Author Topic: If you don't need SS, when to take it?  (Read 10010 times)

hybrid

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If you don't need SS, when to take it?
« on: July 31, 2013, 12:18:17 PM »
I think I know the answer here, but I'd like to run this scenario past the MMM crowd and get some input since it is a not a typical situation.

The missus is 59, I will be 47 in a few weeks.  We've been happily married 27 years (yeah, I started early... :)  ).  We have a decent nest egg accrued (unspectacular by MMM standards, better than the average American), and our only debts are our mortgages on our home and a rental property.

Our goal is to pay off our rental in three years and then my wife will retire from the PO with a defined benefit equal to about 31% of her current pay.  And she can start drawing down her 401K as well as required or desired (or not, it's not required in the 2016 budget, we can live without it).  With the rental paid off and a somewhat frugal lifestyle we should be solidly in the black.  I make decent coin and am not retiring any time soon, we still have a ways to go yet to get to FI for the both us.

So my question is this.  What about her SS?  She can start collecting at 62, and even though the payout is significantly less than at 66 (normal retirement) or 70 (maximum SS benefits), all of it would go straight into an investment vehicle of some sort.  Are we better off collecting earlier and investing it, or waiting until that check gets larger?  The missus is pretty healthy and has a family history where most women in her family live to their mid-80s.  I see no genetic or health reasons why she won't live until at least 90, but of course I have no crystal ball here.

Whenever I read about when folks should take SS, it's always assumed the money will be spent immediately.  In our case it would all be invested.  So better to collect early and invest, or sit tight and collect larger checks later?

matchewed

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Re: If you don't need SS, when to take it?
« Reply #1 on: July 31, 2013, 12:40:04 PM »
I would wait until the maximum if possible. There is no real way to anticipate healthcare cost increases with age that I know of, a larger source of income can help in the event of something unfortunate. If you end up not needing it for that purpose then you live off the SS and let your investments be.

Another Reader

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Re: If you don't need SS, when to take it?
« Reply #2 on: July 31, 2013, 12:47:14 PM »
One of the issues is coordinating SS with RMD's from qualified retirement plans and other income streams.  The tax consequences can be significant.  My thought is to take SS at 62 and invest it in paying off rental mortgages or buying more properties.  However, if the family history said I had a good chance of hitting 90, I would probably reconsider.

DoubleDown

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Re: If you don't need SS, when to take it?
« Reply #3 on: July 31, 2013, 01:07:35 PM »
Conventional wisdom is to defer taking SS as long as you can, because benefits automatically go up about 8% every year you defer. There's not likely any other investment you could put your money into with an 8% guaranteed return.

I would only modify that plan as already mentioned above, such as if you need the money sooner to live on, or you felt your own life expectancy might or might not warrant deferring longer, or maybe more exotic advantages to coordinating husband's and wife's benefits.

I think the advice routinely offered here is pretty good about visiting the local Social Security office and going through the different scenarios in detail. My step-mom did that to consider all the options about taking hers sooner vs. later vs. survival benefits from my dad, and so on. It was helpful for her to go through all the options in detail.

Another Reader

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Re: If you don't need SS, when to take it?
« Reply #4 on: July 31, 2013, 01:18:05 PM »
SS is an annuity, not an investment.  The guaranteed 8 percent return is somewhat of a fallacy because you receive the benefits for a shorter period of time.  The breakeven point without investing the net income from SS is somewhere in your mid-80's IIRC. 


hybrid

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Re: If you don't need SS, when to take it?
« Reply #5 on: July 31, 2013, 01:28:06 PM »
SS is an annuity, not an investment.  The guaranteed 8 percent return is somewhat of a fallacy because you receive the benefits for a shorter period of time.  The breakeven point without investing the net income from SS is somewhere in your mid-80's IIRC.

And that is what is making this complicated....  Yep, the checks will definitely be larger if we wait, but when to actually start collecting the checks?

dragoncar

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Re: If you don't need SS, when to take it?
« Reply #6 on: July 31, 2013, 02:19:04 PM »
SS is an annuity, not an investment.  The guaranteed 8 percent return is somewhat of a fallacy because you receive the benefits for a shorter period of time.  The breakeven point without investing the net income from SS is somewhere in your mid-80's IIRC.

Is it the payment that goes up 8% or the net present value?  I was under the impression that the mob still goes up enough to make it a terrific play (as long as you expect to live longer than the actuarial tables would predict).

