Taking SS early

[Must_ache]

So we often hear how taking Social Security early results in a loss of $$.  If all you did was collect the money and not invest it, that is probably true.

If I take SS @ 62, I will get $25,368/yr and they claim life expectancy is 22.2 years.  For simplicity I made it 22.
If I take SS @ 67, I will get $36,600/yr and they claim life expectancy is 18.6 years.  For simplicity I made it 19.

If you stop there and do the math, I am selling myself $117K short. But ...

What we are trying to do is estimate the value of having an additional $25,368 for five years and then a $11,232 deficit for 19 years until I am 85. 
I calculate a break-even rate of return at about 4.635%.  IN other words if you invest it (or everything else) with a fair amount of consevatism and manage only that with your assets, it comes out the same.

The first year I get $25,368 but I only have half of it on average, so 25,368 turns into 25,368 x 1.023 = 25,956.
The next year I assume that $25,956 compounds and I just add in the next year's 25,368.
That gets up to $139,861 I have amassed by collecting early, and at age 67 I start penalizing myself $11,232/yr but still compounding the balance.

As I said, at a 4.635% rate of return the difference is zero.  I will have lots of assets to support me (over $1.1M excluding the house, goal is $2.0M but might settle for less) but I had never given this question serious thought and wondered if anyone else had or wanted to poke holes in this.  I do work as an actuary - but not a life actuary :)

[maizefolk]

I think you have yourself living until 84 if you take social security at 62 but to 86 if you take social security at 67. Presumably the difference reflects the odds of dying between age 62 and 67, but it would seem a fairer comparison to assume equal longevity in both cases since whatever length of time you live will be the same regardless of when you take SS. Doing so reduces the side of the gap between the two.

[PDXTabs]

Probabilistic speaking, over the whole population, all the answers are equal according to the feds. If you happen to have a reason to think that you will die young you should definitely take it early. If you think that you won't die young... flip a coin. My dad died in an automobile accident commuting home from work at 65. I'm taking it the first second that I'm eligible and never working again (assuming that I still was).

[MDM]

See Open Social Security: Free, Open-Source Social Security Calculator and Claiming Social Security Early to Invest It: What Rate of Return (Discount Rate) Should We Assume? — Oblivious Investor for more discussion on this.

[volleyballer]

Can taking ss earlier be used to mitigate sorr? In other words, if the market tanks in year 2 of retirement, start taking early ss and allow your own money more time to recover in the market.

[Must_ache]

I think you have yourself living until 84 if you take social security at 62 but to 86 if you take social security at 67. Presumably the difference reflects the odds of dying between age 62 and 67, but it would seem a fairer comparison to assume equal longevity in both cases since whatever length of time you live will be the same regardless of when you take SS. Doing so reduces the side of the gap between the two.

Yes, I decided as long as I had made it to 67, now I was expected to live longer and so I kept those two extra years in there.

[maizefolk]

I think you have yourself living until 84 if you take social security at 62 but to 86 if you take social security at 67. Presumably the difference reflects the odds of dying between age 62 and 67, but it would seem a fairer comparison to assume equal longevity in both cases since whatever length of time you live will be the same regardless of when you take SS. Doing so reduces the side of the gap between the two.

Yes, I decided as long as I had made it to 67, now I was expected to live longer and so I kept those two extra years in there.

Well it is certainly your call. But the way you are running the numbers ignores the the scenario where you decide to wait to claim social security until 67, but die before you get old enough to do so, but yet still includes the scenario where you claim social security at 62 but die before 67.

Seems unbalanced to me.

[Must_ache]

I was just trying to find the rate of return where cash flows from an age 62 start date and an age 67 start date were equal, that's all.

[secondcor521]

This math assumes you will live the whole period.

According to the SS life table (https://www.ssa.gov/oact/STATS/table4c6.html), a 62 year old male only has about a 41% chance of making it to age 85.

So assuming you're male, you're ignoring the 59% of the time when you die during the period.

Dying during the period changes the discount rate.  ;-)

[Rdy2Fire]

My thinking could be wrong but I have always thought to take it the day you're eligible. Even if you didn't invest it and just spend it, in your case, the $25,368/yr, you aren't pulling money from elsewhere. Given that your other money is is still working for you.

Additionally I always viewed SS as a loss, unless you live to be VERY old, you will never get the return on your investment and the government doesn't want you to. It's a social program and it's funding everyone so they are betting on the fact you won't collect for 20-30 years and in essence leaving money in the pot.

