Theory Behind taking Social Security Early?

[aja8888]

I took mine at my FRA. It's working fine.

 

[Cut-Throat]

I finally got around to completing the "I'm dead" portion of my finance spreadsheet to account for loss of pension and SS benefits. I use that to see if my wife will be a pauper when I die..................................

Am I correct in my interpretation of this?

Why don't you use this very simple Calculator put together by a 'Real' Social Security Expert and see what it says.... You only need a few pieces of info like your FRA and it will do the rest.


https://opensocialsecurity.com/

 

[Cut-Throat]

These social security threads solidify my faith in mankind. None of us need ever be bored or lonesome, we can always come to ER.org and find an active argument about when to take SS.

Ha

Mikey, you've got realize you're damn near 80 and this stuff I'm sure bores you to death.... But other folks, have the same questions you did 15-20 years ago.

 

[joeea]

We don't need SS to meet our spending goals while I am alive. Now that I have completed my "I'm dead" spreadsheet, my wife doesn't need SS to maintain the same standard of living after I am dead. Seems like a good situation to take SS at the earliest possible opportunity and use the money to contribute to the blow that dough thread.

Conversely you could defer your SS until 70.

Thus knowing that you'll have more inflation-protected income coming your way at that time, you could safely use more money to contribute to the blow that dough thread now.

 

[sengsational]

Why don't you use this very simple Calculator put together by a 'Real' Social Security Expert and see what it says.... You only need a few pieces of info like your FRA and it will do the rest.


https://opensocialsecurity.com/

The problem with that calculator is it's leaving out a bunch of what happens in the real world. Yes, it's a very simple calculator, but in it's simplicity, there's basic things that it ignores.

...does not currently account for:

• Child benefits (or spousal benefits for people younger than age 62 with a child in care),
• Disability benefits, or
• Tax planning reasons

And what he doesn't put in that list, but it's certainly not accounting for is the presumed real rate of growth in investments if SS is taken early. In other words, your investment accounts will be larger, and will grow more if you're spending SS dollars instead of pulling money out of your investments, waiting for age 70 to roll around.

In the description of how it works, he says

The claiming age that had the highest present value is then suggested to the user, and the present value associated with such claiming age is provided as well.

But doesn't spell-out the discount rate used in the calculation, which is a big factor. He also says absolutely nothing about what he presumes happens to the money that you've presumably got invested that you're NOT spending if you take SS early. That's critical. The possible default (and completely wrong) assumptions include that the money shrinks with inflation or keeps even with inflation. But if you have that money invested, you'll do better than both of those [if you believe that investments in the next decades will do similarly to what they've done in previous decades (a good bet, in my book)].

Bottom line: any calculator that doesn't expressly spell-out what happens to funds that remain invested while you're pulling early SS can not possibly be telling you the full picture.

This calculator is by a self-proclaimed "Real" SS Expert who would rather have the situation seem more complex than it is so that he'll sell more books.

 

[frankbrenowitz]

Some people believe that due to the fact that my dad passed at age 97, my mom is still alive at 96, and three of my four grandparents lived till their 90's, I have "good genetics". I personally don't believe this one bit. If a truck runs me over, it is not going to do a genetic scan. I would be dead no matter what. Anyway, a financial advisor told me that with my heredity, I should claim SS early. Can someone explain the logic to that? I guess my "great genetics" did not carry over to understanding finances very well. Thanks for your time and expertise.

The likelihood of your being run over by the proverbial Mack truck is an independent variable in your analysis of whether to take social security at 62 or 70.

According to Vanguard, a 65 year old married couple has a nearly even chance that one of them will live until 90 and almost a 1 in 5 chance to live until 95. Given those probabilities, which takes into account all of the causes of death for our couple, including the truck, you need to ask yourself “If I am still living or my bride is still living at 90, would I rather be receiving, say, a COLA-adjusted $40,000 annual benefit or a $23,000 benefit?”

