(USA topic) The grim psychology of deciding on when to take social security benefits

[Jingthing]

The difference between the benefit at 62 and 66 is not slight. It's a lot. Also I don't care about a legacy. Bill Gates I'm not. Hard choices either way.

Edited May 18, 2016 by Jingthing

[wpcoe]

I will do more research but the choice of waiting till 66 is making a lot more sense to me now. I will need to look at spending estimates closely but I can now see that spending a significant part of my nest egg is an excellent investment also considering my life expectancy. Waiting till 70 I think not. Instead of pure spending it's also buying an excellent annuity. Another thing to consider is if you become disabled and need long term care aren't you forced to spend down to nothing anyway?

You seem to have been debating taking SS at age 62 and leaving your savings/nest egg untouched, or pretty much depleting your nest egg to hold out to full retirement age (or beyond). How about a compromise? Take SS at age 64 or 65, before your nest egg is totally battered, but still get a higher SS amount monthly. NancyL said (tentatively, and no one has challenged her...) that each year you wait is a 7.5% increase. Waiting from 62 to 64 would give you an extra 15% monthly.

[little mary sunshine]

My plan was to take my SS at 64.5. So I would

Only get an 11% reduction in benefits. I worked

Until I was 63.5, I had enough sick leave and

Vacation saved for the year, and went out as

Planned. I couldn't see taking a 23% cut in

Lifetime benefits by going out at 62. It has

Worked out great, SS, + State pension +

Small Teamster Pension....financially very

Secure . So glad I worked the 40+ years; Of

Course I always liked my work, do miss it at

Times, Retired 7+. Years, travel, golf, cards,

Bowling,movies, volunteer group......not really

Retired, I just don't work....555555

[wpcoe]

FYI, your Social Security benefit amount is prorated to the actual month you start receiving the benefit:

In the case of early retirement, a benefit is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.

source: https://www.ssa.gov/OACT/quickcalc/early_late.html

To make that easier to figure out, there's an online calculator on that page where you enter your birth date and the month & year you plan to start collecting.

SS has a quick reference chart using your age (in years only) but the above calculator is more precise.


source: https://www.ssa.gov/OACT/ProgData/ar_drc.html

[edited to add:]

NancyL said (tentatively, and no one has challenged her...) that each year you wait is a 7.5% increase. Waiting from 62 to 64 would give you an extra 15% monthly.

I found the SS web pages after I posted the above quote. The 7.5% increase referenced actually only applies to "Annual delayed retirement credit" which is the time past your "normal retirement age," not the time early/prior to your "normal retirement age."

Edited May 18, 2016 by wpcoe

[ggt]

My philosophy was to take it as soon as possible and have that money to use and abuse while still in good enough health to enjoy the benefits...

One has no guarantee of tomorrow...so money in the hand today can be used today...

Social Security is on everyone's hit list for dramatic changes...to reduce benefits to folks receiving these benefits...

Get all you can get while you can...the system is broken...the US is by any measure bankrupt...the Fed and Central Banks have been artificially keeping up the appearance of economic stability...by adding money into the system and reducing the interest rates down to near zero...

Can not last forever...high probability this will end badly...

Good Luck!

[NancyL]

I will do more research but the choice of waiting till 66 is making a lot more sense to me now. I will need to look at spending estimates closely but I can now see that spending a significant part of my nest egg is an excellent investment also considering my life expectancy. Waiting till 70 I think not. Instead of pure spending it's also buying an excellent annuity. Another thing to consider is if you become disabled and need long term care aren't you forced to spend down to nothing anyway?

You seem to have been debating taking SS at age 62 and leaving your savings/nest egg untouched, or pretty much depleting your nest egg to hold out to full retirement age (or beyond). How about a compromise? Take SS at age 64 or 65, before your nest egg is totally battered, but still get a higher SS amount monthly. NancyL said (tentatively, and no one has challenged her...) that each year you wait is a 7.5% increase. Waiting from 62 to 64 would give you an extra 15% monthly.

