Taking social security at 70.....risks?

[mistymoney]

I am trying to tweak and finalize my plans for fire. Waiting until 70 for social security seems to be a really smart move....except for that shortfall they are always talking about!

Now - I am 80% confident that they will just figure it out and benefits will go on as planned per the soc sec statement. But, there is that chance they they start to trim benefits - 20% chance per my internal metrics. Currently, I think the figure is only 77% of promised benefits are covered after 2032. I will retire well before 2032, but if I wait until 70 to maximize my benefit then that comes after 2032.

Is anyone else in this situation?

My concern is that if I take reduced social security in say 2030, that that wouldn't be 'reduced', but that if I wait until age 70 to collect (2036), that if there is reduction in future benefits, that what I waited for I wouldn't get, and that maybe it might even be less than what I could have claimed in 2030.

How much of a warning could we expect that benefits will be trimmed? While raising the retirement age has been the usual method, that isn't going to change what happens in 2032 as they would be changing the age for people retiring much later.

[lhamo]

Personally I am not that worried about it.

I believe there are studies that have shown pretty convincingly that the social security shortfall could be dramatically reduced by ending the cap on what part of salaries is taxed for social security purposes.  That plus a combination of extending the optional age to start taking it (RMDs have been pushed out to age 75 now, would think that somebody is going to propose extending SS age out to 75 as well) and taxing the benefits will probably mean more modest reductions in benefits.

In short, if you are in a financial position where you CAN wait until age 70 to start taking SS, then future reductions in benefits are probably not going to be a major problem for you.

PS:  An interesting page on the SS website has actuarial analyses of the effects of different SS reform proposals from congress:

https://www.ssa.gov/OACT/solvency/

[Rob_bob]

From everything I have heard the possible benefit reduction will be across the board for all SS recipients.

So taking it earlier than 2032 would also see a cut from a lower starting benefit.

What actually happens when the time comes is unknown.  Politicians won't make a decision until their feet are held to the fire and what burns them least.

[Ron Scott]

The concept that the “fund will not support paying full benefits” is a silly rhetorical trick played by politicians to point the finger at each other regarding spending on a variety of programs and the media, who wants to scare the public to “stay tuned”.

They all know that the US government is not limited to spending money it raises from taxes and related sources.

“There is nothing to prevent the government from creating as much money as it wants.”

Ignore all this.

[mistymoney]

From everything I have heard the possible benefit reduction will be across the board for all SS recipients.

So taking it earlier than 2032 would also see a cut from a lower starting benefit.

What actually happens when the time comes is unknown.  Politicians won't make a decision until their feet are held to the fire and what burns them least.

Thanks - I had not heard that. Pretty tough for those seniors who can't go back to work and rely on ss for most of their income!

[mistymoney]

Personally I am not that worried about it.

I believe there are studies that have shown pretty convincingly that the social security shortfall could be dramatically reduced by ending the cap on what part of salaries is taxed for social security purposes.  That plus a combination of extending the optional age to start taking it (RMDs have been pushed out to age 75 now, would think that somebody is going to propose extending SS age out to 75 as well) and taxing the benefits will probably mean more modest reductions in benefits.

In short, if you are in a financial position where you CAN wait until age 70 to start taking SS, then future reductions in benefits are probably not going to be a major problem for you.

PS:  An interesting page on the SS website has actuarial analyses of the effects of different SS reform proposals from congress:

https://www.ssa.gov/OACT/solvency/

I likely won't be in such a great position as most here, waiting for 70 means I will have a higher than "safe" WR until I get to soc sec, so I really need to make a careful decision! Will read the link, thanks.

[mistymoney]

Personally I am not that worried about it.

I believe there are studies that have shown pretty convincingly that the social security shortfall could be dramatically reduced by ending the cap on what part of salaries is taxed for social security purposes.  That plus a combination of extending the optional age to start taking it (RMDs have been pushed out to age 75 now, would think that somebody is going to propose extending SS age out to 75 as well) and taxing the benefits will probably mean more modest reductions in benefits.

In short, if you are in a financial position where you CAN wait until age 70 to start taking SS, then future reductions in benefits are probably not going to be a major problem for you.

PS:  An interesting page on the SS website has actuarial analyses of the effects of different SS reform proposals from congress:

https://www.ssa.gov/OACT/solvency/

That actually has a whole ton of readings! Was hoping for bullet pointed differences :)

[reeshau]

What actually happens when the time comes is unknown.  Politicians won't make a decision until their feet are held to the fire and what burns them least.

To this point, from the Trust Fund FAQ:

"The reserves of the larger trust fund (OASI), from which retirement benefits are paid, were nearly depleted in 1982. No beneficiary was shortchanged because the Congress enacted temporary emergency legislation that permitted borrowing from other Federal trust funds and then later enacted legislation to strengthen OASI Trust Fund financing. The borrowed amounts were repaid with interest within 4 years."

Also lending pressure on the lawmakers to act is the way in which reduced benefits would be delivered.  (I have a clear memory of reading this from a reputable source, but can't find a citation on the fly.)  If the trust fund is exhausted, and benefits are reduced per current guidelines, you don't get monthly checks that are reduced by 22%.  (Like anyone not constrained by federal bureaucracy would do) You get fewer, full amount checks.   Like, 9 a year, instead of 12.  This will of course stretch anyone reliant on SS and living paycheck to paycheck, and will provide plenty of outrage fodder for human interest stories, should it come to that.  (Or, as this delivery constraint becomes better known, as it approaches)

[Turtle]

The biggest risk is there's a chance of no longer still being around to collect at 70.  Not a good reason to alter any plans, however.

[Ron Scott]

The biggest risk is there's a chance of no longer still being around to collect at 70.  Not a good reason to alter any plans, however.

This is as close to a perfect response as I’ve seen, although I suppose a reasonable case could be made to take at 69.

[Car Jack]

Put in your info and numbers into https://opensocialsecurity.com/ and find out what your best strategy is.  There is an option to include the 20% discount expected in 2034.

