Would it be better to take Social Security at 62?

[LateToFIRE]

Isn't expected longevity the most important unknowable variable in this debate? I'm in no position to advise anyone, but my own plan is to take SS at FRA age 67 - though thinking about maybe age 65 (which is when pension would start).

Why:

1) I want to optimize the spousal benefit for DW
2) I'd like to do some Roth conversions and/or WD's to lower tIRA balance before taking SS
3) I have ample taxable account funds to live off of before FRA, so can "afford" to wait
4) I'd wait until age 70, but kinda paranoid about not living long enough to break even, whatever that means

 

[firewhen]

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.

Wow that made all the difference. By taking today's payout at 67 and 70 and upping it by the 3% the 3 scenarios are flat by age 90 even with the 9% compounded growth. Changing it to 7% and they are flat by 85. So that simple fix has me rethinking the whole thing. May make sense to wait until age 70 and benefit from the "sure" return.

 

[Sunset]

Isn't expected longevity the most important unknowable variable in this debate? I'm in no position to advise anyone, but my own plan is to take SS at FRA age 67 - though thinking about maybe age 65 (which is when pension would start).

Why:

1) I want to optimize the spousal benefit for DW
2) I'd like to do some Roth conversions and/or WD's to lower tIRA balance before taking SS
3) I have ample taxable account funds to live off of before FRA, so can "afford" to wait
4) I'd wait until age 70, but kinda paranoid about not living long enough to break even, whatever that means

Your reasons 1) and 4) conflict with each other.

Reason 1) says take at age 70.
Reason 4) says take at 62.

Really reasons 1), 2), 3) all say take at 70.

So if your reasons get to vote, it's three to one for age 70

 

[Flyfish1]

Thanks for the link to opensocialsecurity.com . Very good planner.
Lots to consider as we are not counting on SS and have to decide what to do with that money, ie) invest, fund grandkids 529's, charity donations or build a bigger pile of money. Although the latter seems a bit selfish as it benefits no one in the short run, but could certainly help us pay for home care , etc. Wow - lots to consider.

 

[Markola]

We’ll try to wait the mere 8 years until 70, when the payout for us will be equivalent to something like a $2 million principal at a 4% SWR. Plus it’s COLA protected, govt insured, lifetime guaranteed, and diversifies our income streams.

 

[Koolau]

We’ll try to wait the mere 8 years until 70, when the payout for us will be equivalent to something like a $2 million principal at a 4% SWR. Plus it’s COLA protected, govt insured, lifetime guaranteed, and diversifies our income streams.

Yeah, I've been "taking back" all those ugly things I used to say about SS and how it wasn't gonna be there when I finally took it and how I'd rather manage my own retirement investments and on-and-on.

 

[LateToFIRE]

Your reasons 1) and 4) conflict with each other.

Reason 1) says take at age 70.
Reason 4) says take at 62.

Really reasons 1), 2), 3) all say take at 70.

So if your reasons get to vote, it's three to one for age 70

I don't disagree with your assessment. FYI, for anyone who uses RPM (Retiree Portfolio Model), it contains an extensive SS scenario comparison feature which I have now fired up and have been playing with.

In my specific case, assuming DW and I live to our 90's, there is about $150,000 present value difference between taking at 62 vs 67. Right about age 74 is when the Start@67 scenario starts winning.

IMO, that's not enough of a difference to really give a hoot when we're talking about ~$1.5M dollars (PV) of potential lifetime benefits, not to mention all the variables and unknowns that could alter the equation.

So, my (somewhat emotional) rationale for waiting until at least 65, probably 67, is more the insurance annuity aspect of SS [and the Roth conversion oppy]. I'd like to be "insured" for the higher amount. I can afford this insurance because I don't really need SS - it is a nice to have just in case and allows us to sleep a little easier at night. It's not about optimizing the payout for us - its about optimizing the safety net, though I ain't waitin til 70 just because. I ain't gonna risk dyin before getting back at least some of the many dollars confiscated from my paycheck over the past decades.

 

[Flyfish1]

though I ain't waitin til 70 just because. I ain't gonna risk dyin before getting back at least some of the many dollars confiscated from my paycheck over the past decades.

+1

 

[Flyfish1]

Delaying to 70 could also mean less years of IRMAA.

Sorry, I don't understand this statement. Of course I didn't know what IRMAA was until today...so I don't know what I don't know.
Anyways, isn't IRMAA a Medicare surcharge on higher income people? And you can apply for Medicare and not take Social Security , correct? Confused.

