS before 66

[Shawn]

That's why many of us call it longevity insurance. I'm not too concerned about making my money last to age 70 or 80, or being able to spend a bit more to that point. I'm much more concerned with living long beyond 80 and being able to keep myself comfortable.

This is the point I'm going to try to model more closely when I get closer to 62. 6.5% won't come risk free but might not be an unreasonable return to use. I think I modeled 5% a year or so ago and was surprised at how late the crossover came, around 90 if I did my numbers right.

I believe one should use inflation-adjusted or real investment returns when determining the crossover age. With my asset allocation, I typically use a real return of 3.5% as a likely scenario. However, I consider the impact of lower and higher returns too (as well as taxes). A 3.5% real return puts my crossover age in the lower 80's.

I agree about the longevity insurance. For the most part, that's how I look at social security. It's extremely unlikely that I'll need the money in my 60's (I'm currently 54), but who knows what will happen over the next 30+ years. I'll re-evaluate as I approach 62, but currently I'm planning to wait until 70 before taking social security.

 

[pb4uski]

Many good replies to my original posts, thank you. I spoke with the local SS office today and Ready and Running Man are correct, even if I stop working at 63 and do not claim SS until 66 or even 70 my benefits will increase signifigantly. I will step back and run the numbers again but probably wait until 66. I'mstill concerned about drawing down my 401K and IRA during the possibility of a bear market. But as many have said all situations are different and we all have to do what we feel is best for ourselves. Thanks for your comments.
BF

You can always wait for claim SS and if your withdrawals for living expenses and investment results start to drive your 401k/IRA balance to a point were you are not comfortable then claim SS to stop the bleeding from your retirement accounts.

 

[Siestatime]

According to the SSA website, I could collect:

$1500/mo at age 62
$2700/mo at age 70

If I started SS at 62 and I'm doing this math correctly, I would collect $144K by the age of 70.

If I wait until 70, it would take 10 years before I'd realize the advantage of the increased monthly amount ($144K/$14.4K a year additional SS).

So I'd have to live past 80 before I'm actually collecting $1200 a month more.

And that doesn't factor in any possible investment gains on the original $1500 a month if I start pulling it early and investing it. At 6.5%, that $1500 a month would grow to $188K over the eight year period.

I think I'll probably start at 62.

Your math may be correct, but your formula does not reflect likely conditions - you're not factoring in COLA increases. Assume 3% per year growth on both your income from 62 to 70 and at 70 going forward and you'll find that you're break even point is somewhat less than 10 years. That's because 3% of the higher number returns more than 3% of the smaller number.

 

[Koolau]

<SNIP>I'mstill concerned about drawing down my 401K and IRA during the possibility of a bear market. But as many have said all situations are different and we all have to do what we feel is best for ourselves. Thanks for your comments.
BF

I'm in the sweet spot between 66 and 70 (benefits increasing 8%/yr). MY THING is to spend as MUCH of my 401(k) and tIRAs BEFORE I take SS at 70. After that, my RMDs will add to my "inflated" SS and cause me to pay more taxes. There are lots of angles to cover here. It's not always easy to figure. If you want to talk about "changes": Think about the changes (and change proposals we've all heard about) to the tax code. One thing for certain, if the gators don't getcha, the skeeters will.

By the way decision to take SS at 70 is longevity insurance (primarily) for DW as I have shorted her on pension survivor benefits (she had to sign of on it, just in case anyone is unfamiliar with the pension law).

YMMV

 

[shotgunner]

I thought for a long time that being single I would take SS at 62. However, this year I am enjoying the benefit of a tax credit due to the ACA. Social Security income is counted 100% for the MAGI used in determining the amount of tax credit one recieves if buying health insurance through the Marketplace. I have not studied it in detail as I am only 57, but I have a sense that from age 59 1/2 to 64 it may be tax beneficial for me to take a good chunk of my income during those years from tax deferred accounts rather than SS and delaying SS to age 65, taking a larger SS payment when I am eligible for Medicare at 65. Anyone else who is or will be subsidy eligble give any thought to using tax deferred monies before age 65 for tax reasons and the changes brought about by the ACA?

 

[ducky911]

to the tax code. One thing for certain, if the gators don't getcha, the skeeters will.

I like this, too funny but sadly so true.

 

[truenorth418]

You can always just draw off the savings when things are going good. Then if there is a bear market at a bad time for you, start your SS.

