The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: seulbee77 on April 07, 2014, 11:33:40 AM
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Just wondering... Do most Mustachians plan on taking it as early as possible at 62? Or try to wait to 70?
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If it's still around when I actually hit the age to take it... I plan on taking it at my full retirement age eligibility - 67. But then again, I have no idea if I'll really need it at that point, so if that looks like the case, then I'll delay it until 70 probably.
I'm not counting on it making or breaking my retirement, so it isn't a big priority for me to figure it out until the time comes.
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I don't know when I'll start taking SSI. I'm like Frankies Girl, though--SSI doesn't figure into my retirement plans. Given political realities on both sides of the aisle, I plan my retirement around receiving NO SSI. I don't know anyone around my age that *is* expecting to get anything from SS in 30 years.
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I don't know anyone around my age that *is* expecting to get anything from SS in 30 years.
I certainly expect to get something back from Social Security in 30 years, in fact, I expect most of what's been promised. I think it's complete doomsday-prepper type stuff to think otherwise. Can you imagine the fallout of completely ending the program? Have you seen the lack of retirement savings for the gen pop? If the government can't come up with a way to fund SS, then it's likely the government has failed. While there's a small chance that happens, planning for it doesn't make much sense, as it's unlikely to help much no matter how well you've planned.
These people need to be shot with the optimism gun. (http://www.mrmoneymustache.com/2012/10/03/the-practical-benefits-of-outrageous-optimism/)
That said, I expect to draw on my hopefully meager^ SS payments as late as possible, as they provide annuity payments that only rise with time and are therefore a good hedge against becoming destitute in my old age.
^meager because I'm hoping to not have too many working year contributions, not meager because SS will be completely gutted
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Assuming good health continues (i.e., life expectancy continues high), then we'll likely wait and take the higher monthly payments later.
But when eligibility draws closer, we'll check the various options (e.g. see "62/70 split" in http://www.schwab.com/public/schwab/nn/articles/When-Should-You-Take-Social-Security (http://www.schwab.com/public/schwab/nn/articles/When-Should-You-Take-Social-Security)) available under the law at that time. Not worth spending the time now, as the law can and does change.
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The way I look at it, FRA is actually 70 for everyone. If you take it earlier, you get less.
When should you take it? That depends on several factors including your health/life expectancy, your financial needs and your spouse's financial needs. Generally, if you are not expecting to live long, take it as soon as you can (morbid but realistic). If you don't need the money delay taking it (~8% gain per year is pretty darn good!). If your spouse is going to be dependent on your SS after you pass you may also want to consider delaying (this one is much more complicated).
Personally, I will not decide when to take SS until I hit minimum age. Then I will assess my current health and financial needs regularly, probably annually, and decide then. Right now I am healthy and expect to live into my mid to late 90s but who knows what will happen in the next 5, 10, or 15 years?
No one should delay past 70 because after that, your benefits stop increasing.
On the macro level, who knows what will happen to the SS benefit structure either? I will keep an eye on that as well.
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I don't know anyone around my age that *is* expecting to get anything from SS in 30 years.
I certainly expect to get something back from Social Security in 30 years, in fact, I expect most of what's been promised. I think it's complete doomsday-prepper type stuff to think otherwise. Can you imagine the fallout of completely ending the program? Have you seen the lack of retirement savings for the gen pop? If the government can't come up with a way to fund SS, then it's likely the government has failed. While there's a small chance that happens, planning for it doesn't make much sense, as it's unlikely to help much no matter how well you've planned.
These people need to be shot with the optimism gun. (http://www.mrmoneymustache.com/2012/10/03/the-practical-benefits-of-outrageous-optimism/)
+1
I'm going to wait until I'm getting close to the minimum age to take SS, and decide then based on how everything looks at the time (health, family financial needs, how other investments are doing...). I think it would be premature to make any kind of guess at this point since I have no idea how things will look then.
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"Normal" retirement age is so far away for me that I haven't given it much thought. I've heard the general wisdom under the current law is that you should take a look at your health when you turn 62. If you think you're going to die sooner than average, take SSI as soon as possible. If you think you're going to die later than average, wait until 70. It's kind of a morbid calculation, but that's more or less how the math works out.
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FYI ...
SSI stands for the Supplemental Security Income program. It's a federal welfare benefit that is administered by the Social Security Administration. OASDI (Old-Age, Survivors, and Disability Insurance) is technically the acronym for retirement, survivors, and disability benefits.
I don't mean to nag, but seriously ... you don't want to refer to your retirement benefit as SSI. Ever.
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(LOL! I was typing while bekkah was posting :) ) I know you mean "Social Security Benefits" but "SSI" is not the proper abbreviation. When I worked for Social Security 39 years ago "SSI" referred to suplemental security income, which was the welfare benefit for people who hadn't worked enough to qualify for SSA.
I may "file and suspend" at age 66, depending on what is permitted, but my general plan has been to wait until wife and I are both 70 to collect Social Security benefits. If we get unlucky and deplete all of our savings, retirement and nonretirement, I want our inflation adjusted lifetime annuity to be as big (monthly payment-wise) as possible. The way to do that is to wait until age 70. However, I will be looking at other options next year when my wife turns 62, just to make sure. Now that I think of it, if I was stupid enough to let my wife start collecting at age 62 it would reduce our ACA healthcare subsidies, so those benefits would be taxed at a fairly high effective rate.
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If it's around, I'll take it as soon as it is available, assuming I don't need it. I see no reason to wait, since I won't need the money anyway, why would I want/need more money (and wait for it)?
