Why Wouldn't I take Social Security Early for me and my Spouse

[FireCat]

Greetings all! and Happy New Years!

We have been retired going on 10 years now and I am thankful to this forum and its members for valuable advice and insights. We are now faced with another big decision in retirement when do we start taking SS benefits?


I'm wondering why I would wait to take Social Security early for my spouse and myself in our situation.

Me 62 healthy active, no meds or medical history yet. Spouse 65 in May of this year, Healthy, active no meds no medical history yet. Our family history suggests we may live to 85ish.

We have a very healthy funded over 115%, Cola linked pension with a 66% survivorship that covers most of our expenses except approx. $40,000 annually which can be tightened in down years to $15-$20K. We have IRA's and Roth IRA's, Taxable accounts of about $1,600,000. All in at 70% Equities mostly Index funds, VTI,etc. and 30% Fixed $225k being a fixed mortgage we hold @ 4.875% and the rest in CD's earning 4.5% in a 5 year ladder.


I know we don't need to take Social Security early, but I don't see the downside if we start taking it now we can keep most if not all of our Retirement accounts intact thereby keep earning interest for an additional 5 years for my spouse and 7 years for me.
My SS at 62 would be $750/mo. I have the pension so my SS earnings were restored with repeal of GPO and WEP this year.
Spouse's in May at age 65 will be $2000/mo.

If we waited until 70 for her and 67 for me our SS benefits would be $3900 per month.

Taking our $33,000/ year reduced benefits seems like we would be better off than waiting to collect a higher amount in 5 years time the break even point is around 81 years of age as I see it which doesn't factor in that my Retirement accounts will have not been touched at all during those 5 years as well as at least that 5 year amount not withdrawn will have seen a significant benefit for the 15 plus years to the break even estimate of 81 years of age.

I would love to hear some comments about this as our situation is a bit different as luckily my pension puts us just below the 22% tax bracket already and whether we take SS early or withdraw from Retirement accounts we will remain in the 22% bracket so not a lot of different strategies seem available to us.

We carry a mortgage, but the interest is 2.5% so we don't plan on paying it off early. and have no other debts and can control our mostly travel spending as needed in down market years as needed.

 

[TheWizard]

The answer: you don't take SS early (62) because you are quite wealthy with a few million $$$ of tax-deferred investments and realize that delaying SS to age 70 will give you considerably more room to do larger Roth conversions and reduce your eventual RMDs.

Next question...

 

[athena53]

Plenty of threads on this. I waited till 69 (just got tired of waiting so didn't wait till 70) but had plenty f savings and likely a long lifespan given family history.

Another reason to wait is that claiming early also reduces the Survivor Benefit your spouse would collect.

 

[Teacher Terry]

@Mathjak, has stated that he took it early so he wouldn’t have to spend as much of his own money. I think I’m remembering this correctly and hoping he sees this and chimes in.

 

[Koolau]

The answer: you don't take SS early (62) because you are quite wealthy with a few million $$$ of tax-deferred investments and realize that delaying SS to age 70 will give you considerably more room to do larger Roth conversions and reduce your eventual RMDs.

Next question...

Plenty of threads on this. I waited till 69 (just got tired of waiting so didn't wait till 70) but had plenty f savings and likely a long lifespan given family history.

Another reason to wait is that claiming early also reduces the Survivor Benefit your spouse would collect.

These are likely the two best reasons to wait IMHO.

 

[FireCat]

Plenty of threads on this. I waited till 69 (just got tired of waiting so didn't wait till 70) but had plenty f savings and likely a long lifespan given family history.

Another reason to wait is that claiming early also reduces the Survivor Benefit your spouse would collect.

My spouse is the one with the larger SS benefit so won't really help. It seems to me that regardless of lifespan it would pay to take SS early for the reasons I mentioned in my thread?

 

[FireCat]

The answer: you don't take SS early (62) because you are quite wealthy with a few million $$$ of tax-deferred investments and realize that delaying SS to age 70 will give you considerably more room to do larger Roth conversions and reduce your eventual RMDs.

Next question...

I don't think 1.6 million is a few million. I should also note only $800k in TIRA with the balance in ROTH, Taxable and the $225k mortgage we hold. So I'm not too concerned with RMD's as they won't put us in a higher tax bracket than we already are. Just trying to see if someone has a better way to explain the reasoning for not taking early.

 

[pb4uski]

Do you have heirs to consider? Or charities that you want to support?

Given your good health delaying may maximize what they get.

Your longevity may be longer than you think. Check out https://www.longevityillustrator.org/ and Lifespan Calculator – Test Your Life Expectancy || NM

 

[bada bing]

You won't know if you made the right choice until both of you are dead. The right choice is to play the odds. Are you as a couple more or less likely to live past break even ? Can you use the years deferred to do Roth conversions to good advantage ? Will waiting drive you nuts ?