 

[braumeister]

Sorry, I don't understand this statement. Of course I didn't know what IRMAA was until today...so I don't know what I don't know.
Anyways, isn't IRMAA a Medicare surcharge on higher income people? And you can apply for Medicare and not take Social Security , correct? Confused.

Yes, it doesn't matter whether you're receiving SS benefits or not, if you're on Medicare you're subject to IRMAA. There are many threads here discussing IRMAA, so a little searching will enlighten you quickly.

 

[CRLLS]

If we only knew at what age we will die, and exactly what the market will do, the math would be very easy. However, SS alone is pretty much a breakeven somewhere around age 82(ish).

I would figure my chances of success with all the various scenarios and if they all give you acceptable numbers, just pick one and move on. I am not aware of any one calculator that will cover ALL the variables. And we don't know what tax laws will be changed between now and then.

FWIW, I considered spousal survivor's benefits, our retirement bucket, our (inflated) spending rate, using the nest egg for LTC if needed, and maybe a few other things. I planned on putting off the decision one year at a time. I ended up with claiming at age 70 mostly for the survivor's benefit.

 

[sengsational]

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.

As with any calculator for any financial model, one should scrutinize the defaults. As has been mentioned, if you need the money early, you're going to take it early. But for the case where you don't need it early, the assumption about what the money would be earning is critical to the outcome. Some calculators don't even allow you to change the earning rate. Setting the earning rate of the model to equal the rate of inflation is common, simple, and wrong. But that takes me back to the aphorism "all models are wrong but some are useful". What I've discovered is the more people here argue about a topic, the less difference it makes in the final accounting.

 

[calmloki]

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.

Wow - This was just about the same reasoning and conclusion I had twelve years ago. I was set to receive a pretty tiny amount anyway, so decided I'd rather see some benefits. Got my first SS payment on 8-2012. Did a pretty good job of croaking it 5/2013. Thankfully my honey did a quick benefit calculation and a bunch of CPR till EMTs and doctors tagged in. She didn't even use a spreadsheet.

Almost twelve years later I'm really happy with the little amount that drops into my checking account every month. I make financial decisions for optimum effect but based on a pretty short time frame, because you just don't know. Inflation? dunno. Investment return? dunno. Buy a pork roast on sale and stick it in the freezer? I'll take that chance.

 

[Gumby]

I took social security at 62. Why? Because the young wife is not eligible to collect social security on her own and, due to the GPO, does not now and will not ever receive a spousal benefit and will not receive a survivor benefit if I die before her (which seems more likely). So, when I go, the social security goes entirely. Given that fact, we thought it better to take the money now, which means we need not draw at all on our portfolio, so that when her cash flow is reduced upon my death, she will have more in the portfolio to draw on, now and at every point in the future.

This is a scenario that opensocialsecurity does not handle.

 

[Koolau]

I took social security at 62. Why? Because the young wife is not eligible to collect social security on her own and, due to the GPO, does not now and will not ever receive a spousal benefit and will not receive a survivor benefit if I die before her (which seems more likely). So, when I go, the social security goes entirely. Given that fact, we thought it better to take the money now, which means we need not draw at all on our portfolio, so that when her cash flow is reduced upon my death, she will have more in the portfolio to draw on, now and at every point in the future.

This is a scenario that opensocialsecurity does not handle.

Yeah, that's a new one to me. I thought all you had to do to get a survivor benefit was to be married to someone eligible for SS (and be of certain age and maybe a couple of other wrinkles.) I won't ask details, but totally out of curiosity, are you making provision for DW WITH the money from early SS? (Yeah, I know money is fungible, but...) Again, none of my business. Thanks for sharing your situation. I learn something here almost every day.

 

[Gumby]

Yeah, that's a new one to me. I thought all you had to do to get a survivor benefit was to be married to someone eligible for SS (and be of certain age and maybe a couple of other wrinkles.) I won't ask details, but totally out of curiosity, are you making provision for DW WITH the money from early SS? (Yeah, I know money is fungible, but...) Again, none of my business. Thanks for sharing your situation. I learn something here almost every day.

The young wife was a public school teacher for 30 years. In Connecticut, teachers don't pay into social security, so she is ineligible to collect SS on her own record. However, teachers do have a contributory pension program, so she gets a fairly decent pension now.

However, unlike someone who just never worked and so never contributed to social security, the Government Pension Offset (GPO) denies her a spousal benefit or a survivor benefit. Under the GPO law, if you are receiving any governmental pension from a job where you did not pay social security, they deduct 2/3 of your pension amount from any spousal or survivor benefit you would otherwise receive. 2/3 of her pension exceeds my entire social security. And since her pension is COLAd the same as Social Security, it always will.

