I just hope Social Security will be around when I become eligible 
Sincerely,
Charlie
+1 for someone who decided that taking it early kept me ahead for quite a few years and either gave me more to invest or kept me from drawing on what I had invested.
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Charlie,
Do you really think that Social Security will be abandoned? People may try scaring you (Just like the stock market going down) but Social Security will always be here. The politicians do not want to lose their jobs.
Andy
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It looks like it will be around, but benefits will likely be reduced.
http://www.heritage.org/research/reports/2015/07/social-secu…
Brian
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It looks like it will be around, but benefits will likely be reduced
Brian, this is all supposition. There are many ways to fix the problem and reducing benefits would only be one of them. They could just up the retirement age like they did previously to fix the problem.
Andy
Thanks for the quick responses! I did do a break even analysis at age 63 and found that:
a) taking it at 63 vs. 66, the break even age would be 78 (meaning beyond 78, I’d be taking more monthly, 24% more, by waiting to 66), and b) the breakeven between taking it at 63 vs 70 would be age 77 (since at 70 I’d be taking 61% more than I would at 63).
I did a similar calculation last year when I turned 60, and as I recall, the conclusion rests completely on the assumption that you make about the time value of money between the two different choices for retirement age.
Implicit in the traditional breakeven assumption is that you would “earn” an amount equal to the average if you were to start taking it sooner and put the incremental money into investments of some sort. However, if you believe that you can earn an above average return, possibly much above average, then you’re better off taking SS early rather than later. Hopefully most investors here have the confidence and ability to do so. But keep in mind – caveat emptor – that sometimes bad luck can undo the best of well though out decisions that are based on expected value results.
as always, i am full of carp
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Do you really think that Social Security will be abandoned? People may try scaring you (Just like the stock market going down) but Social Security will always be here. The politicians do not want to lose their jobs.
I’m not sure, it is still a longs way out for me (30+ years), hopefully it will be around in some shape or form. It would be a shame to be forced to pay into a system without any benefit.
Sincerely,
Charlie
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I’m not sure, it is still a longs way out for me (30+ years), hopefully it will be around in some shape or form. It would be a shame to be forced to pay into a system without any benefit.
Exactly Charlie. That is why it will not collapse. If it does the people in the system now will no longer get anything out of it, and the people putting into it will not see anything from it.
Andy
SS is quite along way off for me as well… in that same 30+ year ballpark. I’ve always been of the opinion that by the time I get there it will likely be insolvent, or at least unable to pay enough to make a big difference anyway. If anything it will be extra on top of whatever I can save, but not something I am banking on.
Based on that and also on similar thinking to what some have said above, i’d rather have the cash in my pocket to manage as I see fit then wait and expose myself to more unknowns (health changes, geopoilital events, policy changes, etc)
But long way to go before that bridge needs to be crossed anyway
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Tim and others,
Here’s how I did the calculation when I was 62. I don’t remember the exact figures of course. I’m just making them up, but it will give you an idea.
Say my monthly Social Security, taking it at 62, was $1000 a month. That’s $12,000 a year. By the time the guy making it at 65 got started, I’d have $36,000 in the bank (even with no interest, no investment gains, etc). Say that taking it at 65, you’d get $1400 a month, so you’d catch up $400 a month, or $4,800 a year… but you are $36,000 behind!!! At that rate you’d break even in 7.5 years, or when you are 72.5 year old. I didn’t know if I’d even be alive 10 years later at 72, or in a nursing home, or whatever. And that’s just breaking even, catching up with what you postponed!
If the guy with $36,000 invested it and made just 7% per year (less than the S&P average), he’d pull in $2,500 and the fellow starting at 65 would only gain $4800 - $2500 = $2,300 per year. He’d be over 80 before he broke even. Where’s the profit in that? Live until 90 and you’d be a little ahead?
Saul
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If the guy with $36,000 invested it and made just 7% per year (less than the S&P average), he’d pull in $2,500 and the fellow starting at 65 would only gain $4800 - $2500 = $2,300 per year.
The guy who waits gets a raise each year (the eventual SS payment is higher), so the calculation is less. Indeed, people who counsel waiting note that it’s like getting a 2.8% risk free (or as risk free as the US Government is) bond (your payout increases). Most mathematical analyses I have read say the “break even” point is somewhere around 81 years old by waiting. So (if that is true) take it early if you are in poor health, have a questionable family health history, or can’t live without it. Otherwise wait.
