Maximize SS Benefits

[Joggernot]

This is something we didn't know when I retired.  It is discussed on the AARP site.

One (with the highest benefit) signs up for the benefit, the spouse gets half, then the first one cancels the benefit, the spouse continues to get half.  Then at a later time, sign up for everything.

[GizmoTX]

Both have to be full retirement age, currently 66. The highest benefit spouse elects SS, then suspends it to age 70. The other spouse also elects & suspends own benefit, then applies for the spousal benefit, which is 50% of the highest benefit spouse. It has to done in this order, & best in person at a SS office to make sure it's implemented properly. We've done this. By age 70, both need to stop the suspension & take their benefit amount, which will be still greater than at 66. The second spouse can then elect whichever benefit is higher, the revised spousal amount or her/his own.

[Retired To Win]

That might only apply if the spouse has no earned income of his/her own.

Aside from the spouse "maneuver" you bring up, there is the question of whether it is better to claim one's own SS benefit sooner or later.  I chose sooner.

Between the ages of 62 and 70, that choice of trigger time results in an 8% plus-or-minus variance in the benefit per year.  Starting from my base at 66, that meant a 32% cummulative variance on either side of 66, and a total variance of 64% over the entire 62 to 70 year interval.

I chose to trigger at 65.  By doing so, I gave up getting the 40% payout hike that would have resulted from waiting to age 70.  But, at my payout level, triggering SS at 65 (1) has made me financially independent years sooner than otherwise, and (2) will result in a 5-year six-figure additional capital accrual that I would  not otherwise have.

[GizmoTX]

It applies regardless of the spouse's earning credits.

Obviously the SS timing choice depends on state of health, life expectancy, & financial situation.

[giggles]

The other spouse also elects & suspends own benefit, then applies for the spousal benefit, which is 50% of the highest benefit spouse

Gonna get really technical here, but, in fact, the other spouse files ONLY as a spouse and does not require filing/suspending under his/her own benefit.  Only the non-collecting spouse files and suspends.  You can't file for your own, suspend, then collect as a spouse. 

1. Spouse a files, suspends. Collects nothing.
2. Spouse b files as spouse of a. Collects 50% of a's benefit.
3.  Spouse a unsuspends at age 70 to max delayed retirement credits (drc)
4.  Spouse b filed under own record at 70, converting from spousal benefit to own retirement benefit with max drc.

[Workinghard]

I went through all the scenarios on the T Rowe Price website. After crunching the numbers, with my dh being 6 years older than me, and the higher earner, we came ahead on the following:

1. I file at age 62 getting aprox 15k a yr
2. My dh files, restricts application to spousal benefits, and gets aprox. 10k a yr
3. Two years later, he files for his benefits at age 70 and gets aprox. 34k while I still get 15k.

I estimated my life expectancy 95 and his 83. Our estimated cumulative benefit was 1,297,513.  Worst case was 1,022,538.

[MrsPete]

Everything I read about Social Security makes me more and more confused.  I think the best advice I've read was that when you're old enough to begin collecting, it's a good idea to pay a financial advisor who specializes in Social Security to give you advice on your specific situation.  The rules are complicated, and they're subject to change.  Since you're pretty much locked into your choice, you'd better get it right. 

[tomq04]

If you have savings locked away, there is very little reason to not take it at 62 just to start the cash flowing.  If you don't "need" it yet, then give it away, or stash it in a savings account and give it to your kids!  The longer you wait, the more you are betting against the house in terms of annuity tables.

[Roland of Gilead]

If you have savings locked away, there is very little reason to not take it at 62 just to start the cash flowing.  If you don't "need" it yet, then give it away, or stash it in a savings account and give it to your kids!  The longer you wait, the more you are betting against the house in terms of annuity tables.

Actually it is kind of the other way around.  If you have savings locked away, then delaying SS is like buying a zero coupon bond that pays 7%.  If rates are like they are today then this is a really good deal.

[Dicey]

Everything I read about Social Security makes me more and more confused.  I think the best advice I've read was that when you're old enough to begin collecting, it's a good idea to pay a financial advisor who specializes in Social Security to give you advice on your specific situation.  The rules are complicated, and they're subject to change.  Since you're pretty muchttp://forum.mrmoneymustache.com/Themes/default/images/bbc/italicize.gifh locked into your choice, you'd better get it right.

