Author Topic: Wealth Building for those over sixty...  (Read 4108 times)

Frugalfrieda

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Wealth Building for those over sixty...
« on: June 22, 2014, 05:29:28 AM »
I'm a new member. Having read all of the MMM archives with great enjoyment, I would now like to gather opinions on a quandary that is looming in my future.

My husband and I live on my modest pension, earned from my career as an academic librarian (we didn't really earn anything until the last fifteen years or so, but that is another story.) Since in many ways I was a Mustachian before I realized there was such a thing, we have a nice life on that amount. But in a few years I will be eligible for Social Security. Here is the question...should I file as soon as I can and invest the extra income, or hold out a few years and wait for the substantially larger payments?

Just as background, I was on my own at 17 and worked to support myself through two undergraduate and one graduate degree. We do have a mortgage on our present home, which is located in a wealthy area near the coast in NC. I have a pension and reasonably priced health care. I also have some funds in a 401k. So the SS could be used as investment funds or to pay off the mortgage or even to purchase a small rental property.

I will appreciate any thoughts, suggestions, opinions. Thank you.

Zamboni

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Re: Wealth Building for those over sixty...
« Reply #1 on: June 22, 2014, 06:06:55 AM »
Greetings, Frugalfrieda!

There's been a recent discussion about that here (complete with multiple calculations and checks and rechecks):
http://forum.mrmoneymustache.com/share-your-badassity/getting-the-most-out-of-social-security-benefits/msg322605/#msg322605

Figuring that I'd live until a ripe old age, I always thought it would be better to wait.  But it looks like most of the calculations in the above link are showing it is better to collect payments and invest at the youngest age.  Good luck!

Another Reader

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Re: Wealth Building for those over sixty...
« Reply #2 on: June 22, 2014, 09:11:27 AM »
I have been going through the calculations myself for the last few days.  A lot of the assertions in that linked thread are just plain wrong and the calculations are for someone whose full retirement age is 67.  If you are already 60, your FRA is 66.  Since you are married, the decision process is even more complicated. 

I suggest you start with the pamphlets Social Security publishes that are available on their website for a basic understanding of how Social Security works.  Set up mysocialsecurity accounts for you and you husband and get a current Social Security statement for each of you from the website. 

The decisions about when to take Social Security and how to time it depend on who was the higher earner, your anticipated lifetimes, and sources of other income.  One of the articles referenced in that thread is actually helpful to individuals, although it's directed at planners.  The article is http://www.iscebs.org/Documents/PDF/bqpublic/bq212f.pdf.  It's technical but if you can get through it, a lot of the basic ideas are covered.  I especially like their idea that when to take Social Security is either an investment decision or an insurance decision, depending on your financial circumstances.

A lot about Social Security from the perspective of older near retirees is discussed in various threads over at early-retirement.org.  I haven't done a full search over there yet.

Here's what I have learned in the last few days.  Please verify this information for yourself, as I am just starting the research.

Your yearly wages are indexed up to account for inflation through the year you turn 60.  The last two years before you turn 62, nothing is indexed.  The index is described below.

Your age for SSA purposes is set as the day before your birthday.

You must be eligible for an entire month for the first payment.  Unless you were born on the first or second of the month, your first month of eligibility is the month after you turn 62.   Technically, most people that take SS at 62 really take it at 62 years, one month.

The wage index factor is the ratio of the last year index (year you turn 60) to the year you earned the wages.  The index is called the National Average Wage Index.  The SSA collects the data and makes the calculation.  The indices are published on the website.  You get your AIME (average indexed monthly earnings) by taking the indexed amounts for your highest 35 years of covered employment and dividing the total by 420 months.  If you don't have the full 35 years, some years will be less or even zero, but you still divide by the 420 months.

There's a payment formula with two "bend" points.  The monthly payment is the sum of three components, 90 percent of the first level of your AIME, 32 percent of the second level, and 15 percent above that to the maximum.  The bend points were set in 1979 and are adjusted up by the same ratio, the NAWI in the year you turn 60/NAWI in 1979.  You can estimate your bend points, but you need the NAWI for the year you turn 60 to be exact.

Your "benefit" is calculated at your full retirement age or FRA.  For me that's age 66.  If you choose to take it earlier, the monthly benefit is reduced by 5/9 of 1 percent for each month before FRA for the first 36 months and 5/12 of one percent after that.  For someone with a FRA of 66, you get 80 percent of your benefit at 63 and 75 percent at 62.  If you choose to wait beyond your FRA, your benefit increases 2/3 of 1 percent each month after your FRA until you turn 70.  That's 8 percent of your FRA benefit.  The percentage calculation in all cases is applied to your FRA benefit each year and is not compounded.

You should research some of the strategies for married couple that maximize the benefits and protect the likely surviving spouse. 

Hope this is helpful.  If I come across anything else that's relevant, I will add another reply.