For the above reasons I never thought of it like ANY other investment and my thinking is take the money they day you can. Even if you don't need it just invest it, gift it, etc

[maizefolk]

Additionally I always viewed SS as a loss, unless you live to be VERY old, you will never get the return on your investment and the government doesn't want you to. It's a social program and it's funding everyone so they are betting on the fact you won't collect for 20-30 years and in essence leaving money in the pot.

For people with high lifetime earnings this is true, as social security is definitely a redistributionist program.

For most people on this forum, social security is actually a pretty good deal as while many of us have higher than average annual earnings, we stop working early which limits our lifetime earnings. And the social security formula treats a person who earned the SS cap each year ($137,700/year) for eight years before hitting FIRE the same way as someone who earned $35,000/year for 35 years.

Both the high annual earner short career and the below median earner long career paid ~ $136k in employee + employer SS taxes. Both get an inflation adjusted social security payment equal to about 12.5% of the total money they paid into the system each year in retirement.

[reeshau]

My thinking could be wrong but I have always thought to take it the day you're eligible. Even if you didn't invest it and just spend it, in your case, the $25,368/yr, you aren't pulling money from elsewhere. Given that your other money is is still working for you.

Additionally I always viewed SS as a loss, unless you live to be VERY old, you will never get the return on your investment and the government doesn't want you to. It's a social program and it's funding everyone so they are betting on the fact you won't collect for 20-30 years and in essence leaving money in the pot.

For the above reasons I never thought of it like ANY other investment and my thinking is take the money they day you can. Even if you don't need it just invest it, gift it, etc

The same could be said for any insurance policy; if they paid out more, on average, than they collected, then the insurance company would go bankrupt.  So I have always approached SS in that way, rather than try to apply investing tools.

[Rdy2Fire]

Additionally I always viewed SS as a loss, unless you live to be VERY old, you will never get the return on your investment and the government doesn't want you to. It's a social program and it's funding everyone so they are betting on the fact you won't collect for 20-30 years and in essence leaving money in the pot.

For people with high lifetime earnings this is true, as social security is definitely a redistributionist program.

For most people on this forum, social security is actually a pretty good deal as while many of us have higher than average annual earnings, we stop working early which limits our lifetime earnings. And the social security formula treats a person who earned the SS cap each year ($137,700/year) for eight years before hitting FIRE the same way as someone who earned $35,000/year for 35 years.

Both the high annual earner short career and the below median earner long career paid ~ $136k in employee + employer SS taxes. Both get an inflation adjusted social security payment equal to about 12.5% of the total money they paid into the system each year in retirement.

I wasn't suggesting it was a good or bad deal and I wasn't questioning the formula. I was suggesting or stating that on average people leave money in the 'pot' based on what they put in regardless of income. I could be totally wrong, just going based on personal knowledge and seeing many younger people die that contributed but never collected adding to reasons I'd take it ASAP.

[maizefolk]

I wasn't suggesting it was a good or bad deal and I wasn't questioning the formula. I was suggesting or stating that on average people leave money in the 'pot' based on what they put in regardless of income. I could be totally wrong, just going based on personal knowledge and seeing many younger people die that contributed but never collected adding to reasons I'd take it ASAP.

I'd also take it ASAP if the program is still around by the time I'm eligible for it. No argument there.

But at the same time, given that current law has social security spending down its entire trust fund and ultimately having to cut benefits significantly if nothing changes, it would seem likely to me that if we actually ran the numbers the average person probably receives slightly more back from the program than they paid in.

[MustacheAndaHalf]

Some decades stock returns are negative, with stocks giving a wide range of outcomes.  With social security, it's guaranteed by the U.S. government, with no volatility expected.

Since I've got enough, I plan to let social security build up until then.  I view it as insurance guaranteed by the U.S. government.  I wouldn't say that if I only had enough to live on until age 67, so I can appreciate that viewpoint.

I think it's very difficult to FIRE on a minimum wage income.  I suspect MMM followers have higher than average income.  To quote the National Institute of Health: "Higher incomes are associated with longer life expectancy".  They can't fully assign causation, but there's definitely a link.
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4866586

There's also a gap between the U.S. and peer countries - life expectancy is lower in the U.S., with the gap increasing over time.  To get political, I expect universal health care is the cause, since nearly all developed nations have universal health care - except the U.S.  So there could be room to improve life expectancy.
https://jamanetwork.com/journals/jama/article-abstract/2776338

[maizefolk]

I suspect MMM followers have higher than average income.  To quote the National Institute of Health: "Higher incomes are associated with longer life expectancy".  They can't fully assign causation, but there's definitely a link.
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4866586

Regardless of the direction of causality, this is a good point and another reason to expect SS to be a better deal for the average mustachian than the average nonmustachian american.

