The old Social Security break even dilemma

[gwraigty]

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?

My guess is because the lower-earning spouse's benefits based on their own work record eventually "disappear" upon the death of one of the couple, based on current rules. In our case, my eventual spousal benefit will be greater than my own. This doesn't mean the above recommendation is the right or wrong decision. The lower-earner taking SS at 62 will reduce the eventual spousal benefit. To get the highest monthly SS household income, I'd collect on my work record at my FRA of 67, while DH waits until 70. Then I'd switch to spousal at 70. This plan is by no means set in stone.

 

[pb4uski]

.... 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 ?

Perhaps.... its a nomenclature thing.

Let's say that your spouse's PIA is $3,000 per month and their FRA is 66 and you would receive $1,200 PIA per month based on your own work record and that you take at your FRA.

While your spouse is alive and once they file, your benefit is $1,200 per month plus you receive a spousal benefit of $300 per month for a total of $1,500 per month. The $300 per month is the excess of 1/2 of your spouse's benefit over your benefit based on your work record.

Let's say that you spouse delays and as a result of delay receives $3,960/month [$3,000 * (1+4 years delay * 8%/year)].

When your spouse dies, you will receive $3,960 per month in total.... $1,200 per month based on your work record + $300 per month spousal benefit + $2,460 survivor benefit.

That's my understanding anyway. And in all cases these ignore COLA adjustments.

 

[pb4uski]

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

It's not set up to factor potential loss of ACA subsidies in.

It just considers benefits (which vary based on whether you take early or late), mortality and the time value of money.

Since you provide your birthdate and your PIA, it can calculate your benefit for each potential starting month from 62 to 70.

Since you provide your birth date and your gender, it can use a variety of mortality tables (you select one... or you can select an age at death).

Based on the cash flows and the probabilities of your being alive to receive the benefits for that month, it calculates the expected value of each months cash flow.

It then discounts the cash flows based on the real discount rate that you provide.

It does that for each potential start month for you if single or for you and your spouse if married and returns the start month(s) that result in the highest expected present value as the optimal solution.

It doesn't take into consideration either ACA benefits or the value of Roth conversions.

 

[Perryinva]

Unlike many here, I WANT to use my portfolio and reduce it, and do Roth conversions. DW is 6 years older, wouldn’t know what to do with investments anyway, and any heirs would squander it. Best for her to have the highest tax advantaged fixed income possible. Unless health takes a turn, I’ll go to 69 and then decide, while spending from day one as if I was getting SS at the delayed rate of $45k/yr. I can’t collect anyway earliest until age 63, where it’s $29k. So its only sucking $45k/yr for 6 years. Thats a cheap annuity for the extra $16k COLA fixed income which is a major decider.

 

[Ronstar]

OP here. Lots of good info in these posts. And the info certainly has me thinking. Being that I thought of starting SS in August 2020, I might as well wait until 2021 to make a decision.

This will give me another year to maximize Roth conversions.

We live in Illinois - a state that doesn't tax retirement income. We plan to move and buy a house in Arizona in the next 5 years, but the purchase date is tied to a family situation and is unknown. Az has no tax on SS, but taxes pensions and IRA distributions. Tax on retirement income would be about $2k per year. Not bad. So while it makes sense to take roth conversions while living in Illinois, the difference between the states' tax will not be a driving force in the ss decision.

I estimate that I'll need about $300k in cash plus the proceeds of the Illinois house sale to buy the Az house. I don't want to have to withdraw a lot from IRA's to buy a house because the extra withdrawal will kick me into a higher tax bracket. And I don't want a mortgage. So I'll need to keep at least $300k in taxable accounts/cash to pull off the house purchase.

I can probably go about 2 years living on taxable accounts/cash before my balance dips below $300k. So I can probably delay decision on when to take SS a little while, but no later than the time when I run low on taxable /cash.

In any case, I'll continue studying the situation through 2020 and hopefully find the best solution this year.

