For a given set of assumptions, there is an exact answer that maximizes the present value of SS benefits. There is NO reason to speculate. You can change the assumptions and get a different recommendation. SS “Claiming Strategies” is complex enough that there are many different optimal solutions, depending on the assumptions. The permutations and combinations are so numerous, I strongly advise everyone use a SS calculator to guide you. The gold standard calculator is Laurence Kotlikoff’s at https://maximizemysocialsecurity.com/. It costs $40 for a one year usage.
There is an outstanding free alternative, http://www.bedrockcapital.com/ssanalyze/, that is also recommended. You can give it your inputs in a few minutes and it will instantly spit out the optimum claiming strategy. I do not really know if it ever gives a different answer from Kotlikoff’s, but I think it is worth your time to try it for fee. It is likely to give a different answer from what your assumption going in was.
I have found very few people that understand how one spouse’s SS benefit affects the other spouse’s benefit. Most people analyze each spouse separately and in general, this is completely wrong. It misses the interaction with the other spouse. I keep seeing one specific case that people get wrong. Here is the case. I am going to use husband and wife for illustration, but it works the same if it is wife/husband.
- Husband had a high income, and therefore a high benefit.
- Wife had a low/no income and therefore has a low benefit on their own.
- Husband has a low to medium life expectancy, say <=75 years old
- Wife has a long life expectancy, say >= 90 years old
- People miss that the wife’s benefit will become the husbands benefit after he dies
- Let’s say the husband starts his benefit at 62 and dies early. The wife’s benefit will be reduced for 10 or 20 or 30 years because the husband took it early.
- The optimal answer in this case is for the husband to wait until age 70 to start taking his benefit.
- I have yet to find a single person that understood this before they ran the simulation. Matters of fact, most people still do not believe it even at running the simulation.
There are many other issues and complexities that are specific for each person/couple. Best to run the free simulation and see what it recommends. All you have to lose is a few minutes of your time.
Thanks,
Yodaorange
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Taking distributions from traditional accounts adds to income. It can change the taxation on benefits from 0% taxable to 85% taxable.
To be clear, this doesn’t mean you lose 85%. It means up TO 85% (and probably less) of your social security might be “income”, on which you will pay your typical tax, usually 20% to 30%. People in some high income situations might pay as much as 35% or even 39%, but that would be unusual for someone who is retired or semi-retired.
The simulations that I have seen all tend to group around a break-even age of 82. It might be a little more or a little less, but that’s what I’ve read. And that’s if you take it “early” take it “middle” or take it “late.” As someone upthread says, it’s actuarily neutral, the SSA doesn’t care, it pretty much doesn’t matter to them. (There may be a slight shift as people with physical ailments take it early, get some, and die, whereas they might have waited longer but then gotten nothing, but that is so slight as to be practically meaningless.)
For me I would rather have the money early, when I am still physically fit enough to travel, upgrade my house, take a driving vacation or whatever. When I am 85 I will likely be somewhat infirm and far less able to do the kinds of things that the luxury of retirement affords. (This is where somebody chimes in and says “Oh, but my Aunt Martha was hiking through Alaska when she was 93”. OK, good on her. That’s not most people and I can guarantee it’s not me.)
So every situation is different, and any “advisor” who says “the only thing you should do is wait” isn’t giving advice, he’s giving doctrine - which is wrong for many people.
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Saul,
Thank you for the post, that is the first time I have seen it put in that perspective. I will turn 62 in two years and thinking very strongly of claiming benefits then. This is also the first board that I read.
Thank you again for the post!
brian
Yoda,
Thanks for the links! I’m still a few years away from retirement, but close enough to have run through a present worth analysis on my own to decide that for my situation, delaying until 70 is best. The Blackrock tool is much less effort! It takes only a few minutes to fill in, and allows you to very easily change parameters to investigate “what ifs?” I have a feeling that most persons who frequent this board will find that delaying until 70 also makes the most sense from a financial analysis perspective.
DT
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As noted up thread, this is a well hashed out question on the Retirement Investing board. Based on those years of discussions, here’s my quick version of when to start social security benefits:
If you need Social Security to keep from eating cat food, take it at age 62.
If you don’t need Social Security at all, take it at age 62.
If you keep working from 62 to 67 and make more than about $45k a year, you may as well wait until you stop working. You’ll have to give it back anyway.
If you are terminally ill, take it as soon as you can.
If you don’t fit one of those, you’ll have to do some thinking and analysis.
–Peter
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The reduction in Social Security Retirement benefits due to making too much prior to full retirement age is not forever lost. From a Social Security pamphlet “How Work Affects Your Benefits”:
"Will you receive higher monthly benefits later if benefits are withheld because of work?
Yes. If some of your retirement benefits are withheld because of your
earnings, your monthly benefit will increase starting at your full retirement age to take into account those months in which benefits were withheld.
As an example, let’s say you claim retirement benefits upon turning 62
in 2016, and your payment is $750 per month. Then, you return to work and have 12 months of benefits withheld. We would recalculate your benefit at your full retirement age of 66 and pay you $800 per month (in today’s dollars).
Or, maybe you earn so much between the ages of 62 and 66 that all benefits in those years are withheld. In that case, we would pay you $1,000 a month starting at age 66."
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Kotlikoff, cited upthread for his online calculator, co-authored a book with Phillip Moeller and Paul Solman entitled “Get What’s Yours” (Simon & Schuster). It that book they philosophically and pragmatically explore not only when to consider taking benefits, but the myriad people who may be affected by one’s benefit (children, ex-spouses, widows, etc. etc.), and many other issues. Not light reading.
This is certainly not a black and white, one size fits all decision…end of cliches.
Gary
This is also the first board that I read.
Welcome to the board Briank
Hi all:
New here. I took my SS benefits at 62 (I retired at 56). It did occur to me that I might not be around at age 70 (should I defer benefits) or at 80 (when the payout evens out).
Hindsight is 50/50, but if I had it to do over again, I might have done it differently and drawn down retirement accounts instead of taking Social Security early. This would have reduced RMD down the road while resulting in increased SS benefits down the road. This arrangement has tax benefits, vis-a-vis the amount of Social Security benefits that are getting taxed every year. I believe deferring also helps in the spousal benefit department.
But the bottom line is, treat every day like a gift.
You know, the same arguments that apply to taking SS early apply to those “life style” decisions some of us make to maintain our health.
I exercise every day and not a day goes by when I don’t question the wisdom of wasting an hour sweating out a workout in the here and now if the result will be getting 10 minutes of that hour back on the back end of my life.
Much though I am sure we will all treasure that “end of life” phase, there are a lot of fun things to do today.
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