Would you delay taking SS?

[haha]

The most relevant analytical framework for me is analogizing the incremental benefits to the purchase of a COLA-adjusted annuity.

If your FRA is age 66 and your FRA benefit is $1,000/month and you wait until 70 to claim, your benefit will be $1,320 ($1,000 + ($1,000 * 8%) * (70-66)), an increase of $320/month or $3,840/year. In the meantime, you will have foregone 48 months of benefits totalling $48,000. At 4% real interest return, that $48,000 might have grown to $51,840 or so. So the payout rate would be 7.40% comparing the $3,840 annual benefit increase to the "premium" of $51,840.

A few years ago, I priced out a CPI-U inflation adjusted annuity and for a single life annuity the payout rate was 6.98% so you get a 6% higher benefit if you "buy" your inflation adjusted annuity from the SSA rather than a commercial provider. (My analysis was for a married couple and the benefit was 50% higher since the payout rate for the SSA joint life annuity was the same 7.40% but the payout rate for a commercial joint life annuity is much lower 4.93%).

FWIW, as another point of reference, a fixed immediate annuity for a 65 yo single and couple woud be 6.74% for a single person and 5.72% for a married couple according to immediateannuities.com.

I don't understand your choice of a 4% real interest return. Since when has that been available on a government obligation?

I think that there are many reasons for waiting to age 70, even for a single male. Female, married, etc etc make it even more clever to wait. In a different SS thread I posted a personal reason for wanting wait until 70. Mainly, I want a COLA annuity. Another real benefit is this is a funds source that I cannot personally screw up. Many of us tend to think that our personal investing will do much better with this money. Overall, I doubt it. I know that I sometimes cringe when I think some of the many things I have mishandled over the years. I literally sometimes cringe.

And for sure, there is a diversification benefit.

Ha

 

[pb4uski]

Im using a 4% real interest rate to be conservative and many posters would want to frame the decision based on investment rates of return since if they chose to delay SS they will be living off of investments during that 4 year period and forgoing that return. So if inflation was 2.5% then the nominal rate of return would be 6.5% which is pretty reasonable for a diversified portfolio.

If one were to use the real rate of return on a government obligation then the advantage of delaying is much greater (but you knew that).

 

[Hermit]

....

I like the idea of converting tIRA to Roth upon market drop. If done correctly, one may be out of the market not at all or for one day at the most, so it is hardly market timing - more timing to minimize income tax.

The above plan would prove its worth if we are subjected to income based means testing for SS by or after 2027- a possibility. If that happens, lower RMDs could be golden. Of course, the plan achieves nothing if Roth distributions are included in the means testing.

This is an interesting approach. In my case if I did conversions to Roth, the conversions would be taxed at 25% or possibly 28%. If the market drop was greater than say 10% and I believed they would climb back before I would be subject to RMD, I think I would be a winner although I would loose the opportunity to make money on the amount turned over to the government in taxes. One down side is I would be bumped into a much higher Medicare bracket for that year. BTW, this is certainly market timing, but I don't see a major down side. I think there are even games you can play if the market is lower at the end of the year. A detailed analysis would be required to determine how large that market drop would need to be to come out ahead.

 

[Happyras]

Prior to age 62, it's an easy decision, wait. You can say 62, 65 or 70, it doesn't matter; you have no choice anyway.

When you determine when to take SS, you have insider knowledge of your health. Knowing when you are going to die is the main unknown factor that would make the decision easier.

Back in college, my best friend thought he might not live past 60, I felt the same way. Maybe the era...I took SS at 62, so will my wife this year. We do not need the income, but we paid full for 40 years and deserve some back.

Oh, BTW, my old friend retired early and just turned 62. He was found cold dead last week in his bed. Sort of puts things in perspective. He had no decision to make.

 

[haha]

Im using a 4% real interest rate to be conservative and many posters would want to frame the decision based on investment rates of return since if they chose to delay SS they will be living off of investments during that 4 year period and forgoing that return. So if inflation was 2.5% then the nominal rate of return would be 6.5% which is pretty reasonable for a diversified portfolio.

If one were to use the real rate of return on a government obligation then the advantage of delaying is much greater (but you knew that).

Thanks for replying. I knew that there was not nor had there been any investment of comparable to US Govt security with 4% real, but I didn't really know why you chose to use this.