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Re: If you don't need SS, when to take it?
« Reply #7 on: July 31, 2013, 02:22:24 PM »
It's the payment.  The NPV of the annuity depends on what you select as your exit age/date.

DoubleDown

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Re: If you don't need SS, when to take it?
« Reply #8 on: July 31, 2013, 02:26:10 PM »
SS is an annuity, not an investment.  The guaranteed 8 percent return is somewhat of a fallacy because you receive the benefits for a shorter period of time.  The breakeven point without investing the net income from SS is somewhere in your mid-80's IIRC.

Yes this is an important point. I think when I ran through some of the estimates for my step-mom, it took her something like 9 years to break even on withdrawing at age 60 vs. age 65. I don't remember my own break even point, but it's something like 9-10 years. Still though, I think the 8% guaranteed increase in income is a pretty good rule of thumb to follow if you don't need to withdraw earlier for the reasons mentioned above or if you think you might have a long life.

Another Reader

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Re: If you don't need SS, when to take it?
« Reply #9 on: July 31, 2013, 02:47:41 PM »
If you don't need the annuity immediately, rework the numbers with investing the net SS income at a reasonable rate and then add the ending value to your stash.  It should increase your income at your anticipated SWR at that point.  In my case, I'm thinking of using the income to pay off one or possibly two rental mortgages by age 70.  With a little effort I can pay off two and increase my income by about $1,200 a month, and continue to collect the lower amount of SS, indexed up for inflation.

fiveoclockshadow

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Re: If you don't need SS, when to take it?
« Reply #10 on: July 31, 2013, 06:26:00 PM »
So the amount you get if you live to your actuary age is the same regardless of when you start.  This leads many to say it doesn't matter, or take it if you need it. This is poor advice that is rarely good for anyone.

If you need it at 62 then you should still be working unless you like cat food tacos. If you can't use other assets to live from 62 until 70 you aren't ready to retire at 62. The one caveat being if you can live on just the SS then fine. Perhaps you have a pension but be careful accounting for that. Nearly all will go bankrupt and when taken over will reduce their benefits. Probably the only thing as reliable as SS would be a civil serverant with CERS.

The key issue is that one of the largest threats to a portfolio in draw down is longevity combined with inflation. There is no reliable way to combat that nasty combination besides either an enormousness egg or an annuity that is inflation adjusted. Annuities are very expensive and have poor return. The best annuity in existence is SS. And the cheapest annuity you can buy is deferring until 70.

Long term retirement is about having the solidest floor under you that you can get. That is SS deferred until 70. Unless you have a terminal disease hold off until 70. There is no condition in which drawing at 62 improves portfolio success unless you consider an early death success.

BTW William Bernstein has a short E-Book that includes a good analysis of this very question. It's just a few bucks and is free to borrow for Prime members with a Kindle.

Another Reader

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Re: If you don't need SS, when to take it?
« Reply #11 on: July 31, 2013, 06:42:32 PM »
Fiveoclockshadow makes valid points if your plan decumulates your assets over your life after retirement.  If you own assets that support you with net rental income, interest, and/or dividends, especially if you have a pension that is likely to survive at least in the near term, the question of when to take SS depends on what you intend to do with it.  If you feel you will need more income in the future for the real bedpan and catheter, by all means defer it.  I intend to take it early and pay off relatively high interest rate mortgages.  That way, if/when the pensions go belly up, SS is means tested, or the RMD's peter out due to a stock market crash, I will be better insulated from the disaster.

simonsez

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Re: If you don't need SS, when to take it?
« Reply #12 on: August 01, 2013, 06:03:43 AM »
Younger (?) person here.  I thought the 8% increase was only good until age 70 1/2?  For me, that is a maximum of 3.5 years of "benefit" as I cannot withdraw without penalty until 67 as well as anyone else born after 1959.  In my retirement spreadsheet, I have linked my career salaries sheet to the S.S. sheet, thereby calculating my hi-35 and expected payment.  I have a small table with S.S. withdrawal age on one axis and age at death on the other axis with the maximum value set to be highlighted based on the varying inputs.  It's fun to play around with as more of my work career is left than I've experienced (more room for variation) but if you live to age 85 or more, odds are good you're best off delaying until age 70 1/2.  YMMV.

