Consideration for taking SS early

[rmorris50]

As an actuary who has priced SPIA annuities, the mortality assumption becomes much more important, and is more volatile, esp over 75. Interest return impact only matters early on. So I would put more emphasis on how much are you willing to self insure your longevity risk when deciding when to take social security, not whether you can invest your self and maximize returns.

Agree with earlier post that this question is a luxury for a small group. Vast majority of people don’t have much of a reasonable choice when to take it, they have to for quality of life.

 

[FREE866]

100% stocks is never “pretty conservative.”

You're conflating two ideas.



100% stocks as an asset allocation is definitely not conservative.



However, if we look at historical data stocks long term average is ~10%. Deduct 3% for inflation we have 7%. So figuring 4% when history has been 7% is a pretty conservative assumption. It's assuming stocks perform only 54% of their historical return. Or actually 70% depending how you look at it.

 

[mystang52]

This is maybe the most common question posted, and debated, here. It's safe to say there's no one right or wrong answer. When I was faced with this decision, I came up with a good solution. At 62, I decided to postpone it because I didn't need it. I revisited the decision every 6-12 months. I ultimately took it at 65. At that point, the death benefit for DW would exceed her own SS, so that was the "tie breaker" for us.

 

[braumeister]

Thanks to our innate confirmation bias, I've never heard anyone complain that they made the wrong decision on when to claim. Early, late, in between, it always seems like they made the right choice in hindsight.

 

[jimbee]

Thanks to our innate confirmation bias, I've never heard anyone complain that they made the wrong decision on when to claim. Early, late, in between, it always seems like they made the right choice in hindsight.

That about sums things up.

 

[Time2]

I didn't read the whole thread, so this may have been said.
If you retire early and invest, you are investing after taxes have been removed. Also if you want to do Roth Conversions, taking SS early may reduce the amount you can Roth convert before getting bumped to a higher tax bracket. One more thing, if your spouse had a lower income or no income, if you delay, they would get your higher check amount after you are gone.

 

[ShokWaveRider]

Thanks to our innate confirmation bias, I've never heard anyone complain that they made the wrong decision on when to claim. Early, late, in between, it always seems like they made the right choice in hindsight.

That is because once one decides to take SS, whenever they do, it gets removed from the table of their retirement choices/decisions. Personally, I never think about it anymore, other than what to spend it on ...... or not.

 

[pb4uski]

Well, looking at historical data stocks have returned ~7% inflation adjusted so from that lens I think 4% is actually pretty conservative no?

4% would be reasonable historically, BUT yields over the next decade are expected to be much lower than historical averages.

Vanguard's 2023 economic outlook has US equities at 4.4-6.4% and US bonds at 4.0-5.0% nominal for the next decade so the traditional 60/40 portfolio would be 4.2-5.8% nominal, less 2-3% inflation would be 2.2% to 2.8% real, a lot lower than 4%.

https://corporate.vanguard.com/cont...ext=Core aspects of the economy,[61-page PDF].

 

[eytonxav]

I took SS at 68.5 vs waiting to 70 for a bit higher amount. I believe the fund will run into problems earlier than forecasted at the timeframe has been shortening almost every year before full payout can no longer be made. There seems to be no will by the gov't to fix this, so I felt let's get as much as I can for as long as I can before a haircut occurs. Further, it is unknown how big that haircut would be. On top of that my longest living parent died at 74. I am now 74 so that also made me thing get what I can vs waiting to 70.

 

[Navigator]

Look, the SS security question and when to take it only matters for a small group of people. Some people have large pensions or lots of money and they don't "need" SS in any way, shape or form. For those people, it is very obvious and simple to wait until 70.

Then there are the vast, vast, vast majority of people who retire. In order to have a reasonable quality of life they need to take SS. For many of these people if they don't take SS they will need to find a job (if that is even possible for them).

There is a group of people who could theoretically way take SS later, but to do so they have to literally spend down most of their savings. Yes, they get a big SS check at age 70 but then they have little to no savings left. I personally feel that someone who does this is likely making a mistake.

Then there is a middle group. The extra SS income would be nice. To wait until 70, they will have to deplete some of their savings but they will still have what they consider enough if they wait until 70. For the people who can easily and comfortably do this they probably better resemble the people who don't need SS at all. But, they want to preserve more of the nest egg many will choose to take SS earlier.

But, honestly if you aren't truly someone in that middle group where it is actually hard to decide what to do there really isn't much of a decision to be made for everyone else because there is only one reasonable outcome.

