Would it be better to take Social Security at 62?

[firewhen]

Just from a financial standpoint, would taking social security at 62 and investing it and not touching it yield around $1 million in additional lifetime assets compared to 67 or 70? This seems to good to be true. Assumptions are that it is not needed and could be squirreled away indefinitely. Starting with the maximum monthly at 62 of $2572 compared to $3627 at 67 or $4555 at 70 and the social security payout increasing by 3% each year and investment gains of 9%. This does not include tax on dividends which would be paid separately. First 3 columns are the social security income streams and the last 3 are the balances of the cumulative holdings, shown from 62 to 90 years of age, shown in thousands. Taking at 62 would also lower the taxable income, which would be helpful when RMDs kick in and with IRMAA, and the unrealized capital gains would benefit from stepped up basis at death. Leaving aside the exact precision of this exercise, does this seem directional sound:



31 - - - - -
32 - - 65 - -
33 - - 104 - -
34 - - 147 - -
35 - - 195 - -
36 44 - 248 - -
37 45 - 308 92 -
38 46 - 373 147 -
39 48 55 446 208 -
40 49 56 526 275 116
41 50 58 615 350 184
43 52 60 713 434 261
44 54 62 822 526 346
45 55 63 941 629 440
47 57 65 1,072 742 545
48 58 67 1,217 868 661
50 60 69 1,376 1,006 790
51 62 71 1,551 1,159 932
53 64 73 1,743 1,327 1,090
54 66 76 1,954 1,512 1,263
56 68 78 2,185 1,716 1,455
57 70 80 2,440 1,940 1,666
59 72 83 2,718 2,187 1,899
61 74 85 3,024 2,458 2,155
63 76 88 3,359 2,755 2,437
65 79 90 3,726 3,082 2,746
67 81 93 4,127 3,440 3,087
69 83 96 4,567 3,833 3,460
71 86 99 5,049 4,264 3,870

 

[VanWinkle]

Not needing social Security makes the whole decision much easier. I would think that based on history, investing it in an 8% portfolio would surpass waiting on the government to increase the payout. One reason is compounding involved in investing where there is no compounding in the government increases.

 

[Luvtoride]

What is your assumption about taxability of the Social Security benefit itself based on your other income starting at age 62? I would think that factor would also come into play. If no other income involved, then theoretically this makes sense. Can you be assured or getting the projected returns every year, even in down markets?

 

[firewhen]

What is your assumption about taxability of the Social Security benefit itself based on your other income starting at age 62? I would think that factor would also come into play. If no other income involved, then theoretically this makes sense. Can you be assured or getting the projected returns every year, even in down markets?

Looking at taxability is a good point. It deflates all 3 scenarios, but on a relative basis. Taking it at 62 still beats 67 by half million and 70 by almost one million. Absolutely returns will vary over time. Would need to drop the compound return to 3% for it to be a wash. But directionally at least, no one is objecting to my conclusion. I did do some searching and have found articles that also reach this conclusion. I was surprised though when in the past I read about the reasons to take social security at 62 they only were for people with a short life expectancy or in desperate need of funds, not LBYM types who could invest it and do better than waiting to collect.

 

[DuluthGA]

i cant follow your numbers. Can you make it a shared google sheet?

 

[firewhen]

i cant follow your numbers. Can you make it a shared google sheet?

I am better with numbers than technology. Anyone know an easy way to do this? Cant follow the online solutions.

 

[USGrant1962]

Have you tried opensocialsecurity.com? It does the math a level deeper than your analysis including weighted probability of death age, and it shows the bottom line as net present value (current dollars).

If you click on the additional input option and set the discount rate at 6% (your 9% minus 3% inflation) you also see that claiming at 62 is optimum for a single person. With a big BUT.

But you are comparing a no-risk option to an option that has market risk - apples and oranges. The default discount rate in OSS is virtually riskless 20-year TIPS, so a fair comparison.

It is also a different story for couples depending on each partner's benefit amount and longevity. That is where the math and longevity insurance aspect suggest waiting to 70 for the higher earner.

Edit - oh, and can you change the title of the thread to something more descriptive? Just saying "Social Security" could be many different topics related to SS.

 

[oldtimer]

What are the column headings for your table of numbers?

 

[FiveDriver]

Looking at taxability is a good point. It deflates all 3 scenarios, but on a relative basis. Taking it at 62 still beats 67 by half million and 70 by almost one million. Absolutely returns will vary over time. Would need to drop the compound return to 3% for it to be a wash. But directionally at least, no one is objecting to my conclusion. I did do some searching and have found articles that also reach this conclusion. I was surprised though when in the past I read about the reasons to take social security at 62 they only were for people with a short life expectancy or in desperate need of funds, not LBYM types who could invest it and do better than waiting to collect.

Well, I'm curious to see the math behind those figures.

Is all of that based on drawing the absolute Max at 62 ? How often does that actually happen ?