MrsPete,
There is a loophole which lets you pay back everything you've collected from SS and then re-cast at the higher age-adjusted rate, so there is at least one do-over opportunity. It's not possible for most people, but within reach (if needed) for a lot of mustachians. And yeah, that is good advice to hire someone familiar with the intricacies of the system.

[HokieInPa]

Everything I read about Social Security makes me more and more confused.  I think the best advice I've read was that when you're old enough to begin collecting, it's a good idea to pay a financial advisor who specializes in Social Security to give you advice on your specific situation.  The rules are complicated, and they're subject to change.  Since you're pretty muchttp://forum.mrmoneymustache.com/Themes/default/images/bbc/italicize.gifh locked into your choice, you'd better get it right.

MrsPete,
There is a loophole which lets you pay back everything you've collected from SS and then re-cast at the higher age-adjusted rate, so there is at least one do-over opportunity. It's not possible for most people, but within reach (if needed) for a lot of mustachians. And yeah, that is good advice to hire someone familiar with the intricacies of the system.

I believe the government changed the rules on this and you can no longer do this maneuver

[TomTX]

Everything I read about Social Security makes me more and more confused.  I think the best advice I've read was that when you're old enough to begin collecting, it's a good idea to pay a financial advisor who specializes in Social Security to give you advice on your specific situation.  The rules are complicated, and they're subject to change.  Since you're pretty muchttp://forum.mrmoneymustache.com/Themes/default/images/bbc/italicize.gifh locked into your choice, you'd better get it right.

MrsPete,
There is a loophole which lets you pay back everything you've collected from SS and then re-cast at the higher age-adjusted rate, so there is at least one do-over opportunity. It's not possible for most people, but within reach (if needed) for a lot of mustachians. And yeah, that is good advice to hire someone familiar with the intricacies of the system.

I believe the government changed the rules on this and you can no longer do this maneuver

Last I heard there is a deadline: 364 days. If you wait a full year, you are locked in. Check with official sources before trying this.

[TomTX]

The other spouse also elects & suspends own benefit, then applies for the spousal benefit, which is 50% of the highest benefit spouse

Gonna get really technical here, but, in fact, the other spouse files ONLY as a spouse and does not require filing/suspending under his/her own benefit.  Only the non-collecting spouse files and suspends.  You can't file for your own, suspend, then collect as a spouse. 

1. Spouse a files, suspends. Collects nothing.
2. Spouse b files as spouse of a. Collects 50% of a's benefit.
3.  Spouse a unsuspends at age 70 to max delayed retirement credits (drc)
4.  Spouse b filed under own record at 70, converting from spousal benefit to own retirement benefit with max drc.

Since my wife's SS benefit on her own record should be slightly higher than spousal @ FRA, but slightly lower @ 70, my plan was (@ Full Retirement Age/67)

Wife files under her own benefits @ FRA. I file as a spouse.
Collect until age 70.
Swap.

Percents used below are percent of my benefit @ FRA/age 67. For simplicity, COLA is ignored.

So, from 67 to 70, we collect her benefit (lets say, 60% of mine @ 67)  and I collect half of that as a spousal benefit, for a total of 90% of what my solo benefit would be.

Fast forward 3 years compounded @ 8% per year, I start collecting at 126%, and she collects a spousal benefit of 63%, for a total of 189%

Note: My understanding is that this only works @ FRA, under current rules. Try it earlier than FRA, and I would be "deemed" to be filing for my own benefit at the same time and we would both have permanently reduced benefits.

The Social Security system is VERY complex with lots of gotchas. SS employees don't even know how it works most of the time.

[hybrid]

If you have savings locked away, there is very little reason to not take it at 62 just to start the cash flowing.  If you don't "need" it yet, then give it away, or stash it in a savings account and give it to your kids!  The longer you wait, the more you are betting against the house in terms of annuity tables.

Actually it is kind of the other way around.  If you have savings locked away, then delaying SS is like buying a zero coupon bond that pays 7%.  If rates are like they are today then this is a really good deal.

+1. We are facing this scenario in two years. DW is 60 and I am 48. When she retires from the USPS in two years she will have the option of collecting SS. As we won't need the cash for day-to-day, the question becomes do we simply start taking it at 62 and investing the proceeds or defer until 70, al the while her benefit bumps up each year from 75% at 62 to 132% at 70. Given her fairly healthy family history, we are delaying until 70 (subject to change, and we should also consult an SS expert as the day gets closer). If her family history were sketchy we might have opted to collect and invest sooner rather than later.

