SS at 62 or 65

[whitestick]

Not to stir things up too much, but in my opinion, based on my planned circumstances, I will need about $65k per year to live in the manner to which I want to be accustomed. I have a combination of taxable capital gains, IRAs 401ks, and some Roths (only about 70k in it). I can cover either through leaving SS till 66 or take less from IRAs and taxable capital gains, and claim SS at 62. Given the tax situation and the reduction of income after certain limits with SS, it would seem to be better to wait till 66 to being SS, and not have to incur those problems. Or am I missing something on that line of reasoning?

 

[unclemick]

Yep

I know of no way around running the numbers for 'your individual stituation.' As Scott Burns has pointed out - the back door tax on SS above certain incomes/sources - with the ROTH loophole makes it interesting. Can't locate it now - but Vanguard had a calc a while back - which showed my breakpoint at age 75 (early vs 66) - contrast that with my 84.6 allowible age to croak from the IRS. Throw in your availible resources - mix in your planned lifestyle in retirement and WHEW!

So - after Katrina and two unplanned deaths in the immediate family - I have successfully torn up my original plan and started a new one.

1. Moved 1000 miles north - bought a house with a mortgage instead of renting.
2. Early SS next month - instead of waiting - at one point considered as long as age 70 - had planned to run the tradeoff numbers each year.
3. Loosen up on frugal. Cruise in Feb - my first step out of cheap bastardhood.

And - of course - any excess - against my own advice - hobby stocks. It's a male thing - gotta putz.

And yes - it will cost me more in taxes.

heh heh heh

AND - bought $5000 deductible health insurance this year after going naked 1993-2005. At 62 - getting old and gunshy.

 

[cute fuzzy bunny]

I've also heard the one about the guy who will twist data to suit his predetermined outcome. Nords had you nailed from the get go.

I would see no reason to deplete my portfolio to "set aside a bridge" to cover the gap between where I would have taken SS early or late. That seems to create a situation whereby the portfolio ratios are altered to produce a reduced rate of return. That artificial construction that doesnt appear to have any obvious positive benefits allows you to prove your point.

In fact, the only thing I would consider changing about my portfolio in this situation is that as I approach 62 I might defer reducing my equity holdings or increase my equity holdings - I can take on more risk as I have a defined and steady income stream to help me reduce my withdrawal rate to compensate for increased volatility.

Tax management is obviously an issue, but anyone with enough money to retire early probably has a pretty good idea of how to handle the tax issues, or pays someone who does.

Under those scenarios where I maintain or increase equity holdings, I can make even more money. Should I do absolutely nothing with my portfolio mix as I age (which is my plan), in 90%+ of scenarios I'd be able to leave my wife or son an additional one to seven hundred thousand dollars that would have accumulated by reducing portfolio withdrawals. That beats the hell out of a few extra thousand dollars a month in survivors benefits, and nobody has to 'qualify'. Although in my case since my wife will have worked a lot longer than I have, her benefits will actually be higher than mine.

Its occurred to me that this is simply the mortgage 'discussion' in a different form. A number of people show up with their minds made up from non factual information, then create their own 'facts' to support that predisposition. As with that decision, running your own numbers is the only way to come up with the right answer. At least from the fleshing out thats been done here, people know what all the parameters are.

The second dumbest thing in the world you can do is try to frame this decision in a vacuum, rather than as part of your total financial, investment and lifestyle perspective. The sudden appearance of an income stream changes everything, or has the potential to. Look for both opportunities to make positive changes in other places or to be able to avoid negative changes.

I'll save someone from going for the setup "whats the dumbest thing": basing your decision on what a newspaper columnist who doesnt want to retire early thinks, or basing it on a book written by a "marketing executive" who specifically touts this issue to help sell his book. While concurrently ignoring free advice from a large body of people who are already engaged in evaluating this decision. And doing it because that suits the emotionally driven decision you've already made.

Ok whodamajingy, time for another one of your snarky comments about how we all suck and why nobody should debate issues. Now where have I heard this before? Someone who told us they had all the answers but couldnt debate them right now? Do you happen to have a magic tool too?

This reminds me of that old star trek episode where the gang defeats the horde of ultra smart androids by telling them "I never lie. I'm a liar" and they all short circuit from the conundrum..."I'm posting on an internet discussion group...dont listen to anyone on an internet discussion group".

 

[cute fuzzy bunny]

At least you can follow directions.

 

[Texas Proud]

() and you say you are not being 'mean'? Sure seems that way to my reading.

The financial analysis is pretty clear that taking it early is best if you 'will' die early and take it later if you 'will' die later... for most low rate of returns there is a break even point somewhere in the 70s (maybe early 80s, I have not done the calc recently)...

Someone, if they are willing, can figure out the needed rate of return to make it best for early all the time.. but I do not see anybody that has done that calc as Whoda keeps pointing out... and I am not talking about your number on FIRECALC.. I am talking about an A and B analysis of two 'investments'...