Delayed social security is the best longevity insurance available. If you have sufficient assets that you don’t need longevity insurance, by all means take it the moment you are eligible. On the other hand, as has been demonstrated multiple times on this site and on Bogleheads, delaying social security until 70 results in increased spending for each year of retirement under most reasonable assumptions. It’s only a few thousand per year, but it’s not nothing, either.

Your “advisor” is either a moron or a crook for reasons described by others in this thread. Your goals and his are clearly not aligned.

 

[joeea]

But doesn't spell-out the discount rate used in the calculation, which is a big factor.

Perhaps you missed it.

Check the Advanced Options checkbox.

Then scroll down until you see the Real Discount Rate edit box (default is 0.79%).

This calculator is by a self-proclaimed "Real" SS Expert who would rather have the situation seem more complex than it is so that he'll sell more books.

Self-proclaimed? Perhaps you forgot The Wall Street Journal, AARP, Kiplinger's, etc? Not to mention many of us here...

Rather have the situation seem more complex? On the contrary, Mike's strength is making the complex Social Security rules simple.

 

[sengsational]

Perhaps you missed it.

Check the Advanced Options checkbox.

Then scroll down until you see the Real Discount Rate edit box (default is 0.79%).

Yep, I missed that. But I'd cry out loud if I thought that all I'd earn is 0.79% real. Having the rate based on a super conservative thing means the analysis is tilted towards taking SS late. Over the very long run, the stock market has had an inflation-adjusted annualized return rate of between six and seven percent.

 

[youbet]

Rather have the situation seem more complex? On the contrary, Mike's strength is making the complex Social Security rules simple.

But you still have to make assumptions that are generally unpredictable, the biggest of which is the return on the dollars invested while you're collecting early. I'm always amazed when people give little consideration to the time value of money. For example, I started SS in 2009. I invested all received dollars in a broad market domestic index fund. The kitty generated covers the difference between my early SS and that which I would have received if I had waited until 70 (at a reasonable WR). And it provides an insurance component to my DW who cannot collect based on my SS (and gets none of her own). This way she will get whatever is left of the kitty should I predecease her.

I know starting SS at the beginning of a great bull run (and investing every dollar) plus having a DW who cannot collect on your SS would not be a common thing. But situations like mine do justify understanding all the ramifications of your personal situation and not just blindly following the "it's better to take it at 70" bandwagon. And it's important to consider the growth opportunity from receiving the money early as opposed to only considering the break even point (in age) of dollars received.

 

[youbet]

Bottom line: any calculator that doesn't expressly spell-out what happens to funds that remain invested while you're pulling early SS can not possibly be telling you the full picture.

Very much agree.

 

[jimandthom]

I know starting SS at the beginning of a great bull run (and investing every dollar) plus having a DW who cannot collect on your SS would not be a common thing. But situations like mine do justify understanding all the ramifications of your personal situation and not just blindly following the "it's better to take it at 7" bandwagon. And it's important to consider the growth opportunity from receiving the money early as opposed to only considering the break even point (in age) of dollars received.

Ditto situation here.

Have yet to see a calculator that takes this into consideration.
I will not go any further than FRA(66 in 5/2020) and will probably start to collect beginning May 2019, mostly for simplicity with Medicare payment.

 

[Cut-Throat]

Bottom line: any calculator that doesn't expressly spell-out what happens to funds that remain invested while you're pulling early SS can not possibly be telling you the full picture.

Well that pretty much eliminates any financial Calculator ever developed.... Lets throw them all away as they cannot predict the future.

 

[daylatedollarshort]

We took pensions at 55 and will take SS at 62. Our longevity insurance is continuing to live below our means in retirement. In terms of net worth at "plan termination", a LBYMs lifestyle is a much bigger factor for us compared to any SS claiming strategies. Our retirement strategy is more along the lines of freedom is low overhead, or at least relatively low for a high cost of living area.

 

[sengsational]

Well that pretty much eliminates any financial Calculator ever developed.... Lets throw them all away as they cannot predict the future.

Some calculators are up-front their rated assumptions, and give the user the opportunity to tune the rates based on their beliefs about what the future may bring. Or they show many possibilities (like FIRECalc). That's all I was trying to say.

