I’m starting to think about when to take SS. The conventional wisdom is to delay SS as long as possible, and I come from a family in which we live long, healthy lives. For me, the reason to consider taking SS early is the ability to get a dependent benefit for my kid.
We are in a good place financially and don't need SS now. I’m FIRE’d with a Federal pension. My spouse plans to retire in a few years and will also have a pension with inflation adjustments. We have round $2 million in retirement and investment accounts and a paid off house. We have always lived below our means and are confident that our pensions alone will more than cover our normal budget when we retire, allowing our investments to continue to grow. We have one kid and about $125,000 in a 529. I do not foresee problems paying for college when the time comes.
My latest SS estimate shows $3512 at 67, and $2473 at 62. If I collect at 67, the difference of $1,039 per month means a break even point in 143 months just before I turn 74. I plan on living well beyond 74.
On the other hand, the dependent benefit means that my kid could collect an additional $75,508. This moves the break even point out another 6 years to 80. And there are some other advantages. The dependent benefit is taxed at my kid’s tax rate (essentially zero). If I invest the dependent benefit for my kid and it grows 6% annually, it becomes about 181,000 when I’m 80. That 105,000 in growth adds another 101 months to the break even point, making it now a little past 88 years old. If the $181,000 stays invested from 80 to when I’m 88, there’s a good chance that I don’t live long enough to reach the break even point. If I were to invest some or all of my own SS (realistic, since I don’t need the money), it would also move the break even point farther out. I’m not putting that in the calculation because I want to be conservative.
I am not one of those people who believes that SS is going to collapse. I do, however, believe that there’s a good chance that benefits will have to be cut at some point, and the reality is that the benefits are more likely to be cut for people like me than they are for people with very low incomes. Taking the dependent benefit early would serve as a hedge against future cuts. Most importantly, it is a chance for my kid to have a tax free $75,000 to invest at the age of 18. I think using it to fund a Roth IRA would be attractive, but even if it stays in a regular investment account, it would be a nice head start. This does raise a question about any young person’s ability to be responsible with full access to that kind of money, but that’s a different discussion.
What are your thoughts? Am I missing something?
