Theory Behind taking Social Security Early?

[samclem]

I just have a hard time with the idea that we desperately want $1,200 a month but shrug off paying out $151,000. $1,200 is a lot of money but $151,000 is negligible?

$1200 additional per month. For as long as the person lives. Inflation adjusted. The $151K can't buy that anywhere else.

$1200 per month >is< a lot of money for most people. Where I live it will make the rent/mortgage payment on a 3BR house in a safe neighborhood, with enough left over to pay the electric and gas bill.

 

[marko]

And, unfortunately, none of them are around to comment on how they wished they had taken those marshmallows when they had the chance. .

Friend of mine waited for 66. Came down with pancreatic cancer and died at 64. He had the time to tell us he wished he took the money and retired earlier and not listened to his FA who convinced him to wait "for a better payout". There was stuff he wanted to do in retirement but only retired when he got too sick to work.
YMMV

 

[ShokWaveRider]

I am waiting to FRA age (2 years), that to me is a compromise. DW will take at 62 (2 more years) to pay for her healthcare.

 

[joeea]

I'm 60 now. Just under 2 years until I can collect a SS check. My main goal is to live to an age where I'll at least collect one check. You can't imagine how mad I'll be if I die before then.

I guess we all have our goals...

 

[joeea]

Will probably pull the plug in 5/2019 to 5/2020 age 65-66. Spouses pension, my SS and my small private pension would provide for most everything except for some discretionary like new touring kayaks.

The lack of a spousal benefit and preserving our nestegg because of that lack was the deciding factor.

So for you, "pulling the plug" coincides with starting your social security benefits?

 

[joeea]

I just have a hard time with the idea that we desperately want $1,200 a month but shrug off paying out $151,000. $1,200 is a lot of money but $151,000 is negligible?

I don't believe I've ever heard anyone use the word "negligible". If I missed it perhaps you can provide a link.

I guess it comes down to how much $1200/month of inflation-protected guaranteed income for the rest of your life is worth.

And if you have a spouse, you may have to also consider how much it is worth for your combined lifetimes.

 

[Cut-Throat]

Friend of mine waited for 66. Came down with pancreatic cancer and died at 64. He had the time to tell us he wished he took the money and retired earlier and not listened to his FA who convinced him to wait "for a better payout". There was stuff he wanted to do in retirement but only retired when he got too sick to work.
YMMV

Yes, if he needed the SS to retire earlier, he Should have taken it.... Not many would argue with that. We're mostly discussing people that are retired, have the money and can make a decision either way.

 

[Tom52]

All the discussion about when to take SS is enough to make my head spin. We made our decision, DW and I both filed today for SS. Hers will begin next month at age 64.5. My application is to draw a spousal benefit starting at my FRA in December this year. I am able to delay drawing on my benefit till age 70. Numbers look quite good if we live to a ripe old age. If I don't make it much past 70 DW will have a much higher benefit. Life is good!

 

[rayvt]

I guess it comes down to how much $1200/month of inflation-protected guaranteed income for the rest of your life is worth.

It's the delta, not the absolute magnitude. It's not "$1200/mo", it's "$1200 more a month".

If your SWR + pension income is $5000, and your FRA benefit is $2095, that at 70 your income will be
$5000 + $1571 ($6571) if you filed at 62 or
$5000 + $2765 ($7765) if you filed at 70.
That's 18% more in total income, even though the SS is 75% more.

The higher your non-SS income is, the less difference the extra SS makes.

Since our goal is to be Finanically Independent such that we could Retire Early, and since we could forego collecting SS for the 8 years from 62 to 70, then I would say that the marginal benefit to the SS income is, um, marginal.

I don't believe I've ever heard anyone use the word "negligible".

No, they just treat it as negligible. Almost all the discussions focus on the extra SS you get each month, and ignore the 8 years of SS you gave up.

 

[rayvt]

Eh, I used to be on the side of deferring---because who doesn't want extra money, right?
It's when I looked at it as buying an annuity that I changed my mind. The payback period is 10-12 years, and that's too long for me.

And the utility value of the extra money is much more valuable at 62 than at 80.
At 62 you can climb Machu Picchu. At 80, you can only watch Machu Picchu on a bigscreen TV.

