Risk of not taking SS ASAP?

[Shane]

It seems like the conventional wisdom is that it's best to delay taking Social Security Benefits as long as possible - at least until full retirement age (66 or 67) and preferably until age 70 - to maximize the size of the monthly check you'll get. What I haven't seen discussed is the risks you take in delaying beginning SS Benefits, i.e., if you decide to wait until age 70 to take your SS Benefits and you end up dying beforehand, you and your heirs will have gotten NOTHING from all of the money you put into SS. If you can afford to wait until age 70 to begin collecting SS Benefits, why not begin taking the money at a reduced rate at age 62, invest 100% of the money, and then at age 70 you'll have a nice, additional, nest egg which you can use for whatever you like and you'll continue getting the monthly checks, albeit at a reduced rate? Apparently the actuaries at the SSA figure it out so that, on average, you'll get the same amount of benefits no matter when you begin taking them, so why not begin early at 62, invest the money, and then in case you die earlier than expected, your family will at least get something?

[matchewed]

In your scenario you're dead. It isn't a risk anymore. Also while there may be a small demographic of people who start having kids when they're 52 but I'm pretty sure it's not a huge demographic. Outside of that SS isn't meant for your heirs, it is meant for you as it is based off of your salary and the time you've spent paying into it.

I'd like to see the source on getting the same amount of benefits regardless of age. As to why not begin at 62? It could mess with your taxes, you just may not need it, so why take it? What if you don't care about leaving money to heirs? Also delaying taking it increases the monthly benefit. As you get older you may like that extra money if your medical expenses spike for a reason. Delaying it is equated to an 8% increase. Will you be able to find an investment that can give a guaranteed 8%?

In short there will be several reasons one may or may not delay social security benefits. Understand it and apply it to your particular circumstances.

[AH013]

It's a gamble either way, the same as any annuity is.  It's basically the opposite of a life insurance policy, it's an insurance policy on old age.

There was/is a trick that people have used, where they start collecting at 62, hoard the money, and at age 70 if they feel they're still in great health give all the money back to the government and get to refile without penalty or interest for the the higher benefit.  Last I heard the IRS got fed up with the abuse and were/have already closed that loophole.

I'm also of the opinion SS sucks and should be done away with, with people being able to save for old age however they want, and if people want to budget for dying at 60 before they are kicked out of the workforce, go right ahead, but don't expect a loaf of bread and a roof over your head everyday in your 80s courtesy of John Q taxpayer.

[Timmmy]

I'm no expert so if I've got this wrong someone correct me please.

If you take SS ASAP you get 70% of your normal monthly benefit. 

Assuming you would get $1,000 your early amount would be $700.

If you just dumped that money in to an investment account.  At a 8% return you'd end up with about $51,000 after five years.

An 8% return on $51,000 is about $4,100.

That's about $350 per month. 

After taxes aren't you really close to that same $300 that you "lost"?

Obviously this is way simplified and taxes and inflation would have to be factored in.  It seems like I'd rather be in the drivers seat with my money than let the government handle it. 

Again I have no idea what I'm talking about so tell me how I'm wrong.

[Left]

because even if it comes close, what happens if the market crashes then? You'd be taking the full 8% to match taking SS at 70, for it to be "safe" withdrawal you'd be getting less money

And what's wrong with letting the government keep the money when you die? It's already done it's job of letting you grow old in a good country? I mean, you could always move to somolia if you really wanted no government to take your money... and see how well you live in retirement

[Cheddar Stacker]

I think you're right Timmmy, at least in theory. I didn't vet your calculation or anything, but this is a point most people don't bring up. You are allowed to invest the funds after you receive them.

The rules can will also change, so why not lock in your benefit before congress pulls the rug out.

Your SS benefits are gone when you die (other than spousal) but your IRA's can pass on to your heirs. This is also a good reason to take SS right away to avoid dipping in to your retirement funds (If you have kids and care to leave them anything).

There are also good reasons not to take it right away, including taxes as matchewed stated. Maybe you retired at 50 and you need until 67 before you complete your T.IRA to Roth conversion, and you don't want SS interfering with the taxability of the conversion.

Personally, I hope I don't need it. If I don't need it, I might not take it at all. I'm certainly not counting on it being there in 30 years for me.

[Timmmy]

because even if it comes close, what happens if the market crashes then? You'd be taking the full 8% to match taking SS at 70, for it to be "safe" withdrawal you'd be getting less money

And what's wrong with letting the government keep the money when you die? It's already done it's job of letting you grow old in a good country? I mean, you could always move to somolia if you really wanted no government to take your money... and see how well you live in retirement

Are we really going to play the "what if" game?  What if the market goes on a huge run and you end up way ahead?  What if an asteroid hits DC and takes out the whole federal government?  What if they change the rules and decide to give me the full benefit anyway?  What if.....  What if.....  What if....

