Timing Starting Social Security Based on Market Levels

[MasterBlaster]

The Wall Street Journal had an interesting article today. The article suggests that rather than the often proposed delay to 70 advice, that one make your decision also weighted by market levels. If you are retiring into weak markets you just may NOT want to delay as your required nestegg withdrwals would be too great.

The standard advice in recent years for healthy retirees has been to delay starting Social Security payments as long as possible. The reason: You get up to an 8% bump in payments each year you delay between what is called your "full retirement age" for Social Security purposes and age 70. (Full retirement age varies by person; you can look yours up at ssa.gov/pubs/ageincrease.htm.)
But new research finds that for some families, it can pay to fine-tune that strategy—mainly to postpone withdrawing too much from other savings early on. "You really don't want to front-load your retirement withdrawals, especially if the markets are going down,"

How to Time Social Security Payouts - WSJ.com

 

[W2R]

Good idea; I definitely agree with the quoted paragraph.

Why withdraw from one's portfolio when the market is low? That's a good time to be buying, not selling. A little bit of market timing, I suppose, but it makes sense.

 

[NW-Bound]

I wholeheartedly agree with that. A while back, a poster made a poll asking if he/she should draw SS early instead of later, because the portfolio was not sufficient to sustain whatever WR that the poster desired. Quite a few respondents indicated they would wait out on SS as long as possible, but of course they might be thinking of the projected stock return that was stated. I did a search and could not find that thread.

 

[BOBOT]

It's entirely dependent on individual circumstances. In our case DW is 9 yrs younger and has a very good chance of a long (90+) life; also her earnings have been lower than mine. So for us the wait 'til 70 approach works best, as she will assume my higher benefit when I croak. The cumulative benefits should more than offset a near term shortfall.

 

[Willers]

Someone in a previous thread (not sure who or when) answered a question about SS age by saying "I'll let you know when I get there." I agree with that thought. I'm more than a decade away from SS and it will depend on market performance and spending between RE (2015) and 62/65/67/etc. Ideally I'll hold off until 70 (that is what is in my plan), but I won't know for sure until a decision is necessary.

 

[Alan]

Just a reminder that at the end of November I created a FAQ that collected links to some of the many "When should I take SS?" threads.

http://www.early-retirement.org/forums/f47/faq-archive-when-to-take-ss-69366.html

I'll add this thread to the list.

 

[youbet]

I started my SS at 62 to protect DW. She worked in a job not covered by SS and is impacted by GPO, so she will never collect any of my SS either as a spouse or a survivor. So, no choice about starting at 62.

I've been collecting SS for 4.5 years and have invested the money in a Vanguard TSM index fund. This begin in mid-2009 and in those 4.5 yrs, due to the market run up following the recession, I've seen quite a happy level of growth of those saved SS dollars.

There is no way to tell, of course, how the market will behave between now and when I'm 70. But at least at this time, the SS account is on track to be able to easily fund the difference between my SS at 62 and what my SS at 70 would have been (for 20 years). If the market had not been so favorable these past few years, then the picture could have been very different.

So, yes, either anticipated very poor or very good market performance may justify early SS. But that "anticipating" part is tough to figure out and get right!!

 

[NW-Bound]

It's entirely dependent on individual circumstances. In our case DW is 9 yrs younger and has a very good chance of a long (90+) life; also her earnings have been lower than mine. So for us the wait 'til 70 approach works best, as she will assume my higher benefit when I croak. The cumulative benefits should more than offset a near term shortfall.

Yes, it definitely varies with each scenario. While I am hoping that my 3.5%WR can support us indefinitely without SS, the extra money from SS is certainly welcome.

In my case, we are of the same age, hence I think my wife should claim her SS either early or at full-retirement age, while I delay my higher SS till 70. As I most likely will croak before she does and she will be entitled to just one SS when I pass anyway, I think that makes the most sense. Oui?

 

[RockyMtn]

The Wall Street Journal had an interesting article today. The article suggests that rather than the often proposed delay to 70 advice, that one make your decision also weighted by market levels. If you are retiring into weak markets you just may NOT want to delay as your required nestegg withdrwals would be too great.



How to Time Social Security Payouts - WSJ.com

for those that can't get beyond the WSJ pay wall here's a synopsis of the article from MarketWatch.

A Social Security

Seems to make a fair amount of sense but then again we've got five more years before either of us hit 62. Think I'll throw it in my SS strategies file though.

 

[Katsmeow]

for those that can't get beyond the WSJ pay wall here's a synopsis of the article from MarketWatch.

A Social Security

Seems to make a fair amount of sense but then again we've got five more years before either of us hit 62. Think I'll throw it in my SS strategies file though.

I don't think that is about the article the OP was talking about.

 

[RockyMtn]

I don't think that is about the article the OP was talking about.

It does reference the same article as well as provides a link to it.

 

[Katsmeow]

It does reference the same article as well as provides a link to it.

Yeah, but it is summarizing the split strategy, not the part about timing SS based upon market levels (which is what I am interested in reading - I already knew about the split strategy).

 

[Independent]

The Wall Street Journal had an interesting article today. The article suggests that rather than the often proposed delay to 70 advice, that one make your decision also weighted by market levels. If you are retiring into weak markets you just may NOT want to delay as your required nestegg withdrwals would be too great.

