Trying to understand the SS age 70 wait

[pacergal]

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.

I agree. You can run all the computations you want, ultimately, each person makes a decision that is the best for them and their circumstances. Take at 62, take at 70, or any time in between, it's your choice.

 

[chassis]

Or changes to future SS that are in many of the current fix proposals, like means testing, lowering the inflation factor or making even more of SS taxable. At least one of those seems pretty likely, especially the means testing or tax increases for recipients with high incomes outside of SS, which includes many of the posters on this forum.

Yes, like the debate on Roth conversions, which also have a paltry or no beneficial effect for many people, when to claim SS has almost no effect for most people in terms of lifetime net worth at end of plan.

Roth conversions and SS claiming age are immaterial in the context of external events as you have noted, and including demise of the investor and his/her spouse/partner.

 

[Chuckanut]

Or changes to future SS that are in many of the current fix proposals, like means testing, lowering the inflation factor or making even more of SS taxable. At least one of those seems pretty likely, especially the means testing or tax increases for recipients with high incomes outside of SS, which includes many of the posters on this forum.

Emphasis added.

I would bet on that one as being one of the easier 'fixes' to social security's funding problems. And to an extent it is already in place. The earnings level for taxing SS has not changed in decades. Correct? Inflation is doing it's job well.

 

[retiredunder50]

I see very little analysis on the impact of tax brackets for social security age decision discussions. Yes, there is so much added complexity in modeling this, and it is very dependent on the individual's income & tax scenario, but it could really have some significant impact to the anticipated future gains. For example, if taking at 62 takes you to the top end of the 12% bracket but waiting 8 years (and assuming no changes in tax code and income) one might see maybe half of that bigger payment get hit with a 10% increase in taxes. Maybe waiting for that larger payment causes you to cross an IRMAA boundary or other penalized income threshold? The gains for waiting, depending on your income & tax scenario, could be smaller than anticipated.

 

[Out of Steam]

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.

This is correct. Models say for my wife not to wait past 64-65 to take Social Security, while I can gain by delaying all the way to 70. It appears to relate to a non-Social Security element of my pension that prevents me from receiving a higher Social Security survivor payment than I have earned as an individual.

My plan is to delay my Social Security to 65, then reassess.

I've noted here before that Social Security is a complex program, which is probably unfortunate for something intended as a safety net.

 

[rodi]

SS is designed to be actuarially neutral... Except when it isn't.

Examples of things that throw that off:
- Minor age children get some SS till age 18. (This triggered my husband to retire at 62 and take SS then.... It was, mathematically, a no brainer.)
- One spouse has lower SS earnings (or none) on their own record - by the larger earner delaying, they are providing a better survivor benefit for the lower earner.
- Divorced and qualify for a fraction of ex's benefit from FRA till age 70... That has been phased out - but can still factor in for some of our older members.
- SS reductions due to WEP or (forgetting the other acronym)... Some government pensions reduce, permanently the SS benefit.
- Age difference between spouses can factor in - if the age difference is more than 5 years then several of the 'rule of thumb' maximize the end benefit get thrown out the window and you'll need to calculate your personal scenario.

So... When to take SS is actuarially neutral if you are single, don't have kids or ex's, aren't effected by SS reductions/restrictions... But in real life - you have to look at your situation and pick what's best for you.

As I mentioned above - DH started at 62. He is 9.5 years older than me. He had lower SS earnings. I have *no idea* when I will take SS. (I turn 60 next week.) It will depend on the market/economy. Goal is to wait till 70 so DH will get a bigger payout if I die first (which given our family history, despite our age difference, could happen.) But if the market crashes ala 2008... I might pull the trigger sooner just to give us a bigger floor so I don't have to sell into a bad market. Flexibility is how I'm approaching it.

 

[RunningBum]

I see very little analysis on the impact of tax brackets for social security age decision discussions. Yes, there is so much added complexity in modeling this, and it is very dependent on the individual's income & tax scenario, but it could really have some significant impact to the anticipated future gains. For example, if taking at 62 takes you to the top end of the 12% bracket but waiting 8 years (and assuming no changes in tax code and income) one might see maybe half of that bigger payment get hit with a 10% increase in taxes. Maybe waiting for that larger payment causes you to cross an IRMAA boundary or other penalized income threshold? The gains for waiting, depending on your income & tax scenario, could be smaller than anticipated.