Nothing wrong with letting the government keep it.  In fact the government may come out ahead in the whole transaction depending on a lot of different factors.  I'm just saying that given the choice I'd rather be in the drivers seat for some of my money. 

Also, If you feel like you need to give it back to the government upon death, you can.  You can write them checks now to thank them for this wonderful country if you want to. 

[beltim]

As mentioned many times before, an 8% increase in Social Security benefits is not equivalent to an 8% annual return.

Additionally, a number of forum contributors collaborated to get a pretty good spreadsheet to calculate the break even point at various annual return levels: http://forum.mrmoneymustache.com/share-your-badassity/getting-the-most-out-of-social-security-benefits/msg321159/#msg321159

[matchewed]

My main point is any overly simplified Yes/No answer is not taking into account the multiple variables people should take into account. There may be an optimal dollar answer but that far into the game I'm not sure if the optimal dollar answer will matter as much. For some it may very well. For others it may not.

You're right beltim, I forgot that particular piece which is important to that discussion.

[Trirod]

There is a very simple way of looking at this that tells you you should almost always wait until age 70 to take SS.

I believe the break-even point is age 82 - i.e. if you live until age 82 or longer you will do better by taking social security at age 70.

What age do you use for retirement planning?  85? 90? 95?  Whatever age you are using, if it is > 82 (which for most people it is since we err on the side of longevity to avoind running out of money) then you should defer taking social security so you get the best outcome based on your planned lifespan.  Doesn't matter if you die earlier than that - taking SS later gives you the optimal outcome based on your retirement projections.

[Threshkin]

What about file and suspend?  I am still learning about this strategy but as I understand it so far it works like this:

1) At 62 (or your MRA) file for benefits and immediately suspend payments.
2) If things go well, you can wait till 70.5 and start receiving benefits then at the higher rate.
3) If things go south, you can receive full payment for all of your suspended benefits from when you filed.

I am not sure but I suspect this lump sum payment would be like a tax refund.  That is, no interest accrued.  Since SS is taxable you will also have a tax hit the year you receive the lump sum.

Am I missing any other major gotchas?

Thanks!

[Nords]

... so why not begin early at 62, invest the money, and then in case you die earlier than expected, your family will at least get something?

Because your spouse's survivor benefits will be permanently reduced.  That's no problem if she has a higher earnings record, but if you have the higher earnings record then the longer you delay taking SS, the bigger her survivor benefits will be. 

http://www.analyzenow.com/Articles/Social%20Security/Social%20Security%20Articles/Should%20an%20early%20retiree%20take%20Social%20Security%20at%2062.%202-23-12.pdf

http://www.analyzenow.com/Ask%20Bud/Ask%20Bud%20Response/Ask_Bud_when_to_start_social_security_11_3_06.htm

http://www.analyzenow.com/Articles/Social%20Security/Social%20Security.htm

[Shane]

Below is a quote from the SSA's website. You can read the whole publication, "When to start receiving retirement benefits." here: http://www.socialsecurity.gov/pubs/EN-05-10147.pdf

"If you live to the average life expectancy for
someone your age, you will receive about the
same amount in lifetime benefits no matter
whether you choose to start receiving benefits
at age 62, full retirement age, age 70 or any
age in between. However, monthly benefit
amounts can differ substantially based on
your retirement age."

My thoughts are that, if I'm going to get the same total amount, no matter what, it'd be safer to start collecting as soon as possible, invest the money, and then I'd have that cash in my Vanguard account to use however I like. If, when I die, my SS money is still sitting there in my investment account, then it'll go to whomever I choose as my beneficiary. I feel fortunate to have been born in the U.S., but I'm not interested in giving the government any more of my money than I have to.

Shane

[seattlecyclone]

My thoughts are that, if I'm going to get the same total amount, no matter what, it'd be safer to start collecting as soon as possible, invest the money, and then I'd have that cash in my Vanguard account to use however I like.

You only get the same total amount no matter what if you have an average lifespan. If you die younger than average, you will be better off taking social security earlier. If you live longer than average, you will be better off waiting to take your benefits.

However, there's another component to this. You're probably already planning to have your investments support your entire lifestyle during retirement, especially if you're planning to retire early. Your worst case scenario is if you spend all of your investments before you die. This seems much more likely to happen if you have a long life than if you have a short one. Therefore to hedge against this risk you should plan to go with the social security option that is most beneficial for those who live longer than average. If you die early, your investments will probably have been overkill for your expenses anyway; why double down on that bet by choosing the social security option that makes the most sense for people who die earlier?

[sirdoug007]

Delaying social security is like buying more of an immediate annuity with inflation protection from the most credit worthy source in the world.  Think about that for a second or two.  Sounds like maybe that would be a good counterweight to a portfolio of stocks and bonds that will fluctuate with the market.

