Would it be better to take Social Security at 62?

[mathjak107]

I have seen some version of this post from you many times about the 15 year 2% real return minimum.
IIRC, Karsten Jeske in his Early Retirement Now Safe Withdrawal posts had stated that that after 15 years if the portfolio is inflation adjusted 0% return, then the portfolio should never fail over the full 30 year period.
Am I misquoting or perhaps there is another nuance?

i haven’t done the math but kitces has .

it actually takes 1% but you could be flat broke in year 31 . so 2% is a better goal

EXECUTIVE SUMMARY

As retirees and their planners adjust to the 'new normal' - a world of lower-than-average returns for the foreseeable future, many have questioned whether the historical safe withdrawal rate research is still valid. After all, if returns will be below average in the coming years, doesn't that imply safe withdrawal rates must be below average as well?

In point of fact, though, safe withdrawal rates do not depend on average returns in the first place; the worst safe withdrawal rates in history that we rely upon are actually associated with 15-year real returns of less than 1%/year from a balanced portfolio!

Accordingly, given current bond yields, dividend yields, and inflation, if the current environment for today's retirees will result in a "new record low" safe withdrawal rate, the S&P 500 would still have to be no higher in 2027 than it was in 2007 or even 2000!

On the other hand, merely projecting equities to recover to new highs by the end of the decade or generating a mid-single-digits return would actually represent an upside surprise, allowing for higher retirement spending than 4.5% safe withdrawal rates!



https://www.kitces.com/blog/what-returns-are-safe-withdrawal-rates-really-based-upon/

 

[audreyh1]

I have seen some version of this post from you many times about the 15 year 2% real return minimum.
IIRC, Karsten Jeske in his Early Retirement Now Safe Withdrawal posts had stated that that after 15 years if the portfolio is inflation adjusted 0% return, then the portfolio should never fail over the full 30 year period.
Am I misquoting or perhaps there is another nuance?

Real return 0% is good enough from what I’ve read for the 30 year period.

 

[LateToFIRE]

i haven’t done the math but kitces has .

it actually takes 1% but you could be flat broke in year 31 . so 2% is a better goal

EXECUTIVE SUMMARY

As retirees and their planners adjust to the 'new normal' - a world of lower-than-average returns for the foreseeable future, many have questioned whether the historical safe withdrawal rate research is still valid. After all, if returns will be below average in the coming years, doesn't that imply safe withdrawal rates must be below average as well?

In point of fact, though, safe withdrawal rates do not depend on average returns in the first place; the worst safe withdrawal rates in history that we rely upon are actually associated with 15-year real returns of less than 1%/year from a balanced portfolio!

Accordingly, given current bond yields, dividend yields, and inflation, if the current environment for today's retirees will result in a "new record low" safe withdrawal rate, the S&P 500 would still have to be no higher in 2027 than it was in 2007 or even 2000!

On the other hand, merely projecting equities to recover to new highs by the end of the decade or generating a mid-single-digits return would actually represent an upside surprise, allowing for higher retirement spending than 4.5% safe withdrawal rates!



https://www.kitces.com/blog/what-returns-are-safe-withdrawal-rates-really-based-upon/

Very interesting!

 

[mathjak107]

Real return 0% is good enough from what I’ve read for the 30 year period.

the problem is that the first 15 years count the most and every failure happened in the first 15 years even though the next 15 years of that 30 year period represented some great bull markets .

safe withdrawal rates are based on not on average returns, but less-than-1% real returns for 15-year time periods in a 30 year retirement.

so in practice you would need a bit more than 1% with 2% a far better goal

 

[Dtail]

i haven’t done the math but kitces has .

it actually takes 1% but you could be flat broke in year 31 . so 2% is a better goal

EXECUTIVE SUMMARY

As retirees and their planners adjust to the 'new normal' - a world of lower-than-average returns for the foreseeable future, many have questioned whether the historical safe withdrawal rate research is still valid. After all, if returns will be below average in the coming years, doesn't that imply safe withdrawal rates must be below average as well?

