When to Start SS Benefits

[chinaco]

FPA Journal Article about "When to Start SS Benefits".

Nice explanation with good illustrations of scenarios.

Social Security: When to Start Benefits and How to Minimize Longevity Risk

 

[Bram]

Thanks for the post/link. I found the article informative & is making me rethink our SS plans.

 

[W2R]

These articles always tell me that a someone like me, a single female expecting at least some longevity and not intending to work again, and who can afford to wait, should not take SS at age 62.

But then many people say that I should take it as soon as I can, because who knows what will happen to SS later on. The legislative risk is an unknown at this time.

(sigh) Decisions based on incomplete information are such a drag.

 

[Nords]

Each taxpayer must consider whether the benefits are worth the tax consequences. Suppose a single began Social Security benefits in July 2002 at age 62 and repaid all benefits in July 2010 at age 70. Repayments of benefits received in 2010 are treated as if never received. However, taxes may have been paid on benefits received in 2002 through 2009. If repayments for these years exceed $3,000, which they almost surely would, then they would be treated as either (1) miscellaneous itemized deductions not subject to the 2 percent floor or (2) a §1341 credit. Back-of-the-envelope calculations suggest that the §1341 credit would usually save the most in taxes. This credit requires that 2002–2009 tax returns be recalculated as if he did not receive Social Security benefits in any of those years. He could claim a tax credit in 2010 on the difference between 2002–2009 taxes that were paid and those that would have been paid if he did not receive Social Security benefits. However, he would not have to file amended returns for those years.

I've been under the impression that the taxes paid 2002-2006 couldn't be recovered, but this paragraph says that a credit can be taken in 2010 for all the years of "excess" taxes!

Not having to file amended returns is just bonus...

 

[chinaco]

Those illustrations are helpful.

Plus it lays out the general decision rules where it might make sense to delay. But it is still a complicated decision none the less.

IMO - Longevity is a concern for most retirees... SS is the inflation indexed annuity most of us own... it makes sense to maximize its unique strength/benefit.

 

[VaCollector]

Sorry to be the simpleton here, but unless you know when you are going to
die and how the social security system will be affected in the future...it seems
that the sooner you can take your benefits, the better.....

I understand all of the calculable possibilities but each involves assumptions....
about the SS system and your ability to "live long and prosper" (wish they had
a smilie with the Spock hand )....

So for me....I hope to grab whatever is there at the first opportunity....

BTW....thanks chinaco....a thought provoking article for many I'm sure!

 

[chinaco]

Sorry to be the simpleton here, but unless you know when you are going to
die and how the social security system will be affected in the future...it seems
that the sooner you can take your benefits, the better.....

I understand all of the calculable possibilities but each involves assumptions....
about the SS system and your ability to "live long and prosper" (wish they had
a smilie with the Spock hand )....

So for me....I hope to grab whatever is there at the first opportunity....

BTW....thanks chinaco....a thought provoking article for many I'm sure!

No single decision is right for all people.

IMO - I am not too concerned about SS not being available. Taxes increases of one sort or the other will make it solvent. And we all will pay taxes. The more complex issue is factoring in one's personal longevity, inflation, and adverse events that may negatively impact you (personal financial catastrophes). I look at SS as a safety net. If all else fails (i.e., you lose everything else) it will be there. The older one becomes, the more vulnerable they are to life's circumstances (even if one experiences severe asset loss is due to dementia, bad investment decisions, market catastrophe, being ripped off, etc).


Isn't it great that the plan gives each of us the ability to fit the pension to meet our individual needs.


BTW - The chance of adverse financial events (in one's life) is one of the reasons that immediate annuities seem to make sense (SS being the one we all own). Creating a base income reduces risk. But I will admit... I struggle with the many types of risk and understanding all of the potential negative outcomes.

I believe one's view of this issue changes as one ages. Looking at the future through the eyes of (30 years old vs. 40 yo vs. 50 yo, vs 60 yo vs 70 yo) are very different. Tolerance for risk goes down (when one considers that they may not be able to recover from certain financial events). Those events could be events one cannot control.

 

[donheff]

I've been under the impression that the taxes paid 2002-2006 couldn't be recovered, but this paragraph says that a credit can be taken in 2010 for all the years of "excess" taxes!

Not having to file amended returns is just bonus...

Sounds like you should carefully calculate taxes with and without SS for the interim years and keep the documentation so you are able to properly calculate the difference when you reapply.

 

[FIRE'd@51]

Sounds like you should carefully calculate taxes with and without SS for the interim years and keep the documentation so you are able to properly calculate the difference when you reapply.

Exactly. Alternatively, you can take a deduction for the amount repaid. This could provide a significant tax saving, since the RMD at age 70.5 could boost you into a higher tax bracket. You need to figure it both ways.

 

[rescueme]

Sorry to be the simpleton here, but unless you know when you are going to
die and how the social security system will be affected in the future...it seems
that the sooner you can take your benefits, the better.....

Money is for the living, not the dead ...

If the calculations (in my/DW's case) show that it is better to delay rather than just take it at age 62 (which we are now), we'll just wait (and we are).

In our case, we'll be taking advantage of spousal benefit at age 66 (e.g. me against my DW), my delaying for maximum benefits (till age 70), and assuming I pass first, the reality that my DW will get a benefit 2.5x of what she will be receiving when she starts to draw.

How did we figure this out? Simply plugged the different SS scenarios into FIRECalc & Fidelity's RIP programs.

If you really need the money to survive, are single, or have a disability that you know will reduce your lifespan then the decision is a bit easier.

For a married couple (and also considering ages and SS benefits) taking it at 62 could be a mistake in the long run.

I don't believe that SS will be eliminated although I will agree it could be changed somewhat in the future. When, who knows? As far as "getting back my contributions" (which can be calculated very easily - the combined amount contributed is on your SS statement), I'll only have to collect for two+ years to get back my almost 40 years of contributions. And if I die before collecting a penny? Dosen't matter; my DW gets a better benefit and I don't believe I'll be thinking about what I "lost" when I make an ash of myself...

Just my POV...

 

[Alan]

Thanks for posting the link chinaco. Again it looks the best for us is for DW to take hers at 62 and for me to delay until 70.

It also reminds me that the longer I wait and the more DW will be eligible for on my death, the less life insurance DW will need on my life. I have a largish pension that DW will get 50% of when I die, but it is non-COLA.

The recent thread on who needs life insurance, plus this one, highlights again that every few years I need to re-evaluate how much life insurance we'll need.

Could be that age 70 is the pivotal year, but that is still 15 years off and plenty can happen between now and then.