One of the greatest risks for early retirement is outliving your money.  As long as you have the funds to delay SS, you should do so and lock in a much larger amount.

[hybrid]

I'm also of the opinion SS sucks and should be done away with, with people being able to save for old age however they want, and if people want to budget for dying at 60 before they are kicked out of the workforce, go right ahead, but don't expect a loaf of bread and a roof over your head everyday in your 80s courtesy of John Q taxpayer.

The sad reality is that saving for retirement is a long term play and most people aren't doing it remotely well or adequately. I am of the opinion SS is one of the best social programs ever instituted in no small part because that without some sort of mandated retirement program most people simply won't save adequately for retirement for all sorts of reasons.  That's the reality. SS desperately needs some reform (to reflect the simple fact that people live much longer) to remain sustainable, but reforms are fairly basic in nature, although getting them past the AARP lobby will be extremely hard to do.

The majority of retirees take SS at 62 not because it is the smart financial play, but because they need/desire the extra financial boost in the short term. It's usually a poor long term decision. My wife is eligible for SS in a few years and we have also had the take it early and invest every cent vs. defer until 70 scenario to consider. Our current plan is to wait until 70 based on her health history. 132% of benefits at 70 vs. 75% of benefits at 62 is driving that decision.

http://money.usnews.com/money/retirement/articles/2013/09/09/the-most-popular-ages-to-claim-social-security

A smaller proportion of people have been claiming Social Security at age 62 in recent years, but it continues to be the most popular age to begin receiving payments. Some 45 percent of men born in 1943 and 1944 signed up for retirement benefits at age 62, down from 50 percent of people born between 1938 and 1942, and a peak of 57 percent of men born between 1930 and 1934, according to a 2013 Urban Institute analysis of U.S. Census Bureau data. The share of women claiming Social Security benefits at age 62 has also declined over the past decade, but women continue to be more likely to claim early than men. Half of women born in 1943 or 1944 claimed at age 62, compared with 60 percent of those born between 1935 and 1937. 

[hybrid]

One more compelling quote from that article:

Only 6 percent of men and 5 percent of women born in 1943 and 1944 signed up for Social Security at age 67 or later

It just goes to show that most people either make poor financial decisions regarding when to take SS or do not have the luxury to wait. So if all the conventional wisdom says to wait to take SS (AARP also recommends this for healthy people without financial hardship) the reality is that by a wide, wide margin most people make a poor decision.

I think this undercuts any argument that goes along the lines of people should be left to fend for themselves in regards to saving for retirement. People are already making very poor decisions regarding retirement, there is little evidence to suggest discontinuing SS would suddenly smarten up a general public that by and large does not plan for the future remotely adequately.   

[Timmmy]

I think this undercuts any argument that goes along the lines of people should be left to fend for themselves in regards to saving for retirement. People are already making very poor decisions regarding retirement, there is little evidence to suggest discontinuing SS would suddenly smarten up a general public that by and large does not plan for the future remotely adequately.   

Not that I disagree, but does continuing to support peoples lack of planning smarten up the general public? 

[hybrid]

I think this undercuts any argument that goes along the lines of people should be left to fend for themselves in regards to saving for retirement. People are already making very poor decisions regarding retirement, there is little evidence to suggest discontinuing SS would suddenly smarten up a general public that by and large does not plan for the future remotely adequately.   

Not that I disagree, but does continuing to support peoples lack of planning smarten up the general public?

I would argue that you build a system based upon what people will do rather than what they ought to do. Human nature is very short-sighted, so a mandatory supplemental retirement program has proven itself well in that regard.

[AH013]

The sad reality is that saving for retirement is a long term play and most people aren't doing it remotely well or adequately. I am of the opinion SS is one of the best social programs ever instituted in no small part because that without some sort of mandated retirement program most people simply won't save adequately for retirement for all sorts of reasons. 

I think my beef with the program comes in 4 parts
1)  The initial recipients paid nothing into it.  Thus, it is basically a ginormous pyramid scheme, ultimately leaving the last in line screwed.
2)  Its benefits disproportionately reward moral hazards.  Dual-working couples get the shaft in terms of eventual benefits.  People who become disabled early in their working career and those who marry older sugar-daddies collect a sweet deal in terms of dollars in versus dollars out.
3)  Its an incredible sub-optimal investment scheme.  The government effectively treats the 12.4% you're taxed as if you invested in T-bills, which no advisor would advise you do.
4)  It breeds a self-fulfilling prophecy.  Americans don't save because Uncle Sam will help out if things get rough due to self-inflicted stupidity.

