Collecting Social Security benefits at age 62

[googily]

A sort of reverse question from an earlier one. With DH having died at 55, is my full survivor benefit what his would have been if he had kept working to FRA? That's what the SSA calculator seems to indicate.

 

[Cut-Throat]

When to eat lunch with DD and SIL both in their early 30's. Having just retired, the subject came up and one thing I mentioned was that me and DW were going to have to determine when to take SS. Without a bit if hesitation, DD said "Why wouldn't you take it right away, before it's no longer available." Just sharing that as an FYI as to what the younger generation is thinking about SS and their faith of it being there when they need it.

We used to say the same things in our early 20s. --- I'm turning 67 this year. Will delay to 70. S.S.

Over the program's 82-year history, it has collected roughly $19.9 trillion and paid out $17.1 trillion, leaving asset reserves of more than $2.8 trillion at the end of 2016 in its two trust funds.

That's Trillion with a "T".

Projecting a Shortfall 15 years from now is something not very many are good at.

 

[JonB]

Check out SSAnalyze.

Thanks for the suggestion to check out SSAnalyze. I really like this calculator. It did suggest to take benefits at 68 rather than 67 to maximize NPV. Guess this is the sweet spot where the higher benefits for me offset the delays is taking the combined benefits. Glad I asked. Most of the discussions I have read tend to focus on 62 vs 70, seems given the spousal benefit rules, an intermediate age just past FRA of the higher earning spouse can be better than either of the extremes.

I have bookmarked the site for SSAnalyze, will do some sensitivity checks on the inputs, and will revisit as assumptions change especially as I approach 62.

Thanks again!

 

[Cut-Throat]

Thanks for the suggestion to check out SSAnalyze. I really like this calculator. It did suggest to take benefits at 68 rather than 67

You can make the suggestion come out any way you want. Just vary the Age at Death.... Most of us here for retirement planning, plan for the worst case condition as far as finances are concerned (i.e. - Not outliving your Money)

 

[VanWinkle]

Just retired this month at 55 and learning a lot from this site! Sorry if this has been addressed before, but I couldn’t find it if it has.

I still have 7-15 years until I am in the age range when I need to make decisions on taking SS benefits, so have some time and can reevaluate as things change in the coming years. I understand that my DW, who is 6 months older than me, will not be eligible for benefits on her own, so she will need to wait until I start taking mine and then receive half what I receive as her spousal benefit. If I understand correctly, her benefit maxes out at half of what I receive at full retirement age, and does not grow further, while mine could continue to grow to age 70. I am thinking that since her benefit doesn’t grow past my FRA, we should plan to start taking benefits no later than my FRA. Seems it is not a wash since her benefit does not grow past my FRA.

We may consider to take earlier due to health, or other reasons mentioned in this thread, but was wanting to see if there are any good reasons to consider delaying from 67 to 70? The only one that I can think of is that if one of us dies significantly before the other, the survivor will receive a higher benefit, but the difference in how long we each live would need to be very large to make up for the lost benefits of delaying past 67. Am I thinking about this correctly?

Her spousal benefit is based on your FRA benefit and does not grow above that amount. When she claims spousal is what determines her benefit. She needs to wait until her own FRA to claim to get the full 50% of your benefit. It does not matter when you claim, but she can't claim spousal until you claim your benefit.

Hope that helps,

VW

 

[JonB]

You can make the suggestion come out any way you want. Just vary the Age at Death.... Most of us here for retirement planning, plan for the worst case condition as far as finances are concerned (i.e. - Not outliving your Money)

Thanks, yes, I saw that if our ages at death are 76 or below, it suggest to start benefits at 62 and if 90 or above, to wait until 70 to take the benefits. As we reach 62, will need to start making decisions based on the best information at that time. Hopefully our health will be holding up! Who knows, in 7 years they may start addressing how to keep SS funded, and that may create some important new considerations...

Learning more every day with all your help!

 

[PERSonalTime]

Being the OP I just wanted to give everyone an update on where things are with DW. She submitted her application to SSA a few weeks ago and has already received her award letter! She is so happy to be getting SS within the next few months.

However, she's not happy about the all tax she will have to pay on her benefits! LOL

 

[DEC-1982]

You can try this link and read it.