I noted a few posts saying "if they only do *this*, they'll have enough".  Sorry.  Congress couldn't vote that today is Monday if the alternative was that a nuclear bomb would explode in Washington DC.  The cut is coming.

Keep in mind that if you take SS before 70 and get 2 years of payments and then the rate drops, you're still getting hit by the drop as you would waiting till you're 70.  Do the math or let the tool linked above do it for you.

[rantk81]

I can think of a few "risk" of taking SS at the maximum age (70)

1.  Passing away before receiving a single cent of benefits.

2.  Inflation continuing to cut away at the non-inflation-adjusted "Provision Income" threshold when calculating how much of your SS benefits are subjected to taxes.  Delaying each additional year becomes less and less "valuable", due to more and more of your SS benefit check becoming considered taxable.

[trollwithamustache]

Take a hard look at your health and the ages your parents passed away.  If you live past 78, the average age, waiting makes sense. Since you are a stranger on the internet, our starting point is there is a 50% chance you go early and waiting until 70 wasn't a good idea.

Its all death math, which is super hard to push emotion out of your brain and be logical about it.

[AMandM]

The biggest risk is there's a chance of no longer still being around to collect at 70.  Not a good reason to alter any plans, however.

Take a hard look at your health and the ages your parents passed away.  If you live past 78, the average age, waiting makes sense. Since you are a stranger on the internet, our starting point is there is a 50% chance you go early and waiting until 70 wasn't a good idea.

Actually, OP has an excellent chance of living past 70. 78 is the average life expectancy at birth, but OP is 57 and has already outlived most congenital fatal conditions, childhood accidents, risky youth behaviors, etc. At age 57 your life expectancy is 82 years (male) or 87 years (female). https://www.ssa.gov/OACT/population/longevity.html

[mistymoney]

The biggest risk is there's a chance of no longer still being around to collect at 70.  Not a good reason to alter any plans, however.

Take a hard look at your health and the ages your parents passed away.  If you live past 78, the average age, waiting makes sense. Since you are a stranger on the internet, our starting point is there is a 50% chance you go early and waiting until 70 wasn't a good idea.

Actually, OP has an excellent chance of living past 70. 78 is the average life expectancy at birth, but OP is 57 and has already outlived most congenital fatal conditions, childhood accidents, risky youth behaviors, etc. At age 57 your life expectancy is 82 years (male) or 87 years (female). https://www.ssa.gov/OACT/population/longevity.html

good info for everyone! Thank you!

[DeniseNJ]

The break even point is about 80 to 81 or 82. So if you plan on living after that then wait to take it. If it made a difference SSA wouldn't give you the option.  Generally on average, it's a wash.

I think if you need it, take it, and if you don't, take it anyway and invest it. If you invest it with average returns, the break even point is like 99.

[Dee18]

I did the take it and invest, but in retrospect I wish I had waited so that I could have rolled over more traditional IRA money at a lower tax rate and avoided as high an IRMA I'm paying on Medicare. For those who, like me, didn't previously think about IRMA, it is the income related monthly adjustment, which in 2024 ranges from $174-$594 per month for a single person.  One pays that in addition to the $174 base fee for Part B Medicare.  Yes, some individuals will pay $768 per month just for Medicare Part B for one person in 2024.

[jrhampt]

I did the take it and invest, but in retrospect I wish I had waited so that I could have rolled over more traditional IRA money at a lower tax rate and avoided as high an IRMA I'm paying on Medicare. For those who, like me, didn't previously think about IRMA, it is the income related monthly adjustment, which in 2024 ranges from $174-$594 per month for a single person.  One pays that in addition to the $174 base fee for Part B Medicare.  Yes, some individuals will pay $768 per month just for Medicare Part B for one person in 2024.

Good to know.  At what age did you start taking it?  early, FRA, or 70?

[Dee18]

I started at 65, when I had to begin Medicare.  After reviewing several articles I concluded that taking it at 65 and investing was pretty equal to waiting until 70.  And if I died before 70, as unlikely as it might be, my heirs would benefit from the additional invested money.

[Ron Scott]

I would be skeptical of the claim that taking social security benefits at full retirement age and investing them will yield as much or more money than waiting until age 70 to claim benefits. Here's why:

1. Social security benefits increase by about 8% per year for each year you delay claiming after your full retirement age, up until age 70.

2. So if your full retirement age is 66, but you wait until 70 to take benefits, your monthly benefit would be about 32% higher (4 years x 8% per year) compared to taking it at 66.

3. That 32% higher benefit is guaranteed and indexed to inflation every year by social security. So you lock in a permanently higher base benefit by delaying.

To match that guaranteed 32% increase, your investments would have to yield an inflation-adjusted return higher than 8% per year for the years between ages 66-70. That may be unrealistic

[wageslave23]

I would be skeptical of the claim that taking social security benefits at full retirement age and investing them will yield as much or more money than waiting until age 70 to claim benefits. Here's why:

1. Social security benefits increase by about 8% per year for each year you delay claiming after your full retirement age, up until age 70.

2. So if your full retirement age is 66, but you wait until 70 to take benefits, your monthly benefit would be about 32% higher (4 years x 8% per year) compared to taking it at 66.

3. That 32% higher benefit is guaranteed and indexed to inflation every year by social security. So you lock in a permanently higher base benefit by delaying.

To match that guaranteed 32% increase, your investments would have to yield an inflation-adjusted return higher than 8% per year for the years between ages 66-70. That may be unrealistic

Your conclusion is incorrect. You have to account for the payments that you already received before turning 70.  You need to plug the numbers into excel or a calculator to see what your rate of return and life expectancy needs to be in order to break even.

