The Money Mustache Community

General Discussion => Post-FIRE => Topic started by: Stash Man on February 10, 2020, 12:26:53 PM

Title: Social security: Better to withdraw early?
Post by: Stash Man on February 10, 2020, 12:26:53 PM
I know the general consensus is "It depends on how long you live", but here I want to make a case for early withdrawal at 62.

In constant dollar terms, starting my benefits at 62 gives me 70 cents on the dollar (compared to full benefits at 67) vs 124 cents starting at 70.  The ratio is therefore, 124/70 = 1.77.  That is, I receive 77% more in return for delaying my benefits until 70, at the cost of foregoing SS income for 8 years.

Suppose the amount I receive starting at 62 is X, the amount I would receive if I start at 70 is then 1.77X. The break even comes at ~ age 80: 18 years * X = 18X, 10 years * 1.77X = 17.7X. Age 80 is 18 years after age 62, and 10 years after age 70.  Life expectancy is 79 years, so there's roughly 50% chance one will live long enough to reap the benefits of starting late.

But what if we invest the benefits starting at 62? By age 80 I'll have invested 8X. Assuming an average real annual return of 5%, my 8X will have compounded to ~10X.

Starting at 70, to enjoy the good life and keep pace with the late withdrawal case, I stop investing and instead spend 1.77X each year, just like I would if I were to withdraw late.   1X of my spending comes from my annual benefits, the remaining 0.77X from my invested pile that has grown to 10X by now.  Whatever is not withdrawn is left invested in the market.

0.77X out of 10X is 7.7%, so essentially I'm doing a 7.7% rule on the invested benefits starting at 70.

Running the simulation on cfiresim.com with 100% equity and 7.7% spending, there's a 92% chance my investments will last at least 10 years (age 80), 71% chance for 15 years (age 85), and 57% chance for 20 years (age 90), hence pushing up the break even age albeit with lower and lower probabilities.

Only 35% of people live past their 90th birthday. So the chance of one living long enough AND having the break even point that high is 35% x (1 - 57%) = 16.5%.

This seems to suggest that withdrawing early at 62 makes sense for most people. Am I missing anything?  Thoughts?
Title: Re: Social security: Better to withdraw early?
Post by: BigMoneyJim on February 10, 2020, 12:49:24 PM
It really does depend on how long you live. But that's sort of the joke. If we knew when we were to die, retirement decisions would be much, much easier even without predicting the markets.

It reality, you can certainly overthink and overcalculate it. But for me it boils down to this:

If my choice is to spend down my assets or start SS early, starting SS early is a no-brainer.

And then from there we can start to complicate it again if we like. But that works for me.
Title: Re: Social security: Better to withdraw early?
Post by: Gone Fishing on February 10, 2020, 02:42:21 PM
By my math, the break even point is somewhere in your late 70s.  I'd rather enjoy it while in better health by drawing early.  "Winning" SS will not be a concern of mine when (or if) I am in my 80's-90's.

Now for the person that didn't prepare for retirement, they should obviously continue working and delay SS as long as possible.
Title: Re: Social security: Better to withdraw early?
Post by: Stash Man on February 10, 2020, 06:41:18 PM
It really does depend on how long you live. But that's sort of the joke. If we knew when we were to die, retirement decisions would be much, much easier even without predicting the markets.

It reality, you can certainly overthink and overcalculate it. But for me it boils down to this:

If my choice is to spend down my assets or start SS early, starting SS early is a no-brainer.

And then from there we can start to complicate it again if we like. But that works for me.

It's not complicated, but I guess the numbers and analysis can be off-putting.  It's about pushing up the break even age by simply investing the SS money between age 62 to 70, and drawing down after 70.
Title: Re: Social security: Better to withdraw early?
Post by: Stash Man on February 10, 2020, 06:43:48 PM
By my math, the break even point is somewhere in your late 70s.  I'd rather enjoy it while in better health by drawing early.  "Winning" SS will not be a concern of mine when (or if) I am in my 80's-90's.

Now for the person that didn't prepare for retirement, they should obviously continue working and delay SS as long as possible.

Yup, break even is around 80. The point I'm making is it can be pushed way higher if the SS money you receive between 62 and 70 is invested and not touched until after 70.
Title: Re: Social security: Better to withdraw early?
Post by: blue_green_sparks on February 10, 2020, 09:30:10 PM
I will probably compromise and start receiving SS at 65. I will hit 59.5 this year therefore I can optimize my passive income for the lowest cost health insurance and tax bill for the next five years.


Title: Re: Social security: Better to withdraw early?
Post by: MDM on February 10, 2020, 09:55:22 PM
"It depends on how long you live"
...and what return rate you assume.  See Claiming Social Security Early to Invest It: What Rate of Return (Discount Rate) Should We Assume? ó Oblivious Investor (https://obliviousinvestor.com/claiming-social-security-early-to-invest-it-what-rate-of-return-discount-rate-should-we-assume/) for some thoughts.
Title: Re: Social security: Better to withdraw early?
Post by: beltim on February 11, 2020, 03:15:22 AM
This seems to suggest that withdrawing early at 62 makes sense for most people. Am I missing anything?  Thoughts?

I agree with your general premise.  The addition I would make, taking into account MDM's comment, is that if you're using cFIREsim anyway for the withdrawal phase, you should use it for the investment phase as well to see the distribution of outcomes.
Title: Re: Social security: Better to withdraw early?
Post by: jeroly on February 11, 2020, 05:59:41 AM
The thing that gets left out of these discussions is that social security payments are indexed to inflation, so when you delay receiving social security you are getting more income sheltered from the risk of being ravaged by Ď60ís-style inflation.

Think of it as old age income insurance.  Itís not necessarily going to be the absolutely best investment vs. taking it at 62 and investing the proceeds until age 70, but itís not the worst either, and if shit goes down you will have a larger base thatís protected.
Title: Re: Social security: Better to withdraw early?
Post by: jim555 on February 11, 2020, 06:28:40 AM
The earliest would be 65 for me, any earlier and my ACA gets screwed up.  Depending on health, I would take it at 70 as longevity insurance.
Title: Re: Social security: Better to withdraw early?
Post by: ender on February 11, 2020, 06:35:09 AM
The earliest would be 65 for me, any earlier and my ACA gets screwed up.  Depending on health, I would take it at 70 as longevity insurance.