I think it grossly unfair to me. Because a guy who pays social security gets two things - his own benefit and an insurance policy for his wife so that she is not destitute when he dies. So my neighbor and I paid exactly the same social security taxes over the years. His wife was a trust fund baby and one of the "ladies who lunch," so she never paid a dime in social security taxes. But, when he dies, she gets his benefit. My wife doesn't get mine. My position is that if we pay the same, my neighbor and I should get the same thing. But we don't; I have been shortchanged.

Unlike many teachers who are shocked to discover the GPO after they retire, I saw this situation coming long ago, so I took steps to mitigate the loss of social security when I die. As I mentioned in my first post, I started SS at 62. Additionally, I bought a large whole life insurance policy in 2002 and paid for it over 15 years, so that it was fully paid up before I retired. If the young wife annuitizes the death benefit, it will make up for the loss of social security income.

https://www.ssa.gov/pubs/EN-05-10007.pdf

 

[DuluthGA]

I’m in a similar boat to Gumby. Wife worked in public school for 25 years, retired at agr 60 with healthcare for both us., That was nice but knowing she wouldn’t qualify for my full SS caused us to have to do more than the neighbors. She may get a small step up in her amount when I pass but only a $100 or so. Overall I’m glad she has the pension and insurance (she took single life to max her pension). I also have life insurance she can use to put a SPIA if needed. I’m waiting to claim SS later, probably around 68 according to the calculators

 

[pb4uski]

.... I think it grossly unfair to me. Because a guy who pays social security gets two things - his own benefit and an insurance policy for his wife so that she is not destitute when he dies. So my neighbor and I paid exactly the same social security taxes over the years. His wife was a trust fund baby and one of the "ladies who lunch," so she never paid a dime in social security taxes. But, when he dies, she gets his benefit. My wife doesn't get mine. My position is that if we pay the same, my neighbor and I should get the same thing. But we don't; I have been shortchanged. ...

While I see your point of view, there is the other side too though. The neighbor who paid exactly the same social security taxes over the years and his wife had a job that paid the same as your DW but his wife paid into SS.

In that scenario, if there were no GPO as you would like, you and your DW would get the same benefits as the other couple despite you paying in much less as a couple, so it isn't fair to them. Given the number of couples who both work these days that is a more likely scenaro and the SAHM or trust fund baby spouse.

The root problem is that there should not be ANY jobs where you don't pay into SS so if you want to make things fair then start with requiring everyone with earnings to pay into SS.

 

[Gumby]

While I see your point of view, there is the other side too though. The neighbor who paid exactly the same social security taxes over the years and his wife had a job that paid the same as your DW but his wife paid into SS.

In that scenario, if there were no GPO as you would like, you and your DW would get the same benefits as the other couple despite you paying in much less as a couple, so it isn't fair to them. Given the number of couples who both work these days that is a more likely scenario and the SAHM or trust fund baby spouse.

The root problem is that there should not be ANY jobs where you don't pay into SS so if you want to make things fair then start with requiring everyone with earnings to pay into SS.

Sadly, the decision for teachers not to pay into social security was made in the 1950s and the people who made it are long gone. I think teachers today would not mind paying social security. When I worked for the state, I paid both social security and contributed toward the pension benefit.


Edit to add: Here's some background about the decision

Why are Connecticut Teachers Excluded From Social Security for Public School Teaching Service?

When Congress passed the Social Security Act in 1935, it excluded federal, state, and local government employees from mandatory coverage (42 U.S.C. Ch 7). The exclusion for state and local public employees was based on constitutional concerns about whether the federal government could impose taxes on state governments. In the early 1950s, Congress amended the law to allow state and local government employees to receive coverage if they voluntarily chose it
in a referendum. The then-members of the Teachers’ Retirement System voted against joining the Social Security system. In 1959, at the request of the Connecticut Education Association, the General Assembly prohibited TRS members from holding another referendum. The ban on Social Security coverage for Connecticut teachers remains in place (CGS § 5-158(d)).

https://www.cga.ct.gov/2017/rpt/pdf/2017-R-0212.pdf

 

[nvestysly]

I have often pondered (and calculated) various scenarios regarding when to collect Social Security. Our decision to FIRE never included SS so in reality we don't "need" the money. Consequently, I decided, with the support of a fee only financial advisor, to begin collecting at 62.