This approach will be less attractive when the next bear appears.

Ha

 

[NW-Bound]

You can convert from IRA to ROTH "IN KIND" , I have done it. So you are never out of the market.

The only issue is, You know the share price when you start the conversion, but depending upon your brokerage, the actual transfer date was different, so the actual money value of the shares was different. But you have a good estimate, and they send you a tax form for the conversion with the precise value so doing taxes is no issue...

The following is out of the thread topic, but I would like to point out that with brokerages like Schwab, I initiate the Roth conversion online through their Web site, and the transfer takes place immediately between my IRA and Roth accounts. The account balances instantly reflect the transfer.

For tax purposes, the assets being transferred are priced in real-time according to the market at that point, right as I tap on the "Execute" button. MFs of course have to be priced using the NAV at the day's close.

PS. Withdrawal of assets from IRA or Roth to my after-tax account is executed the same way. I can withdraw "in-kind" any asset, and do not have to sell it first to convert to cash before the withdrawal. As long as the accounts are within the same brokerage, the transfer is instantaneous.

PPS. There is yet no way one can transfer "in-kind" between different brokerages without involving all the parties, and they charge a fee. I am of course talking about equities and MF shares in after-tax accounts in different brokerages.. Of course for IRA rollover from one institution to another, you have to involve them.

 

[Sunset]

The following is out of the thread topic, but I would like to point out that with brokerages like Schwab, I initiate the Roth conversion online through their Web site, and the transfer takes place immediately between my IRA and Roth accounts. The account balances instantly reflect the transfer.

For tax purposes, the assets being transferred are priced in real-time according to the market at that point, right as I tap on the "Execute" button. MFs of course have to be priced using the NAV at the day's close.

PS. Withdrawal of assets from IRA or Roth to my after-tax account is executed the same way. I can withdraw "in-kind" any asset, and do not have to sell it first to convert to cash before the withdrawal. As long as the accounts are within the same brokerage, the transfer is instantaneous.

PPS. There is yet no way one can transfer "in-kind" between different brokerages without involving all the parties, and they charge a fee. I am of course talking about equities and MF shares in after-tax accounts in different brokerages.. Of course for IRA rollover from one institution to another, you have to involve them.

My transfer was at Scottrade, from Scottrade account to Scottrade account and it literally took a week to happen from when I filled out the paperwork at their office.

 

[NW-Bound]

That's really crummy. I had a single IRA account at Scottrade, and hence have not made any in-kind transfer to know they are so behind the curve. I assume that what Schwab provides is industry standard practice but apparently it is not so. I guess one does not really know until he tries to do something.

I have moved much money to Merrill Edge (branch of Merrill Lynch that caters to self-directing investors), and as it is now part of Bank of America I can move money instantaneously between after-tax accounts.

I do not have a Roth account at Merrill Edge to see if "in-kind" transfer of stocks is as smooth as at Schwab. I will need to open Roth accounts for both my wife and myself there soon, as much of our 401k rollover asset is there now. But from your experience, I now know that one cannot assume anything.

By the way, here's another story I can tell about Schwab customer service. I was moving money out of my son's Coverdell account (educational savings) at the end of the year, and sold the stocks too late. I forgot that it took 3 days for the trade to settle and for the money to appear in the account to be transferred out.

So, I called Schwab on Dec 29, right after I sold the stocks and realized my mistake, and asked what they could do. They said "no problem", and asked if I wanted to pay the $20 fee for them to "expedite" it. Of course, I was glad to be given that option. Problem solved.

 

[Perryinva]

My plan is to be as flexible as possible, as market health could makes a huge difference. In a neutral market, as the OP suggested, it makes sense to delay SS for the earned credits and reduce taxable accounts, to minimize RMDs after 70.5. Mainly, this works best if one has no pensions that will automatically place their SS at 85% of fully taxed, ie avoid the Tax Torpedoe. The same gross income where more is tax free as SS, vs a smaller SS and higher fully taxed withdrawals yields a much larger net after tax income, of many thousands, especially in states where SS is tax free, but withdrawals are not. Once pensions or other fixed taxable income come in to play, that automatically place ones SS in the fully taxed at 85% of SS amount, the gains are much smaller, especially for states where SS is taxed, or retirement accounts are not like PA, or states with large exemptions like GA or IL. For both though, the compounding of the larger SS as COLAs are added, especially for high SS amounts, provides the best inflation protected annuity money can buy. In addition, the survivng spouse will be eligible for that full amount, regardless of when they filed. SSAnalyze can be a real eye opener when used to determine the future worth of ones delayed SS benefit.