The nice part here is that delaying taking it serves as both sequence of returns AND longevity insurance.

Market drops a ton? Take SS earlier so you drawdown less. 
Title: Re: Social security: Better to withdraw early?
Post by: blue_green_sparks on February 11, 2020, 06:53:45 AM
Oh and when getting SS estimates make sure you go to the detailed page where you can enter your yearly incomes. Otherwise the quick estimator assumes you are still making the big bucks until you retire and over-estimates your monthly check.
Title: Re: Social security: Better to withdraw early?
Post by: Greystache on February 11, 2020, 08:41:42 AM
Here is a warning about taking SS early. My mom (85) just buried her second husband. Both my father and stepfather took SS at age 62. My mom raised a lot of kids and only worked on and off for about 20 years at low paying jobs. As a consequence, her SS benefits are low and the survivor benefits that she can claim from her husbands' earnings are low because both of them claimed early.  She is very healthy and could easily survive another 10 years or more (her father lived to 99). Something to keep in mind if you are married and one spouse had SS earning significantly lower than the other.
Title: Re: Social security: Better to withdraw early?
Post by: Stash Man on February 11, 2020, 02:27:31 PM
The thing that gets left out of these discussions is that social security payments are indexed to inflation, so when you delay receiving social security you are getting more income sheltered from the risk of being ravaged by Ď60ís-style inflation.

Think of it as old age income insurance.  Itís not necessarily going to be the absolutely best investment vs. taking it at 62 and investing the proceeds until age 70, but itís not the worst either, and if shit goes down you will have a larger base thatís protected.

The payments are adjusted for inflation annually regardless of whether one starts early or late. Later-starters receive a bigger payment but the ratio to early-starters' stays the same in constant dollar terms.
Title: Re: Social security: Better to withdraw early?
Post by: American GenX on February 11, 2020, 04:33:12 PM
I know the general consensus is "It depends on how long you live", but here I want to make a case for early withdrawal at 62.
rting at 62? By age 80 I'll have invested 8X. Assuming an average real annual return of 5%, my 8X will have compounded to ~10X.

You're not the first to talk about taking SS early and investing rather than delaying to get a larger benefit.

But you can't assume an average real return of 5%.  Over 10 years, it could be zero or negative as it has multiple times historically.
Title: Re: Social security: Better to withdraw early?
Post by: American GenX on February 11, 2020, 04:36:27 PM
The earliest would be 65 for me, any earlier and my ACA gets screwed up.  Depending on health, I would take it at 70 as longevity insurance.
Yep.  65 will be my absolute minimum if the ACA is still in the picture until that age.  I've got it laid out in my spreadsheet taking it 65 but have also calculated starting SS distributions at age 70.
Title: Re: Social security: Better to withdraw early?
Post by: jeroly on February 11, 2020, 07:56:11 PM
The thing that gets left out of these discussions is that social security payments are indexed to inflation, so when you delay receiving social security you are getting more income sheltered from the risk of being ravaged by Ď60ís-style inflation.

Think of it as old age income insurance.  Itís not necessarily going to be the absolutely best investment vs. taking it at 62 and investing the proceeds until age 70, but itís not the worst either, and if shit goes down you will have a larger base thatís protected.

The payments are adjusted for inflation annually regardless of whether one starts early or late. Later-starters receive a bigger payment but the ratio to early-starters' stays the same in constant dollar terms.

Thatís the point.

If I am eighty and prices have been going up say 10% a year since Iím 70...
I have my 177% of the age 62 payout protected, whereas Iíd only have had 56% of that protected if I had started at 62.
Title: Re: Social security: Better to withdraw early?
Post by: TomTX on February 12, 2020, 07:21:35 AM
The earliest would be 65 for me, any earlier and my ACA gets screwed up.  Depending on health, I would take it at 70 as longevity insurance.

The nice part here is that delaying taking it serves as both sequence of returns AND longevity insurance.

Market drops a ton? Take SS earlier so you drawdown less.

Yep. Major advantage of the "delay SS" strategy: If the market crashes, you can change tracks and start taking SS to minimize stash drawdown during the crash.
Title: Re: Social security: Better to withdraw early?
Post by: DeniseNJ on February 12, 2020, 09:16:03 AM
If you need the money, take it.  If you don't need the money, take it anyway and save/invest it.
Title: Re: Social security: Better to withdraw early?
Post by: ericrugiero on February 12, 2020, 02:01:18 PM
The earliest would be 65 for me, any earlier and my ACA gets screwed up.  Depending on health, I would take it at 70 as longevity insurance.

The nice part here is that delaying taking it serves as both sequence of returns AND longevity insurance.

Market drops a ton? Take SS earlier so you drawdown less.

Yep. Major advantage of the "delay SS" strategy: If the market crashes, you can change tracks and start taking SS to minimize stash drawdown during the crash.

LOL. I thought I just had a great idea (I've never heard it before) and was getting ready to post it when I saw TWO other people had already posted about it.  It does make a ton of sense to watch the market and if it looks like your stache will be impacted because of a serious dip just sign up for social security ASAP so you don't pull out while the market is low. 
Title: Re: Social security: Better to withdraw early?
Post by: Stash Man on February 12, 2020, 02:08:26 PM
The thing that gets left out of these discussions is that social security payments are indexed to inflation, so when you delay receiving social security you are getting more income sheltered from the risk of being ravaged by Ď60ís-style inflation.

Think of it as old age income insurance.  Itís not necessarily going to be the absolutely best investment vs. taking it at 62 and investing the proceeds until age 70, but itís not the worst either, and if shit goes down you will have a larger base thatís protected.

The payments are adjusted for inflation annually regardless of whether one starts early or late. Later-starters receive a bigger payment but the ratio to early-starters' stays the same in constant dollar terms.

Thatís the point.

If I am eighty and prices have been going up say 10% a year since Iím 70...
I have my 177% of the age 62 payout protected, whereas Iíd only have had 56% of that protected if I had started at 62.