The Taxation of Social Security also has to be taken into account here. Also the Surviving Spouse should be considered.

 

[savory]

This caught my attention and I took a quick online look. Below on Yahoo Finance, Dave Ramsey is quoted to suggest this concept. There are a few points brought up about the concerns. No examples or discussion of tax treatment. But all in all, I read the conclusion that if you can use SS as an investment, and you choose the right investment, the earlier you start the better.

https://finance.yahoo.com/news/dave...s that doing so,podcast that aired on YouTube.

 

[Exchme]

Have you tried opensocialsecurity.com? It does the math a level deeper than your analysis including weighted probability of death age, and it shows the bottom line as net present value (current dollars).

If you click on the additional input option and set the discount rate at 6% (your 9% minus 3% inflation) you also see that claiming at 62 is optimum for a single person. With a big BUT.

But you are comparing a no-risk option to an option that has market risk - apples and oranges. The default discount rate in OSS is virtually riskless 20-year TIPS, so a fair comparison.

It is also a different story for couples depending on each partner's benefit amount and longevity. That is where the math and longevity insurance aspect suggest waiting to 70 for the higher earner.

+1
Well explained, another way of explaining how you shouldn't use the return of the portfolio when deferring, but should focus on bonds is that folks could spend down their bonds to live on while deferring and then stick with a higher stock allocation the rest of their lives and have the same or lower lifetime risk. Since nominal bonds have inflation risk that Social Security does not, the proper comparison is with TIPS.

The benefit derating with age was set up to be roughly actuarially neutral in the 1980's on a unisex basis. So back then, single men should probably have claimed early and single women claimed later. Since then, longevity has improved a couple of years. For single men, I just looked at opensocialsecurity.com and got 65 years, 5 months, and if you scroll to the graph at the bottom, you can see that from 62-67, there is hardly any difference.

For single women, the story is a bit different, opensocialsecurity recommends 68 yrs, 4 months, with very little difference from age 65-70

It changes for a married couple as the larger benefit continues for the longer lived spouse, so a typical recommendation is for the lower earner to claim early and the higher to wait to 70.

 

[Chuckanut]

Then there is this: If you have the funds to pay for your lifestyle from 62 to 70 and you don’t care about leaving an estate, taking SS at 70 allows you to spend more money every year starting at 62.

Most people, including me, don’t use this method because they do wish to leave an estate for their children and the grands. Or they don't have the money to pay their expenses while they wait for SS to start.

One other thing. When to take SS is not a binary choice between 62 and 70. Actually if you choose to delay SS past age 62 you have 90+ points in time where you can change your mind and start up SS before 70. Simply contact SS and tell them you want to start it next month.

 

[Koolau]

Two things: SS is a "sure thing" (well, supposedly, no risk.) Investing has risk unless you get Federally insured (and that's been a loser until perhaps this year - and after tax, probably still a loser - but that's another thread.)


Taking at 70 (or at least post 62) increases the survivor benefit for the higher wage earner. YMMV

 

[Stormy Kromer]

I have a similar plan.

I am going to start SS at 62 and use the proceeds for living. This will allow us to keep about $40,000 a year invested in our Roth IRA's, currently at VG in their Total Stock Market Fund. Its not the same as investing the SS benefits, but it has the same effect. I doubt we'll ever have to touch our Roth's and they can grow nicely and pass efficiently to our children. I should note that leaving our family with an estate is important to us.

Another factor is DW will hit FRA (67) when I am 62.5 and she will be able to collect 50% of my FRA even though I'm 62.5. To do this, I have to apply. If we wait to apply when I'm FRA at 67 she would miss out on 5 years of benefits with no increase for waiting.

We'll take our chances that this is the right choice. If its not it means we lived a long time. Either way we win.

Every situation is different. I think the OP's option is very viable if one has the discipline to actually invest the funds and not let life style creep set in and spend the new found income.

 

[marko]

I took it at 62 ten years ago and never looked back. Numbers aside, my main reason was that there has been talk over the years about 'haircuts', (more) means testing and stoppage altogether for some of higher income. There is no doubt that the system is on shaky ground regardless.

SS is a 'sure thing' but the long term benefit amount is up for discussion IMO, which makes clear calculations into the future almost impossible. "Take the money and run" has been a motto that has served me well over my lifetime.

If changes are made 5, 10 or 15 years from now, I don't know if I'll be ahead or behind but I can at least say that I've given my best shot.

 

[The Cosmic Avenger]

i cant follow your numbers. Can you make it a shared google sheet?

Here, I did a quick Import Wizard into Excel and then converted to a Gsheet. It's publicly editable. https://docs.google.com/spreadsheets/d/1oQjPm2sZY_TBlfdeDayodZS1pW6vJQbmcFN70qgmwmg/edit?usp=sharing

 

[Sunset]

OP - You forgot to include the benefit of not taking SS early, which is to allow large Roth conversions which reduce the future RMD's and put the $$ into a non-taxable account.

