Draw social security early or not?

[Martin101]

I just cannot make up my mind about this. I realize all financial counselors recommend waiting but not sure that is good advice in my situation. My wife and I have no debt and a fairly new house. I have a small pension which I am currently drawing and have a decent amount in a 401K. I am torn between drawing social security early and not touching my 401K or using some of the 401K and waiting for full social security benefits. Or I could split the difference. Since I cannot decide I am seeking input. Thanks.

 

[W2R]

The topic of when to claim Social Security is probably one of the most frequently discussed of any on our forum.

Here is a list of some interesting threads about it:

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

To summarize, we are pretty evenly divided on this topic. A lot depends on individual circumstances and market conditions. I don't know what to recommend, but I do know that you will read compelling arguments for either taking it now or for waiting.

 

[Chuckanut]

I can't tell you what to do, but I will tell you what I am doing.

First, I don't need SS at this time so I can afford to not take the benefit.

Second, I do not like the current Long Term Care plans available to me. (That's a discussion for another time.) So, I figure that by delaying SS I increase my benefit by about 32% over taking it at 66, and 64% over taking it at 62. That extra money would really help if I need LTC. And, if I don't need LTC, I can always spend the money on a capricious and cavalier lifestyle.

Third, SS is the only well guaranteed fully COLA'd pension I will ever get. Why not use it as old age insurance in case my other sources fail me?

For these three reasons, I have chosen to delay SS until I am 70. Of course, I can change my mind at any time if circumstance change.

This is just my plan. Nothing is magical or special about it. It has its flaws. Take what you wish and leave the rest.

 

[RetiringAt55]

Some important considerations are the ages of you and your wife, expected longevity, and SS benefit at full retirement age for each of you. Can you tell us a little more about what your pension amount is, what savings you have in taxable vs tax deferred, and what your expenses are? There are many strategies to consider and the best approach depends on these factors.

 

[Kimo]

I, like you, struggled with this decision. I went as far as applying for it, getting approved, then cancelling it. Can't get much closer or undecided than that.

As W2R mentioned, the total posts are fairly evenly divided and I do believe there are valid suggestions for both ways. As others have mentioned, it is really a personal decision.

My other takeaway is I figured that because it is so evenly divided I doubt there is really a very wrong answer. That is just the way my thinking goes.....

 

[almost there]

(4) of my friends died in there 50's this year. I know what I am going to do.
But its your choice. I only have 9 yrs to go to 62. LOL LOL

 

[MikeTN]

Where else can you get an inflation-protected annuity for this price? I like getting half of my basic needs taken care of with an inflation protected annuity like SS. I can invest my remaining funds more agressively once I have my basic expenses covered. If I die early, so what, I don't need money if I'm dead. If I live a very long time I will be very thankful I did not take SS early. Of course, this assumes you judge your health/longevity to be average or above.

 

[Martin101]

Thanks for the input. More information is this. I am 62 and have enough cash to make it to 63 without touching my 401K. My wife is 10 years younger and I am under her health insurance. We have no debt and our expenses are low. We bought a new small home so the taxes, utilities and etc. are low. We live simply and our only splurge is a nice trip once a year. I can do most home repairs and do all my own auto maintenance. As far as the longevity question I am in good heath but there is no way to predict that. Thanks.

 

[Senator]

If your spouse is significantly younger than you, you might want to wait to give her a larger spousal death benefit. That is if your SS is greater than hers.

Other than that, there are a few reasons to wait, but you need to be ~80 to recoup the difference. By then, you may not be able to enjoy the money.

 

[fritz]

We're 63/61 - I started SS @ 62 (wife will also). We have no pensions, but have enough in invested assets to live comfortably w/o SS (retired 5 years now). For us, the decision was that we'll draw SS and let investments continue to grow (especially IRAs) - never know when you'll need funds for extras, so leaving them available for the future. Currently draw dividends only off taxable accounts and Roths to complete covering living expenses. Haven't decided whether to draw off regular IRAs and convert to Roths B4 70.5, but waiting until 65 (Medicare eligibility) to maintain Affordable Care Act subsidies (wife qualifies - I don't).

I view SS as an annuity, in that it goes away when you do. The SS website states that it is income neutral if you draw @ 62 vs. FRA and expect to live to normal life expectancy. Comes down to how lucky do think you'll be. We all think we'll live to 100, but the government actuarial tables on aging tell a different story. We'll only use "my" SS to cover base living expenses. Wife's SS (next year) will be considered a flexible spending account and won't be included in base living expenses. When one of us has to leave, only the value of one (my) SS will be left as a contributing income source.....

