New Social Security study on claiming it too early

[Navigator]

They didn't optimize on the right thing. My models indicate that, depending on market returns, many scenarios have me paying MORE tax but being able to spend MORE by taking SS early. They also don't disclose the rates of return they used, calling them "proprietary" (gimme a break)

You hit upon a real weakness in the paper. The authors don’t explicitly say what asset allocations they used in their simulations, but do hint that it was fairly conservative. There are many other assumptions that must go into their models that were not explained, leaving me uncertain as to what to make of the paper. However, there was only a median difference of $31,000 in lifetime wealth between when people actually chose to take social security and what their “optimal” time would have been in the simulations. Since no one can know beforehand when their optimal age to take SS is, it leaves me wondering what the significance of the paper is.

 

[Old Microbiologist]

We took it when I reached 62 and I think it was a good decision. First, there is a constant whine from Congress about "entitlements", underfunding issues with constant impending doom about insolvency, threats to establish means testing and other such drivel so to me the actual existence of SSA seems to be in jeopardy. Having worked for the government for 40 years I know you take what you can get as early as you can as they might take it away at any time.

Our personal situation is such that my wife had not worked 40 quarters so was not entitled to SSA on her own. She is also 6 years older than I am. What I didn't know until we actually started receiving it (which was a serious problem to get and I will elaborate further) was she gets half of my SSA but as if I was retiring at her age. So, she was got half of what I would get at age 68 not age 62. This was a surprise and definitely changed the parameters for making the decision had we known. I took it early for the above reasons alone. We don't need it or actually even touch it but hell, the Congress decided in 1959 to add the military to its roles for SSA contributions so I paid into it all my life so I am taking it and to hell with Congress and their screw us attitudes.

To elaborate on getting the SSA at all was a hard thing to actually do. We retired to Hungary when I was 56. I filed for SSA 90 days before I turned 62 which is the required time to file. However, under Bush they removed all the SSA personnel from all Embassies around the world. For Europe there is only a single person working at the Consulate in Poland to process all the overseas US citizens. That person is of course overwhelmed. I filed at the Embassy in Budapest who forwarded it to the SSA specialist inKrakow where it sat. I tried calling them repeatedly for days and no answer. Finally, I reached the specialist who told me she was 18 months behind on applications. But, some kindly words and she put mine at the top and it got processed fairly quickly. Of course, a similar situation occurred as the office to process overseas applications is in Baltimore and they sat on their thumbs as well. IMHO SSA is hopelessly screwed up by design.

 

[maestro]

That was the most ridiculous, non-sensical, little blurb I think I have ever read regarding S.S. and distributions.

To each his/her own - I'll take the Bird in the Hand and if I win the lottery I'll take the Lump Sum. Thank You.


P.S. - Really "healthy" people die everyday. I'm sure they didn't expect the Bus to hit them or that undetected cancer to cut their lives short but, things happen I guess. Much like my extremely healthy 54 yr. old friend who played Hockey every time he could, was never an ounce overweight in his life, etc. Stage 4 Pancreatic Cancer gave him 18 months to get his collective junk together. He does not have to worry about his S.S. claiming strategy anymore...

+1

 

[clubmanstl]

I'm turning 62 this fall - not really seeing any good reason to put off my claim.

It will take many years for the "break even" point to occur from waiting, while the larger checks will likely just make my tax situation worse when I hit 70.5 - and have to take MRDs from my 401K, making that point even harder to hit.

I realize there are unforeseen/unpredictable aspects involved, but I figure it's best to "grab it while I can" - especially with no heirs to consider.

 

[joeea]

the actual existence of SSA seems to be in jeopardy.

There is absolutely no credible evidence that the existence of SSA is in jeopardy. None.

Our personal situation is such that my wife had not worked 40 quarters so was not entitled to SSA on her own. She is also 6 years older than I am. What I didn't know until we actually started receiving it (which was a serious problem to get and I will elaborate further) was she gets half of my SSA but as if I was retiring at her age. So, she was got half of what I would get at age 68 not age 62.