OK, I was close in my earlier guestimate. The article quoted earlier has more specific info: https://www.kitces.com/blog/how-delaying-social-security-can-be-the-best-long-term-investment-or-annuity-money-can-buy/ Something about your benefit being reduced by 6.66% per year when you start before your "full retirement age" and increasing by 8% per year when you delay after your full retirement age. It has graphs and it's not a linear relationship. So, I wasn't too far off with my guestimate of 7.5%.

I looked at this about 18 months ago, when I received a letter from my previous long-time employer about their rather generous private pension. It has a feature where you can start your pension at any time after you leave the company (and many people settle unwisely for a lump-sum annuity upon leaving) or you can leave the pension with them and it grows at 8.4% up to the age of something like 70.5. Well, the letter from them said that the federal gov't changed the rules and that effective in 2016, the amount of the monthly benefit won't change once you reach age 65. No point in delaying starting the pension once I turn 65.

I think I'm about the same age as JT. For me, the answer is clear. Start up the private pension at age 65 and delay SS as long as possible. Meanwhile, spend down our 401k savings. We still should have enough of a nest-egg for emergencies, fortunately.

[Thaidream]

In America, there should never be a reason to worry about getting healthcare or cost. It must be free for anyone who gets Social Security. I mean no co-pays; no monthly payments- absolutely free.Healthcare is a human right. It is not a commodity to be sold to the highest bidder. Every Western industrialized country and Japan has universal healthcare for its people. Even Thailand has a form of it. The US is so far behind the industralized World on this issue , it is a sin. Americans suffer, while politicians and conservatives hide behind the fear of Socialism and insurance companies, doctors , Big pharma, and hospitals get richer. Universal Medicare available Worldwide to Americans could solve this travesty. The Us likes to lecture countries about human rights. Time to start at home and take care of our people.

Edited May 18, 2016 by Thaidream

[tonray]

In America, there should never be a reason to worry about getting healthcare or cost. It must be free for anyone who gets Social Security. I mean no co-pays; no monthly payments- absolutely free.Healthcare is a human right. It is not a commodity to be sold to the highest bidder. Every Western industrialized country and Japan has universal healthcare for its people. Even Thailand has a form of it. The US is so far behind the industralized World on this issue , it is a sin. Americans suffer, while politicians and conservatives hide behind the fear of Socialism and insurance companies, doctors , Big pharma, and hospitals get richer. Universal Medicare available Worldwide to Americans could solve this travesty. The Us likes to lecture countries about human rights. Time to start at home and take care of our people.

It effectively is free for those who cannot afford it. The Medicaid expansion provides healthcare for many indigent and another provision of the Affordable Care Act will subsidize your monthly premium. I was on a subsidized plan, every month I would pay X and the government paid 3x towards my premium. Yes...it is overly complicated and yes it is a pain in the butt to deal with private insurers and a government exchange but most people can now get healthcare.

I would love to see a single payer system in the US but Congress has insurance company #$$% so far up their butthole it will not happen in our lifetime.

[Mansell]

The decision when to take SS is not easy for anybody. The idea of taking it early is great if you have the ability and discipline to invest it and not spend it all, as some have suggested. But most people do not have those abilities or discipline. Personally I waited till I was 70 to take the money, mainly because I didn't need it, I was making good money only working part time, and I knew down the road I would be very happy having the maximum amount, and I have great health and will probably live to nearly ninety. (I am now 72 and got married in Feb and am having the best marriage of my life)

I liked the fact that the SS increased by 40 percent from 66 to 70 years old....though I am not sure that is the case if you are no longer working, somebody else might have that answer. A friend in California who was making great money was advised by his financial planner to take it early, and it was based on the chestnut that you want to get as much as you can now while you have the chance to cash in as later you won't get everything you paid into SS.....bizarre!

As for SS going belly up....they have been saying that since the 70's and probably before that. The reality is it is very healthy, it is all the borrowing the government has done against the fund that has depleted it.....but at some point they have to pay the piper.