 

[Sunset]

In IL, retirement income (IRA/401K withdrawals) and SS are not taxed at all.

http://www.revenue.state.il.us/Individuals/pension.htm

 

[Perryinva]

I knew it was large, didn't remember it was all. But that's my point, in IL or PA, the net amount to be gained by delaying filing (assuming one stays there) later is reduced on a higher income, as it makes no difference if you are not taxed on SS or not taxed on IRA. In VA, SS is not taxed, but IRAs are. So one saves 5% in taxes for every dollar that becomes SS income instead of IRA income. VA gives a measly $12k added deduction after age 65, per person, that won't even cover our pensions. In GA, it is $60k. Government pensions are not taxed in IL, but no pensions are taxed in PA. Of course, where we live in VA, property taxes are far lower than similar in IL or PA, so it is very individual as to how one benefits overall.

 

[CRLLS]

I knew it was large, didn't remember it was all. But that's my point, in IL or PA, the net amount to be gained by delaying filing (assuming one stays there) later is reduced on a higher income, as it makes no difference if you are not taxed on SS or not taxed on IRA. In VA, SS is not taxed, but IRAs are. So one saves 5% in taxes for every dollar that becomes SS income instead of IRA income. VA gives a measly $12k added deduction after age 65, per person, that won't even cover our pensions. In GA, it is $60k. Government pensions are not taxed in IL, but no pensions are taxed in PA. Of course, where we live in VA, property taxes are far lower than similar in IL or PA, so it is very individual as to how one benefits overall.

Illinois is one of 41 states with a state income tax and one of 27 that exempt Social Security income from their income tax. But it is one of only three of the 41 that exempt all pension income from state income tax. 3+9=12 states that do not tax pensions (either federal or private).

While there may not be a state tax, the federal tax is much, MUCH more of factor in choosing how to manage the tax torpedo. The State taxation scheme is not even considered in this evaluation. If it is better one way for the Feds, then do it. The state taxation may just be the icing on the cake.

 

[Perryinva]

I misread the link. It mentions government DBP, but not private ones. I agree, if ones income puts them in the crosshairs of the Tax Torpedo, then the federal bite is very significant. But if ones fixed income already puts them well in to the 25% bracket then the TT is moot. Then one is weighing federal tax on 85% of SS vs 100 of an IRA. And I wouldn't be surprised if in the not so far future, 85% becomes 100% as well. The survivor benefits, COLA increases and reduced RMDs of a large savings can mean more.

 

[Pilot2013]

In IL, retirement income (IRA/401K withdrawals) and SS are not taxed at all.

Social Security benefits and certain retirement plans

Not sure how long that will last...

 

[larrytbm]

I don't understand much of what has been covered in this thread. But I will add several points from my experience. I retired at age 55, took pension immediately since there was no inflation benefit. Point 1) I decided to take SS at 62, my simple analysis indicated the crossover point was around 12 yrs, so waiting til age 70 wouldn't be in the black til age 82. Point 2) I wanted the opportunity to maximize my investment growth by living off of the pension and SS.

My wife took SS at age 62 also, she is now 67. Someone posted we have an advantage regarding this decision since we know family history, life style, etc. Personal things that SS knows nothing about. Well, as smart as everyone thinks they are, none of us know what will happen tomorrow. Two months ago, my wife was diagnosed with ALS, she may not see age 70. Our investments are 3 times more than they were at age 55 and money is not a factor for her medical needs.

It seems like there is a real effort to encourage retirees to delay taking SS for that "8% increase" in monthly payments, hoping they will never collect a single penny. SS is not guaranteed until you take it and even next months check isn't guaranteed. Take it while you can.

 

[pb4uski]

....It seems like there is a real effort to encourage retirees to delay taking SS for that "8% increase" in monthly payments, hoping they will never collect a single penny. ....

How did you acquire such knowledge?