You seem to be confused. That's not how it works.

I took it early for the above reasons alone.

Then you took it early for the wrong reasons. Sorry.

 

[pb4uski]

I'm turning 62 this fall - not really seeing any good reason to put off my claim.

It will take many years for the "break even" point to occur from waiting, while the larger checks will likely just make my tax situation worse when I hit 70.5 - and have to take MRDs from my 401K, making that point even harder to hit.

I realize there are unforeseen/unpredictable aspects involved, but I figure it's best to "grab it while I can" - especially with no heirs to consider.

Your RMDs will be smaller if you delay because you will have presumably used some of that money for living expenses so there is a bit of an offset to the higher SS. Also, only 85% of SS is taxed vs 100% of RMDs.

Let's say that your PIA is $2,500/month at age 66... your age 62 benefit would be $1,875 and your age 70 benefit would be $3,300.

If you delay to age 66 you will use $90,000 from your savings so your RMDs will be $3,600 lower. Your benefit will be $7,500 higher and $6,375 of that would be taxable.... so net your income will be $3,900 higher and at 22% your tax bill wil be $611 higher so your after-tax income is $3,289 higher.

If you delay to age 70 you will use $180,000 from your savings so your RMDs will be $7,200 lower. Your benefit will be $17,100 higher and $14,535 of that would be taxable.... so net your income will be $9,900 higher and at 22% your tax bill wil be $1,614 higher so your after-tax income is $8,286 higher.

I prefer higher after-tax income in my 70s and 80s... if my income is higher I don't mind paying the extra taxes because I end up with more money to spend.

 

[pb4uski]

...You seem to be confused. That's not how it works. ...

Actually joe, I think he is right on that one because his spouse is 6 years older and as a result will be older than her FRA when he starts benefits at age 62.

opensocialsecurity.com seems to confirm it... if I put in the defaults but make the claimant's birth year 1966 rather than 1960 and make the spouse's PIA 0 and the claimant claims at age 62 in 5/2028 then I get an annual spousal benefit equal to $6,000.... 1/2 of the claimant's PIA.

 

[VanWinkle]

Actually joe, I think he is right on that one because his spouse is 6 years older and as a result will be older than her FRA when he starts benefits at age 62.

opensocialsecurity.com seems to confirm it... if I put in the defaults but make the claimant's birth year 1966 rather than 1960 and make the spouse's PIA 0 and the claimant claims at age 62 in 5/2028 then I get an annual spousal benefit equal to $6,000.... 1/2 of the claimant's PIA.

You are correct pb, it did make sense to claim early with a wife 6 years older without her own earned benefit.

 

[Old Microbiologist]

Joeea, that is exactly how it works for us and she gets 1/2 of what I would get if I retired at age 68. I see the payments and that is how it adds up. If it is wrong then they did it not me and I am enjoying the benefit of their incompetence which is enormous.

As for the existence of SSA perhaps you haven't paid attention to the various Congressmen's rhetoric about entitlements and means testing. The underfunding is because Congress "borrowed" from the SSA Trust fund roughly $3 trillion dollars and will never restore it. https://theseniors.center/2018/06/0...cial-security-to-use-for-government-spending/

Congress has threatened cuts to SSA for years now. Here is one example from 2016:https://finance.yahoo.com/news/gop-introduces-plan-to-massively-cut-social-security-222200857.html or more recently: https://www.washingtonpost.com/news...ity-to-balance-budget/?utm_term=.1b4671b1ea01

And here is a list of solvency issues: https://www.ssa.gov/OACT/solvency/

So, perhaps I took it early for what you think are the wrong reasons but obviously you have never been in the military and had promises repeatedly broken. Yes, I am cynical because of those experiences. We are in exactly the group Congress wants to cut from receiving SSA, those making more than $85k a year.