+1

Exactly. Once you pass 62 you always have the option to "break the glass" and begin taking SS if necessary based on circumstances at a given time.

 

[pb4uski]

+1 Plan "B" for me if I experience a poor sequence of returns and my nestegg gets uncomfortably low.

 

[rayvt]

My "longevity insurance" plan is to have an investment portfolio (401K, IRAs, Roths, taxable) in the $2M range.

When you look at it carefully, people break into 3 cases:
1) Poor(ish). These people will take SS as soon as they can, because they need the money to eat.

2) Rich(ish). To these people it doesn't matter. What they receive from SS is just the sprinkles on top of the ice cream cone. The presense or absense of the SS check makes no difference in their life-style.

3) On the cusp. These people can squeak by without getting a SS check. By definition, they can eschew the SS check for 8 years. That being the case, they could probably get by without the SS check for 9 years. Or 10 years. Or perhaps forever. So they don't really need the SS money, so they don't really need to optimize what they collect from SS.

For case 1 & 2, there is no decision to be made--the category forces the decision.
And almost everybody fits into the first 2 categories.

For most of case 3, the decision is irrelevant. The only people to whom it makes a difference is those who just barely make it to year 8 on thier own money and basically run out just as they hit 70.

 

[foxfirev5]

My "longevity insurance" plan is to have an investment portfolio (401K, IRAs, Roths, taxable) in the $2M range.

When you look at it carefully, people break into 3 cases:
1) Poor(ish). These people will take SS as soon as they can, because they need the money to eat.

2) Rich(ish). To these people it doesn't matter. What they receive from SS is just the sprinkles on top of the ice cream cone. The presense or absense of the SS check makes no difference in their life-style.

3) On the cusp. These people can squeak by without getting a SS check. By definition, they can eschew the SS check for 8 years. That being the case, they could probably get by without the SS check for 9 years. Or 10 years. Or perhaps forever. So they don't really need the SS money, so they don't really need to optimize what they collect from SS.

Actually I think there are many on this forum that fit into cat 3. That's why there's so much discussion about this topic. Anyway I'm a #3 that will probably go with age 62 because that's the kind of guy I am.

 

[Independent]

According to the SSA website, I could collect:

$1500/mo at age 62
$2700/mo at age 70

If I started SS at 62 and I'm doing this math correctly, I would collect $144K by the age of 70.

If I wait until 70, it would take 10 years before I'd realize the advantage of the increased monthly amount ($144K/$14.4K a year additional SS).

So I'd have to live past 80 before I'm actually collecting $1200 a month more.

And that doesn't factor in any possible investment gains on the original $1500 a month if I start pulling it early and investing it. At 6.5%, that $1500 a month would grow to $188K over the eight year period.

I think I'll probably start at 62.

If you're serious about earning CPI + 6.5%, then you'd have to live well past 95 before delaying would be favorable.

See Wade Pfau's table here: Wade Pfau's Retirement Researcher Blog: Delaying Social Security: What an Investment!

I don't assume 6.5%. If I did, I'd plan to take 6.5% annually from my IRA.

 

[Independent]

My "longevity insurance" plan is to have an investment portfolio (401K, IRAs, Roths, taxable) in the $2M range.

When you look at it carefully, people break into 3 cases:
1) Poor(ish). These people will take SS as soon as they can, because they need the money to eat.

2) Rich(ish). To these people it doesn't matter. What they receive from SS is just the sprinkles on top of the ice cream cone. The presense or absense of the SS check makes no difference in their life-style.

3) On the cusp. These people can squeak by without getting a SS check. By definition, they can eschew the SS check for 8 years. That being the case, they could probably get by without the SS check for 9 years. Or 10 years. Or perhaps forever. So they don't really need the SS money, so they don't really need to optimize what they collect from SS.

For case 1 & 2, there is no decision to be made--the category forces the decision.
And almost everybody fits into the first 2 categories.

For most of case 3, the decision is irrelevant. The only people to whom it makes a difference is those who just barely make it to year 8 on thier own money and basically run out just as they hit 70.

We're in 3. We need SS at some point to maintain our lifestyle, so we're not in 2.

Deferring to 70 means eating significantly into IRA principal. We won't "basically run out just as we hit 70", but we can't continue without SS "forever" either.