 

[CardsFan]

Part of my reasoning to take at 65 is the medicare payment. DW is 65 and hasn't taken SS yet - and she complains about the medicare payment.

I think I'm going to have my medicare set up to be taken from my checking account. Because I'm fairly certain that taking it from my SS check will be a snafu if I set them both up at approx the same time. Medicare probably wouldn't find that I'm taking SS until I'm entrenched in it for a while.

Regarding the bold:

DW just did exactly what you are considering (taking both at 65), and I had the same concerns. Turns out it was no problem. DW asked for both to start in February (late February B-Day). Since SS payments start the month after you start SS, SS will actually deduct the Feb and March Medicare payments from the first check (paid in March), and then just the one payment going forward.

FWIW, she did have some issues with SS due to proving no pension from past teaching work (no SS payments), but that got resolved and had no impact on the Medicare issue.

 

[Montecfo]

If it matters little now, take the insurance

We are not pension people. In fact my retirement planning ignored SS, as I never wanted early retirement to depend on that. So it has always been the worst type of insurance: the type you are not sure will be there when you need it.

The "standard" advice to delay has to be one of the most misleading pieces of financial advice, as this thread illustrates.

Having said that, we plan to consider it "insurance". Accordingly we will both delay at least until FRA. If Roth conversions seem to make sense, then maybe to 70. At least that is the current plan.

 

[Dtail]

We are not pension people. In fact my retirement planning ignored SS, as I never wanted early retirement to depend on that. So it has always been the worst type of insurance: the type you are not sure will be there when you need it.

The "standard" advice to delay has to be one of the most misleading pieces of financial advice, as this thread illustrates.

Having said that, we plan to consider it "insurance". Accordingly we will both delay at least until FRA. If Roth conversions seem to make sense, then maybe to 70. At least that is the current plan.

Both sides of the coin in the post, but understand.

Many folks on this forum do include SS as part of their retirement plan, whether full payment or the ~25% discount.
We are budgeting for SS to provide around 50% of our spending in current dollars.
Anyone with heavy ACA tax subsidies almost automatically delay at least until 65 y.o. and then potential Roth conversions come into play.

 

[DRC726]

I plan on retiring this year at age 60 with no pensions for DW or myself. My plan is to live off of dividends and cap gains from after tax accounts and also rental income but, like others have mentioned, if I need the money sooner, I'll take SS before my retirement age of 67 and not worry about the few extra bucks per month I would have gotten had I waited.

 

[DRC726]

We are not pension people. In fact my retirement planning ignored SS, as I never wanted early retirement to depend on that. So it has always been the worst type of insurance: the type you are not sure will be there when you need it.

The "standard" advice to delay has to be one of the most misleading pieces of financial advice, as this thread illustrates.

Having said that, we plan to consider it "insurance". Accordingly we will both delay at least until FRA. If Roth conversions seem to make sense, then maybe to 70. At least that is the current plan.

+1

 

[GenXguy]

Both sides of the coin in the post, but understand.

Many folks on this forum do include SS as part of their retirement plan, whether full payment or the ~25% discount.
We are budgeting for SS to provide around 50% of our spending in current dollars.
Anyone with heavy ACA tax subsidies almost automatically delay at least until 65 y.o. and then potential Roth conversions come into play.

Same here. At age 70, SS should provide about 50% of my yearly spending if I delay until 70. It would actually be far more than enough on its own to cover my expected base expenses by itself at that age. And I absolutely won't take SS until at least 65 based on the effect on MAGI for ACA, if the ACA is still around when I'm in my 60's. And MAGI for ACA includes both the taxable and non-taxable portions of SS. It's still over a decade off for me, so I don't put too much thought into it, yet.

 

[Out of Steam]

I've decided to not take SS before 65, then see where we are financially and health-wise.

To me, the key to the SS decision is to minimize the risk of having to eat Ramen noodles at 90, not to collect the largest net present value calculated at 60 or 62.

 

[jasg]

I took SS at 63, to avoid drawing down tax-advantaged accounts.