In point of fact, though, safe withdrawal rates do not depend on average returns in the first place; the worst safe withdrawal rates in history that we rely upon are actually associated with 15-year real returns of less than 1%/year from a balanced portfolio!

Accordingly, given current bond yields, dividend yields, and inflation, if the current environment for today's retirees will result in a "new record low" safe withdrawal rate, the S&P 500 would still have to be no higher in 2027 than it was in 2007 or even 2000!

On the other hand, merely projecting equities to recover to new highs by the end of the decade or generating a mid-single-digits return would actually represent an upside surprise, allowing for higher retirement spending than 4.5% safe withdrawal rates!



https://www.kitces.com/blog/what-returns-are-safe-withdrawal-rates-really-based-upon/

Yes I have read this Kitces article. As an aside, this article was written in 2012 potentially predicting lower future returns, yet here we are in 2024 and it hasn't panned out.
However, I do conceptually understand his math.
So wondering if Jeske and Kitces are not in agreement as to the safe 15 year real return, if however quibbling over a few percentage points.

 

[mathjak107]

which is why i say just make sure you are seeing a 2% real return along the way .

by five years in if you are not a red flag should go up . by 8-10 years i would plan on a draw cut

 

[Perryinva]

It’s a crapshoot if you are basing the decision on financials. There are WAY too many variables for an overall “best” decision. Other income sources, single, married, relative ages, health (of course) size of tIRA, size of SS amounts, State tax factors, heirs, etc etc.

I personally chose halfway, just past age 66 to file. Basically the safe bet. Once I started approaching age 66, I changed my mind from wait until 69 to basically just a few months before FRA. My SS amount will now (about $3650) be about what I was calculating to expect to get at 70, in 2018, as I already had more than 35 years of max earnings. The last 3 years of high COLAs just made it too hard to let it continue to build. DW is 6 years older with a heart condition, so not likely to outlive me by much even if she manages to. I did Roth conversions to first IRMAA for the last few years, but $200k worth simply grew a larger Roth I’ll likely never use until I absolutely have to for some unknown reason & the tIRA I'll likely never use stays the same size! Our expenses, including our versions of BTD, are just way below our fixed income.

When I hit 66, in Virginia, continued Roth conversions will cost me to pay $4k/yr in state tax I wouldn’t have to! Our pensions plus conversions would have eliminated the “age 65 pension deduction” of $24k we now qualify for. Since SS is not taxed in VA, we will remain under $75k state taxed, and pay $4k less state taxes, and then less FIC as well, with a subsequent higher actual after tax income, that simply goes in to savings.

There will be a token amount (under $10k) to convert to Roth up to the $75k threshold as we have $60k in pensions and $5k in inherited RMDs, plus divs and interest as income already. Our take home income will be higher than it has ever been, even when I was working, as I had a high rate of savings and paid in max FICA every year.

I’ve come to terms with the fact that no matter how much I sensibly convert to Roth, our RMDs (about $55k to start) plus pensions will always be too high to take advantage of that windfall (and lower FIC rate) once I turn 73 in 7 years, and taxes will rise back up again, unless the rules change. Meanwhile, I’ll enjoy spending and traveling and whatever else I want while I am as young as I’ll ever be.

Had I been smarter and known more about what my retirement incomes would really be up front, and had more Roth and less tax deferred (besides the company match), it would all be much easier. But I never thought my pension plus SS plus RMDs would EVER be this much. I’m a terrible investor compared to you all here, and yet my invested amounts still rose every year WITHOUT taking SS, fir the last 5 years I’ve been retired, with just withdrawals from savings as needed that total much less than my SS will be.

I am grateful to have these issues, of course.

 

[Exchme]

even s penny doubled every day is 5,000,000 dollars at the end of 30 years .

for many of us it is decades of good compounding on the little bits we do manage to save that creates real wealth .

far to many don’t take advantage of the biggest friend they have , TIME

the longer you give the money to grow the less risk there is

A penny doubled every day will be worth $5,368,709.12 in 30 days. After 30 years, it's more like 10^3296. But even with that kind of money, we'd still argue over when to claim SS.

