New Social Security study on claiming it too early

[scrabbler1]

I think the point is that many people don't do their homework, look at the specific situation, and decide which choice is best for them, instead just "defaulting to the default".

Another example is when most employers used to "default" their employees into money market funds in their 401K plans, and then a lot of folks didn't have enough to retire on after 20+ years because their accounts barely grew. But once more of them started to defaulting to age-appropriate lifecycle funds, we saw more people invested because, again, they stuck with the default. Either people are being a little lazy, overwhelmed by the choices, or assuming that the plan "knows best" in terms of what the default choice should be.

Yes, to your first paragraph. I had a real-life experience with 401k defaults when my former company was going to change its 401k plan administrator. We had all these big meeting which included how the money was going to transfer from our current mutual funds to those with the new plan administrator when there was no clean transfer. In some cases, the new fund was similar enough or basically the same as the old one. But I recall one case where the new fund was simply a receptacle for many old funds, and it was not similar to several of the contributing fund such as mine.

What I did was to transfer the money out of my old fund before the changeover occurred, so that it would end up going to a fund acceptable to me. I had a few weeks to figure this all out, so I was fine. But I wonder how many of my coworkers did nothing and ended up with perhaps a receiving fund they didn't really like.

 

[starry night]

My investment return beats the SS bene increase

Many folks just do not understand that 8% per year extra is in their favor. Delayed gratification is an unknown to them.

But my Vanguard balanced portfolio allocation returns for me an avg of 11.5% over past 10 years. Why would I wish to spend from my investments when they return more to me than the annual benefit increase would provide?
(And please note that the annual benefit increase does not amount to 8% each year. It is a flat 8% of the FRA....not compounded....so it amounts to about 7.3% compounded.
Seems to me the only reason to delay benefit is if one wishes to work more years, or if you have retirement income from other sources. Spending from one’s portfolio, while waiting for an annual 8% increase in benefit, means I deplete my investment portfolio, reducing its future returns and reducing the balance for my heirs’ inheritance.
While a surviving spouse will receive the larger benefit, he/she would also receive a reduced investment portfolio.
Like I said in prior post, our best months are those where we receive two SS benefits while leaving our investment portfolio to outgrow the benefit increase.
SSA knows full well that delaying benefits is advantageous to them, thus the incentives to encourage us to delay filing. Do you think they are doing it for our benefit.....or for theirs?

 

[razztazz]

But my Vanguard balanced portfolio allocation returns for me an avg of 11.5% over past 10 years. Why would I wish to spend from my investments when they return more to me than the annual benefit increase would provide?
(And please note that the annual benefit increase does not amount to 8% each year. It is a flat 8% of the FRA....not compounded....so it amounts to about 7.3% compounded.
Seems to me the only reason to delay benefit is if one wishes to work more years, or if you have retirement income from other sources. Spending from one’s portfolio, while waiting for an annual 8% increase in benefit, means I deplete my investment portfolio, reducing its future returns and reducing the balance for my heirs’ inheritance.
While a surviving spouse will receive the larger benefit, he/she would also receive a reduced investment portfolio.
Like I said in prior post, our best months are those where we receive two SS benefits while leaving our investment portfolio to outgrow the benefit increase.
SSA knows full well that delaying benefits is advantageous to them, thus the incentives to encourage us to delay filing. Do you think they are doing it for our benefit.....or for theirs?

The "delayed gratification" card is irrelevant and even a non-starter. What is the "gratification" , exactly? What is meant by "gratification." To me in this context it's something like an advertising term "all Natural"/ New and Improved"

The fact is the extra money that might be gathered by waiting till 70 and then not dying before a significant amount of time past break-even (A roll of the dice on the grandest of scales to begin with) is as unnoticed, uncontributory, and ungratifying as the money you're not getting between age 62 and age 70.

While a surviving spouse will receive the larger benefit, he/she would also receive a reduced investment portfolio.
Like I said in prior post, our best months are those where we receive two SS benefits while leaving our investment portfolio to outgrow the benefit increase.