Perhaps the effort to encourage retirees to delay taking SS is more because the average lifespan of a 66 year old female is 19.4 years and a 66 year old male is 16.8 years, so let's say 18 years combined

18 *100 = 1,800
(18-70+66)* 132 = 1,848 and 1,690>1,680

For a married couple that is 66 years old one or the other will live 26.4 years on average.

26.4 * 100 = 2,640
(26.4-70+66) * 132 = 2,957 and 2,957>2,640.

Add to that those who are in a fianancial position to delay SS tend to be wealthier and healthier and live longer so the numbers above are likely to be conservative.

 

[Pilot2013]

Two months ago, my wife was diagnosed with ALS, she may not see age 70.

First, very sorry to hear about your wife. I hope she does better than you think. Seems like you made a good choice, and I agree that delaying is a risk that may not be worth taking. To each his own.

 

[larrytbm]

How did you acquire such knowledge?

Perhaps the effort to encourage retirees to delay taking SS is more because the average lifespan of a 66 year old female is 19.4 years and a 66 year old male is 16.8 years, so let's say 18 years combined

18 *100 = 1,800
(18-70+66)* 132 = 1,848 and 1,690>1,680

For a married couple that is 66 years old one or the other will live 26.4 years on average.

26.4 * 100 = 2,640
(26.4-70+66) * 132 = 2,957 and 2,957>2,640.

Add to that those who are in a fianancial position to delay SS tend to be wealthier and healthier and live longer so the numbers above are likely to be conservative.

It just seems to me that most articles on the subject dwell too much on the "8%" increase in monthly payments by waiting. Maybe just my perception. Sorry I don't understand your numbers, but what about the other side? Those that will live less than the average? Everyone seems to look at their LE based on average or better than average, just as you have. Individual SS terminates at death. Assets remain. Those wealthy enough to delay SS , probably won't alter there spending with or w/o SS, so why not just take it and save a few investment $$? Unclaimed SS payments due to death go to other recipients, nothing bad about that, but that is in the hands of others to decide. How many of us, after working hard to reach retirement, would decide to allocate an unknown amount of our assets to an unknown person or entity to decide how to use those funds?

 

[larrytbm]

First, very sorry to hear about your wife. I hope she does better than you think. Seems like you made a good choice, and I agree that delaying is a risk that may not be worth taking. To each his own.

Thanks for the kind words, we have to be realistic that she will not do well and there are many things and arrangements that have to be made. But certainly she could live for quite a few years and some of those arrangements have to support the longer view.

 

[FlaGator]

I don't understand much of what has been covered in this thread. But I will add several points from my experience. I retired at age 55, took pension immediately since there was no inflation benefit. Point 1) I decided to take SS at 62, my simple analysis indicated the crossover point was around 12 yrs, so waiting til age 70 wouldn't be in the black til age 82. Point 2) I wanted the opportunity to maximize my investment growth by living off of the pension and SS.

My wife took SS at age 62 also, she is now 67. Someone posted we have an advantage regarding this decision since we know family history, life style, etc. Personal things that SS knows nothing about. Well, as smart as everyone thinks they are, none of us know what will happen tomorrow. Two months ago, my wife was diagnosed with ALS, she may not see age 70. Our investments are 3 times more than they were at age 55 and money is not a factor for her medical needs.

It seems like there is a real effort to encourage retirees to delay taking SS for that "8% increase" in monthly payments, hoping they will never collect a single penny. SS is not guaranteed until you take it and even next months check isn't guaranteed. Take it while you can.

Best wishes as you help your wife through this. Glad that money will not be an obstacle for you two.

Hope the remaining years are long and you both find ways to smile every day.

 

[pb4uski]

I agree that one has to take into consideration their personal circumstances in making the decision, like family history longevity, personal health, etc. However, those who advocate delay would do it based on averages since that is all they have to go on. And you are right that you can only go on what you know when you make the decision and unpleasant surprises happen... those are the chances that you take... on the other hand... you might live long.

The numbers are pretty easy... you would get 100 at 66 and 132 at 70 (an additional 8% for 4 years).

While what you say about those wealthy enough to delay SS probably won't alter their spending may be true, that just means that they can spend more on heirs or charities or more will be left for heirs and charities when they pass on.

Actually, unclaimed SS payments don't go to other recipients... they just stop and don't get paid at all... incrementally they make the system more financially secure I guess.