Valid point. In my case I'll do Roth conversions to the top of 12%/0% cap gains to eliminate/reduce RMDs later so income will be pretty smoothed out.

I agree with the comments about starting SS anytime between 62 & 70 if the market tanks and it keeps you from selling stocks at a low.

Overall the question won't have a big effect on my finances either way. But I look at my parents' dwindling nest egg and they would've been better off taking SS at 70 rather than 62. That's just how it worked out and at age 62 I doubt they saw either one of them still alive 25 years later.

 

[Montecfo]

From time to time folks discussing this topic have referred to getting a "return" by delaying social security. Though oft repeated by what I think are misguided financial journalists, you don't actually get a "return", at least not one that is surely positive, by delaying SS. Instead you receive the promise of a higher payment. The calculated "return" (if you insist on that term) could be positive if you live long enough, but it could be minus 100 percent, if you pass before claiming.

Just to be clear...

 

[daylatedollarshort]

We took our Social Security at 62 and pensions at 55 and then optimized all our regular expenses to be able to live on less than SS + pensions, plus a little easy side income I make from things like credit card rewards games and product reviews. The portfolio income just gets reinvested for big, one of future expenses like LTC, major house remodeling or helping the kids buy houses.

I probably get more extra value from a few seat filler subscriptions, sometimes $1K a month or more in free / discounted event tickets (nonpandemic times), than the potential difference from SS claiming ages for us.

 

[CRLLS]

rodi, to your "Except when it isn't", add gender. Women do live longer than men, but the SS "neutral" age averages the two.

I believe that delaying the decision can be the best choice for those on the fence unless one needs to take it at age 62 due to needs at the time. One can always make the choice to change anytime before age 70 depending on circumstance or life changes at the time.

 

[RunningBum]

I probably get more extra value from a few seat filler subscriptions, sometimes $1K a month or more in free / discounted event tickets (nonpandemic times), than the potential difference from SS claiming ages for us.

One thing has nothing to do with the other.

 

[daylatedollarshort]

From time to time folks discussing this topic have referred to getting a "return" by delaying social security. Though oft repeated by what I think are misguided financial journalists, you don't actually get a "return", at least not one that is surely positive, by delaying SS. Instead you receive the promise of a higher payment. The calculated "return" (if you insist on that term) could be positive if you live long enough, but it could be minus 100 percent, if you pass before claiming.

Just to be clear...

+1. What the articles often miss is a probability tree type analysis - Probability Tree Diagrams (mathsisfun.com). With probability analysis, if you multiply the expected benefit by the probability you will be alive (less than 100% for anytime in the future and lower the further out you go in time). Plus add in the probability of future benefit changes, like potential SS cuts.

Like at age 70 you are going to get $30K, but there is only an 80% chance you will be alive, that makes the expected benefit $24K. If you think benefits might be cut for you in the future, then add in another 10% or whatever your best guess is, that makes the expected amount $21.6K.

The $30K is only guaranteed as much as you are guaranteed to be alive and your expected benefits are guaranteed to be unchanged.

 

[daylatedollarshort]

One thing has nothing to do with the other.

It does in terms of our relative budget impact, which is what other posters in this thread have also pointed out.

 

[teej1985]

It does in terms of our relative budget impact, which is what other posters in this thread have also pointed out.

How do you get seat filler subscriptions? What types of events?

 

[Romer]

I have *no idea* when I will take SS. (I turn 60 next week.) It will depend on the market/economy. Goal is to wait till 70 . . . . . . But if the market crashes ala 2008... I might pull the trigger sooner just to give us a bigger floor so I don't have to sell into a bad market. Flexibility is how I'm approaching it.

Happy pre Birthday. I am thinking along the same lines, looking towards 70, but depends on the market. 70 provides the greatest benefit to my wife if I pass early, but she would be OK even if I took it earlier by my calculations.