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If I am still working p.t. then I will wait until full retirement age which for me is 66. If not then I will take it earlier. Because I retired from a state employer that did not pay in I will only get 40% of what I have coming to me so either way the amount will be tiny.
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My husband will be taking his as soon as he's eligible. His life expectancy will probably be shorter than mine. I'm planning on waiting until age 70, although regardless of my age, it will be extra "fun" money.
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Realistically, I'm planning on 70. Looking at the women in my family, odds are I'll live another 30 years beyond that. The higher payments matter in that scenario.
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I don't know anyone around my age that *is* expecting to get anything from SS in 30 years.
I certainly expect to get something back from Social Security in 30 years, in fact, I expect most of what's been promised. I think it's complete doomsday-prepper type stuff to think otherwise. Can you imagine the fallout of completely ending the program? Have you seen the lack of retirement savings for the gen pop? If the government can't come up with a way to fund SS, then it's likely the government has failed. While there's a small chance that happens, planning for it doesn't make much sense, as it's unlikely to help much no matter how well you've planned.
These people need to be shot with the optimism gun. (http://www.mrmoneymustache.com/2012/10/03/the-practical-benefits-of-outrageous-optimism/)
Thank you. Reality check: the majority of people who retire do so with social security. This is unlikely to change in the near future, if for no other reason than that the US government and the corporations that run it are not interested in riots that interfere with people signing up for zero down mortgages and 7 year car loans.
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@Workinghard
Have you looked into the benefit for you if your husband waits until he is 70 as well? If you don't need the money as soon as he is 62 it might mean a lot more for you as a survivor benefit. I started to look it up months ago to get the exact difference but realized it was so far away for myself that the rules would probably change by then.
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I certainly expect to get something back from Social Security in 30 years, in fact, I expect most of what's been promised. I think it's complete doomsday-prepper type stuff to think otherwise. Can you imagine the fallout of completely ending the program? Have you seen the lack of retirement savings for the gen pop? If the government can't come up with a way to fund SS, then it's likely the government has failed. While there's a small chance that happens, planning for it doesn't make much sense, as it's unlikely to help much no matter how well you've planned.
These people need to be shot with the optimism gun. (http://www.mrmoneymustache.com/2012/10/03/the-practical-benefits-of-outrageous-optimism/)
That said, I expect to draw on my hopefully meager^ SS payments as late as possible, as they provide annuity payments that only rise with time and are therefore a good hedge against becoming destitute in my old age.
^meager because I'm hoping to not have too many working year contributions, not meager because SS will be completely gutted
I definitely don't expect to receive SS benefits, but I don't think it's because the government will "end the program." It's because the benefits will be means tested and early retiree types, with large accumulated assets, will be disqualified from the benefits. Of course no one knows what will happen for sure, but many agree this to be the most likely solution to the fiscal gap resulting from unfunded entitlement promises. Acknowledging and planning for that likelihood isn't "doomsday-prepper" thinking; it's simply being realistic about the most politically feasible solution to the problem.
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I'm fairly close and the final answer may depend on what happens with the ACA. The exchange premiums skyrocket in California as you get older. The retirement system still provides a much better plan and they subsidize a portion. But the plan now appears to be to dump the pre-Medicare retirees onto the exchange next year. The numbers will have to be analyzed carefully when the time comes. Future AGI will have to be calculated, massaged, and recalculated. I don't want to take SS early just to have it all disappear down the ACA rat hole.
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@Workinghard
Have you looked into the benefit for you if your husband waits until he is 70 as well? If you don't need the money as soon as he is 62 it might mean a lot more for you as a survivor benefit. I started to look it up months ago to get the exact difference but realized it was so far away for myself that the rules would probably change by then.
At 66 he will get ~$2100 a month and at age 70 it will be ~$2800. I think in his case, because of his health, we might as well draw it and let our principle continue to grow. If I wait to 70, my benefit will be ~$2300. However, that might go up over the next 6 years.
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Agree with a couple of posters that it's a bit of a wait and see game with the ACA. But my general thought is to take SS benefits as early as possible. Say I were to get $1500 per month at age 62, that's $153,000 that I would receive between 62 and 70&1/2 (assuming no adjustments for inflation). Sure the monthly payout is much higher if I wait 8&1/2 years but it would take many years to catch up in terms of the overall payout. Haven't done the exact math but I guess I'd rather trust myself to manage that money all those years. Anyone care to punch a hole in my thinking? I'm 55 so this decision is much sooner for me than for many on this forum.
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If you take it early and are still working at least p.t. after a certain amount (you will have to look it up) that you earn they will keep one dollar for every 2 earned. If you are not working at all then this is not an issue.
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Agree with a couple of posters that it's a bit of a wait and see game with the ACA. But my general thought is to take SS benefits as early as possible. Say I were to get $1500 per month at age 62, that's $153,000 that I would receive between 62 and 70&1/2 (assuming no adjustments for inflation). Sure the monthly payout is much higher if I wait 8&1/2 years but it would take many years to catch up in terms of the overall payout. Haven't done the exact math but I guess I'd rather trust myself to manage that money all those years. Anyone care to punch a hole in my thinking? I'm 55 so this decision is much sooner for me than for many on this forum.
No hole I can punch that you can't repair with the patch kit of your choice ;).
Even a pure dollars and cents (Net Present Value) look requires two inputs: date of death and discount rate. The longer you expect to live, and the lower the discount rate you use, the better to wait and start benefits later - and vice versa.