This is a nice way of looking at SS for a single person. I would only change it a tiny bit to say if someone has a large pension or a lot of money that it doesn’t really matter when they take social security - 62, 70 or when they retire.

 

[FREE866]

4% would be reasonable historically, BUT yields over the next decade are expected to be much lower than historical averages.

Vanguard's 2023 economic outlook has US equities at 4.4-6.4% and US bonds at 4-5% nominal for the next decade so the traditional 60/40 portfolio would be 4.24-5.84% nominal, less 2-3% inflation would be 2.24% to 2.84% real, a lot lower than 4%.

https://corporate.vanguard.com/cont...ext=Core aspects of the economy,[61-page PDF].

An average of 5.4% for stocks is a really really pessimistic assumption. Significantly below the averages. but sure that’s possible. I think it’s highly improbable, but it doesn’t matter I guess.

I think it’s an interesting conversation, as I said I’m 56 now and prior to reading the article and putting in the discount rate in his calculator I was dead set on waiting until 70. Will see. Lot can happen before I have to decide anyway.

 

[pacergal]

As many have said, it is a personal decision.
We are blessed to have secure income/pensions, we each chose 100% survivor option, and the two of those cover our budget, with our investments there to cover extra or long term care.
We took at 62, and looking back, it was a good choice. We had numerous odd large expenses come up shortly after retirement and the SS allowed us to cover the majority without getting into our investments.

 

[bobandsherry]

Thanks to our innate confirmation bias, I've never heard anyone complain that they made the wrong decision on when to claim. Early, late, in between, it always seems like they made the right choice in hindsight.

The only time one knows for sure is after they are 6 foot under and then it doesn't matter.

Uncertainty with the future of the program and payouts may also be a reason to take now while you can still pocket today's payment for the next several years vs. impact from possible haircut on payment in the future.

 

[Chuckanut]

IMO, Two things to consider are:

1) Diversification of your income stream. If your investments are most of your retirement income buying a COLA’d annuity from Uncle Sam by taking SS at 70 may be a good idea. If the opposite, you may wish to build up your investments by taking SS earlier.

2) it’s not a binary choice of 62 or 70. If you delay SS you have over many chances to turn it on as the months pass on the way to age 70. Once you take it, you are stuck with your choice after six months.

 

[qwerty3656]

If you focus on what return you CAN make in the market you'll convince yourself to take early. If you focus on protecting your downside with a bad market run, you'll convince yourself to wait (setting aside extraneous circumstances like bad health)

 

[pb4uski]

An average of 5.4% for stocks is a really really pessimistic assumption. Significantly below the averages. but sure that’s possible. I think it’s highly improbable, but it doesn’t matter I guess.



I think it’s an interesting conversation, as I said I’m 56 now and prior to reading the article and putting in the discount rate in his calculator I was dead set on waiting until 70. Will see. Lot can happen before I have to decide anyway.

I'll be 68 in November. I haven't taken SS yet, but one way to look at it is that from age 62 to 70 you essentially have an option to start taking whenever you wish to. I'm planning to wait till 70, but like that I have that option available to me.

 

[jollystomper]

I read the article. His points are worth considering *if* one is unmarried (and the bulk of his analysis makes that assumption). From my simple point of view, if one is married, a bigger consideration is "do you need/want to maximize SS for the surviving spouse?". That has to be balanced against do you really need SS to support your desired lifestyle. For us, we do not currently need my SS (which is fortunately the maximum possible), so delaying to 70 to maximize survivors benefits makes sense. Our cash will make up the delta between my pension and our needs, so no need (yet) for us to be forced to touch either our stocks or bonds). One's mileage may vary (apologizes to Koolau for the plagiarism ).

 

[MikeTN]

I think the discussion about what one can expect to earn in the stock market is misplaced. Nearly all of us have part of our savings invested in relatively safe investments outside the stock market. So, if you use some of "safe" your money to defer SS to 70, and you want to use the calculator under discussion, think of it this way: you are buying an inflation protected annuity, and giving up some of your "safe" money to do so. If you are giving up the purchase of some I-bonds you are giving up about 1.2% real, not 4%.
I think it makes sense for most people to put part of their retirement funds in an annuity --as longevity insurance. I also think that deferring SS is the best annuity available, in part because it is the only one that is inflation adjusted.