SHHHH! Actually having more money..... You're not supposed to mention that!

 

[starry night]

To clarify 8% annual increase for delaying benefit

Let me clarify about the annual increase for delaying benefit.
From SSA website:
“For every month from your FRA until age 70 that you postpone filing for benefits, Social Security increases your eventual benefit by two-thirds of 1 percent — a total of 8 percent for each year you wait. For example, wage earners who reach full retirement age at 67 but delay claiming benefits until 70 will get an extra 24 percent tacked on to their monthly payment.”.

In this example, the recipient increases their benefit amount by 24% by delaying three years from Full Retirement Amount at age 67 to age 70. For example, a $1000/mo benefit at age 67 would provide for $1240/mo at age 70. This is not the same increase that would be realized by receiving 8% compounded increase each year. It equates to about 7.4% compounded for each year’s benefit.

 

[ziggy29]

The "delayed gratification" card is irrelevant and even a non-starter. What is the "gratification" , exactly? What is meant by "gratification." To me in this context it's something like an advertising term "all Natural"/ New and Improved"

And there is nothing "instant gratification" about taking it at 62 if you are not in great health and/or you have a family history of dying relatively young. In that case you are playing the odds, probably correctly for your situation. In such a situation, if FIRECalc and other tools suggest 100% success even with the lower benefit at 62 if I live to 95, I take it.

 

[CardsFan]

I do like the nudge the report suggests: "Instead of portraying age 62 as the “early eligibility age,” age 62 could simply be labeled the “minimum benefit age” while age 70 could be labeled the “maximum benefit age.” " I believe that would improve some folks' choices, while still leaving the decisions completely in their hands.

Everyone is free to make all the bad decisions they choose as long as I don't have to pick up the pieces.

I'd like to think education and solid data would help people make better decisions in their own self interest. Even then, many do not. I find that sad.

We agree on these points, though I'm not sure if a significant number of people would make different decisions.

I think most people make the automatic/default choice without much thought at all.

I think creating good defaults in systems can help a lot.

Can't argue with this one either, but how does it apply to SS? You need to opt in to collect, at any age. So the current default, in the system, is to NOT collect.

 

[timo2]

What I have learned from these periodic discussions on SS is that it doesn't matter when you take it except in one case: survivor benefits. And if your survivor is already covered by another income stream, than it really doesn't matter.

What does matter is that a person has mapped out their various income streams so whenever they take SS, it fits into the overall plan. That goes back to the 'default' conversation.

 

[audreyh1]

With the economy the way it is now, it's hard to believe someone in their 60s is really unemployable.

In my locale, anyone in their 60s could walk down the street, turn left or right, and be offered a job on the spot.

Serious health problems can force early retirement.

 

[daylatedollarshort]

When to take SS is probably a pretty small factor for us in terms of not outliving our money compared to all the other spending and financial decisions we've made concerning retirement.

 

[Bir48die]

How will that impact your claiming decision?

1) Market goes down 30%. I might fund another year and bite the bullet. Then claim to preserve the portfolio and will all but eliminate drawing from my taxable account.

2) I’m estimating a OOP savings on medical of approximately $500-$600/mth. I can ride out a storm a little easier knowing I have those savings.

3) If MIL passes within the next couple of years, we’d have probably another 25% in the nest egg mainly in taxable funds. Not in any way hoping this happens but there has been significant decline recently.

So, you put those in a bowl and mix them up and I’ll figure it out

 

[jollystomper]

With the economy the way it is now, it's hard to believe someone in their 60s is really unemployable.

In my locale, anyone in their 60s could walk down the street, turn left or right, and be offered a job on the spot.

Serious health problems can force early retirement.

In our area, the jobs one can find easily all involve physical labor. Which can be a problem for many in their 60s. Or, if one is in good health, one does not want to risk that health on a physically demanding job in their 60s. I'd rather spend whatever physical good health I have left doing fun things.