 

[setab]

As we used to tell clients who wanted the "perfect" will. Tell me exactly when you are going to die and we can get you pretty close. If you don't know that, we have to make some assumptions, compromises and educated guesses. That's the best we can do.

setab

 

[bongo2]

(), when I rean the FIREcalc numbers I used the defaults that show up when you open the page, but changed the lifespan to 20 years (to correspond to your "soup" comment after 80).  The reason for our difference is that you are looking several years before the decision, while I am looking at the day of the decision.  You didn't say how far out you were from 62, so I used 17 years (and 21 years for the comparison SS "late"), but kept all the other inputs the same.  FIREcalc gives a starting withdrawal of $33.1k for SS early, and $32.1k for SS late.  What's happening is that sometimes when you get 17 years out you've had a bad run and you're at the point where you're withdrawing 20+% of your portfolio, but good results are just around the corner.  In that case you need the SS to stop the bleeding, and take advantage of the stock market.  1965 is one example where the SS early succeedes and SS late fails.  When you get to 1982 (right before the run of the bull market) you're low on cash ($370k), you're spending $85k a year, and you are on the brink of several years of great investment results.  If you take SS right away you can squeak through.

So I guess the lesson is, 1) if you had to decide today you would take it early, 2) if you are really desparate for the cash you should take it early (no surprise), but 3) if you're still looking at a reasonable WR at 62 you should take it late.

By the way, you mentioned inheritance.  This analysis is inherently selfish (for you and anyone else drawing on your benefits).  Considering the estate value as well as the survival value will make an annuity (or SS) less desirable.  I'm not sure that it would change the answer, but I can't say for sure that it wouldn't either.

 

[WilliamG]

I'm not good with numbers.  In figuring these break even points, does growth in your portfolio due to the money you did NOT take out of it get counted?  Also, 2nd to running out of money, we want to maximize what our beneficiaries will get. I guess you can get that comparison by looking at end result portfolio value?

 

[Texas Proud]

I think that the analyst might need to distinguish between an average rate of return, which is probably not all that high to push things in favor of early SS and all-stocks, and a "safe withdrawal" rate.   

Nope, the analysis is with no withdrawal rate... if you have a withdrawl rate you 'need' the money... the analysis (that I would do) is that you never spend any of your SS and see which ones grows the biggest.. there is some (average) rate of return that will have the early always higher than the later.. and the higher the rate when it is low the later the crossover will be... maybe I will work on it this weekend... but maybe not..

 

[cute fuzzy bunny]

Nice article from AARP on the topic:

http://www.aarp.org/bulletin/socialsec/a2003-06-24-paydaysooner.html

And a very nice index of articles here:

http://www.aarp.org/bulletin/socialsec/

Key points:

- 6 in 10 retirees take social security 'early', as soon as they qualify for it
- The social security 'benefit' as a function of payments and the IRS life expectancy table are a wash; as long as you live exactly as long as the IRS thinks you will, taking it early, later or somewhere in the middle makes no difference in how much you receive. If you think you'll live longer than the IRS does, receive more from them if you wait. If you die sooner, you'll receive more if you take it earlier.
- They estimate the break even point of taking it later vs earlier at 80+ if the money is invested.
- "Experts agree there's almost never any reason to wait to take benefits until you turn 70—unless your spouse needs your benefits to meet living expenses."
- "There's no compelling argument that the government is the best place for you to invest your money. Better to have cash flow on your side."

They offer these as the key points towards making the decision:

* Your health and life expectancy. While you can't outlive your Social Security benefits, taking them early can change from a smart move to a not-so-smart move if you live long enough. The better your health and the longer your life expectancy, the wiser it may be not to take benefits early.

* Your spouse's income needs. Your spouse's needs could be a big factor if he or she is much younger and likely to collect survivor's benefits for many, many years. If your spouse was not in the paid labor force, your Social Security benefits could represent the lion's share of his or her retirement income.

* The power of money. Don't forget that the money you already have in retirement accounts could keep growing tax deferred if you were living instead on Social Security benefits.

* How long you want to keep working. Work often provides health care coverage and other benefits that can otherwise cost you plenty.

After reading through a lot of information (I heartily recommend doing some of your own googling, I learned a lot of anciliary stuff along the way), I found lots of good material from all of our heroes and anti-heroes. Few claimed a non-invested payback sooner than 74, most claimed an invested payback at 81+.

Texas Proud: if you'd care to share specifically where you think I became 'mean' in an unwarranted manner, I'd be glad to explain my comments. I think I allowed plenty of leeway to an apparently hostile poster, who said several 'mean' things to me while I was barely further outside the envelope of sarcastic.

 

[Nords]

* The power of money. Don't forget that the money you already have in retirement accounts could keep growing tax deferred if you were living instead on Social Security benefits.

Excellent point... I'm gonna have to keep that one in mind.

 

[MJ]

For me it will be an easy decision.

Unless I greatly improve my investment saavy by age 62 and do a better job than SSA,
if I don't need the money at 62 for several years, i'll wait til 63.
if I don't need the money at 63 for several years, i'll wait til 64.
if I don't need the money at 64 for several years, i'll wait til 65.
etc. etc. etc.