 

[cyber888]

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

I'm psychic, so I will always beat social security

 

[rayvt]

The Dunning-Kruger effect is strong when it comes to SS calculations.

It's not Dunning-Kruger, it's just different opinions.

In truth, this is like what they say about "Academic politics is the most vicious and bitter form of politics, because the stakes are so low."

The amount as different ages is designed to be actuarially identical ON AVERAGE. Each person can make their on decision if they think they will have below average or above average lifetime. Which is futile because nobody knows when they are going to die.

 

[latexman]

The amount as different ages is designed to be actuarially identical ON AVERAGE. Each person can make their on decision if they think they will have below average or above average lifetime. Which is futile because nobody knows when they are going to die.

You read the tea leaves as best you can (or hire an advisor). Then, roll the dice, and take your chances.

Good luck to us all!

 

[mathjak107]

It's not Dunning-Kruger, it's just different opinions.

In truth, this is like what they say about "Academic politics is the most vicious and bitter form of politics, because the stakes are so low."

The amount as different ages is designed to be actuarially identical ON AVERAGE. Each person can make their on decision if they think they will have below average or above average lifetime. Which is futile because nobody knows when they are going to die.

as far as ss being actuarily neutral THE OBLIVIOUS INVESTOR points out

Basing your personal Social Security claiming decision upon Social Security’s program-wide actuarial neutrality is like basing your personal tax planning decisions on the average effective tax rate paid by individuals in the U.S. (rather than on your own personal tax rate). It makes no sense at all.

For an individual person trying to decide whether to claim benefits now or later, there are numerous factors involved, which almost always sway the decision in one direction or the other. That is, there usually is an option that is likely to turn out better than the other options.

Factors to Consider

Factors that should influence the when-to-claim decision for both married and unmarried individuals would include:

Do you need the money immediately?

Are you in good health? (The longer you expect to live, the more advantageous it is to delay taking benefits.)

Do you have a family history of people with unusually long lifespans? (Alternatively, do you have, for example, a family history of people dying at a relatively young age due to heart failure?)

What are inflation-adjusted interest rates like at the moment? (The higher they are, the more advantageous it becomes to take benefits early and invest the money.)

Same is true of markets and investing .

Are there tax planning reasons to claim benefits early or to hold off on claiming benefits?

Additional factors for married individuals to consider would include:

Do you have a higher or lower retirement benefit than your spouse? Having the spouse with the higher benefit hold off on claiming increases the amount the couple receives as long as either spouse is still alive, whereas having the spouse with the lower retirement benefit hold off on claiming only increases the amount the couple will receive as long as both spouses are still alive.

How does your spouse’s age compare to your age? The younger your spouse is compared to you, the more advantageous it is for you to delay claiming your retirement benefit.

Is your spouse in good health? And does he/she have a family history of unusually long or short lifespans?

Are there strategies available for a few years of “free” spousal benefits, which only work if you claim your retirement benefit at a certain age?

https://obliviousinvestor.com/social-securitys-actuarial-neutrality/

 

[ERD50]

Even parents' longevity may not be a great indicator from what I have read. But it and personal health assessments are all we have that are unique.

I also think it's a big mistake (except for some specific cases) to let parent's lifespan influence this decision.

First off, the data is based on averages. Averages only tell you about the group, and the distribution may be wide, and any individual (that's you!) is just one data point.

Second, there have been some pretty significant advances in some areas of medicine in the past 20~30 years (around how much older your parents probably are), and that will likely continue. So we have advantages that our parents didn't.

And it looks like the current data isn't even all that strong. I'm having trouble parsing out good numbers, most of the studies I've found are looking at it the other way - looking at the effect of long-lived parents on offspring.