Last year, at 70 I ran the numbers based on real returns (CAGR of 9.3%).

Because of lower balance, my RMD at age 70 would have decreased by ~$8K annually.

My SS would have increased by ~$14k...

 

[LuckyRugger]

The best online calculator that I found and highly recommend is opensocialsecurity.com. Your question is a very difficult question to answer with the limited data you provided. I will say typically the results of this open source calculator is for the lowest income person to either start at 62 or FRA, and the higher earner to start at 70, what this does is maximize the total amount you and/or your spouse will receive.

My personal recommendation is aligned to the output of this calculator, the higher income person delay until 70 to maximize total monthly benefit and to maximize the COLA. This is of course based on both persons being fairly healthy with minimal family health concerns.

Essentially SS will pay the same total distribution for both of you if you both live to the expected age of death. Where it will differ is if you can claim spousal benefits or a death benefit.

Think long term not short term, once you start to draw you can’t* change your mind. Use tax deferred accounts to supplement income between when you think you need to draw and the farthest you can defer.

 

[FireProoof]

I've run my numbers with no pension and it is clear I will take social security on the very first day I can get it. My reasoning is the same as your though. Just because I take it doesn't mean I have to spend it. So I take it at 62 and save it until I reach full retirement and I win everytime. I would do it at a 4% return but I expect more than that.

The fallacy of most analysis is that if you take the money it doesn't earn any return (i.e. you spend it). Of course spending money versus saving (which is what delaying social security does) will lose. But if you save and invest the social security you win with any decent amount of return.

 

[2retireearly]

Social Security break even has been batted around on this board to the nth degree.

But I needed to make my own spreadsheet to digest my latest thought. DW is taking SS this July at FRA. My initial plan was to take mine at FRA next October. But why should I wait longer than DW to take ss? I decided that I want to start taking it at 65 instead of at 66 yrs 2 mo.

My thought is this - I don't have a pension. I'm living off investment income. Taking SS will decrease my portfolio withdrawal, so in theory an amount equal to SS in my portfolio will be allowed to stay in the portfolio and grow as opposed to being withdrawn.

So I ran the numbers based on various scenarios depending on estimated future rate of return on my portfolio. Based on the estimated rate of return and estimated spending, I was able to compare the monthly difference in estimated future portfolio value based on taking SS at 65 and at 66 yrs 2 mo.

And this provided the break even point at which taking at 66/2 starts yielding a larger portfolio value than the taking at 65 option.

At a 2% return, the break even point is in 12 yrs, 1 mo at age 76 - 8 mos
At a 3% return, the break even point is in 12 yrs, 10 mo at age 77 - 4 mos
At a 4% return, the break even point is in 13 yrs, 8 mo at age 78 - 2 mos
At a 5% return, the break even point is in 14 yrs, 9 mo at age 79 - 3 mos
At a 6% return, the break even point is in 16 yrs, 1 mo at age 80 - 7 mos

I compounded the rate of return monthly in my spreadsheet. I did not take tax implications into my model.

I don't know how the online calculators calculate break even, but the ability to reduce portfolio withdrawals creates more of an incentive to take ss earlier than what I expected. And it seems like there would be more of an incentive to take ss early for non-pension people than for those who live off pensions.

And of course there are a lot more variables that can go into this depending on each person's situation. But I'm comfortable enough with my break even findings to take SS 1 yr 2mos earlier than FRA.[/QUOTE

Just realize, in your calculations, that Soc Sec is taxed differently than IRA. It is generally 50% of soc sec is taxable, up to a certain income amount. ira, except for ROTH, is 100% taxable.Don't forget this important feature in your calcs!

 

[Time2]

Just be sure to figure any taxes due on the SS in you calculations.
So, I'll admit most of my info is the usual crossover point is around 81, if you live longer 70 is better if you die earlier 62 is better.
That said, I'm not sure, if the reduced spending of my portfolio would grow faster than the 7% to 8% growth of the SS check. Historic rates would say yes, you might do better, but we could have a bad 10 years.
I'm delaying because I want to do as much in Roth conversions as I can between 65 and 70, and if I take SS early that extra income would push me into a higher tax bracket. My concern is RMDs when I hit 72. I did get a little reprieve with the 72 year old RMD start age.