E.g. for someone your age, using a discount rate of 0% (simply adding the amounts), start-at-62 wins until beyond age ~80.5, at which point wait-until-70 becomes better. Take the discount rate up to ~5% and your have to live a few months beyond age 90 before waiting is better.
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I need some educating here. Can MDM or someone else explain what the "discount rate" means as it pertains to SS benefits?
Also, just came across this article:
http://www.forbes.com/sites/janetnovack/2011/02/15/the-big-decision-when-to-take-social-security/
The section on couples at the end of the article is a wake up call for me. I knew it was tricky but there are a lot of possible scenarios to consider.
Also, one other thing to consider when looking at SS as an annuity is that studies show that people who have annuities actually live longer (up to a couple of years on average), presumably because having that check to look forward to each month keeps people going. Stephen Dubner & Steven Levitt talked about this in one of their Freakonomics podcasts (can look it up if anyone is interested). Presumably the SIZE of the monthly payout matters a great deal which would argue for taking the benefit later. Food for thought as well might be this (just trying to see how many topics I can hit in one post!)... Is the early retirement idea good for longevity and if it is, should we care?
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According to the SS website, I could get $458, $651, or $807 at ages 62, 67, and 70. My amounts are low, because the job I have had for the last dozen or so years did not take out $$ for SS. Nonetheless, $600 would cover about half of my monthly expenses, so I'm thrilled! I do hope to be able to wait until at least age 67 to collect, although with a history of cancer in my family, I'm not at all confident about living a long healthy life.
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I'd look at my health and the health of our nest egg.
That said, I would probably draw early to get extra fun money while I am more able bodied and can travel, etc.
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We are a long way off, but both plan to take it early because we both have health issues that we expect will kill us before age 80.
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I need some educating here. Can MDM or someone else explain what the "discount rate" means as it pertains to SS benefits?
Here are a couple of links that may explain it:
http://www.investopedia.com/articles/fundamental-analysis/09/net-present-value.asp (http://www.investopedia.com/articles/fundamental-analysis/09/net-present-value.asp)
http://en.wikipedia.org/wiki/Net_present_value (http://en.wikipedia.org/wiki/Net_present_value)
In short, a dollar today is "worth more" than a dollar sometime in the future. "How much more?" is what a Net Present Value (NPV) calculation tries to determine. SS benefits are a good example: one can take less early, or more later - so one way to judge the best strategy is to use an NPV calculation.
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I don't pay into SS so drawing is not an option. I do, however, pay into a pension program and it pays out different % scaled from drawing at 52 to maximum scale at 67 (wage*(.01 to 0.025)*years of service). I look at it and think, if I draw at 52 I get way less but would need less in holdings for FI...but if I don't really need it why not hold out for the higher wages a little longer? I haven't run the numbers to see how it will be most beneficial yet--I'm minimum 25 years from being able to draw it anyway. But planning on FI/ER in 15-20.
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If it's around, I'll take it as soon as it is available, assuming I don't need it. I see no reason to wait, since I won't need the money anyway, why would I want/need more money (and wait for it)?
Would you sell off your investments early and spend the money? Look as SS as an investment returning a guaranteed* 7-8% a year: if you can do better elsewhere, then it makes sense to take it, otherwise not if you don't need the money right now.
*As things are today. Of course that 'guarantee' is subject to whims of politics &c over the long term, so you have to re-evaluate every so often.
For myself, I would wait as long as possible - and same with taking the minimum required distributions from IRA & 401k. Don't need the money now, since I'm not interested in actual ER, so I'll let it grow.
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I think it makes a great deal of sense to sell off your regular investments (other than Roths because they have special rules) instead of taking SS early. I think the increase is 8% a year from 62 to 70 which is a pretty dang nice return. By selling off regular investments you will be increasing your future SS payment and decreasing the amount of tax you will pay on your SS benefit (because with fewer investments you will have smaller returns and not as much taxable income to count against your SS payment).
The flipside of course is "take the money and run" which also has merit.
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I think it makes a great deal of sense to sell off your regular investments (other than Roths because they have special rules) instead of taking SS early. I think the increase is 8% a year from 62 to 70 which is a pretty dang nice return. By selling off regular investments you will be increasing your future SS payment and decreasing the amount of tax you will pay on your SS benefit (because with fewer investments you will have smaller returns and not as much taxable income to count against your SS payment).
The flipside of course is "take the money and run" which also has merit.
ROG, aren't you getting the 8% annual increase confused with an 8% annual return? In other words, you are not being offered 8% interest on some current sum of money. Yes, you get higher payments if you wait but you miss out on all the payments in the meantime. Just thinking out loud here as I think this thread pretty clearly demonstrates that I only barely know what I am talking about. What I keep coming back to is that these payments are not guaranteed in any real sense of the word, so we have to assign a certain probability to them not being there or to them being there but at severely reduced amounts.
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ROG, aren't you getting the 8% annual increase confused with an 8% annual return? In other words, you are not being offered 8% interest on some current sum of money. Yes, you get higher payments if you wait but you miss out on all the payments in the meantime. Just thinking out loud here as I think this thread pretty clearly demonstrates that I only barely know what I am talking about. What I keep coming back to is that these payments are not guaranteed in any real sense of the word, so we have to assign a certain probability to them not being there or to them being there but at severely reduced amounts.
It is like being offered 8% interest on some current sum of money, yes.
Simple Example:
Say you could get $10,000 a year from SS at age 62 but you could get $10,800 a year at age 63.
