That’s where people get the calculation wrong. If delaying SS to age 70 results in a higher lifetime net worth & income, you can move some of that additional income forward and spend more of your money today.
intercst
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I could be wrong about that century mark thing. 
Instead, I have had more loot for the last 8 years.
Steve
Absolutely! If taking SS before age 70 is vital to your income, you should take it when you need to. But generally, I’d say that it would be preferable to spend down as much as half of your retirement nest egg to delay SS as long as possible. It’s that good a deal.
Could I make more money by taking SS at age 62 and investing the money in the stock market? Possibly, but it’s not guaranteed. Over an 8 year holding period (age 62 to age 70) the S&P 500 has only beat the 8% per year increase in your SS benefit about 25% of the time. So taking it at age 62 and investing the money is a failure 3 out of 4 times. (And that’s for people who invested in an S&P 500 index fund which had a 10.7% annual return over the past 30 years. If you invested in individual stocks or an actively-managed mutual fund, the average investor got more like 4% per year.)
Personal Finance entertainer Dave Ramsey never tells his listeners that. {{ LOL }}
intercst
Some people have IRA balances so large that they’ll jump into a higher tax bracket when the RMDs start and really don’t need the additional income. So the best strategy is Roth conversions to even out the tax payments to the extent possible.
Lots of people with multi-million dollar retirement accounts who find that their SS and pension is more than enough to live on.
intercst
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You can gift appreciated securities to your Children without paying tax, and the cost basis is adjusted to current price. Has anyone including this in your planning?
Or there any similar “loopholes” available to withdraw/ gift/ transfer money from IRA to your Children?
One thing that I am not clear on is how compounding affects this. While an 8% guaranteed return is sweet, it is possible that an 8% (S&P500) compounded return is better (on average) over the 8-9 years from age 62 to 70. Is the 8% really 8% + CPI, or is it a flat 8%? And there are other things to account for as well. For example, if the investing of the extra money begins at age 62, and it is invested in things generating capital gains, and you die someday, it is entirely possible that ALL those gains (from age 62 to death) escape taxation due to the basis step-up. But the alternative, waiting till age 70, only the gains from age 70 to death escape taxation. That’s a shorter period, and will have fewer gains shielded from taxation. It’s not an easy calculation though. If you use the IRS example, $2000/mo FRA benefit, $1400 at age 62 or $2480 at age 70. If you take the $1400 beginning at age 62, and invest that amount monthly through death, you end up with $X minus zero tax due to step up. But if you take $2480 beginning at age 70, ad invest that amount monthly through death, you end up with $Y minus zero tax due to step up. Which is better? Now add to that the fact that between age 62 and 70, taking the $1400 might increase current taxes somewhat, and taking the $2480 from age 70, will increase taxes somewhat more at that point. I suspect that the entire calculation rests on two main things - “age at death” and “future tax rates”, and since neither of those are known, the calculation may mostly be a cr@pshoot. However, if the calculation is skewed strongly one way, while using reasonable assumptions, then perhaps that is the way to go despite not knowing the true parameters.
You could also go whole hog and do a full statistical analysis which would include probability of death for each year, and then calculate an expected value for the sum total of all the probabilities. But that would be overkill, and you still need to make a few personal assumptions (can be done reasonably using family health history). But most people don’t like that kind of thing, it’s just too much … “great-granddad had diabetes, and died at 62 from complications, I may get diabetes, but it can be well controlled nowadays and I am disciplined, so I will weight that [for me] as 72”, “granddad had heart disease and died at age 79, but I still work out at age 60+ and I have good numbers and generally good health, and a relatively strong cardiovascular system, so I will count that [for me] as 86”, and then go through all of them, and then calculate the probabilities of death for each year from age 62 through age 102. Then sum up the probabilities to come up with an expected value for each scenario, and then choose the scenario that has the highest expected value.
In the end, nobody does such a detailed analysis, and instead uses the rules of thumb, and sometimes even ignore the rules of thumb, and simply make the decision emotionally (“I’m certain I will live past 100, so I’m waiting till 70 for sure to get the bigger check”, etc), or based on personality type (“I want that money in my hands as soon as possible so nobody can take it away from me in the future”, etc).
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This is incorrect. When you gift appreciated stock to your children, the cost basis remains the same. Only when you die does the cost basis step up to current value.
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Being 8 years since I ran the calculation, I think I used 4%, to calculate the returns on investing the SS income, when calculating the break even point 62 vs 70, but I’m not sure. Yes, taking benefits at age 70 resulted in more income after age 88, but as someone responded, when I was posting about the calculation then, what would I do with the extra loot? Get a better sippy cup in the nursing home?
Steve
That’s something I forgot to mention above. The calculation is different for single people without heirs and people with heirs. For someone who has no heirs that they care strongly about, it’s true, there’s nothing to do with the extra money, so there’s no real point in having it. But for people with people they strongly care about, that money would eventually be given to them.
Dad worked to 82 anyway because he liked his job. He thought as a doctor he was under taxed.
When you added back in healthcare costs as a tax he saw Americans as over taxed.
Ss age 62 v 70 it does not take till age 88 to break even. Correct if I am wrong
.7 x 8 years 5.6 is the factor
5.6 / 1.24 is 4.5 years age 74.5
But it is less than 74.5 years with the cola
Once you start Medicare, you have to keep an eye on the IRMAA limit as well as the tax bracket.
And since IRMAA is based on MAGI rather than taxable income, it’s kind of easy to exceed.
No point in saving on taxes only to spend it on increased Medicare premiums…
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Actually, since I’ve had to make arrangements for some family members and others who had no family left, there is a big difference in the quality of the nursing homes. I’d not want to be a customer of many of them.
Mike
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Correct. IRMAA is a step function. If you go $1 over the bracket limit. you pay the full IRMAA penalty for the next income bracket. Another complication is that the IRMMA limit for 2024 income won’t be know until late 2025 (You pay IRMAA 2 years in arrears), so you need to make and estimate for what it will be and then set your target for one or two thousand dollars below that for safety.
2024 IRMAA brackets (for your 2022 income)
intercst
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If IRMAA is a problem for you, …
You’re a winner. Congratulations!
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I tossed my calculations when I made my decision. Besides, my HP financial calculator went toes up a few years ago. I am happy with my decision. Seems that, after being a leech on society, my stash has grown significantly.
Steve
Thanks MarkR that is an important distinction.
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Everyone’s situation is different, but in my case because delaying means I have more income in the later period, that means I can spend more in the early period.
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I have an HP-12c app on my phone.
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I am working to lay in passive income in the arts. That would mean not working a job and rolling up into age 70 with earned income.
The game is getting closer. I am up several learning curves. The project is getting closer to completion.
The latest is going to the github repository by Epic to get the Engine to develop a multiplayer game. The usual engine does not work for that. The build can take 20 hours.
It is all getting easier. I envy 10 years olds who can do all of this with much more ease.