We consider it a crap shoot as far as future medical goes. We feel we can self-insure for as much as the standard LTC policy does these days w/o too much stress on our retirement plans. As I see it - extended LTC will pretty much wipe out all but the wealthiest in this country. Went through this same decision scenario when deciding to retire early and purchase health insurance in the open market (B4 ACA). We had been living with potential mishaps hanging over our heads up to that point - and that scenario was not going to change.

For us - the question of when to take SS came down to evaluating whether we're comfortable with our future income stream and potential for mishaps in retirement (or not). Kind of came down to taking SS if we thought we didn't need it, and waiting if we thought we might.

 

[MikeTN]

If your wife is 10 years younger you probably have the type of family with the strongest payoff from waiting. The statistical expectation is that you will die about 13 years before she does. If your SS check is bigger than hers, she can opt to take yours instead of hers after you pass. If yours is bigger because of waiting, then this better protects her income in the event that you die first.

 

[ivinsfan]

Does your wife plan to continue working and how much of your annual budget will she earn at her job? Will you be withdrawing one-half of the budget from your 401 or just the amount needed to top off your wife's salary? These are some pretty important factors in deciding when you draw your SS check. If you split expenses 50/50 that might lead you to taking your check sooner. I see you said you have a pension as well. If you have one salary, one pension and a 401,social security would be income stream number four.

Do you need all four income streams right now, if not it might make sense to wait and see how your retirement plans and budget work out.

 

[Walt34]

If your spouse is significantly younger than you, you might want to wait to give her a larger spousal death benefit. That is if your SS is greater than hers.

That is exactly the reason I am waiting until at least 66 and probably later. DW is six years younger than me and while she will continue to receive the pension when I pass it drops by 30%. Waiting for a larger spousal SS benefit greatly reduces the impact of that.

 

[Jager]

Absent other factors - particularly longevity expectation - SS is actuarially neutral. So you can make an argument for pretty much any age you like.

Some important factors that might help sway your decision:

- Tax implications. Pay particular attention to earned income while receiving SS. The tax hit is atrocious if you're receiving SS before your FRA. (this was the overarching decider in my case. Although I have no intention of ever going back to work, I do have an expectation of receiving some incidental income from my 'hobbies' - writing and photography)

- As mentioned, SS is essentially an annuity. For those of us who don't have a pension from a large, healthy, well-run company with a well-funded plan - and are dependent wholly upon our portfolio - maximizing SS benefits by delaying can be one of the easiest ways to off-load longevity risk.

- What do the survivors benefits look like now and as time marches on, for each of you?

As W2R pointed out, there are a ton of links and an enormous amount of good info on the site.

Welcome!

 

[clifp]

I can't tell you what to do, but I will tell you what I am doing.

First, I don't need SS at this time so I can afford to not take the benefit.

Second, I do not like the current Long Term Care plans available to me. (That's a discussion for another time.) So, I figure that by delaying SS I increase my benefit by about 32% over taking it at 66, and 64% over taking it at 62. That extra money would really help if I need LTC. And, if I don't need LTC, I can always spend the money on a capricious and cavalier lifestyle.

Third, SS is the only well guaranteed fully COLA'd pension I will ever get. Why not use it as old age insurance in case my other sources fail me?

For these three reasons, I have chosen to delay SS until I am 70. Of course, I can change my mind at any time if circumstance change.

This is just my plan. Nothing is magical or special about it. It has its flaws. Take what you wish and leave the rest.

My reasoning for waiting is identical to Chuck's. The system is designed that on average you get the same no matter when you take it. So there seldom is clear cut right or wrong decions.

Reasons for taking it early. A. Your health or genes don't point to an above average lifespan. B. There are important tax reason why you spread you income around. C. Your spouse is ineligible for SS.

Reason for taking it late what Chuck said plus. A. You are in great shape and you family lives into their 90s.
B. Your wife is much younger, and her SS benefit is much lower than yours. Since she gets your benefit when if you die before her, I think it is real important to give her the max benefit. That to me is the only clear cut case on why you should wait.

 

[Lancelot]

Third, SS is the only well guaranteed fully COLA'd pension I will ever get. Why not use it as old age insurance in case my other sources fail me?

I agree. Especially the annual 8% after FRA, for me 66.