Rules could always change again, didn't the 8% gain used to be only 3% per year of waiting?  In that scenario that would tip most cases of "waiting" back to withdrawing at FRA or perhaps even before FRA in some instances.

General Demography note: if you have survived into your 60's or 70's, using the period-rate general life expectancy will generally underestimate true life expectancy by several years.  i.e. just because male life expectancy from birth is currently near 76, don't think that value means the same thing for someone at or near those ages trying to plan S.S. withdrawals (also I imagine there would be positive selection bias amongst mustachians/planners as I would guess they have healthier lifestyles and easier access to healthcare than the aggregate pushing up the expected age at death further still).  It isn't totally irrelevant but look at a full life table to get a truer e sub x (expectancy from age x) rather than just using e0.

For example, in the following link e0 for a male in 2009 is 75.90 while e70 is 14.03.  Since this e70 person has survived to age 70 already, they have on average over 14 years left.  84.03-75.90 > 8 years!

http://www.ssa.gov/OACT/STATS/table4c6.html

hybrid

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Re: If you don't need SS, when to take it?
« Reply #13 on: August 01, 2013, 07:16:11 AM »
You folks have raised some great points, and I am no closer to a decision yet (but have three years before we need to make one).  There truly is no telling what the future will bring, and in one sense that screams be conservative and defer, defer, defer.

On the other hand, there is no telling what the future will bring in regards to the Post Office pension (their finances are horrible, but they are government) or SS either.  If means testing does go through at some point, and I think there is a good chance of that, we may find that deferring until age 70 was a mistake because the check we assume will be X today will actually be X - Y in 11 years.  Who knows.

My thoughts at this point are these.  I am pretty conservative fiscally by nature, and as such I am torn.  On the one hand the conservative thing to do is wait for a larger payout, and on the other hand the conservative thing to do is collect SS immediately while it is still funded at its current levels and means testing is not on the table yet.  My gut has me leaning toward the former rather than the latter.  But I won't make a decision based on my gut.

I need to run some numbers based on investing that annuity assuming a growth rate of 5% (which is doable in quality dividend stocks, especially since the stocks would be held for a long time and their fluctuations over the short term are irrelevant).  The time it takes for 70 or 66 to be a better decision than 62 usually does not take that sort of compounding math into account, so I need to crunch numbers.  I also agree with the suggestion about visiting the local SSA office and getting input from them as well.  Keep those ideas coming!  Thanks.

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Re: If you don't need SS, when to take it?
« Reply #14 on: August 01, 2013, 07:22:11 AM »
Don't think of taking SS early as a "penalty."  SS is an annuity, similar to what insurance companies sell.  From the actuarial perspective, it's the same if you take it early, at 62, at your full retirement age or at 70.  The present value of the annuity payments should be the same.

I have never made the calculations myself.  If someone has, it would be interesting to know the assumptions behind the SSA's calculations, including the discount rate.  The assumptions could make a difference, especially in a very low or very high interest rate environment.


mlipps

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Re: If you don't need SS, when to take it?
« Reply #15 on: August 01, 2013, 08:26:58 AM »
I think the one thing that sets your situation apart that others have raised yet is your age difference. In the most morbid terms, you will probably outlive your wife by a relatively significant number of years. Depending on her earning record as compared to yours, you may be able to increase your benefit after her death by taking the spousal benefit. If that's the case for you, I would delay as long as possible in taking SS because you're most likely to come out ahead in that way. My own parents are 8 years apart so I've done some similar analysis for them. The book I used to learn all the ins & outs of this was written by a Boglehead, Mike Piper. You should read it yourself though, I'm a little rusty on the details. I am able to lend it to another Kindle owner if anyone wants to borrow it, just PM me.

http://www.amazon.com/gp/product/B009K7ZNDS/ref=oh_d__o02_details_o02__i00?ie=UTF8&psc=1

DoubleDown

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Re: If you don't need SS, when to take it?
« Reply #16 on: August 01, 2013, 10:07:54 AM »
I can't predict the future better than anyone, and maybe it's wishful thinking, but I think the likelihood that anyone within, say, 10 years of collecting SS having the rug pulled out from under them because of changes like means testing or reduced benefits are incredibly slim. And even within 20 years, I would imagine the changes will be relatively minor. I have no historical basis to back up that claim, other than thinking the last time they made a change like this (increasing ages for benefits) it was also pretty minor and put in effect far into the future.