The mathematically correct call is usually, but not always, to defer. But if you don't go with the math, you'll be in good company. Supposedly about 80% of SS claiming decisions are suboptimal. Fortunately, in most cases, it doesn't make a huge difference.

 

[Koolau]

Two glaring reasons to take early are 1) You need the money NOW. 2) You have (or you both have) health issues strongly suggesting you will die well before break-even.

I hope OP is in neither category.

 

[FireCat]

Do you have heirs to consider? Or charities that you want to support?

Given your good health delaying may maximize what they get.

Your longevity may be longer than you think. Check out https://www.longevityillustrator.org/ and Lifespan Calculator – Test Your Life Expectancy || NM

We do have two kids, but no Grandkids if that happens that could change our picture a bit. I have enjoyed many of your insights over the years on this board. What I'm really trying to rap my head around is the math of taking it later vs. earlier. If I look at it through my Fireman's mind I see the numbers and not maybe looking at it like an accountant/investor. To me if we take SS early I will have more money no matter when I or my spouse dies. We take it at 62 for me and 65 for my spouse for 5 years we collect $165k. That's $165k that I can leave in my TIRA's, Roth's, etc. Those will will see growth most likely in those 5 years, but just looking at leaving that $165k invested for the break even point, of say 81 years, which would be 16 years I would reasonably expect a nice return of lets say 5% avg. out over that time frame.
If I take it later I have to pull $165K from my portfolio over 5 years and then have that much less earning power over the next 16 years although it would be offset a bit from the higher SS payments we would receive at 70 years old.

Really appreciate everyone's feedback thus far.

 

[engineernerd]

I should also note only $800k in TIRA .... So I'm not too concerned with RMD's as they won't put us in a higher tax bracket than we already are.

$800k today could easily be multimillions in a decade or two. And tax brackets change. The current ones are possibly the lowest they've EVER been, at a time when the national debt is huge and growing fast.

 

[FireCat]

You won't know if you made the right choice until both of you are dead. The right choice is to play the odds. Are you as a couple more or less likely to live past break even ? Can you use the years deferred to do Roth conversions to good advantage ? Will waiting drive you nuts ?

The mathematically correct call is usually, but not always, to defer. But if you don't go with the math, you'll be in good company. Supposedly about 80% of SS claiming decisions are suboptimal. Fortunately, in most cases, it doesn't make a huge difference.

Yes when we die would solve a lot of questions. Regarding the Roth Conversions I don't think it makes much of difference as we are stuck in the 22% tax bracket with pension now so doing conversions may or may not be better as I see it. RMD's won't put us in a higher tax bracket even with SS. The bigger question is if I die earlier than my spouse she may be stuck with a higher tax burden. So I am probably going to take IRA money out first and convert any money we don't need that year to Roth's to stay in the 22 or 24 percent brackets. If anyone could predict tax brackets that would make it easier along with life expectancy questions.

 

[engineernerd]

We do have two kids, but no Grandkids if that happens that could change our picture a bit. I have enjoyed many of your insights over the years on this board. What I'm really trying to rap my head around is the math of taking it later vs. earlier. If I look at it through my Fireman's mind I see the numbers and not maybe looking at it like an accountant/investor. To me if we take SS early I will have more money no matter when I or my spouse dies. We take it at 62 for me and 65 for my spouse for 5 years we collect $165k. That's $165k that I can leave in my TIRA's, Roth's, etc. Those will will see growth most likely in those 5 years, but just looking at leaving that $165k invested for the break even point, of say 81 years, which would be 16 years I would reasonably expect a nice return of lets say 5% avg. out over that time frame.
If I take it later I have to pull $165K from my portfolio over 5 years and then have that much less earning power over the next 16 years although it would be offset a bit from the higher SS payments we would receive at 70 years old.

Really appreciate everyone's feedback thus far.

This seems like an ideal opportunity to run the numbers in FIRECalc, doesn't it? Also to further investigate life expectancies. Make sure you're working with life expectancy for people who have already attained your age, and also maybe look at your odds of living to age 90, or 95, or 100. I for one am not comfortable planning for average life expectancy, I'd like to not run out of money even if I live to the age I have a 20% chance of living to.

 

[Out-to-Lunch]

I'm wondering why I would wait to take Social Security early for my spouse and myself in our situation.

Because maybe one of you may live a long time and you want to hedge against a shortfall late in life for the survivor?

 

[Gumby]

I took social security at 62 because, under the laws in place then, the GPO wiped out any spousal or survivor benefit for the young wife (and she is not entitled to a benefit on her own record). I calculated it would be best to take SS early and save more of the portfolio for her use after I'm gone (she is likely to survive me). However, the GPO was repealed two weeks ago, so that calculation no longer obtains. Well, as Robbie Burns said, "the best laid schemes of mice and men gang aft agley."

