Trying to understand the SS age 70 wait

[JeffyD]

Although I understand the differing SS paybacks between ages 62, 65, and 70, and I get the breakeven analysis for the cumulative payments, here is what I do not understand:


If I treat SS money in my retirement spending budget as money that now stays in MUCH longer-term investments (not removing those annual sums from my 401ks or ROTH buckets), then my breakeven point drastically changes if I assume some sort of compounding of the money LEFT in those accounts...


For instance, if I assume somewhere close to a 7% return over 30 years, nothing ever crosses over to a compounded return of those 'unspent' assets with taking it at 62 and letting it compound. (At least until my death at 94)



If I lower that return expectation to 5%, then, yes, my crossover happens at about 86. If I assume fixed income rates of 2%, yes, even lower, but I really don't expect to be that conservative until my 80s.



Am I thinking about this wrong? Where is my spreadsheet analysis misguided?

 

[target2019]

Your analysis serves you well. I am waiting at least until 69, and maybe 70, to maximize payments as much as I can for my long-surviving spouse. This also allows me to convert more IRA in the 12% bracket. I view it as a once-a-year decision: delay or not. Notice that my decision does not include break-even points or maximums over our lifetimes.

 

[Dtail]

Your analysis serves you well. I am waiting at least until 69, and maybe 70, to maximize payments as much as I can for my long-surviving spouse. This also allows me to convert more IRA in the 12% bracket. I view it as a once-a-year decision: delay or not. Notice that my decision does not include break-even points or maximums over our lifetimes.

Conceptually the same for me, but will start the once a year decision at age 66.

 

[qwerty3656]

I wrote this on another thread: I was in the 1st camp [take SS at 62] - when you assume a reasonable rate of return and a reasonable life expectancy, you can see how getting the money early and investing yourself can "beat" waiting.

However I've moved into the 2nd camp [wait til 70]. In a world with great market returns, there are no money worries either way. It's in the world where you have high inflation, low market returns and live to 100 that you need to worry - and in that scenario, you are ahead waiting til 70.

I also see waiting as a mitigant to not buying long-term care insurance.

 

[Chuckanut]

Here's another way to look at taking SS at 70 that may or may not be valid for your situation.

If you have the money to finance your life from 62 to 70 and if leaving an estate is not important (a big IF for many of us), then you get to spend more money every year starting at age 62 by waiting to get SS at 70.

Maximize SS how much you get to spend​

Here is a pretty simple calculation for those that wish to spend more money in retirement and do not care about leaving an estate. For those that have a Big enough Portfolio and can afford to wait until 70 to take SS, you'll have more to spend every year of retirement.

Let's Say you retire this year at age 62 with the $1 Million Portfolio and decide to take a 4% SWR. You get Social Security of $19,476 per year at age 62 and delaying to age 70 would get you $34,092 per year. Let's assume no inflation for ease of calculations.

Scenario age 62. Your SWR is $40K per year and Social Security of $19,476 gets you a Spending total of $59,476 for each year of your retirement period.

Scenario age 70. You stash 8 years of $34,092 from your portfolio into a savings account for a total of $272,736. Your portfolio is now down to $727,264. Your 4% SWR is now $29,090 per year and you remove $34,092 from your savings account giving you a total of $63,182 to spend each year for the rest of your 30 year retirement period.

The Delay to age 70 gives you $3,706 more every year starting at age 62 with no more increased risk.

No need for any ... 'break even analysis'.

If your WR is more conservative, such as a majority of the people here and myself, the results are even more compelling. At a 3% WR plus SS at age 62 scenario is a total of $49,476 and the age 70 scenario is $55,910. The delay of SS to age 70 now increases your annual spending by $6,434.


https://www.early-retirement.org/forums/f28/laurence-kotlikoff-maximize-my-ss-com-77660.html#post1604411

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[Niuatoputapu]

However I've moved into the 2nd camp [wait til 70]. In a world with great market returns, there are no money worries either way. It's in the world where you have high inflation, low market returns and live to 100 that you need to worry - and in that scenario, you are ahead waiting til 70.

I also see waiting as a mitigant to not buying long-term care insurance.

