Clear article about when to take Social Security

[pb4uski]

Nice data.

My takeaway from that is that they are all virtually identical, as they should be. If one is following the "I must maximize my lifelong benefit" then there is a very good chance that waiting until 70 is the way to go. My reasoning is it is a 50-50 chance that you will lose that $5,565 as these are all average life expectancy. All you have to do is take the Age 70 and live 4 more months and that plan comes out the winner. Due to this and many other reasons, I chose/choose to wait until 70 to file on my earnings.

No, they are not average life expectancy... the cash flow for each year is the benefit based on the date one starts benefits times the probability of your being alive based on the selected mortality table... aka, the expected value.... those expected value cash flows are then discounted at the provided discount rate.

So if the annual benefit based on when one retires is $24,000 per year and there is a 85% chance that you'll be alive in 2030, the the expected value for 2030 would be $20,600 ($24,000*85%)... the $20,600 would then be present valued to today.

 

[ivinsfan]

Spousal benefit doesn't grow after FRA but survivor benefit does.... perhaps that is what Rianne is referring to.

In our case, DW was a SAHM so my PIA is more than 3 times DW's PIA. So she'll get 1/2 of my PIA from when I file until I die and then my benefit once I am gone.... so if I wait then her survivor benefit will be greater.

So let's say that my PIA is $3,000/month and my FRA is 66. She'll get $1,500/month once I file... but once I die, she'll get $3,000 for life if I file at my FRA or $3,960/month if I waited until 70 to file.

Right but if you don't file before FRA and she is past her FRA when you for every month that goes by between her FRA and you filing, you lost 1500 dollars.

 

[pb4uski]

Right but if you don't file before FRA and she is past her FRA when you for every month that goes by between her FRA and you filing, you lost 1500 dollars.

No, we lose $1,500 less the benefit based on her own work record.

 

[ejman]

While it is important to include the time value of money, is it also important to consider mortality (the probability of living to receive the benefit).

opensocialsecurity.com is a useful tool that includes mortality and the time value of money.

Below are the expected present values of 4 scenarios for a single male born on 4/15/1957 (currently 62 yo) with a PIA of $1,457/month (like in the Motly Fool article) using 2017 Preferred mortality (reasonably healthy) and a 3% real discount rate (the 5% interest above less 2% Fed target for inflation):

Age 62.............................. $201,310
FRA (66/6 months)................204,463
Optimal (67/4 months)...........205,291
Age 70.................................199,726

Note that Age 70 is only 2.7%/$5,565 lower than the optimal solution... so as much as we vigorously debate this topic at the end of the day arguably any decision is fine (in this case of a single person... for a couple with a lower earning spouse the difference can be more).

Well, after many years of perusing seemingly hundreds of threads on the subject I'm incredibly happy that the age old question "SS 62 vs 70" has been finally answered (at least for single persons) and the answer is: 62 WINS (marginally) of course, I knew it all along yada, yada


Of course, the fact that all PV numbers are so close means the "how many angels can dance on the head of pin" question will remain perennially relevant.

 

[pb4uski]

^^^ I'm not sure how you get "62 WINS" out of that, but if it makes you happy then great.... and at least for singles it is a bit of a how many angels can dance on the head of a pin unless one has significantly good or bad longevity expectations (mind you that the numbers are based on 2017 Preferred mortality).

 

[ejman]

^^^ I'm not sure how you get "62 WINS" out of that, but if it makes you happy then great.... and at least for singles it is a bit of a how many angels can dance on the head of a pin unless one has significantly good or bad longevity expectations (mind you that the numbers are based on 2017 Preferred mortality).

Well, 201,310 > 199,726 no? The SS question is usually framed as 62 vs 70 ignoring the in between ages. so, 62 WINS. I must say I'm not an engineer or a mathematician so I'm sure my impression reflects and uneducated guess that 201,310 > 199,726 but here I go out on a limb again.

 

[ivinsfan]

No, we lose $1,500 less the benefit based on her own work record.

Ok I thought she was collecting only a spousal..

 

[pb4uski]

I guess I frame it as 62 vs FRA vs 70... rather than 62 vs 70.... and this data suggests that FRA wins and a little after FRA is best... but I haven't run tests to see how the results flex with different mortality assumptions or different discount rates.

That said, I think the best way to frame 62 vs 70 is as a purchase of a COLA annuity... in this case exchanging $104,904 ($1,497/month PIA * 75% * 8 years) for $479/month ($1,497/month PIA * 8% * 4 years) or $5,748/year (a 5.5% payout rate).

You either are interested in buying that COLAed annuity or you're not... your choice.

 

[Spanky]

Or you wait until 70 because ... longevity is uncertain ! You might live to a hundred [emoji1782]

Unfortunately, the odds of living to 100 is quite small.

