Would it be better to take Social Security at 62?

[FREE866]

Communication when writing about numbers is hard, but I will try again. As you defer SS, you are "buying" some additional inflation adjusted annuity. In your comparison, you spent down a mix of stocks and bonds to allow the deferral. Then at age 70, you have the extra annuity (which behaves like bonds - especially TIPS) plus the remainder of your stock/bond mix. That is clearly a more bond-like portfolio than one where kept all your stocks and claimed at 62. So it's no surprise that from that set-up, the portfolio where you retained all you stocks looks pretty good.

A better comparison is to spend down bonds (a better comparison is to TIPS) during the bridge to SS, so that when SS kicks in, you have your original amount of stocks and SS has replaced some of your bonds.

Where do I say I'm even thinking of claiming at 62?



Again. I don't own any bonds!


From the Open Social Security site:


Alternatively, you can think of the analysis as, “what part of my portfolio would I spend down in order to delay Social Security? And what would be the rate of return that I’d be giving up by no longer having those assets in my portfolio?”
For most people, the relevant rate of return is the expected return on the bond portion of their portfolio. The primary exception would be the household that has a 100%-stock allocation and wants to take on even more risk.

 

[almost there]

Another component is what your age is today. And what the actual health of SS might be in, say 13 years from now in 2037.
Again, this might not belong in this thread, but worth mentioning.

 

[pb4uski]

Where do I say I'm even thinking of claiming at 62?



Again. I don't own any bonds!


From the Open Social Security site:


Alternatively, you can think of the analysis as, “what part of my portfolio would I spend down in order to delay Social Security? And what would be the rate of return that I’d be giving up by no longer having those assets in my portfolio?”
For most people, the relevant rate of return is the expected return on the bond portion of their portfolio. The primary exception would be the household that has a 100%-stock allocation and wants to take on even more risk.

I think you're both right. It is legit to use a real discount rate commensurate with the real rate of return on the assets that will be redeemed and used while deferring SS. If one is 100% equities then the real rate would be high... about 7% based on history but arguably lower right now based on near term projected real returns for equities. OTOH, many retirees set a portion of their portfolio aside to fund spending while deferring SS so a real return on short-to-medium term bonds would be more appropriate in those circumstances.

That said, I think 100% equities is a rarer case than using a fixed income or 60/40 AA real return.

 

[FREE866]

I think you're both right. It is legit to use a real discount rate commensurate with the real rate of return on the assets that will be redeemed and used while deferring SS. If one is 100% equities then the real rate would be high... about 7% based on history but arguably lower right now based on near term projected real returns for equities. OTOH, many retirees set a portion of their portfolio aside to fund spending while deferring SS so a real return on short-to-medium term bonds would be more appropriate in those circumstances.

That said, I think 100% equities is a rarer case than using a fixed income or 60/40 AA real return.

You and I have discussed the “near term projections for equities “ a few times. I honestly can’t recall in my 35 years of investing a time where projections weren’t dour. It’s just the psyche of investors and prognosticators to be fearful and that’s a good thing!

I don’t think expecting 4% real returns for equities is over optimistic, it’s actually a pretty grim view if you look at history. Whether they do at least that when I’m 62 years old going forward we don’t know , but probabilities wise it’s a pretty good bet. At this point I’m planning to take SS at 67 , but time will tell. Regardless, I think it’s a very interesting discussion.

 

[bada bing]

This is getting a bit into the weeds, but there is nothing special about 100% equity exposure. It is not a hard endpoint. You can easily go 120% - or 200% - or 300%. And in fact, some such portfolios outperform. The Hedgefundie's Excellent Adventure portfolio was a topic here just recently that outperforms in backtests. There are several ways to lever up, if that's what someone wants.

That ties in with deferring SS, because deferring is a better annuity purchase than you can make in the retail market. If you want need/want increased equity exposure and also want/need the better-cost-than-the-market, COLA'd annuity from deferring SS, there is no reason you can't do both. Which brings the SS modelling discussion around again - what return are you forecasting for investing or deferring SS and what risks are you assuming to get it ? Are you really comparing apples:apples ?