+1

If our portfolio has a positive real return over the next five years, DW and I are fine. Claiming at 62 or 70 would not change our lifestyle.

If the next five years sees crazy down markets or high inflation, me waiting until 70 will seem genius, and especially good for DW if she greatly outlives me.

 

[dtbach]

68 and haven't taken SS yet. Consider every year though. Maybe 69 will be my time. I'll have to think about it then.

 

[RetiredHappy]

Taking early and dipping less into your savings or taking later and dipping more into your savings. The main question is how much do you think you can grow your investments. If your investments have very low returns, then taking SS at 70 yo makes more financial sense. However, if you believe your investments have high returns, then taking SS at 62 may make more sense. No right or wrong.

 

[SnowballCamper]

Yes, if one plans on living a long time (past a break even age), and has the funds to live on between 62 and 70, then delaying SS payments is, generally, the thing to do.

 

[RunningBum]

If you have the money to finance your life from 62 to 70 and if leaving an estate is not important (a big IF for many of us), then you get to spend more money every year starting at age 62 by waiting to get SS at 70.

I don't get why leaving an estate is a factor here. If I start SS at 70 as I plan to, and live past my breakeven age, I will leave a bigger estate. I only leave a bigger estate by taking early if I die before the breakeven point. And if I die early I probably have left enough anyway.

 

[RunningBum]

For instance, if I assume somewhere close to a 7% return over 30 years, nothing ever crosses over to a compounded return of those 'unspent' assets with taking it at 62 and letting it compound. (At least until my death at 94)



If I lower that return expectation to 5%, then, yes, my crossover happens at about 86. If I assume fixed income rates of 2%, yes, even lower, but I really don't expect to be that conservative until my 80s.



Am I thinking about this wrong? Where is my spreadsheet analysis misguided?

The math is fine. But that's only part of the story. You've got a graph with various return rates and breakeven points, but the real question is, where on that graph is SS more likely to be needed by me?

If market returns are good, even if taking SS at 70 is less optimal, I'll be set for money and living well. So with a 7% or better return, I should have taken SS at 62 in hindsight, but I'm fat and happy.

But if returns are poor, perhaps even flat to negative, I might be more reliant on SS. So I'd rather get the SS benefit that's going to have a shorter breakeven point for that case, which is 70. I might not be fat and happy, but I'm doing better than if I took a smaller paycheck early.

 

[Midpack]

What did you use for Soc Sec benefits in your analysis? With an age 66 FRA benefit at $1000, at age 62 it would be $750, at age 70 it would be $1320 and that’s without factoring in COLAs. There’s a substantial “return” each year in waiting as you must know.

 

[Souschef]

There are a couple of things to consider. We do not have a crystal ball on our longevity. My wife died at 68, but started collecting at 62, so she had 6 years to collect.
The other thing is the present value of a future stream of income.
I think there is no one right answer, but depends on the individual situation.

 

[gayl]

Another thing to consider is pension offset VS pension elimination provisions. Yes. Collecting at 70

 

[bobandsherry]

I've concluded there is no one right answer. Everyone's circumstances will be somewhat different than anyone else. Their financial position, their financial needs, their lifestyle wants, their longevity expectations and reality, coupled with what they expect to provide and to who after their death all result in a radically different answer for each scenario. Like so many other "rules" for retirement you never know what the right answer is.

 

[Texas Proud]

Something to consider is that spending money earlier in life probably has a higher value than when you are in your 80s or 90s and can not enjoy it as much...


Mine is real easy... my DW is 10 years younger... she has no SS of her own... there is NO way that taking it early pays off...


Plus, I can afford to live without SS from 62 to 70...


One of the last thoughts is that we have already lost 2 to 3 years due to Covid... we have not been spending as much.... well, DW has

 

[ejman]

Although I understand the differing SS paybacks between ages 62, 65, and 70, and I get the breakeven analysis for the cumulative payments, here is what I do not understand:


If I treat SS money in my retirement spending budget as money that now stays in MUCH longer-term investments (not removing those annual sums from my 401ks or ROTH buckets), then my breakeven point drastically changes if I assume some sort of compounding of the money LEFT in those accounts...


