# OT - What age to take Social Security?

Off-Topic: What age to take Social Security?

I just happened to stumble on a little video on Yahoo Finance in which a young Talking Head was explaining to a young woman about how one “should always wait the maximum amount of time before taking Social Security.” She then described the reasons as saying that the advantages were “eye-popping” because if benefits at 65 are \$1000 a month, at 62 they are only \$750 a month, but if you wait until 70, they are \$1320 a month! In fact the young woman listening to this seemed astonished by the advantages in waiting to 70.

What Nonsense!!!

If you start at age 62 with \$750 a month you get \$750 x 12 = \$9,000 a year, or \$72,000 by the time you are 70.

The person waiting gets \$0 per year, and at age 70 has received \$0 total.

After 70, the person waiting starts getting \$1,320 per month, while the person who started at 62 is still only getting \$750, so the person who waited catches up by 1320 minus 750, or \$570, per month. This comes out to 570 times 12, or \$6,840, per year, of catch-up!

BUT, and it’s a big BUT, they have that whole \$72,000 of benefits to catch up, that the early starter has already received. That means that it will take them ten and a half years just to catch up with the early starter, to break even, by which time they will be 80 and a half years old and possibly chronically ill, in a nursing home, or even deceased, and certainly with less energy and less ability to enjoy their benefits than someone who started at 62. As someone well over 70 myself, I can guarantee you of that. Think of that! They were behind all the time until they were in their 80’s!!!

Note that I didn’t bother take into account that the person getting benefits from 62 had the potential of interest, or investment returns, on their benefits, so their total advantage was potentially even more than \$72,000 by the time they were 70.

It’s also important to point out that if the person waiting until 70 should happen to die any time between 62 and 70 they will have received nothing at all from Social Security, and if they die any time before 80 and a half, they will have received less than the early starter, and they are only in the lead when they are over 80 and a half, when there isn’t that much pleasure to be had out of being in the lead.

Hope that this is of help to anyone facing this decision.

Saul

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BUT, and it’s a big BUT, they have that whole \$72,000 of benefits to catch up, that the early starter has already received. That means that it will take them ten and a half years just to catch up with the early starter, to break even, by which time they will be 80 and a half years old and possibly chronically ill, in a nursing home, or even deceased, and certainly with less energy and less ability to enjoy their benefits than someone who started at 62. As someone well over 70 myself, I can guarantee you of that. Think of that! They were behind all the time until they were in their 80’s!!!

Recently I’ve been listening to interviews with some acknowledged investors. One (whose name I forget) made the comment to hold off because we are living so much longer.

The choice seems to depend on how frail or strong you are and at what age you will die. Paying for assisted living is as important as enjoying your wealth and health. If you need every last penny of Social Security you are in sad financial shape. Wealth is something that is better to have too much of rather than too little of.

Denny Schlesinger

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This is an interesting topic. I retired early when I was in my 40’s and I’m 62 now. It doesn’t appear that I will ever work and receive a W2 again. I’ve been investing on my own for decades now and have more than enough money to live on. The big question for my future is health issues and health care costs plus moving either to a smaller place or one of those CCR’s(continuing care facility/age in place).

Since I probably won’t have earned income in the future, it seems that maybe it wouldn’t be such a bad idea to go ahead and take SS now. Before this post, I always thought, I don’t need it, let it ride.

Saul, what did you do?

LuckyDog

Yes, exactly what our accountant said about not waiting.

Besides dying before getting any benefits, there’s also the possibility that the rules for income or net worth might change and the waiter/procrastinator will be the odd man out.

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I took mine as soon as I was eligible. My thinking at the time was the the uncertainty of tomorrow and the “bird in the hand”. But mostly I considered that taking early benefits means more overall money received over time, as Saul just mentioned.

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Note that I didn’t bother take into account that the person getting benefits from 62 had the potential of interest, or investment returns, on their benefits, so their total advantage was potentially even more than \$72,000 by the time they were 70.

Or, if they have other retirement funds, taking the Social Security reduces the need to draw on those retirement funds, allowing them to grow.

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I was wondering also that if I started getting SS benefits now at 62, would I have to report it to the IRS?

I would think not…but that’s why I am asking. I converted my IRA’s to ROTH IRA’s a few yrs. back so taxes have already been paid.

LuckyDog

The Retirement Investing board (surprise!) has discussed when topic to great detail. The decision greatly depends upon the individual’s situation, such as alternative income sources, health and life expectancy.

There are two simple cases, if you need the money to survive, take it now. If you have sufficient income that the money isn’t important, then take it whenever you like. For other cases the answer is “It depends”.

The break even age tends to be in the early 80’s which is about the life expectancy of the average adult. Thus the SSA doesn’t case when you take SS because on average, which is what they care about, they pay out the same amount.

Jack

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I typically agree with taking it early, but I thought of an interesting wrinkle to this when talking with my father. He’s 62 and planning to retire in the next month or 2.

He has enough saved to draw 4% off his investments and live comfortably, adjusted for inflation and everything… as long as there’s no terrible market crash. And I mean terrible - he’s prepared for bear markets and corrections and the typical volatility - but something worse than 2008 would really lower his lifestyle (as it would millions of Americans, I would assume).

Odds of something worse than 2008 happening is pretty small, but it’s still a risk. Obviously, the more we lengthen the timeline, the higher the odds will be. So, to minimize this risk, it makes sense to delay social security a few years to give him a higher guaranteed base. He’d be more dependent on his investments in the first 8 years, but less dependent on the last 15 or whatever his life expectancy is. Thus, the risk timeline has gone down from 23 years (his entire retirement) to 8 years (the time before he gets the higher income base).

He’ll most likely make much more by taking social security early, and he’s probably going to do that, but his odds of a successful retirement might go up a few percentage points by waiting.