[reeshau]

I wasn't suggesting it was a good or bad deal and I wasn't questioning the formula. I was suggesting or stating that on average people leave money in the 'pot' based on what they put in regardless of income. I could be totally wrong, just going based on personal knowledge and seeing many younger people die that contributed but never collected adding to reasons I'd take it ASAP.

I'd also take it ASAP if the program is still around by the time I'm eligible for it. No argument there.

But at the same time, given that current law has social security spending down its entire trust fund and ultimately having to cut benefits significantly if nothing changes, it would seem likely to me that if we actually ran the numbers the average person probably receives slightly more back from the program than they paid in.

Maybe it's driving into too much detail, but what that statement misses is all the initial beneficiaries who paid nothing, or only partially paid in as they were in the middle of their careers at the start of the program.  There is also a discussion you could have about nominal vs. inflation-adjusted value, since the only thing the trust fund can invest into is Treasuries.

[StarBright]

One of my best friends is an actuary and we've had some discussions about the wacky data she's seeing regarding millennials.

In the "worst case scenario" side of the scale, she said she's seeing things like a ten year loss in life expectancy for folks born between 80-89. And about a decade earlier onset in typical aging health conditions compared to other generations.

This tracks with what I see in my medium high earning social circle and among colleagues.

So if you are an 80s baby - take SS as soon as it is available :)

[theolympians]

The gov't is thinking of you on a matrix. Sure you could make more if you wait to draw. I presume the gov't believes more people will die off and not draw anything before they hit the max number. 

There is a counter argument that if you don't need the money wait and draw the max.

I am drawing at the first available moment.

[maizefolk]

In the "worst case scenario" side of the scale, she said she's seeing things like a ten year loss in life expectancy for folks born between 80-89. And about a decade earlier onset in typical aging health conditions compared to other generations.

This tracks with what I see in my medium high earning social circle and among colleagues.

So if you are an 80s baby - take SS as soon as it is available :)

Is she attributing that to stress? Poor nutrition? Other factors?

[GoCubsGo]

I read somewhere that opiod addictions over the past 15 years or so are causing some crazy death rates for younger people.  I would think that might skew some mortality rates.

[StarBright]

In the "worst case scenario" side of the scale, she said she's seeing things like a ten year loss in life expectancy for folks born between 80-89. And about a decade earlier onset in typical aging health conditions compared to other generations.

This tracks with what I see in my medium high earning social circle and among colleagues.

So if you are an 80s baby - take SS as soon as it is available :)

Is she attributing that to stress? Poor nutrition? Other factors?

She said there is a hodge-podge of factors up and down social class. Lower incomes have issues accessing healthcare (cost), higher incomes often move and don't live near support networks, everyone is heavier, and she said there is a notable spike in endocrine issues in women which could be environmental, stress, or nutrition. Accidental deaths are up in lower incomes (ie. Opioid as mentioned by GoCubsGo), and deaths of despair are up in higher incomes. Severe depression is up across all income levels and at higher rates of increase than other generations. And women are faring worse than men across all income levels.

We started down the rabbit hole of a conversation because my friend (an athlete) had to start blood pressure meds and I was lamenting my very gray hair. Neither of us are 40 yet.

[simonsez]

In the "worst case scenario" side of the scale, she said she's seeing things like a ten year loss in life expectancy for folks born between 80-89. And about a decade earlier onset in typical aging health conditions compared to other generations.

This tracks with what I see in my medium high earning social circle and among colleagues.

So if you are an 80s baby - take SS as soon as it is available :)

Is she attributing that to stress? Poor nutrition? Other factors?

She said there is a hodge-podge of factors up and down social class. Lower incomes have issues accessing healthcare (cost), higher incomes often move and don't live near support networks, everyone is heavier, and she said there is a notable spike in endocrine issues in women which could be environmental, stress, or nutrition. Accidental deaths are up in lower incomes (ie. Opioid as mentioned by GoCubsGo), and deaths of despair are up in higher incomes. Severe depression is up across all income levels and at higher rates of increase than other generations. And women are faring worse than men across all income levels.

We started down the rabbit hole of a conversation because my friend (an athlete) had to start blood pressure meds and I was lamenting my very gray hair. Neither of us are 40 yet.

You can break down life expectancy into healthy and unhealthy components (varying definitions of course, HALE [Healthy Adult Life Expectancy by WHO] and HLY [Healthy Life Years by Eurostat] are two of the big ones).  No argument that the unhealthy proportion may be growing.