For instance, if I assume somewhere close to a 7% return over 30 years, nothing ever crosses over to a compounded return of those 'unspent' assets with taking it at 62 and letting it compound. (At least until my death at 94)



If I lower that return expectation to 5%, then, yes, my crossover happens at about 86. If I assume fixed income rates of 2%, yes, even lower, but I really don't expect to be that conservative until my 80s.



Am I thinking about this wrong? Where is my spreadsheet analysis misguided?

No, in my opinion you are right on. I elected to collect SS at 62, almost nine years ago. For me, at that time that meant that I was able to leave a large chunk of my "nut" untouched (I ER'd at 52). so it would continue to grow for my wife's and disabled son benefit. If I happened to wait to 70 and I croaked sure, my wife would get a bit more $ from SS but would not benefit my son much. -Since I started collecting SS in December 2012 my investment rate of return has been well over 8% even taking into account withdrawals on a very conservative 50/50 AA. In December of 2020 I learned I have an incurable illness that is not going to do wonders for my longevity. So for me and my family, taken SS at 62 was a good move. For someone else YMMV.



BTW, my spreadsheets showed the same thing, if the rate of return in your investments is over 5% you are always ahead taking SS at 62 over 70. I think a lot of SS calculators ignore the rate of return on your investments for the amount of withdrawals you are not doing for the 62-70 period or assuming a supper safe 2% or something like that as if all you are going to invest your money on is safe government bonds.


But fret not. All the advice you'll get from the slide rule folks (joke OK?) here is to wait until 70. By a long shot that is the consensus at this forum. I'm glad I personally didn't follow it.

 

[CindyBlue]

I'm sorry to hear it, ejman...my heart goes out to you and your family, and my prayers, too...

 

[harllee]

I am waiting until age 70 to take SS (almost there, I turn 70 in a month!). I do not have long term care insurance to pay nursing home costs so I plan to self fund those costs if they occur. One of the ways I am going to self fund the cost is through my increased SS payments which will be a fairly substantial payment.

 

[camfused]

People here sometimes talk like there is only two decisions: 62 or 70 (well, sometimes FRA too). In my case, my modeling says 68 for me, and 69 for my DW, who is actually a year older than me. Moral: let some sort of tool(s) help you zero in on the optimal age to take SS, for each of you.

 

[Exchme]

The issue was touched on above, but to re-emphasize, SS increases due to deferring are guaranteed and inflation protected. OP's comparisons are to returns typical of investments that are neither. To hammer that point a bit more, most folks hold some bonds in retirement, though they have an average lower return than stocks, because a mix survives downturns better than going with 100% stock. Social security is a bit similar, waiting can give more security if times turn out bad at the expense of possible portfolio growth if times turn out better than hoped.

OP should check out opensocialsecurity.com for the best on-line optimizer for when to claim. While you can adjust the return rate default assumption, the default is to 20 year TIPS (which currently have a negative 0.55% yield) as the closest security that mimics a guaranteed return and inflation protection offered by SS.

In general, the benefit increase percentages in SS were made to be actuarially fair for the average individual, based on mortalities tables from the 1980's. Of course, life expectancies have risen since then, giving a small edge to deferring. Also, the spouse with the bigger benefit has a greater incentive to defer since benefit continues after the first death, so effectively the bet is on the longest survivor.

Often the lifetime benefit differences are quite small at claim age differences within a year or so of the theoretical optimum and overall the situation is close enough to neutral that people should certainly consider their overall picture -
family history, health, ability to wait, desire to not deplete stocks, the need to have time to do Roth conversions and so forth.

 

[RetiredHappy]

I am waiting until age 70 to take SS (almost there, I turn 70 in a month!). I do not have long term care insurance to pay nursing home costs so I plan to self fund those costs if they occur. One of the ways I am going to self fund the cost is through my increased SS payments which will be a fairly substantial payment.

While I agree that for most people waiting until 70 to claim SS is the right decision for them, long term care costs are much higher than SS will ever be able to cover. Whether it is home care costs or nursing home costs, it can easily run $100K to $200K per year.