Kitces Life Expectancy

It is from Kitces. Ages for the 10% survivors are: Males ~95 years, Females ~96 years. For married couples the remaining survivor at 10% is ~97. Even the likely hood for one survivor of a married couple reaching 95 yrs is 18%!

FWIW, I run my plan out to 100 yrs. I don't expect to live that long but want to be prepared to.

Thanks, it is a good article. I wonder if this changes over time due to technological improvements in the health industry.

 

[GravitySucks]

A sort of reverse question from an earlier one. With DH having died at 55, is my full survivor benefit what his would have been if he had kept working to FRA? That's what the SSA calculator seems to indicate.

Sorry for your loss.

I'm not sure about that but the drop in benefit from not working after 55 is not that huge if you have a good earning history. However you have another decision point. You are probably eligible for survivor benefits at age 60. I think this would 72% his SS at FRA. You might best take survivors at 60 and yours at a later date. This usually works out if your spouse was the lower earner or you were near the same in earnings.

For me, the best option is to take survivors benefit at 60 from DWs and claim on my own at 70. DW was not a high earner though so YMMV.

Do you have access to a Fidelity representative or a good relationship with an insurance company? You can get some free advice there but assume you will be getting a sales pitch out of it. If not you should check out the book "Get What's Yours" for a start.

 

[googily]

Sorry for your loss.

I'm not sure about that but the drop in benefit from not working after 55 is not that huge if you have a good earning history. However you have another decision point. You are probably eligible for survivor benefits at age 60. I think this would 72% his SS at FRA. You might best take survivors at 60 and yours at a later date. This usually works out if your spouse was the lower earner or you were near the same in earnings.

For me, the best option is to take survivors benefit at 60 from DWs and claim on my own at 70. DW was not a high earner though so YMMV.

Do you have access to a Fidelity representative or a good relationship with an insurance company? You can get some free advice there but assume you will be getting a sales pitch out of it. If not you should check out the book "Get What's Yours" for a start.

Thank you. I'm not quite 52, so I have a ways to go before having to make a decision, but I have been thinking about doing it as you said, taking the survivor benefit at 60 and then switching to mine either when they cross or waiting to 70. He was the higher earner for more years, though.

I assume I can contact SSA to get an estimate of what his benefit would be?

It does depend on how much longer I work, though. I was hoping to pull the ripcord in the next year or so, but until I kind of figure out my new life, if Megacorp is willing to pay me to be a shell of my former self, I'll let them. It may be to my benefit to hang on until the year I turn 55, to get access to my 401k, though I probably don't need it. (I do have a very small pension in the offing as well, but would definitely leave that to 65.)

 

[jimandthom]

Finally went to SSAnalyze to see what is what. Got a result that I don't understand or that maybe I didn't understand how GPO/WEP works.

I think I entered everything right, spouse with $0 SS benefit at FRA and in a box below that, his monthly government pension. I entered the reverse on my side---my benefit at FRA and $0 from a monthly government pension.

The analyzer claims that my spouse can get a benefit of 34% at my FRA with him filling 2 months later.

I was under the impressions, from reading the SS site, that he would not be eligible for a spousal from my account. Hope I'm wrong.

Any thoughts?

 

[jimandthom]

Possible bug in the soup.

My first go around I did not put the $ sign in front of the amounts. Doing that gave the answer I had expected. Take the $ sign back out and they give an optimized rec.

 

[travelover]

...........I assume I can contact SSA to get an estimate of what his benefit would be?........

You can go to the SS site and open an account. It will have your earnings history and information about your benefits under different scenarios.

 

[googily]

You can go to the SS site and open an account. It will have your earnings history and information about your benefits under different scenarios.

I already have my account, but unless I'm not digging closely enough, I don't see anything about my survivor's benefit--just my own earnings.

 

[pb4uski]

Thanks, yes, I saw that if our ages at death are 76 or below, it suggest to start benefits at 62 and if 90 or above, to wait until 70 to take the benefits. As we reach 62, will need to start making decisions based on the best information at that time. Hopefully our health will be holding up! Who knows, in 7 years they may start addressing how to keep SS funded, and that may create some important new considerations...

Learning more every day with all your help!

Another critical assumption is the discount rate to reflect the time value of money. The discount rate is a nominal rate... not a real rate (net of inflation).