With my father turning 96 in several months, I am banking that unless I get hit by a truck while riding my bicycle, I plan to live to til ...... so I think I can beat the odds by waiting til 66 or later and collecting fatter check for 25 + years.
I am also not hung up on getting all "my money" back from the government before I croak.

MJ

 

[REWahoo]

With my father turning 96 in several months, I am banking that unless I get hit by a truck while riding my bicycle, I plan to live to til ......

My mom made it to 92, my dad to 90. My two brothers and I used to say the exact same thing you are saying above....until one of them was hit by a truck two years ago. He died more than 20 years short of the yardstick many of us use to help guesstimate how long we will be around. For my brother, taking SS at 62 was the right decision.

 

[Dawg52]

My mom made it to 92, my dad to 90.  My two brothers and I used to say the exact same thing you are saying above....until one of them was hit by a truck two years ago.  He died more than 20 years short of the yardstick many of us use to help guesstimate how long we will be around.  For my brother, taking SS at 62 was the right decision.

My brother didn't make it to 62 so I'm sure I will take it then if I'm still around. Dad died at 83 and Mom still alive so it's hard to say what the future holds for me. 

 

[tryan]

* Your spouse's income needs. Your spouse's needs could be a big factor if he or she is much younger and likely to collect survivor's benefits for many, many years. If your spouse was not in the paid labor force, your Social Security benefits could represent the lion's share of his or her retirement income.

These is key for us ... as my DW will likely outlive me by 10+ years. So I always plan to take SS at late a feasible. Just put it in the bond part of the wad (as 14 x annual payout per Bogel's recommendation) and forget about it.

 

[haha]

These is key for us ... as my DW will likely outlive me by 10+ years.  So I always plan to take SS at late a feasible.  Just put it in the bond part of the wad (as 14 x annual payout per Bogel's recommendation) and forget about it.

Trying to capitalize the income stream seems wrong-headed to me, but if one is going to do that, given today's low interest rates I think14x is much too low for a COLA annuity backed by the US government with 100% jt and survivor features. IMO, it should conservatively be valued at>20x; but probably <25x.

Ha

 

[tryan]

it should conservatively be valued at>20x; but probably <25x.

My guess is Bogel figures you will not collect a pension or SS for more than 14 years. Hopefully we'll all collect for 25 and beyond.

 

[Outtahere]

Dh and I had this argument for at least a year before he turned 62. He INSISTED that he was going to take it because everyone told him if he waited he'd never live long enough to break even. I kept telling him we didn't need the money and to wait. He wouldn't listen to me and took it at 62, not 6 months later he was freaking out that he's going to make too much money at his part time job (that he refuses to give up) and they are going to take money away. Thankfully when I take mine he will end up getting the spousal extra.

 

[retire@40]

I hope he wasn't waiting until 65 to take his higher benefits.

January 19, 2006
RESTON, Va. - Wilson Pickett, the soul pioneer best known for the fiery hits "Mustang Sally" and "In The Midnight Hour," died of a heart attack Thursday, according to his management company. He was 64.

 

[haha]

If you're interested in an informed answer to this question, read the Scott Burns material mentioned above, some earlier posts to this forum by "New Thinking" and the new book "Retire Early?  Make the Smart Choices" by Steven Silbiger.

I ordered the Silberger book from my library. It came today and I agree with Whoda that it is very complete and helpful. It didn’t change my mind, as I already planned to wait, but it does make me feel more comfortable with that (provisional) plan. I may buy the book to have it available as a reference.

Ha

 

[rs0460a]

It didn’t change my mind, as I already planned to wait, but it does make me feel more comfortable
Ha

Ha,

I just got the Silbiger book and read it this weekend.  What was interesting is that I thought I could not "afford" to wait till my/DW full retirement age (66) to draw SS due to our planned retirement at age 60.  Crunching the numbers through the five tools I use to cross check my "assumptions" showed that we could certainly wait to draw the maximum.  In all test cases, with all tools, it maximized the residual estate value at the end of our plan.

Yes, there is always the question of "will SS be there for my retirement".  Since DW/me were born in '48, I believe that we will be "in the ground" before major changes (if any) are made to the SS system.  Regardless of that risk, we're fortunate to have assets that will cover 100% of our current net income till our respective forecast mortality table entry.  What the "Silbiger Suggestion" does is extend our plan to age 100.  We we near that goal with our current plan, but this change more than assures that target age. 

I like the idea of taking some of "our" money "off the table" by drawing down a bit more at early retirement, and to have an "annuity" (e.g. SS) later in life when we may not be in a mental condition to make these kind of decisions (no, I don't believe in "financial consultants" - but that's another story...)  You can certainly make the argument for making more money "in the market" than SS will provide, but others can (and have) make the opposite argument of "loosing due to the market".

Since we're leaving our remaining estate to charity, it just may wind up that if we "beat the system"; some folks that "need it the most" (per our future bequests) will share in our "windfall".

Anyway, that's my story (and I'm sticking to it!) 

- Ron