 

[Perryinva]

There is no “take the SS money and invest it” and “do” better scenario. Money is fungible. That is a very simplistic view. There is absolutely no difference between withdrawing an amount to live and saving your SS, vs leaving it there and spending the SS.

Anyone that can actually consider delaying filing has the funds invested, so saying if you don’t have to spend it but can save it is plain silly. If you HAVE to spend it to live, then you can’t afford to delay, financially.

It is as silly as using break even as a reason to file early, unless one’s objective is to die with the most money unspent.

My objective is to have the highest secure income while FINALLY spending & enjoying the money I’ve saved and invested my whole career, which includes some principal reduction. The obsession to preserve/increase the portfolio size at all costs totally escapes me. Maybe because no one ever left anyone I’ve known a huge fortune, and I don’t care to leave one for any heirs either.

As long as I have plenty of income to do whatever I want, in my lifestyle, then my concerns are geared toward the lower risk scenario, which means delaying for the larger COLA annuity. The portfolio reduction is of no significanct impact.

If I can’t comfortably live on a low taxed $12k a month then I have a problem. I lived for many many years on less than that while socking away 25-30% and paying FICA & Med deductions. Time to blow that dough.

 

[Old Microbiologist]

Personally, I retired fully at age 56 and took SS at age 62. My feeling at the time was to take it when you can as they can always stop it at some point. Our current politicians keep referring to SS as some kind of gift from the government and that some people (like us) already have too much money so don't deserve it. I can envision a means test soon and that has been mentioned as recently as last week by our President.

The second thing that entered into my calculations is that no male member of my family on both sides has ever lived past age 76. Not that I expect to die by then but it is a serious consideration. My brother who has just turned 74 has this in mind a lot but he is in great shape and looks like he might set a new record. On the other hand the women on my mother's side generally live into their 90's and my mother is 95 and going strong. I take after my mother so have some hope. So, genetics is another factor and a big one when trying to predict the future.

The Roth conversions only factor if you are still working which we weren't so not part of the calculation. RMD laws changed again this year which has befuddled us a bit. So, I can't forecast what Congress might do in the future. However, having spent 40 years working for the military I know that promises mean nothing (even written ones) and don't hold up in court. Basically, the government can and will do whatever they want and there isn't much you can do about it. To me this means SS is not a guaranteed benefit and subject to the whims of our government.

The strangest thing for us is because our pensions add up to a bit under $100k we haven't touched our investments at all and we still are running a surplus. This is because we retired to Hungary where life is cheaper and medical runs less than our mandatory Part B (which we refused) required to keep the "free" military health care plus a $600 annual fee and $2,000 deductible to get 60% reimbursement. We spend roughly $100 a month all told for medical expenses averaged out a monthly rate. We ran the calculations yesterday. I have spent less than $500 total for over 10 years now on myself including dental.My wife has had some serious problems none of which cost more than $1,000.

To me the decision for anyone is to try and forecast the risks versus the benefits based on your own situation and general advice is basically useless. It will be different for each individual and can and should include health concerns and genetics.

 

[GenXguy]

It is as silly as using break even as a reason to file early, unless one’s objective is to die with the most money unspent.

That depends how long you live. If you file early, live a lot longer, then you might die with LESS money unspent, not more. Neither is my goal. Since people don't know their individual lifespans, delaying SS would provide some insurance of higher income for living longer when your stash might be running low.

To me this means SS is not a guaranteed benefit and subject to the whims of our government.

It's possible. Some UBI plans (not Yang's) eliminate SS altogether and replace it with a single monthly UBI payment, and it doesn't matter how much your SS benefit was or might have been. Hopefully we will never see that happen.

The strangest thing for us is because our pensions add up to a bit under $100k

My pension is $0. I can't imagine having any SS worries if I had an extra $100K/yr. So you might as well take it whenever you feel like it.