 

[joeea]

Actually joe, I think he is right on that one because his spouse is 6 years older and as a result will be older than her FRA when he starts benefits at age 62.

So you are saying that if the spouse were 8 years older, and the primary claimed at 62, the spousal benefit would be 50% of what the primary would have received had he instead waited until 70 to claim?

I have never heard that. And I haven't read anything to suggest that is how it actually works.

I'm happy to apologize if I am wrong.

 

[joeea]

Joeea, that is exactly how it works for us and she gets 1/2 of what I would get if I retired at age 68. I see the payments and that is how it adds up. If it is wrong then they did it not me and I am enjoying the benefit of their incompetence which is enormous.

As for the existence of SSA perhaps you haven't paid attention to the various Congressmen's rhetoric about entitlements and means testing. The underfunding is because Congress "borrowed" from the SSA Trust fund roughly $3 trillion dollars and will never restore it. https://theseniors.center/2018/06/0...cial-security-to-use-for-government-spending/

The article is filled with nonsense.

"Now, the Social Security Trust Fund sits empty" - nope.

Congress has threatened cuts to SSA for years now. Here is one example from 2016:https://finance.yahoo.com/news/gop-introduces-plan-to-massively-cut-social-security-222200857.html or more recently: https://www.washingtonpost.com/news...ity-to-balance-budget/?utm_term=.1b4671b1ea01

Threats of cuts by one party are not the same as SSA no longer existing. In fact threats mean little in the long run.

And here is a list of solvency issues: https://www.ssa.gov/OACT/solvency/

Hopefully you understand that this talks about the solvency of the Trust Fund, not the entire SSA program.

"The last 8 Trustees Reports have indicated that Social Security's Old-Age, Survivors, and Disability Insurance (OASDI) Trust Fund reserves would become depleted between 2033 and 2035 "

And hopefully you understand that SSA will continue even in the unlikely case that the Trust Fund is actually allowed to fully deplete.

So, perhaps I took it early for what you think are the wrong reasons but obviously you have never been in the military and had promises repeatedly broken. Yes, I am cynical because of those experiences. We are in exactly the group Congress wants to cut from receiving SSA, those making more than $85k a year.

There is nothing here that realistically indicates that the actual existence of SSA seems to be in jeopardy. You are free to believe whatever you choose, of course.

 

[ShokWaveRider]

The formula also changes when recipients are living abroad.

 

[gwraigty]

So you are saying that if the spouse were 8 years older, and the primary claimed at 62, the spousal benefit would be 50% of what the primary would have received had he instead waited until 70 to claim?

I have never heard that. And I haven't read anything to suggest that is how it actually works.

I'm happy to apologize if I am wrong.

AFAIK, the spousal benefit is a max of 50% of the primary's FRA benefit, not 70, as long as the spouse files no sooner than their own FRA. Someone please correct me if I'm wrong.

 

[eytonxav]

While individual circumstances vary greatly, the two big unknowns that can affect total payout are ones mortality, and when the gummit decides to cut benefits. I suspect in the next decade the later will come into play due to lack of action to fix SS funding.

 

[MissMolly]

AFAIK, the spousal benefit is a max of 50% of the primary's FRA benefit, not 70, as long as the spouse files no sooner than their own FRA. Someone please correct me if I'm wrong.

Not only is that my understanding also, it appears to be SSA's understanding as well. On their website it states "At your full retirement age, your benefit as a spouse cannot exceed your spouse's full retirement amount".

https://www.ssa.gov/planners/retire/applying6.html

 

[Niuatoputapu]

Your RMDs will be smaller if you delay because you will have presumably used some of that money for living expenses so there is a bit of an offset to the higher SS. Also, only 85% of SS is taxed vs 100% of RMDs.

pb, good analysis

One can still create a model with market return assumptions that suggest 62 is better than 70, or vice versa.

For me, if the markets return anything over the next 8 years (I'm 62), I'll be financially happy and not care that I delayed claiming SS. If markets lose ground over the same period, the return on delayed SS benefits will be golden.