Good point.  If a 60's-style inflation hits again, stocks go nowhere, and I live long enough that the accumulated payments from starting 8 years early get drawn down, then starting late would win out hands down.  And it makes sense as a protection against the worst case scenario.

I am more in the spirit of maximizing the expected value of payments received during my lifetime.  Your gave me good food for thought.  Thanks!
Title: Re: Social security: Better to withdraw early?
Post by: BTDretire on February 13, 2020, 07:13:51 AM
It really does depend on how long you live. But that's sort of the joke. If we knew when we were to die, retirement decisions would be much, much easier even without predicting the markets.

It reality, you can certainly overthink and overcalculate it. But for me it boils down to this:

If my choice is to spend down my assets or start SS early, starting SS early is a no-brainer.

And then from there we can start to complicate it again if we like. But that works for me.

It's not complicated, but I guess the numbers and analysis can be off-putting.  It's about pushing up the break even age by simply investing the SS money between age 62 to 70, and drawing down after 70.

 This has been proposed many times before. But I can't see how that works. You either spend the SS money or you invest the SS money and then turn around and take money out of your investments to live on. If you delay the SS, your SS grows at 8%. As has been said, money is fungible, just moving it around doesn't increase it.
Title: Re: Social security: Better to withdraw early?
Post by: beltim on February 13, 2020, 07:35:32 AM
We had a pretty good discussion of this a few years ago:

https://forum.mrmoneymustache.com/share-your-badassity/getting-the-most-out-of-social-security-benefits/msg321159/#msg321159
Title: Re: Social security: Better to withdraw early?
Post by: Stash Man on February 14, 2020, 03:19:33 PM
It really does depend on how long you live. But that's sort of the joke. If we knew when we were to die, retirement decisions would be much, much easier even without predicting the markets.

It reality, you can certainly overthink and overcalculate it. But for me it boils down to this:

If my choice is to spend down my assets or start SS early, starting SS early is a no-brainer.

And then from there we can start to complicate it again if we like. But that works for me.

It's not complicated, but I guess the numbers and analysis can be off-putting.  It's about pushing up the break even age by simply investing the SS money between age 62 to 70, and drawing down after 70.

 This has been proposed many times before. But I can't see how that works. You either spend the SS money or you invest the SS money and then turn around and take money out of your investments to live on. If you delay the SS, your SS grows at 8%. As has been said, money is fungible, just moving it around doesn't increase it.

It's not about spending money out of your investments or out of SS. It's about starting SS early and investing it or starting late.
Title: Re: Social security: Better to withdraw early?
Post by: UnleashHell on February 15, 2020, 05:17:27 AM
It really does depend on how long you live. But that's sort of the joke. If we knew when we were to die, retirement decisions would be much, much easier even without predicting the markets.

It reality, you can certainly overthink and overcalculate it. But for me it boils down to this:

If my choice is to spend down my assets or start SS early, starting SS early is a no-brainer.

And then from there we can start to complicate it again if we like. But that works for me.

It's not complicated, but I guess the numbers and analysis can be off-putting.  It's about pushing up the break even age by simply investing the SS money between age 62 to 70, and drawing down after 70.

 This has been proposed many times before. But I can't see how that works. You either spend the SS money or you invest the SS money and then turn around and take money out of your investments to live on. If you delay the SS, your SS grows at 8%. As has been said, money is fungible, just moving it around doesn't increase it.

It's not about spending money out of your investments or out of SS. It's about starting SS early and investing it or starting late.

I'm in favor of drawing and spending SS while my tax sheltered accounts carry on growing. but i'm 10 years out. I may have a change of heart by then... :D
Title: Re: Social security: Better to withdraw early?
Post by: BTDretire on February 15, 2020, 02:28:05 PM
It really does depend on how long you live. But that's sort of the joke. If we knew when we were to die, retirement decisions would be much, much easier even without predicting the markets.

It reality, you can certainly overthink and overcalculate it. But for me it boils down to this:

If my choice is to spend down my assets or start SS early, starting SS early is a no-brainer.

And then from there we can start to complicate it again if we like. But that works for me.

It's not complicated, but I guess the numbers and analysis can be off-putting.  It's about pushing up the break even age by simply investing the SS money between age 62 to 70, and drawing down after 70.

 This has been proposed many times before. But I can't see how that works. You either spend the SS money or you invest the SS money and then turn around and take money out of your investments to live on. If you delay the SS, your SS grows at 8%. As has been said, money is fungible, just moving it around doesn't increase it.

It's not about spending money out of your investments or out of SS. It's about starting SS early and investing it or starting late.
So what are you living on?
Title: Re: Social security: Better to withdraw early?
Post by: pecunia on February 15, 2020, 02:37:10 PM
The increase in Social Security to 70 is guaranteed unless some "reforms" are implemented.  The market is is not guaranteed.  Perhaps it may be better to simply take a higher withdrawal rate for a few years in your sixtiesand let Social Security build.

All those taxes you've paid all those years for lots of crazy stuff, why not get your share?
Title: Re: Social security: Better to withdraw early?
Post by: Stash Man on February 16, 2020, 01:52:26 PM
It really does depend on how long you live. But that's sort of the joke. If we knew when we were to die, retirement decisions would be much, much easier even without predicting the markets.

It reality, you can certainly overthink and overcalculate it. But for me it boils down to this:

If my choice is to spend down my assets or start SS early, starting SS early is a no-brainer.

And then from there we can start to complicate it again if we like. But that works for me.

It's not complicated, but I guess the numbers and analysis can be off-putting.  It's about pushing up the break even age by simply investing the SS money between age 62 to 70, and drawing down after 70.

 This has been proposed many times before. But I can't see how that works. You either spend the SS money or you invest the SS money and then turn around and take money out of your investments to live on. If you delay the SS, your SS grows at 8%. As has been said, money is fungible, just moving it around doesn't increase it.

It's not about spending money out of your investments or out of SS. It's about starting SS early and investing it or starting late.
So what are you living on?