If you take $10,000 a year at age 62, then in order to have a guaranteed $10,800 from age 63 onward, you have to invest that $10,000 at 8% and not spend the principal. Thus when you are 63 you would get $800 from your interest on the $10,000 you got at 62 plus $10,000 from SS again at 63, giving you a total of $10,800.
That make any sense?
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It's an annuity. It's just a series of payments which when converted to their present worth have the same value, using the statistically estimated terms. If you think you are going to live longer than the lifetime used by the SSA, take it later. If everyone in your family dies at 70, take it immediately at 62, all else being equal. In my case, I was planning on taking it at 62 and investing the money. Then the ACA reared its ugly head, and my strategy must change.
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It is like being offered 8% interest on some current sum of money, yes.
Simple Example:
Say you could get $10,000 a year from SS at age 62 but you could get $10,800 a year at age 63.
If you take $10,000 a year at age 62, then in order to have a guaranteed $10,800 from age 63 onward, you have to invest that $10,000 at 8% and not spend the principal. Thus when you are 63 you would get $800 from your interest on the $10,000 you got at 62 plus $10,000 from SS again at 63, giving you a total of $10,800.
That make any sense?
Well, it sort of makes sense but by my way for thinking (taking the payout immediately at age 62) I would have $20,000 at the end of year two and you would just have $10,800.
If you start collecting at age 63, by my calculations you wouldn't catch up with me in terms of what we have both received until year six, and that assumes that I make zilch on the $60,000 I have received in those first six years. I am not taking taxes into consideration for the sake of this comparison.
Thanks for helping me to hash this out.
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Well, it sort of makes sense but by my way for thinking (taking the payout immediately at age 62) I would have $20,000 at the end of year two and you would just have $10,800.
If you start collecting at age 63, by my calculations you wouldn't catch up with me in terms of what we have both received until year six, and that assumes that I make zilch on the $60,000 I have received in those first six years. I am not taking taxes into consideration for the sake of this comparison.
Thanks for helping me to hash this out.
Yes, if you can find a guaranteed return investment that gives you better than 8% then you would be wise to take SS early and invest the payments.
The only guaranteed return I can think of is an annuity. For an immediate annuity with no payments to beneficiaries the best rate I can find is about 6.33%.
So person A could take the $10,000 SS payment at age 62 and invest it in an annuity at age 63 giving them a lifetime payment (not inflation adjusted) of $633 a year. Thus they would immediately be behind the person who just waited until age 63 to take the higher $10,800 payment.
Like I said, if you can find a way to earn more than 8% guaranteed, or if you don't really need the money, or if you know you are going to die at age 75, then taking SS at age 62 makes a lot of sense.
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If you want a 15 page report on this, complete with 24 footnotes and 18 references, see http://www.iscebs.org/Documents/PDF/bqpublic/bq212f.pdf (http://www.iscebs.org/Documents/PDF/bqpublic/bq212f.pdf).
The general conclusion there is that most people take SS benefits too early. In particular, the report authors "are hopeful that financial services firms will create software using the model and information contained in this article and create an improved environment for the claiming-age decision."
It's years away for us, but for anyone getting close to 62 and wondering....
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Well, it sort of makes sense but by my way for thinking (taking the payout immediately at age 62) I would have $20,000 at the end of year two and you would just have $10,800.
If you start collecting at age 63, by my calculations you wouldn't catch up with me in terms of what we have both received until year six, and that assumes that I make zilch on the $60,000 I have received in those first six years. I am not taking taxes into consideration for the sake of this comparison.
Thanks for helping me to hash this out.
Yes, if you can find a guaranteed return investment that gives you better than 8% then you would be wise to take SS early and invest the payments.
The only guaranteed return I can think of is an annuity. For an immediate annuity with no payments to beneficiaries the best rate I can find is about 6.33%.
So person A could take the $10,000 SS payment at age 62 and invest it in an annuity at age 63 giving them a lifetime payment (not inflation adjusted) of $633 a year. Thus they would immediately be behind the person who just waited until age 63 to take the higher $10,800 payment.
Like I said, if you can find a way to earn more than 8% guaranteed, or if you don't really need the money, or if you know you are going to die at age 75, then taking SS at age 62 makes a lot of sense.
This is absolutely correct reasoning - if you live forever. For mortals, you have to consider how many years you'll collect the benefit.
For each year you delay, you're giving up a year of benefits in exchange for each 8% increase. Each year, then will take a bit over 12 years to "pay off." You could run a spreadsheet to figure it out exactly, but a back of the envelope calculation suggests that an annual return equivalent is (8% * years you collect benefits - 1 year's benefits) divided by (years you collect benefits). If you die after 1 year, you'll have forfeited a year's benefits. If you live 12 years, you'll come out about even. If you live 42 years, you'll have an annual return equivalent of about (.08*42-1)/42 = 5.6%.
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Who cares about what the return is after you die (unless you need to leave money to someone). The point is you cannot find a better return on your money you need for retirement than the 8% guaranteed return offered by extending your SS date. If you die early you leave money on the table but hey, you are dead so who really cares?
Look at it another way. The best annuity you can buy pays you 6.33% at age 63 and you lose your principal forever. Social Security pays you 8% and you lose your principal forever, so they are equivalent. SS pays you 25% more than the best annuity. This means compared to an insurance company, the government is losing money on you if you decide to take advantage of the ability to delay SS.
If you want to help the government, take SS early.
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My example specifically only refers to money while you're alive. I think you need to re-read my comment.
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Who cares about what the return is after you die (unless you need to leave money to someone). The point is you cannot find a better return on your money you need for retirement than the 8% guaranteed return offered by extending your SS date. If you die early you leave money on the table but hey, you are dead so who really cares?