I guess that my main objection to your prior post was that it was suggesting that we were all being duped by writers who advocate delaying SS and that there was some conspiracy to convince people to delay in the hope that they wouldn't get to collect and I don't think that is the case.

I am sorry to hear of your wife's diagnosis... I had not picked up on that in the prior post... I am particularly sensitive to things like that today as a good friend passed on after a long illness lst night and we found out this morning... but he is no longer in pain and would not have wanted to continue living on a machine so he is in a better place now, for which we are thankful even though we will miss him.

 

[FlaGator]

It just seems to me that most articles on the subject dwell too much on the "8%" increase in monthly payments by waiting. Maybe just my perception. Sorry I don't understand your numbers, but what about the other side? Those that will live less than the average? Everyone seems to look at their LE based on average or better than average, just as you have. Individual SS terminates at death. Assets remain. Those wealthy enough to delay SS , probably won't alter there spending with or w/o SS, so why not just take it and save a few investment $$? Unclaimed SS payments due to death go to other recipients, nothing bad about that, but that is in the hands of others to decide. How many of us, after working hard to reach retirement, would decide to allocate an unknown amount of our assets to an unknown person or entity to decide how to use those funds?

+1

SS may be "actuarial neutral", and some (many?) people here seem to think they'll beat the house. I've seen the house win by a large margin, and the possibility of that happening to me has resulted in no longer accepting the conventional wisdom that it's better to wait to FRA or beyond to start collecting.

Have several more years to make that decision, so I'm not getting my mind locked into a path now. Just not as obvious a decision as some espouse, and the idea of passing a larger estate due to taking SS earlier is a factor for me.

 

[CRLLS]

+1

SS may be "actuarial neutral", and some (many?) people here seem to think they'll beat the house. I've seen the house win by a large margin, and the possibility of that happening to me has resulted in no longer accepting the conventional wisdom that it's better to wait to FRA or beyond to start collecting.

Have several more years to make that decision, so I'm not getting my mind locked into a path now. Just not as obvious a decision as some espouse, and the idea of passing a larger estate due to taking SS earlier is a factor for me.

What SS doesn't take into consideration is the survivor benefit neutrality. That is, while male and female are treated as having the same life expectancy (we know it isn't really), the life expectancy of one person of a married couple surviving is considerably longer than any one individual. Delaying SS for the higher earner is better than one might think.

 

[RobLJ]

I've posted this before, but I see early SS for me (DW is 5 years younger) as an option against bad stock outcomes in the period from 62-66 (or even 70). I would only claim early to avoid cashing 403b funds during a bear market after I run out of cash in the account.
The Roth conversion/IRA withdrawals is still another complication on the decision. My family is long-lived, although my habits are not conducive to long life (but then neither were many of my grandparents and greatgrandparents, most of whom I knew other than a greatgrandmother who died of cancer. Almost all lived at least to their late 80's and most into their 90s. So predicting one's longevity is another, unknowable complication.)

This is sort of a spin-off of "Another SS Staff Story" and a post made by Koolau on page 4.

Basically, would you delay taking SS at age 62 in order to maximize 402k/IRA withdrawals up to the 15% tax bracket limit?

Assuming tax brackets remain the same and SS is not needed to meet living expenses, would you delay SS in order to reduce the amount of money in tax-deferred accounts subject to future RMDs?

I'm trying to think through the best option here. On the one hand, moving the tax-deferred amounts into a post-tax account sounds great. On the other hand, having the SS in hand earlier sounds great, too.

Some comments in that thread got me thinking about tax-deferred accounts and survivors, and how their taxes go up after the loss of a spouse. Koolau's post is what got me to thinking about this. Our plan had been for DH to start SS at age 62 and just reduce our 401k withdrawals accordingly to stay in the 15% tax bracket, but now I'm second-guessing that in favor of grabbing as much as we can from the 401K/IRAs before taking SS.

Thoughts?

 

[RobLJ]

Thanks for the kind words, we have to be realistic that she will not do well and there are many things and arrangements that have to be made. But certainly she could live for quite a few years and some of those arrangements have to support the longer view.

I'm very sorry to hear this (my twin had a very rare myclonic disease whose ultimate results were like MLS, only far slower). Good luck to you and especially your DW.