Politically, I just can't see it happening, and the "old age" lobby is extremely powerful as a voting bloc. If I was 20 I might expect some changes, but not anyone age 50+, give or take. So that's all a very long-winded way of saying I would not let those possibilities influence my decision of when to start the annuity. If you're that close, any changes made are really unlikely to affect your payment, maybe just younger people down the line.

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Re: If you don't need SS, when to take it?
« Reply #17 on: August 01, 2013, 10:27:40 AM »

Politically, I just can't see it happening, and the "old age" lobby is extremely powerful as a voting bloc. If I was 20 I might expect some changes, but not anyone age 50+, give or take. So that's all a very long-winded way of saying I would not let those possibilities influence my decision of when to start the annuity. If you're that close, any changes made are really unlikely to affect your payment, maybe just younger people down the line.

100% agree.

The biggest factors here IMO are: life expectancy and the spousal continuation.  And those are what need to be considered.  I.e., family history, current health, differences in spousal age, etc.   If your entire family lived to be 106 and ran marathons every weekend, it's probably a good idea to take it later.  If you are 62 and qualify as "the oldest in the family so far" ... well, it's time to take the cash.

I'm not trying to be morbid... but... figuring your odds of "how long will I be collecting" is really what we're talking about.

fiveoclockshadow

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Re: If you don't need SS, when to take it?
« Reply #18 on: August 01, 2013, 11:03:27 AM »
I'm not trying to be morbid... but... figuring your odds of "how long will I be collecting" is really what we're talking about.

At the risk of beating a dead horse :)

Again, I think this misses the point.  In many of these "when should I take SS" discussions it comes down to something like the above.  The underlying thought is "how do I maximize the expected value of my total SS payout".  This brings up some common lines of reasoning:

  • If you live to actuarial age it is all the same
  • If you might die soon draw earlier
  • If you draw earlier and invest in stocks you might end up with a higher potential upside
  • Drawing later is only a benefit if you live a long time

I'll assert that all those points are irrelevant and completely miss the point of an annuity.  Dieing soon is not a threat to the success of any retirement portfolio, things always work out "great" if you die quickly ;)  If you are going to die soon you don't need an annuity at all. 

Annuities protect against longevity risk and they protect better against that the greater their monthly pay out.  That means point one above is completely the wrong way to look at it.  The whole point to an annuity is to handle the case of living past actuarial age!  If you can get a higher monthly pay out with the same total pay out at actuarial age by deferring then there really is no other conclusion to make than that deferring is the best answer for your portfolio success rate. 

Now there are conditions in which the potential upside of a portfolio might be better drawing early but in those cases you also increase the likelihood of portfolio failure.  That's the big difference.  If you take the young persons "I'll take risk to increase my possible return" mindset into the SS decision you are likely completely missing the goal of having a stash to begin with - having it last until you die.  Essentially all the schemes centered around taking SS early boil down to making the maximum potential portfolio upside better at the cost of making the maximum downside worse.  This is exactly the wrong kind of move to make.  In the draw down phase you don't care what the upside potential is, you care about what improves the downside the most.  That is to say the worst case path of your portfolio is what controls your draw down phase and postponing SS improves that in every case I can think of.

Long story short - SS is not about maximizing what you get from the government, it is about maximizing the success of your portfolio (i.e. your portfolio having more than zero by the time you die).  If you think of it in the terms of the former you'll reach the wrong conclusions, make sure you focus on the later.  And the same goes for purchasing annuities (to which one can add the very first annuity you purchase is deferring SS - not deferring SS and purchasing a separate annuity is a losing game).

Jamesqf

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Re: If you don't need SS, when to take it?
« Reply #19 on: August 01, 2013, 11:18:51 AM »
Another think to consider is that income from SS is (bar political upheavals) pretty much guaranteed, while money sitting in investment accounts could be subject to lawsuits &c in addition to market risk.  So I'd say that if you don't need it to live on, and have reasonable life expectancies, you're better off waiting as long as possible to increase eventual payout.

If you need it at 62 then you should still be working unless you like cat food tacos.

Why does it seem that no one, or at least no one pushing the "old folks so poor they have to eat cat food to survive" meme, ever goes to the grocery store to check the price of canned cat food?  It ain't cheap.

fiveoclockshadow

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Re: If you don't need SS, when to take it?
« Reply #20 on: August 01, 2013, 11:36:27 AM »
Why does it seem that no one, or at least no one pushing the "old folks so poor they have to eat cat food to survive" meme, ever goes to the grocery store to check the price of canned cat food?  It ain't cheap.