Something else to consider is your portfolio. If you are stock heavy today (as many people are, including us) because savers have few options in this market, then chances are that money taken at 62 will probably end up in stocks for most people seeking growth beyond 7%. This risks having too many eggs in one basket, and any financial planner will stress having a diversified portfolio in your later years.   

At the end of the day it's all a roll of the dice, and we are simply playing the best odds for our specific situation.

[frugalnacho]

If you have savings locked away, there is very little reason to not take it at 62 just to start the cash flowing.  If you don't "need" it yet, then give it away, or stash it in a savings account and give it to your kids!  The longer you wait, the more you are betting against the house in terms of annuity tables.

That seems backwards to me.

I thought the amounts paid out were chosen to fit the annuity tables.  IE if you die exactly when the table predicts then it won't matter when you decided to take SS because it all works out to the same.  If you die early, then you should have started collecting SS earlier to maximize your payments - If you die later then you should have waited as long as possible to maximize your overall payment.

It seems like if you have savings locked away there is very little reason to take the SS at 62.  Why take it when you don't need it (unless you predict you are going to die before the average life expectancy)?  If you die early, and had enough money saved up anyway, then who cares? You will just have less money to give away at the end of your life.  If you end up living longer though you may run out of money and will maximize your payments from SS by delaying.   

[tomq04]

Let me pick up where I grabbed this from, one of my more trusted accounting professors.  He and his wife are CPA's and they've helped me a lot on my journey to my CPA.

In no way shape or form do they need that SS check.  If i didn't make that clear in my first post, let that be the standard going forward.

They are collecting at 62 because they can instantly start passing that money onto their favorite charities, and slugging money into a side checking account to help with all future grandchildren expense because they want to spoil the crap out of those kids.  The thought process they are operating from is that they will have had 8 years of accruing funds rather than taking their first $1 when they turn 70.  The accrued $$$ will be more beneficial when the time comes compared to just opening that cash valve because the monthly figure is higher.

[frugalnacho]

Let me pick up where I grabbed this from, one of my more trusted accounting professors.  He and his wife are CPA's and they've helped me a lot on my journey to my CPA.

In no way shape or form do they need that SS check.  If i didn't make that clear in my first post, let that be the standard going forward.

They are collecting at 62 because they can instantly start passing that money onto their favorite charities, and slugging money into a side checking account to help with all future grandchildren expense because they want to spoil the crap out of those kids.  The thought process they are operating from is that they will have had 8 years of accruing funds rather than taking their first $1 when they turn 70.  The accrued $$$ will be more beneficial when the time comes compared to just opening that cash valve because the monthly figure is higher.

But won't they hit a cross over point once they hit the life expectancy age?   Where the amount of money they will have accrued (by taking SS at age 62) will now be less than what would be accrued if they had just waited until age 70.  Taken to the logical extreme, if they live to be 150 years old they will undoubtedly be better off waiting on benefits.

[Roland of Gilead]

Let me pick up where I grabbed this from, one of my more trusted accounting professors.  He and his wife are CPA's and they've helped me a lot on my journey to my CPA.

In no way shape or form do they need that SS check.  If i didn't make that clear in my first post, let that be the standard going forward.

They are collecting at 62 because they can instantly start passing that money onto their favorite charities, and slugging money into a side checking account to help with all future grandchildren expense because they want to spoil the crap out of those kids.  The thought process they are operating from is that they will have had 8 years of accruing funds rather than taking their first $1 when they turn 70.  The accrued $$$ will be more beneficial when the time comes compared to just opening that cash valve because the monthly figure is higher.

I would be wary of taking financial advice from your CPA friends if they advocate taking SS early, forgoing a COLA'd 7% return annuity and instead put the money in a checking account at 0.01%.  But if they have boatloads of cash I guess it doesn't matter.

[tomq04]

Despite my verbage above, they won't be putting it in a .01% checking account.  I was suggesting it will be donated and invested in such a way to be able to provide for grandkids.


You are all INTJ's and i swear it drives ENFP's like me up a wall.  The only single personality type I cant get along with ( out of 16)

[Roland of Gilead]

I am probably more of an INTP since I have so many hobbies and inventions.  I am not sure there is a huge difference though between INTJ and INTP (there I go analyzing again).

