Buddy of mine keeps telling everyone Soc Sec breakeven age is 86?

[Gumby]

....

Sorry. So is your PIA amount increasing each year with the COLA increases. So, the COLA increase changes your PIA each year. Is that the case if you take your SS benefits at age 62? If yes, how is your age 62 and beyond SS benefit get applied the COLA increase amounts?

Your Primary Insurance Amount (PIA) is calculated based on your average indexed monthly earnings (AIME) for your highest 35 years of earnings. It is calculated once when you are 62. Every year thereafter, it gets increased by the COLA. If you collect at full retirement age (FRA) (67 for those born 1960 or later) you get 100% of PIA as it has been increased by the COLA . When you collect before FRA, you get a percentage deduction from the 100% for every month early you start. If you collect starting at 62, you get 70% of the PIA.

If your spouse subsequently starts collecting a spousal benefit, they get 50% of your PIA if they are at their FRA when they start and that percentage gets reduced each month prior to that when they start. So if they start at 62, they get 35% of your PIA.

Every single year from the time you are 62, your PIA is adjusted for the COLA. Then, the appropriate percentage (based on how early you started collecting) is applied to that inflation adjusted PIA to determine the dollar amount of your benefit for the year. The percentage reduction never changes.

 

[G-Man]

Your Primary Insurance Amount (PIA) is calculated based on your average indexed monthly earnings (AIME) for your highest 35 years of earnings. It is calculated once when you are 62. Every year thereafter, it gets increased by the COLA. If you collect at full retirement age (FRA) (67 for those born 1960 or later) you get 100% of PIA as it has been increased by the COLA . When you collect before FRA, you get a percentage deduction from the 100% for every month early you start. If you collect starting at 62, you get 70% of the PIA.

If your spouse subsequently starts collecting a spousal benefit, they get 50% of your PIA if they are at their FRA when they start and that percentage gets reduced each month prior to that when they start. So if they start at 62, they get 35% of your PIA.

Every single year from the time you are 62, your PIA is adjusted for the COLA. Then, the appropriate percentage (based on how early you started collecting) is applied to that inflation adjusted PIA to determine the dollar amount of your benefit for the year. The percentage reduction never changes.

Wow. This is new to me. Thanks for the education.

 

[sdawson]

I disagree about dealing with RMDs and IRMAA.
Better to delay and do larger Roth conversions in that case...

You are likely correct there. It is what I plan on doing. I'm retiring at the end of the year. I"ll be 62, and plan on doing the Roth conversions of a significant amout durig the first 4 years, before starting SS. Delaying SS til 67 makes it easier to do, as the Roth conversions will bump us into higher tax brackets -- Would like to bump up to the top of the 22% but not get into the 24%, which taking SS would do.

The Roth conversions are mostly for taking care of my wife. It's a wash if we both live a long life, so not needed then. But most of the men in my family (and hers) die 20 years before their wife. Without the conversions, she will be hit an IRMAA of 2.6 by the time she is 67, and 3.2 by 73 (based on todays limits, so those may be pushed out in the future, still the point is there) . And will hit the federal tax bracket of 32% at 76. With the Roth conversion, she will stay in the 1.4X IRMAA for hier life and the 24% tax bracket.

Those tax brackets and IRMAA rates for single folks are quite low

 

[bobandsherry]

I think it really comes down to what rate you use for investment returns. I believe the 81 is based on a real conservative rate. Use the 10, 20 or 30 year S&P 500 return yield and it lengthens significantly.

 

[Major Tom]

I addressed that in the OP. ”I am not trying to embarrass him, or make others regret taking SS early - I just wish I could get him to stop giving others bad information.” He’s giving bad info to a financially naive audience, who knows where that info ends up…

What is more important to you, protecting his feelings, or trying to ensure that he doesn't spread poor financial advice to others? The answer to that can help determine your cause of action. It might depend on how well you know, and/or care about the welfare of the people to whom he's talking.

Sometimes, despite our best efforts, others become upset and offended. It should not stand in the way of your doing what you feel is the right thing. It sounds as if there is a greater good here. On the other hand, if you don't know these other folk, or are not that bothered about them, perhaps it's best to leave well alone.

 

[TheWizard]

It doesn't really matter to me when other people start Social Security.
*shurg*

 

[Aerides]

I’m sure he’s wrong, but he keeps telling everyone else the SS breakeven age is 86, where everything I read suggests it’s 81 plus/minus depending on details. He took SS early, as most of my peers did, and unfortunately almost all of them are financially illiterate. I am not trying to embarrass him, or make others regret taking SS early - I just wish I could get him to stop giving others bad information. Now that he’s done it several times, I plan to privately ask him for a source of his breakeven claim, not hopeful but we’ll see.

The only way it could be 86 would be a set of highly unlikely circumstances, such as taking SS early and investing it all in a portfolio with well above average returns - that’s risky at best. I seriously doubt many people take SS early and invest it. And if you can afford to invest it, no reason you couldn’t invest the money starting at any age thru 70.