I think in general we're just more aware of our morbidity and mortality and getting better all the time at diagnosing.  That's not to disagree with the factors you mention.  We're just getting better data/information as time goes along.

If you were born in the 80s in the US, broadly speaking you didn't die of influenza or malaria, or in a war in Europe or Vietnam, and a low chance of dying from AIDS or being murdered (rates were high in 70s, 80s, and early 90s but have dropped significantly since then).  Yes, opioid deaths are higher and suicide is a bit higher, too (which is nuanced but I don't believe the latter being higher is necessarily a negative). 

Medicine is getting better all the time at keeping fetuses/babies alive that otherwise would've died and similar for the aged and those in the middle.  I think overall life expectancy will continue to trend up but I think the unhealthy life expectancy is growing faster than the healthy portion.  Whether the overall trend or the subcomponent trends continue remain to be seen.  There are tons of conflating factors but most models still seem to have overall life expectancy increasing to 2050 and beyond (when people born in the 80s would be 60-70+ and we'd have a pretty damn good idea not only of the prevailing period life expectancy from birth but also the cohort stats).  I don't think we'll see the FRA for SS going down anytime soon.

[maizefolk]

She said there is a hodge-podge of factors up and down social class. Lower incomes have issues accessing healthcare (cost), higher incomes often move and don't live near support networks, everyone is heavier, and she said there is a notable spike in endocrine issues in women which could be environmental, stress, or nutrition. Accidental deaths are up in lower incomes (ie. Opioid as mentioned by GoCubsGo), and deaths of despair are up in higher incomes. Severe depression is up across all income levels and at higher rates of increase than other generations. And women are faring worse than men across all income levels.

We started down the rabbit hole of a conversation because my friend (an athlete) had to start blood pressure meds and I was lamenting my very gray hair. Neither of us are 40 yet.

Thanks! Some of these seem like, while they are very worrying for our generation as a whole, are factors individual FIREees are likely to be able to avoid, or at least know about when they're deciding whether or not to take social security early (e.g. opioid addition and other deaths of despair, potentially getting a lot more physical activity than our peers still chained to their desks). Others less so.

Anecdotally -- and because misery loves company -- I'm 35, started noticing stray gray hairs around 30 and how have very prominent gray streaks. Was on a call with a friend from back in college a few days ago who hadn't seen me in a couple of years who was shocked by it (even over grainy little skype video) and suggested I start dyeing it.

[simonsez]

Here are cohort life tables from SSA.  They don't seem to indicate a decrease for those born in the 80s.
https://www.ssa.gov/oact/TR/2012/lr5a4.html

Also relevant (more period than cohort life expectancy, but still) from the Census Bureau:
https://www.census.gov/content/dam/Census/library/publications/2020/demo/p25-1145.pdf

I personally find my wife's grays sexy and she digs the advancing salt and pepperiness of my beard.  She says I look more distinguished, works for me!

[FIRE Artist]

I will be taking the Canadian equivalent of SS at the earliest opportunity, likewise for my work pension.  Why?  Because if you are living off of your investments taking these guaranteed income streams  as soon as possible means keeping more money in the market for longer before you withdraw it, increasing your portfolio success rate overall.  I played with the different scenarios in eFIRESim, and even that shows that my portfolio success is higher the earlier I take the pensions if I plan to use it to offset portfolio withdrawals as opposed to augment my annual spending when they start. 

Also there is some advantage to reducing my fixed retirement incomes like this, there are claw backs of old age pension that kick in with annual income, so if my pension and CPP are lower when I start to take OAP, there I will not be subjected to clawback as capital gains are taxed differently. 

The reduction in payments in these types of programs are intended to be break even over the whole population so there is no reason to think you can game the system one way or another, just take it as early as you can.  If you need these programs as your primary retirement income like the case for many low income people, then you simply need to keep working as long as possible to maximize your payout.  For early retirees, I stand by the statement, take it as early as you can.

[StarBright]

Here are cohort life tables from SSA.  They don't seem to indicate a decrease for those born in the 80s.
https://www.ssa.gov/oact/TR/2012/lr5a4.html

Also relevant (more period than cohort life expectancy, but still) from the Census Bureau:
https://www.census.gov/content/dam/Census/library/publications/2020/demo/p25-1145.pdf

I personally find my wife's grays sexy and she digs the advancing salt and pepperiness of my beard.  She says I look more distinguished, works for me!

Sorry! Didn't mean to mislead - there has been no change to official tables or anything. More that when my friend pulled some data she said that on a wide range of possible futures, if nothing changes with negative health outcomes it could make a huge difference down the road. It was all very informal and back of the envelope. And obviously, things could always change for the better too!