For someone whose net worth is 100% in stocks, like you said it makes no difference which pile you take out from.  But suppose I'm 70/30 because my withdrawal rate is a tight 4% and I need the 30% cash cushion to tide me over rough times.  Taking SS early effectively lowers my withdrawal rate and makes it feasible to up my stock allocation to maximize long term portfolio growth.
 
Title: Re: Social security: Better to withdraw early?
Post by: DeniseNJ on February 16, 2020, 08:00:27 PM
Take it early even if you don't need it and save it. If the market tanks you have it.  Id rather leave it under my mattress than chance dying and getting nothing. At least if I die my spouse may be reduced to one check plus all the SS money I horded  A bird in the hand and all that.
Title: Re: Social security: Better to withdraw early?
Post by: DeniseNJ on February 16, 2020, 08:08:24 PM
Your payout grows at 8% but what about all the monthly payments you didn't get?  And annual increases in ss aren't at the inflation rate exactly, at least they aren't guaranteed to be.

If it actually made a difference then you wouldn't even get a choice but I rather have the money in hand.
Title: Re: Social security: Better to withdraw early?
Post by: American GenX on February 16, 2020, 08:10:08 PM
Leave it in until age 70.  It makes good longevity insurance.
Title: Re: Social security: Better to withdraw early?
Post by: maizefolk on February 16, 2020, 08:21:18 PM
Age 80 is 18 years after age 62, and 10 years after age 70.  Life expectancy is 79 years, so there's roughly 50% chance one will live long enough to reap the benefits of starting late.

... Am I missing anything?  Thoughts?

Life expectancy at birth is about 79 years. If you manage to survive to age 62, you can expect to live another 20 years (for men) or 22 years (for women).

It doesn't sound like a big change, but those extra four years or so of life expectancy are enough to bump the odds of surviving to age 80 up to 60%.
Title: Re: Social security: Better to withdraw early?
Post by: secondcor521 on February 17, 2020, 05:38:23 PM
This seems to suggest that withdrawing early at 62 makes sense for most people. Am I missing anything?  Thoughts?

You're missing the effect that taking it at 62 vs. 70 does to your taxes during those 8 years.  Depending on your other income, some of your SS (up to 85%) would be taxable.  Any taxes would adversely affect your argument for taking it early.

You're missing the effect of Roth conversions that could be done during those 8 years (while not taking SS).

You're also missing the effect on survivor benefits, as someone else mentioned.  However if you're single this doesn't apply to you.
Title: Re: Social security: Better to withdraw early?
Post by: TomTX on February 17, 2020, 06:47:06 PM
Is the "lower earning spouse draws at 62, higher earning spouse draws at 70" strategy still viable under current rules?
Title: Re: Social security: Better to withdraw early?
Post by: MDM on February 17, 2020, 07:15:21 PM
Is the "lower earning spouse draws at 62, higher earning spouse draws at 70" strategy still viable under current rules?
If by viable you mean allowable, then yes.

Open Social Security: Free, Open-Source Social Security Calculator (https://opensocialsecurity.com/) is a good resource for estimating the optimal strategy.

As always, optimal results depend on lifetimes and return rates.
Title: Re: Social security: Better to withdraw early?
Post by: trollwithamustache on February 17, 2020, 08:52:35 PM
Curveball... how much money do you want to pass on to your heirs?

The argument is all you guys and gals here can, well, live happily on less. 20-30K is what percentage of your annual spend?  So yeah you get less on an early SS, but potentially it cuts your withdraw rate from 'Stache down a lot and earlier. The earlier you go, the more pronounced the benefit to your heirs.

Title: Re: Social security: Better to withdraw early?
Post by: Stash Man on February 18, 2020, 09:45:52 AM
Curveball... how much money do you want to pass on to your heirs?

The argument is all you guys and gals here can, well, live happily on less. 20-30K is what percentage of your annual spend?  So yeah you get less on an early SS, but potentially it cuts your withdraw rate from 'Stache down a lot and earlier. The earlier you go, the more pronounced the benefit to your heirs.

Passing it on or not, I can't resist the urge to maximize when given the chance, as long as it doesn't endanger my retirement. The feedback from this community has given me a lot of food for thought though, as the decision is more nuanced than just looking at the payout at 62 and 70.
Title: Re: Social security: Better to withdraw early?
Post by: Car Jack on February 21, 2020, 07:02:10 AM
Just looking at the break even date is playing a game of checkers.  The entire question is 5 dimensional chess with pieces that can suck the blood out of you when you make a wrong move.  I am by far, no expert, but just off the top of my head:

ACA subsidies or not.  If you take SS and get pushed off a cliff, you lose.
Medicare cost: If you click up a bracket, your cost sucks your precious bodily fluids.
Survivor benefits:  Take SS early and your spouse gets screwed when you drive your hang glider into a cliff and fall 1000 feet.
Simple AGI increases:  While manageable, this matters.
RMDs:  Why your father in law shakes his fist at clouds.  If you take SS early instead of drawing down your IRA and 401k balances, once RMD time comes, you'll be forced to take more out.  By NOT taking SS, you can manage your tax bracket to be as close to zero as possible.  When RMDs start, you'll have no choice, so polish up that fist so those clouds see that you mean business.

In any of your calculations, remember in 2035, the trust fund runs out of money and you can expect a 25% drop in payments.  I use a simple excel spread sheet to figure things out and have this drop already figured in.
Title: Re: Social security: Better to withdraw early?
Post by: American GenX on February 21, 2020, 08:36:34 AM
For ACA subsidies, it's pretty simple.  Don't draw SS until you reach Medicare age - 65.

In any of your calculations, remember in 2035, the trust fund runs out of money and you can expect a 25% drop in payments.  I use a simple excel spread sheet to figure things out and have this drop already figured in.