Touche!

Certainly a lack of critical thinking on my part - given how crazy people get about their cats I should have guessed cat food was probably really over priced.  And the less expensive bulk dry cat food probably makes awful tacos.

hybrid

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Re: If you don't need SS, when to take it?
« Reply #21 on: August 01, 2013, 01:28:38 PM »
These are excellent posts, a big tip of the hat to fiveoclockshadow for making a very compelling argument.  A follow-up, spouse's mother has two annuities, a pension from her phone job and SS.  She made the big, big, big mistake of taking early retirement and early SS when she was not in a financially good position to do so.  And now at age 82 lives with her son, who has made plenty of financial mistakes on his own (they sadly deserve each other that way).

Spouse and I represent the financially responsible side of the family.  For years I tooled about in a beat up Mazda while they drove big fancy cars.  And years later one of us has assets and one of us has almost zip.  MIL is the cautionary tale even if you have two pensions.

I have zero reason to think the spouse won't live until at least her mid-80s and probably later because she is in good health and her family has a pretty good history.  So going back to the very top of the post, I think the answer I knew all along was defer, but I want to make absolutely certain I'm not missing an opportunity by thinking outside of the box.   The facts that we are better off than the typical SS retiree and that I am significantly younger, and earn more, factor into the equation and makes the "typical" advice about SS that you read not as relevant to our situation.  The amount of SS money left on the table between 62 and 70 will probably be in excess of $100,000.  Assuming $1250 a month and 5% compounded over time, that's over $146,000 before the first check rolls in at age 70.

The following below assumes 8% growth in SS payout per year deferred, and are guesstimates about spouse's SS monthly check.

20 years, 1250 a month, 5% = 507K at age 82  (husband age 70)
16 years, 1700 a month, 5% = 493K at age 82  (husband age 70)
12 years, 2313 a month, 5% = 451K at age 82  (husband age 70)

28 years, 1250 a month, 5% = 895K at age 90  (husband age 78)
24 years, 1700 a month, 5% = 928K at age 90  (husband age 78)
20 years, 2313 a month, 5% = 938K at age 90  (husband age 78)

This of course assumes never tapping that stash and many other things like taxes, both of us still around and in good health and the like, but you get the jist of where I am going....  Still, it suggests about age 88 is where the point where deferment is better when looked at in a vaccuum (and I hear you fiveoclockshadow, it ain't in a vaccuum....).


hybrid

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Re: If you don't need SS, when to take it?
« Reply #22 on: August 01, 2013, 01:34:40 PM »
Why does it seem that no one, or at least no one pushing the "old folks so poor they have to eat cat food to survive" meme, ever goes to the grocery store to check the price of canned cat food?  It ain't cheap.

Touche!

Certainly a lack of critical thinking on my part - given how crazy people get about their cats I should have guessed cat food was probably really over priced.  And the less expensive bulk dry cat food probably makes awful tacos.

We could probably retire a few months earlier were it not for an incredibly spoiled canned food cat of ours....  ;-)  At least we get it at Sam's Club.  Comes out to about .50 a can.  That, I am sad to say, is over 3,000 in cat food over her 10 years with us.  No more pets after this one.  Well, maybe.....

DK

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Re: If you don't need SS, when to take it?
« Reply #23 on: August 01, 2013, 06:57:24 PM »
Another thing to think about is if you take it early, I believe there is a provision where you can "pay back" what you took, and then start taking it at the higher rate when turn a certain age. This would allow you to get some money out, and if not needed, invest it, and then pay it back to get a higher payout. Or perhaps the market takes a downturn so your stache diminishes, take SS to carry you until the market returns so you don't lock in any losses.

fiveoclockshadow

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Re: If you don't need SS, when to take it?
« Reply #24 on: August 02, 2013, 05:58:49 AM »
Another thing to think about is if you take it early, I believe there is a provision where you can "pay back" what you took, and then start taking it at the higher rate when turn a certain age. This would allow you to get some money out, and if not needed, invest it, and then pay it back to get a higher payout. Or perhaps the market takes a downturn so your stache diminishes, take SS to carry you until the market returns so you don't lock in any losses.

That option ended in 2010 I believe. All that is left is if you change your mind in the first year of retirement you can undo your mistake by paying back. Past that point you are locked into your choice and lower benefit.