 

[Katsmeow]

3) On the cusp. These people can squeak by without getting a SS check. By definition, they can eschew the SS check for 8 years. That being the case, they could probably get by without the SS check for 9 years. Or 10 years. Or perhaps forever. So they don't really need the SS money, so they don't really need to optimize what they collect from SS.

For case 1 & 2, there is no decision to be made--the category forces the decision.
And almost everybody fits into the first 2 categories.

For most of case 3, the decision is irrelevant. The only people to whom it makes a difference is those who just barely make it to year 8 on thier own money and basically run out just as they hit 70.

I don't really agree with the category 3. I think we fit into category 3 in terms of whether I take at 62 or not. (For DH it was easy to take at 62 because we had 2 minor children so it was clearcut to be advantageous for him to take then because of the benefits for minor children). For me, Firecalc gives up modestly higher spending if I wait to 66 to take. And, we've thought about me taking Spousal at 66 and then my own benefit at 70. And we could probably do it. But, it would cut into our retirement funds to do this and if there was a bear market during that 8 years from 62 to 70 I'm not sure I would want to cut that deeply into the funds.

However, I wouldn't "run out" as we hit 70, but I don't think we could easily afford for me to never collect SS either. I mean, we could if we had to, but it would be a different lifestyle than we planned on.

 

[rayvt]

My main point was that for most people it's a no-brainer.

For somebody with lots of money, say ~$2M+, they don't particularly need SS at all. 4% of $2M = $80K/yr = $6667/mo.
Consider a higher-than-average benefit: $2300/mo (66) = $1725 (62) = $3036 (70).
Taking at 62, their income would be $8392 or $101,700/yr
Delaying to 70, they'd have $6667 for 8 years then $9703 thereafter. Or $80,000/yr then $116,400/yr.
I would submit that for a 70 year-old, there is no significant lifestyle difference between an income of $8400 vs. $9700. Whether they take early or late doesn't matter. Lease a Merdeces instead of an Audi. BFD.

For someone with little money, say under $750K, they need to take SS as soon as they can. They can't affored to delay, so delaying is not an option for them.
FWIW, CNN says the median net worth for 65 year olds is $232,000.

The cusp is people with a significant but not large amount of money, say between $750K and $2M. According to the 2010 Census, for net worth $750K is the 92.3 percentile, $2M is 99.7 percentile. So this category is only 7.4% of people. Thta's for all people, regardless of age.
These are the only people who realistically have a meaningful option of delaying or mot.

The reason we see all these threads debating this is that we are a self-selected group of people who are in -- or aspire to be in -- that middle category.

 

[Golden sunsets]

Middle category for DH and I, using Rayvt's yardstick. But deferring to 70(which we plan to do as of now) still seems like a pot at the end of the rainbow to add to our income when the time comes 4 years from now.

 

[Free To Canoe]

I thought for a long time that being single I would take SS at 62. However, this year I am enjoying the benefit of a tax credit due to the ACA. Social Security income is counted 100% for the MAGI used in determining the amount of tax credit one recieves if buying health insurance through the Marketplace. I have not studied it in detail as I am only 57, but I have a sense that from age 59 1/2 to 64 it may be tax beneficial for me to take a good chunk of my income during those years from tax deferred accounts rather than SS and delaying SS to age 65, taking a larger SS payment when I am eligible for Medicare at 65. Anyone else who is or will be subsidy eligble give any thought to using tax deferred monies before age 65 for tax reasons and the changes brought about by the ACA?

Losing the ACA benefit is making the decision to wait easier.
DW and I will be waiting until FRA to take benefits.

 

[Rich]

Well, to add to the permutations possible I started taking SS at age 66. Since then every dollar has gone into an ETrade account with a diverse portfolio of conservative "Aristocrat" stocks (increased in dividends over no less than 25 years). The money is DRIPed back into the portfolio of stocks and it has done quite well (started in May 2011). My goal was to give my wife a yearly income should I predecease her.

Of course, this is on top of a couple of pensions I get, so it's not a painful way for me to go. Also have the usual Vanguard qualified accounts. Not touching them until the mandated RMD.

Rich

 

[Looking4Ward]

If you're serious about earning[-] CPI +[/-] 6.5%, then you'd have to live well past 95 before delaying would be favorable.

See Wade Pfau's table here: Wade Pfau's Retirement Researcher Blog: Delaying Social Security: What an Investment!