 

[RetireAge50]

+1. What the articles often miss is a probability tree type analysis - Probability Tree Diagrams (mathsisfun.com). With probability analysis, if you multiple the expected benefit by the probability you will be alive (less than 100% for anytime in the future and lower the further out you go in time). Plus add in the probability of future benefit changes, like potential SS cuts.

Like at age 70 you are going to get $30K, but there is only an 80% chance you will be alive, that makes the expected benefit $24K. If you think benefits might be cut for you in the future, then add in another 10% or whatever your best guess is, that makes the expected amount $21.6K.

The $30K is only guaranteed as much as you are guaranteed to be alive and your expected benefits are guaranteed to be unchanged.

Excellent point and something few people quite grasp.

 

[RunningBum]

It does in terms of our relative budget impact, which is what other posters in this thread have also pointed out.

What I mean is that doing one doesn't affect your ability to do the other. We spend a lot of time debating the SS question, but really an individual could probably decide with a half hour of thought which factors for them personally have the most influence on taking it now or later.

 

[daylatedollarshort]

How do you get seat filler subscriptions? What types of events?

They kind of ebb and flow over time, and most are local programs. The main one right now that is national and actually active is Vet Tix. You have to be a veteran to join. Other programs include OTL (major cities), Rushtix (I think that one is local to the Bay Area and only online events for now) and in California, Discover and Go through the public library system. We've had tickets for all sorts of events from wine tasting weekends to comedy shows to New Year's Eve parties. Vet Tix lately has had all sorts of major league sports tickets, golf championships, and concert tickets (Trevor Noah, Jonas Brother's, Weezer, Bush) but it really depends on what city you live in or can travel to for events.

 

[daylatedollarshort]

What I mean is that doing one doesn't affect your ability to do the other. We spend a lot of time debating the SS question, but really an individual could probably decide with a half hour of thought which factors for them personally have the most influence on taking it now or later.

That was exactly my point, in the context of my previous posts.

 

[chassis]

SS is designed to be actuarially neutral... Except when it isn't.

Examples of things that throw that off:
- Minor age children get some SS till age 18. (This triggered my husband to retire at 62 and take SS then.... It was, mathematically, a no brainer.)
- One spouse has lower SS earnings (or none) on their own record - by the larger earner delaying, they are providing a better survivor benefit for the lower earner.
- Divorced and qualify for a fraction of ex's benefit from FRA till age 70... That has been phased out - but can still factor in for some of our older members.
- SS reductions due to WEP or (forgetting the other acronym)... Some government pensions reduce, permanently the SS benefit.
- Age difference between spouses can factor in - if the age difference is more than 5 years then several of the 'rule of thumb' maximize the end benefit get thrown out the window and you'll need to calculate your personal scenario.

So... When to take SS is actuarially neutral if you are single, don't have kids or ex's, aren't effected by SS reductions/restrictions... But in real life - you have to look at your situation and pick what's best for you.

As I mentioned above - DH started at 62. He is 9.5 years older than me. He had lower SS earnings. I have *no idea* when I will take SS. (I turn 60 next week.) It will depend on the market/economy. Goal is to wait till 70 so DH will get a bigger payout if I die first (which given our family history, despite our age difference, could happen.) But if the market crashes ala 2008... I might pull the trigger sooner just to give us a bigger floor so I don't have to sell into a bad market. Flexibility is how I'm approaching it.

Excellent. The impression I get from these threads is that some posters seem to be seeking a way to game or beat the system. Do the math. 2% net worth improvement for a single survivor at age 90+ is not beating the system. It's a wash; actuarially neutral.

+1. What the articles often miss is a probability tree type analysis - Probability Tree Diagrams (mathsisfun.com). With probability analysis, if you multiply the expected benefit by the probability you will be alive (less than 100% for anytime in the future and lower the further out you go in time). Plus add in the probability of future benefit changes, like potential SS cuts.

Like at age 70 you are going to get $30K, but there is only an 80% chance you will be alive, that makes the expected benefit $24K. If you think benefits might be cut for you in the future, then add in another 10% or whatever your best guess is, that makes the expected amount $21.6K.