DoubleDown

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Re: If you don't need SS, when to take it?
« Reply #25 on: August 02, 2013, 08:54:35 AM »

And the less expensive bulk dry cat food probably makes awful tacos.


LOL, that was the best laugh of the day!

And you're right, it does.

aj_yooper

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Re: If you don't need SS, when to take it?
« Reply #26 on: August 02, 2013, 11:15:34 AM »
These are the actuarial tables used by Social Security:  http://www.ssa.gov/OACT/STATS/table4c6.html

Fun stuff??

Interestingly, the older one is, the greater the expected longevity, compared to the previous year's estimate. 

Rather than using family longevity as a lens to the future, I would look at individual risk and protective factors in estimating longevity. 

If an individual did not require the SS benefit for their budget and, instead, invested the SS money, the break-even point for total $$ accrued (SS payments + investment returns) would be way past the age of equal SS benefit payments (comparing early SS to a later SS).  That would be dependent on the rate of return on the SS cash flow.

teen persuasion

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Re: If you don't need SS, when to take it?
« Reply #27 on: August 03, 2013, 03:37:46 PM »
There are all sorts of options that make this decision even more complicated than just now vs. later.  The difference in your ages means that the early penalty/ late premium percentages are different for each of you, as well as when you hit full retirement age.

There is a "file and suspend" option.  If I understand it properly, if one spouse is at least FRA, they can file and immediately suspend their SS.  The second spouse can file to receive their "spouse's benefit".  The spouse's benefit is something like 50% of the first spouse's SS.  If that second spouse also worked, they can switch to collecting on their own record later for a (hopefully) higher amount.  I'm not sure how old the second spouse needs to be to collect (62?) and it may be recaptured if the second spouse is still earning.  The first spouse can refile when they are ready to collect.

Coordinating Mine, Yours, & Spouse's benefits is complicated and depends on ages, timing, and the relative earnings of each spouse.  Especially w/ RE - SS is based on your 35 highest earning years.  Work less than 35 years and you average in some zero years.

You'll have to poke around on the SS website to find all the details.  Every rule seems to contradict some other one about when or if you can apply for something.

hybrid

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Re: If you don't need SS, when to take it?
« Reply #28 on: August 04, 2013, 04:36:08 AM »
These are the actuarial tables used by Social Security:  http://www.ssa.gov/OACT/STATS/table4c6.html

Fun stuff??

Interestingly, the older one is, the greater the expected longevity, compared to the previous year's estimate. 

Rather than using family longevity as a lens to the future, I would look at individual risk and protective factors in estimating longevity. 

If an individual did not require the SS benefit for their budget and, instead, invested the SS money, the break-even point for total $$ accrued (SS payments + investment returns) would be way past the age of equal SS benefit payments (comparing early SS to a later SS).  That would be dependent on the rate of return on the SS cash flow.

To me anyway, a fascinating table in that link....  As in, less than 1 in 1000 American females fail to see their 21st birthday?  That the year you are least likely to perish is year 10?  if you are an "average" woman who made it to age 80 you are quite likely to make it to your 90th birthday?  I'm a numbers guy at heart, so I love this sort of thing, even if it seems a bit morbid to others.  Of course, odds are really only useful when looked at from 20,000 feet, not when looking at any one person.  So, conservatively speaking, it makes sense for me to assume the best regarding my quite healthy spouse and plan accordingly.

kyleaaa

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Re: If you don't need SS, when to take it?
« Reply #29 on: August 04, 2013, 09:44:27 AM »
Don't take social security until you NEED it or you reach age 70, whichever is sooner. There are exceptions, such as when one or both of you were collecting social security disability, etc, but in general, don't take it until you need it. It's unlikely you will get investment returns high enough to make up for taking a lower monthly SS benefit and even if you did, you'd have to take on a lot of risk to do so.

I would caution against doing any complicated math to try to figure out what's actually optimal, because it requires making too many assumptions and gives a false sense of certainty. Garbage in = garbage out.
« Last Edit: August 04, 2013, 09:47:43 AM by kyleaaa »

Random

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Re: If you don't need SS, when to take it?
« Reply #30 on: August 04, 2013, 09:48:29 AM »
I worked up a quick present value analysis in excel to get at the original question posed.  The analysis included scenarios of living to 70, 80, 90.  Obviously lifespan matter in the analysis.  If you plan to live a long while, then starting your SS draw later has higher NPV. 