"the life expectancy for today’s 65-year-old man is 84.0, today’s woman 86.3, and for the last surviving spouse of a couple 90.4"

"For those who are 65 today, a man has a 3% chance of living to 100, a woman a 5.9% chance, and at least one member of a couple an 8.7% chance"

Source: https://www.marketwatch.com/story/should-we-plan-on-living-to-100-2017-08-28

 

[COcheesehead]

You are paid the same no matter when you take, IF you live to an average age. You either get less for longer or more for less time. So are you below or above average?

 

[CRLLS]

No, they are not average life expectancy... the cash flow for each year is the benefit based on the date one starts benefits times the probability of your being alive based on the selected mortality table... aka, the expected value.... those expected value cash flows are then discounted at the provided discount rate.

So if the annual benefit based on when one retires is $24,000 per year and there is a 85% chance that you'll be alive in 2030, the the expected value for 2030 would be $20,600 ($24,000*85%)... the $20,600 would then be present valued to today.

not being a financial expert, I sometimes fill in the missing knowledge with what I'm more familiar with. I'll try to do better. mea culpa.

 

[Spanky]

See post#42.

Thanks. A very informative post. My take is that it depends on your objective, i.e., maximizing survivor spousal benefits, maximizing life-time payout, optimizing cash flow management to prevent outliving your money, etc.

 

[camfused]

Yeah, I always pick whatever solution:
1) leaves my DD with the most money, assuming DW and I croak at 90
2) and that plan makes sure DW and I have some money at 100 (in case we screw up and live that long)
3) and assumes a 21% reduction in 2034

For us, that best plan is taking SS at 70, with every variation to our plans that I run.

 

[pb4uski]

^^^ With those longevity assumptions, there is no doubt that delaying until 70 is best.

 

[camfused]

Yeah, I don't care about anything else. So, this really is a personal decision each person should make, after deciding their priorities.

 

[pb4uski]

An additional thought... similar to the analysis for a single below, most alternatives have expected present values that are similar for us... but another reason that we are not deferring is that to start SS would reduce the headroom that we have for low-cost tIRA withdrawals or Roth conversions from age 62 to FRA/70.

So using the numbers below, the single person will get $12,324 in SS at 62... and would reduce their headroom for low-cost tIRA withdrawals or Roth conversions for 8 years... if the gain on each is 10% (pay 12% now vs 22% later) then they lose the opportunity for $9,859 of tax savings and that $9,859 is much more than the differences in the EPVs of the various alternatives below.

While it is important to include the time value of money, is it also important to consider mortality (the probability of living to receive the benefit).

opensocialsecurity.com is a useful tool that includes mortality and the time value of money.

Below are the expected present values of 4 scenarios for a single male born on 4/15/1957 (currently 62 yo) with a PIA of $1,457/month (like in the Motly Fool article) using 2017 Preferred mortality (reasonably healthy) and a 3% real discount rate (the 5% interest above less 2% Fed target for inflation):

Age 62.............................. $201,310
FRA (66/6 months)................204,463
Optimal (67/4 months)...........205,291
Age 70.................................199,726

Note that Age 70 is only 2.7%/$5,565 lower than the optimal solution... so as much as we vigorously debate this topic at the end of the day arguably any decision is fine (in this case of a single person... for a couple with a lower earning spouse the difference can be more).

 

[robnplunder]

Great you are in that position. Is 67 your FRA? That would be the decider for me. At your DW FRA her benefit is frozen and will not get age related raises.

67 is DW and my FRA. We plan to withdraw starting at that age but it is subject to change. A lot can change in 10 years.

 

[daylatedollarshort]

Unfortunately, the odds of living to 100 is quite small.

"the life expectancy for today’s 65-year-old man is 84.0, today’s woman 86.3, and for the last surviving spouse of a couple 90.4"

"For those who are 65 today, a man has a 3% chance of living to 100, a woman a 5.9% chance, and at least one member of a couple an 8.7% chance"

Source: https://www.marketwatch.com/story/should-we-plan-on-living-to-100-2017-08-28

I'm not expecting to live to 100, but we're arranging our finances so that we won't run out of money in case one or both of us does. I don't want to be 100 and broke. I can't really see planning for less than 100% relative certainty to over age 100. Close only counts in horse shoes and hand grenades.

 

[camfused]

daylatedollarshort, you need to define broke. If you live to 100, you will still get SS, and Medicare (and the Thursday discount at the grocery store). You are likely not going to be eating out much or spending much. However, long term care is likely to be a large expense.

 

[Badger]

While it is important to include the time value of money, is it also important to consider mortality (the probability of living to receive the benefit).

opensocialsecurity.com is a useful tool that includes mortality and the time value of money.