And I think that would have a stronger influence, genetically. If both parents lived to 100, you may well have the genes that ALLOW for long life. But you might still develop some disease, condition, or even accident, that gets in the way of reaching 100.

But I don't think it works so clearly in reverse, that parents with a short lifespan mean you won't outlive them. And even if the data supports it to a point, that really needs to be put in perspective. It's like those studies you see that might say 'xyz increases your chance of dying from some specific disease by 50%'. Now that sounds really scary! But,if only 1% of the population dies from that disease, it means that if you are in the xyz group, your chance of dying from that disease is 2%. Still pretty slim.

And like all the other factors - what if you are wrong? You get to 'celebrate' your longer life by running out of funds and scrimping in your old age? No thanks, not for me.

Here's a table of joint life expectancy:

https://www.kitces.com/joint-life-expectancy-and-mortality-calculator/

The odds of a 70 YO couple reaching 100 are 3.5% - low, but IMO, not low enough to ignore. For a 65 YO couple, it's still 3.2%.

-ERD50

 

[fosterscik]

Here's a table of joint life expectancy:

https://www.kitces.com/joint-life-expectancy-and-mortality-calculator/

The odds of a 70 YO couple reaching 100 are 3.5% - low, but IMO, not low enough to ignore. For a 65 YO couple, it's still 3.2%.

-ERD50

That's a nice spreadsheet. FYI if you wonder about the data used (the 2004 joint life expectancy tables) you can easily copy the latest available data here:
https://www.ssa.gov/oact/STATS/table4c6.html and then paste into the supplied sheet.
BUT it makes little difference. I get minor changes when applied to DW and me

 

[karen1972]

I also think it's a big mistake (except for some specific cases) to let parent's lifespan influence this decision

-ERD50

I think at this point most people know the most likely things that will cause them to die early and can make a pretty educated guess. Some of it is genetics, some of it is lifestyle.

The system is set up so you can make that decision month to month which seems to allow for the most educated guess you can make, no reason to rely on actuarial studies.

Obviously parent's lifespan, is not always the best indicator, my BFs dad died of Haemochromatosis. However we know now that he has the genetics for it so we can prevent that from happening to him. In that way, yes modern medicine has a chance of expanding lifespans, but then again, no one planned for COVID which actually impacted life expectancy tables, not sure if they should have (ie do you treat it as a one-off or a long term risk factor of another pandemic).

 

[Wile E. Coyote]

I also think it's a big mistake (except for some specific cases) to let parent's lifespan influence this decision.

First off, the data is based on averages. Averages only tell you about the group, and the distribution may be wide, and any individual (that's you!) is just one data point.

Second, there have been some pretty significant advances in some areas of medicine in the past 20~30 years (around how much older your parents probably are), and that will likely continue. So we have advantages that our parents didn't.

And it looks like the current data isn't even all that strong. I'm having trouble parsing out good numbers, most of the studies I've found are looking at it the other way - looking at the effect of long-lived parents on offspring.

And I think that would have a stronger influence, genetically. If both parents lived to 100, you may well have the genes that ALLOW for long life. But you might still develop some disease, condition, or even accident, that gets in the way of reaching 100.

But I don't think it works so clearly in reverse, that parents with a short lifespan mean you won't outlive them. And even if the data supports it to a point, that really needs to be put in perspective. It's like those studies you see that might say 'xyz increases your chance of dying from some specific disease by 50%'. Now that sounds really scary! But,if only 1% of the population dies from that disease, it means that if you are in the xyz group, your chance of dying from that disease is 2%. Still pretty slim.

And like all the other factors - what if you are wrong? You get to 'celebrate' your longer life by running out of funds and scrimping in your old age? No thanks, not for me.

Here's a table of joint life expectancy:

https://www.kitces.com/joint-life-expectancy-and-mortality-calculator/

The odds of a 70 YO couple reaching 100 are 3.5% - low, but IMO, not low enough to ignore. For a 65 YO couple, it's still 3.2%.

