The old Social Security break even dilemma

[RetireBy90]

If you both do not die simultaneously, then one of you will have to live on the higher SSA benefit. Would delaying longer, even to age 70, make that a more comfortable situation?

If SSA is not a significant portion of your retirement spending plan, it may not matter.

This is the reason I’ll delay till 70, so DW has more “fixed” income if I go before she does. We live off pension and her SS at FRA and some investment income. I want to be sure she will be OK if I go early. Maybe not biggest payout from SS but it gives us a piece of mind.

 

[Red Badger]

Here are my musings on the topic. In summary, I don't think the break even point is what we should be looking at when deciding on when to take SS. The total number of dollars you get from SS before you die, is not terribly important compared with the value of those dollars to you, at that time. Merely looking at the total dollars is a huge mistake, IMO, that many of us make. Timing is crucial.

For example, if taking SS at 62 means the difference between someone retiring comfortably at 62, or not retiring until years later, then I think that SS should be taken at 62 no matter what the total number of dollars received by the time that person croaks.

Also, I think dollars have greater value to someone who is nearly broke, than to someone who is well to do. Right now, $1,000 would mean about nothing to me but when I was 20 and broke, I would have nearly sold my soul for $1,000.

+1.

DW started spousal benefit at FRA and has no SS of her own. I filed at the same time (62). Having the income streams worked for us. Longevity doesn't seem to be in the hands we were dealt. However, if we're wrong, we'll still be fine with SS, a couple of pensions, and our IRA.

 

[pb4uski]

Exactly! The value of dollars (IMO) is far more to a 64 year old than to an 84 year old. ...

Money is fungible. Since we have enough and will likely leave something under most scenarios, what we spend has no relationship to whether or not we are collecting SS.... the only difference is where the money being spent will come from.

 

[COcheesehead]

The biggest mistake in your analysis is the consistent rate of return you use. Markets don’t act that way. You could have 1-3 down years consecutively and that could push your BE point much further out.

 

[RunningBum]

The biggest mistake in your analysis is the consistent rate of return you use. Markets don’t act that way. You could have 1-3 down years consecutively and that could push your BE point much further out.

I think it's the opposite, isn't it? 1-3 down years would move the breakeven point up, because you are keeping more in the market by taking early rather than spending some of your portfolio while delaying SS.

Conversely, a good bull market could push the BE point much further out. Or am I the one that has this backward?

Not sure I'd call using a consistent rate a mistake. One would have to do a Firecalc type analysis using multiple starting points from historical market runs to determine where breakeven points happen. I would bet that given the historical success of the market for most runs, it would favor taking at 62. But my take on this is that if the market does well, I will have much more than I will ever spend no matter when I take SS. But what's more important to me is if I have the double whammy of poor market returns, and live longer than average, such that I could outlive my assets. Holding out for the larger payment at 70 is the best protection for this, if you are able to hold out.

 

[Sunset]

.. through opensocialsecurity.com? .... I use the 2017 CSO Nonsmoker Preferred mortality and a 3.3% real discount rate (I don't agree with Piper that the TIPs rate should be used because if I delay SS the money will come from my 65/35 retirement portfolio).

In addition to the tool's optimal solution, I test alternative claiming strategies of 1) both taking SS now, 2) both at 65, 3) both at FRA and 4)DW at FRA, me at 70. The expected present values that the tool returns are the amounts you are due for SS based on the data that you provide times the probability of your being alive to receive them (aka expected value), and then all present valued to today at the discount rate that you provide.

For us, the expected present values are not all that different.

No haircut Haircut

Optimal solution 100.0% 100.0%

Both now 97.8% 98.9%

Both 65 99.0% 99.7%

Both at FRA 98.7% 96.3%

Me 70/DW FRA 99.2% 99.2%

...

......

Because of your post, I figured I should play with opensocialsecurity again using the new 2020 numbers, and adjusting the discount rate as I probably didn't do that earlier.

Since DW has the higher SS, I left that at age 70, and varied my age and the discount rate. I finally settled upon a discount rate of 2.7% as I'm a little more pessimist about the next 10 years or so, and it's close to a split between Your value and the TIPs rate.