 

[Chuckanut]

Keep in mind if don’t care about leaving an estate to your heirs and can finance the years between 62 and 70 with your own funds, taking SS at 70 gives you more money to spend every year starting at 62. Look it up. Boggleheads has the math.

 

[latexman]

I just think earning an 8% return on a fixed income instrument in my portfolio that is backed by the U.S. government is pretty dang awesome!

 

[Kings over Queens]

The answer: you don't take SS early (62) because you are quite wealthy with a few million $$$ of tax-deferred investments and realize that delaying SS to age 70 will give you considerably more room to do larger Roth conversions and reduce your eventual RMDs.

Next question...

Playing devils advocate, can't one look at the social security income as a means to pay tax on the roth conversions?

 

[pacergal]

OP--
We have a similar situation as you, except we chose 100% joint survivor on both of our pensions, and we have three grandkids.
I looked at numbers up, down, and sideways, evaluated 62,66,70, looked at Roth conversions, etc.
We chose to take SS at 62. It's a personal decision and one you have to evaluate for yourself.

Do your research, check your numbers and calculations. Look at your personal reasons why you want to take SS now vs take money from your investment accounts.
You don't want to regret the decision later, although I believe there is a time frame where you can stop and pay back or stop and refile later, but do investigate that.

 

[youbet]

I'm wondering why I would wait to take Social Security early for my spouse and myself in our situation.

I fall into the same situation as Gumby in post #16. But, having said that, not sure what I would do today, post GPO elimination, with the "early or wait" SS decision. When I started my SS early many years ago, it was right at the beginning of an excellent investment period for the domestic TSM, which is where the money went. Today at age 77, when I calculate my break even age including the time value of those early invested dollars, it comes out well into my 90's. So, I'm a winner. Knowing that, of course I'd say "start early and invest." Starting SS early and investing the money into a crappy market would yield different results.

But as you sit today, you don't know what your returns will be going forward and will have to just assume some numbers and do the calculations. It's more complicated including inflation and investment returns, but they are an important factor.

Subjectively, your ability and willingness to take on more investment risk in place of so-called "guaranteed" income is something you have to decide. I'm comfortable with it but you may be less so.

My, biased opinion, biased by having "been there and done that," is that financially it isn't going to make a big difference one way or the other as long as you invest the early SS dollars prudently and the markets behave inside historical boundaries.

Also, I started SS a while back with different rules, in 2009. Back then, you could start SS at 62 and at any time before 70, suspend payments and pay back (without interest) the money you had received. Then restart SS with the new award based on the age you restarted. It was a great deal. Interest free loan if you suspended and restarted. And you could make your decision based on how well the invested early dollars had done. Unfortunately, they eliminated this perk midstream for me.

 

[Gumby]

I fall into the same situation as Gumby in post #16. But, having said that, not sure what I would do today, post GPO elimination, with the "early or wait" SS decision. When I started my SS early many years ago, it was right at the beginning of an excellent investment period for the domestic TSM, which is where the money went.....

I started social security in January 2021. The S&P500 is up ~58% (not counting dividends) from then to now, so the money I avoided taking out of my portfolio because I was getting social security has grown well - a compounded annual return of at least 12.3% The return on social security by waiting from 62 to 67 is only 7.4% per year. So I feel that I am now ahead by having taken early. But, as you point out, things could have worked out quite differently. And who knows what the future holds?

 

[TheWizard]

Playing devils advocate, can't one look at the social security income as a means to pay tax on the roth conversions?

Of course you could, circumstances vary considerably.

When I retired in 2013, I had negligible taxable account but I annuitized a good chunk of my tax-deferred 403(b) for lifetime monthly income.
With that in place, I was able to delay SS to age 70.

Everybody needs to have a plan...

 

[jollystomper]

In my view, at this point It just boils down to one's priorities. My priorities are to maximize survivor benefits and to do Roth conversions within my bracket to try to reduce my RMDs in 6 years (of which the market is not helping, my tax deferred accounts are higher since I retired 6.5 years ago, even with conversions ). So I have chosen to delay my SS until then. Of course, things can happen to change my priorities, so this is not carved in stone.

Since 70 is not a little more than 3 years away for me, at some point between now and then I might get greedy and my priority change to "spend even more now" and take it .

In your case I do not see an "earth-shattering" reason that might case me to shout "Danger, Will Robinson!" at your plan to take SS early.

 

[Dtail]

@Mathjak, has stated that he took it early so he wouldn’t have to spend as much of his own money. I think I’m remembering this correctly and hoping he sees this and chimes in.

Yes he did state that. I believe he was going to wait until 70 originally, but then changed his mind.
He appears to come and go on this site, but don't remember seeing any recent posts from him.