-ERD50

More telling might be siblings (since they are also a mix of both parents whereas the parents are a mix of two separate sets of parents). But, most do not have the advantage of having siblings 15 to 20 years older than them to have the results roll in before their eyes in their 50's and 60's.

 

[Wile E. Coyote]

as far as ss being actuarily neutral THE OBLIVIOUS INVESTOR points out

Basing your personal Social Security claiming decision upon Social Security’s program-wide actuarial neutrality is like basing your personal tax planning decisions on the average effective tax rate paid by individuals in the U.S. (rather than on your own personal tax rate). It makes no sense at all.

For an individual person trying to decide whether to claim benefits now or later, there are numerous factors involved, which almost always sway the decision in one direction or the other. That is, there usually is an option that is likely to turn out better than the other options.

Factors to Consider

Factors that should influence the when-to-claim decision for both married and unmarried individuals would include:

Do you need the money immediately?

Are you in good health? (The longer you expect to live, the more advantageous it is to delay taking benefits.)

Do you have a family history of people with unusually long lifespans? (Alternatively, do you have, for example, a family history of people dying at a relatively young age due to heart failure?)

What are inflation-adjusted interest rates like at the moment? (The higher they are, the more advantageous it becomes to take benefits early and invest the money.)

Same is true of markets and investing .

Are there tax planning reasons to claim benefits early or to hold off on claiming benefits?

Additional factors for married individuals to consider would include:

Do you have a higher or lower retirement benefit than your spouse? Having the spouse with the higher benefit hold off on claiming increases the amount the couple receives as long as either spouse is still alive, whereas having the spouse with the lower retirement benefit hold off on claiming only increases the amount the couple will receive as long as both spouses are still alive.

How does your spouse’s age compare to your age? The younger your spouse is compared to you, the more advantageous it is for you to delay claiming your retirement benefit.

Is your spouse in good health? And does he/she have a family history of unusually long or short lifespans?

Are there strategies available for a few years of “free” spousal benefits, which only work if you claim your retirement benefit at a certain age?

https://obliviousinvestor.com/social-securitys-actuarial-neutrality/

Obvious factor is if you are working or if you are laid off. So, if you are laid off and you take SS at 63 because you need the money and then you find a job you want to take that is a risk. So, whether you should actually take SS or finance yourself in another temporary method is at play because you might go back to work or you might want to work longer in general and you are Not FRA yet.

To me 62 to FRA is a red zone. The less risky decision is FRA to 70 unless you have a terminal diagnosis.

Also, I think I will live to 83. So, really I don't think I need that much longevity insurance. However, I still may want to take it at 70 because I want to compress the payout into less years (same overall amount of money, but, more money per month). If I happen to live an extra five years I come out ahead and if I don't I still collect what was due to me.

 

[Koolau]

It’s a crapshoot if you are basing the decision on financials. There are WAY too many variables for an overall “best” decision. Other income sources, single, married, relative ages, health (of course) size of tIRA, size of SS amounts, State tax factors, heirs, etc etc.

I personally chose halfway, just past age 66 to file. Basically the safe bet. Once I started approaching age 66, I changed my mind from wait until 69 to basically just a few months before FRA. My SS amount will now (about $3650) be about what I was calculating to expect to get at 70, in 2018, as I already had more than 35 years of max earnings. The last 3 years of high COLAs just made it too hard to let it continue to build. DW is 6 years older with a heart condition, so not likely to outlive me by much even if she manages to. I did Roth conversions to first IRMAA for the last few years, but $200k worth simply grew a larger Roth I’ll likely never use until I absolutely have to for some unknown reason & the tIRA I'll likely never use stays the same size! Our expenses, including our versions of BTD, are just way below our fixed income.

When I hit 66, in Virginia, continued Roth conversions will cost me to pay $4k/yr in state tax I wouldn’t have to! Our pensions plus conversions would have eliminated the “age 65 pension deduction” of $24k we now qualify for. Since SS is not taxed in VA, we will remain under $75k state taxed, and pay $4k less state taxes, and then less FIC as well, with a subsequent higher actual after tax income, that simply goes in to savings.