For younger people, there will probably be an increase in the retirement age.  If you're over 50 now, I doubt you will see a 25% cut in benefits.  I plan for the promised benefits, but I do assume 85% will be taxable since the thresholds for SS taxation  were set many years ago and were not indexed to inflation, so more SS dollars are taxable each year.

https://www.marketwatch.com/story/people-who-saved-for-retirement-are-being-punished-by-social-security-taxes-2019-01-07
https://www.fool.com/retirement/general/2016/05/08/this-33-year-old-social-security-rule-is-wreaking.aspx
https://www.foxnews.com/story/2007/03/25/double-whammy-taxation-social-security-benefits.html
Title: Re: Social security: Better to withdraw early?
Post by: pecunia on February 21, 2020, 05:21:46 PM
Good point about the Required Minimum Distribution.  Makes spending your money in your mid sixties almost like an investment.
Title: Re: Social security: Better to withdraw early?
Post by: joshuagraham_xyz on February 23, 2020, 10:14:56 PM
Coincidentally, I had started a new thread, but after being informed of this thread, I will post it here:

@@@@@@@@@@@@@@@

I had an inkling that money that was not being distributed from a retirement account could be a nest egg whose return on investment could be worth more than the extra amount that would be paid by Social Security by delaying taking it.  I used figures from my own Social Security statement for distribution at ages 62 (the earliest possible age) & 70 (the latest possible age), and then looked at possible ages of my demise going up all the way to 100, and a range of APR returns.  I did not factor in taxes nor the possibility of Social Security getting a haircut or tweaking, but it's pretty obvious that the effects of all this would favor taking it early - indeed, I almost expect that this will happen.  I also didn't factor in the Roth IRA - which I am using as the retirement account (through Roth laddering, I am fully Rothed out) - being taxed, but I have a hunch that that will never be politically viable except for folks with really big Roth balances.  I also presumed that the APR return is in real terms, so it takes into account the COLAs that Social Security will get.

It turns out that at about a return of only 7%, it makes sense.
Title: Re: Social security: Better to withdraw early?
Post by: joshuagraham_xyz on February 23, 2020, 10:19:23 PM
The thing that gets left out of these discussions is that social security payments are indexed to inflation, so when you delay receiving social security you are getting more income sheltered from the risk of being ravaged by Ď60ís-style inflation.

Think of it as old age income insurance.  Itís not necessarily going to be the absolutely best investment vs. taking it at 62 and investing the proceeds until age 70, but itís not the worst either, and if shit goes down you will have a larger base thatís protected.

As we transition to a renewable-energy, robot economy - and indeed, we're already at the point of having our basic needs met - I don't think we'll have to concern ourselves with inflation ever again.
Title: Re: Social security: Better to withdraw early?
Post by: joshuagraham_xyz on February 23, 2020, 10:21:50 PM
I know the general consensus is "It depends on how long you live", but here I want to make a case for early withdrawal at 62.
rting at 62? By age 80 I'll have invested 8X. Assuming an average real annual return of 5%, my 8X will have compounded to ~10X.

You're not the first to talk about taking SS early and investing rather than delaying to get a larger benefit.

But you can't assume an average real return of 5%.  Over 10 years, it could be zero or negative as it has multiple times historically.
Sure you can.  When one part of the market is overpriced (like the USA market now), there are other markets that priced attractively (like emerging markets).
Title: Re: Social security: Better to withdraw early?
Post by: MDM on February 23, 2020, 10:22:50 PM
I don't think we'll have to concern ourselves with inflation ever again.
Inflation has reached what looks like a permanently low plateau?
Title: Re: Social security: Better to withdraw early?
Post by: joshuagraham_xyz on February 23, 2020, 10:26:42 PM
The earliest would be 65 for me, any earlier and my ACA gets screwed up.  Depending on health, I would take it at 70 as longevity insurance.

The nice part here is that delaying taking it serves as both sequence of returns AND longevity insurance.

Market drops a ton? Take SS earlier so you drawdown less.

Yep. Major advantage of the "delay SS" strategy: If the market crashes, you can change tracks and start taking SS to minimize stash drawdown during the crash.

What you're really saying here is that if there is a market crash, you expect the ROI of the market going forward from that to be much higher.  At some point (7% by my calculations), you end up keeping enough of your nest egg (i.e., that you didn't have to distribute since you were getting SS early) so that the return on that extra chunk of nest egg is worth more than the extra amount you get from SS.
Title: Re: Social security: Better to withdraw early?
Post by: joshuagraham_xyz on February 23, 2020, 10:29:26 PM
The increase in Social Security to 70 is guaranteed unless some "reforms" are implemented.  The market is is not guaranteed.  Perhaps it may be better to simply take a higher withdrawal rate for a few years in your sixtiesand let Social Security build.

All those taxes you've paid all those years for lots of crazy stuff, why not get your share?

Something to think about is that any reforms that will be done will highly favor folks getting lower amounts, so waiting to get a bigger check might end up as a poor decision as that bigger check will take a haircut, to say nothing of taxes, Medicare premium supports, etc.
Title: Re: Social security: Better to withdraw early?
Post by: joshuagraham_xyz on February 23, 2020, 10:44:41 PM
In any of your calculations, remember in 2035, the trust fund runs out of money and you can expect a 25% drop in payments.  I use a simple excel spread sheet to figure things out and have this drop already figured in.

Even if that 25% drop were to come to fruition, they would most likely be aimed at folks getting a higher payout.  I think the political environment is moving in the direction that folks who make calculated decisions to end up with more money in the future are going to get clipped.  Look at how pols are ready to screw over folks who had economized on student loans, giving a jubilee to folks that have student debt (too bad you suckers that had busted a33 to pay them off, or had gone to State U because it was cheaper, etc.)
Title: Re: Social security: Better to withdraw early?
Post by: BTDretire on February 24, 2020, 10:51:28 AM
Rerun your calculations with the assumption that the extra SS income puts you into the 22% tax bracket. So you have 78% of your SS amount to invest and grow.
 Assuming it does grow.
Title: Re: Social security: Better to withdraw early?
Post by: zolotiyeruki on February 24, 2020, 02:16:19 PM
Something to think about is that any reforms that will be done will highly favor folks getting lower amounts, so waiting to get a bigger check might end up as a poor decision as that bigger check will take a haircut, to say nothing of taxes, Medicare premium supports, etc.
I don't think you'd find a more motivated demographic than seniors who just saw their benefits cut, and they have fewer distractions to keep them from the polls. 