[Much Fishing to Do]

I've gotta think any changes to the actual SS payouts of those actually collecting or could be collecting would be extremely small/gradual as to be almost insignificant (like playing with the COLA calcs, etc).  They certainly wouldn't want to do anything to incentivize someone to retire earlier.  I'm guessing any long term fixes are by increasing the "full" retirement age of younger people (which I guess sounds better than a benefit cut though its basically the same thing) and any short term funding needed would come from a millionaire type tax.  I doubt they'd really raise the cap, because they certainly wouldn't want to be now on the hook for those even higher payments later, though maybe they would call it raising the cap but you dont get any corresponding increased Benefit later so its really just a different tax.

I'd think the majority of the risk from taking at 70 would be the same as always, that you'd not live long enough to make up for the missed payments.

[Turtle]

Your local Social Security office should be able to print you a table which lists amounts you are entitled to for every month between the soonest you can take it and when you turn 70.  That can be helpful in making decisions and in more easily filling in Excel tables if you are doing the math yourself.

If you potentially have rights to anyone else's Social Security, they can also fill in the table for that as well; Ex-spouse if you were married over 10 years, for example.  If you have rights to a smaller other amount and the ability to still defer your own until 70, that is the best of both worlds.

[reeshau]

I would be skeptical of the claim that taking social security benefits at full retirement age and investing them will yield as much or more money than waiting until age 70 to claim benefits. Here's why:

1. Social security benefits increase by about 8% per year for each year you delay claiming after your full retirement age, up until age 70.

2. So if your full retirement age is 66, but you wait until 70 to take benefits, your monthly benefit would be about 32% higher (4 years x 8% per year) compared to taking it at 66.

3. That 32% higher benefit is guaranteed and indexed to inflation every year by social security. So you lock in a permanently higher base benefit by delaying.

To match that guaranteed 32% increase, your investments would have to yield an inflation-adjusted return higher than 8% per year for the years between ages 66-70. That may be unrealistic

Your conclusion is incorrect. You have to account for the payments that you already received before turning 70.  You need to plug the numbers into excel or a calculator to see what your rate of return and life expectancy needs to be in order to break even.

Right; on Day 1 of year 70, taking it early is ahead, by all the payments and gains to that date.  It's delaying to 70 that starts behind, and has to try and catch up.

[Ron Scott]

I would be skeptical of the claim that taking social security benefits at full retirement age and investing them will yield as much or more money than waiting until age 70 to claim benefits. Here's why:

1. Social security benefits increase by about 8% per year for each year you delay claiming after your full retirement age, up until age 70.

2. So if your full retirement age is 66, but you wait until 70 to take benefits, your monthly benefit would be about 32% higher (4 years x 8% per year) compared to taking it at 66.

3. That 32% higher benefit is guaranteed and indexed to inflation every year by social security. So you lock in a permanently higher base benefit by delaying.

To match that guaranteed 32% increase, your investments would have to yield an inflation-adjusted return higher than 8% per year for the years between ages 66-70. That may be unrealistic.

Your conclusion is incorrect. You have to account for the payments that you already received before turning 70.  You need to plug the numbers into excel or a calculator to see what your rate of return and life expectancy needs to be in order to break even.

Right; on Day 1 of year 70, taking it early is ahead, by all the payments and gains to that date.  It's delaying to 70 that starts behind, and has to try and catch up.

Yes of course, longevity is key, with lifespan probabilities calculated at population levels a good standard—then honing the estimate based on personal health, etc.

Over the years, most analysts, who look at this claim people who are in good to excellent health at the time they are making this decision are better off waiting until 70 to maximize total Social Security payments. It’s a little more complicated than just looking at the longevity tables for someone at full retirement age since the probability of living longer continues to change over time.

Here are a couple of links—the first one high-level, the second a more academic study. These are the most recent I can find but they are typical of what you come across in books for retirees by financial analysts. (LOL— although these are the same people who give a pass to the 4% rule so you might want to take what they say with a grain of salt.)

https://www.cnbc.com/2023/02/01/why-it-pays-to-wait-to-claim-social-security-retirement-benefits.html

https://kotlikoff.net/wp-content/uploads/2022/11/How-Much-Lifetime-Social-Security-Benefits-Are-Americans-Leaving-on-the-Table-11-16-22.pdf

At some point, this discussion becomes mostly academic since such a small minority of retirees waits until 70 years old to claim benefits.

[Laura33]

I likely won't be in such a great position as most here, waiting for 70 means I will have a higher than "safe" WR until I get to soc sec, so I really need to make a careful decision! Will read the link, thanks.

I think it's incredibly difficult to predict any of this with any reliability.  Which is extra hard for you, because you are relying on SS more than many here plan to.  FWIW, I think dramatic cuts for people currently on SS are very unlikely, because it's political suicide.  Then again, I also agree with the comment that Congress currently couldn't agree to vote that today is Monday, so the lessons of history don't necessarily apply here.  I still think my view is most likely, but I agree that there is a bigger risk than in other political environments.

It sounds like you are relying on SS to cover most/all your expenses once you reach whatever age you decide to claim benefits -- it's sort of like longevity insurance for you, so you can focus your 'stache on the pre-SS years.  So if that "insurance" isn't as reliable as you were counting on, that suggests looking at other things you can do with your 'stache to ensure those years are covered if the worst happens.  E.g., it may be worth looking into deferred annuities that would kick in at your future retirement age (I think we talked about that before in a different topic).  You obviously wouldn't want to use a huge part of your 'stache on that, but you could use some of it to cover the delta of what you envision as the possible level of cuts (e.g., if you're worried that SS could be cut by $1,000/mo, you could get an annuity that will pay out $1,000/mo. starting at age 70).

[Ron Scott]

I likely won't be in such a great position as most here, waiting for 70 means I will have a higher than "safe" WR until I get to soc sec, so I really need to make a careful decision! Will read the link, thanks.

I think it's incredibly difficult to predict any of this with any reliability.  Which is extra hard for you, because you are relying on SS more than many here plan to.  FWIW, I think dramatic cuts for people currently on SS are very unlikely, because it's political suicide.  Then again, I also agree with the comment that Congress currently couldn't agree to vote that today is Monday, so the lessons of history don't necessarily apply here.  I still think my view is most likely, but I agree that there is a bigger risk than in other political environments.