To refute your point about people unable/unwilling to change even in the absence of social programs, consider the best-savings countries in the world.  Excluding countries who are swimming in oil money, you have countries like Gabon, Algeria, Bahrain, Iran, and Bangladesh who have per capital GDPs that would make the minimum wage worker at McDonalds feel like he's a millionaire, yet they have savings rates in excess of 40%.  When you know you either save now or starve at 60, it's amazing how quickly you learn to save and save big.  When SS and unemployment were enacted, people were so thankful to have an extra 6 months or a year of income to supplement their shortfall.  Now you have people screaming that a full year of 50% unemployment benefits and free job training isn't enough, and that benefits should last 2-3 years of "searching" to find employment they're willing to do.  It sounds cold, but the reason social programs begin to fail is because there is always a case study of it not being "enough" and people need to give a little more.  SS taxes have gone from 1% to 12.4% over the lifetime of the program, and it's still never "enough" with the elderly always trying to get their 15 minutes in a new story of how their benefits are reduced, no COLA this year, etc.  Eventually you have to just say enough and let people stand or fall on their own and accept the real consequences that comes from that.

[sirdoug007]

Eventually you have to just say enough and let people stand or fall on their own and accept the real consequences that comes from that.

Yeah, that was working out fantastically in the 30's when SS was started to keep the elderly from starving and freezing in the streets.  Those are the consequences you talk about. During the depression more than 50% of the elderly were living in poverty. 




Sent from my iPhone using Tapatalk

[matchewed]

I think this undercuts any argument that goes along the lines of people should be left to fend for themselves in regards to saving for retirement. People are already making very poor decisions regarding retirement, there is little evidence to suggest discontinuing SS would suddenly smarten up a general public that by and large does not plan for the future remotely adequately.   

Not that I disagree, but does continuing to support peoples lack of planning smarten up the general public?

It's not an education system though. So trying to compare it's result as a support system against an education based metric is a bad idea. It does not smarten up the general public because that is not what it was designed to do.

Since 1959 the poverty rate has fallen (mind you the actual number isn't too different as the rate is not going to reflect that well, but will reflect the general effectiveness of a variety of factors; unemployment and general safety nets primarily) led by the 65+ demographic, while in 2010 9% of people 65 and older were in poverty (source). Given that I'd say it is a fairly successful program for what it is designed to do.

I do agree that we need a savings mindset change. Culturally things like this board can be a place to initiate that change. Then just start having it part of curriculum in schools. Teach basic financial skills. Done, in a generation or two you will have a more financially savvy country.

[Timmmy]

I think this undercuts any argument that goes along the lines of people should be left to fend for themselves in regards to saving for retirement. People are already making very poor decisions regarding retirement, there is little evidence to suggest discontinuing SS would suddenly smarten up a general public that by and large does not plan for the future remotely adequately.   

Not that I disagree, but does continuing to support peoples lack of planning smarten up the general public?

It's not an education system though. So trying to compare it's result as a support system against an education based metric is a bad idea. It does not smarten up the general public because that is not what it was designed to do.

I do agree that we need a savings mindset change. Culturally things like this board can be a place to initiate that change. Then just start having it part of curriculum in schools. Teach basic financial skills. Done, in a generation or two you will have a more financially savvy country.

Maybe the system should be designed to educate to some extent.  I really don't favor making any major cuts to SS I'm just pointing out that if we positively reinforce that there is a safety net, they will use it.  Picture yourself rock climbing, you've got to pick a route up the cliff.  Do you pick the same route if you are free climbing vs climbing with a rope?  Most people would pick the safer route if they were free climbing and would be willing to take more risks if they were attached with a rope. 

The question of SS is how to provide the safety net without encouraging everyone to count on it. 

[matchewed]

I think this undercuts any argument that goes along the lines of people should be left to fend for themselves in regards to saving for retirement. People are already making very poor decisions regarding retirement, there is little evidence to suggest discontinuing SS would suddenly smarten up a general public that by and large does not plan for the future remotely adequately.   

Not that I disagree, but does continuing to support peoples lack of planning smarten up the general public?

It's not an education system though. So trying to compare it's result as a support system against an education based metric is a bad idea. It does not smarten up the general public because that is not what it was designed to do.

I do agree that we need a savings mindset change. Culturally things like this board can be a place to initiate that change. Then just start having it part of curriculum in schools. Teach basic financial skills. Done, in a generation or two you will have a more financially savvy country.

Maybe the system should be designed to educate to some extent.  I really don't favor making any major cuts to SS I'm just pointing out that if we positively reinforce that there is a safety net, they will use it.  Picture yourself rock climbing, you've got to pick a route up the cliff.  Do you pick the same route if you are free climbing vs climbing with a rope?  Most people would pick the safer route if they were free climbing and would be willing to take more risks if they were attached with a rope. 

The question of SS is how to provide the safety net without encouraging everyone to count on it.