 

[RunningBum]

If you focus on what return you CAN make in the market you'll convince yourself to take early. If you focus on protecting your downside with a bad market run, you'll convince yourself to wait (setting aside extraneous circumstances like bad health)

+1

 

[threeonesix]

TLR Has anyone mentioned the possibility that what the SS website says you will receive as of today could easily go much lower in the coming years as the trust depletes without Congressional modification? Americans seem to live by the theory that the government will always do what's right and take care of citizens. Don't buy it. Things are much, much different today than they were 40+ years ago, and there doesn't appear to be an attitude shift in politics coming anytime soon. We are headed, rapidly, to an "every man for himself" type of government. As such I'm taking SS at 62, regardless. I won't need it then but I'd rather have it in MY pocket than keep it in Uncle Sam's pocket for another up to 8 years.

 

[rmorris50]

TLR Has anyone mentioned the possibility that what the SS website says you will receive as of today could easily go much lower in the coming years as the trust depletes without Congressional modification? Americans seem to live by the theory that the government will always do what's right and take care of citizens. Don't buy it. Things are much, much different today than they were 40+ years ago, and there doesn't appear to be an attitude shift in politics coming anytime soon. We are headed, rapidly, to an "every man for himself" type of government. As such I'm taking SS at 62, regardless. I won't need it then but I'd rather have it in MY pocket than keep it in Uncle Sam's pocket for another up to 8 years.

I can appreciate this point of view. Congress could with a stroke of a pen end social security. It’s nearly impossible to plan for future potential political outcomes, so all we can collectively do is plan with the best information we have at any moment.

I could see social security becoming more and more means tested over time. From that perspective I would then prob want to take it as soon as possible. But for me 62 is still 13 years away, so a lot could happen between now and then. Or nothing (politically speaking).

 

[Out of Steam]

I could see social security becoming more and more means tested over time.

This is the most likely result, I think. As I understand it, similar payments in Canada and the UK don't increase much as lifetime income increases.

 

[bada bing]

100% stocks is never “pretty conservative.”

That is one of the flaws in the "beat SS returns with investments" idea. Most analysis compares to 100% equity returns. That isn't an apples=apples comparison when you back up and look at the overall financial picture. Presumably, almost every retiree with savings has some allocation to bonds/FI. Most, I would suspect, have conservative portfolios with significant FI allocations. If you don't stretch the analogy too far, pensions and annuities are FI "investments" as well. The apples=apples comparison would more appropriately be to compare the "investment" of delaying SS to the return on the FI portion of the portfolio. That is the more correct risk parity analysis.

Another way of stating the same thing is that if you take SS early and dump the proceeds into the equity market, you may very well out perform, but you are doing so by assuming a bunch more risk. You could accomplish the same thing by delaying SS and adjusting your equity allocation upwards on portfolio (which is sort of what I personally am doing now). There is no free lunch with respect to risk/return.

My personal plan has always been to take it one month at a time with respect to evaluating my best SS claiming strategy. I'm 64 now and delaying still looks best for the foreseeable future.

 

[pb4uski]

TLR Has anyone mentioned the possibility that what the SS website says you will receive as of today could easily go much lower in the coming years as the trust depletes without Congressional modification? Americans seem to live by the theory that the government will always do what's right and take care of citizens. Don't buy it. Things are much, much different today than they were 40+ years ago, and there doesn't appear to be an attitude shift in politics coming anytime soon. We are headed, rapidly, to an "every man for himself" type of government. As such I'm taking SS at 62, regardless. I won't need it then but I'd rather have it in MY pocket than keep it in Uncle Sam's pocket for another up to 8 years.

Of course that is something that has been considered... we write about it frequently.

Opensocialsecurity.com has an option to do calculations with or without a haircut. While I think it is foolish to assume a haircut, if you do it does indeed steer the decision to take earlier, but not necessarily at 62.

If one assumes a 23% haircut beginning in 2034 and 2017 Preferred Nonsmoker mortality then the EPVs are $132,638 at 62, $135,752 at 65 and 11 months (optimal solution) and $133,397 at 70... so 70 is actually slightly better even with a haircut, but the reality is that the EPVs are all so close that when you take in that case doesn't matter very much.

If you assume no haircut and 2017 Preferred Nonsmoker mortality then the EPVs are $157,253 at 62, $173,569 at 69 and 4 months (optimal solution) and $173,243 at age 70, substantially different and favoring deferring.

So if you take at 62 and there is a haircut then it doesn't much matter but if you take at 62 and it turns out that there is not a haircut then you have left 10% on the table.

 

[FREE866]

Given the only focus of politicians is getting elected coupled with the fact that arguably one of the largest voting blocks is people over 60 I have zero concern SS benefits will be cut at all, much less drastically.

As stated before I’m
Glad I’m not making a decision on this anytime soon given I’m 6 years away from claiming earliest. More will be revealed.