It sounds like you are relying on SS to cover most/all your expenses once you reach whatever age you decide to claim benefits -- it's sort of like longevity insurance for you, so you can focus your 'stache on the pre-SS years.  So if that "insurance" isn't as reliable as you were counting on, that suggests looking at other things you can do with your 'stache to ensure those years are covered if the worst happens.  E.g., it may be worth looking into deferred annuities that would kick in at your future retirement age (I think we talked about that before in a different topic).  You obviously wouldn't want to use a huge part of your 'stache on that, but you could use some of it to cover the delta of what you envision as the possible level of cuts (e.g., if you're worried that SS could be cut by $1,000/mo, you could get an annuity that will pay out $1,000/mo. starting at age 70).

This is good advice IMO.

It is estimated that the wait-till-70 approach is used by about 10% of the population even though 90% are likely to take higher total payments by waiting. But it’s fraught with hang-wringing over “payback” and longevity.

Annuities seem skitchy for wealthy retirees, but are perfect for people with limited means. The annuity gives you less reason to fret over whether the 4% rule is enough or will even last without running at of money at 80.

[DeniseNJ]

I would be skeptical of the claim that taking social security benefits at full retirement age and investing them will yield as much or more money than waiting until age 70 to claim benefits. Here's why:

1. Social security benefits increase by about 8% per year for each year you delay claiming after your full retirement age, up until age 70.

2. So if your full retirement age is 66, but you wait until 70 to take benefits, your monthly benefit would be about 32% higher (4 years x 8% per year) compared to taking it at 66.

3. That 32% higher benefit is guaranteed and indexed to inflation every year by social security. So you lock in a permanently higher base benefit by delaying.

To match that guaranteed 32% increase, your investments would have to yield an inflation-adjusted return higher than 8% per year for the years between ages 66-70. That may be unrealistic

Your conclusion is incorrect. You have to account for the payments that you already received before turning 70.  You need to plug the numbers into excel or a calculator to see what your rate of return and life expectancy needs to be in order to break even.

The reason this is incorrect is because you aren't counting all the payments you didn't get between age 62 and 70.  If you were to get $1000 a month at 62, that's 12K a year that you aren't getting.  You may end up getting a huge boost and get $1500 per month at age 70 for ever.  But you still missed out on 96K for the past 8 yrs--more if you include COLA and such or investment gains.  It will take 192 months or 16 years just to break even for the extra 500 per month that you missed.

These numbers are made up.  The break even point is closer to 81 or 82.

[DeniseNJ]

Regarding Medicare:  Yes people with a higher income do pay extra for Part B.  You may be able to avoid a higher income if you take or don't take SS early or late.  Really that depends on the rest of your assets and income, your total amounts, not on whether you take your money early.

[mistymoney]

I likely won't be in such a great position as most here, waiting for 70 means I will have a higher than "safe" WR until I get to soc sec, so I really need to make a careful decision! Will read the link, thanks.

I think it's incredibly difficult to predict any of this with any reliability.  Which is extra hard for you, because you are relying on SS more than many here plan to.  FWIW, I think dramatic cuts for people currently on SS are very unlikely, because it's political suicide.  Then again, I also agree with the comment that Congress currently couldn't agree to vote that today is Monday, so the lessons of history don't necessarily apply here.  I still think my view is most likely, but I agree that there is a bigger risk than in other political environments.

It sounds like you are relying on SS to cover most/all your expenses once you reach whatever age you decide to claim benefits -- it's sort of like longevity insurance for you, so you can focus your 'stache on the pre-SS years.  So if that "insurance" isn't as reliable as you were counting on, that suggests looking at other things you can do with your 'stache to ensure those years are covered if the worst happens.  E.g., it may be worth looking into deferred annuities that would kick in at your future retirement age (I think we talked about that before in a different topic).  You obviously wouldn't want to use a huge part of your 'stache on that, but you could use some of it to cover the delta of what you envision as the possible level of cuts (e.g., if you're worried that SS could be cut by $1,000/mo, you could get an annuity that will pay out $1,000/mo. starting at age 70).

Thanks, this is something to consider. Most of my money is in pretax accounts, and it looks like about 150-200k for 1k/month based on some quick calculators. For immediate annuity anyway if buying at age 70. So I would need to scrounge up money outside of retirement accounts.

I am kind of distrustful of  annuities! Been drilled in that they are a bad investment for years....decades. Wondering how/why that wisdom has changed? And I always worry about relying on a financial company to last 30-40 years and stick to their word, lol!

Also - i suppose that the purchase point is important too. Seems 6% SPIA is rather common at the moment. What were they paying 5 years ago? Was it same, or different now due to interest rates rising?

But regardless, I think your major point is maybe to just look to risk and make adjustments there? Which I have been doing the past few years as I get ready, so maybe just add the soc sec uncertainty into that pot and see what changes to make based on that.

OTOH! The risk some highlight of not making it to break even point does not worry me at all, as I'd be dead! Sure - I would take it early if I knew, but the plan to put off till 70 is for the long term, just in case.

[mistymoney]

I would be skeptical of the claim that taking social security benefits at full retirement age and investing them will yield as much or more money than waiting until age 70 to claim benefits. Here's why:

1. Social security benefits increase by about 8% per year for each year you delay claiming after your full retirement age, up until age 70.

2. So if your full retirement age is 66, but you wait until 70 to take benefits, your monthly benefit would be about 32% higher (4 years x 8% per year) compared to taking it at 66.

3. That 32% higher benefit is guaranteed and indexed to inflation every year by social security. So you lock in a permanently higher base benefit by delaying.

To match that guaranteed 32% increase, your investments would have to yield an inflation-adjusted return higher than 8% per year for the years between ages 66-70. That may be unrealistic

Your conclusion is incorrect. You have to account for the payments that you already received before turning 70.  You need to plug the numbers into excel or a calculator to see what your rate of return and life expectancy needs to be in order to break even.