Yes, I realize there are many very good reasons to take SS before age 70. But a breakeven age of 86 isn’t one of them…

When this happens, since you can back up the actual number, why not just say "Sorry, no, actually..."

If the dude can't take a simple correction, I wouldn't worry about offending him. No more than if he were citing an incorrect sports score, or the date of an event. He's wrong, you know it, and you can just correct him with your sources if needed.

At worst, he's gonna go "No it's 86" and you can then briefly explain how it works and cite 2-3 well known sources (or say google it). And if then he goes "well this guy I follow on YouTube" or something, you can just agree to disagree and change the subject - but at least those around get a better picture.

Either way, I can't imagine this happens all that often? Maybe because I'm not near SS age yet, it just doesn't come up in conversation.

 

[TheWizard]

When this happens, since you can back up the actual number, why not just say "Sorry, no, actually..."

If the dude can't take a simple correction, I wouldn't worry about offending him. No more than if he were citing an incorrect sports score, or the date of an event. He's wrong, you know it, and you can just correct him with your sources if needed.

At worst, he's gonna go "No it's 86" and you can then briefly explain how it works and cite 2-3 well known sources (or say google it). And if then he goes "well this guy I follow on YouTube" or something, you can just agree to disagree and change the subject - but at least those around get a better picture.

Either way, I can't imagine this happens all that often? Maybe because I'm not near SS age yet, it just doesn't come up in conversation.

But why bother?
Wouldn't it be easier to just take a 2 pm nap?

 

[Aerides]

But why bother?
Wouldn't it be easier to just take a 2 pm nap?

Because he's not happy about the current situation. If the OP didn't care at all, he would not have made this thread.

 

[FREE866]

I think it really comes down to what rate you use for investment returns. I believe the 81 is based on a real conservative rate. Use the 10, 20 or 30 year S&P 500 return yield and it lengthens significantly.

Right. When inputting a higher "discount rate" into the Open Social Security calendar it suggests taking SS much earlier than I planned.

 

[Chuckanut]

Since I didn't need it at 62, I waited, did the Roth conversion thing and then at 70 took the max so that DW will be better set when she gets my SS at my death. None of these things really reasons depends upon break even point. I always assumed break even was somewhere around 80. Heh, heh, only a couple or three years now to break even - though won't affect DW if I'm not around.

I really don't care what somebody else thinks of my break even date, how I should best maximize getting every dollar I can squeeze out of the system or anything else. I did what is best for me in my situation.

In 2022 when the market took a nose dive, I slept well with my monthly enhanced SS payment. Think of it as my financial teddy bear.

I spend the amount I want on what I want without worrying if I can pay the rent or put food on the table. My only concern is that friends and relatives of mine who ask, get full, accurate information on the plusses and minuses of when to take SS so they can make the best decision possible for their situation. After that, I don't care, I don't have to.

 

[audreyh1]

The opensocialsecurity.com tool is a great way to explore this topic for a couple. Unfortunately this tool may be overwhelming to folks not very financially savvy.

A lot of people probably don’t understand that when to take SS and life expectancy is very different for a couple versus individuals. Also that the surviving spouse amount, if the lower lifetime earner, depends on when the higher earning spouse started their SS.

I too would be concerned if someone presented 86 as the answer especially if they can’t explain the assumptions behind it. I guess you can point out that 81 or so is a commonly accepted break even point and why. 7% on gross SS income is not realistic. But maybe these folks are convinced 7% is perfectly realistic? It’s pretty tough to fight against misinformation like that.

All this may just go over this person’s head. It’s unfortunate when not financially informed folks think they have the “answer” and other not financially readily accept it. What can you do? Unless these folks are experienced investors and financial planners for themselves they can be completely clueless.

 

[badatmath]

I just started reading a new book and it said 95% of our decisions are based on our feelings, not on facts. . . It started talking about people with brain injuries that can no longer make the simplest of decisions (like what to eat for lunch) . . .

 

[audreyh1]

Financial decisions are often emotional. The markets are very emotional short term - fear versus greed/FOMO. Fortunately many folks have come here for a sounding board and gotten thoughtful financial advice.

 

[badatmath]

I feel lucky to have found this place.

 

[calmloki]

I took social security as soon as i could. I get very little, and even less than if taken at FRA, but as a long time landlord I'm real sensitive to the difference between cash in fist and words. Also if breakeven point is real close to anticipated lifespan, taking early vs. waiting for FRA assures one gets more cash in than if one checks out before breakeven.

Lack of faith that the goverment will keep SS rules the same or that changes would be positive.
Recognition of non-zero chance of dying prior to breakeven point.
No real need for the money. Made sense to me.

 

[badatmath]

I'm fortunate as a single person that I wont negatively affect anyone else by whatever I choose to do.

 

[levindb]

Rather than thinking of INVESTING the SSA benefit at 62, think of it as not withdrawing that amount from your investment portfolio. Also, only 0%, 50%, or 85% of your SSA benefit will be taxable by the IRS, but 100% of your IRA withdrawals will be taxable. Many states do not tax SSA benefits at all...and some states have reductions in taxes that apply to IRA withdrawals.