Look at it another way. The best annuity you can buy pays you 6.33% at age 63 and you lose your principal forever. Social Security pays you 8% and you lose your principal forever, so they are equivalent. SS pays you 25% more than the best annuity. This means compared to an insurance company, the government is losing money on you if you decide to take advantage of the ability to delay SS.
If you want to help the government, take SS early.
I've been thinking more about this, and I think we might just be answering 2 different questions. As near as I can tell, you're answering the question, "When should I take Social Security benefits if I want to maximize the annual guaranteed payout? And your answer is spot on for that.
I, however, am answering the question, "What's extra return do you get for waiting each additional year before taking Social Security benefits?" That's a little more complicated, as it depends on how many years you live. If you only live one year, there's no question that it's best for you to take Social Security so that you receive any benefits from Social Security at all.
And there are more complex questions, like, how do you maximize the value to you? A lot of people get more value out of money spent in their 60s than in their 80s because they're more interested in more active activities or traveling. That's a much harder and more personal question to answer.
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After more study, it's becoming clearer why
the report authors "are hopeful that financial services firms will create software using the model and information contained in this article and create an improved environment for the claiming-age decision."
The situation below is for someone with a monthly SS amount of $2000 at a Full Retirement Age of 66 years 10 months and first eligible to take payments at 62 years 1 month. The first table shows the endpoints of the three linear sections of a "monthly payment vs. selected retirement age" graph (note: it's not 8% annual over the whole range).
| Years | Months | SS pmt. | |
| 62 | 1 | 1425 | |
| 63 | 10 | 1600 | |
| 66 | 10 | 2000 | |
| 70 | 0 | 2506.67 | |
The next table shows columns for 3 separate discount rates: 0%, 2.5%, and 5%. The row labels are the "number of years the start of benefits are delayed." Entries within the table are "years past age 62 and 1 mo. that one needs to live for 'delaying' to be a better option."
| 0.00% | 2.50% | 5% |
| 1 | 15.25 | 18.9 | 27.2 |
| 2 | 15.7 | | 27.3 |
| 3 | 15.5 | | 25.4 |
| 4 | 16 | 19.2 | 25.8 |
| 5 | 16.6 | | 26.4 |
| 6 | 17 | | 26.6 |
| 7 | 17.7 | | 27.3 |
| 8* | 18.3 | 21.5 | 28.3 |
*Actually 7 yr 11 mo, to start exactly at age 70.
E.g. if one assumes a 2.5% discount and delays taking SS until 66 yr 1 mo (4 years after first eligible), living beyond age (62.1 + 19.2 = 81 years 4 months) means "you win" by delaying.
And this doesn't begin to touch the complexities of a 2-earner situation.
Anyone know of "financial planners [who] give [a Social Security optimization] report away for free, as a loss-leader"? That quote is from http://www.socialsecuritychoices.com/blog/ (http://www.socialsecuritychoices.com/blog/)
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I am not expecting much since the only time I have paid into it was when I was a teenager and 1 year at minimum wage after college. Maybe I can get enough for a six pack every month, in which case I will take it as soon as I can.
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I am not expecting much since the only time I have paid into it was when I was a teenager and 1 year at minimum wage after college. Maybe I can get enough for a six pack every month, in which case I will take it as soon as I can.
You won't even get that if you are not married or divorced. You have to have a certain number of work credits to get anything at all.
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And this doesn't begin to touch the complexities of a 2-earner situation.
So true. I just started researching this yesterday and fortunately have a few years to relearn my Algebra and also to evaluate myself and my wife for signs of an early demise.
And there are more complex questions, like, how do you maximize the value to you? A lot of people get more value out of money spent in their 60s than in their 80s because they're more interested in more active activities or traveling. That's a much harder and more personal question to answer.
Oh no! Beltim, you have added a human variable to my thought process. It is certainly something to consider. As with most decisions regarding money there are human desires, needs, etc. to consider.
When I retire, maybe I will join a "when to take social security" support group.
Seriously, we are less than seven years away from this decision but a lot of things can happen to our financial situation between now and then. I hope that any unexpected events are positive ones but we just never know. I read a quote ages ago that essentially said "the information needed to make a decision often doesn't present itself until it is time to actually make the decision." So, I'll continue to let this calculation simmer. This thread has given me more variables to think about. Thanks.
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I am not expecting much since the only time I have paid into it was when I was a teenager and 1 year at minimum wage after college. Maybe I can get enough for a six pack every month, in which case I will take it as soon as I can.
You won't even get that if you are not married or divorced. You have to have a certain number of work credits to get anything at all.
This is what I am expecting. Don't plan on living in the US again and the wife is not a citizen
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as early as possible. it will still be there
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I, however, am answering the question, "What's extra return do you get for waiting each additional year before taking Social Security benefits?" That's a little more complicated, as it depends on how many years you live. If you only live one year, there's no question that it's best for you to take Social Security so that you receive any benefits from Social Security at all.
Why is it best? Assuming that a) you don't need the money right away; and b) you don't know (or have a fairly good idea because of health problems) that you are going to die soon, then why is it best to take SS money that's giving an annual return of about 8%, and move it to an account that probably has a lower rate of return?
Indeed, if we all went by your logic, wouldn't we be spending everything now instead of saving for FI/ER, because after all we might well die before we have a chance to spend all of our stashes.