My planning strategy at this point will be to assume the least advantageous draw (begin at 62) as a worst case scenario in my projections and then delay if the income is not needed.

Next, I need to incorporate dual strategies that include my younger wife and spouse benefits into the mix.

simonsez

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Re: If you don't need SS, when to take it?
« Reply #31 on: August 04, 2013, 09:51:03 AM »
Hey kyleaaa, give me your money and I will guarantee 20% annual returns, only catch is you can't start withdrawing until age 130!

kyleaaa

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Re: If you don't need SS, when to take it?
« Reply #32 on: August 04, 2013, 10:09:07 AM »
Hey kyleaaa, give me your money and I will guarantee 20% annual returns, only catch is you can't start withdrawing until age 130!

Sure, that sounds like a great deal since I plan on living to 180.

Yellow_Magic

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Re: If you don't need SS, when to take it?
« Reply #33 on: August 05, 2013, 11:03:13 AM »
I worked up a quick present value analysis in excel to get at the original question posed.  The analysis included scenarios of living to 70, 80, 90.  Obviously lifespan matter in the analysis.  If you plan to live a long while, then starting your SS draw later has higher NPV. 

My planning strategy at this point will be to assume the least advantageous draw (begin at 62) as a worst case scenario in my projections and then delay if the income is not needed.

Next, I need to incorporate dual strategies that include my younger wife and spouse benefits into the mix.

There is a series of papers by Slavov and Shoven that address this topic in extensive detail.

The determination of when to take benefits with the 62-70 age range depends on two main variables:  (1) whether you think your life expectancy is greater or less than the mean life expectancy for your condition (age, gender etc); and (2) the real interest rate at the time you make the decision to delay for another year (or shorter period).

Two resources are needed to determine whether to delay taking benefits:  (a) the changes in monthly payouts with age; and (b) the social security actuarial life table, both of which I've linked to below:
http://www.ssa.gov/OACT/ProgData/ar_drc.html
http://www.ssa.gov/OACT/STATS/table4c6.html

I'll provide one example using male life expectancy from the actuarial table for a person born in 1960.  In theory, hundreds of calculations could be made since the SS benefit amount increases in one-month or two-month periods - one is not limited to waiting a whole year to get a benefit increase.

I will use generic units.  These can be readily scaled to actual dollars.
At age 69, the monthly benefit is 124, and at age 70 is 132.
The life expectancies for this person are14.4 at age 69 and 13.73 at age 70.
This provides total expected benefit amounts according to the following:
Age 69:  124*14.4 = 1785.6
Age 70:  132*13.73 = 1812.36
Thus the mean expected lifetime SS benefit at age 70 is about 1.5% greater than at age 69 (NOT the commonly touted "8%" figure commonly cited on network news programs).

Does that mean one should necessarily wait until age 70?  It depends.
The prevalence of low real interest rates (which is our current situation), shifts the decision towards delaying taking benefits.
Moreover, a belief that your life expectancy is greater than the mean also shifts the decision toward waiting.
Another factor is the balance of concerns between taking benefits early or late.

Even assuming one's life expectancy exactly matched the mean, and that current real interest rates were 1.5%, thereby making the benefits at age 69 and 70 actuarially equal, there is still an argument in favor of waiting.
Specifically, if you take benefits at 70 and unexpectedly become ill at 75, at worst you could lie in bed and ponder what additional fun you might have had between 62 and 70 had you taken benefits earlier.
On the other side of things, if you live to be 85 and beyond, and have to live on a reduced income, you will regret having taken benefits early, over an extended period.
Thus, I expect to wait until age 70 to take benefits and would need a very good reason to do otherwise.

hybrid

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Re: If you don't need SS, when to take it?
« Reply #34 on: August 13, 2013, 09:47:08 AM »
Wow Yellow, for only making two posts so far you are pretty damned good at it.  Hope to read more from you over time....

Those are pretty convincing arguments regarding waiting, and I'll have to weigh those in three years as we approach decision time.  You are quite right about it being a tough time for savers.  Unless you are willing to take on more risk (stocks, which some claim are entering or already in a bubble) it's darned tough to find a good investment vehicle out there.

At this point I don't see the scenario where drawing early is the smarter play given our circumstances.  But I absolutely could for other individuals.