I bailed at 62 as telecom, Lucent Tech, in my case, began to collapse, they made an Offer, lump sum of $50K or an annuity to add $300/m to the pension amount. I grabbed it and left, early SS, +pension, w/benefits, working wife, it’s worked out well. But I just came across this video in FB Reels, with an interesting perspective I didn’t have 24 years ago!
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I watched the video and what this financial planner is missing is that you can actually take more money from your savings (and spend more money) at age 62 if you wait until age 70 to collect SS. That’s because with a much larger inflation-adjusted benefit at age 70, you’ll be making smaller portfolio withdrawals from age 70 on, and thus you’ll need less in savings during your later years.
There are only 2 reasons to take SS at age 62.
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You won’t have enough money to live on without the SS check, and have insufficient savings to draw from in order to delay the monthly benefit check. If you had a $500,000 nest egg, it would be beneficial to draw down as much as half of that to delay SS for as long as you can. The arithmetic is that strong.
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You have a confirmed medical diagnosis that guarantees a shorter lifespan. But even then, with the ongoing improvements in medical care, many folks are outliving a dire diagnosis.
When I had my leg amputated in July of last year, I googled the average life expectancy of above knee amputees and decided to immediately start SS with a start date 6 months prior (i.e., 68 years and 11 months.) Now that my recovery has progressed so well, my doctors tell me I should see no decline in my life expectancy. Waiting until age 70 would have been the smarter call.
intercst
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I’ll be working past 70 either way. I want to work.
But my work is shifting to my commercial projects. I might leave my current position next year.
Well, I’m sure there are many, many reasons beyond those 2, as in my case, after ~40 years in WeCo/T/LU, the industry was changing, and LU in particular had been ripped off by the top brass, as well as many other reasons, shortsighted upper management, as far as the industry for sure… In my case I stayed in non-management, even after attempts to ‘promote’ me, I really liked the fast changing tech, wanted to stay with it. But, I was losing all my senior managers from District level to first level supervisors, good people all, but they had been forced into retirement by offers at their level, or just because of their management skills, they made top salaries, so the hatchet man/lady went after them, any that stood up for them also got axed. So there I was, newbie supervisors, local jobs were shrinking, so extremely likely I could have been forced to move, probably out of state, only to then be stranded far from my lifelong community, family, etc.. Historically they’d transferred folks into NYC or other places I wasn’t about to go… So before that happened an Offer came along, I was close to 62, it was time… What I thought was a nested in 10K LU shares, vaporized along the way.. But AAPL more than made up for the losses, financially way better than I’d ever expected, thanks to that early AAPL investment… Haven’t sold any, dividends help pad the incomes…
Long before a SS conference, we knew 62 was there as an option, jumped on it…
24+ years later, doing fine… Anyway, the video caught my eye, having BTDT!
weco
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I agree with intercst. Whatever the details of any given case, it really boils down to those two things. Either you have a shorter life expectancy, or you need the money now.
There can be other things to consider. For example, we have exchange healthcare. We don’t want extra income right now. Add to that I have to distribute my inherited IRA. And then we have our own IRAs that will have to be distributed at some point (after age 70). We a) don’t need the money, and b) have no current prognosis indicating a shortened lifespan. (item b could change at any time, of course)
Once 1poorlady is 65 (she’s about 16 months younger than me), we both will be on Medicare. Then I’ll start distributing the traditional IRAs as quickly as I can so that the eventual RMDs won’t knock us into a high tax bracket when added to our SS after age 70.
But those details are just details. It still comes down to “we don’t need the money now” and “we have no present reduction in life expectancy”. So no SS before we hit 70. The rest is juggling tax brackets and medical subsidies.
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I don’t see anything that followed that made your case any different than what intercst stated.
What was your specific case (that was different) that made you turn on SS at 62 instead of some later age?
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I’ll take his double dog dare. First, I’m assuming we’re that we’re talking about someone retiring or already retired around 62’ish (otherwise there’s no need to take it). One flaw is restating what intercst said.
The threat to portfolio survival is a poor sequence of returns early in the retirement period. Delaying SS backstops the risk, which allows you to increase your SWR.
He glossed over the SSOR return problem, correctly noting that on average the S&P 500 returns about 7% + inflation each year. But that’s average. From 2000-09 the S&P 500 was negative. He’s betting his retirement that won’t happen. But if it happened once it can happen again.
I’m married and I had originally planned for us to take SS at 62 and 70 for reasons he mentions in the video. However, I modeled it in Boldin and both of us delaying significantly increases the final portfolio value.
A big reason for that is it gives us more room for Roth conversions, which will save us an enormous amount of money when RMD’s kick in.
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How does it backstop the early sequence of returns risk? If your early retirement years are in bad down markets, taking SS now means you can take less out of your bruised retirement accounts.
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I think your last sentence is important to emphasize. I took SS at my FRA (66 years and 4 months) in September of 2022 against the advice of many of my favorite posters - including but not limited to, Hawkwin, intercst, alpha wolf, and others.
I was in category 3 not on intercst’s list above. 1. I did it because I did not need the money. 2. I was investing for long term returns. 3. I did not care about sequence risk. And 4. The markets had fallen by over 20 percent by the time I reached FRA in September 2022. It looked like a buying opportunity.
And so far, I am ahead of the game with rolling 12 month average annual returns ranging from 17 to 24 percent per year over the last four years that I have earned by investing my SS checks.
But… My Roth conversions have been limited by my SS checks because I am trying to cap my retirement income at the top of the 22% bracket, and my SS is income. So I have less room to convert money from my IRA to my Roth each year and that will lead to oversized RMD’s and taxes in three years. So even when you win the bet you don’t win as much as you think.
