Best time for SS withdraw is age 67 not 70?

[djsander]

This is one we struggle with. I know my SS will cover all our normal expenses. It’s hard to pay out of our savings every month and watch that go down, especially when we have lumpy expenses that drop it a little quicker, It’s the never ending discussion of when to take it. We decided to push out to when I turn 65 and then re evaluate then see about going to 67. Turning 63 in a couple of months so it isn’t that far out. The wife is older and she started already, but that goes into an account that is totally hers and she doesn’t spend it. The plus side is we do Roth conversions and stay in the ACA subsides. We are only at 2% withdrawals so we are doing really well. I just wish the wife who is a life long saver would see it that way. She is always worried about running out of money. We had a lengthy discussion this past weekend about doing a little more before we can’t and she finally agreed. Sorry I drifted. But it really comes down to a personal decision and what makes the best sense for the individual or couple. If you need the money take it. If you don’t need the money wait or if you want extra cash take it.

 

[jldavid47]

A friend told me she did a bunch of calculations on comparing her predicted life span and investment return on taking her social security funds early (at the midpoint of 67 instead of waiting until 70), and investing those 3 years in the stock market, and that she found she would have about the same ultimate return - and that there was no reason to wait until 70. I have not evaluated her calculations, and I've never heard of this viewpoint before.

Your thoughts?

And if the stock market is the same or lower three years from now, how does that work out? What if she lives longer (or shorter) than "predicted" (which is pretty much a 100% probability)? How optimistic are her assumptions? People put in all sort of numbers for assumptions without regard for the potential for those assumptions to be WAY off in the wrong direction. She sounds like a person who thinks there is no 3-year risk in investing in equities.

These types of analyses need to be done from a risk assessment and not a ROI point of view. I wish her luck.

 

[Freedom56]

62 is the best age. The break-even is 78 years.

 

[jldavid47]

62 is the best age. The break-even is 78 years.

62 is NOT the best age for everyone and break-even analysis is NOT how one should be making the decision. There are a lot of moving parts in an analysis as to when to take Social Security. Blanket statements are just wrong.

I'm disappointed because almost all of your posts are well reasoned. This one was not.

 

[pb4uski]

+1

 

[badatmath]

62 is more desirable if you are single I think and do not have to worry someone will outlive you.

Open SS tells me my best age is 69 and 2 months but I don't have the money to wait that long.

 

[steelyman]

I’ll start at full retirement age. Part of the reason is that I don’t expect a lot due to WEP.

 

[walkinwood]

I also use the Open Social Security calculator. I fully expected to wait until 70, but the calculator is indicating that ideally I should take it two years earlier. So I'm reconsidering.

See what difference in the present value is for both scenarios. If it is small, it will pay to wait to 70 in case you live longer than the calculator is expecting you to.



There may be other reasons to wait if you don't need the money right away - ROTH conversions for example.

 

[albireo13]

I took it last year at FRA (66 and 2mo).
My wife is still working and we needed a bit more cash flow. I felt better about taking my SS than to start dipping into my nest egg.

 

[Midpack]

The accuracy of her conclusion is no better than the assumptions she made for inputs and her personal preferences/goals.

+1, that’s what it comes down to, there is no universal right answer anyway. With family longevity of 88-96 and reasonably good health, we’re waiting until we turn 70, If our circumstances change before then, we can always start early - but we’re already 68 & 66 yo.

 

[audreyh1]

We’ve used opensocialsecurity.com to evaluate. It does a nice analysis. It recommends DH starting at 68 something or 69, but the differences are small. We’ll probably end up basing it on tax considerations.

In the meantime we have the flexibility to start earlier if circumstances warrant.

 

[palomalou]

Hmmm....I watched a number of youtube analyses and decided to start at 68 and 5 months, in July. Several reasons. Will be interested to see how if works out. We are not cutting it close, anyway.

 

[Bigdawg]

I agree with the posters on here who says "it depends". All situations are different. My DM and my in laws all took it at 62. Here is what I saw: Break even at 80-82ish. DM: Used the money and travelled alot between age 62 and early 80's. Didn't really travel at all after 85. In laws: They are currently 80 and 83. Used the money to travel extensively up until COVID. They have Hawaii scheduled again for the fall (3 weeks)(been going almost evey year for 30 years), but this will most likely be their last year. My thoughts are that most people (if still kicking) aren't doing much traveling after early 80's. The DW and I actually are in a good spot and don't need any SS. She being 6 years younger and with equal career earning, we are thinkging 65 for me and 70 for her. But, if she wants her's earlier, I will not stop her. The difference for her between 62 and 70 (all income) would be $120K/yr vs $145k/yr (aprox). She will be fine either way.

 

[MarieIG]

At this point, there is no way to know the accuracy of the friend's conclusions. We don't know her assumptions, we don't know how her investments will perform in the future, we don't know how long she will live, etc.