The reason this is incorrect is because you aren't counting all the payments you didn't get between age 62 and 70.  If you were to get $1000 a month at 62, that's 12K a year that you aren't getting.  You may end up getting a huge boost and get $1500 per month at age 70 for ever.  But you still missed out on 96K for the past 8 yrs--more if you include COLA and such or investment gains.  It will take 192 months or 16 years just to break even for the extra 500 per month that you missed.

These numbers are made up.  The break even point is closer to 81 or 82.

yeah-my payout increases 76% from age 62 to 70. Speaking in today's dollars, if I only had the soc sec at 70, I could live that typical 'fixed income' lifestyle of pinching pennies and no splurging. If I ended up with only the soc sec amount from age 62, I wouldn't likely be unhoused, but I would be reliant on all the low-income senior services that I could lay hands on. food stamp, etc.

Neither would get me into a nice assisted living space.

[mistymoney]

Put in your info and numbers into https://opensocialsecurity.com/ and find out what your best strategy is.  There is an option to include the 20% discount expected in 2034.

I noted a few posts saying "if they only do *this*, they'll have enough".  Sorry.  Congress couldn't vote that today is Monday if the alternative was that a nuclear bomb would explode in Washington DC.  The cut is coming.

Keep in mind that if you take SS before 70 and get 2 years of payments and then the rate drops, you're still getting hit by the drop as you would waiting till you're 70.  Do the math or let the tool linked above do it for you.

That link always says 68.8 - I think it assumes average life expectancy. Is there a way to get it to show longer/short life spans?

[Laura33]

I am kind of distrustful of  annuities! Been drilled in that they are a bad investment for years....decades. Wondering how/why that wisdom has changed? And I always worry about relying on a financial company to last 30-40 years and stick to their word, lol!

Most immediate annuities are because of fees, payout rates, etc.  The one I have heard of that is useful is a deferred annuity -- like you'd buy it now to kick in when you start taking SS at 70.  Obviously, the younger you are when you buy, and the later in life you agree to start taking the money, the better the "deal" is.

[Ron Scott]

I am kind of distrustful of  annuities! Been drilled in that they are a bad investment for years....decades. Wondering how/why that wisdom has changed? And I always worry about relying on a financial company to last 30-40 years and stick to their word, lol!

Most immediate annuities are because of fees, payout rates, etc.  The one I have heard of that is useful is a deferred annuity -- like you'd buy it now to kick in when you start taking SS at 70.  Obviously, the younger you are when you buy, and the later in life you agree to start taking the money, the better the "deal" is.

I would not buy an annuity, and I don’t think they are a good choice for most people who FIRE. They are not for people who can live as they choose on interest & dividends, or a small percentage of their invested assets and who plan to leave significant assets to loved ones. IMO.

Annuities are not investments. They’re insurance policies that protect you from running out of money in the home stretch. They are best for people who need to withdraw significant sums of money from their investment portfolio for necessities, with little discretionary income. If your math shows you need to rock The 4% Rule 40 years or more—or you may be required to sell assets at a loss to fund living expenses—annuities should be considered. They are also good for people who just want the comfort of spending more on themselves, and have no interest in leaving an estate.

Annuities are regulated at the state level for the most part. Some states (New York, California, Florida) do a better job than others (Texas, PA). And many states offer a financial guarantee in the rare case of insurer insolvency.  So while insolvencies may occur, timely regulatory interventions, forced mergers, and state guaranty protections have proven very effective at minimizing annuity owner losses historically. Well-established insurers with strong vested interests in maintaining their “safe harbor” reputations benefit strongly by avoiding shaky financials.

Annuities come in lots of flavors, need to be shopped, and getting advice from a financial advisor who does not sell them can be helpful. Insurers are rated, prices vary, state support varies, and products can be tailored to your individual circumstances—so pretend it’s an important life decision.   It’s not rocket science but needs to be treated with the same thoughtfulness you apply to FIRE planning, investing, and tax management.

The funniest criticism you will hear about annuities is that they are a bad deal if you die early. Hey Einstein—they’re life insurance products.

[rantk81]

It's an interesting "thought experiment" to compare owning a fund of Insurance companies (https://finance.yahoo.com/quote/KIE/holdings?p=KIE) vs. buying an annuity from one of those companies!  If you buy an annuity from one company, you're at risk (with asterisks) of insolvency of one insurance company.  If you buy that ETF, you're spreading the risk out among many insurance companies. 

You can consider the dividends as your "annuity payments", but you still get to keep the equity in the companies.

:)

[FIRE Artist]

I would be skeptical of the claim that taking social security benefits at full retirement age and investing them will yield as much or more money than waiting until age 70 to claim benefits. Here's why:

1. Social security benefits increase by about 8% per year for each year you delay claiming after your full retirement age, up until age 70.

2. So if your full retirement age is 66, but you wait until 70 to take benefits, your monthly benefit would be about 32% higher (4 years x 8% per year) compared to taking it at 66.

3. That 32% higher benefit is guaranteed and indexed to inflation every year by social security. So you lock in a permanently higher base benefit by delaying.

To match that guaranteed 32% increase, your investments would have to yield an inflation-adjusted return higher than 8% per year for the years between ages 66-70. That may be unrealistic

Your conclusion is incorrect. You have to account for the payments that you already received before turning 70.  You need to plug the numbers into excel or a calculator to see what your rate of return and life expectancy needs to be in order to break even.

The reason this is incorrect is because you aren't counting all the payments you didn't get between age 62 and 70.  If you were to get $1000 a month at 62, that's 12K a year that you aren't getting.  You may end up getting a huge boost and get $1500 per month at age 70 for ever.  But you still missed out on 96K for the past 8 yrs--more if you include COLA and such or investment gains.  It will take 192 months or 16 years just to break even for the extra 500 per month that you missed.