Our decision on the SS topic will be very fluid. DW turns 62 late this year and will likely hers starting in 2020. No "rational" reason, she wants to get her hands on it as soon as possible. Hers is about a third of my spousal benefit for her. Right now the earliest I plan to take it is at age 64. My main reason for delaying will be based on how much Roth conversions before I take it will benefit us. I know the break even dates based on me taking it at 64, FRA, and 70, and the lifetime delta if either of us make the "mistake" of living beyond them is not significant for us. So... I will be more playing things by ear before making a final decision.

 

[Bir48die]

What I have learned from these periodic discussions on SS is that it doesn't matter when you take it except in one case: survivor benefits. And if your survivor is already covered by another income stream, than it really doesn't matter.

What does matter is that a person has mapped out their various income streams so whenever they take SS, it fits into the overall plan. That goes back to the 'default' conversation.

+1

My wife will make more after tax pension and VA benefits when I die to more than make up for any money I don’t earn by delaying my SS to 70

 

[gwraigty]

With the economy the way it is now, it's hard to believe someone in their 60s is really unemployable.

In my locale, anyone in their 60s could walk down the street, turn left or right, and be offered a job on the spot.

What kind of job though? In my locale, that may be true, if one wants to be a Walmart greeter or do other minimum wage jobs. That's fine, if it would tide someone over until SS.

 

[Dtail]

What kind of job though? In my locale, that may be true, if one wants to be a Walmart greeter or do other minimum wage jobs. That's fine, if it would tide someone over until SS.

Exactly. No greeter jobs for me. Got to have Plans B and C.

 

[ER Eddie]

While there are many good opinions here, every couple or individual can only decide what will work best in their particular situation.

Yup.

 

[jjflyman]

Everyone can make their own choice. My DW and I are both going to take SS at 62 (in 3 years) and never give it another thought. Hopefully, the Government won't change the rules "for my own good" and make me wait

 

[Cessna152]

And please note that the annual benefit increase does not amount to 8% each year. It is a flat 8% of the FRA....not compounded....so it amounts to about 7.3% compounded.
Seems to me the only reason to delay benefit is if one wishes to work more years, or if you have retirement income from other sources. Spending from one’s portfolio, while waiting for an annual 8% increase in benefit, means I deplete my investment portfolio, reducing its future returns and reducing the balance for my heirs’ inheritance.

SS benefits also increase with the cost of living, and those COLAs do compound. In fact the delayed retirement credit, which doesn’t compound, is computed using the COL adjusted value, not on the unadjusted value. This article has a clearer explanation:

https://www.kiplinger.com/article/retirement/T051-C000-S004-delaying-social-security-boosts-the-value-of-colas.html

As a result, the inflation adjusted SS increases over that 8 year period are on a par with (and slightly beat) the long-term inflation adjusted value of the U.S. stock market (7% per S&P 500: Total and Inflation-Adjusted Historical Returns) Kind of like investing in a guaranteed bull market.

 

[pb4uski]

Life expectancy tables show a 62 year old man's life expectancy is 82.

Meaning that 50% live beyond 82 and 50% don't.

 

[pb4uski]

.... In this example, the recipient increases their benefit amount by 24% by delaying three years from Full Retirement Amount at age 67 to age 70. For example, a $1000/mo benefit at age 67 would provide for $1240/mo at age 70. This is not the same increase that would be realized by receiving 8% compounded increase each year. It equates to about 7.4% compounded for each year’s benefit.

Your example can be equated to paying $36,000 for a COLA adjusted annuity that will pay $2,880/year for your life (and your spouse's life in certain situations). That is a 8% payout rate.

The payout rate for a $36,000 premium for a SPIA for a 70 yo male is $226/month... and the SS annuity with an extra $240/month has a cherry-COLA on top.

So delay can be viewed as a sweetheart deal to buy a COLA-adjusted annuity benefit for those who can afford to and chose to do so.

 

[daylatedollarshort]

Everyone can make their own choice. My DW and I are both going to take SS at 62 (in 3 years) and never give it another thought. Hopefully, the Government won't change the rules "for my own good" and make me wait

That has been our plan. Pensions at 55 and SS at 62 will cover most of our expenses, and we can preserve most of the nest egg for emergencies, long term care, pass it on to our kids or extra travel / entertainment for us. Our way to prevent running out retirement money doesn't rely on when to take SS but on having low overhead, at least low for a HCOL area.