Another Reader

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Re: Wealth Building for those over sixty...
« Reply #3 on: June 22, 2014, 09:34:19 AM »
Another thought. Your sole income appears to be your pension.  Does your pension have a survivor benefit?  Do you have life insurance?  Does your husband have any source of income if you get hit by a bus crossing the street?  Would his healthcare be covered?  If not, in your shoes I would probably look at Social Security largely as income insurance for him. 

Frugalfrieda

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Re: Wealth Building for those over sixty...
« Reply #4 on: June 22, 2014, 09:48:31 AM »
Thanks to  responders. I can see that this will be a more complicated decision than I thought. My husband is disabled which adds another wrinkle...

I do have some life insurance and an untouched 401k that will help support my husband if I succumb before he does. He will also have the equity in our property, although he would undoubtedly sell our home with the huge yard and move somewhere cheaper. My pension does not have a survivor benefit because that would have reduced it so much that we couldn't make ends meet. He will also have SS eventually.

In the meantime, I continue to maximize frugality when possible. I love reading about some "younger folks" who are discovering the joys of NOT accumulating a lot of useless crap even if they can afford it financially. My husband's family has always regarded me as a quaint icon from (perhaps) the Dust Bowl because I buy most things second-hand, drive tiny cars, and walk whenever I can. Even my friends in college - and this was the seventies - were surprised by how delicious homemade lentil soup and biscuits can be. Right now there is a pot of soup beans simmering on the stove, which will be joined later by banana bread, posole, and a blueberry pie.

phred

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Re: Wealth Building for those over sixty...
« Reply #5 on: June 22, 2014, 11:34:41 AM »
no mention of your husband collecting soc sec. or SSI???? 

Since investments are never guaranteed, in your case I would postpone filing for soc sec, but have husband look into collecting the spousal benefit off your past earnings

Someone whohas done this -- please chime in

Chrissy

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Re: Wealth Building for those over sixty...
« Reply #6 on: June 22, 2014, 07:37:42 PM »
My parents met with a Social Security advisor to help them understand their options.  I suggest you do the same.  They were absolutely thrilled with the help they received. 

My mother, by the way, is only 6 mo older than my father, and they both worked their entire adult lives:  my mother retired aged 55, and my father aged 66.  They decided to claim my mother's SS benefits "right away" (I'm 95% sure that means age 66, when my father also retired) and my father collects the spousal benefit.  My father will give up the spousal benefit, and start collecting his full amount, in a year when they'll be 70.

That my father can collect the spousal benefit at first, and then collect his full amount later is a pretty neat trick.  Something to consider for either you or your husband.

TomTX

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Re: Wealth Building for those over sixty...
« Reply #7 on: June 22, 2014, 07:49:25 PM »
My parents met with a Social Security advisor to help them understand their options.  I suggest you do the same.  They were absolutely thrilled with the help they received. 

My mother, by the way, is only 6 mo older than my father, and they both worked their entire adult lives:  my mother retired aged 55, and my father aged 66.  They decided to claim my mother's SS benefits "right away" (I'm 95% sure that means age 66, when my father also retired) and my father collects the spousal benefit.  My father will give up the spousal benefit, and start collecting his full amount, in a year when they'll be 70.

That my father can collect the spousal benefit at first, and then collect his full amount later is a pretty neat trick.  Something to consider for either you or your husband.

I believe this trick only works properly at FRA, and you can get screwed if you try it before FRA.

Chrissy

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Re: Wealth Building for those over sixty...
« Reply #8 on: June 22, 2014, 08:07:31 PM »
Ah ha, so she must've been 66. 

I was surprised how much it ended up being for them.  She was a librarian, too.

Frugalfrienda wants to know how to use the money... I can't imagine paying down the mortgage unless the interest is 5% or more.  I would lean away from a rental property, too, because of the husband's disability.  So, my vote is to put it in the investment accounts.

MDM

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Re: Wealth Building for those over sixty...
« Reply #9 on: June 22, 2014, 08:17:03 PM »
If you want to do your own research, http://www.bogleheads.org/wiki/Social_Security and http://www.bogleheads.org/wiki/Tools_and_calculators#Social_Security and the links embedded therein are good places to start.

While I have a personal opinion about the best time(s) for us to start our own SS (based on personal longevity assumptions and philosophy on how we treat the SS income stream), we are still several years away from having to make a choice.  When that time comes, if things remain obscure, we'll likely invest the ~$30 charged by various vendors found in the above-mentioned links, primarily to evaluate spousal options.

As the various threads have already indicated, there are multiple assumptions that go into the definition of "best" time to start taking SS, even for a single person.  Add the complexities of spouses and disabilities...and, unless you want to invest many hours to ensure you have complete understanding, paying a relatively small amount to someone who has already done the reading for you seems a good approach.  This is essentially what Chrissy recommends, although I don't know how much a "SS advisor" charges.