When to take Social Security

[hogwild]

Re: When to take SS

After reading this great discussion, I went back to look at my Fidelity retirement plan. My existing plan had SS at 62. I went in and changed it to 66 without making any other changes. My balance at the end of the plan (my age 90 and spouse age 94) went up by $460,000. Needless to say I saved the changes.

 

[Nords]

Re: When to take SS

Have you used ESPlanner? Looking to hear your thoughts (or anyone elses's who's used it).

Nope, and I'm a sucker for tedious data entry. There's a review at REHP but I've never felt the need to back up FIRECalc, FinancialEngines, and Fidelity.

After reading this great discussion, I went back to look at my Fidelity retirement plan. My existing plan had SS at 62. I went in and changed it to 66 without making any other changes. My balance at the end of the plan (my age 90 and spouse age 94) went up by $460,000. Needless to say I saved the changes.

I used their "free" retirement planner (no $$ but I want that three hours of my life back) and was less than impressed. I haven't even gotten to the Social Security issue yet. For example here's their response to some straightforward questions:

"There is a way to account for a full COLA in the pension. Adjusting the rate of the rise in the Reserve military pensions is a bit trickier. That is something that I am trying to still get a good answer on for you.
All expenses are adjusted for inflation unless you tell us not to. You do that in the tool by "varying" the expense. I can do it for you or show you how. Any medical expense is inflated at 7%, non-medical at 2.47%. Again, we can fix the mortgage any other expense that we need to in order to not inflate them.
Federal taxes are automatically calculated. I need to double check on the tool's programming regarding Hawaii's non-taxation of the pension.
The software will not cut back on expenses. That's why we need to make sure the expense data is entered accurately, and varied appropriately. The output is meant to show you whether there is a possibility of a shortfall, given the expense data you have entered. If your intent is to try to see how much you can either give away or spend, the tool requires that you create an charitable or family "expense." It can be either inflated or not, depending upon what you want it to show you."

The thing that I found particularly annoying about Fidelity's calculator was varying the account's assets. Rhetorical asset-allocation questions include: Should we do a Roth IRA conversion? What if you wanted to sell this stock and add that ETF?

Eh, it'll probably get better. I remember filling out pages in a manual for T.Rowe Price's 1980s retirement planner.

 

[unclemick]

Re: When to take SS

Wowser - 16 pages - a definitely perennial subject.

To repeat my intial evaluation/numbers had me waiting. Katrina helped me get in touch with my inner mortality and remember my male family tree.

My technical term for this is: Chickenheartedness.

So at age 63, upon arriving in Missouri, I applied for early SS - I noticed that the office where I applied was on the high ground well above the Missouri River floodplain.

But hey! That's just me.

Will play with the numbers/taxes/longevity again maybe this winter(when things are slow) - or not, depending.

I can mentally take dips in the market - but the thought of dying young without spending as much as I should have while 'young at heart 60's' before old age 70's and 80's - well

Number crunch on dudes. Heck - you may yet convince me to give the money back and reset.

heh heh heh - :

 

[hogwild]

Re: When to take SS

The thing I like about the Fidelity planner is that it accounts for RMDs and taxes. These are not addressed by Firecalc. I my situation, where about 90% of my investments are in IRAs, RMDs make a huge impact to planning.

 

[cute fuzzy bunny]

Re: When to take SS

Orp does a good job of that as well, although last time I used it someone said it hadnt been updated with the newest tax rates/laws. Perhaps thats changed.

Edit: seems not. The change log shows no updates to the program since 2001. Bummer, it was a good program.

 

[Independent]

Re: When to take SS

Independent,


I saw your conclusion. It seems to me that that are at least 3 things to consider (assuming one has enough money such that delaying SS is an option) at 62 when contemplating taking SS:

1) Expected longevity - If you expect to die early take it as soon as possible. If you live long, you might benefit from taking it later for the higher COLAd annuity.
2) Taxes, if one has a high provisional income, SS taxes get brutal, it might make sense to delay to keep the lower tax rate for Trad IRA conversion to Roth.
3) How the markets are doing at the time. IF they are bad, it might make sense to take it to reduce the stress on the portfolio... Assuming pushing the WR below 4% reduces stress.