Open SS recommended that I take early (62 and some months - it's been a while since I've looked) and that DH postpone until 70. As of the moment, the plan is for us both to postpone to age 70, for longevity protection, " a larger COLA'd annuity" later in life, additional income which does not depend upon investment management, and to allow additional room for Roth conversions pre-70. Will this change? It is possible.

 

[Freedom56]

62 is NOT the best age for everyone and break-even analysis is NOT how one should be making the decision. There are a lot of moving parts in an analysis as to when to take Social Security. Blanket statements are just wrong.

I'm disappointed because almost all of your posts are well reasoned. This one was not.

I use SS payments to fund our healthcare which is $1859 per month for a bronze PPO with no subsidies and also pay income taxes. It depends on your particular situation but it made sense for us due to our tax bracket and the fact that SS is not taxed at the state level. So I just send quarterly payments back to the IRS with the balance of SS payments minus health insurance costs. We earn a lot of taxable interest income where there are no taxes withheld. The penalty this year is increasing to 7%.

 

[pb4uski]

I use SS payments to fund our healthcare which is $1859 per month for a bronze PPO with no subsidies and also pay income taxes. It depends on your particular situation but it made sense for us due to our tax bracket and the fact that SS is not taxed at the state level. So I just send quarterly payments back to the IRS with the balance of SS payments minus health insurance costs. We earn a lot of taxable interest income where there are no taxes withheld. The penalty this year is increasing to 7%.

Can you elaborate? Are you using the excess of your SS over your health insurance premiums to buy government bonds as sending money back to the IRS or do you actually send a check to the IRS?

 

[MarieIG]

I use SS payments to fund our healthcare which is $1859 per month for a bronze PPO with no subsidies and also pay income taxes. It depends on your particular situation but it made sense for us due to our tax bracket and the fact that SS is not taxed at the state level. So I just send quarterly payments back to the IRS with the balance of SS payments minus health insurance costs. We earn a lot of taxable interest income where there are no taxes withheld. The penalty this year is increasing to 7%.

Which penalty Freedom56? TIA

 

[Freedom56]

Can you elaborate? Are you using the excess of your SS over your health insurance premiums to buy government bonds as sending money back to the IRS or do you actually send a check to the IRS?

No I have online accounts set up with the IRS and FTB so I can send e-payments (ACH transfer) to the IRS and FTB for my 2023 payments and beyond. There are no checks involved. I just started SS late last year. The SS payment is deposited in my checking account every month. Blue Shield grabs money from my checking account for our PPO health insurance premiums. The difference is then transferred back to the IRS via e-payments. I have already made $92K payments to the IRS for 2023 to cover the estimated long term capital gain tax on the sale of our condo in Florida a few weeks ago. Our estimated taxable income in 2023 will exceed 7 figures due to the capital gains from the sale of the condo and excessive interest income as rates have risen (i.e. "the golden period"). Our income will fall back to the high 6 figures in 2024 and beyond and when we are eligible for Medicare, we will send the full amount of our SS income back to the IRS to cover estimate taxes.

 

[Freedom56]

Which penalty Freedom56? TIA

The interest penalty for excess income taxes due when you file is going up to 7% for 2023. It may go even higher as rates continue to rise. After we sold our condo in Florida at the end of January 2023, we knew that we would have a long term capital gain bill for the transaction for both the IRS and FTB (California State). We were advised by the Escrow company that a 1099-S was being issues to the IRS for the sale of our condo. I estimated our tax liability for both federal and state and then found out that the penalty is now 7% if the excess taxes are not paid in the quarter the gain/income was realized. So we made e-payments to the IRS and FTB to cover the liability. Then there was the issue of bond interest income which will rise significantly in 2023 due to large investments made during October, November, and December of 2022 (coupons were 6.25% to 6.75%) and the first coupon payments are due in 2023. They will be subject to the same 7% penalty as there is no withholding. So SS will fund our health insurance and a portion of our quarterly tax pre-payments. Every situation is different.

 

[pb4uski]

No I have online accounts set up with the IRS and FTB so I can send e-payments (ACH transfer) to the IRS and FTB for my 2023 payments and beyond. There are no checks involved. I just started SS late last year. The SS payment is deposited in my checking account every month. Blue Shield grabs money from my checking account for our PPO health insurance premiums. The difference is then transferred back to the IRS via e-payments. I have already made $92K payments to the IRS for 2023 to cover the estimated long term capital gain tax on the sale of our condo in Florida a few weeks ago. Our estimated taxable income in 2023 will exceed 7 figures due to the capital gains from the sale of the condo and excessive interest income as rates have risen (i.e. "the golden period"). Our income will fall back to the high 6 figures in 2024 and beyond and when we are eligible for Medicare, we will send the full amount of our SS income back to the IRS to cover estimate taxes.