 

[pb4uski]

The problem with that calculator is it's leaving out a bunch of what happens in the real world. Yes, it's a very simple calculator, but in it's simplicity, there's basic things that it ignores.

And what he doesn't put in that list, but it's certainly not accounting for is the presumed real rate of growth in investments if SS is taken early. In other words, your investment accounts will be larger, and will grow more if you're spending SS dollars instead of pulling money out of your investments, waiting for age 70 to roll around.

In the description of how it works, he says But doesn't spell-out the discount rate used in the calculation, which is a big factor. He also says absolutely nothing about what he presumes happens to the money that you've presumably got invested that you're NOT spending if you take SS early. That's critical. The possible default (and completely wrong) assumptions include that the money shrinks with inflation or keeps even with inflation. But if you have that money invested, you'll do better than both of those [if you believe that investments in the next decades will do similarly to what they've done in previous decades (a good bet, in my book)].

Bottom line: any calculator that doesn't expressly spell-out what happens to funds that remain invested while you're pulling early SS can not possibly be telling you the full picture.

This calculator is by a self-proclaimed "Real" SS Expert who would rather have the situation seem more complex than it is so that he'll sell more books.

You're totally wrong. For one thing, child benefits and SSDI are not common and he alerts users to the fact that they are not provided for.

He does provide for you to issue a real discount rate of your choice. Like you, I also think the rate that he uses is ridiculously low but he does explain why, even if his reasoning is flawed IMO.

The good thing is that he allows you to see the impact if benefits are reduced and he allows you to chose from different mortality tables based on how lucky you think you are.

Also, I think the expected present value approach that he uses (uding gender speficic mortality) is the way to go and I don't see ANY other calculators out there that do that.

 

[sengsational]

He does provide for you to issue a real discount rate of your choice. Like you, I also think the rate that he uses is ridiculously low but he does explain why, even if his reasoning is flawed IMO.

Well, I'm not TOTALLY wrong, since we agree on the choice of discount rate.


But it's "The Tyranny of the Default" that is leveraged here to sell books.


You're a math person, you've got some models that really capture everything that can be captured. But the average visitor to that calculator has none of that. They are 60% equities, so should be putting in .6*.06+.4*.0079, but are they? Yeah, no, they just press the calculate button, and figure if the guy wrote a book, why should I need to think?


Although the idea encapsulated in the pages calculations is legit, I think it would be more clear to remove that complexity and simply return the break even age. Maybe include what the actuarial tables say for the average American, but link to one of those sites that let you put in a bunch of stuff (ie always uses seatbelts kind of crap) and get a better idea of how many years are left.

 

[imoldernu]

If you have enough nerve, listen to this older talk (2005) on Social Security, by Paul Krugman.

The Future of Social Security.

Media | Paul Krugman | Nobel Prize Winner and Op-Ed Columnist for The New York Times

Similar read from the same period.
https://www.usi.edu/business/cashel/331/Krugman%20Social%20Security.pdf

Not far off, as I can see.

 

[swabby01]

I believe that taking early SS is VERY dependent on ones overall financial situation and is truly personal in nature.

For me, what makes the most sense is that I will wait until FRA to insure that I establish a good baseline supplement to my financial earnings and pension. That will set a decent amount for my wife should I die first. My DW will retire and draw early retirement SS at 62 1/2 as a partial replacement for her salary as she has no pension. Doing a whole series of Monte Carlo runs against market conditions and potential SS law changes resulted in this being the best average income methodology for my DW and I

 

[Independent]

Yep, I missed that. But I'd cry out loud if I thought that all I'd earn is 0.79% real. Having the rate based on a super conservative thing means the analysis is tilted towards taking SS late. Over the very long run, the stock market has had an inflation-adjusted annualized return rate of between six and seven percent.

I agree with the bold. Does that mean a SWR from my assets would be six or seven percent?

 

[bongo2]

Most people like to take their SS early. Many people (certainly not anyone on this forum, but elsewhere) don't really care if the math says they are better off delaying. They want the money now. If you have done the math, and you see that it's better for someone to take SS late don't tell them! All it's going to do is cost you money in taxes and make it more likely that the government will cut your benefits in the future.