Personally, I think the retirement age ought to be raised again.  When Social Security was established, about 54% of men who survived to age 21 were expected to live to age 65.  Fifty years later, that number was 72%.  For those who hit 65, years-of-life-left has gone from 12ish to 18ish.  So you've got 33% more people drawing benefits, and doing so for 50% more years.  That's just the men.  More women are working and retiring, and tend to live longer, so there's that, too.
Title: Re: Social security: Better to withdraw early?
Post by: American GenX on February 24, 2020, 04:06:05 PM
I know the general consensus is "It depends on how long you live", but here I want to make a case for early withdrawal at 62.
rting at 62? By age 80 I'll have invested 8X. Assuming an average real annual return of 5%, my 8X will have compounded to ~10X.

You're not the first to talk about taking SS early and investing rather than delaying to get a larger benefit.

But you can't assume an average real return of 5%.  Over 10 years, it could be zero or negative as it has multiple times historically.
Sure you can.  When one part of the market is overpriced (like the USA market now), there are other markets that priced attractively (like emerging markets).

Even then, a 5 years stretch of delaying SS benefits isn't going to be made up by investing in many cases, and we're planning on having portfolios that survive in worst historical cases.  The shorter time frame makes it riskier.  You could run your allocation of choice to verify that.
Title: Re: Social security: Better to withdraw early?
Post by: BTDretire on February 25, 2020, 06:54:41 AM
I don't think you'd find a more motivated demographic than seniors who just saw their benefits cut, and they have fewer distractions to keep them from the polls. 

Personally, I think the retirement age ought to be raised again.  When Social Security was established, about 54% of men who survived to age 21 were expected to live to age 65.  Fifty years later, that number was 72%.  For those who hit 65, years-of-life-left has gone from 12ish to 18ish.  So you've got 33% more people drawing benefits, and doing so for 50% more years.  That's just the men.  More women are working and retiring, and tend to live longer, so there's that, too.

I agree, and it's time to start getting some changes made to make SS sustainable.


  Because my wife and I were very good savers over our life, I always thought we could have done much better investing the money (i.e. we would have) than
most people. But because most people wouldn't save it, forced SS tax is better overall for our society. Plus the added disability policy included. This from a smaller government guy. Now that I'm a few years from receiving SS, it is a comfort to know a steady guaranteed income is there to add to my own savings.
I have several ideas to lead to that, some more controversial than others.
Please feel free to add to my list. Or make comments either way.
 I think multiple changes are more palatable per individual, but creates many more separate groups to fight each one.

Raise the retirement age
Raise the cap
Raise the 6.2% tax
Only use 90% of the cost of living increases (time limited)
Keep a sharp eye for fraudulent disability claims (may have been done)
If your income is over $150k, tax SS at 50%. (uhh!)
 Bump early SS from 62 to 63 yrs old. (ya, I know)
Title: Re: Social security: Better to withdraw early?
Post by: AdrianC on February 25, 2020, 06:56:32 AM
Is the "lower earning spouse draws at 62, higher earning spouse draws at 70" strategy still viable under current rules?
If by viable you mean allowable, then yes.

Open Social Security: Free, Open-Source Social Security Calculator (https://opensocialsecurity.com/) is a good resource for estimating the optimal strategy.

As always, optimal results depend on lifetimes and return rates.
Thanks for that.

Your spouse files for his/her retirement benefit at age 62 and 1 months.
You file for your retirement benefit at age 70 and 0 months.
The present value of this proposed solution would be $941,900.


Wow! Probably won't be that much by the time we get it, but still...surprising.
Title: Re: Social security: Better to withdraw early?
Post by: BTDretire on February 25, 2020, 07:15:18 AM
I just ran the program, but it leaves out your tax rate. I want to do Roth conversions,
 in the 12% bracket, Adding early SS payments to that may push me into the 22% bracket.
 So many inputs to the the solution.

 Can anyone tell me why the answer is often high wage earner at 70, low wage earner at 62 and 1 month.
 I understand 70 gets max SS if someone dies, but why is it always best to get the smaller payment at 62?
Title: Re: Social security: Better to withdraw early?
Post by: sherr on February 25, 2020, 08:22:59 AM
I just ran the program, but it leaves out your tax rate. I want to do Roth conversions,
 in the 12% bracket, Adding early SS payments to that may push me into the 22% bracket.
 So many inputs to the the solution.

 Can anyone tell me why the answer is often high wage earner at 70, low wage earner at 62 and 1 month.
 I understand 70 gets max SS if someone dies, but why is it always best to get the smaller payment at 62?

I don't know if it's "always best", but I think the idea is to ensure that you get *something* out of lower-earner's SS benefits. If lower-earner dies before drawing SS then poof, there goes that accrued benefit. If higher-earner dies before lower-earner starts drawing SS, and survivor benefits of higher-earner's SS is larger than lower-earner's SS benefit, then poof, same thing.
Title: Re: Social security: Better to withdraw early?
Post by: MDM on February 25, 2020, 08:24:46 AM
I just ran the program, but it leaves out your tax rate. I want to do Roth conversions,
 in the 12% bracket, Adding early SS payments to that may push me into the 22% bracket.
 So many inputs to the the solution.
Yes.  Not aware of any available program that considers all effects over multiple years.  It appears, however, that it's a relatively "flat optimum" - in other words, if one does reasonable things then the difference between the actual and optimal results are small in practical terms.

Quote
Can anyone tell me why the answer is often high wage earner at 70, low wage earner at 62 and 1 month.
 I understand 70 gets max SS if someone dies, but why is it always best to get the smaller payment at 62?
If the lower earner will switch to using 1/2 of the higher earner's benefit when the higher earner files, and the higher earner is somewhat older than the lower earner, this can be the answer.
Title: Re: Social security: Better to withdraw early?
Post by: sherr on February 25, 2020, 08:30:43 AM
I agree, and it's time to start getting some changes made to make SS sustainable.