Also the bums now want a pay increase as they find it difficult to live on $175,000 a year......bloody hypocrites.....they will take yours away but increase theirs.......¥~#% them!

[Jingthing]

I will do more research but the choice of waiting till 66 is making a lot more sense to me now. I will need to look at spending estimates closely but I can now see that spending a significant part of my nest egg is an excellent investment also considering my life expectancy. Waiting till 70 I think not. Instead of pure spending it's also buying an excellent annuity. Another thing to consider is if you become disabled and need long term care aren't you forced to spend down to nothing anyway?

You seem to have been debating taking SS at age 62 and leaving your savings/nest egg untouched, or pretty much depleting your nest egg to hold out to full retirement age (or beyond). How about a compromise? Take SS at age 64 or 65, before your nest egg is totally battered, but still get a higher SS amount monthly. NancyL said (tentatively, and no one has challenged her...) that each year you wait is a 7.5% increase. Waiting from 62 to 64 would give you an extra 15% monthly.

Well, sort of.

Even taking S.S. at 62 I would plan to hit my nest egg, but more gradually at a rate that has a decent chance of not running out. I don't have any interest with dying with my less than impressive nest egg fully intact. But at least my hands aren't tiny. More like the hope is to not run out of money while alive, betting basically it's very unlikely I'll make it to 80.

As far as a compromise start date, I'm ahead of you. Already thought of that. I had assumed it was prorated by the month started anyway. Taking it at 62 is an irreversible decision. I suppose there is less pressure now. I could wait till 63 and consider it again, at 64, etc. I just can't imagine delaying after 66 though.

Edited May 18, 2016 by Jingthing

[fishbrando]

I get all that but given how significant the draw down would be in my case, I don't really know if I can really "afford" this draw down. It seems to me it's really a grey area. My gut says each choice would be similarly bad which would point to probably starting EARLY.

Your draw down is just however much money it would take to replace the missing social security income you would have had by starting early.

(Less if you can comfortably afford to live on a lower amount.)

Compare that to the (estimated) NPV of the increase in income you'll get later.

[rapom]

Take it at 62. If you do not need it invest it. What you invest take out in the future to off set costs as they rise.Do not know American tax laws. But in Canada can invest in rrsp's and get a tax deduction for what you invest every year in rrsp. If there is something similar in US do that. at 62 take pension. Put money in rrsp and wait to use it,

Or invest and pay taxs on interest everything till you need it and can withdraw with no tax burden when you use it.

If you invested it all from 62 to 70 You would probably beat what waiting would give you plus keep your taxs down.

There is no advantage or logic in retiring early and investing your SS payments. Unless you are debt free and your annual expenses are less that what your SS income is, there is no advantage or tax shelter benefits.

[Jingthing]

I get all that but given how significant the draw down would be in my case, I don't really know if I can really "afford" this draw down. It seems to me it's really a grey area. My gut says each choice would be similarly bad which would point to probably starting EARLY.

Your draw down is just however much money it would take to replace the missing social security income you would have had by starting early.

(Less if you can comfortably afford to live on a lower amount.)

Compare that to the (estimated) NPV of the increase in income you'll get later.

I had to look up NPV, but yeah, was going to look at that sort of thing in my crude way, but the variable yet again is life expectancy.

As long as we're getting a tad nerdy, I was curious about the history of s.s. cola events.

As I mentioned before, it's not only your starting benefit, but that any future colas are based on that.

https://www.ssa.gov/OACT/COLA/colaseries.html

Edited May 18, 2016 by Jingthing

[Gary A]

You have the option to start collecting anytime after age 62. it isn't age 62 OR age 66. I did run my savings down considerably by waiting. What I didn't do was to tap into my retirement account. That is my nest egg and since the insurance company here priced me out of my health insurance policy I am self insured. My nest egg is enough to cover most any health problem I may have. I may drop dead any day but I'll enjoy the extra money until that day. I'm not a gambler and whether I die before I make up the difference makes absolutely no difference. The extra money is accumulating in my bank account so my savings account is once again quite healthy. My retirement account got hammered during the crash and it has never fully recovered. Absolutely no more investments for me. A good friend of mine never got into the stock market. He kept all his money in bank CDs. After the crash he enjoyed reminding me that he still had all his money.