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It depends does seem like a better answer. For example if you are still working at age 62, SS benefits are reduced by one dollar for every two dollars of income until you reach “full retirement age”, which could mean you have taken benefits but will see zero dollars coming into your pocket. There is also a complicated indexing formula which attempts to weight income made early in your career against later earnings. This indexing goes away at a certain age (55 or 60?). Indexing means for some people who made very little or nothing in their 20s or 30s, and are getting well compensated late in their work life, that working past 60 can increase eventual benefits more than the reported 8% per years most people gain by waiting to file.

David

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…Limits on Earned Income If Claiming Early Benefits
Until you reach full retirement age, Social Security will subtract money from your retirement check if you exceed a certain amount of earned income for the year. For the year 2016, this limit on earned income is \$15,720 (\$1,310 per month). The amount goes up each year. If you are collecting Social Security retirement benefits before full retirement age, your benefits are reduced by \$1 for every \$2 you earn over the limit. Once you reach full retirement age, there is no limit on the amount of money you may earn and still receive your full Social Security retirement benefit. …

…Special Rule as You Approach Full Retirement Age
If you are already receiving your retirement benefits, a special higher earnings limit applies in the calendar year you turn your full retirement age (66 for folks retiring today). If you will reach full retirement age in 2016, you may earn up to \$3,490 per month without losing any of your benefits, up until the month you turn 66. But for every \$3 you earn over that amount in any month, you will lose \$1 in Social Security benefits. Beginning in the month you reach full retirement age, you become eligible to earn any amount without penalty.

If you are self-employed, you may receive full benefits for any month during this first year in which you did not perform what Social Security considers “substantial services.” The usual test for whether you worked substantial services is whether you worked in your business more than 45 hours during the month (or between 15 and 45 hours in a highly skilled occupation). In other words, if you work in your business more than 45 hours in a month, Social Security may reduce your benefit…

http://www.nolo.com/legal-encyclopedia/will-i-get-penalized-…

JT

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Saul, what did you do?

Hi LuckDog
My wife and I both started at 62, for the reasons I stated.
Saul

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I converted my IRA’s to ROTH IRA’s a few yrs. back so taxes have already been paid.

Social Security has nothing to do with IRA’s.

Hi Saul, I realized after I posted the question about ROTH IRA had nothing to do with SSA. I’ll blame on lack of coffee.

I just signed online to my SSA account and it’s been 2 yrs. since I took a look at it and that was 9/1/14 when SSA sent letter out saying that paper benefit statements were no longer going to be mailed out. So if anything, this post of yours made me sign on and see for myself what my benefits would be at age 62,66, and 70.

SSA has information regarding points to consider. The more information the better.

I had previously made up my mind to put it off until later, I don’t need it, but I like that “one in the hand, beats two in the bush” analogy. So why the heck not, it’s more money for me to invest/pay for dog food.

Many happy returns to all and thank you Saul for bringing this to the fore.

LuckyDog

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LuckyDog2002,

I sent you an e-mail if you haven’t seen it.

mazske

Saul,

“Social Security has nothing to do with IRA’s.”

Not completely true.

Taking distributions from traditional accounts adds to income. It can change the taxation on benefits from 0% taxable to 85% taxable.

It can also increase the Medicare “B” payments you make.

We have been doing Roth conversions each year since 2010. I convert the amount to fill our tax bracket and also stay below the Medicare bump.

I took my benefit at 62. We started DW on a spousal, restricted filing at 66 (50% of my FRA amount). She will take her full amount at 70.

I held her benefit to maximize her non-investment payments. She will have enough fixed income to pay all the bills when I “disappear.”

I gave up a little investment upside for a more guaranteed income for her in my absence. My “insurance policy”, so to speak.

Gene
All holdings and some stats on my profile page
http://my.fool.com/profile/gdett2/info.aspx

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He’ll most likely make much more by taking social security early, and he’s probably going to do that, but his odds of a successful retirement might go up a few percentage points by waiting.

Don’t forget to consider that, if he starts taking it early, that is money that he doesn’t have to draw from his investments and so he will have more money there, extending the time of coverage. If the investments do well as a result, he can increase the draw to equal what he would have gotten by waiting.

We on this board are not in any way typical when it comes to finances. If the advice is viewed in terms of most people the picture is different.

The pitiful savings situation of the typical household is well known. The vast majority of people starting SS payments early are not investing them, they are living off them. If they use it as a means of retiring early, instead of working until at least FRA, they are just going to have that much less to live on every month forever more. If they save it, will they do better than that 8% (not compounded!) return that each year of delay represents? They probably have no significant savings, and reduced their only remaining source of income significantly. Using the extreme numbers - \$750 vs \$1320 - it is not a little bit, but rather 76% more. Many of them are going to live into their eighties, and more than a few will reach their nineties. What will they be living on then?

As with so many things, it all depends…

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This is a great topic. Thank you all for the thoughts.

I’m not sure 1 size fits all here, but it certainly is thought provoking.

I just turned 66 and recently took a new job. I’m earning more now than I ever have and the job is great fun. I’m damn lucky. And, I happen to enjoy my work, which is why I took the job. I also continue to max out my retirement contributions, as I have for decades.

I’ve decided to delay my SS payments. For starters, I don’t have an immediate need for the cash. Also, I figured it goes up about 8% a year, more than my average investment returns. And, as we all know, markets don’t always go up.

Also, when I die, it means more money for my spouse as I was the high income earner. As I like to say, I’m earning more for my wife’s second husband.

When I do stop working (I’d like to work until I’m 70 if I’m able), the increase in SS I get will allow me to draw less from my retirement savings.

Anyway, it made sense to me.

But thanks again for the thread. It has me re-thinking the process.

AW

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