The SSAnalyze default rate is 2%. They have a popup that says "The discount rate is the return you would demand if you had a choice and chose to take Social Security as a monthly benefit rather than a lump sum. Research suggests that this should be the risk-free rate. We hae set the default to 2% - a rough approximation of future inflation."

I think their explanation is poorly worded and the default is wrong unless one has an ultra conservative AA. I use 6% which is my assumption for long-term portfolio return and therefore my opportunity cost of money ... 6% is still a substantial haircut from the ~8.7% historical average for a 60/40 AA.

Generally speaking, the higher the discount rate the earlier that SSAnalyze recommends starting SS.

 

[JonB]

Another critical assumption is the discount rate to reflect the time value of money. The discount rate is a nominal rate... not a real rate (net of inflation).

The SSAnalyze default rate is 2%. They have a popup that says "The discount rate is the return you would demand if you had a choice and chose to take Social Security as a monthly benefit rather than a lump sum. Research suggests that this should be the risk-free rate. We hae set the default to 2% - a rough approximation of future inflation."

I think their explanation is poorly worded and the default is wrong unless one has an ultra conservative AA. I use 6% which is my assumption for long-term portfolio return and therefore my opportunity cost of money ... 6% is still a substantial haircut from the ~8.7% historical average for a 60/40 AA.

Generally speaking, the higher the discount rate the earlier that SSAnalyze recommends starting SS.

Thanks again. I was thinking to do some more sensitivity testing including the discount rate as well. One question I had was whether this should be based on the rate before or after expected taxes? I expect I will be taxed on 85% of my SS given my other sources of income and likely in the 22% bracket assuming the current rates continue. I estimate taxes would reduce the net rate to me by 1-1.5%. Or should just leave the impact from taxes out for this analysis?

 

[pb4uski]

Given that the cash flows are pre-tax (IOW SSAnalyze doesn't include income taxes on SS income in the cash flows), I use a pre-tax investment earnings rate.... also I don;t think that adding taxes to both sides would alter the decision.

 

[Sunset]

Thanks again. I was thinking to do some more sensitivity testing including the discount rate as well. One question I had was whether this should be based on the rate before or after expected taxes? I expect I will be taxed on 85% of my SS given my other sources of income and likely in the 22% bracket assuming the current rates continue. I estimate taxes would reduce the net rate to me by 1-1.5%. Or should just leave the impact from taxes out for this analysis?

While you are waiting to collect SS, consider reducing your RMD amount by either withdrawals from IRA/401K for spending, or convert some IRA/401K to Roth for spending later.

Some advice I've read years ago, encouraged people to spend all their taxable accounts first, then the IRA/401K. But this does not take into account tax rates, only the growth of the money.

 

[JonB]

While you are waiting to collect SS, consider reducing your RMD amount by either withdrawals from IRA/401K for spending, or convert some IRA/401K to Roth for spending later.

Some advice I've read years ago, encouraged people to spend all their taxable accounts first, then the IRA/401K. But this does not take into account tax rates, only the growth of the money.

Yes, there is a lot to consider. I will need to withdraw from taxable accounts for at least a couple years at the start to avoid tax penalties from withdrawing from the IRA before 59.5. Will use cash/equivalent assets first, then have former company stock which I plan to sell gradually to minimize capital gains taxes, some years hope to pay 0% taxes on the gains!

Once I get to 59.5, will probably continue to sell the company stock to reduce the concentration risk and continue take advantage of the 0% capital gains rate as much as possible, but will probably look each year to decide whether to sell stock, or withdraw from the IRA. It might make some sense to alternate between the two assuming my annual spend on average would be above the amount which allows 0% rate on capital gains. In the years withdrawing from the IRA, will try to keep it in the 22% tax bracket.

Once I hit 62, will need to start making decisions on SS too. Will need to factor in health/life expectancy, etc. Will probably hold off on taking SS until the company stock is gone, assuming our health is good, to continue taking advantage of the low capital gains rate in the earliest years possible. But am thinking not to wait much past FRA to maximize my wife’s spousal benefit which doesn’t grow past FRA. But there could be other factors which influence the decision as well, potential inheritance, perhaps downsizing from our house, moving to a new location, all of which may would impact our needs and cash in the bank. We’ll see how it plays out and re-evaluate along the way...