  Because my wife and I were very good savers over our life, I always thought we could have done much better investing the money (i.e. we would have) than
most people. But because most people wouldn't save it, forced SS tax is better overall for our society. Plus the added disability policy included. This from a smaller government guy. Now that I'm a few years from receiving SS, it is a comfort to know a steady guaranteed income is there to add to my own savings.
I have several ideas to lead to that, some more controversial than others.
Please feel free to add to my list. Or make comments either way.
 I think multiple changes are more palatable per individual, but creates many more separate groups to fight each one.

Raise the retirement age
Raise the cap
Raise the 6.2% tax
Only use 90% of the cost of living increases (time limited)
Keep a sharp eye for fraudulent disability claims (may have been done)
If your income is over $150k, tax SS at 50%. (uhh!)
 Bump early SS from 62 to 63 yrs old. (ya, I know)

FWIW I agree with #1 and #2. There shouldn't be an income cap on the tax, and the retirement age should be raised by a few years (done in a way that doesn't screw over people who are really close to the current ages). And just like that, there goes the "underfunding problem".

I think the fear over the demise of Social Security is completely overblown, if not intentional fearmongering. Not to mention that putting little old grandmas out on the street is completely politically untenable for either party. I'm only 34 but I fully expect SS to be alive and well when I finally get around to drawing benefits.

Edit:
Oh, and yes we should definitely keep a sharper eye on disability fraud. When one of the most common categories of TV commercials is lawyers claiming to be able to get your previously-denied claim approved you know something's up.
Title: Re: Social security: Better to withdraw early?
Post by: zolotiyeruki on February 25, 2020, 08:42:18 AM
Raise the retirement age
Raise the cap
Raise the 6.2% tax
Only use 90% of the cost of living increases (time limited)
Keep a sharp eye for fraudulent disability claims (may have been done)
If your income is over $150k, tax SS at 50%. (uhh!)
 Bump early SS from 62 to 63 yrs old. (ya, I know)

FWIW I agree with #1 and #2. There shouldn't be an income cap on the tax, and the retirement age should be raised by a few years (done in a way that doesn't screw over people who are really close to the current ages). And just like that, there goes the "underfunding problem".

I think the fear over the demise of Social Security is completely overblown, if not intentional fearmongering. Not to mention that putting little old grandmas out on the street is completely politically untenable for either party. I'm only 34 but I fully expect SS to be alive and well when I finally get around to drawing benefits.
A good one-time fix for #1 (retirement age) would be to simply tie it to measured demographics.  For example, for anyone born in 1965 or later (currently 55 or younger), your retirement age could be set to the year when 54% of your cohort is still alive(to match the original demographics when SS was implemented).  Maybe add a ramp-up for that, to smooth the transition.

Agreed on #7 as well (bump the early retirement age), although I'd say it should simply shift so that it's #1 minus five years.
Title: Re: Social security: Better to withdraw early?
Post by: jeroly on February 25, 2020, 10:50:11 AM
Raise the retirement age
Raise the cap
Raise the 6.2% tax
Only use 90% of the cost of living increases (time limited)
Keep a sharp eye for fraudulent disability claims (may have been done)
If your income is over $150k, tax SS at 50%. (uhh!)
 Bump early SS from 62 to 63 yrs old. (ya, I know)

FWIW I agree with #1 and #2. There shouldn't be an income cap on the tax, and the retirement age should be raised by a few years (done in a way that doesn't screw over people who are really close to the current ages). And just like that, there goes the "underfunding problem".

I think the fear over the demise of Social Security is completely overblown, if not intentional fearmongering. Not to mention that putting little old grandmas out on the street is completely politically untenable for either party. I'm only 34 but I fully expect SS to be alive and well when I finally get around to drawing benefits.
A good one-time fix for #1 (retirement age) would be to simply tie it to measured demographics.  For example, for anyone born in 1965 or later (currently 55 or younger), your retirement age could be set to the year when 54% of your cohort is still alive(to match the original demographics when SS was implemented).  Maybe add a ramp-up for that, to smooth the transition.

Agreed on #7 as well (bump the early retirement age), although I'd say it should simply shift so that it's #1 minus five years.
We're a much richer nation than we were in 1935, but somehow we can't support the same retirement age as we did then? 

"Well, yes, a richer society should be able to afford a longer retirement, but...we can't because of long life expectancy!"

Oh, but...  the life expectancy of lower income Americans is now about the same as in the Sudan or Pakistan... https://news.harvard.edu/gazette/story/2016/04/for-life-expectancy-money-matters/

So how about we eliminate the cap, drop social security benefits for those with assets exceeding $10 million, tighten up on disability fraud, and raise the employer tax by 2%.  That should also allow us to raise the minimum payment for the people that need the money the most.
Title: Re: Social security: Better to withdraw early?
Post by: American GenX on February 25, 2020, 04:37:08 PM
Raise the retirement age

For FRA.  For people under 55, yes, but phase it in.  So, us older GenXers would have to wait until age 69 for FRA SS.
50-54 increase to 69
45-49 increase to 71
40-44 increase to 73
35-39 increase to 75

Quote
Raise the cap

Most people seem to agree with that one, but rather, "remove" the cap.

Quote
Raise the 6.2% tax

SS FICA tax is actually 12.4%, but half is paid by the employer (or yourself if self-employed).  Increasing that rate by 25% would make it 15.5%, split between employer and employee.  That seems reasonable.

Quote
Only use 90% of the cost of living increases (time limited)

I actually think we should go in the opposite direction.  SS COL increases are based on a CPI metric that doesn't correlate with the inflation experienced by senior citizens.  I think SS increases should be indexed to CPI-e.  As it is, it's like a yearly cut, in addition to the post-tax cut due to the higher amounts of SS income that are taxed each year.

Quote
If your income is over $150k, tax SS at 50%. (uhh!)

It's not a good idea to suddenly tax at such a high rate when you hit a cliff.  Instead, just phase in a deduction of SS benefits with higher income.  So, someone would start seeing a cut in their SS benefit when household income exceeds $50K/yr, and would phase out SS income completely at $150K/yr.

Early retirement increases would simply need to correlate with the FRA increase mentioned earlier, increasing it by the same number of years.