My "80's babies should take SS ASAP" was meant to be a bit light hearted. Sorry if that wasn't clear.

[maizefolk]

Personally, I would delay taking SS as long as you don't actually need the money, regardless of life expectancies.  I mean this literally.  I have good reason to believe I will not live to average life expectancy, but I plan to live on my own assets for as long as I can reasonably do so, and delay taking SS as long as possible.  Why?   Well, I've only got one life to live, and while actuarial expectation is that I'll collect far less by waiting, the fact is, should I happen to be lucky enough to beat the odds, I'll be happy to collect the larger paycheck long after the tables say I ought to be dead.  And if I die as expected or even sooner, but lived a good and happy life with enough income from my own assets and without having extracted the maximum dollar from The System?  I'll take the good and happy life and f*&% The System.

The goal is to optimize your life, not to maximize what you take from The Machine.  That's the thing.

Well said, @Ockhamist

[BlueHouse]

I wasn't suggesting it was a good or bad deal and I wasn't questioning the formula. I was suggesting or stating that on average people leave money in the 'pot' based on what they put in regardless of income. I could be totally wrong, just going based on personal knowledge and seeing many younger people die that contributed but never collected adding to reasons I'd take it ASAP.

Earlier in my FIRE journey, I notice that most people have more focus on the highest ROI.  Leaving money on the table is the WORST thing a mustachios can do, right? 

Wrong!  As I approached and finally reached FIRE, I realized that it doesn't matter how much money you leave on the table, as long as the decisions fit your wants and needs.  According to every simulator I've tried, if I take SS at 62 instead of 67 or 70, I could FIRE this year (did it last month actually) instead of 2 years from now.  Yes, I would probably "make more" if I wait until 70.  But the difference in being able to have two years of healthy time while still relatively young, is so worth it to me!  Plus, I still have almost 10 years before I actually have to make the decision.  If anything changes in my health, or with inflation, or my investments, I can change my mind 1000 times before I take SS. 

[blue_green_sparks]

If you regret claiming early you are allowed a suspend for 1 to 3 years and restart at 70 (CSR option); for example, suspend at 67 till 70 for a 24% benefit increase. There is also a first year payback escape clause.

[PDXTabs]

I wasn't suggesting it was a good or bad deal and I wasn't questioning the formula. I was suggesting or stating that on average people leave money in the 'pot' based on what they put in regardless of income. I could be totally wrong, just going based on personal knowledge and seeing many younger people die that contributed but never collected adding to reasons I'd take it ASAP.

Earlier in my FIRE journey, I notice that most people have more focus on the highest ROI.  Leaving money on the table is the WORST thing a mustachios can do, right? 

Wrong!  As I approached and finally reached FIRE, I realized that it doesn't matter how much money you leave on the table, as long as the decisions fit your wants and needs.  According to every simulator I've tried, if I take SS at 62 instead of 67 or 70, I could FIRE this year (did it last month actually) instead of 2 years from now.  Yes, I would probably "make more" if I wait until 70.  But the difference in being able to have two years of healthy time while still relatively young, is so worth it to me!  Plus, I still have almost 10 years before I actually have to make the decision.  If anything changes in my health, or with inflation, or my investments, I can change my mind 1000 times before I take SS.

You win this thread. I think that some of the confusion comes in because some of the people here didn't need the SS to FIRE at 35, 45, or 55, and they still don't need it. It becomes more of a math problem for them.

PS - congratulations 🎉🎉🎉 !!!

[BlueHouse]

I wasn't suggesting it was a good or bad deal and I wasn't questioning the formula. I was suggesting or stating that on average people leave money in the 'pot' based on what they put in regardless of income. I could be totally wrong, just going based on personal knowledge and seeing many younger people die that contributed but never collected adding to reasons I'd take it ASAP.

Earlier in my FIRE journey, I notice that most people have more focus on the highest ROI.  Leaving money on the table is the WORST thing a mustachios can do, right? 

Wrong!  As I approached and finally reached FIRE, I realized that it doesn't matter how much money you leave on the table, as long as the decisions fit your wants and needs.  According to every simulator I've tried, if I take SS at 62 instead of 67 or 70, I could FIRE this year (did it last month actually) instead of 2 years from now.  Yes, I would probably "make more" if I wait until 70.  But the difference in being able to have two years of healthy time while still relatively young, is so worth it to me!  Plus, I still have almost 10 years before I actually have to make the decision.  If anything changes in my health, or with inflation, or my investments, I can change my mind 1000 times before I take SS.

You win this thread. I think that some of the confusion comes in because some of the people here didn't need the SS to FIRE at 35, 45, or 55, and they still don't need it. It becomes more of a math problem for them.