The kicker is that if means testing does happen, it will likely be income based, and to have lower RMDs will be coveted.

 

[pb4uski]

So you are saying that if the spouse were 8 years older, and the primary claimed at 62, the spousal benefit would be 50% of what the primary would have received had he instead waited until 70 to claim?

I have never heard that. And I haven't read anything to suggest that is how it actually works.

I'm happy to apologize if I am wrong.

No.... I didn't say that... the maximum that a spouse with no earnings record could get is 50% of the claimant's PIA... a spouse does not get the benefit of 8% delayed retirement credits.

Therefore, the latest that a spouse with no earnings record that is 5 or more years older should claim at would be the claimant's FRA because there is no benefit of waiting longer.... just like there is no benefit to the claimant to waiting past 70.

 

[pb4uski]

pb, good analysis

One can still create a model with market return assumptions that suggest 62 is better than 70, or vice versa. ...

I agree.

 

[pb4uski]

.... The underfunding is because Congress "borrowed" from the SSA Trust fund roughly $3 trillion dollars and will never restore it. https://theseniors.center/2018/06/0...cial-security-to-use-for-government-spending/.....

The first part ("borrowing") is true, the second part ("will never restore it") is poppycock. While it is true that the SS Trust Fund has purchased bonds from the general fund, that borrowing was just in lieu of higher public debt issuances... the debt to the SS Trust Fund is counted the same as public debt in calculating the national debt.

The general fund pays interest on these bonds just like to does on public debt, so the SS Trust Fund benefits from the bonds.... what would thses critics have preferred for the SS Trust Fund to do? Let $3T sit there earning no interest at all?

As those bonds mature the general fund will issue public debt and use the proceeds to pay the SS Trust Fund which will in turn use that money to pay beneficiaries.... but the national debt won't change one iota as a result but the public dept portion of the national debt will increase.

 

[homestead]

AFAIK, the spousal benefit is a max of 50% of the primary's FRA benefit, not 70, as long as the spouse files no sooner than their own FRA. Someone please correct me if I'm wrong.

You are correct. Wife and I are currently collecting this. I filed at 62 she filed at her FRA and she collects 50% of my FRA amount. This was easy to do since she is 5 yrs older. She did have her own SS benefit but it was much smaller than 50% of my FRA amount. The key is to have your spouse wait until their FRA before collecting, if they file early the amount will be reduced. There is no point for them to wait beyond FRA as 50% is maximum they can get under spousal benefits.

 

[daylatedollarshort]

opensocialsecurity.com essentially takes that probability tree approach (without showing you the tree).

Does it have an option to factor in a potential future benefit cut along the lines of the funding shortfall outlined by the Chief Actuary of the Social Security Administration - "The concepts of solvency, sustainability, and budget impact are common in discussions of Social Security, but are not well understood. Currently, the Social Security Board of Trustees projects program cost to rise by 2035 so that taxes will be enough to pay for only 75 percent of scheduled benefits."

That part is not speculation, that is on the SSA web site - https://www.ssa.gov/policy/docs/ssb/v70n3/v70n3p111.html

I thought you had a good post here - http://www.early-retirement.org/for...out-when-to-take-social-security-97426-3.html, but DH and I also add in the shortfall prediction as a distinct probability, and for us that changes the numbers to make the earlier date more optimal for us.