I can claim I will invest my early checks from claiming SS @ 62 in a HEA leveraged portfolio and not only will my predicted 20% CAGR blow away deferring SS, it will blow away your pedestrian 100% equity portfolio.

 

[USGrant1962]

...
I can claim I will invest my early checks from claiming SS @ 62 in a HEA leveraged portfolio and not only will my predicted 20% CAGR blow away deferring SS, it will blow away your pedestrian 100% equity portfolio.

That is actually a reasonable idea if you don't need the money!

 

[Koolau]

I can claim I will invest my early checks from claiming SS @ 62 in a HEA leveraged portfolio and not only will my predicted 20% CAGR blow away deferring SS, it will blow away your pedestrian 100% equity portfolio.

That is actually a reasonable idea if you don't need the money!

Of course, leverage can w*rk against you too. The main "unknowable" about SS claiming is how long you will live. Everything else about SS is pretty much knowable. With leverage, you multiply your participation in the market (to above 100% if you like) but you don't know how it will all turn out. My only "leverage" has been not paying off the mortgage as fast as I could. Not too much bravery involved there.

 

[reneeh63]

After reading all of this it seems there are two primary arguments used:
A bird in the hand is worth two in the bush (aka claim as early as possible, aka get while the getting is good)
Why spend my (own) money when I can spend the government's (my own, kinda) money - also pretty much boils down to claim early and claim often

For many on this forum it is a moot point - if SS will make up only a small portion of your retirement, why even mess with it. That seems strange to me, if it's so small it is insignificant why even take it until it amounts to something more? It's possible some view it as a scoffing kind of statement - "I don't really need it but it'll be some extra loose change to buy ice cream with"?

The minority's argument is that based on health and the near certainty of growth by taking it later combined with the uncertainty of the market culminates in the decision to take it later, all the way up to age 70. Again, given the relatively high wealth of those on the forum, it doesn't hurt much to wait so why not have some extra insurance.

For myself, I'm not interested in "screwing the government" nor have I any FOMO in case I die before fully recouping what I've delayed. I'll wait until 70 and will spend a higher percentage of my own investments in those intervening years - I'll not sacrifice my quality of life while waiting for my SS payout. I'm lucky to have a decent pension and high SS along with decent investments. I'm not wealthy now, nor will I be wealthy, but I'll remain comfortable and that's fine by me. My striving years are almost over.

 

[RunningBum]

I'll wait until 70 and will spend a higher percentage of my own investments in those intervening years - I'll not sacrifice my quality of life while waiting for my SS payout.

Exactly. There are plenty of good reasons to take earlier, but taking SS so you can spend more shouldn't be one of them. Spend your own money knowing you have a bigger benefit coming later.

 

[pb4uski]

+1 We hear that fallacy of 'I'm claiming early so I can spend more during my go-go years" all the time and it just isn't well thought out of you have a well funded plan

 

[pacergal]

Take at 62
Take at 70
Take at any intervening year.
Do your own due diligence regarding your own financial situation and make the best decision you can for you.
Every ones situation is different and reasons/choices for taking SS at any time is a personal one.
People can argue/persuade until the cows come home, but it seems those in the "take early" camp and those in the "take later" camp are happy with their decision and generally don't change.

My advice: read, study, run scenarios.

If you choose to take early, and decide afterwards you made the wrong choice for you, I believe you have an option to stop collecting and repay (within 12 months I think).
If you choose to wait, take it year by year.

Whatever decision you make will be right for you.
Sit back and enjoy retirement! It's what you worked for.

 

[Gumby]

...
People can argue/persuade until the cows come home, but it seems those in the "take early" camp and those in the "take later" camp are happy with their decision and generally don't change.....

To be fair, if you are in the "take early" camp and have taken for more than one year, you can't change your mind. If you are in the "take later" camp, you can change your mind at any time. I analyzed my own particular situation and concluded that taking early was best for me, so I did. I think I was right, but if I was wrong, there is nothing to be done now.