[IAMHERE]

Women have a longer life expectancy than men , yet the ss tables for payout are the same for both sexes. If the ss is using an 'average' then men aren't really expected to live to that break even age, that is weighted for females to benefit more than males.

Don't forget to factor in the cost of medicare , especially if the extra amount you get from ss though waiting puts you over $85k income. An example is if collecting ss now puts you below $85k but waiting a year or two will make you go over $85k per year, this would cost you an extra $1200 or so a year for medicare affecting the use of that extra you get from waiting on ss.

[statman78]

In a few years I will need to make the same decision. While I will have other investments that I could live off of I will most likely take SS when I retire at around age 63. I would rather keep most of my other investments growing while having the fixed amount of SS coming in on a monthly basis.

[stoli]

I understand that you can take it at 62, put it aside if you don't need it, and when you turn 66, you can pay back what you received, and start again with your payments at the increased age 66 rate. Good way to go if the money is not needed. Most people will not set it aside.

[smotherb]

Argue all you want. Just take your payments at 62, 66 and at 70. Do the math. I would have had to live to be 79 for the payments I got starting at 62 to match the payments I would get starting at 66. So, it amounts to betting if you will live to be 79. If I wake up one morning at 79, well, I guess I would just be happy to be 79.

[ableguy]

You can take your pension at sixty five years old and still work earning gold up to thirty five thousand a year and not ha have to pay tax, what more do you want ?

[Jingthing]

I understand that you can take it at 62, put it aside if you don't need it, and when you turn 66, you can pay back what you received, and start again with your payments at the increased age 66 rate. Good way to go if the money is not needed. Most people will not set it aside.

No you can't do that.

[Jingthing]

You can take your pension at sixty five years old and still work earning gold up to thirty five thousand a year and not ha have to pay tax, what more do you want ?

The full retirement age varies. For you, it may have been 65. In any case, once you reach your full retirement age there is no work penalty if earning more than the current year's threshold. If you take early and work before your full retirement age, there is. This matters I suppose to people who are still employable and can find buyers.

Cheers.

[Jingthing]

Argue all you want. Just take your payments at 62, 66 and at 70. Do the math. I would have had to live to be 79 for the payments I got starting at 62 to match the payments I would get starting at 66. So, it amounts to betting if you will live to be 79. If I wake up one morning at 79, well, I guess I would just be happy to be 79.

Yeah, I don't think the calculation is quite as simple as that, but I hear the gist of what you're saying. Don't expect to live to 80. Obviously the biggest "losers" are people who take it early and really didn't need to and find themselves alive in their 80s and beyond!

[Jingthing]

Women have a longer life expectancy than men , yet the ss tables for payout are the same for both sexes. If the ss is using an 'average' then men aren't really expected to live to that break even age, that is weighted for females to benefit more than males.

Don't forget to factor in the cost of medicare , especially if the extra amount you get from ss though waiting puts you over $85k income. An example is if collecting ss now puts you below $85k but waiting a year or two will make you go over $85k per year, this would cost you an extra $1200 or so a year for medicare affecting the use of that extra you get from waiting on ss.

85K? You meant baht?

I have mentioned before about the sex differential.

Yes statistically women live longer but oddly are more likely than men to start the benefits at 62!