 

[street]

Originally Posted by RockyMtn
here's an interesting article in Kiplingers that suggests those with significant assets may want to take SS early!



https://www.kiplinger.com/article/re...ity-at-62.html

Very interesting! This has been my thinking when this subject comes up. I see way more advantage for me taking SS @ 62 then not taking it. Great!

 

[ShokWaveRider]

Originally Posted by RockyMtn
here's an interesting article in Kiplingers that suggests those with significant assets may want to take SS early!



https://www.kiplinger.com/article/re...ity-at-62.html

Very interesting! This has been my thinking when this subject comes up. I see way more advantage for me taking SS @ 62 then not taking it. Great!

Cannot seem to get this link.

 

[REWahoo]

Try this:
https://www.kiplinger.com/article/r...e-may-want-to-take-social-security-at-62.html

 

[jimandthom]

So for you, "pulling the plug" coincides with starting your social security benefits?

Nope--probably didn't explain well enough. Spouse retired in 2011 with his CSRS and I retired in 2016 although final couple of years were working 30hrs per week.

Lucked out at got a offer on our house in May 2016, that was too good to pass up. Sold it and moved into our new 120yr old house in the UP of Michigan on July 7, 2016.

Know at the point of zeroing in on best way of claiming my SS due to him not be eligible for a spousal should I die first.

 

[ShokWaveRider]

Try this:
https://www.kiplinger.com/article/r...e-may-want-to-take-social-security-at-62.html

Thanks that is all good.

 

[ERD50]

Eh, I used to be on the side of deferring---because who doesn't want extra money, right?
It's when I looked at it as buying an annuity that I changed my mind. The payback period is 10-12 years, and that's too long for me.

And the utility value of the extra money is much more valuable at 62 than at 80.
At 62 you can climb Machu Picchu. At 80, you can only watch Machu Picchu on a bigscreen TV.

As long as you keep viewing it as break-even, rather than as longevity insurance (esp with a benefit qualifying spouse), the decision will pretty much be a toss-up. Really not much to talk about with the break-even approach (other than trying to predict your date-of-death).

And it's been posted dozens of times - Cut-Throat showed how you can spend more at 62 (and climb Machu Puchu if you want) by delaying, because you don't need to have as big a stash to cover the later years.

-ERD50

 

[Fedup]

I thought people have post that link from Kipplinger’s article multiple times, at least 3 times as far as I can remember and it has been debunked. For me it’s nonsense, the article I mean, the more I read this thread, the more I’m firmly in the camp of taking it at 70.

 

[audreyh1]

Originally Posted by RockyMtn
here's an interesting article in Kiplingers that suggests those with significant assets may want to take SS early!

https://www.kiplinger.com/article/re...ity-at-62.html

Very interesting! This has been my thinking when this subject comes up. I see way more advantage for me taking SS @ 62 then not taking it. Great!

That article makes several assumptions. Mainly that the retirees would be pulling from pre-tax accounts to cover income that they might otherwise receive, and that the tax brackets on that somehow they will be taxed much more highly than SS income.

The issue that immediately came to light is they, like many Americans, will look to pull from their IRA and 401(k) in retirement. These are generally the most significant accounts in terms of amounts saved through the working years. If this family didn’t turn on Social Security at age 62, they would need to pull heavily from pretax retirement accounts. Based on the monthly distribution rate needed to maintain their budget, those dollars — taxed at current income tax rates — would immediately put them into a higher tax bracket (potentially the 22% bracket under 2018 tax rates).

If they were to go ahead and take their Social Security payments at age 62, the monthly distribution amounts needed from their retirement savings accounts would be substantially smaller. As we’ll demonstrate, this couple’s story shows how heavily draining one’s retirement accounts early in retirement can result in lost opportunities for compounded growth of assets over a 20- to 30-year retirement.

If they were to take their Social Security at age 62 — while in a 10% tax bracket from age 62 to 70 — the amount of tax they would pay on those Social Security benefits would be minimal, possibly even zero. There are cases where our families who have done a great job of saving across many accounts with true tax diversification in their portfolio will pay no tax on their Social Security benefits for a good majority of their retirement (based on 2018 Social Security Base Amount limits, which have been in effect since 1983).