Someone else suggested adjusting benefits based on wealth.  It's much easier build on to our existing system that tracks income.  Also, we don't want to discourage people from saving when most people don't save enough as it is.  Someone with an $80,000/yr pension may not have much wealth but should still see a cut in their SS benefit.

Other good ideas:

Eliminate spousal benefits.  I'm NOT talking about spousal "death" benefits, but about the additional bonus SS benefits that a spouse can receive when they haven't worked to earn those benefits, simply because they are married to a living SS recipient.  Redirect those funds to people that actually paid into the system for 40+ quarters!  I do support death benefits.

Index the SS tax thresholds to inflation from when they were set in 1983 and 1993.  Social Security after-tax "net" benefits are already being "cut" and have been for years, but most people aren't aware of how this is being done.  The SS formula for determining how much of your SS benefits are taxed is NOT indexed to inflation, so that threshold has not increased since it was first introduced in 1983.  For a single person, if your income combined with half your SS benefits exceeds $25,000, you have to pay income tax on up to 50% of your SS benefits.  If it exceeds $34,000, you have to pay income tax on up to 85% of your SS benefits.  $25K in 1983 is worth a lot more than $25K in 2018.  Since your retirement distributions and SS benefits will be adjusted with inflation, but NOT the $25,000/$34,000 thresholds, a greater percentage of your SS benefits will become taxable as each year passes (for married filing jointly, the thresholds are $32,000/$44,000.)  It's a built-in tax increase, reducing "net" SS benefits, hurting seniors further.  The greater your combined income and SS/2, the more you will be affected by this up to a max of 85% of your benefits being taxed!  It's absurd, and those thresholds should be increased to reflect inflation since 1983.

https://www.marketwatch.com/story/people-who-saved-for-retirement-are-being-punished-by-social-security-taxes-2019-01-07
https://www.fool.com/retirement/general/2016/05/08/this-33-year-old-social-security-rule-is-wreaking.aspx
http://www.foxnews.com/story/2007/03/25/double-whammy-taxation-social-security-benefits.html
https://www.ssa.gov/policy/docs/issuepapers/ip2015-02.html

This bill would address the higher yearly taxation problem some by increasing the 85% taxable threshold.

H.R.860 - Social Security 2100 Act

https://www.congress.gov/bill/116th-congress/house-bill/860

The 50% threshold isn't mentioned there, but this document states the 50% taxable threshold would be eliminated.

https://larson.house.gov/sites/larson.house.gov/files/Larson%20Blumenthal%20Van%20Hollen_2019%200918.pdf

It's not perfect because the new threshold would still not be indexed to inflation going forward.

Title: Re: Social security: Better to withdraw early?
Post by: pecunia on February 25, 2020, 05:33:59 PM
Maybe you could cut out some of the stuff that isn't pure retirement:

Social Security is more than retirement Many people think of Social Security as just a retirement program. Most of the people receiving benefits are retired, but others receive benefits because theyíre:ē   Disabled.ē A spouse or child of someone getting benefits.ē   A divorced spouse of someone getting or eligible for Social Security.ē   A spouse or child of a worker who died.ē   A divorced spouse of a worker who died.ē   A dependent parent of a worker who died.Depending on your circumstances, you may be eligible for Social Security at any age. In fact, Social Security pays more benefits to children than any other government program.

Other programs could be set up for these needs.
Title: Re: Social security: Better to withdraw early?
Post by: maizefolk on February 25, 2020, 06:05:10 PM
I'd definitely cut the "retirement" portion of social security before I cut the parts of social security that provide a social safety net. In the latter group I'd include both the disability and survivors programs, but also the treatment of social security income up to the first bend point.

Social security pays out 90% of people's average monthly income up to about $960/month (a little below the federal poverty line). A person who earned $960/month for 35 years (enough to qualify for full benefits) has paid about $25,000 into the social security trust fund and their employer(s) have paid another $25,000. One they retire they'll receive a bit more than $10,000 in social security payout each year. The equivalent of buying an annuity paying out roughly 20% per year.

I think the investment we're makes as a society in not having the elderly starving or freezing on the streets is well worth it, but don't make the mistake of thinking social security works by paying people back what they put into the system.
Title: Re: Social security: Better to withdraw early?
Post by: American GenX on February 25, 2020, 06:26:23 PM
Oh, but...  the life expectancy of lower income Americans is now about the same as in the Sudan or Pakistan... https://news.harvard.edu/gazette/story/2016/04/for-life-expectancy-money-matters/

That doesn't surprise me.  I guess that helps to justify that those on the lower income end of the spectrum get a higher benefit ratio than higher income earners that live 10 to 15 years longer on average, and therefore more years to draw on SS.
Title: Re: Social security: Better to withdraw early?
Post by: BTDretire on February 27, 2020, 12:58:57 PM
Raise the retirement age
Raise the cap
Raise the 6.2% tax
Only use 90% of the cost of living increases (time limited)
Keep a sharp eye for fraudulent disability claims (may have been done)
If your income is over $150k, tax SS at 50%. (uhh!)
 Bump early SS from 62 to 63 yrs old. (ya, I know)

FWIW I agree with #1 and #2. There shouldn't be an income cap on the tax, and the retirement age should be raised by a few years (done in a way that doesn't screw over people who are really close to the current ages). And just like that, there goes the "underfunding problem".

I think the fear over the demise of Social Security is completely overblown, if not intentional fearmongering. Not to mention that putting little old grandmas out on the street is completely politically untenable for either party. I'm only 34 but I fully expect SS to be alive and well when I finally get around to drawing benefits.
A good one-time fix for #1 (retirement age) would be to simply tie it to measured demographics.  For example, for anyone born in 1965 or later (currently 55 or younger), your retirement age could be set to the year when 54% of your cohort is still alive(to match the original demographics when SS was implemented).  Maybe add a ramp-up for that, to smooth the transition.

Agreed on #7 as well (bump the early retirement age), although I'd say it should simply shift so that it's #1 minus five years.

On # 7, SS at 62, I know I'm in much better health and I'm younger at 64 than my parents were, and I think that is a general characteristic of US society. However, I'm certain there are people that are just worn out at 62 and we should have a way for them. Fine if you want to make sure they don't come out ahead of those that wait to 67.