But wait! I have argued (and done so myself) that the money will have little practical value to me when I am 88; I will probably be in a nursing home, and if it’s anything like my father’s or father’s-in-law, they make you pay full price until you run out, then they take your pensions and social security as full payment until you die. I guess it would be nice to give the home another $400 a month, but I think I can use that money better now myself.
I am able to live, do things, travel, play in the workshop now in my 60’s. I am unlikely to be able to do that in my 80’s. It’s not just the “time value of money”, it’s also the “enjoyment value of money.”
I took it at 62, even though I didn’t really need it.
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Tim et al,
Recently on the TMF Retirement Investing board, intercst made a 12/5/2015 post about “Social Security Misconceptions That Impact Taxpayers” by a retired IRS research analyst who proffered that it doesn’t make sense to delay your SS benefit.
http://ssmisconceptions.solutions/
This post stirred a thread with a whopping 122 posts
http://discussion.fool.com/dont-wait-take-soc-security-now-32020…
of which IMO the following three were most noteworthy:
ptheland response to comment: Can someone bottom line this for me?
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 $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.
ItsGoingUp response to comment: And people who know that a dollar today is not the same as a dollar 8 years from today.
It’s simplistic to compare simply the number of dollars today and in the unknown future. But your implication is that inflation is the only relevant factor. In fact, there are a few things that can make dollars in the future much more valuable than dollars today.
Deflation is the obvious counter-possibility to inflation, but I don’t think that’s the important one. The real possibility is that the money is just much more useful to the individual in the future. At 62, if it’s the case that you have a $150K/year income and taking SS would add $30K/year then how useful is it really? But if, by some unfortunate chance, your income and savings disappear (fraud, mismanagement by dementia, identity theft, family disasters, etc.), then getting $40K/year because you put off taking SS until later will be a substantial improvement over $30K.
This is my situation. I’ve retired early with plenty of money to cover my needs (and wants). I won’t need any SS payments when I turn 62. So I’ll just wait until I do need it and take the higher amount then. I look at it as insurance in the case of disaster, and absent disaster it just won’t make much difference to me. If the insurance ever is needed, having it be more money with be a very good thing.
Only people who know how to do simple math.
When it comes to money the math is never simple. To get it right you always have to apply some personally defined utility function. It changes with time and fortune.
Goofyhoofy response to comment: 1 fear in retirement - outliving your money. The person that plans to take their SS at 70 is less likely to outlive their money, all else being equal. Even if my personal and family medical history were to suggest I will only live to 83, I still am going to plan (insure myself) against the posibility of such being wrong by planning to take SS later.
What is it you think you’re going to be doing when you’re 89? Jetting to Rio? Building a cabin on Lake Champlain?
My father just died at age 94. He was in a retirement home which promised to care for him “as long as he lived”, even if his assets ran out. (He had to have some assets on the way in to be depleted first, of course.) Dad had a portfolio of almost $2m, so no worries.
Mrs. Goofy’s father is still alive at age 92, and has recently over into a retirement home which has the same policy. He had less than $300,000 in assets, but they still took him. At $10,000/mo (nursing care) it will be gone in a few more months, but he will stay there until he dies, and the home will take his Social Security check as payment for however long that time left to him is. As he took it early, the check is less, but it ensures a retirement in this lovely home, with daily entertainments, decent food, movies, and companionship.
Meanwhile people are denuding themselves in their 60’s in the hopes of living to age 94, when they need be wheeled around by an aide, drooling at the mouth, so they can have a bigger Social Security check - which will be taken by the home regardless.
Bah. You can still have a full and active life in your 60’s and 70’s (and this is where somebody chimes in and says “But my Aunt Gertrude travelled to France when she was 87!” as though that’s typical.) Take the money while you can do something with it, not when all you get to do is sign it over to someone else.
Since my mom is 91 and in good health and last weekend our family celebrated my mother-in-law’s 104th birthday (she is amazingly in good physical and mental health), chances are my wife and I have long life genes [ http://www.newsweek.com/long-life-imprinted-genes-centenaria… ] and may be around a loooong time, barring any life threatening maladies or events. I started my Social Security benefits at age 66, when I retired with traditional IRAs, a company pension, and a 401K (all employer stock) that I rolled over to an IRA. My wife initially wanted to continue working to age 70, but decided to retire at age 68, when her company merged with another; she retired with an IRA and a company 401K rolled over to an IRA and started her Social Security benefits.