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I, however, am answering the question, "What's extra return do you get for waiting each additional year before taking Social Security benefits?" That's a little more complicated, as it depends on how many years you live. If you only live one year, there's no question that it's best for you to take Social Security so that you receive any benefits from Social Security at all.
Why is it best? Assuming that a) you don't need the money right away; and b) you don't know (or have a fairly good idea because of health problems) that you are going to die soon, then why is it best to take SS money that's giving an annual return of about 8%, and move it to an account that probably has a lower rate of return?
Indeed, if we all went by your logic, wouldn't we be spending everything now instead of saving for FI/ER, because after all we might well die before we have a chance to spend all of our stashes.
I was giving an example of evaluating the decision after the fact. After the fact, we can say with certainty that you would have received more in Social Security benefits by taking them than by not in that example. At no point did I say it would always be better to take Social Security early.
In fact, my whole point is that the only time period where you get an annual return of 8% is an infinite one. I worked out a very rough formula for figuring out what your actual return would be based on you actual lifespan.
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Remember that the 8% is COLA'd so it is actually more like 8% real.
If you are getting $20,000 and in ten years you are getting $25,000, then person retiring 3 years later with a 24% increase would be getting $31,000 at that ten year mark, not $29,800.
Wait, that might not be right.
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If we're getting into that level of detail, it's only 8% a year between full retirement age (67 for those born after 1960). Before full retirement age, it's 6.67% per year for up to 3 years early, and 5% per year for more than 3 years early.
http://www.ssa.gov/OACT/quickcalc/early_late.html
But again, that's a benefit increase, and not a return.
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Right ok, I forgot it is not 8% except for the years between full retirement age and age 70.
I mean it still works out as 24% for 3 years but only during those years.
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Right ok, I forgot it is not 8% except for the years between full retirement age and age 70.
I mean it still works out as 24% for 3 years but only during those years.
Correct.
Do you see my larger point about that 8% annual increase not being equivalent to an investment return?
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Oh, and Roland – you are right about that being an 8% real return.
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Correct.
Do you see my larger point about that 8% annual increase not being equivalent to an investment return?
Sort of. I see it being equivalent to an investment return in the same way you might choose to take X amount of your portfolio and buy an annuity from a private insurer to guarantee you have income in old age. It isn't an investment return where you could ever get your principal back as you may be able to do with a bond.
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Correct.
Do you see my larger point about that 8% annual increase not being equivalent to an investment return?
Sort of. I see it being equivalent to an investment return in the same way you might choose to take X amount of your portfolio and buy an annuity from a private insurer to guarantee you have income in old age. It isn't an investment return where you could ever get your principal back as you may be able to do with a bond.
Okay. But you're not accounting for the fact that the number of years you receive a benefit changes. Am I making sense with that?
Say you can receive $10,000 a year at age 67 and $10,800 a year at age 68. And say you live through the age of 77. In the first case, you get $10,000 x 10 years = $100,000. In the second case, you receive $10,800 x 9 = $97,200. The "return" from delaying benefits by a year is negative, because you get less money. Right?
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Correct.
Do you see my larger point about that 8% annual increase not being equivalent to an investment return?
Sort of. I see it being equivalent to an investment return in the same way you might choose to take X amount of your portfolio and buy an annuity from a private insurer to guarantee you have income in old age. It isn't an investment return where you could ever get your principal back as you may be able to do with a bond.
Okay. But you're not accounting for the fact that the number of years you receive a benefit changes. Am I making sense with that?
Say you can receive $10,000 a year at age 67 and $10,800 a year at age 68. And say you live through the age of 77. In the first case, you get $10,000 x 10 years = $100,000. In the second case, you receive $10,800 x 9 = $97,200. The "return" from delaying benefits by a year is negative, because you get less money. Right?
But it is always like that with an annuity. Also, what does it matter to you after age 77 if you are dead? The important fact is that before age 77 you know 100% that you are getting an 8% return on the $10,000 you "invested" in SS when you were 68. You get 8% (and it is more like a real return since we said it is COLA'd) for the rest of your life. Might live to 80 might live to 120 because of some new stem cell research.
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I've lived a life of financial restraint.
But when it comes to the government handing out money, I will take it as soon as I can get it. I've also said that same thing about lottery winnings: Rather than yearly payments I'll take it all up front please (therefore sacrificing some of it) and that is fine.
Ya gotta have a philosophy and that's mine: grab from Nanny G while the grabbing is good. I am old enough that there will be SS there and probably during my lifetime, but I doubt I'll live all that long.
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I've lived a life of financial restraint.
But when it comes to the government handing out money, I will take it as soon as I can get it. I've also said that same thing about lottery winnings: Rather than yearly payments I'll take it all up front please (therefore sacrificing some of it) and that is fine.
Ya gotta have a philosophy and that's mine: grab from Nanny G while the grabbing is good. I am old enough that there will be SS there and probably during my lifetime, but I doubt I'll live all that long.
This! Won't actually get much, if any, SSI when my time comes but I would take it early. Bird in hand and all that.
Waving "Hi" to you Iris Lily from my bike (OK from a motel room I'm sharing with my bike and my dog :-)!)
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I intend to claim as late as possible unless my retirement plan is failing and I need the money sooner. The option to withdraw early is just another form of safety margin.
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But it is always like that with an annuity.
Exactly. So why are you treating this differently?
Also, what does it matter to you after age 77 if you are dead?
It doesn't. That's exactly why I'm saying you need to consider how much total money you get, not just annual income.