I think I found an error in the chart for "Your Annual Survivor Benefit" This number seemed to vary to compensate for my lower benefit when less than FRA, so that the final "Total" was always 94% of DW's age 70 benefit.
This seems too high to me.

I thought SS survivor benefit was the higher of: my benefit OR departed spouse benefit.

Did you notice that number seemed odd, or am I confused about the survivor amount ?

 

[COcheesehead]

I think it's the opposite, isn't it? 1-3 down years would move the breakeven point up, because you are keeping more in the market by taking early rather than spending some of your portfolio while delaying SS.

Conversely, a good bull market could push the BE point much further out. Or am I the one that has this backward?

Not sure I'd call using a consistent rate a mistake. One would have to do a Firecalc type analysis using multiple starting points from historical market runs to determine where breakeven points happen. I would bet that given the historical success of the market for most runs, it would favor taking at 62. But my take on this is that if the market does well, I will have much more than I will ever spend no matter when I take SS. But what's more important to me is if I have the double whammy of poor market returns, and live longer than average, such that I could outlive my assets. Holding out for the larger payment at 70 is the best protection for this, if you are able to hold out.

Sorry, yes. We are on the same page, I phrased it wrong. It would move it up. My bad.

 

[razztazz]

You only have to answer one question. No spreadsheet needed.
What is your planned death age?

I am almost 63 and I still use 30 yrs in my projections which, even I'll admit, is hopeful to the point of almost being silly. I have run this 62 vs FRA thing for years now. The results are always the same. My MAX SPEND RATE for 30 yrs is only somewhat higher waiting till FRA. Not the kind of spend rate that makes a difference between "nice standard of living" vs "poor standard of living."

The diff is, if I take SS at 62, the end points are higher. I have more of my own money left. Ergo if I happen to live a few yrs past 93 I'll have more money left to do it on. But not that much more than if I take it at FRA.

This appears to be a game of numbers. And that's all it's about. Not what the numbers mean because it's always a difference without a distinction and a distinction without a meaningful difference.
PS: I have no wife kids or pets at this time so none of those juggling acts apply to me. But I know they might have some significance some people

 

[Navigator]

There is not a big enough difference between taking SS at 65 and 66 and 2 months to worry much about. The biggest concern I have is you are using a constant 2% to 6% return to do your calculations. Historically, there has been a much wider range of returns over a 15 - 25 year time frame, so taking SS at 65 is actually riskier than your analysis suggests. However, you will likely be fine either way, so just do what feels best.

 

[Chuckanut]

But isn't that exactly why anyone delays taking Social Security? To get more? Why else?

Why else? Longevity insurance. Also as part of a plan to pay for LTC.

Keep in mind that, if leaving an estate is not a concern, you will 'get more' in terms of having more money to spend each year starting at age 62 if you take SS at 70.

The math is here:

http://www.early-retirement.org/forums/f28/laurence-kotlikoff-maximize-my-ss-com-77660.html#post1604411


Take what you wish and leave the rest.

 

[wolf]

OP: IMHO, Way overthinking. It boils down to, if you are going to live a long time,
wait. If not, take SS early. No one really knows when our time will be up.

So, know one, can answer this question. Are you gambler, wait. If not, collect now.
Good luck.

 

[RunningBum]

OP: IMHO, Way overthinking. It boils down to, if you are going to live a long time,
wait. If not, take SS early. No one really knows when our time will be up.

So, know one, can answer this question. Are you gambler, wait. If not, collect now.
Good luck.

I agree that no one knows when our time is up. Disagree that the one who waits is a gambler.

Given that know one knows, which way would you rather be wrong?

1) If I plan for a long life (take SS at 70) but die earlier than the breakeven, I still had enough money to live on, because I didn't use all of my other funds.

2) If I thought I'd die on the early side (take SS at 62), but live longer, than I'm short the difference between SS at 70 and SS at 62 every year past the breakeven.