 

[Sunset]

Personally, I retired fully at age 56 and took SS at age 62. .....

The Roth conversions only factor if you are still working which we weren't so not part of the calculation. RMD laws changed again this year which has befuddled us a bit. So, I can't forecast what Congress might do in the future. .....

Roth conversions have nothing to do with working, you can convert IRA money to a ROTH anytime. Working or not, it does not matter.

Perhaps you were thinking of Roth contributions ?, for those you need to have some earned income.

 

[jkern]

Personally, I retired fully at age 56 and took SS at age 62. My feeling at the time was to take it when you can as they can always stop it at some point. Our current politicians keep referring to SS as some kind of gift from the government and that some people (like us) already have too much money so don't deserve it. I can envision a means test soon and that has been mentioned as recently as last week by our President.

The second thing that entered into my calculations is that no male member of my family on both sides has ever lived past age 76. Not that I expect to die by then but it is a serious consideration. My brother who has just turned 74 has this in mind a lot but he is in great shape and looks like he might set a new record. On the other hand the women on my mother's side generally live into their 90's and my mother is 95 and going strong. I take after my mother so have some hope. So, genetics is another factor and a big one when trying to predict the future.

The Roth conversions only factor if you are still working which we weren't so not part of the calculation. RMD laws changed again this year which has befuddled us a bit. So, I can't forecast what Congress might do in the future. However, having spent 40 years working for the military I know that promises mean nothing (even written ones) and don't hold up in court. Basically, the government can and will do whatever they want and there isn't much you can do about it. To me this means SS is not a guaranteed benefit and subject to the whims of our government.

The strangest thing for us is because our pensions add up to a bit under $100k we haven't touched our investments at all and we still are running a surplus. This is because we retired to Hungary where life is cheaper and medical runs less than our mandatory Part B (which we refused) required to keep the "free" military health care plus a $600 annual fee and $2,000 deductible to get 60% reimbursement. We spend roughly $100 a month all told for medical expenses averaged out a monthly rate. We ran the calculations yesterday. I have spent less than $500 total for over 10 years now on myself including dental.My wife has had some serious problems none of which cost more than $1,000.

To me the decision for anyone is to try and forecast the risks versus the benefits based on your own situation and general advice is basically useless. It will be different for each individual and can and should include health concerns and genetics.

I believe most people gloss over Legislation Risk when automatically choosing to delay SS for the higher checks.

Simplified Fake Example:

Person A takes his $25K per year SS at age 62 and invests it for 8 years, yielding $250K at age 70. Person B waits those 8 years expecting that bigger check at age 70. When they both turn 70 the government implements means testing and decides that both person A and B have enough money and reduces their benefits to ZERO. Person A wins having $250K.

 

[ShokWaveRider]

I believe most people gloss over Legislation Risk when automatically choosing to delay SS for the higher checks.

Simplified Fake Example:

Person A takes his $25K per year SS at age 62 and invests it for 8 years, yielding $250K at age 70. Person B waits those 8 years expecting that bigger check at age 70. When they both turn 70 the government implements means testing and decides that both person A and B have enough money and reduces their benefits to ZERO. Person A wins having $250K.

Not sure that is a viable example, it would be if SS was not initially paid into by those receiving it (Like Insurance Annuities). At the very least one would have to be returned the payments plus a suitable interest.

 

[jkern]

Not sure that is a viable example, it would be if SS was not initially paid into by those receiving it (Like Insurance Annuities). At the very least one would have to be returned the payments plus a suitable interest.

It's a totally fake example that has little to no change of happening. My point is that Legislation Risk can drastically change the future value of your benefits. Many people use the word "guaranteed" when describing their future bigger SS benefit for delaying their start date. It is far from guaranteed.

 

[Navigator]

So, genetics is another factor and a big one when trying to predict the future.

This is a common misperception. Genetics plays only a very small role in predicting how long you will live. Lifestyle is actually the biggest predictor of lifespan.