Are there more considerations?

I see that sgeeeee has a longer list. I think his issue of risk aversion is a big deal. It seems rationally related to how much financial cushion you have. If you're in good shape, you can plan for the "most likely" future. If you're operating without much room for error, then you have to focus on the worst cases.

I'd add:
Are you confident that your SS benefit won't be cut before you die?
Are you psychologically okay with deferring SS benefits and spending down the nest egg you spent 40 years building?
Are you psychologically okay with deferring SS benefits, knowing that you spent 40 years paying SS taxes?
A "no" to any of these and you don't waste your time with calculations, you just take the benefit at 62.

Regarding 1 and 2 on your list:
Of course if you know you've got health problems you take the money as soon as possible. In terms of "longevity", I'd agree with an earlier post that says you need to distinguish between the life span you expect and the life span you plan for. You might note that about 50% of 62 year-old males will die by age 81, and therefore "expect" to live that long. But you also note that about 10% of them will still be alive at age 93, and decide to make plans that keep you solvent that long.

I think I'm going in the opposite direction from you regarding "markets". If I believed that investment returns were going to be poor in the 10 years after I turn 62, I would be more likely to defer SS. Yes, that means I may have to "sell when the market is down" to support my spending, but that's better than holding until it goes down further. When I do the calculations (or when I look at FireCalc details by year), low returns favor deferring SS. Of course, I also think that I'm lousy at predicting the market, so I won't be trying to out guess it.

 

[Cut-Throat]

Re: When to take SS

After this long thread there are quite a few folks that believe that it is a close call of when to take SS. So consider this without plugging numbers into calculators.

1.) If you are not interested in leaving $$ to your heirs.

2.) You can afford to fund your retirement without it. (which is why most folks take it at age 62 - they're broke!)

2.) Why not delay SS to age 70, just in case you do live to age 120.

3.) If you die at age 67, yes you screwed yourself out 6 years years of SS. - Why should that upset you? - You're dead!

4.) think of it as 'Reverse Old Age Life Insurance' - Most life insurance you buy, you are betting you are going to die. This is a chance to bet your going to live! 8)

 

[sgeeeee]

Re: When to take SS

. . . 4.) think of it as 'Reverse Old Age Life Insurance' - Most life insurance you buy, you are betting you are going to die. This is a chance to bet your going to live! 8)

This is the biggest reason I am considering (leaning toward) delaying SS. SS benefits are one of the best hedges against longevity risk that exists. If I am lucky enough to live a long, active life, I want to be able to enjoy it. If I die early . . . well, like Cut-Throat says, "I'm dead."

 

[baldeagle]

Re: When to take SS

Any air left in this thread? Maybe I can start a 17th page!

I just reran our FIRECalc numbers to compare SW amount between:

• Both DW and I starting at 62 (our current age and 6 months into our actually taking the SS money)
• DW taking it at 62 and me waiting until FRA of 66 years old

FC run was for 33 years to age 95, 90% confidence, 60/40 slice and dice portfolio with some value and small tilt, nearly 90% in IRAs, with a few big-ish expenses over the next 2-10 years (e.g., new car-sized expenses).

The result? A total wash. Delaying claim for my SS produced a SW amount of <0.5% higher, a few 100 dollars/year. That's noise. Says to just keep on taking the money.

But, what about taxes? There's some recent literature about not taking SS early (and instead living on IRAs) that will reduce AGI and hence taxes. So, I built a spreadsheet that calculates the taxes in each of the two options above at age 70, 80, and 90 as spot checks. We are in the 15% bracket, and trying to stay there even past RMD-time by annual, partial Roth conversions.

Result? 2K more taxes at age 70, 1K more at age 80, and zero at age 90. Probably declines because the first and second thresholds ($32K and $44K) are not inflation-adjusted. I should probably repeat the calculation for all the 33 years, but this spot check suggests that maybe 35-50K more taxes would be paid over the rest of my "spreadsheet life" of 33 years. Again, noise. Not enough for me to change directions, pay the money back, and start over in another 4 years.