I'd rather be wrong on the 1) than 2). I don't see how taking longevity insurance makes you a gambler. Maybe you didn't mean it that way, but it seems like a derogatory term. I'm guessing you lean toward taking it early.

 

[razztazz]

2) If I thought I'd die on the early side (take SS at 62), but live longer, than I'm short the difference between SS at 70 and SS at 62 every year past the breakeven.

I always ask: So how short? And what does that mean? How does that impact anything? And to really, truly come out "ahead" you'd have to come out meaningfully ahead. Living one or two years past break-even is not exactly a lot of money on any scale. I as myself: Is that what my life comes down to? A few extra thousand dollars right at the end of my life?

 

[Sunset]

I always ask: So how short? And what does that mean? How does that impact anything? And to really, truly come out "ahead" you'd have to come out meaningfully ahead. Living one or two years past break-even is not exactly a lot of money on any scale. I as myself: Is that what my life comes down to? A few extra thousand dollars right at the end of my life?

Some folks live over a 100 , so the difference would be after you run out of money at age 85, the last 15 yrs begging people not to throw you out on the street because you are short $5,000 every year.

All those services you need at age 90+ are from people that will want "A few extra thousand dollars right at the end of my life"

 

[RunningBum]

I always ask: So how short? And what does that mean? How does that impact anything? And to really, truly come out "ahead" you'd have to come out meaningfully ahead. Living one or two years past break-even is not exactly a lot of money on any scale. I as myself: Is that what my life comes down to? A few extra thousand dollars right at the end of my life?

For me at last calculation of my SS benefits it's ~$1400/month, or ~$16,800/yr. I would not be spending any less between ages 62 and 70. I'm just taking more out of my portfolio between 62 and 70 to make up for not taking SS early, and then taking less out of my portfolio from 70 on because I've got the larger SS payment. So it doesn't alter my life one bit until I hit the breakeven, then I've got the extra to help live my final years in more comfort, or leave more to charity and/or heirs. Believe it or not, some people still travel well into their 80s, and that extra could go towards more comfortable first class accommodations, and perhaps a traveling companion to assist me. And why do you talk about just one or two years past the breakeven, when it could be 10 years or even more?

It presumes I've got enough in my portfolio to make it to 70 without letting my portfolio get too low. I do, but I know not everyone does, so it's not an option for everyone.

You may not care about over 16 grand a year, but I sure do, and I doubt I'm alone. I see people holding out for $10 less on their income tax program, and going to the trouble to open new accounts for a few hundred bucks bonus.

Unless you KNOW you will die younger, which allows you to spend more money in a shorter time frame, there's no reason to spend less in your 60s just because you're holding off on taking SS until 70.

So my question for you is, do you listen to the answers when you always ask this?

 

[razztazz]

My withdrawal rate folded in with SS covers all that. As far as living to a hundred because some people do... don't know what to say. I personally know 2 people who lived over 100. I ain't worried about it. Some things are worth worrying about some aren't. Where does it end?

Also, along with all that, I believe I mentioned that later SS vs earlier SS (in my case and have not seen any contrary real cases, but of course some subjective case) did not make the difference between having and not having or having good and having bad. You can always work the rubic's cube nature of this stuff in unlimited ways so as to engage in endless "yeah but what about.....'s?

Some folks live over a 100 , so the difference would be after you run out of money at age 85, the last 15 yrs begging people not to throw you out on the street because you are short $5,000 every year.

All those services you need at age 90+ are from people that will want "A few extra thousand dollars right at the end of my life"

 

[jollystomper]

Two other considerations for debate (I personally have not yet taken a side on either one):
- Do not take it early if you need to room to do Roth Conversions from tIRA or 401K before RMD time, and taking it would knock you into a higher tax bracket.
- Do take it early if you do not need it but can completely invest it, the potential long terms gains (for either you or your heirs) can make up for the lower payments.

These perhaps contribute to "there is no single right answer for when to take SS" view, as the combination of variables makes everyone's situation very unique.