Ah, I get it now... you use your SS check to pay health insurance premiums and then the excess goes to the IRS for estimated tax payments. Got it.

And the 7% was the underpayment penalty rate for 2023.

 

[B-Guy]

As Spock and rodi both mention - SS is designed to be actuarially neutral for the average individual. But what is average.

I am a numbers guy, and know there are many variables, many will not be known until it is known to us. The biggest gamble is guessing when your number is up. Statistically the longer you live the longer you should wait to take SS if you are financially able to get by without it. One of the other things to consider is the older we get the less we tend to spend if properly insured.

For us, the next few years we will likely travel and spend more than we will ten years from now. How much less, hard to know but I am sure it will decrease. Health will be a big factor in activity. Currently we are both active and in good health, but that could change. Both of us have longevity in our parents and grandparents. However, Harvard Health states the life expectancy in the US is dropping, and the biggest contributors are COVID-19 and drug overdoses.

With all that said we will both opt to take SS at 62. There are financial reasons for us that it makes more since even though statistically we should live longer than average and therefore would benefit from waiting.

 

[Sunset]

The interest penalty for excess income taxes due when you file is going up to 7% for 2023. It may go even higher as rates continue to rise. After we sold our condo in Florida at the end of January 2023, we knew that we would have a long term capital gain bill for the transaction for both the IRS and FTB (California State). We were advised by the Escrow company that a 1099-S was being issues to the IRS for the sale of our condo. I estimated our tax liability for both federal and state and then found out that the penalty is now 7% if the excess taxes are not paid in the quarter the gain/income was realized. So we made e-payments to the IRS and FTB to cover the liability. Then there was the issue of bond interest income which will rise significantly in 2023 due to large investments made during October, November, and December of 2022 (coupons were 6.25% to 6.75%) and the first coupon payments are due in 2023. They will be subject to the same 7% penalty as there is no withholding. So SS will fund our health insurance and a portion of our quarterly tax pre-payments. Every situation is different.

If your estimated tax payments are 110% of previous years taxes, then there is the safe harbor rule and no penalty.

So I always just pay 110% of the previous year, so I can have wild jumps in taxation and not pay any penalty, I do this after being caught by a surprise fund declaration.

 

[RunningBum]

As Spock and rodi both mention - SS is designed to be actuarially neutral for the average individual. But what is average.

I am a numbers guy, and know there are many variables, many will not be known until it is known to us. The biggest gamble is guessing when your number is up. Statistically the longer you live the longer you should wait to take SS if you are financially able to get by without it. One of the other things to consider is the older we get the less we tend to spend if properly insured.

For us, the next few years we will likely travel and spend more than we will ten years from now. How much less, hard to know but I am sure it will decrease. Health will be a big factor in activity. Currently we are both active and in good health, but that could change. Both of us have longevity in our parents and grandparents. However, Harvard Health states the life expectancy in the US is dropping, and the biggest contributors are COVID-19 and drug overdoses.

With all that said we will both opt to take SS at 62. There are financial reasons for us that it makes more since even though statistically we should live longer than average and therefore would benefit from waiting.

As a numbers guy, have you looked at taking from your nest egg as if you were receiving SS between 62-70, and then taking less from it once you start getting a larger benefit at 70?

 

[Freedom56]

When we planned for early retirement, we did not plan for any SS income stream primarily due to all those dire predictions that SS would become insolvent by the time we would start collecting. Now that we are in our 8th year of early retirement, our two biggest expenses are income tax and health insurance premiums. So it was a no-brainer for me to start collecting at 62 to help cover those expenses. In 7.5 years my wife will be eligible for SS if they don't raise the age above 62 and the second SS income stream will be sent back to the IRS to cover estimated taxes.

 

[MarieIG]

The interest penalty for excess income taxes due when you file is going up to 7% for 2023. It may go even higher as rates continue to rise. After we sold our condo in Florida at the end of January 2023, we knew that we would have a long term capital gain bill for the transaction for both the IRS and FTB (California State). We were advised by the Escrow company that a 1099-S was being issues to the IRS for the sale of our condo. I estimated our tax liability for both federal and state and then found out that the penalty is now 7% if the excess taxes are not paid in the quarter the gain/income was realized. So we made e-payments to the IRS and FTB to cover the liability. Then there was the issue of bond interest income which will rise significantly in 2023 due to large investments made during October, November, and December of 2022 (coupons were 6.25% to 6.75%) and the first coupon payments are due in 2023. They will be subject to the same 7% penalty as there is no withholding. So SS will fund our health insurance and a portion of our quarterly tax pre-payments. Every situation is different.

Ok - thank you. I am raising my estimated tax payments this year, and working on directing more bond interest to my account for estimated tax payments.