These numbers are made up.  The break even point is closer to 81 or 82.

yeah-my payout increases 76% from age 62 to 70. Speaking in today's dollars, if I only had the soc sec at 70, I could live that typical 'fixed income' lifestyle of pinching pennies and no splurging. If I ended up with only the soc sec amount from age 62, I wouldn't likely be unhoused, but I would be reliant on all the low-income senior services that I could lay hands on. food stamp, etc.

Neither would get me into a nice assisted living space.

Delaying government pensions is all about managing longevity risk.  I intend to use Variable Percentage Withdrawal (VPW) to draw down my portfolio with aim to die with zero, so delaying fixed pensions to maximize the payout is a big part of that strategy.  I am more worried about dying in poverty due to living longer than I expected than to die before I made as much money as possible out of the government pension. 

[Ron Scott]

It's an interesting "thought experiment" to compare owning a fund of Insurance companies (https://finance.yahoo.com/quote/KIE/holdings?p=KIE) vs. buying an annuity from one of those companies!  If you buy an annuity from one company, you're at risk (with asterisks) of insolvency of one insurance company.  If you buy that ETF, you're spreading the risk out among many insurance companies. 

You can consider the dividends as your "annuity payments", but you still get to keep the equity in the companies.

:)

But the insurance funds typically underperform the broader market in terms of total returns and dividends, at least in recent history, so no.

VTI BLUE
Fidelity Insurance Fund YELLOW

[mistymoney]

It's an interesting "thought experiment" to compare owning a fund of Insurance companies (https://finance.yahoo.com/quote/KIE/holdings?p=KIE) vs. buying an annuity from one of those companies!  If you buy an annuity from one company, you're at risk (with asterisks) of insolvency of one insurance company.  If you buy that ETF, you're spreading the risk out among many insurance companies. 

You can consider the dividends as your "annuity payments", but you still get to keep the equity in the companies.

:)

Interesting idea! 1.5% yeild does not seem like a great deal to me!

[secondcor521]

That link always says 68.8 - I think it assumes average life expectancy. Is there a way to get it to show longer/short life spans?

Yes.  Click the little checkbox at the very top of the page, then click the "mortality table" checkbox, then scroll down, then choose a different mortality table or an assumed age at death in the "Your information" section.

...

I'm in a similar situation in that I turn 70 in 2039.  Although I'm not as reliant on SS as it sounds like you might be.  I'm deferring to 70, and would only take it early if I couldn't afford to live without it.  I'm optimistic that Congress will find some workable changes in time.

[Telecaster]

I would be skeptical of the claim that taking social security benefits at full retirement age and investing them will yield as much or more money than waiting until age 70 to claim benefits. Here's why:

1. Social security benefits increase by about 8% per year for each year you delay claiming after your full retirement age, up until age 70.

Word.  And it is an inflation-adjusted 8%.    That is a great deal!    If you can afford and you expect longevity will work in your favor, delaying is almost always the best strategy. 

[Ron Scott]

I'm deferring to 70, and would only take it early if I couldn't afford to live without it.  I'm optimistic that Congress will find some workable changes in time.

Trying to imagine the downside to just keep paying full SS and I can’t think of it.

The federal government doesn’t need to raise money to create it and send it to people.

So are they actually increasing the money supply and risking a spike in inflation if they just keep paying older people what they’ve been getting?

If workers and employers continue to pay the SS taxes they’ve been paying all along, doesn’t that constrain their spending just as much whether the fund is full or not?

What am I missing?

[Telecaster]

I am trying to tweak and finalize my plans for fire. Waiting until 70 for social security seems to be a really smart move....except for that shortfall they are always talking about!

Now - I am 80% confident that they will just figure it out and benefits will go on as planned per the soc sec statement. But, there is that chance they they start to trim benefits - 20% chance per my internal metrics. Currently, I think the figure is only 77% of promised benefits are covered after 2032. I will retire well before 2032, but if I wait until 70 to maximize my benefit then that comes after 2032.

The chances that anyone currently over the age of about 45 will have their benefits cut are approximately 0.00000%.   I might be wrong on that last decimal place.   Politicians who are talking about changes to SS benefits are three things: 

1.  Corrupt
2.  Liars
3.  Greedy assholes who want to screw poor people out of their earned benefits

And those are their good points.  For one, fairly modest changes to payroll taxes will keep Social Security solvent until far into the future.   And the other thing there is no law that says Social Security can only be funded by payroll taxes.   SS can be funded out of general revenues if we wish.   The SS cliff is a big made up boogieman.   

There is some talk about raising the full retirement age again due to rising life expectancy and therefore people should simply work longer.  Any politician who suggests this should be voted out of office and then punched in the face.     For one, US life expectancies have been dropping lately, and secondly,  life expectancies have only been rising for educated, upper income people.    Lower income people have not enjoyed the same increase in life expectancy, and they are also working as housekeepers, carpenters, janitors, cashier etc. and those types of jobs have time limit.   You can't keep doing that kind of work indefinitely.     Because these are lower wages jobs, these people tend to have the least savings, and therefore need SS the most.   This is a brutal screw job on the working class and we should be better than this as a country.   

[mistymoney]

That link always says 68.8 - I think it assumes average life expectancy. Is there a way to get it to show longer/short life spans?

Yes.  Click the little checkbox at the very top of the page, then click the "mortality table" checkbox, then scroll down, then choose a different mortality table or an assumed age at death in the "Your information" section.

...

I'm in a similar situation in that I turn 70 in 2039.  Although I'm not as reliant on SS as it sounds like you might be.  I'm deferring to 70, and would only take it early if I couldn't afford to live without it.  I'm optimistic that Congress will find some workable changes in time.

Thank you! Seems min age of 88 is the year i do best waiting until 70 for socsec

[secondcor521]

I'm deferring to 70, and would only take it early if I couldn't afford to live without it.  I'm optimistic that Congress will find some workable changes in time.