[csabo]

Well the government tells you to wait for the max benefit. And that's what worries me most. They (not unlike health insurance companies) have done all the calculations and they want you to die (so to speak) after getting as little as possible of your benefit. First thing I would do (I have actually) is google a "life expectancy calculator" and fill it in as best as you can and see what you get. Use this as part of your overall decision. Secondly, it is rarely a good idea to let "other people" hold your money for you. What I mean to say is, if the difference between the payouts for a 62 year old or a 75 year old is 30%, could you make up that amount investing the lower amount. Example: at 62 benefit is $1000, at 75 benefit is $1333. Both people die at 85 let's say. So if the 62 year old at 85 would have received $276,000. The 75 year old would have received $133,000. Now, if the 62 year old invested the $1000 monthly, with a modest 6% return she could turn that into $597,786 during those 23 years. The 75 year old investing the same way would have $223,490 at 85. So, I am dying to hear exactly why the government thinks it's such a great idea for me to wait. If you need that money to eat because of poor planning (like my parents for example) none of this matters but if you don't "need" the money, why not get your hands on it and start making it work for you so instead of the benefit dying with you, you build it into fat inheritance for your loved ones?

[Skeptic7]

I understand that you can take it at 62, put it aside if you don't need it, and when you turn 66, you can pay back what you received, and start again with your payments at the increased age 66 rate. Good way to go if the money is not needed. Most people will not set it aside.

This used to be true and as you stated, one could collect benefits for years, then pay it back...but only partially true today, as the rule changed in 2010. I was intending to utilize this little known interest free loan strategy from Uncle Sam, but the the rule changed in 2010 and now you only have the first 12 months to 'change your mind' and pay it back. Repayment is still interest free, but if not undone within the first 12 months, your decision now becomes permanent.

http://moneyover55.about.com/od/socialsecuritybenefits/a/buybacksocialsecurity.htm

[Jingthing]

Well the government tells you to wait for the max benefit. And that's what worries me most. They (not unlike health insurance companies) have done all the calculations and they want you to die (so to speak) after getting as little as possible of your benefit. First thing I would do (I have actually) is google a "life expectancy calculator" and fill it in as best as you can and see what you get. Use this as part of your overall decision. Secondly, it is rarely a good idea to let "other people" hold your money for you. What I mean to say is, if the difference between the payouts for a 62 year old or a 75 year old is 30%, could you make up that amount investing the lower amount. Example: at 62 benefit is $1000, at 75 benefit is $1333. Both people die at 85 let's say. So if the 62 year old at 85 would have received $276,000. The 75 year old would have received $133,000. Now, if the 62 year old invested the $1000 monthly, with a modest 6% return she could turn that into $597,786 during those 23 years. The 75 year old investing the same way would have $223,490 at 85. So, I am dying to hear exactly why the government thinks it's such a great idea for me to wait. If you need that money to eat because of poor planning (like my parents for example) none of this matters but if you don't "need" the money, why not get your hands on it and start making it work for you so instead of the benefit dying with you, you build it into fat inheritance for your loved ones?

Well obviously they've got some very smart people designing the incentives and disincentives. Also obviously the house keeps "your" money if you fail to ever claim it because you die. But from the POV of a claimant you want to make use the best tactic that gives the best odds for you. So I agree absolutely try to guess your life expectancy and consider that as part of the timing choice. Others have said, forget that and go for the longest delay if you can afford it as an insurance against greatly exceedingly your life expectancy guess.

[USNret]

It's a great question and one that even the experts can't agree on. Most say wait till full retirement age or beyond, but they fail to calculate that this means giving up years of benefits from age 62. I've run my own financial model which shows that the breakeven point is age 82. The OP says age 78. Close enough; my model was based on my own specific numbers.

I have made enough money over the years that I will draw max SS benefits. I am now age 58. I plan to retire in 4 years and immediately apply for SS since who knows what will happen by age 82. If I don't need the money, I'll invest and watch it grow. I am also a Navy retiree so I have a Navy pension -- not as much as you might think since I drew early retirement from the Navy & the ex-wife gets 1/3 of that. Forever. But I do get a good deal on health care. Not entirely free, but certainly much cheaper than the average Joe has to pay. My (newer) Thai wife will also get health coverage for life which is a huge help.