The important fact is that before age 77 you know 100% that you are getting an 8% return on the $10,000 you "invested" in SS when you were 68. You get 8% (and it is more like a real return since we said it is COLA'd) for the rest of your life. Might live to 80 might live to 120 because of some new stem cell research.
There is no time period ever that you wind up collecting 8% more total money from Social Security by delaying benefits for one year.
Edited to more accurately reflect the discussion, as described in response to James.
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Also, what does it matter to you after age 77 if you are dead?
It doesn't. That's exactly why I'm saying you need to consider how much total money you get, not just annual income.
But you can't know what the total will be until you die :-)
There is no time period ever that you wind up collecting 8% more total money from Social Security.
Using real numbers, collecting SS at 62 would get me $1176/month, waiting until 70 would mean $2218/month. So if I lived until 79 1/4, I would collect more from the government than if I started collecting at 62. At 80, I will have collected a total of 8% more.
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But you can't know what the total will be until you die :-)
Of course. But that doesn't mean it's not worth considering the possibilities.
Using real numbers, collecting SS at 62 would get me $1176/month, waiting until 70 would mean $2218/month. So if I lived until 79 1/4, I would collect more from the government than if I started collecting at 62. At 80, I will have collected a total of 8% more.
Agh, you caught me typing too quickly. Roland and I were discussing 8% annual increases. So my statement should be amended to "There is no time period ever that you wind up collecting 8% more total money from Social Security by delaying benefits for one year."
And even then, I'm only talking about the amount you receive in Social Security benefits, without consideration of taxes or other income. Also, I'm going to edit my original post to avoid future confusion.
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beltim seems to really want to know his expiration date so he can draw down his portfolio to just above zero :-)
I am going to assume I will always have a portfolio with a mix of stocks and bonds up until the day I die such that I can spend X amount of money and know my portfolio will last and I don't have to work at Walmart at age 87.
If I am going to always have a portfolio generating returns, why would I not want a guaranteed almost 8% real return in part of that portfolio? The only reason I might not want to lock in that return is if I know my expiration date or my need of funds is so great that I must take SS before age 70 to survive. I am going to discount the case of SS running out of money and not paying me because a) You should have a pretty clear view at age 62 what the next decade will look like as far as funding and b) If they remove SS suddenly it will not really matter if you have taken it early because everyone old will die in the riots and chaos that follows.
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Waving "Hi" to you Iris Lily from my bike (OK from a motel room I'm sharing with my bike and my dog :-)!)
WAVING BACK, SpartanA!!!
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Agh, you caught me typing too quickly. Roland and I were discussing 8% annual increases. So my statement should be amended to "There is no time period ever that you wind up collecting 8% more total money from Social Security by delaying benefits for one year."
Logically, if you can eventually collect a larger amount by delaying 8 years, you must be able to (eventually) collect a larger amount by delaying 1 year. I'd like to see the math that says otherwise. I don't know of an SS calculator that would tell me the benefit amounts for each year, or I'd do it myself.
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Agh, you caught me typing too quickly. Roland and I were discussing 8% annual increases. So my statement should be amended to "There is no time period ever that you wind up collecting 8% more total money from Social Security by delaying benefits for one year."
Logically, if you can eventually collect a larger amount by delaying 8 years, you must be able to (eventually) collect a larger amount by delaying 1 year. I'd like to see the math that says otherwise. I don't know of an SS calculator that would tell me the benefit amounts for each year, or I'd do it myself.
Numerator: Take 1.08*X $/mo starting in month 13
Denominator: Take X $/mo starting in month 1
Ratio = 1.08*X*(m-12) / X*m for integer m >= 13.
= 1.08 * (m-12) / m
So the ratio approaches 1.08 (i.e., "8% more total money") as m -> infinity.
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Agh, you caught me typing too quickly. Roland and I were discussing 8% annual increases. So my statement should be amended to "There is no time period ever that you wind up collecting 8% more total money from Social Security by delaying benefits for one year."
Logically, if you can eventually collect a larger amount by delaying 8 years, you must be able to (eventually) collect a larger amount by delaying 1 year. I'd like to see the math that says otherwise. I don't know of an SS calculator that would tell me the benefit amounts for each year, or I'd do it myself.
Numerator: Take 1.08*X $/mo starting in month 13
Denominator: Take X $/mo starting in month 1
Ratio = 1.08*X*(m-12) / X*m for integer m >= 13.
= 1.08 * (m-12) / m
So the ratio approaches 1.08 (i.e., "8% more total money") as m -> infinity.
Thank you. Someone finally gets what I'm saying.
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and don't forget to calculate in annual cost of living increases I believe you'd get when taking SS. If a person starts collecting at age 62 rather than 80 (as mentioned above) you would have say a 3% COLA added to your benefit each year for those 18 years - making the difference between benefit amounts at each age much narrower.
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and don't forget to calculate in annual cost of living increases I believe you'd get when taking SS. If a person starts collecting at age 62 rather than 80 (as mentioned above) you would have say a 3% COLA added to your benefit each year for those 18 years - making the difference between benefit amounts at each age much narrower.
First, nobody would take SS at age 80 instead of 70 because there is zero benefit.
Second, the delayed payment is also COLA'd so there is no narrowing of the difference between the benefit amounts.
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I have looked more closely at SS as a result of this thread and will probably delay taking it as long as seems feasible so that my wife will get a better benefit when I eventually kick. At least that is what I think at the moment.
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My husband will take his at 66 due to health reasons. I initially planned on waiting until age 70, but I'm reconsidering taking it earlier. My husband is 7 years older than me and his SS benefit is higher. Since I'm likely to outlive him, I can increase to his benefit amount should something happen. If I started at 661/2 the difference between my amount and his is around $400. If I waited until 70 to take my SS, I would get $300 a month more. Any math people want to run the numbers?