I can't get past the WSJ pay wall, so all I know about this is the part you quoted.

I'm trying to think about this. How do I know the market is "weak"? Most people think in terms of recent performance.

So the $2.0 million portfolio I had a couple years ago is down to $1.8 million today. I feel that I can meet my spending targets on withdrawals of
.04 x 1,800,00 = $72,000 in the first year, growing by inflation thereafter.
(Or, maybe I'm more conservative and I'm okay with 3% for $54,000.)

In this situation, why should I prefer starting SS early? I think the market return impact on this decision depends on future returns. It seems that if I'm convinced the market is going to go up significantly, then I want to start SS earlier. If I think returns are likely to continue to be poor, I want to defer.

Maybe the "research" mentioned finds that "poor" market returns were usually followed by "strong" market returns, and that's the key assumption.

 

[RockyMtn]

Yeah, but it is summarizing the split strategy, not the part about timing SS based upon market levels (which is what I am interested in reading - I already knew about the split strategy).

Well I'm so sorry I wasted your precious time.

 

[CaliforniaMan]

The Wall Street Journal had an interesting article today. The article suggests that rather than the often proposed delay to 70 advice, that one make your decision also weighted by market levels. If you are retiring into weak markets you just may NOT want to delay as your required nestegg withdrwals would be too great.



How to Time Social Security Payouts - WSJ.com

Sounds like an interesting strategy, was unable to read the article, looks like you have to be a WSJ subscriber.

 

[REWahoo]

Sounds like an interesting strategy, was unable to read the article, looks like you have to be a WSJ subscriber.

You should be able to get around the pay wall by Googling 'how to time social security' and clicking on the first link.

 

[Running_Man]

The actual calculation is say you would get 18K @ 62 or 36K @ 70. You would need $144,000 to avoid taking social security. Assume you use an inflation protected scheme to fund the interim the question would be could you earn more on the 144,000 after inflation to beat social security. You would be even on an inflation neutral scheme by age 78 by taking the social security after 70.

I used to be a strong proponent of taking social security at 62 but now realize that especially for a married couple the longer actuarial life of the higher social security of the high wage earner results in a level of income that would be very difficult to match especially considering how conservative this method truly is.

Anyone looking to be rich when they get old might have a better chance by taking at age 62 though, but most age 70 social security levels are very livable in most parts of the USA.

 

[webdweeb]

Interesting article, especially about the advantage for early retirees to preserve more of their investment capital. I suppose the same could apply for pensions for the same reason, ie, take a hit on the payout in order to reduce the required withdrawl (and rate) from the investment pool. Time to crank up the estimation tools!

 

[Animorph]

I plan to wait until 70, but I'll keep an eye on the market and may start SS earlier if it gets bad. I think that's a good strategy for those concerned about getting a bad FIRECalc portfolio scenario but otherwise can wait for better longevity insurance via SS.

 

[RobLJ]

I see SS as an option on a bad market; DW is five years younger. I hope to wait until full SS age, but don't mind claiming early in a bad market environment to allow her to reach full SS, since she will claim more than I will.
Your mileage will probably vary.

 

[mickeyd]

How is timing SS any different than timing the market? Both are based on unknowns and vary with each persons needs/expectations.

When I got serious about ER, I read a lot of posts here and @ Bogleheads (for several years) as well as doing independent research. The end result is that I devised the perfect SS strategy for DW and I.

We have more monthly income than we need and stash any left over in Ally saving for the next vacation/cruise/trip/excursion/adventure.

 

[pb4uski]

+1 anytime after 62, if my investment results are below expectations I can exercise my SS option... if my investment results are as expected or better then I'll delay and effectively buy longevity insurance from the good ol'USA.

 

[mathjak107]

same here . i am retiring in july. i am 62 and plan on taking it at fra. but if markets perform poorly the first 2 years once my existing cash is gone i may opt to take ss earlier.

the two years cash for withdrawals we are holding stalls me making that choice at least the first 2 years.

 

[Theseus]

From modeling different SS claiming scenarios in my spreadsheet what I find to be more of a provocative question than 'how do I get more money out of SS' is would I rather drawdown savings before age 70, and thus be more dependent on SS later in life, or claim at age 62, leaving savings intact to continue growing and providing for more financial independence in old age. After all, that is what allowed ER in the first place.

My spreadsheet uses linear inflation and portfolio return rates, which of course does not provide the level of sophistication of Monte Carlo simulations, but in our specific case I found an inflation rate of greater than 2.6%, or a portfolio return rate of less than 5.9% favored claiming at age 62. As I use baseline values of 3.0% and 5.3% respectively, that would seem to indicate claiming at age 62 would be preferable. Although, I also take the view that wait and see is the best approach since so many variables can change. Not just market returns; but inflation, legislative changes to SS, e.g. bend point manipulation, tax dis/incentives, levels of means testing, etc., health issues - so I say keep an open mind and a wary eye.

 

[poorcarver]

I am with Theseus. Every month I re-evaluate based on my model, the buzz from the political class and how things went that month market wise. And every month is a month closer to 70 when the decision is made for me. So far for me it is a no question wait till 70 but like Theseus I watch and wait.