PS - congratulations 🎉🎉🎉 !!!

YES!!  I do feel as if I've won in life!  I never ever thought I'd be here.  I have made and continue to make decisions that are not financially optimal, but they worked out okay, and much better than I thought possible.  There are so many variables, just trying to get some or most of them right has worked out well enough. 

[mistymoney]

Personally, I would delay taking SS as long as you don't actually need the money, regardless of life expectancies.  I mean this literally.  I have good reason to believe I will not live to average life expectancy, but I plan to live on my own assets for as long as I can reasonably do so, and delay taking SS as long as possible.  Why?   Well, I've only got one life to live, and while actuarial expectation is that I'll collect far less by waiting, the fact is, should I happen to be lucky enough to beat the odds, I'll be happy to collect the larger paycheck long after the tables say I ought to be dead.  And if I die as expected or even sooner, but lived a good and happy life with enough income from my own assets and without having extracted the maximum dollar from The System?  I'll take the good and happy life and f*&% The System.

The goal is to optimize your life, not to maximize what you take from The Machine.  That's the thing.

Well said, @Ockhamist

I don't understand this at all. I've been paying into SS for over 35 years.


I also will be taking it at the earliest I can, 62 according to the documents.

[ender]

I think the answer is "it depends."

For me, I expect to retire in my early 40s. This means I'll have ~20 years until I'd be eligible for SS (assuming it's not pushed back by that time).

At that point, sequence of returns risk will be pretty clear in my retirement. I'll have either "won" or "lost" on that game and that pretty seriously impacts whether I will take SS early or wait.

It's some amount of insurance to delay taking it.

One thing you aren't considering in your analysis is taxes. SS does become taxable in some situations, so your investment amount is not the full SS amount (unless you have almost no taxable income from age 62-67). It doesn't take very much of it being taxed in order to change your equation.

[MustacheAndaHalf]

Former life/health actuary here.  As an actuary (pension or casualty?) you of course understand that actuarial analyses are applicable en masse, but individuals only have one life to live.  Few people ever individually collect the actuarial present value of their insurance policies.  That's not the point of insurance.   Few people individually actually collect the actuarial present value of their SS benefits. That's not the point of SS either.

Agreed, and because social security is intended as a safety net (rather than a retirement plan), it penalizes earnings over $12k/year, which get a greatly reduced benefit:

https://www.ssa.gov/oact/COLA/piaformula.html
(a) 90 percent of the first $996 of his/her average indexed monthly earnings, plus
(b) 32 percent of his/her average indexed monthly earnings over $996 and through $6,002, plus
(c) 15 percent of his/her average indexed monthly earnings over $6,002

Meaning their formula removes 2/3rds of incomes between $12k - $72.  Someone making $40k/year would see the top $28k treated as $9k of income.  Someone making $100k/year would see the top $28k treated as $4k of income.

Another note for FIRE: missing years incur an extra penalty.  If you work less than the required number of years (30 or 35, I forget), those years don't just count as zero - they actively reduce your benefits.

[PDXTabs]

Another note for FIRE: missing years incur an extra penalty.  If you work less than the required number of years (30 or 35, I forget), those years don't just count as zero - they actively reduce your benefits.

Do you have a source for that? I believe that you qualify after 40 quarters (10 years) and you get to count at most 35 years of earnings for your AIME, but I am not aware of a penalty.

https://www.fool.com/retirement/whats-the-social-security-benefit-formula.aspx

[DaMa]

I FIREd at 49 without considering SS in my numbers.  I intend to take it at 70 as a hedge against running out of money later.  It is common for women in my family to live into their 90s.  However, if my health was such that I expected a much shorter span I would take SS sooner.

[MDM]

Another note for FIRE: missing years incur an extra penalty.  If you work less than the required number of years (30 or 35, I forget), those years don't just count as zero - they actively reduce your benefits.

Do you have a source for that? I believe that you qualify after 40 quarters (10 years) and you get to count at most 35 years of earnings for your AIME, but I am not aware of a penalty.

https://www.fool.com/retirement/whats-the-social-security-benefit-formula.aspx

There is no extra penalty.  The denominator for AIME is always 35*12=420.  The numerator is the sum of annual earnings (up to the SS maximum for that year).  No subtractions involved.

[ROF Expat]

+1 on the reality that actuarial tables don't mean much for any of us as individuals.  If your parents and grandparents lived to be 100, or if they passed away in their 50s, that should probably weigh more heavily in your decisions than average life expectancy. 