It's a very complex issue overall.

 

[bada bing]

You have made the most common mistake in modelling the early & investing verses defer SS question. You have attributed stock market returns to the early & invest side. The reason why this is wrong for almost all real world situations is that nearly everyone who has a portfolio allowing the choice also has their portfolio invested in some allocation of stocks and fixed income. SS deferral has a risk profile most similar to investing in fixed income, not a mixed stock/bond, equity heavy portfolio. To equalize the risk between scenarios, either invest the early claimed proceeds only in bonds, or take the spending while deferred only from bonds. That would be an apples:apples comparison.

When you model it as you have, what you've shown is that a higher equity exposure (with a rather high predicted equity return) has a bigger expected ending balance, but also more uncertainty. Not exactly a revelation. If you equalize the stock market exposure between scenarios you'll get a quite different outcome.

I don't have a "dog in the fight" over other people's claiming choices. Most people (not ER members) will need the immediate income from SS and don't have discretion over when they claim. Claiming early when you do have the choice is a way of implementing a rising equity glideslope, which isn't a bad thing IMO. It isn't the only way of accomplishing a rising glideslope though and there seems to be a widespread glossing over of the big picture among those who model it that way. Individual situations give different results, but from a purely maximal dollar benefit goal, the variable that matters most is the estimate of how long benefits will be drawn on the account. That can be both the claimant's estimated longevity and the estimated longevity of survivors.

 

[sengsational]

Depending on the assumptions you make in your analysis, you the case can be made for 62 or 70 or something in between.

To take it to an extreme for illustrative purposes, if you had a "sure thing" that would provide a high return and taking SS at 62 would mean participating in this investment, then you wouldn't need to live very long to have more money to spend than taking later. And there is the common thought that getting the most SS is optimal. It's not. Having the most money to spend is optimal, and you can get less SS money and have more to spend. But all of this has been discussed ad nauseum in earlier threads. Nobody has changed their mind about their approach to the problem yet

 

[FREE866]

Depending on the assumptions you make in your analysis, you the case can be made for 62 or 70 or something in between.

To take it to an extreme for illustrative purposes, if you had a "sure thing" that would provide a high return and taking SS at 62 would mean participating in this investment, then you wouldn't need to live very long to have more money to spend than taking later. And there is the common thought that getting the most SS is optimal. It's not. Having the most money to spend is optimal, and you can get less SS money and have more to spend. But all of this has been discussed ad nauseum in earlier threads. Nobody has changed their mind about their approach to the problem yet

Interesting. I'm 57 now and up until like a year ago I was set on waiting until 70. However, after playing with the Open Social Security calculator I'm leaning more towards taking it at like 67.

 

[teej1985]

Delaying to 70 could also mean less years of IRMAA.

 

[N02L84ER]

If/when the ACA cliff comes back, delaying to at least 65 could be advantageous. If Roth conversions between retirement and RMD age is desired, delaying to RMD age could be advantageous. There are lots of levers that come into play when trying to make the "best" filing decision. We are currently delaying and watching.

 

[firewhen]

Here, I did a quick Import Wizard into Excel and then converted to a Gsheet. It's publicly editable. https://docs.google.com/spreadsheets/d/1oQjPm2sZY_TBlfdeDayodZS1pW6vJQbmcFN70qgmwmg/edit?usp=sharing

THANK YOU. I made the updates so everyone can see my assumptions and what I did. Granted there is risk in the portfolio return, but even dropping from 9% to a much lower rate still brings a higher accumulation at 62. There are other considerations as well, but I still find this intriguing and am considering the earliest election.

 

[RunningBum]

THANK YOU. I made the updates so everyone can see my assumptions and what I did. Granted there is risk in the portfolio return, but even dropping from 9% to a much lower rate still brings a higher accumulation at 62. There are other considerations as well, but I still find this intriguing and am considering the earliest election.

The spreadsheet is wrong. When delaying to 70 (or any other age), your benefit increases with inflation each just as it does when taking at 62, even if you haven't started it. The spreadsheet doesn't do that, instead plugging in the benefit from 8 years ago into cell D10 without adjusting for inflation.

 

[The Cosmic Avenger]

THANK YOU. I made the updates so everyone can see my assumptions and what I did. Granted there is risk in the portfolio return, but even dropping from 9% to a much lower rate still brings a higher accumulation at 62. There are other considerations as well, but I still find this intriguing and am considering the earliest election.

You're welcome, I actually enjoy this sort of thing. Case in point, I was trying to visualize the benefits of delaying SS and the breakeven points, and so I made this spreadsheet about 3 years ago, which I think does what you were trying to do: https://docs.google.com/spreadsheets/d/177R5bPesM9XuMN_xBG4W2X0ICrAt19RG-PoINI1zNdk/edit?usp=sharing It'll allow you to put in your own FRA benefit and see the difference per year for 62, 67, and 70.