 

[Out of Steam]

Take at 62
Take at 70
Take at any intervening year.
Do your own due diligence regarding your own financial situation and make the best decision you can for you.
Every ones situation is different and reasons/choices for taking SS at any time is a personal one.

I started out knowing that I would delay my Social Security to at least 65, and have stuck with that. A diagnosis within the last year appears to reduce the likelihood of my living to an unusually old age, so I won't postpone taking my payments beyond FRA. I may file as soon as 3 months after turning 65.

 

[statsman]

I started out knowing that I would delay my Social Security to at least 65, and have stuck with that. A diagnosis within the last year appears to reduce the likelihood of my living to an unusually old age, so I won't postpone taking my payments beyond FRA. I may file as soon as 3 months after turning 65.

I am going with 65, but for a different reason. Family history. These are the ages of my parents and grandparents at the time of their passing: 56, 59, 63, 64, 71, and 93 (maternal grandfather). It is rather scary to look at on paper.

Granted, modern living could give me a better shot at a longer life, but the genetics coming through three of the four grandparent lines are atrocious. Maternal grandmother (64) had three siblings, and none of them lived to be 65. Paternal grandparents (59, 63) had three sibling among them, and none of them lived to be 65. Only my maternal grandfather (93) had siblings (three) who lived a relatively long life (83, 87, 93).

 

[Out of Steam]

I am going with 65, but for a different reason. Family history. These are the ages of my parents and grandparents at the time of their passing: 56, 59, 63, 64, 71, and 93 (maternal grandfather). It is rather scary to look at on paper.

Both my parents made it to 80, and three of four grandparents lived past 75. My maternal grandfather lived into his 90s. But I'm now dealing with a pair of autoimmune conditions. While I don't believe my life expectancy will be below average, living to 90+ seems unlikely.

Being that we don't have long-term care insurance, I'd also like to reduce our current draw of 4-4.5% from retirement accounts.

 

[RunningBum]

Two of my grandparents died in their 50s, one at 63, the last at 75. My parents are still alive at 87 and 89. So who knows for me, but I figure I should be prepared for many more years.

 

[Time2]

This is getting a bit into the weeds, but there is nothing special about 100% equity exposure. It is not a hard endpoint. You can easily go 120% - or 200% - or 300%. And in fact, some such portfolios outperform. The Hedgefundie's Excellent Adventure portfolio was a topic here just recently that outperforms in backtests. There are several ways to lever up, if that's what someone wants.

That ties in with deferring SS, because deferring is a better annuity purchase than you can make in the retail market. If you want need/want increased equity exposure and also want/need the better-cost-than-the-market, COLA'd annuity from deferring SS, there is no reason you can't do both. Which brings the SS modelling discussion around again - what return are you forecasting for investing or deferring SS and what risks are you assuming to get it ? Are you really comparing apples:apples ?

I can claim I will invest my early checks from claiming SS @ 62 in a HEA leveraged portfolio and not only will my predicted 20% CAGR blow away deferring SS, it will blow away your pedestrian 100% equity portfolio.

With that leveraged investment of the SS checks, How is the SORR changed by the fact that you are not taking out 4%. And you only have an 8 year time period until 70. But, of course you can keep it leveraged.
Only 11 months until I'm 70 and start collecting.
Oh wait, do I really want to get older faster?

 

[PatrickA5]

To be fair, if you are in the "take early" camp and have taken for more than one year, you can't change your mind. If you are in the "take later" camp, you can change your mind at any time. I analyzed my own particular situation and concluded that taking early was best for me, so I did. I think I was right, but if I was wrong, there is nothing to be done now.

Actually, if you take early, once you get to your FRA you can suspend your benefits and receive the deferral credits (8%). I'm thinking about doing that next year when I'm eligible. Probably won't, but will look into it.