 

[Old Microbiologist]

I was trying to say that the potential changes by Congress to reduce SSA benefits which was rampant when I was turning 62 affected my decision. Thankfully, as it turns out it hasn't happened yet. But, it looked imminent as both parties were decrying it at that time. I am sure it will come up again. The Trust Fund having outstanding debt which is incorporated into the general national debt also means it will never be paid back. The $21 Trillion debt will never be paid and it will continue to grow and with interest building the potential for insolvency moves into the realm of more than potential should more of the world stop using petrodollars. This seems likely given current trends in sanctioning almost the entire world and the resultant loss of confidence in the US. So, the dollar itself might be devalued to be difficult to maintain parity with other currencies. I speak from experience having experienced 2 separate devaluations of the dollar while working in the military overseas. Both were 50% devaluations and it hurt us badly as we didn't get extra money to help pay rent for off post housing. This is being announced heavily again this past week so I believe it is likely to happen again. This is one thing I have gleaned from watching Congress for years, when they start beating the drums for something, such as reducing SSA benefits, ultimately it happens. We have been screwed in the past such as when Clinton signed into law taxing SSA benefits. I do not see any reason to believe they won't do something similar again. Retirees are low hanging fruit.

I looked more carefully at the numbers and you guys are correct, my wife is receiving 50% of my full retirement at age 66. We don't touch the money yet so I haven't paid a lot of attention to it. It all goes into out US account so I don't see if often. That is our reserve pool for emergencies which have never occurred. It just adds to the cash already there from our last house sale which we keep separate from our brokerage accounts which we also never use. For us the military pension is sufficient to live well in Europe. The rest is all for emergencies.

I chimed in as the spouse benefit being paid at a higher rate than 50% of my early retirement was a big surprise to me. I also wanted to let everyone know who might be living in Europe about the changes to embassy staffing where they cut all the Social Security personnel making it very difficult to do business overseas. I will add you cannot have an online account with Social Security if you live overseas. So, this makes dealing with Social Security very difficult.

 

[joeea]

No.... I didn't say that... the maximum that a spouse with no earnings record could get is 50% of the claimant's PIA... a spouse does not get the benefit of 8% delayed retirement credits.

Therefore, the latest that a spouse with no earnings record that is 5 or more years older should claim at would be the claimant's FRA because there is no benefit of waiting longer.... just like there is no benefit to the claimant to waiting past 70.

The claim was "What I didn't know until we actually started receiving it (which was a serious problem to get and I will elaborate further) was she gets half of my SSA but as if I was retiring at her age. So, she was got half of what I would get at age 68 not age 62." That is what I objected to.

As far as I can tell, "half of what I would get at age 68" must by definition be more than 50% of the claimant's PIA.

So she simply cannot get half of what the claimant would get at age 68 - only half of what the claimant would get at PIA (which must be somewhere between 66 and 67).

Help me out here - what am I missing?

 

[pb4uski]

Does it have an option to factor in a potential future benefit cut along the lines of the funding shortfall outlined by the Chief Actuary of the Social Security Administration - "The concepts of solvency, sustainability, and budget impact are common in discussions of Social Security, but are not well understood. Currently, the Social Security Board of Trustees projects program cost to rise by 2035 so that taxes will be enough to pay for only 75 percent of scheduled benefits."

That part is not speculation, that is on the SSA web site - https://www.ssa.gov/policy/docs/ssb/v70n3/v70n3p111.html

I thought you had a good post here - http://www.early-retirement.org/for...out-when-to-take-social-security-97426-3.html, but DH and I also add in the shortfall prediction as a distinct probability, and for us that changes the numbers to make the earlier date more optimal for us.

Yes, it is the very last option under Advanced Options. The default is a 23% reduction starting in 2034 but you can change both of those inputs to whatever you want.

I had also run numbers for the alternatives in that post you liked with the haircut... the EPVs were 95.9-99.9% of the optimal EPV... so a little more variation but not a lot more. Largest variation was 4.1% with the haircut vs 3.3% with no haircut.

 

[joeea]

Joeea, that is exactly how it works for us and she gets 1/2 of what I would get if I retired at age 68.

No. That is incorrect. 68 is not the correct age.

If you waited until age 68, your would have been receiving delayed retirement credits.

Your wife can receive at most 50% of your PIA - which is what you would have received at your Full Retirement Age. FRA is not 68 for anyone under the current rules. Your FRA is between 66 and 67 years of age.