Trying to imagine the downside to just keep paying full SS and I can’t think of it.

The federal government doesn’t need to raise money to create it and send it to people.

So are they actually increasing the money supply and risking a spike in inflation if they just keep paying older people what they’ve been getting?

If workers and employers continue to pay the SS taxes they’ve been paying all along, doesn’t that constrain their spending just as much whether the fund is full or not?

What am I missing?

Setting aside the political aspects:

The federal government - specifically the House of Representatives - does need to appropriate funding in order to send money to people.  Unless we amend the Constitution, which I find unlikely.

If Congress appropriates funds to an extent which exceeds revenues - which we've done for most of our history - then my understanding is that is inflationary because it increases the dollars in circulation without a corresponding increase in goods and services.

The only constraint I know of is that SS (and other OASDI) benefits are currently only payable from the SS trust fund, so when it runs out, even if there is money in the rest of the government (*), then Congress would have to modify the law to actually legally send money from the rest of the government (*) to SS (and other OASDI) recipients.

Currently, the SS taxes (which go into the SS trust fund) have exceeded payments to SS recipients thus far.  Those taxes actually went to the rest of the government...and Congress has spent all of that money already (**).  But there are special IOUs that Congress put in the trust fund, which SS can redeem when they need to.  Congress can pay those IOUs back out of general revenues - I think they currently are because the trust fund is being depleted currently.

(*) There isn't at the moment.  As a country, we've spent more than we've collected thus far.

(**)  See above.

[Ron Scott]

I'm deferring to 70, and would only take it early if I couldn't afford to live without it.  I'm optimistic that Congress will find some workable changes in time.

Trying to imagine the downside to just keep paying full SS and I can’t think of it.

The federal government doesn’t need to raise money to create it and send it to people.

So are they actually increasing the money supply and risking a spike in inflation if they just keep paying older people what they’ve been getting?

If workers and employers continue to pay the SS taxes they’ve been paying all along, doesn’t that constrain their spending just as much whether the fund is full or not?

What am I missing?

Setting aside the political aspects:

The federal government - specifically the House of Representatives - does need to appropriate funding in order to send money to people.  Unless we amend the Constitution, which I find unlikely.

If Congress appropriates funds to an extent which exceeds revenues - which we've done for most of our history - then my understanding is that is inflationary because it increases the dollars in circulation without a corresponding increase in goods and services.

The only constraint I know of is that SS (and other OASDI) benefits are currently only payable from the SS trust fund, so when it runs out, even if there is money in the rest of the government (*), then Congress would have to modify the law to actually legally send money from the rest of the government (*) to SS (and other OASDI) recipients.

Currently, the SS taxes (which go into the SS trust fund) have exceeded payments to SS recipients thus far.  Those taxes actually went to the rest of the government...and Congress has spent all of that money already (**).  But there are special IOUs that Congress put in the trust fund, which SS can redeem when they need to.  Congress can pay those IOUs back out of general revenues - I think they currently are because the trust fund is being depleted currently.

(*) There isn't at the moment.  As a country, we've spent more than we've collected thus far.

(**)  See above.

Interesting. I am not sure, however, that the mechanics of placing the money in a specific account, from which checks are drawn and sent to retirees, is as important as the ability of the federal government to manufacture money and send it to anybody it wants to.

This reminds me of the famous exchange between a young Paul Ryan and Fed chairman Alan Greenspan back in 2005. In this congressional testimony, Ryan is trying to push privatization, but Greenspan is not willing to say there is anything wrong with the solvency of the current (pay as you go) system, since the government can just create money. His concern is that there are enough assets (products) available for that money to purchase (showing concern with inflation).

Bottom line: There is no concern regarding solvency, or the federal government’s ability to continue paying Social Security recipients full amounts. The only issue concerns inflation. And I personally don’t understand why continuing to tax workers and employers and pay Social Security recipients the same amounts they’ve all been used to causes inflation. WHERE is all the extra money that is chasing a limited number of products?  I know I’m missing something, I just don’t know what.

Check it out:

https://www.c-span.org/video/?c3886511/user-clip-2005-greenspan-ryan-024200

[secondcor521]

I'm deferring to 70, and would only take it early if I couldn't afford to live without it.  I'm optimistic that Congress will find some workable changes in time.

Trying to imagine the downside to just keep paying full SS and I can’t think of it.

The federal government doesn’t need to raise money to create it and send it to people.

So are they actually increasing the money supply and risking a spike in inflation if they just keep paying older people what they’ve been getting?

If workers and employers continue to pay the SS taxes they’ve been paying all along, doesn’t that constrain their spending just as much whether the fund is full or not?

What am I missing?

Setting aside the political aspects:

The federal government - specifically the House of Representatives - does need to appropriate funding in order to send money to people.  Unless we amend the Constitution, which I find unlikely.

If Congress appropriates funds to an extent which exceeds revenues - which we've done for most of our history - then my understanding is that is inflationary because it increases the dollars in circulation without a corresponding increase in goods and services.

The only constraint I know of is that SS (and other OASDI) benefits are currently only payable from the SS trust fund, so when it runs out, even if there is money in the rest of the government (*), then Congress would have to modify the law to actually legally send money from the rest of the government (*) to SS (and other OASDI) recipients.

Currently, the SS taxes (which go into the SS trust fund) have exceeded payments to SS recipients thus far.  Those taxes actually went to the rest of the government...and Congress has spent all of that money already (**).  But there are special IOUs that Congress put in the trust fund, which SS can redeem when they need to.  Congress can pay those IOUs back out of general revenues - I think they currently are because the trust fund is being depleted currently.

(*) There isn't at the moment.  As a country, we've spent more than we've collected thus far.

(**)  See above.

Interesting. I am not sure, however, that the mechanics of placing the money in a specific account, from which checks are drawn and sent to retirees, is as important as the ability of the federal government to manufacture money and send it to anybody it wants to.