Those are both ordinary income, although only 85% of SS is taxable above a fairly low threshold. So there is only a slight tax advantage to SS income.

Seems like plenty of really wealthy folks are already above the thresholds where 85% of SS is taxable income without drawing anything from IRAs. In fact those folks are probably delaying IRA withdrawals as long as possible, or alternatively trying to do Roth conversions before SS or RMDs push up their ordinary income.

This article was discussed in detail around post #304 and pretty much debunked.

 

[pb4uski]

..... I just have a hard time with the idea that we desperately want $1,200 a month but shrug off paying out $151,000. $1,200 is a lot of money but $151,000 is negligible?

Just off the cuff, the relationship of those numbers is about right with what I have posted in the past.

People post here all the time about taking a part of their nestegg and buying a lifetime immediate annuity.

If someone posted that they were age 70 and thinking about taking a part of their nest egg, $151k, and buying a SPIA that would pay them $1,200/month (a 9.5% payout rate) and the payments were COLA adjusted, how would we advise them? If they then said that they would be paying the $151k in monthly installments from age 62-70, would our advice be any different?

Also, if they were married, that it was a 66% or 100% joint life annuity that would be the icing on the cake.

 

[pb4uski]

Originally Posted by RockyMtn
here's an interesting article in Kiplingers that suggests those with significant assets may want to take SS early!



https://www.kiplinger.com/article/re...ity-at-62.html

Very interesting! This has been my thinking when this subject comes up. I see way more advantage for me taking SS @ 62 then not taking it. Great!

If you look at some earlier posts in this thread you'll find that many of us don't think his numbers make sense... he even sent one poster some details that were shared and they still didn't make sense.

 

[pb4uski]

Eh, I used to be on the side of deferring---because who doesn't want extra money, right?
It's when I looked at it as buying an annuity that I changed my mind. The payback period is 10-12 years, and that's too long for me.

And the utility value of the extra money is much more valuable at 62 than at 80.
At 62 you can climb Machu Picchu. At 80, you can only watch Machu Picchu on a bigscreen TV.

I came to the exact opposite conclusion. When I look at it as an annuity I think it is such a screaming deal that it is hard to resist. Any life annuity is going to have a 10-12 year payback period or longer.

According to immediateannuities.com, the payout rate for a 70 yo male in NY is 6.7% (14.9 year payback) and for a woman is 6.4% (15.6 year payback).... these are fixed annuities.

By contrast, your SS example has a 9.5% payout rate and 10.5 year payback.

The utility of money argument is a bit hollow in that most people on these boards that are considering delaying have $1 million or more in retirement savings, so spending that $151k to buy that COLA adjusted life-time annuity (or joint life annuity if if they are married) isn't going to force them to spend less from 62-70.

 

[30yeardraw]

I'm 60 now. Just under 2 years until I can collect a SS check. My main goal is to live to an age where I'll at least collect one check. You can't imagine how mad I'll be if I die before then.

yes this seems to cover it for me too.

 

[pb4uski]

If you're going to set the bar low, then why not set it that you collect what you paid in rather than just one check?.... for me that would be to collect for a little over 5 years if I started at age 62.

 

[Independent]

Originally Posted by RockyMtn
here's an interesting article in Kiplingers that suggests those with significant assets may want to take SS early!

https://www.kiplinger.com/article/re...ity-at-62.html

Very interesting! This has been my thinking when this subject comes up. I see way more advantage for me taking SS @ 62 then not taking it. Great!

This link has been posted a number of times in this thread. Multiple people have pointed out that the numbers don't seem to make sense.

One of our posters contacted the author and asked for some backup. He got this spreadsheet http://www.early-retirement.org/for...cial-security-early-93511-18.html#post2106871
Here's the highlight:

For age 62, starting SS at 62,
"Federal Gross Income" $76, 218
Federal Income Tax ..... $5,885

For age 62, starting SS at 66,
"Federal Gross Income" $184,114
Federal Income Tax ...... $27,104

They have a combined SS benefit of $36,500 if they start at 62.

I can't understand how a $36,500 SS benefit can reduce their AGI by $108,000. Maybe you have a theory.

My theory is that the author just made stuff up to get leads.

 

[30yeardraw]

Low goal is better than none.