Below are the expected present values of 4 scenarios for a single male born on 4/15/1957 (currently 62 yo) with a PIA of $1,457/month (like in the Motly Fool article) using 2017 Preferred mortality (reasonably healthy) and a 3% real discount rate (the 5% interest above less 2% Fed target for inflation):

Age 62.............................. $201,310
FRA (66/6 months)................204,463
Optimal (67/4 months)...........205,291
Age 70.................................199,726

Note that Age 70 is only 2.7%/$5,565 lower than the optimal solution... so as much as we vigorously debate this topic at the end of the day arguably any decision is fine (in this case of a single person... for a couple with a lower earning spouse the difference can be more).

Using the totals above what would be the difference (+ or _) for each age in the monthly check or on an annual basis over the lifespan of payments? Are they only about $300/yr ($25/mo) more for choosing 67/4 months than 70? I don't see the big deal either way over such a small amount for anyone who has prepared for retirement like most of the folks here. If the $25/m is going to make or break you then maybe it would be more beneficial to review your retirement investments and make some adjustments. Go to a movie and a get a cheap hamburger afterwards and that $25 is consumed. Most likely would not be missed.


Cheers!

 

[audreyh1]

Using the totals above what would be the difference (+ or _) for each age in the monthly check or on an annual basis over the lifespan of payments? Are they only about $300/yr ($25/mo) more for choosing 67/4 months than 70? I don't see the big deal either way over such a small amount for anyone who has prepared for retirement like most of the folks here. If the $25/m is going to make or break you then maybe it would be more beneficial to review your retirement investments and make some adjustments. Go to a movie and a get a cheap hamburger afterwards and that $25 is consumed. Most likely would not be missed.


Cheers!

The difference in monthly check is quite a bit larger than $25 a month. It’s several hundred to more than a thousand a month, meaning thousands of dollars difference a year. In my case, I get an additional $600 a month if I wait for FRA compared to 62, and yet another $525 a month if I wait until 70. So the difference between taking at 62 versus 70 is around $1,125 a month, or $13,500 a year. Not chump change.

At 62, your check is up to 30% lower than FRA. At 70 it’s 24% to 32% higher than FRA. So the difference between 70 and 62 is very large. 76% higher at 70 versus 62 in this example: https://www.fidelity.com/viewpoints/retirement/social-security-at-62

People wouldn’t be constantly discussing this if the difference were only $25 a month. Or maybe they would......

Looking at the lifetime totals compared to mortality helps put into perspective these large differences in monthly checks. Lifetime totals are not the only consideration, if you are married, survivor benefits matter too. Personal health, overall financial situation, etc., etc., etc..

 

[pb4uski]

Using the totals above what would be the difference (+ or _) for each age in the monthly check or on an annual basis over the lifespan of payments? Are they only about $300/yr ($25/mo) more for choosing 67/4 months than 70? I don't see the big deal either way over such a small amount for anyone who has prepared for retirement like most of the folks here. If the $25/m is going to make or break you then maybe it would be more beneficial to review your retirement investments and make some adjustments. Go to a movie and a get a cheap hamburger afterwards and that $25 is consumed. Most likely would not be missed.


Cheers!

The amounts are expected present values.... after reductions for the time value of money and mortality....the difference in the gross benefit is more than $25/month. But the bottom line of your point is spot on.... the decision on when to take SS isn't critical to one's retirement success since the expected present values are not very different.

 

[pb4uski]

..... Looking at the lifetime totals compared to mortality helps put into perspective these large difference in monthly checks. Lifetime totals are not the only consideration, if you are married, survivor benefits matter too. Personal health, overall financial situation, etc., etc., etc..

Yes, including mortality and the probability that you will be alive to receive that check, makes a world of difference and tightens the differences between the alternatives.

 

[Rianne]

So using the numbers below, the single person will get $12,324 in SS at 62... and would reduce their headroom for low-cost tIRA withdrawals or Roth conversions for 8 years... if the gain on each is 10% (pay 12% now vs 22% later) then they lose the opportunity for $9,859 of tax savings and that $9,859 is much more than the differences in the EPVs of the various alternatives below.

This exact point DH/me discussing yesterday. At what point does the higher SS kick you into a 22% tax bracket. One reason we're waiting until 65 for SS is the ACA cliff. After that, it's managing SS + WD + investment income tax to stay in 12% bracket. Once on medicare you can no longer contribute to HSA. Thus, $8K deduction gone.

BTW, I did mean survivorship benefits. Thanks for correcting.

 

[Doribe]

I decided that DH will take SS at age 70. I have a government pension and will receive no SS benefits. The reasoning that solidified this decision is that we self-insure for long term care. In the worst case scenario we both end up in nursing homes. In addition to our savings, I will depend on my pension, DH will depend on a combination of SS and a small pension.

A secondary justification is that I am converting IRAs to Roths before RMDs. I want to minimize our income while I do the conversions.

I have been back and forth and finally settled this in my mind.