Now here's the wrinkle & perhaps this has not come up (sorry, I haven't read the entire thread) -- We have a joyful new baby girl. Baby girl gets free health care till she is 18, or longer if she goes to college. But better yet, if I retire on SS, then the baby ALSO gets SS benefits until age 18 to the tune of 50% of my full retirement benefits -- even if I am drawing reduced benefits. AND... The wife will get even more benefits until the girl turns 16 since she is the care provider. In other words, the two of them combined will get more SS than I will, cuz I'll be drawing the reduced benefits of early retirement.

Wife's benefits stop when the girl turns 16, then starts again when wife turns 62 (or later) as spousal benefits. We have a large enough nest egg to tide her over that period of no benefits. All in all, I think I got a great deal. After 9 years of marriage, my wife & I remain very much in love & our new baby is a joy to both of us -- we could not be happier.

[USNret]

Argue all you want. Just take your payments at 62, 66 and at 70. Do the math. I would have had to live to be 79 for the payments I got starting at 62 to match the payments I would get starting at 66. So, it amounts to betting if you will live to be 79. If I wake up one morning at 79, well, I guess I would just be happy to be 79.

Yeah, I don't think the calculation is quite as simple as that, but I hear the gist of what you're saying. Don't expect to live to 80. Obviously the biggest "losers" are people who take it early and really didn't need to and find themselves alive in their 80s and beyond!

I respectfully disagree. The biggest losers are those who work till full retirement age for the promise of a bigger monthly check, and then die 2 weeks later. I'll take the payout at age 62 & really start enjoying life.

[USNret]

I understand that you can take it at 62, put it aside if you don't need it, and when you turn 66, you can pay back what you received, and start again with your payments at the increased age 66 rate. Good way to go if the money is not needed. Most people will not set it aside.

No you can't do that.

You used to be able to do that. Congress put the kibosh to that recently.

[CaptHaddock]

It's a great question and one that even the experts can't agree on. Most say wait till full retirement age or beyond, but they fail to calculate that this means giving up years of benefits from age 62. I've run my own financial model which shows that the breakeven point is age 82. The OP says age 78. Close enough; my model was based on my own specific numbers.

I have made enough money over the years that I will draw max SS benefits. I am now age 58. I plan to retire in 4 years and immediately apply for SS since who knows what will happen by age 82. If I don't need the money, I'll invest and watch it grow. I am also a Navy retiree so I have a Navy pension -- not as much as you might think since I drew early retirement from the Navy & the ex-wife gets 1/3 of that. Forever. But I do get a good deal on health care. Not entirely free, but certainly much cheaper than the average Joe has to pay. My (newer) Thai wife will also get health coverage for life which is a huge help.

Now here's the wrinkle & perhaps this has not come up (sorry, I haven't read the entire thread) -- We have a joyful new baby girl. Baby girl gets free health care till she is 18, or longer if she goes to college. But better yet, if I retire on SS, then the baby ALSO gets SS benefits until age 18 to the tune of 50% of my full retirement benefits -- even if I am drawing reduced benefits. AND... The wife will get even more benefits until the girl turns 16 since she is the care provider. In other words, the two of them combined will get more SS than I will, cuz I'll be drawing the reduced benefits of early retirement.

Wife's benefits stop when the girl turns 16, then starts again when wife turns 62 (or later) as spousal benefits. We have a large enough nest egg to tide her over that period of no benefits. All in all, I think I got a great deal. After 9 years of marriage, my wife & I remain very much in love & our new baby is a joy to both of us -- we could not be happier.

Your wife is eligible for spousal and widow's benefits only if she is either a US citizen or has lived with you in the US after marriage as a green card holder for at least five years. I don't know about her or your child's eligibility for dependent's benefits.

If your wife is indeed eligible for spousal and widow's benefits then it behooves you even more to consider delaying since the widow's benefits that she eventually receives will reflect the Delayed Retirement Credits you earn by waiting. Since your wife is younger than you the difference in total benefits received over the course of her life would be huge.