So make it a secret? I'm not sure what you're getting at or how you'd implement something like that. I think it is perfectly reasonable to have social safety nets and yet provide an educational basis to allow people to make intelligent decisions regarding their finances. Why does the visibility of the social safety net matter? There isn't a way to "hide" it. It is just there. And it should evolve depending on the particular circumstances that it is being subject to. We're encountering a "pig in a snake" effect with the boomers but I don't see it being a problem.

You seem to be saying with your analogy that people are living all sorts of risky financial lifestyles because social security will be there. I'm not sure if that is the core problem. Perhaps it is our consumerism and inflated concept of what our lives should be like that hampers our ability to save rather than every person consciously saying "I'll buy that new car because... social security."

I think you're making a bad assumption that social security is the cause of people making poor financial decisions. I think there are much worse and obvious culprits to that one.

[Timmmy]

I think this undercuts any argument that goes along the lines of people should be left to fend for themselves in regards to saving for retirement. People are already making very poor decisions regarding retirement, there is little evidence to suggest discontinuing SS would suddenly smarten up a general public that by and large does not plan for the future remotely adequately.   

Not that I disagree, but does continuing to support peoples lack of planning smarten up the general public?

It's not an education system though. So trying to compare it's result as a support system against an education based metric is a bad idea. It does not smarten up the general public because that is not what it was designed to do.

I do agree that we need a savings mindset change. Culturally things like this board can be a place to initiate that change. Then just start having it part of curriculum in schools. Teach basic financial skills. Done, in a generation or two you will have a more financially savvy country.

Maybe the system should be designed to educate to some extent.  I really don't favor making any major cuts to SS I'm just pointing out that if we positively reinforce that there is a safety net, they will use it.  Picture yourself rock climbing, you've got to pick a route up the cliff.  Do you pick the same route if you are free climbing vs climbing with a rope?  Most people would pick the safer route if they were free climbing and would be willing to take more risks if they were attached with a rope. 

The question of SS is how to provide the safety net without encouraging everyone to count on it.

So make it a secret? I'm not sure what you're getting at or how you'd implement something like that. I think it is perfectly reasonable to have social safety nets and yet provide an educational basis to allow people to make intelligent decisions regarding their finances. Why does the visibility of the social safety net matter? There isn't a way to "hide" it. It is just there. And it should evolve depending on the particular circumstances that it is being subject to. We're encountering a "pig in a snake" effect with the boomers but I don't see it being a problem.

You seem to be saying with your analogy that people are living all sorts of risky financial lifestyles because social security will be there. I'm not sure if that is the core problem. Perhaps it is our consumerism and inflated concept of what our lives should be like that hampers our ability to save rather than every person consciously saying "I'll buy that new car because... social security."

I think you're making a bad assumption that social security is the cause of people making poor financial decisions. I think there are much worse and obvious culprits to that one.

Just to clarify...  I fully support SS in it's current state. 

I am simply questioning what having it does to the mindset of the general population.  You can't possibly be suggesting that having a safety net doesn't impact people and their decision making?

[hybrid]

The question of SS is how to provide the safety net without encouraging everyone to count on it.

Everyone already counts on a police department, a fire department, schools, etc. This is just one more service people count on. But SS is not a safety net, it is a mandatory supplemental retirement program and the vast majority of retirees need a supplemental retirement program. The question as I see it is how to properly fund a necessary service. The answer is straightforward, if politically unpopular. Push back eligibility dates, raise taxes, or some combination of the two (I am personally in favor of pushing back eligibility dates to reflect a healthier populace).

[matchewed]

I think this undercuts any argument that goes along the lines of people should be left to fend for themselves in regards to saving for retirement. People are already making very poor decisions regarding retirement, there is little evidence to suggest discontinuing SS would suddenly smarten up a general public that by and large does not plan for the future remotely adequately.   

Not that I disagree, but does continuing to support peoples lack of planning smarten up the general public?

It's not an education system though. So trying to compare it's result as a support system against an education based metric is a bad idea. It does not smarten up the general public because that is not what it was designed to do.

I do agree that we need a savings mindset change. Culturally things like this board can be a place to initiate that change. Then just start having it part of curriculum in schools. Teach basic financial skills. Done, in a generation or two you will have a more financially savvy country.

Maybe the system should be designed to educate to some extent.  I really don't favor making any major cuts to SS I'm just pointing out that if we positively reinforce that there is a safety net, they will use it.  Picture yourself rock climbing, you've got to pick a route up the cliff.  Do you pick the same route if you are free climbing vs climbing with a rope?  Most people would pick the safer route if they were free climbing and would be willing to take more risks if they were attached with a rope. 

The question of SS is how to provide the safety net without encouraging everyone to count on it.