 

[joeea]

But I'd cry out loud if I thought that all I'd earn is 0.79% real.

So put in whatever number will prevent you from crying.

But before you do, read the article under the link for why that number is chosen as the default: https://obliviousinvestor.com/claim...ate-of-return-discount-rate-should-we-assume/

 

[joeea]

But you still have to make assumptions that are generally unpredictable, the biggest of which is the return on the dollars invested while you're collecting early.

Right. We cannot predict the future. But we still need to make plans and take action.

I'm always amazed when people give little consideration to the time value of money.

The tool specifically accounts for the time value of money.

For example, I started SS in 2009. I invested all received dollars in a broad market domestic index fund. The kitty generated covers the difference between my early SS and that which I would have received if I had waited until 70 (at a reasonable WR). And it provides an insurance component to my DW who cannot collect based on my SS (and gets none of her own). This way she will get whatever is left of the kitty should I predecease her.

I know starting SS at the beginning of a great bull run (and investing every dollar) plus having a DW who cannot collect on your SS would not be a common thing.

It was not predictable that you started at the beginning of a great bull run. Yet you took action you believed would be best for you. If the market had gone on a great bear run instead, your outcome may have been different. You took on a lot of risk. Fortunately it worked out in your specific case.

But situations like mine do justify understanding all the ramifications of your personal situation and not just blindly following the "it's better to take it at 70" bandwagon.

I agree. Nobody should blindly follow "it's better to take it at 62" or "at 70". That's where tools, models, advisers, and careful thought about your specific situation come in.

And it's important to consider the growth opportunity from receiving the money early as opposed to only considering the break even point (in age) of dollars received.

It's certainly possible to consider growth opportunity along with break even if you choose. (Although many would argue that "break even" considerations are inferior to "longevity insurance" considerations.)

 

[wmc1000]

Try this I do not know how accurate it is but it is another source...check the assumptions....

https://opensocialsecurity.com

I had a FA tell me to take it at 62 because "why use your own money to live off of take the SS first as you paid into it and save your investments..... there is no right/wrong answer"?

I used the advanced tab to generate the "optimal" scenario and then inputted the alternative scenario of our filing at FRA since we are at that point at the end of this year for DW and mid 2019 for me. The NPV difference was only $36,000 between the 2 assuming SS benefits are cut in 2034 and $50,000 if SS is not cut using the 2015 actuarial tables.

If I input assumed age at death and enter 95 for both of us the NPV difference climbs to $88,000

For our scenario the difference in either scenario still leads me to choose FRA, (66), filing for us. YMMV

 

[marko]

Most people like to take their SS early. Many people (certainly not anyone on this forum, but elsewhere) don't really care if the math says they are better off delaying. They want the money now. If you have done the math, and you see that it's better for someone to take SS late [

It's a bit like "Let's Make A Deal" isn't it?
Drew Carey says:
"I have two envelopes.

Envelope number one pays $20,000 for life.
You can open it right now at age 62 and spend it any way you'd like.

Envelope number two has as much as $36,000 for life.
But you can't open it for 8 more years.
....but if you die before that, you get nothing.
....and if the people giving you that money decide, you might end up with less.
....and there's other rules they might change and you might get less
....and...even if nothing changes, it's all the same until you're about 83 years old.
So! What are you going to do?"

My personal guideline that has served me well throughout my life is "Bird in Hand" (take the money and run).

I took envelope number one.

(this example assumes a single person or, in my case DW getting about the same benefit as mine)

 

[MrLoco]

The best way I have heard on this topic is as follows:


The real danger is NOT delay taking SS until FRA or later and dying early and never receiving a benefit.....BUT>>>>


Taking SS at age 62 and then find yourself broke at age 82.


If you delay taking benefits and then die early.....so what? You will not miss the money because you are dead!!!


If you take benefits at 62 and live a longer life than expected.....you could find yourself tapped out in your 80's.....and still alive!


Makes sense to me.