However, I choose to think of it differently than the OP. I'm not investing the amount I receive from SS, instead I am not withdrawing that amount from my existing retirement accounts. I'm still living on the essentially the same amount of money that I have since the start of retirement except I'm withdrawing substantially less from my IRA's. Tomato, tomahto - it's all just money but that's my way of thinking about it.

Use the SS money now to the greatest extent possible, let my assets grow so I can do what I want with them, including bequeath the remaining personal assets to friends, family and charity. When I die I cannot bequeath future SS payments - they end, but my IRA's can be inherited or given away as I see fit.

 

[pacergal]

I have often pondered (and calculated) various scenarios regarding when to collect Social Security. Our decision to FIRE never included SS so in reality we don't "need" the money. Consequently, I decided, with the support of a fee only financial advisor, to begin collecting at 62.

However, I choose to think of it differently than the OP. I'm not investing the amount I receive from SS, instead I am not withdrawing that amount from my existing retirement accounts. I'm still living on the essentially the same amount of money that I have since the start of retirement except I'm withdrawing substantially less from my IRA's. Tomato, tomahto - it's all just money but that's my way of thinking about it.

Use the SS money now to the greatest extent possible, let my assets grow so I can do what I want with them, including bequeath the remaining personal assets to friends, family and charity. When I die I cannot bequeath future SS payments - they end, but my IRA's can be inherited or given away as I see fit.

Same here.
It is a personal finance decision, no one can make it for you.
Do your research and due diligence and make the best decision for you (and family if you have one).
Then, go enjoy your life!

 

[Sunset]

......

I think it grossly unfair to me. Because a guy who pays social security gets two things - his own benefit and an insurance policy for his wife so that she is not destitute when he dies. So my neighbor and I paid exactly the same social security taxes over the years. His wife was a trust fund baby and one of the "ladies who lunch," so she never paid a dime in social security taxes. But, when he dies, she gets his benefit. My wife doesn't get mine. My position is that if we pay the same, my neighbor and I should get the same thing. But we don't; I have been shortchanged.

....

+1
I get [-]WHIPPED[/-] WEP'd so my case is the same unfairness but affects me:
I worked in Canada paid into Canada Pension Plan
My neighbor in Canada drank beer and watched TV instead of working.
We both moved to USA and got same job in USA paying the same SS contributions.

When we retire:
My SS payments are reduced by 1/2 the value of Canada Pension Plan.
My neighbor gets full SS payments.

Totally unfair as we paid the same SS payments. <edit> And we are at the same bend point in SS <edit>

To reduce the bad impact of this, I claimed my CPP early taking it at a reduced level so will be a smaller number to reduce my SS. No use delaying CPP to get a larger percentage each year, as 50% of any increase would be removed by a larger SS WEP'ing.

 

[Onda]

We decided to wait until 70 because it helps us sleep at night.

 

[pb4uski]

Sadly, the decision for teachers not to pay into social security was made in the 1950s and the people who made it are long gone. I think teachers today would not mind paying social security. When I worked for the state, I paid both social security and contributed toward the pension benefit. ...

Thanks for the background. The other long ago decision that in retrospect is very problematic was allowing employers to provide health insurance which has become a life of its own.

I've seen this problem here and there over the years where people change jobs and end up with short gaps in coverage or have to restart deductibles etc. It makes no sense to me that if you change jobs that your entire health insurance situation changes. Make health insurance personal like car and home insurance... no changes to them when you change jobs.

 

[Chuckanut]

IMO, WEP and GPO are both perfectly justified when one considers the bend points in the SS payout system, and the fact the people who did not pay into SS for decades also had more money left over from their gross pay to invest.

As a former teacher who has paid SS taxes on every dollar I have ever earned through my labor, I understand that the WEP and GPO offsets are confusing. And the teacher’s unions don’t help by the misleading ways they present this issue. IMO, the Feds should eliminate the exemptions from SS taxes, and then hopefully the problem will go away in a few generations.

I realize this is a hot-button issue for many people that won't be settled here. So I will leave those interested with this article by Thom Margenau who explains it far better than I can.

https://www.creators.com/read/your-social-security/05/15/social-security-offsets

[FONT=Times New Roman, serif]OK, teachers, firefighters, police officers and other government workers who will get a pension from a job not covered by Social Security, this column is for you. It explains the rules that may require a reduction to any Social Security benefits you might have earned while working at jobs where you did pay into Social Security. And it also explains the law that says a portion of your pension will offset any benefits you might potentially be due on a spouse's Social Security record.[/FONT]

+1 on health care being tied to employment. It makes no sense in the modern world.