 

[ShokWaveRider]

There is another consideration. Opensecurity.com for us, like others here, recommends for DW to take SS at 62 (Next Year) and me to take at 70 in 2024. HOWEVER, if DW takes it, it increases our MAGI so ACA does not give us subsidies anymore, in fact HI will take all of DW's SS and then some (So Stupid!), PLUS raise premiums from the current $68pm, deductible from $0 to $6,000 and MOOP from $1,600 to $8,100. I am on Medicare, so at least my costs are relatively fixed.

Hopefully things will change in 2021, to make Healthcare more sensible, but I am not holding my breath. If it does not, we are seriously thinking of moving to Canada for 3 Years till DW is 65 and becoming snowbirds. Canadian Taxes (For Us) even with our USA SS, Canadian Pension & UK State Pension will be a lot cheaper, even including the sensible Universal Healthcare extras tacked on to Canadian Taxes. If we stay close to a border, I can still use Medicare as needed.... If I wish. This is a drastic measure as we fully intend on returning when DW is 65. Let us hope it does not come to that. Of course we can also postpone DW's SS too, that is another option.

 

[Dtail]

Yeah Opensecurity.com is touted by many, but was wondering how it treats the effect of losing ACA subsidies.

 

[bobandsherry]

Yeah Opensecurity.com is touted by many, but was wondering how it treats the effect of losing ACA subsidies.

I don't see that it does nor does it factor in that SS benefits might be taxed. That's not it's intent though, it just provides you the raw details as to how much your SS benefit would be in total. And then uses guesses (assumptions) on top of guesses. You can change one basic assumption and end up with easily $100K difference. So the output is just another input for further analysis.

 

[PatrickA5]

I've got 6 months before I can start at 62. I've been running SS calculators for years, but now that I'm getting close it's getting more "real". Open Social Security used to always tell me to take and 62 and DW (higher earner) at 70. Now it's saying 64 for me. Not sure why it changed. Anyway the change in NPV for any of my projected start dates is pretty minimal, to the point that it's not worth worrying over.

I've got two major decision points. 1) Roth conversions 2) my life expectancy. I really want to do more Roth conversions. OTOH, I doubt I make it to 80, so there's that. I'll figure it again in a few months.

 

[CRLLS]

OP: IMHO, Way overthinking. It boils down to, if you are going to live a long time,
wait. If not, take SS early. No one really knows when our time will be up.

So, know one, can answer this question. Are you gambler, wait. If not, collect now.
Good luck.

I am not a gambler and I am waiting until 70 to collect on my SS. I think that gambling is taking SS early. However, I am living comfortably on below the 4%SWR. That income will increase when I get to 70. I am not trying to maximize my year to year income. This brings me comfort now. Having longevity insurance of the higher fixed income is important to me. I have always been self sufficient. I don't want to become a ward of the state in my later years. Worse yet, having my 60-70 year old children having to support me because we outlived our money. I am planning to have some, or a lot of money on DW's and my death beds whenever that occurs. That way I know I have won the game.

 

[TheWizard]

Same as a few others, I care not a whit about breakeven analysis of SS.
I have pension/annuity income that comfortably meets my needs and for the past seven years prior to age 70, I've been doing modest Roth conversions to reduce my tax-deferred balance.
Or at least to keep it from growing even bigger.

I start age 70 SS shortly, so I will do smaller conversions this year and next.

I now start RMDs in 2022, so that will likely be the end of my Roth conversions...

 

[Time2]

Why do the maximize SS calculators always(?) tell me to wait until I'm 70
(I'm older) and tell my wife to take it at 62?

Why not both at 70?

 

[HadEnuff]

not taking taxes into account is IMO a rather large omission. In my state, SS benefits are not state taxed at all. Since I started taking SS at 62 I have quite a few years not only saving on the state income tax, but since I'm living largely on that in lieu of withdrawing those funds from IRAs, very little, to almost none, of my SS benefits are federally taxed either.

While I'd eventually "catch-up" at some point, looking just at pre-tax numbers, I would be catching up with dollars that would come during my RMD years, and more of those dollars would be taxable, and likely at a higher rate, so calculating dollars in my pocket would move the catch-up date farther back.