This reminds me of the famous exchange between a young Paul Ryan and Fed chairman Alan Greenspan back in 2005. In this congressional testimony, Ryan is trying to push privatization, but Greenspan is not willing to say there is anything wrong with the solvency of the current (pay as you go) system, since the government can just create money. His concern is that there are enough assets (products) available for that money to purchase (showing concern with inflation).

Bottom line: There is no concern regarding solvency, or the federal government’s ability to continue paying Social Security recipients full amounts. The only issue concerns inflation. And I personally don’t understand why continuing to tax workers and employers and pay Social Security recipients the same amounts they’ve all been used to causes inflation. WHERE is all the extra money that is chasing a limited number of products?  I know I’m missing something, I just don’t know what.

Check it out:

https://www.c-span.org/video/?c3886511/user-clip-2005-greenspan-ryan-024200

Again, the government cannot just print and send money to anyone it wants to.  We are (mostly) a nation of laws under the framework of the Constitution.  In order to send money from different accounts, Congress has to enact legislation.  Which requires all the steps in "I'm just a bill" (https://www.youtube.com/watch?v=OgVKvqTItto if you don't remember it from your childhood as I do.)  And all that writing and voting and signing most of the time doesn't actually succeed - relatively few bills actually become law.

As far as the inflation aspect goes, SS is an entitlement program, meaning anyone who is entitled to it can claim it.  This means that the amount of money SS sends out is not static from year to year.  It's currently increasing because of the demographics of Baby Boomers.  More Baby Boomers entitled to SS means increasing dollars spent each year on benefits.

It's also not static on the income side either.  SS is funded mostly by payroll taxes.  When people are unemployed (like during COVID), they don't get paid and therefore don't pay into the SS trust fund.  Or if there are just, in general, fewer workers (because the Baby Boomers are retiring and not working anymore, for example).

Finally, the extra dollars are created when the government decides to spend more than they take in - which they need to do if SS outlays continue to increase and SS income continues to decline.  When this happens, they issue debt via Treasury notes, bills, and bonds.  This essentially increases the money supply.  If you ever get bored and listen to the Federal Reserve Chairman talk about fiscal policy and the impacts it has on their efforts to meet their mandate, that's what he (or she) is referring to:  Fiscal policy is the government choosing to deficit spend (or tax more or less), which impacts the economy in addition to whatever the Fed does with monetary policy (which is mostly raising and lowering interest rates, QE/QT, and other more esoteric tools).

It's definitely possible to wreck an entire country's economy with an out of control inflation spiral.  It has happened numerous times in history.  Whether it will happen here to our country is subject to both economic and political debate.

[Ron Scott]

Finally, the extra dollars are created when the government decides to spend more than they take in - which they need to do if SS outlays continue to increase and SS income continues to decline.  When this happens, they issue debt via Treasury notes, bills, and bonds.  This essentially increases the money supply.

The purchase of US Treasury debt must be done in US Dollars. When you buy a $100,000 US bond with your dollars, the government takes that $100,000 out of circulation for a specific period of time. This essentially DECREASES the money supply. Like taxes, debt issuance takes money out of circulation and acts in a deflationary manner by doing so.

But you did help with the underlying question:

The current SS system is essentially pay-as-you-go. So when total payments sent to recipients is much greater than SS taxes on workers and employers, and the government doesn’t increase taxes or issue debt to cover the difference, money is created—and that money competes for the same volume of goods and services, hence inflation.

Saying the government is running out of money to make full SS payments, serves to confuse more than educate. Instead, we should say “when current taxes don’t take enough money out of circulation to cover SS payments, we’re going to have to deal with an inflation problem”.

[FlytilFIRE]

Finally, the extra dollars are created when the government decides to spend more than they take in - which they need to do if SS outlays continue to increase and SS income continues to decline.  When this happens, they issue debt via Treasury notes, bills, and bonds.  This essentially increases the money supply.

The purchase of US Treasury debt must be done in US Dollars. When you buy a $100,000 US bond with your dollars, the government takes that $100,000 out of circulation for a specific period of time. This essentially DECREASES the money supply. Like taxes, debt issuance takes money out of circulation and acts in a deflationary manner by doing so.

But you did help with the underlying question:

The current SS system is essentially pay-as-you-go. So when total payments sent to recipients is much greater than SS taxes on workers and employers, and the government doesn’t increase taxes or issue debt to cover the difference, money is created—and that money competes for the same volume of goods and services, hence inflation.

Saying the government is running out of money to make full SS payments, serves to confuse more than educate. Instead, we should say “when current taxes don’t take enough money out of circulation to cover SS payments, we’re going to have to deal with an inflation problem”.

I don't understand this. How can selling T Bills possibly REDUCE the money supply? I found this on the web:

"Today's Federal Reserve buys new, readily liquefiable accounts, such as U.S. Treasuries, on the open market from financial institutions to add funds to their existing bank reserves.9 This has the same effect as printing new bills and transporting them to the banks' vaults (but it's cheaper). The newly credited balances count just as much as physical bills in the economy. They can also be just as inflationary."

The U.S. and the Fed, sell T Bills, Bonds, etc., and then SPEND that money (or give it away).

[mistymoney]

It's also not static on the income side either.  SS is funded mostly by payroll taxes.  When people are unemployed (like during COVID), they don't get paid and therefore don't pay into the SS trust fund.  Or if there are just, in general, fewer workers (because the Baby Boomers are retiring and not working anymore, for example).

How does the unusually high employment numbers we're seeing currently fit in here? I would assume this would be a positive for the soc sec coffers, all other things being equal.

Maybe the government can get a little creative as the robots come online - if a robot takes a people job, that robot needs to pay into the soc sec system via a robot tax to the business. ><

[reeshau]

Maybe the government can get a little creative as the robots come online - if a robot takes a people job, that robot needs to pay into the soc sec system via a robot tax to the business. ><

Bill Gates has proposed just that.  Only, not just social security, but a replacement for income taxes that are displaced.