A first world problem, but one of my own making.
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I don’t know is if it universally true if delaying backstops SSOR, but it does in my case. Basically, you can think of it as buying an inflation adjusted annuity. So by delaying while your portfolio value is lower at age 70, SS becomes a bigger portion of your spend, and so the COLA also gets applied to a bigger portion of your spending.
I modeled this in cFIREsim and the difference wasn’t huge, but it was non-trivial. The thing that really changed my mind was using Boldin to create different scenarios. Accounting for the higher Roth conversions is what really tipped the hand.
You can do this yourself, you don’t need a planner like Boldin, but it is a lot easier.
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There’s a third. If you are of retirement age and have minor children, you can collect an additional 50% of your monthly benefit until the children turn 18 ( or later if they are still in high school past age 18). That bump in early retirement benefits serves to push out the “breakeven” age, and may make it a reasonable choice to file early, depending on the age of your children.
Tim
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I agree. That would appear to be a good reason that was not included as part of the first two. In other words - “bad timing.” Using a source of income not at risk of market losses (SS), thus allowing those depreciated assets to recover. Also, using the depressed market to invest the infusion of cash. I have taken advantage of that myself - once in 2008 and again with Liberation Day.
It would seem less than ideal to move eight years worth of income out of equities and into a risk-free bucket so a really bad market may cause someone to have to pull the trigger early - but that isn’t quite your scenario. If you did not spend the SS and you were not making withdrawals from the market, what were you living off of, a pension?
It seems like you have had a good experience with this - but I could not get past its inability to aggregate data from various sources. It could not do two different 401ks from the same major provider (only ability to recognize one account - my wife and I have the same 401k provider) and it also could not pull in my Sofi account. Having two major obstacles before even starting had me cancelling my account before the annual fee kicked in.
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Whether it was my sleep apnea*, a toxic boss, a toxic co-worker, or bad calculation, I quit about 1.5 years before 70 SS blah blah thinking my check each month would match current salary.
NOT. I didn’t calculate that my pension and social would be taxed so I was off by about $700. dang
But my fun money in the Saul et al ETF severely increased my egg.
whew. Once again landed on my feet.
MS
*Just after I retired everyone started working from home due to covid epidemic. I could not have survived this due to my problem of falling asleep at my desk around early afternoon. Coffee? Haha! I would wake up with the last half of my cup of coffee spilled all over me. I knew it was time for drastic measures when I woke up one afternoon with coffee spilling out of my mouth.
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I believe I said in my post…My time in WeCo/Y/LU was going to soon be unacceptable, forced permeant transfer to the distant reaches of the country, all my managers had already been pushed out, all of them were also under 65, so it was just time to go… Until that time we always had additional talents to apply to major projects, but as folks left, we were left with newbies, inexperienced, most I had on the last couple projects should never had been hired, so in that respect it was also frustrating, day to day, new hires would rather play games on computers they shouldn’t even been issued, than pay attention to the work at hand. It all added up, it was time to go, I knew I was close enough to 62 to add that to my enhanced pension, thanks to that ‘Offer’, so away I went.. DW was still working had kept pace with my income stream as well, we were good to go, she continued a few more years.
I and a few co-workers had thought we’d be able to pick up small jobs, use our acquired skills, but as we bailed, so did many others, snd the whole telecom industry just dried up, so all that never happened. Still have the tools, but time marched right on by. As a lifelong tool collector, my next issue is what to do with all of that stuff, my daughter noted years ago, ‘it won’t even burn!’, so some ambitious day I’ll begin donating somewhere, or just recycling…
weco, FREE since '02!
I keep hearing more and more often about a significant cut in Social Security in about 6 years if they don’t do something to shore it up. I never thought this would be possible, but it’s being teased so often, I’m no longer sure. The possibility certainly exists. It’s hard to plug an unknown probability into an equation, but it should be another potential reason to start SS early.
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Exactly!
Waiting until age 70 essentially allows you to buy an inflation-adjusted life annuity from the US Gov’t for 30% to 50% less than a commercial life insurer would charge for the same monthly benefit (the savings depends on the current interest rate.)
intercst
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The GOP has been trying to cut or eliminate SS since it was enacted in 1935. Every time they make an attempt, they’re voted out of power in the next election.
Corporate DEMS have also tried with disastrous electoral results.
The “higher taxes on senior citizens” mentioned was a surtax on the wealthiest Social Security beneficieries to fund a “catastrophic health insurance benefit”.
intercst
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Perhaps you did; but then I still don’t see it there or in this post.
Allow me to be more specific, what caused you to have to turn on SS at 62 instead of using your retirement/taxable savings? You allude to significant AAPL investments (that you still haven’t sold) so it would seem you had alternatives.
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Mainly not going on long haul transfers, living out of a suitcase, due ti that telecom meltdown, I could have held on for a couple years more, but there was little to gain in either pension or SS, as I took max spousal benefit allowances, on the pension, in fact later was able to raise that to 75% when they (LU) tried to buy us out… Stress, frustrations, slowing workload, lower talents to do the work we did have which had gone away from AT&T & the RBOC here, were parts of it, but in the end, it was just time to go. Savings/investments, decent, because both of us worked, but the AAPL had yet to mean anything as significant as it’s become since… Ut took me many months to sort out all the bits n pieces Ma Bell/Lucent had scattered in various institutions. It was just time to bail, and it’s worked well! We had already traveled a lot, RV camping in the West, islands of the Pacific, Australia, Spain, Europe, Russia, several Viking cruises… Do those while you are young enough to keep up the pace!
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