So make it a secret? I'm not sure what you're getting at or how you'd implement something like that. I think it is perfectly reasonable to have social safety nets and yet provide an educational basis to allow people to make intelligent decisions regarding their finances. Why does the visibility of the social safety net matter? There isn't a way to "hide" it. It is just there. And it should evolve depending on the particular circumstances that it is being subject to. We're encountering a "pig in a snake" effect with the boomers but I don't see it being a problem.

You seem to be saying with your analogy that people are living all sorts of risky financial lifestyles because social security will be there. I'm not sure if that is the core problem. Perhaps it is our consumerism and inflated concept of what our lives should be like that hampers our ability to save rather than every person consciously saying "I'll buy that new car because... social security."

I think you're making a bad assumption that social security is the cause of people making poor financial decisions. I think there are much worse and obvious culprits to that one.

Just to clarify...  I fully support SS in it's current state. 

I am simply questioning what having it does to the mindset of the general population.  You can't possibly be suggesting that having a safety net doesn't impact people and their decision making?

I think you're making a bad assumption that social security is the cause of people making poor financial decisions. I think there are much worse and obvious culprits to that one.

[beltim]

Just to clarify...  I fully support SS in it's current state. 

I am simply questioning what having it does to the mindset of the general population.  You can't possibly be suggesting that having a safety net doesn't impact people and their decision making?

For an overwhelming number of retirees, Social Security isn't a safety net – it's a retirement plan.  64% of all beneficiaries receive more than half of their income from Social Security benefits, and 35% of beneficiaries receive more than 90% of their income from Social Security.  http://www.ssa.gov/policy/docs/chartbooks/fast_facts/2013/fast_facts13.pdf

[Cheddar Stacker]

Just to clarify...  I fully support SS in it's current state. 

I am simply questioning what having it does to the mindset of the general population.  You can't possibly be suggesting that having a safety net doesn't impact people and their decision making?

For an overwhelming number of retirees, Social Security isn't a safety net – it's a retirement plan.  64% of all beneficiaries receive more than half of their income from Social Security benefits, and 35% of beneficiaries receive more than 90% of their income from Social Security.  http://www.ssa.gov/policy/docs/chartbooks/fast_facts/2013/fast_facts13.pdf

Cool pdf beltim, thanks for posting.

Pages 18 and 27 are scary facts about the disability epidemic. I'm all for providing benefits to those who truly need them, but I've heard/read too many stories about the permanently unemployed becoming permanently disabled due to aggressive attorney's/doctors and a lack of a government attorney present at hearings. I hope this doesn't become a bigger problem.

It's alarming that only 13% of the funding comes from investment returns. Has anyone proposed a plan to "save" the system by slightly more aggressive investing strategies than 100% US Bonds?

I wonder how many people receiving all/most of their income from SS are early retirees who have no other taxable income but are independently wealthy? I wonder if all of us are going to skew these numbers in 20-30 years by drawing from Roth's?

[beltim]

Just to clarify...  I fully support SS in it's current state. 

I am simply questioning what having it does to the mindset of the general population.  You can't possibly be suggesting that having a safety net doesn't impact people and their decision making?

For an overwhelming number of retirees, Social Security isn't a safety net – it's a retirement plan.  64% of all beneficiaries receive more than half of their income from Social Security benefits, and 35% of beneficiaries receive more than 90% of their income from Social Security.  http://www.ssa.gov/policy/docs/chartbooks/fast_facts/2013/fast_facts13.pdf

Cool pdf beltim, thanks for posting.

Pages 18 and 27 are scary facts about the disability epidemic. I'm all for providing benefits to those who truly need them, but I've heard/read too many stories about the permanently unemployed becoming permanently disabled due to aggressive attorney's/doctors and a lack of a government attorney present at hearings. I hope this doesn't become a bigger problem.

It's alarming that only 13% of the funding comes from investment returns. Has anyone proposed a plan to "save" the system by slightly more aggressive investing strategies than 100% US Bonds?

I wonder how many people receiving all/most of their income from SS are early retirees who have no other taxable income but are independently wealthy? I wonder if all of us are going to skew these numbers in 20-30 years by drawing from Roth's?

No problem!  I love data, and the government has a lot of it.  Sometimes it's even presented well!

The data is from surveys, not income tax returns, so tax-deferred or exempt savings should not impact those numbers.

Many, many people have suggested that Social Security could invest in equities in one form or another, including Presidents Clinton and Bush (http://www.epi.org/publication/briefingpapers_fixsocsec/).  It never seems to go anywhere, though.

[matchewed]

It's alarming that only 13% of the funding comes from investment returns. Has anyone proposed a plan to "save" the system by slightly more aggressive investing strategies than 100% US Bonds?

There has been proposals to "privatize" SS by making it more that your money gets pulled out and you get to choose where your money goes. More like a government 401k plan. But that's been hollered down before. Bush proposed it frequently.