If I could get an 8% guarantee from another source, I would be far less interested in equities

 

[almost there]

You could always bank / invest your SS from 62 to 67, Then pretend your getting more each month @ 67? Just a thought. In my case there would be $135k sitting there waiting for me. With $700 less every month coming in at 67.

 

[Alan]

That is exactly the reason I am waiting until at least 66 and probably later. DW is six years younger than me and while she will continue to receive the pension when I pass it drops by 30%. Waiting for a larger spousal SS benefit greatly reduces the impact of that.

Similar situation in my case. My SS will be much larger than my DW who is 1 year younger. We plan on her taking hers at 62 but delaying mine until 70 (OMG, that is only just over 10 years away!!).

(She will only get 50% survivor benefits on my non-COLA private pension)

 

[OAG]

We are now 74/76 (I am younger). DW took hers (pretty small amount) at 62 I did also but paid it back and restarted at 67.5. Overall a good decision. However, be sure to look at your projected financial position at 70+ under all scenarios. Pension, Traditional IRA, Other Taxable Income, etc. That 32% increase can be knocked down a bit (to a lot) from RMD's and other income which can make up to 85% of your SS benefits taxable at whatever tax rate will be applicable. Additionally, you may see your Medicare premiums increase. Good to learn or know how to work a Spreadsheet or two.

 

[latexman]

Other than that, there are a few reasons to wait, but you need to be ~80 to recoup the difference. By then, you may not be able to enjoy the money.

But, you may need it.

 

[jerome len]

If you're in good health wait! I have family that grabbed the money.....now, one is 79, living on a very tight budget and constantly complaining that she should have waited. I don't know anyplace else that your money will grow 8% a year......but if your health isn't good, that's another story. Good luck with your decision......and, enjoy your retirement.

 

[pb4uski]

If the OP is single then in theory it is actuarially neutral so in theory it doesn't matter when SS starts. If one is in good health then I think the smart play is to wait because you might outlive the mortality table and waiting is cheap longevity insurance. If your retirement funds perform poorly you can always opt to start at anytime of your choosing after 62. Or stop/defer benefits if they recover.

If the OP is married and the spousal benefit is in play (spouse's PIA benefit based on earning record is less than 1/2 of OP's PIA, or vice versa) then I think deferring is the smart play because of joint mortality. If spousal benefit isn't in play, then it is the same as two singles.

Here is a good tool to help in the decision. Social Security Benefits Evaluator - T. Rowe Price

The oft-mentioned 8% growth in the benefit is only from FRA to age 70. From 62 to FRA the annual growth is more modest but still substantial. Also, the 8% growth is simple (not compounded) growth, so if one's FRA is age 66 then the age 70 is 132% of the age 66 PIA. From age 62 to FRA, the growth is between 6-6.7% depending on when you were born. See http://www.ssa.gov/retire2/agereduction.htm

 

[rodi]

I'm 10 years younger than my husband. But I also have higher SS earnings than my husband. For us - the benefit for the spouse didn't factor in at all. That said - we're taking full advantage of benefits for minor kids. Because we were late to parenting, our kids are minors and DH is 62. He's collecting, and so are they. We ran the numbers and this was a total no brainer for DH to take SS early since we'll get SS for the kids till they turn 18.

 

[jime444]

it depends

like many have said, it depends So, not to bore you, here's how we will decide when the time comes, a little less than 5 years from now:
1. Current health-it's good, but I had heart surgery at age 45, so...
2. Longevity-DW parents passed away early 60's, my Dad at 72,Mom still kick'n at 80 (though significant health issues), no one in either family tree past 83.......ever........and I researched back to 1900 or so.
3. Financial SS - supposedly neutral; however, the long term health of the program is questionable....disappear....no way.....reduction of cola, taxable changes, etc.......more than likely to future retirees, I'd estimate.......
4. Financial/personal- solid 401k's and savings 35x, significant cola'd pensions, no kids, similar ages and incomes throughout work careers. pensions plus SS would be 125% of our needs, 70% of our wants.

Current (today) thoughts; my analysis shows a SS "break-even" point at a age of 83/84. Given that including health, longevity, financial stability issues, the smart play is to mitigate the risk and take the money sooner than later. I do reserve the right to change my mind...........however.

 

[gerntz]

I think the spousal benefit to younger spouses is overly generous such that if SS is ever reformed; i.e., costs/outlays brought into line with revenue, it should be addressed. Perhaps a reduction based on the amount added life expectancy of the spouse over that of the beneficiary or a delay as to when it can be received would be ways to go.