I can't argue with OP's math in the 62 vs 67 choice, but there are other factors that might be worth considering.

Two that come to mind are survivor benefits and dependent benefits. 

If you take SS early, it will reduce the amount of any potential survivor benefit.  So, if you have a spouse for whom additional SS would make a significant difference, and you reasonably expect to die before your spouse, it might make sense to delay taking SS. 

On the other hand, SS also pays dependent benefits.  If you have a child under 18, that child will immediately receive 50% of your full retirement benefit until they turn 18, even though you will be receiving less than your full retirement benefit.  There are limits on the maximum payable to a family.  The dependent benefit can make the math for claiming SS as early as possible very compelling.  If I understand correctly, dependent benefits are taxed at the dependent's tax rates, which would normally be zero. 

[maizefolk]

Agreed, and because social security is intended as a safety net (rather than a retirement plan), it penalizes earnings over $12k/year, which get a greatly reduced benefit:

https://www.ssa.gov/oact/COLA/piaformula.html
(a) 90 percent of the first $996 of his/her average indexed monthly earnings, plus
(b) 32 percent of his/her average indexed monthly earnings over $996 and through $6,002, plus
(c) 15 percent of his/her average indexed monthly earnings over $6,002

Meaning their formula removes 2/3rds of incomes between $12k - $72.  Someone making $40k/year would see the top $28k treated as $9k of income.  Someone making $100k/year would see the top $28k treated as $4k of income.

Another note for FIRE: missing years incur an extra penalty.  If you work less than the required number of years (30 or 35, I forget), those years don't just count as zero - they actively reduce your benefits.

It's interesting to me that you see this as a penalty for higher incomes. Someone who makes $12,000/year for 35 years has paid about $52,000 in social security taxes in their lifetime (including employer contributions). For this they receive an inflation adjusted annuity (with survivor's benefits) of $10,800/year (21%/year payout).

I would say that social security subsidizes the incomes of the people who make the least money -- which I agree is a good think for it to do -- rather than penalizing those with high incomes. Providing everyone with an inflation indexed payout of 21% of their total payments into the system each year in retirement isn't a viable baseline expectation that we should feel like we're being punished if we don't recieve.

[MDM]

Agreed, and because social security is intended as a safety net (rather than a retirement plan)....

It's interesting to me that you see this as a penalty for higher incomes. ...
I would say that social security subsidizes the incomes of the people who make the least money....

The glass is indeed both half empty and half full.

[MustacheAndaHalf]

Agreed, and because social security is intended as a safety net (rather than a retirement plan), it penalizes earnings over $12k/year, which get a greatly reduced benefit:

https://www.ssa.gov/oact/COLA/piaformula.html
(a) 90 percent of the first $996 of his/her average indexed monthly earnings, plus
(b) 32 percent of his/her average indexed monthly earnings over $996 and through $6,002, plus
(c) 15 percent of his/her average indexed monthly earnings over $6,002
...

It's interesting to me that you see this as a penalty for higher incomes ...
I would say that social security subsidizes the incomes of the people who make the least money ...

Okay, but how is that relevant to taking SS early?

A vast majority of the people here earn (or earned) more than $1k/mo.  I think they need to know social security does not increase proportionally to their higher incomes.

[maizefolk]

Agreed, and because social security is intended as a safety net (rather than a retirement plan), it penalizes earnings over $12k/year, which get a greatly reduced benefit:

https://www.ssa.gov/oact/COLA/piaformula.html
(a) 90 percent of the first $996 of his/her average indexed monthly earnings, plus
(b) 32 percent of his/her average indexed monthly earnings over $996 and through $6,002, plus
(c) 15 percent of his/her average indexed monthly earnings over $6,002
...

It's interesting to me that you see this as a penalty for higher incomes ...
I would say that social security subsidizes the incomes of the people who make the least money ...

Okay, but how is that relevant to taking SS early?

A vast majority of the people here earn (or earned) more than $1k/mo.  I think they need to know social security does not increase proportionally to their higher incomes.

The question of taking SS early is orthogonal to the question of how much income in your highest earning 35 years translates into one benefit at full retirement age.

Unless you're assuming people aren't going to retire until they take social security? But even then, the change in your social security payout from working an extra year is trivial compared to the change in payout SS offers you just for delaying filing another year whether or not you continue to work.

[dmc]

For what it’s worth, I quit working at 50, so did the wife.  I took SS at 62, the wife’s not there yet but plans to do the same.

It means we don’t have to take as much out of our retirement accounts or sell stock, obviously, so we can keep more invested.

If we live long past our break even point it really doesn’t matter, we never figured it in anyway.  I’m more worried that it will end up being means tested or taxed away for those of us with other sources of income.