All of the above plus the value to a spouse make BREAKEVEN a very complicated calculation. Add in ROI, Inflation, ACA, IRMAA, Roth conversions...and your head will hurt.
Depending on what assumptions you make, and what factors you decide to include, the breakeven age can vary as others have noted. It may be helpful to acknowledge the 86 as being a possibility, and just ask the friend how it was calculated, or what article they are referring to, so you can see for yourself whether those assumptions apply to your situation.

...you would not be challenging the 86 number, but just trying to understand the thinking behind it...and there may be nothing but gossip and rumors supporting it...or maybe an annuity sales pitch.

 

[retiredunder50]

Rather than thinking of INVESTING the SSA benefit at 62, think of it as not withdrawing that amount from your investment portfolio. Also, only 0%, 50%, or 85% of your SSA benefit will be taxable by the IRS, but 100% of your IRA withdrawals will be taxable. Many states do not tax SSA benefits at all...and some states have reductions in taxes that apply to IRA withdrawals.

All of the above plus the value to a spouse make BREAKEVEN a very complicated calculation. Add in ROI, Inflation, ACA, IRMAA, Roth conversions...and your head will hurt.
Depending on what assumptions you make, and what factors you decide to include, the breakeven age can vary as others have noted. It may be helpful to acknowledge the 86 as being a possibility, and just ask the friend how it was calculated, or what article they are referring to, so you can see for yourself whether those assumptions apply to your situation.

...you would not be challenging the 86 number, but just trying to understand the thinking behind it...and there may be nothing but gossip and rumors supporting it...or maybe an annuity sales pitch.

Also add in federal income tax bracket effects. For example, assume taking earlier at 62 keeps total income to just under the top of the 12% tax bracket. Taking at 70 would certainly cause quite a bit of spillover into the 22% tax bracket. That extra 10% reduction of a large chunk of the delayed social security income is rarely considered in a break-even analysis.

 

[freedomatlast]

Doesn't really matter, but if this is the kind of thing that keeps you up at night, compare his calculation vs. your calculation and see where the difference is.

 

[pb4uski]

Many people in real life wouldn't understand or care IMO. Go read some reddit questions on SS/Medicare/RMDs/etc and you will be shocked how little people know and how reluctant they are to believe what is not in keeping with their "plan". A rather shocking number of them think they can somehow "beat the system" in some way . . .

It must be that those people are bad at math. Math is hard.

 

[Montecfo]

The issue I see with OP's friend is people can use any return rate to make the breakeven any value.
If I have a return rate of 12% my breakeven (without doing the math) probably is close to 95 !!

True. But the current prevailing logic appears to be the "worst case" for the early claimer i.e break even is 81ish I mean, assuming investment returns equal to zero just does not seem reasonable to me when we run spreadsheets on everything and some may casually assume 10% annual equity returns because some view that as the "long-term average".

Some sort of positive investment return assumption would seem appropriate.

 

[youbet]

True. But the current prevailing logic appears to be the "worst case" for the early claimer i.e break even is 81ish I mean, assuming investment returns equal to zero just does not seem reasonable to me when we run spreadsheets on everything and some may casually assume 10% annual equity returns because some view that as the "long-term average".

Some sort of positive investment return assumption would seem appropriate.

The time value of money is a sophisticated concept that many folks have trouble embracing. Yet, they embrace circumstances such as cola'd pensions, interest on savings or loans, etc.

As Gumby calculated for us, the straight forward, nominal dollar breakeven point in the "62 or 70" situation is approximately 81 using today's SS rules. But that assumes a dollar received today has the same "value" as a dollar received 8 years ago. Nominal dollars. That could happen, of course, but historically it's been a rare case.

I'm an old guy, so predicting the 62 - 70 numbers is water under the bridge. I know the simplistic, nominal dollar, breakeven point is about 81. I know for me, so far, the real breakeven point has turned out to be much farther out and real investment returns account for that, as you say.

 

[youbet]

For OP, you might be getting too emotionally involved in this. We don't know how your friend is calculating his 86 breakeven number or what he intends to do with it. I suspect he plans to start SS early and uses this number, however calculated, as part of his justification. You're an outspoken proponent of delaying and use the 81 as part of your justification. You want to win the argument and thus the heated reaction.

81? 86? Nominal dollars without time value of money consideration? Real dollars that take the time value of money into consideration? Etc. It's all fun to talk about, hypothesize and meditate about. But, for folks who are financially well prepared for FIRE and who are financially literate and emotionally stable enough to manage their own portfolios and budgets, what does it matter?

 

[Midpack]

For OP, you might be getting too emotionally involved in this. We don't know how your friend is calculating his 86 breakeven number or what he intends to do with it. I suspect he plans to start SS early and uses this number, however calculated, as part of his justification. You're an outspoken proponent of delaying and use the 81 as part of your justification. You want to win the argument and thus the heated reaction.

I made it clear this has nothing to do with 'winning an argument' in post #1. He took SS long ago, but some of our peers who are financially clueless may still be listening to others. I'm going to pull the guy aside and ask him for the basis for his 'breakeven at 86.'