I don't assume 6.5%. If I did, I'd plan to take 6.5% annually from my IRA.

I suppose I was but maybe I wasn't. I didn't account for SS COLA either.

 

[Looking4Ward]

I thought for a long time that being single I would take SS at 62. However, this year I am enjoying the benefit of a tax credit due to the ACA. Social Security income is counted 100% for the MAGI used in determining the amount of tax credit one recieves if buying health insurance through the Marketplace. I have not studied it in detail as I am only 57, but I have a sense that from age 59 1/2 to 64 it may be tax beneficial for me to take a good chunk of my income during those years from tax deferred accounts rather than SS and delaying SS to age 65, taking a larger SS payment when I am eligible for Medicare at 65. Anyone else who is or will be subsidy eligble give any thought to using tax deferred monies before age 65 for tax reasons and the changes brought about by the ACA?

That is certainly something to consider.

 

[mickeyd]

2. In my case I would have to wait 16 years for my increased payments to catch up with the income I lost by not taking early SS.

Well if you don't make it 16 years you will be in heaven, hell or limo and you probably won't need that extra SS money anyway.

 

[Finder]

I thought for a long time that being single I would take SS at 62. However, this year I am enjoying the benefit of a tax credit due to the ACA. Social Security income is counted 100% for the MAGI used in determining the amount of tax credit one recieves if buying health insurance through the Marketplace. I have not studied it in detail as I am only 57, but I have a sense that from age 59 1/2 to 64 it may be tax beneficial for me to take a good chunk of my income during those years from tax deferred accounts rather than SS and delaying SS to age 65, taking a larger SS payment when I am eligible for Medicare at 65. Anyone else who is or will be subsidy eligble give any thought to using tax deferred monies before age 65 for tax reasons and the changes brought about by the ACA?

I am probably missing something. If SS income is counted 100% for the MAGI used to calculate the ACA why would it help to instead withdraw from tax deferred accounts? Tax deferred account withdrawals would also count towards the MAGI calculation in the same way wouldn't they? On the other hand the SS income is reduced by taxes if your income is above certain limits, I believe. Wouldn't it seem as the way not to affect your MAGI as much to save a lot into and take from taxable accounts?

 

[Free To Canoe]

I thought for a long time that being single I would take SS at 62. However, this year I am enjoying the benefit of a tax credit due to the ACA. Social Security income is counted 100% for the MAGI used in determining the amount of tax credit one recieves if buying health insurance through the Marketplace. I have not studied it in detail as I am only 57, but I have a sense that from age 59 1/2 to 64 it may be tax beneficial for me to take a good chunk of my income during those years from tax deferred accounts rather than SS and delaying SS to age 65, taking a larger SS payment when I am eligible for Medicare at 65. Anyone else who is or will be subsidy eligble give any thought to using tax deferred monies before age 65 for tax reasons and the changes brought about by the ACA?

I am probably missing something. If SS income is counted 100% for the MAGI used to calculate the ACA why would it help to instead withdraw from tax deferred accounts? Tax deferred account withdrawals would also count towards the MAGI calculation in the same way wouldn't they? On the other hand the SS income is reduced by taxes if your income is above certain limits, I believe. Wouldn't it seem as the way not to affect your MAGI as much to save a lot into and take from taxable accounts?

I am using after tax money for my expenses during the 62-66 years.

 

[Alan]

I am probably missing something. If SS income is counted 100% for the MAGI used to calculate the ACA why would it help to instead withdraw from tax deferred accounts? Tax deferred account withdrawals would also count towards the MAGI calculation in the same way wouldn't they? On the other hand the SS income is reduced by taxes if your income is above certain limits, I believe. Wouldn't it seem as the way not to affect your MAGI as much to save a lot into and take from taxable accounts?

A couple of things to consider would that if you take SS it is all or nothing, whereas you can draw smaller amounts to suit your needs from tax deferred accounts. Also your tax deferred accounts may include a substantial basis.

Of course if you have ROTH IRA's to draw on, even better.

 

[Looking4Ward]

I am using after tax money for my expenses during the 62-66 years.

Same here. I've got twice the amount in my after-tax accounts as I do in my 401k, so I figured I'd just let the 401k grow over the years until RMD's kick in.

 

[jebmke]

heaven, hell or limo

Didn't realize you could get a limo to get from heaven to hell. Is that to visit friends?