[beltim]

I would be wary of taking financial advice from your CPA friends if they advocate taking SS early, forgoing a COLA'd 7% return annuity and instead put the money in a checking account at 0.01%.  But if they have boatloads of cash I guess it doesn't matter.

It's only a 7% return if you live for 108 years.

http://forum.mrmoneymustache.com/ask-a-mustachian/what-age-do-you-plan-on-taking-your-ssi/msg263019/#msg263019

[beltim]

108 years after you start taking benefits, that is.

[Roland of Gilead]

I would be wary of taking financial advice from your CPA friends if they advocate taking SS early, forgoing a COLA'd 7% return annuity and instead put the money in a checking account at 0.01%.  But if they have boatloads of cash I guess it doesn't matter.

It's only a 7% return if you live for 108 years.

http://forum.mrmoneymustache.com/ask-a-mustachian/what-age-do-you-plan-on-taking-your-ssi/msg263019/#msg263019

Right, we had this discussion and decided it was quite a bit lower return if you only get it for a normal amount of years (say you start taking it at 67 and live until 95, then you get about a 5.something% return on the money you delayed).  The biggie though is that it is a real return and not a nominal return.   This could mean a lot in periods of high inflation.

[beltim]

I would be wary of taking financial advice from your CPA friends if they advocate taking SS early, forgoing a COLA'd 7% return annuity and instead put the money in a checking account at 0.01%.  But if they have boatloads of cash I guess it doesn't matter.

It's only a 7% return if you live for 108 years.

http://forum.mrmoneymustache.com/ask-a-mustachian/what-age-do-you-plan-on-taking-your-ssi/msg263019/#msg263019

Right, we had this discussion and decided it was quite a bit lower return if you only get it for a normal amount of years (say you start taking it at 67 and live until 95, then you get about a 5.something% return on the money you delayed).  The biggie though is that it is a real return and not a nominal return.   This could mean a lot in periods of high inflation.

In that example, compared to taking it at 64, the annualized return would be about 2.4%.  You are correct that that's a real return.

[Roland of Gilead]

I would be wary of taking financial advice from your CPA friends if they advocate taking SS early, forgoing a COLA'd 7% return annuity and instead put the money in a checking account at 0.01%.  But if they have boatloads of cash I guess it doesn't matter.

It's only a 7% return if you live for 108 years.

http://forum.mrmoneymustache.com/ask-a-mustachian/what-age-do-you-plan-on-taking-your-ssi/msg263019/#msg263019

Right, we had this discussion and decided it was quite a bit lower return if you only get it for a normal amount of years (say you start taking it at 67 and live until 95, then you get about a 5.something% return on the money you delayed).  The biggie though is that it is a real return and not a nominal return.   This could mean a lot in periods of high inflation.

In that example, compared to taking it at 64, the annualized return would be about 2.4%.  You are correct that that's a real return.

2.4% real isn't bad when you consider TIPS are barely paying any real rate at all.  Is it really as low as 2.4% if you collect all the way to age 95?

[beltim]

In that example, compared to taking it at 64, the annualized return would be about 2.4%.  You are correct that that's a real return.

2.4% real isn't bad when you consider TIPS are barely paying any real rate at all.  Is it really as low as 2.4% if you collect all the way to age 95?

It's not terrible, but you can see why people giving advice about a 7 or 8% real return is complete hogwash.

[Roland of Gilead]

In that example, compared to taking it at 64, the annualized return would be about 2.4%.  You are correct that that's a real return.

2.4% real isn't bad when you consider TIPS are barely paying any real rate at all.  Is it really as low as 2.4% if you collect all the way to age 95?

It's not terrible, but you can see why people giving advice about a 7 or 8% real return is complete hogwash.

How are you coming about with the 2.4% figure?   Are you assigning a real return to the SS payouts taken earlier or ?

Back to our example of someone taking 10,000 at 62 or $10,600 at 63.  If they don't earn anything on the original $10,000 (bury it in the back yard or put it in 0.01% checking) then the person at 63 *catches* up with the other person at age 80 (also assuming they don't earn anything on their extra $600 a year).  It would seem that by age 95 they are well ahead in the game, especially if inflation is high.