There will be a token amount (under $10k) to convert to Roth up to the $75k threshold as we have $60k in pensions and $5k in inherited RMDs, plus divs and interest as income already. Our take home income will be higher than it has ever been, even when I was working, as I had a high rate of savings and paid in max FICA every year.

I’ve come to terms with the fact that no matter how much I sensibly convert to Roth, our RMDs (about $55k to start) plus pensions will always be too high to take advantage of that windfall (and lower FIC rate) once I turn 73 in 7 years, and taxes will rise back up again, unless the rules change. Meanwhile, I’ll enjoy spending and traveling and whatever else I want while I am as young as I’ll ever be.

Had I been smarter and known more about what my retirement incomes would really be up front, and had more Roth and less tax deferred (besides the company match), it would all be much easier. But I never thought my pension plus SS plus RMDs would EVER be this much. I’m a terrible investor compared to you all here, and yet my invested amounts still rose every year WITHOUT taking SS, fir the last 5 years I’ve been retired, with just withdrawals from savings as needed that total much less than my SS will be.

I am grateful to have these issues, of course.

You sound a bit like me. In fact, I've considered having a tag line of: "I'm the world's worst investor but one of the great savers of all time." Saving early, often and a lot is what got me where I am. It's only since I found this Forum that I've done a little bit better on the investment front. YMMV

 

[misanman]

More telling might be siblings (since they are also a mix of both parents whereas the parents are a mix of two separate sets of parents). But, most do not have the advantage of having siblings 15 to 20 years older than them to have the results roll in before their eyes in their 50's and 60's.

I have a brother age 92 and a sister age 89. They are both in pretty good shape (he still runs his business and drives a Corvette) so I'm hoping for something similar.

 

[HF63]

I'll be taking mine as soon as possible 62 or 63 just in case the Chupa Cabras comes knocking down my door.

 

[pb4uski]

I'll be taking mine as soon as possible 62 or 63 just in case the Chupa Cabras comes knocking down my door.

Yeah, that's solid reasoning.

 

[RunningBum]

Yeah, that's solid reasoning.

"I'm going to die a horrific death, but it's ok because I got a few SS checks!"

 

[TickTock]

Our approach is to hold off SS until 70, unless it is needed or highly wanted before then.

This is not strictly math-based (how do I maximize benefits/gains over expected lifetime?); it's based on the idea that the 'ultimate bad scenario' is outliving your money and using SS as insurance against that outcome.

The other possibility I see is a large market decline. Rather that draw all expenses from a depleted portfolio, pulling the trigger on SS would allow smaller withdrawals from the portfolio, so it should recover more quickly.

 

[LateToFIRE]

Our approach is to hold off SS until 70, unless it is needed or highly wanted before then.

This is not strictly math-based (how do I maximize benefits/gains over expected lifetime?); it's based on the idea that the 'ultimate bad scenario' is outliving your money and using SS as insurance against that outcome.

The other possibility I see is a large market decline. Rather that draw all expenses from a depleted portfolio, pulling the trigger on SS would allow smaller withdrawals from the portfolio, so it should recover more quickly.

+1
I like this approach because it includes an element of flexibility and fluidity, it basically rolls with the punches. It also squares with my approach of optimizing for "insurance" vs optimizing for max lifetime benefit. It does not, however, directly address tax efficiency i.e. Roth conversions or other tax-related timing considerations. But, I see those as opportunistic considerations, i.e. I'll do the Roth conversions if the opportunity is ripe at the time.

 

[Taco]

I'll be taking mine as soon as possible 62 or 63 just in case the Chupa Cabras comes knocking down my door.

But Chupa Cabras is just one possibility. It could be a vampire that knocks on your door, and turns you into a vampire. So you’ll be immortal.
Obviously you’ll want to delay to 70 and have the higher payout for all of eternity.