There is also some push back to the idea. There are risks inherent in any of the solutions proposed.

Beltim beats me every time.

[Cheddar Stacker]

It's alarming that only 13% of the funding comes from investment returns. Has anyone proposed a plan to "save" the system by slightly more aggressive investing strategies than 100% US Bonds?

There has been proposals to "privatize" SS by making it more that your money gets pulled out and you get to choose where your money goes. More like a government 401k plan. But that's been hollered down before. Bush proposed it frequently.

There is also some push back to the idea. There are risks inherent in any of the solutions proposed.

Beltim beats me every time.

Thanks beltim and matchewed for the responses. Clearly there would be more risks, but it seems like a logical solution. I know how risk averse government organizations can be. I work with plenty of local governments, and the thought of losing taxpayer funds to a bad investment is taboo most of the time. It just seems so simple though. I guess fear trumps logic here.

[arebelspy]

It's a gamble either way, the same as any annuity is.  It's basically the opposite of a life insurance policy, it's an insurance policy on old age.

I love this perspective on it.  Are you betting on yourself to live longer (delay taking) or die sooner?

Unless you have a financial need to take it early, I wouldn't take it early to try and beat systemic risk or anything like that, personally.

[dude]

Delaying social security is like buying more of an immediate annuity with inflation protection from the most credit worthy source in the world.  Think about that for a second or two.  Sounds like maybe that would be a good counterweight to a portfolio of stocks and bonds that will fluctuate with the market.

One of the greatest risks for early retirement is outliving your money.  As long as you have the funds to delay SS, you should do so and lock in a much larger amount.

I'm in general agreement with this, but man, there are some serious cracks in the system that the asshats in Congress don't seem to give a shit about fixing.  I'll take a "wait and see" attitude and make the decision when I'm approaching 62, but I'm starting to be less optimistic about getting full SS benefits when I reach full retirement age (I'll be 68 in 2033, the year the "surplus" is supposed to run out):

http://assetbuilder.com/scott_burns/social_security_and_medicare_getting_worse_but_out_of_sight

[arebelspy]

Delaying social security is like buying more of an immediate annuity with inflation protection from the most credit worthy source in the world.  Think about that for a second or two.  Sounds like maybe that would be a good counterweight to a portfolio of stocks and bonds that will fluctuate with the market.

One of the greatest risks for early retirement is outliving your money.  As long as you have the funds to delay SS, you should do so and lock in a much larger amount.

I'm in general agreement with this, but man, there are some serious cracks in the system that the asshats in Congress don't seem to give a shit about fixing.  I'll take a "wait and see" attitude and make the decision when I'm approaching 62, but I'm starting to be less optimistic about getting full SS benefits when I reach full retirement age (I'll be 68 in 2033, the year the "surplus" is supposed to run out):

http://assetbuilder.com/scott_burns/social_security_and_medicare_getting_worse_but_out_of_sight

The fixes will happen.  I'm not worried about SS, personally.  But even that aside, let's say you don't get full SS and only get 75%.  That doesn't affect this calculation or, the longevity idea.

Whether you get 75% or 100% of your benefits likely doesn't change the "take at 62 or 70" calculation, so we probably shouldn't sidetrack into the off topic "is social security stable/reliable/etc."  :)

[bighatnohorse]

Ideally, one would take the money ASAP and invest it into a market that is just entering a  bull phase.
But that's like the "When should I retire?" question.
If you retire and the market takes a dive, then your money is gone and you made a bad timing decision.

So. . .
For most people, the consensus to delay taking SS is the better choice.

(A simple answer with many unknown base variables.)

[Bateaux]

I have no idea what I'll actually do.  At this point I don't trust our government enough to even put SS into my plans.  Most likely I'll draw at 62, who knows what conditions will exist in coming decades.  I hope I'm wealthy enough that I really don't care about those few pennies by then.   I'll look at SS as a hedge against medical expenses.   It will come about the time medical care gets higher with age.

[Shor]

SS: I pay in to it now, it's a tax to support the older generation who made poor financial decisions.
Go forward a lot of years to future me: If I need more money post ER, because of whatever reason, I might take the SS payments. Otherwise, I wouldn't want to take it.
None of what I take in would be mine. What was mine has already been distributed to where it was needed when it was needed at the time.
First I would need to come to grips that I am taking in someone else's money, and determining that it is worth using their money to supplement my lifestyle choices.

YMMV, especially depending on your outlook on money.
I'm guessing most Americans don't see it the same way, especially the gimme gimme and the entitled type of personalities...

[begood]

Here's a question... I'll be 69 when the "surplus" runs out. I'm a year older than my husband, and he is by far the higher wage earner. I won't have anywhere near 35 years of employment. If we decide to wait until 70, does that mean we have to wait until HE is 70 and I am 71? Or will I just get half of whatever his would be at whatever age we choose to take it?