 

[skipro33]

After reading and participating in this thread, I FINALLY put my numbers in the firecalc app with the variable of when I took social security. According to firecalc and my numbers, I'm overall better off taking SS at 62 and worse off FRA with 70 slightly worse than 62.
I turn 62 this year. I am currently retired taking my pension.

Here's my numbers used in Firecalc;
Spending: $100,000
Portfolio; $400,000
Years; 30

SS at 62; $24,384 (start in 2018)
SS at FRA; $33,060 (start in 2023)
SS at 70; $42,756 (start in 2026)
DW SS at FRA; $17,184 (start in 2024)
Pension; $66,960 (start in 2018)

Results;
62
The lowest and highest portfolio balance at the end of your retirement was $400,000 to $3,943,216, with an average at the end of $2,268,881.

FRA
The lowest and highest portfolio balance at the end of your retirement was $400,000 to $3,845,119, with an average at the end of $2,197,731.


70
The lowest and highest portfolio balance at the end of your retirement was $400,000 to $4,098,764, with an average at the end of $2,264,262.

Am I doing something wrong? Everyone's explained to me that taking it later gives me more money, but I'm not getting that for results.

****EDIT****
I 'played' with the portfolio tab and while I left it at the default 75% equities for the results I posted here, I also tried my actual of 65% and tested a full 100% equities. Using 65% resulted in an average end of around $100,000 less than the default 75%. At 100% equities, the average end was around $600,000 more. If this computer model is so trusted, then why doesn't everyone invest 100% equities and capture the increased net wealth? In all cases, 100% equities was always better than anything less.

****2nd EDIT****
O.K. I think I figured out my first edit's question. In my case, I have a pension that represents at least 60% of my income and it's COLA'd at a 5% cap per year. FireCalc sorta treats that as the bond portion of an investment. Add to that a significant percentage is from SS (pretty fixed as far as income goes), allowing me to put all my IRA into equities and not suffer any real ill effect and a pretty big likelyhood of greatly increasing my wealth over my lifetime. Realizing this, would anyone recommend that I get more aggressive with my IRA balance?

 

[Cessna152]

In your case the pension and SS even at 62 almost covers your expenses, and your DW SS pushes it over. You are not in danger of ever running out of money. What you are seeing are the vagaries of the model.

As an experiment, put $400,000 into the portfolio field, $0 in spending and income fields. What you’ll see is what happens to that portfolio if left to itself.

Your modest additions to the portfolio are adding a bit of noise to the final results.

Actually I’m a bit concerned to see the starting portfolio value appear as the minimum possible final value. I would expect zero or some random seeming value, but not that. Probably a bug in the code.

One other issue:
The value of taking SS later is it generally allows one to incur larger monthly expenses indefinitely with the same probability of success as taking it earlier but requiring a lower monthly expense budget. And that is for someone who has to draw from their assets - which you weren’t doing for most of your sample runs.

What your test runs were doing was showing final money you had piled up, which is different from test runs where actual asset draws are happening. In the latter case one wants to know how often the draws so large that assets are completely depleted. The number of such cases is a value independent of the assets at the end of the period.

Anyway, put in expense value much larger than your combined incomes and see what happens. At least large enough so some fail cases occur. Then adjust the expense for SS@62 and SS@70 cases so both yield roughly the same number of fail cases. Which monthly expense is larger?

 

[skipro33]

In your case the pension and SS even at 62 almost covers your expenses

Technically, it does. Up until this year, my spending was about $75,000 a year. I bumped it up to $100,000 to acknowledge the SS I'd start drawing. It's a very real chance I won't spend more than $80,000 this year or next. But when I put $80,000 expenses in Firecalc, it made me look a bit stupid for not exercising the available funds for 'stuff'. Ha!

Anyway, put in expense value much larger than your combined incomes and see what happens.

In other words, give myself a substantial raise and see how it affects my net worth on the model with the 3 basic SS draw points. Got it. I anticipate that a later withrawal date for SS will show a greater net worth in the end, you probably do too.

It's been my understanding that SS later, rather than earlier always results in more net worth over the long term, 30 years in my model. That isn't true if portfolio isn't a majority of income, or any of income for that matter.