[maizefolk]

Looking at an insurance program only in terms of the dollars you pay in versus the dollars you get out ignores the value of that insurance as a source of security. 

If I never get a single dollar back from the dismemberment insurance I get through work I will be much happier than if I get fair value for the money that's been paid into the policy.

[PDXTabs]

Looking at an insurance program only in terms of the dollars you pay in versus the dollars you get out ignores the value of that insurance as a source of security. 

If I never get a single dollar back from the dismemberment insurance I get through work I will be much happier than if I get fair value for the money that's been paid into the policy.

Ditto for my auto policy, and my homeowners, but obviously less so.

[elysianfields]

I'm interested in this question as a Federal employee who may retire with a full pension at age >=50 and years of service >= 20 years (I'm in the Foreign Service Pension System, aka FSPS).

Because I'll qualify for the pension, the great majority of which will be taxable, plus a "social security offset" because I could retire before age 62 (the SS offset expires when I turn 62), I figure my income will fill up the lower tax rates, making it expensive for me to convert my traditional TSP and IRA into Roths.

This filling up the lower tax rates also means that taking SS at 62 just means that most of it would be taxable, making it worth less to me and making it even more expensive to build a Roth pipeline.

Waiting until 70 simply postpones that income and increases it, so that when I get to RMDs at age 72, I'll pay even more tax on my TSP / IRA withdrawals.

I'll need to study this - it's not a straightforward question in my case.  What a terrible problem to have - I have too much money in my retirement accounts and I'll probably have to pay lots of tax!  Wah, wah, wah!!!!!

[charis]

Personally, I would delay taking SS as long as you don't actually need the money, regardless of life expectancies.  I mean this literally.  I have good reason to believe I will not live to average life expectancy, but I plan to live on my own assets for as long as I can reasonably do so, and delay taking SS as long as possible.  Why?   Well, I've only got one life to live, and while actuarial expectation is that I'll collect far less by waiting, the fact is, should I happen to be lucky enough to beat the odds, I'll be happy to collect the larger paycheck long after the tables say I ought to be dead.  And if I die as expected or even sooner, but lived a good and happy life with enough income from my own assets and without having extracted the maximum dollar from The System?  I'll take the good and happy life and f*&% The System.

The goal is to optimize your life, not to maximize what you take from The Machine.  That's the thing.

Well said, @Ockhamist

I don't understand this at all. I've been paying into SS for over 35 years.


I also will be taking it at the earliest I can, 62 according to the documents.

You've been paying in to the system.  What the system provides is a safety net.

For some, as is the case of one poster above, maximizing your life involves taking it early, to be able to retire and enjoy freedom early.

For others, maximizing your life means not taking it, but having it there to be a safety net should other income sources fail.

Social security is not an investment account, it's a social insurance program.  As such, measuring your participation in it simply with regard to obtaining the largest number of dollars from it ignores the value if offers as an assured source of lifetime income.

Looking at an insurance program only in terms of the dollars you pay in versus the dollars you get out ignores the value of that insurance as a source of security.

If you have a good size stache, I don't understand how taking SS later is maximizing your life.  We are talking about retiring early, not taking SS at 62 in order to retire early.  If you retire before 62, taking SS at 62 reduces your draw from the stache, as others have pointed out, so it hopefully continues to grow.  I don't see it as trying to obtain the largest number of dollars, but if that's the result, great.  Unless you are assuming that your stache is likely to fail and/or a larger SS payment is always better.

[MDM]

Delay Social Security to age 70 and Spend more money at 62 remains an interesting perspective, even ~8 1/2 years later.

[SpareChange]

If you have a good size stache, I don't understand how taking SS later is maximizing your life.  We are talking about retiring early, not taking SS at 62 in order to retire early.  If you retire before 62, taking SS at 62 reduces your draw from the stache, as others have pointed out, so it hopefully continues to grow.  I don't see it as trying to obtain the largest number of dollars, but if that's the result, great.  Unless you are assuming that your stache is likely to fail and/or a larger SS payment is always better.

Even if you have a not so good size stache. Intuitively at least, it would seem the higher your initial WR, the wiser taking it early looks. I think when I've played with the usual FIRE calculators in the past, taking SS early generally plays out best for SORR reasons...at least for my situation. Also, it's not just that SS lowers your WR, it's also that it's going to be applied first towards your most inflexible expenses, allowing your remaining marginal withdrawals to adjust more easily with the vagaries of the markets. Basically, seeing SS more along the lines of portfolio insurance, rather than social insurance, even if the end goals are similar/same.