The $30K is only guaranteed as much as you are guaranteed to be alive and your expected benefits are guaranteed to be unchanged.

Excellent. Too many variables that will indeed come into play, to get excited about SS claiming date/age.

 

[Romer]

Excellent. The impression I get from these threads is that some posters seem to be seeking a way to game or beat the system. Do the math. 2% net worth improvement for a single survivor at age 90+ is not beating the system. It's a wash; actuarially neutral.

I don't see how you can make that statement. Everyone's situation is different and yes they should do the math. My Networth difference at 91 is 12% higher with taking it at 70 vs 62. To understand how much the survivor benefit was impacted you would have to know when one spouse will pass. I can see 2% if I were to pass today and 9% if I were to pass at 80. That is my own situation with MY level of spending, MY pension and everyone's situation is different

 

[chassis]

I don't see how you can make that statement. Everyone's situation is different and yes they should do the math. My Networth difference at 91 is 12% higher with taking it at 70 vs 62. To understand how much the survivor benefit was impacted you would have to know when one spouse will pass. I can see 2% if I were to pass today and 9% if I were to pass at 80. That is my own situation with MY level of spending, MY pension and everyone's situation is different

@Romer indeed the arithmetic may indicate as you say. If you claim at 70, you are "behind" compared to claiming at 62. Thus a breakeven point needs to be addressed.

If your NW is 12% higher at age 91 and you started claiming at age 70, your breakeven is likely post-age 80. On your 81st birthday you are ahead of the game by a very small amount of money. This is actuarially neutral in my view.

 

[Romer]

The break point shifts based on ROI for my overall Portfolio to compare against withdrawls.

I didnt say I was behind compared to claiming at 62

You are entitled to your view that it is neutral. Others are also entitled to disagree with that. Every situation is different and I think a broad statement that taking it at any time is Neutral is misleading because that wont be true for everyone based on their situation.

In mine there isnt that much difference with us both alive and her taking the spousal support. If I pass first, then she would have the same Networth as we did the day I pass with $22K less income a year (SS@62), which would be significant and not Neutral. I know you will come back with a post about that not being significant for Net Worth

 

[qwerty3656]

+1. What the articles often miss is a probability tree type analysis - Probability Tree Diagrams (mathsisfun.com). With probability analysis, if you multiply the expected benefit by the probability you will be alive (less than 100% for anytime in the future and lower the further out you go in time). Plus add in the probability of future benefit changes, like potential SS cuts.

Like at age 70 you are going to get $30K, but there is only an 80% chance you will be alive, that makes the expected benefit $24K. If you think benefits might be cut for you in the future, then add in another 10% or whatever your best guess is, that makes the expected amount $21.6K.

The $30K is only guaranteed as much as you are guaranteed to be alive and your expected benefits are guaranteed to be unchanged.

It's not return people are focused on its insurance. What is the "return" on your home owners insurance if your house doesn't burn down?

 

[daylatedollarshort]

It's not return people are focused on its insurance. What is the "return" on your home owners insurance if your house doesn't burn down?

It depends how much you need fire or longevity insurance. If you have a net worth of $5M and a $200K house, do you really need hazard insurance? Is it worth the cost to you? Or if you are worth $5M and SS nets you an extra $30K by delaying, if you live that long, is it that important of a decision?

Katsmeow covered this earlier in the thread - "People who even without SS have more than enough existing money to cover their spending between 62 and 70 without having to deplete the portfolio. For those people, they should do whatever they want to do. Waiting to 70 is much less risky because they can make it without SS. If you are in that situation then there is no real dilemma, just personal preference.

People who would have to severely curtail their living standard to make it to 70 without SS or who would have to entirely deplete their portfolio to do so. Most of those people really can't afford to wait to 70 and taking SS early is the rational choice.

People in the middle. People who could make to 70 without taking SS but they would have to eat into their portfolio to do it. It wouldn't deplete the portfolio but they would notice what they had to spend. This is the group of people where waiting is the most risky. Different people will make different choices for their situation. This is the group where the choice really could go either way."