 

[rodi]

Something not mentioned here but another factor that effects a small percentage of us on the forum.... If you are collecting SS and you have minor age children, they qualify for a small benefit till they turn 18. This was our case. DH retired and started collecting at 62. 5 years later older son just ended his benefit and younger son has two more years. This totally skewed the numbers/analysis in favor of DH claiming at 62. I'm 10 years younger and plan to analyse the options each year starting at age 62. Right now my default is to continue to Roth convert until I collect.... Maybe as late as 70. But by not deciding yet I can base my decision on factors that are current at the time I make the decision. The laws could change, the market could change, our health could change, our spending needs could change. Our decision will be based entirely on our personal circumstances.

My sister has a teachers pension that drops when she turns 62. She'll claim them because she needs the cash flow. That is appropriate for her circumstances, which are different than mine.

No one size fits all....

 

[joeea]

SSA knows full well that delaying benefits is advantageous to them, thus the incentives to encourage us to delay filing. Do you think they are doing it for our benefit.....or for theirs?

Sorry, but that is complete nonsense.

 

[joeea]

What kind of job though? In my locale, that may be true, if one wants to be a Walmart greeter or do other minimum wage jobs. That's fine, if it would tide someone over until SS.

It also removes the validity of the term "unemployable" - which was my point.

 

[starry night]

Let me count the ways

Sorry, but that is complete nonsense.

OK, here are three ways in which SSA policies are modified to the benefit of SSA and not to their recipients. I’d welcome your list of the policy changes that have leaned to the other side of the scale, that is, that benefit the recipients rather than the Admin.

1. We all have discussed the elimination of the File and Suspend strategies. No need to elaborate more about this one.

2. They changed the benefit deposit schedule. Used to be that all recipients received benefit payment on the 3rd of the month. They have changed that to a scheduled release, such that you receive your deposit on the 2nd, 3rd or 4th Wednesday depending on your birth day if the month. This accrues a great investment benefit it Admin in hanging on to your money, and disadvantages the recipients in receiving it later.

3. They changed the COLA calculation from the more universal CPI-U to the less relevant CPI-W. CPIW is the one for lower wage earners “Urban Hourly and Clerical Workers”. This depresses the more generous COLA we would receive under the more universal index. See below about SSA COLA determination:

“The COLA is calculated using data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Of the CPI groups that the Bureau of Labor Statistics (BLS) measures, the CPI-W covers only 28% of the total U.S. population, and specifically excludes households “with no one in the labor force, such as retirees.”

You read that right.

The index used to determine the COLA of retirees does not measure the spending patterns of retirees, but younger workers instead. Retirees, we all know, spend their money differently than younger people and must spend a far bigger share of their budgets on housing and medical costs — two categories of spending that often rise several times faster than overall inflation.

There are better and more fair choices for indexing the COLA. The BLS also measures the price change experience of All Urban Consumers (CPI-U) which covers about 88% of the U.S. population including retirees as well as younger people, and it even maintains a “senior-specific” experimental CPI, the Consumer Price Index for the Elderly (CPI-E), that our government has quietly tinkered with since 1983, but has never used to calculate the COLA.”

 

[starry night]

More to add to above...

Here’s one more way the SSA has adjusted.

4). The shift of Full Retirement Age. One little-noticed effect of the gradual increase in the FRA is the erosion of the delayed credits for waiting from FRA to age 70 to file. Here is a homemade chart to see how this works.
Table shows the % of benefit you receive by delayed filing

Age. FRA 66. FRA 67
62. 75% 70%
63. 80. 75
64. 86. 80
65. 93. 86
66. 100. 93
67. 108. 100
68. 116. 108
69. 124. 116
70. 132. 124

So recipients whose FRA will be 67 will only qualify for delayed credits over 3 years (from 68 to 70) rather than the 4 years of delayed credit available to earlier FRA recipients.