 

[mathjak107]

we got to beta test fidelitys in house use software OPTIMIZING SOCIAL SECURITY.

it did a good job maximizing one’s social security..it came up with quite a complex plan for us at the time .

my wife is two years older so she was collecting already since 62.

it had her stopping hers at fra and letting it grow to 70 ..at 70 she would start it again .

i would be 68 and file for half hers ..

at 70 i would file and she would get a spousal adder .

it certainly found the biggest payment .

but i pointed out it didn’t account for the fact we would be fronting ourselves the ss we weren’t getting to live on .

that money either could have stayed invested or been invested if we filed early .

it didn’t consider we couldn’t get 4500 a year in spousal until i filed .

so fidelity pulled it from use after reviewing things becuse it didn’t look at the big picture .

it can actually take 22 years or so for delaying ss to equal the same internal rate of return as a balanced portfolio and early ss

that is a very long time to live .


now that i am 71 and my wife 73 , we actually have a bigger income from all the portfolio growth and earlier social security then had we followed fidelity’s plan delaying

HERE IS A BALANCED PORTFOLIO

IT TOOK ABOUT TWO DECADES , FOR DELAYING TO EQUAL A TIPS LADDER AND EARLY SS TOO

 

[Tetto]

we got to beta test fidelitys in house use software OPTIMIZING SOCIAL SECURITY.

it did a good job maximizing one’s social security..it came up with quite a complex plan for us at the time .

my wife is two years older so she was collecting already since 62.

it had her stopping hers at fra and letting it grow to 70 ..at 70 she would start it again .

i would be 68 and file for half hers ..

at 70 i would file and she would get a spousal adder .

it certainly found the biggest payment .

but i pointed out it didn’t account for the fact we would be fronting ourselves the ss we weren’t getting to live on .

that money either could have stayed invested or been invested if we filed early .

it didn’t consider we couldn’t get 4500 a year in spousal until i filed .

so fidelity pulled it from use after reviewing things becuse it didn’t look at the big picture .

it can actually take 22 years or so for delaying ss to equal the same internal rate of return as a balanced portfolio and early ss

that is a very long time to live .


now that i am 71 and my wife 73 , we actually have a bigger income from all the portfolio growth and earlier social security then had we followed fidelity’s plan delaying

HERE IS A BALANCED PORTFOLIO

IT TOOK ABOUT TWO DECADES , FOR DELAYING TO EQUAL A TIPS LADDER AND EARLY SS TOO

DW and I are really struggling on if we should wait until FRA, 70 or take it now. If we take it at 62 (she's 3.5 years older than me, i'm 58) its $48k per year for us. This isnt bad and we'd need to mine just a bit to be comfy. However, if we wait until 70 (12 years for me..) we'll get around $72K/year. Not bad, but 12 years to wait for me!

 

[mathjak107]

well all our situations are different so i doubt anyone can tell you what’s best for you

 

[cyber888]

Yeah will take SS at 62, and invest in large cap growth with a record of 15% - 18% growth per annum in the last 5-10 years. Compounding that will beat getting SS at 70 hands down.

 

[FREE866]

Yeah will take SS at 62, and invest in large cap growth with a record of 15% - 18% growth per annum in the last 5-10 years. Compounding that will beat getting SS at 70 hands down.

I'm pretty much always bullish , but expecting 15-18% is way over the top

 

[LateToFIRE]

My back of the envelope calc's have generally come up with at least a two decades to reach break-even on delaying to FRA vs taking at 62. The issues that tipped the scale towards waiting for me were:

(1) Don't really need the income yet. Have plenty of cash and taxable funds to bridge to FRA.

(2) Spousal benefit for DW who had not contributed much to SS taxes amplifies the effect of waiting.

(3) I like the secure, bond-like characteristics of SS income, especially as plan to maintain an aggressive AA thru retirement years.

 

[Wile E. Coyote]

+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.

I was just reading about this subject the other night. My concern was that I had a job for 9 years that did not pay into SS. However, what I found was that if you work 30 years paying into SS elsewhere they don't look at the 9 years.