BE

 

[cute fuzzy bunny]

2.) You can afford to fund your retirement without it. (which is why most folks take it at age 62 - they're broke!)

Absolutely untrue. The vast majority of people take social security at age 62 and the reason given according to AARP is that its financially smart to do so for the vast majority of people.

3.) If you die at age 67, yes you screwed yourself out 6 years years of SS. - Why should that upset you? - You're dead!

So in working with that line of thinking, if nothing matters after you're dead...why dont we all just shoot ourselves now and simplify everything. Nobody will care. We're all dead!

:

 

[teejayevans]

So in working with that line of thinking, if nothing matters after you're dead...why dont we all just shoot ourselves now and simplify everything. Nobody will care. We're all dead!

:

Bad analogy, because we're alive (most of us anyway ), if you want to
shoot us after we're dead, go for it.
TJ

 

[cute fuzzy bunny]

No, you see...thats the beauty of the idea...we all shoot ourselves at the same time! Everyone!

Then we're all dead, nothing else matters, and we dont have to spend any more idle time making broad incorrect factless statements like "everyone takes ss at 62 because they're broke".

 

[sgeeeee]

Any air left in this thread? Maybe I can start a 17th page!

I just reran our FIRECalc numbers to compare SW amount between:

• Both DW and I starting at 62 (our current age and 6 months into our actually taking the SS money)
• DW taking it at 62 and me waiting until FRA of 66 years old

FC run was for 33 years to age 95, 90% confidence, 60/40 slice and dice portfolio with some value and small tilt, nearly 90% in IRAs, with a few big-ish expenses over the next 2-10 years (e.g., new car-sized expenses).

The result? A total wash. Delaying claim for my SS produced a SW amount of <0.5% higher, a few 100 dollars/year. That's noise. Says to just keep on taking the money.

But, what about taxes? There's some recent literature about not taking SS early (and instead living on IRAs) that will reduce AGI and hence taxes. So, I built a spreadsheet that calculates the taxes in each of the two options above at age 70, 80, and 90 as spot checks. We are in the 15% bracket, and trying to stay there even past RMD-time by annual, partial Roth conversions.

Result? 2K more taxes at age 70, 1K more at age 80, and zero at age 90. Probably declines because the first and second thresholds ($32K and $44K) are not inflation-adjusted. I should probably repeat the calculation for all the 33 years, but this spot check suggests that maybe 35-50K more taxes would be paid over the rest of my "spreadsheet life" of 33 years. Again, noise. Not enough for me to change directions, pay the money back, and start over in another 4 years.

BE

Hairless bird of prey,

This is an interesting result and I believe your are correct in concluding that the difference in the two situations you ran is "in the noise". There are other factors (independent of when you start social security benefits) that probably are far less well-defined and will have far more impact.

But when running simulations like this, it is important to understand what you've really simulated. First, by setting the simulator for 90% safety, FIRECalc has ignored the 10% worst cases in history (about 13 starting years out of 130). It has then taken the next worst case available and drawn all conclusions based on that one year. You've done this for both early and late SS benefits. So the 14th worst case for early benefits is about the same as the 14th worst case for late benefits.

Now, what if you use 38 years instead of 33 for your retirement? use 99% safety instead of 90%? etc.?

FIRECalc examines worst case results which is good for estimating minimum starting portfolio balance you want to retire with. It isn't very good for optimizing investment timing decisions like when to put more money in stocks, or bonds, or when to take SS benefits.

 

[Moemg]

You seem to have run every scenario for when to take social security except mine .I am eligible to collect survivor benefits at 60 on my late husbnd's social security and then switch to mine at either 62 or wait till 66.The difference between the survivor benefits and mine at 62 is $300.00 a month .The difference at 66 is $700.00 a month .What should I do ? I have plenty of savings so it's not like I need the extra money but I also don't want to lose out .Without either of the higher amounts Firecal says I'm good for 95 years.

 

[Independent]

You seem to have run every scenario for when to take social security except mine .I am eligible to collect survivor benefits at 60 on my late husbnd's social security and then switch to mine at either 62 or wait till 66.The difference between the survivor benefits and mine at 62 is $300.00 a month .The difference at 66 is $700.00 a month .What should I do ? I have plenty of savings so it's not like I need the extra money but I also don't want to lose out .Without either of the higher amounts Firecal says I'm good for 95 years.