I’ve advised younger colleagues and friends, if they haven’t, to open IRAs (preferably Roth) and contribute the allowable maximum. Likewise, if their employers have 401K plans.
Regards,
Ray
BTW, the Retirement Investing board is excellent with savvy contributors.
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But wait! I have argued (and done so myself) that the money will have little practical value to me when I am 88; I will probably be in a nursing home, and if it’s anything like my father’s or father’s-in-law, they make you pay full price until you run out, then they take your pensions and social security as full payment until you die. I guess it would be nice to give the home another $400 a month, but I think I can use that money better now myself.
I am able to live, do things, travel, play in the workshop now in my 60’s. I am unlikely to be able to do that in my 80’s. It’s not just the “time value of money”, it’s also the “enjoyment value of money.” I took it at 62, even though I didn’t really need it.
Hi Goofy, I figured it exactly the same way! Get it when you are young enough to enjoy it!
Saul
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Indeed, people who counsel waiting note that it’s like getting a 2.8% risk free
Goofy, I believe that that line says it all (to me). That’s what was implicit in the calculation that I did, and I’m sure for other savvy investors … taking SS later implies that you either aren’t an investor or else you have a very intense risk intolerance.
I’m guessing that most readers of this board aren’t so incredibly risk-averse that they’d happily accept 2.8% risk free when the alternative is having that money available for investing. No risk, no reward.
as always, i am full of carp
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There used to be a nice loophole called “file-and-suspend” that let a spouse collect the 50% spousal distribution while the higher wage earner waited.
http://www.marketwatch.com/story/social-security-loopholes-h…
In researching this post, I found that the recent budget deal closed that loophole (still open until 6 months after Bill was signed in December-ish)
http://www.marketwatch.com/story/key-social-security-strateg…
Between now and six months after the bill is enacted, file-and-suspend is still in effect, she said. Plus, it will still be possible to file for a spousal benefit based on a spouse’s suspended benefit. And, individuals who will be over 62 as of Dec. 31, 2015 can still plan on filing a restricted application for spousal benefits when they turn FRA over the next four years.
Article does have some thoughts worth reading if you are near that age.
Pete
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Article does have some thoughts worth reading if you are near that age.
and have a spouse!
Ant
And one more complicating calculation.
If you were a somewhat unmotivated hippie in your youth who tried to avoid taxes and social security, then working past 60 may also make more sense because of the way SS indexes to calculate your benefits. Any years you work past 60 can knock an earlier year of much lower earnings out of the calculation. Also earning years past age 60 are not indexed for inflation the way earlier years are therefore can also have a greater impact on eventual benefits. For me I love my work, don’t need SS now and every extra year of work will have a bigger future impact than just 8%. I am also concerned that SS money now will move me into higher state and federal income tax bracket.
Just another opinion. Clearly this decision must be based on individual circumstances.
David
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DW & I both currently plan to wait (we’re both 61, with a FRA of 66) as our current income makes that possible. By 66 our combined SS and pensions will only be a few thousand short of our pre-retirement income.
Note: We use $13K of our pre-retirement income to fund RIRAs, but are planning on the eventuality of needing about that for retirement health plan coverage (Medigap, etc.).
My company actually does financial plans for clients and I have created a google spreadsheet that I share. Social Security is one of the more difficult decision to make. There are so many factors that the typical person does not consider, i.e. taxes and investment return. It is also an emotional decision for many so you can “throw out” the numbers for those clients.
For someone like Saul, taking it early makes complete sense because he can invest the money much better than the typical retiree.
The spreadsheet assumes a person has assets that they can live on until 70 if they so choose.
Here is how to use the spreadsheet.
Firstly, copy it to your own account.
Input the yellow cells in column B.
Go to column AE to AG to find out when you get even by waiting. As soon as it is negative you have “caught up.” If someone like Saul is getting 10+% per year return on investments it will never get negative.
https://docs.google.com/spreadsheets/d/1Dhj3FrIi2AjosqswhGJc…
I welcome any feedback on the spreadsheet.
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