 

[chassis]

Although I understand the differing SS paybacks between ages 62, 65, and 70, and I get the breakeven analysis for the cumulative payments, here is what I do not understand:


If I treat SS money in my retirement spending budget as money that now stays in MUCH longer-term investments (not removing those annual sums from my 401ks or ROTH buckets), then my breakeven point drastically changes if I assume some sort of compounding of the money LEFT in those accounts...


For instance, if I assume somewhere close to a 7% return over 30 years, nothing ever crosses over to a compounded return of those 'unspent' assets with taking it at 62 and letting it compound. (At least until my death at 94)



If I lower that return expectation to 5%, then, yes, my crossover happens at about 86. If I assume fixed income rates of 2%, yes, even lower, but I really don't expect to be that conservative until my 80s.



Am I thinking about this wrong? Where is my spreadsheet analysis misguided?

@JeffyD Spot on, fully agree.

RPM says my estate at spouse age 93 (I died years earlier in the simulation) is 2% greater with me waiting until 70 than me taking it at 62. Spouse takes hers at FRA 67 in both scenarios. My own home grown model gives me a similar result.

2% difference at age 93.

It doesn't matter.

 

[pb4uski]

... Where is my spreadsheet analysis misguided?

I think that you need to include an assumption for COLAs in the cash flows. If I include a 2% COLA then the crossover for your 7% earnings rate is between 88-89. Assumes an FRA of 67, so 70% of PIA if you claim at 62 and 124% of PIA if you claim at 70 and looks at the IRR of the differential cash flows at different attained ages.

That said, 5% real return for a long period is a bit optimistic IMO, if it is 4% instead then your crossover point is more like 85-86.

PIA		1,000	per month
COLA		2.00%
	Claim at 62	Claim at 70	Difference		IRRs
62	8,400		-8,400		N/A
63	8,568		-8,568		N/A
64	8,739		-8,739		N/A
65	8,914		-8,914		N/A
66	9,092		-9,092		N/A
67	9,274		-9,274		N/A
68	9,460		-9,460		N/A
69	9,649		-9,649		N/A
70	9,842	17,434	7,592		N/A
71	10,039	17,783	7,744		N/A
72	10,240	18,139	7,899		N/A
73	10,444	18,501	8,057		N/A
74	10,653	18,871	8,218		N/A
75	10,866	19,249	8,383		N/A
76	11,084	19,634	8,550		-3.23%
77	11,305	20,027	8,721		-1.26%
78	11,531	20,427	8,896		0.32%
79	11,762	20,836	9,074		1.59%
80	11,997	21,252	9,255		2.64%
81	12,237	21,677	9,440		3.51%
82	12,482	22,111	9,629		4.24%
83	12,732	22,553	9,822		4.86%
84	12,986	23,004	10,018		5.39%
85	13,246	23,464	10,218		5.85%
86	13,511	23,934	10,423		6.25%
87	13,781	24,412	10,631		6.59%
88	14,057	24,900	10,844		6.89%
89	14,338	25,398	11,061		7.16%
90	14,625	25,906	11,282		7.39%
91	14,917	26,425	11,507		7.60%
92	15,215	26,953	11,738		7.78%
93	15,520	27,492	11,972		7.95%
94	15,830	28,042	12,212		8.09%
95	16,147	28,603	12,456		8.22%
96	16,470	29,175	12,705		8.34%
97	16,799	29,758	12,959		8.45%
98	17,135	30,354	13,218		8.54%
99	17,478	30,961	13,483		8.63%
100	17,827	31,580	13,752		8.71%

 

[pb4uski]

Or putting it another way, if your PIA is $1,000/mo and your FRA is 67, then at 62 you would get $8,400/year and at 70 you would get $14,880/year... so the difference is $6,480/year.

You'll forgo $67,200 ($8,400/year for 8 years) and receive $6,480/year for life beginning at age 70.... a 9.6% payout rate.

So it is like buying a life annuity that pays $6,480/year for life beginning at age 70 for only $67,200 in installment payments of $8,400/year between ages 62-70.

As a reference point, according to immediateannuities.com, a 70yo male in FL would need to pay $93,913 to get a life benefit of $540/mo or $6,480/yr from a commercial annuity.... and those benefits would not be COLAed.

Framed that way, delaying SS is a screaming deal.