[sirdoug007]

Here's a question... I'll be 69 when the "surplus" runs out. I'm a year older than my husband, and he is by far the higher wage earner. I won't have anywhere near 35 years of employment. If we decide to wait until 70, does that mean we have to wait until HE is 70 and I am 71? Or will I just get half of whatever his would be at whatever age we choose to take it?

Benefits are always tied to your age.  You can start receiving spousal benefits at your full retirement age which are 1/2 your husbands full retirement age benefit.

One of the best strategies is for your husband to file and suspend payments and then you can claim spousal benefits.  Then he waits until 70 to recieve his larger benefit.

Google "file and suspend SS" and you will find tons on info.

And I would not worry about the "surplus" running out.  Congress will be forced to find a solution by then by the millions of people for whom SS is their only income or chance of retirement income.  Just raising the cap on taxed income and maybe changing the inflation calculation will go a long way to solving the problem.  By the time you get to 67 the problem will likely no longer be a problem.

[begood]

Thanks, sirdoug! All this used to feel soooooooo far in the future... then I turned 50! ;)

[Gin1984]

The sad reality is that saving for retirement is a long term play and most people aren't doing it remotely well or adequately. I am of the opinion SS is one of the best social programs ever instituted in no small part because that without some sort of mandated retirement program most people simply won't save adequately for retirement for all sorts of reasons. 

I think my beef with the program comes in 4 parts
1)  The initial recipients paid nothing into it.  Thus, it is basically a ginormous pyramid scheme, ultimately leaving the last in line screwed.
2)  Its benefits disproportionately reward moral hazards.  Dual-working couples get the shaft in terms of eventual benefits.  People who become disabled early in their working career and those who marry older sugar-daddies collect a sweet deal in terms of dollars in versus dollars out.
3)  Its an incredible sub-optimal investment scheme.  The government effectively treats the 12.4% you're taxed as if you invested in T-bills, which no advisor would advise you do.
4)  It breeds a self-fulfilling prophecy.  Americans don't save because Uncle Sam will help out if things get rough due to self-inflicted stupidity.

To refute your point about people unable/unwilling to change even in the absence of social programs, consider the best-savings countries in the world.  Excluding countries who are swimming in oil money, you have countries like Gabon, Algeria, Bahrain, Iran, and Bangladesh who have per capital GDPs that would make the minimum wage worker at McDonalds feel like he's a millionaire, yet they have savings rates in excess of 40%.  When you know you either save now or starve at 60, it's amazing how quickly you learn to save and save big.  When SS and unemployment were enacted, people were so thankful to have an extra 6 months or a year of income to supplement their shortfall.  Now you have people screaming that a full year of 50% unemployment benefits and free job training isn't enough, and that benefits should last 2-3 years of "searching" to find employment they're willing to do.  It sounds cold, but the reason social programs begin to fail is because there is always a case study of it not being "enough" and people need to give a little more.  SS taxes have gone from 1% to 12.4% over the lifetime of the program, and it's still never "enough" with the elderly always trying to get their 15 minutes in a new story of how their benefits are reduced, no COLA this year, etc.  Eventually you have to just say enough and let people stand or fall on their own and accept the real consequences that comes from that.

Except that it was invented because people were dying in the streets.

[Gone Fishing]

The majority of retirees take SS at 62 not because it is the smart financial play, but because they need/desire the extra financial boost in the short term. It's usually a poor long term decision.

Exactly.

My take on SS is that most 62 vs 70 break even points (depending on the formula you use) fall in the late 70's early 80's.  If you are well off, gamble on your life expectancy as you see fit.  As of now (things change, I plan on (besides being well off) collecting at as early as I can (which may change as it will be after 2030).  If you are not well off, you need to wait as long as possible before you start collecting both to maximize your working years to build your stache, maintain employer benefits, and maximize your monthly check so you can live somewhat more comfortably in your twilight years.  There will aways be a group squarely in the middle that will just have to decide what is worth more to them.

[Another Reader]

I'm entirely too close to the age where I have to make that decision.  I do not need the money, but I paid into the annuity and I am going to take what was promised.  And taking the annuity as soon as I am eligible is exactly what I'm going to do.  The breakeven point without considering the present worth of the annuity or the returns on investing the after tax amount is around 77 IIRC.  Family history does not support trying to beat the odds.  The net income will be used to pay off another rental mortgage or invest.  Or maybe I will light cigars with $100 bills.

[Richie Poor]

If a recession were to take place soon before you turn 70 you might seem some higher than average returns. You could let the market dictate which path you choose.

I will probably play it safe and wait just in case I live to be 140 years old. I'm all hopped up on Vitamin C so I may not be thinking clearly.