[beltim]

It's not terrible, but you can see why people giving advice about a 7 or 8% real return is complete hogwash.

How are you coming about with the 2.4% figure?   Are you assigning a real return to the SS payouts taken earlier or ?

Back to our example of someone taking 10,000 at 62 or $10,600 at 63.  If they don't earn anything on the original $10,000 (bury it in the back yard or put it in 0.01% checking) then the person at 63 *catches* up with the other person at age 80 (also assuming they don't earn anything on their extra $600 a year).  It would seem that by age 95 they are well ahead in the game, especially if inflation is high.

Yes, I'm figuring out the real return based on investing those first three years.  So, for a 10,000 annual benefit at 64 and a 12,000 annual benefit at 67, the total collected by age 95 is:
$320,000 for the person who started collecting at 64
$348,000 for the person who started collecting at 67.
$28,000 surplus on $30,000 invested for 28 years is (1 + 28/30) ^ (1/28) = 1.0238 or about a 2.4% annual return.

[Malaysia41]

Simple question - Next year I won't have any active income (officially FIRING tomorrow yeah!).  According to IRS.gov, payroll taxes apply to wages, compensation, and self-employment income.  That means it does not apply to dividends, interest, and passive income from property rentals, yes?

[tomq04]

Simple question - Next year I won't have any active income (officially FIRING tomorrow yeah!).  According to IRS.gov, payroll taxes apply to wages, compensation, and self-employment income.  That means it does not apply to dividends, interest, and passive income from property rentals, yes?

Congrats!

That is correct regarding Divs and Interest...you'll have to consult with someone a bit more knowledgeable regarding property.

[giggles]

she collects a spousal benefit of 63%

TomTX -
You might or might not be able to do this.  TBH, I would really need to know your EXACT numbers to be sure.  If her FRA benefit is 63% of your FRA benefit, you won't be able to do it.  Her benefit would need to be less than 1/2 of your FRA benefit for it to work.  See below for examples.
 
The DRC's are earned for each LIVING PERSON and do NOT pass to the spouse while the person who earned them is alive, and that is what would make or break your plan.  My examples use ROUND numbers to keep things simple.

You COULD do this:
Your spouse's FRA (full retirement amount) is $1000.  Yours is $2100.  You take 1/2 of her $1000, giving you $500.  Your $2100 continues to grow to age 70 and you get $2500 at age 70.  Your spouse gets 1/2 of your FRA amount ($2100), not 1/2 of $2500.  She would get an extra $50 a month when you filed at 70. 

EXAMPLE 2 -
Your spouse's FRA amount is $1000.  Yours is $1900.  You take 1/2 of her $1000, giving you $500.  Your $1900 continues to grow to age 70 and you get $2200 at age 70.  Your spouse CANNOT get 1/2 of your FRA amount ($1900), because $1000 is not less than 1/2 of $1900.  She would get nothing extra when you filed.  She would get bumped up to your $2200 only after you died and she filed for it, giving her an extra $1200 per month after your death.

[MrsPete]

Everything I read about Social Security makes me more and more confused.  I think the best advice I've read was that when you're old enough to begin collecting, it's a good idea to pay a financial advisor who specializes in Social Security to give you advice on your specific situation.  The rules are complicated, and they're subject to change.  Since you're pretty muchttp://forum.mrmoneymustache.com/Themes/default/images/bbc/italicize.gifh locked into your choice, you'd better get it right.

MrsPete,
There is a loophole which lets you pay back everything you've collected from SS and then re-cast at the higher age-adjusted rate, so there is at least one do-over opportunity. It's not possible for most people, but within reach (if needed) for a lot of mustachians. And yeah, that is good advice to hire someone familiar with the intricacies of the system.

Yeah, possible -- but it'd be trouble.  Better to get it right the first time. 

If I had to make a guess right this minute (and we have YEARS before we're facing this choice), I'd say that my husband will start drawing ASAP, while I will delay my Social Security until near 70.  Why?  His health and family genetics indicate that he'll probably live to be 70-80, while my health and family genetics hint that I could easily see 100.  Will I still think the same thing in the future?  Any number of circumstances could alter my thinking, but I am sure I'll hire a professional for a one-time consultation to be SURE of the decision when the time comes. 

[MrsPotts]

You guys are making mybeyes glaze over.

Just sayin'.   :)