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According to the SS website, I could get $458, $651, or $807 at ages 62, 67, and 70. My amounts are low, because the job I have had for the last dozen or so years did not take out $$ for SS. Nonetheless, $600 would cover about half of my monthly expenses, so I'm thrilled! I do hope to be able to wait until at least age 67 to collect, although with a history of cancer in my family, I'm not at all confident about living a long healthy life.
Just an FYI, but don't trust the numbers on your Annual Statement. They presume a couple of things -- (1) that you will continue to make the salary you currently make until you retire, and (2) that you will retire at the age you begin withdrawing. Because SS uses a 35-year work history, it projects out to those ages (62, 65-67, 70) as if you were retiring at those ages with your current salary. If you are retiring early, like many in this place, you will obviously NOT be making that salary until you reach benefit eligibility age(s), and moreover, you will get big fat ZEROES calculated into your 35-year history for every year you didn't contribute. There is a tool on the SSA website where you can go in and input actual numbers based on your chosen retirement age to get a more accurate figure.
SS will be there for me in 12-20 years, of that I'm pretty certain. Not sure when I will take it. Initial thinking was to take it right away, but will wait and see what the financials look like then before deciding.
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and don't forget to calculate in annual cost of living increases I believe you'd get when taking SS. If a person starts collecting at age 62 rather than 80 (as mentioned above) you would have say a 3% COLA added to your benefit each year for those 18 years - making the difference between benefit amounts at each age much narrower.
First, nobody would take SS at age 80 instead of 70 because there is zero benefit.
Second, the delayed payment is also COLA'd so there is no narrowing of the difference between the benefit amounts.
OK good to know. I just assumed it (COLA) was factored in already on the calculator when it showed you your various benefits amounts based on age received. So basically the amount the calculator tells you you'd get at various ages is somewhat incorrect and you'd receive an annual COLA increase every year even if you didn't begin taking it early? So you'd actually receive a higher amount than the calculator says you would if you take later? Cool.
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See http://www.ssa.gov/OACT/COLA/colaapplic.html for an overview of how COLAs affect SS benefits. You can go further down the rabbit hole here: http://www.ssa.gov/OACT/COLA/Benefits.html#aime.
If a COLA occurs in a given year (note: nonzero COLAs are not automatic - they can be zero if inflation is low), all payments will increase: current and future.
In theory, COLAs merely keep payments in line with inflation, so you can ignore COLAs when comparing "when to start Social Security?" options.
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The first minute of the first day I'm eligible. anything ele is foolish.
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The first minute of the first day I'm eligible. anything ele is foolish.
Why? Are you in bad health and expect to die earlier that most people? Do you honestly expect the program to reduce benefits for people above the age of eligibility between the time you hit eligibility and when you hit full benefits?
While the first is possible, the second is RIDICULOUSLY unlikely.
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The first minute of the first day I'm eligible. anything ele is foolish.
Why? Are you in bad health and expect to die earlier that most people? Do you honestly expect the program to reduce benefits for people above the age of eligibility between the time you hit eligibility and when you hit full benefits?
While the first is possible, the second is RIDICULOUSLY unlikely.
There is a heck of a lot on the cutting block before they will be able to touch the $20,000 a year or so some 67 year old is getting from SS. In other words, your benefits are safe as long as we have a government in place.
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The first minute of the first day I'm eligible. anything ele is foolish.
The first minute of the first day you are eligible likely involves accepting a reduced benefit for the rest of your life. My opinion would be that this would be more foolish than prudent.
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If I buy the max amount of service time and work until then, I'll be able to draw a (reduced) pension at around age 54. The reduced pension probably won't be enough to live on - certainly not indefinitely, as it has no COLA. My 'stache only needs to bridge the gap from when I draw the pension, until I can start social security at an amount I can live on long-term together with the pension - once I hit that number, why would I wait longer?
Waiting on a bigger social security payout can be seen as the same trap as working "one more year" before FIRE.
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The first minute of the first day you are eligible likely involves accepting a reduced benefit for the rest of your life.
This is true.
My opinion would be that this would be more foolish than prudent.
Actuarially, Social Security is required to price the benefit such that on average there's no difference on when you take benefits (assuming you're not working during the period that you could claim benefits). The only way that this decision would be foolish or prudent is if you knew or had data to suggest that you would live shorter or longer than the median.
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Since this thread was started, I've done more research and I've changed our plan. My husband, who is 6 years older than me, and the higher earner, will start withdrawing at age 70. His benefit at that age will be $2850. Assuming he lives longer than me, I would be eligible for the higher benefit at his death. At age 66 1/2, my benefit would be 1719 and at age 70, $2386.
I'm totally lost when I should file and if I should file on my own or his SS. At age 66, his SS would be $2100. I did post on the bogle board. One person tried to walk me through it step by step, but I ended up confused and totally lost in the process.
I'm not sure when I'll retire. Certainly not early. I'm thinking between 62-64. I'll be 59 when my husband retires and that would gives us a few more years before withdrawals would be necessary. I'm looking at 1m net when he retires and 1.25m liquid when I retire. Part of that will depend on when we sell our home. We're going through things now, doing minor repairs, and will put it on the market in Jan.
I'm thinking my husband will choose to work PT if that's his personal spending money for vacations and whatnot.
For those who aren't mathematically challenged, which is the best way for me to go with getting my SS?