This is interesting. I've said that the general rule for single people, who don't need SS to pay the necessities, is to take it early. However, your case isn't "when to start" but "when to switch". It seems to me like you would defer.

First, I want to get the numbers right. It looks like your benefit as a widow has been $900 per month. If you switch to a retirement benefit based on your wage history, your benefit would be $1,200 per month starting at age 62 or $1,600 per month starting at age 66. (This set of numbers explains the $300 and $700 you're specifying, and is consistent with the 25% reduction in SS benefits if you start at 62.)

So suppose you have a twin who's identical to you in all respects, except that she switches to her own benefit at 62 and you wait till 66.

Ignoring interest and inflation, she will have more $300 x 48 = $14,400 more in her bank account (or investments) at 66 than you will.

However, once you start taking your benefit at 66, you'll close the gap at a rate of $400 per month. Now $14,400 / $400 = 36, so in 36 months you will be even. After that, you pull ahead.

( Doing the math a different way, between 62 and 69 she'll collect a total SS benefit of $1,200 x 84 = $100,800. You will get $900 x 48 + $1,600 x 36 = $43,200 + $57,600 = $100,800. )

After age 69, you'll continue to pull ahead by $400 per month or $4,800 per year. Since about half of 62 year-old women will still be alive in their low 80's, it seems that you're very likely to live long enough to "out collect" her.

If this were a closer call, it would make sense to look at the extra investment income she will earn while she's ahead. If she could earn a level 8% per year, her lead at age 66 would be around $17,000. But if you crunch the numbers, you'll discover that you still catch her at age 70. (Technically, she'd have to earn 8% plus inflation, but that seems like overkill for this decision.)

So, unless I've missed something pretty big, I think you'd be better off waiting till 66.

 

[Moemg]

Thank you independent .I was leaning very heavily in waiting till 66 and you convinced me .

 

[tiredofwork]

After reading this board and some other sources, I currently plan as follows:

(1) spouse takes SS on her record at 62;
(2) spouse switches to higher spousal benefit at her full retirement age when the spousal benefit is maxed out;
(3) I'll wait until 70 to draw SS.

Deciding factor for me is the higher survivor's benefit for spouse if I wait until 70. Of course, all subject to change.

 

[ravvt]

After reading this board and some other sources, I currently plan as follows:

(1) spouse takes SS on her record at 62;
(2) spouse switches to higher spousal benefit at her full retirement age when the spousal benefit is maxed out;
(3) I'll wait until 70 to draw SS.


I thought this approach looked like a winner ... until I contacted SS.

Their comments regarding spouse taking an early benefit based on her work history followed by a step up in the benefit at her FRA were:

THERE IS NO STEP UP.

Your wife's benefit, whenever she starts the benefit stream, will be based on the larger of the two work records - hers and yours. If she starts before her full retirement age, there will be a reduction from that maximum benefit which will apply for all of her benefits until you pass away.
If she starts her benefit stream at age 62, she will receive 37% of her maximum benefit available based on the larger of her work history or your work history.

When you pass away, (assuming that your work history record is larger than hers), she will continue to get the benefit that you were getting at the time of your death or the benefit that you would have been eligible to get.

 

[Martha]

ravvt, the spousal benefit stuff gets very complicated. I suggest reading this discussion: http://www.early-retirement.org/forums/f35/social-security-spousal-benefit-21908.html

You have to go through the entire thread to get at all the options regarding spousal benefits.

 

[Spanky]

This is not a suggestion. It seems that a divorce is a better deal.

Benefits for a divorced spouse

Your divorced spouse can get benefits on your Social Security record if the *marriage lasted at least 10 years. Your divorced spouse must be 62 or older and unmarried.
The amount of benefits he or she gets has no effect on the amount of benefits you or your current spouse can get.
Also, if you and your ex-spouse have been divorced for at least two years and you and your ex-spouse are
at least 62, he or she can get benefits even if you are not retired.