I have an annual review meeting next month with my FA at Fidelity. He called to offer up a meet to review where I'm at, any changes to my life, etc. I asked him if he ever heard of Firecalc as a model for spending down retirement income and he hadn't. I'm going to e-mail him the link and ask him to get familiar with it before we meet so we can discuss it and compare to any models he uses. (Fidelity has one on their website) I'm really looking forward to his opinion of viewing my retirement income as a whole investment and not singling out the IRA for it's own allocation of stocks and bonds.
I am also wanting him to recommend a plan for minimizing taxes for the inevitable RMD's I'll have to take sooner or later. Do I roll some of the IRA to Roth? If so, how much, when and into what? I'm also wanting an explaination of the Social Security torpedo tax. Something I can understand.

Speaking of RMD's, can anyone tell me if Firecalc acknowledges this requirement within their analysis? It sure doesn't seem so when I put in zero for expenses and zero for both SS and pension, leaving JUST my portfolio in place. This showed a steady growth at 100% reinvestment of all gains. No dip starting at 70 1/2 or draw down, which RMD is designed to do, when getting closer to year 30.
Without that in the calc, it's not really telling me anything about my net worth and savings past RMD.

****EDIT****
I e-mailed Firecalc author and asked him the question if Firecalc acknowledges RMD in it's results.

****EDIT****
Answered my own question when I realized Firecalc never asks for the retiree's age. Without knowing when the retiree turns 70.5, there's no way to build in the RMD to the model. This is a pretty serious issue to understand when evaluating the results. Nothing it predicts for funds value is right after age 70.5. While the success rate won't change, the net worth sure will. Since my plan is to preserve my portfolio for long term health care, I now need to see if it still will if I'm forced to pay taxes n the RMD I have to take.

 

[Perryinva]

Yes, there is a disclaimer in fircalc about no compensator for taxes because of the number of variables. Firecalc is NOT a Retirement success or net income calculator by any means. What Firecalc only really does is tell you based on a withdrawal rate against your investments and choosing your AA and spending model, if the withdrawals at the rate specified will weather the same historic rolling 30 year market conditions, with inflation adjustments. Nothing else. Fidelity RIP or its replacement is a MORE realistic retirement program, but still has limits. In Firecalc, you will get the exact same results (success rates) if you reduce your spending to equal your fixed income (pensions and SS) and leave those incomes out. So as stated above, if all or most of your SS is slated for investments and none needed for income, it pretty much doesn’t matter as far as the program is concerned. It also does not look in any way at what your surviving spouse would have as income should you die at 75, a big factor in delayed filing decision. If you are to be single your whole life, and no inheritance a factor, filing at 62 is the winner based on the unknowns because the portfolio value is way too dependent on too many things beyond anyones control, and financially it is actuarially a wash. The exact same decision one makes if purchasing an annuity with these same terms. How much longevity insurance do you want for you and your spouse?

No one that I have ever read suggests that by delaying SS you will have a larger portfolio at death at all times, assuming retiring at and no working income at 62 and up. It’s just not true unless you live to 86-90 and up, in which case the slightly larger portfolio means pretty little. What delaying does provide is more guaranteed inflation compensated income REGARDLESS of portfolio performance, for at least one of a couple. If the SSA goes bust, then it doesn’t. Same as losing all of your savings in a bad deal or market meltdown. No one knows which is more likely.

If you never need the SS as income to live, or care about surviving spouse income, then taking it at 62 and investing it aggressively will ALWAYS come out ahead in any model. That should be obvious, I would think.

 

[latexman]

Actually I’m a bit concerned to see the starting portfolio value appear as the minimum possible final value. I would expect zero or some random seeming value, but not that. Probably a bug in the code.

It is a bug in the code. See http://www.early-retirement.org/forums/f36/lowest-portfolio-balance-100-success-82540.html

 

[Perryinva]

Also, with a $66k pension and max SS, the Tax Torpedo is of no concern. More like a Tax Nerf Bullet if you get bumped to the next bracket. That assumes your pension is taxed and therefore your SS will be 85% taxed by default. The Torpedo is when ones income is low enough & normally pays no tax on SS income, but then taking small amounts out of tax deferred accounts bimps ones income over the threshold and activates the 85% of SS taxed condition. Its that simple. A large pension like that kills it.