… premature claiming of your Social Security Benefits. Financially, it pays to wait until age 70 for about 90% of seniors.
{{ To put it bluntly, people are making expensive choices. “The median loss for this age group in the present value of household lifetime discretionary spending is $182,370,” the researchers found. For that amount of money, you could almost buy a Mercedes AMG-S63. Or, alternatively, pay a few medical bills. (The math for delaying benefits isn’t quite as favorable now as it was in 2022, when that “virtually all” study came out, because of a rise in the interest rate that goes into the calculation.)
I’m interested in two things. One is why people make this choice when it is so often a mistake. The other is why our system makes it so easy for them to make this mistake. I feel about premature claiming the same as I feel about state-run lotteries, which prey on the desperate and the dreamers. I don’t claim early and I don’t buy lottery tickets. The mistakes other people make indirectly benefit me by decreasing payments and thus my tax burden, and that seems unfair. }}
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Of course, some people say, “I can take it at age 62 and invest the money in the stock market”, but that’s not a guaranteed 8% return. Nobody is more pro stock than I am (my asset allocation has been 90% plus stock since 1997 and it’s 96% today at age 68), and even I see the benefit of waiting until 70.
So it is bad for people to claim SS before 70 because they do not maximize their benefits. Conversely it benefits the SS system for people to claim as early as they can to minimize the benefits it will have to pay out. Maybe we should reduce the retirement age to 55 with the additional 7 year or 56% haircut in benefits.
Actually, worse than lottery tickets is using your money to build up the jackpot, then watching some foreign cartel walk off with the big prize.
The surprising European links to a $95M Lotto Texas win
n the year and a half since an anonymous player [engineered a $95 million Texas lottery jackpot win] by buying virtually all of the 25.8 million possible number combinations, two mysteries have persisted:
Who did it? And how did the small group of outlets conducting the operation process so many tickets in only 72 hours while still following the strict rules the Texas Lottery Commission places on its sales?
For those who can’t/won’t wade through the articles, you do it by convincing the Lottery officials to give you a bunch of terminals, set the up in a dark building somewhere, and print yourself oodles of tickets: about 11,000 per hour per terminal.
Since Texas requires that the tickets be printed fro lottery forms, they programmed iPads to replicate lottery forms, which fooled the Lottery scanners into thinking it was “people” filling out the forms, not an algorithm sequencing all possible combinations. And when you are located in Europe, how do you handle all the printed tickets and such? Ah, American enterprise. Door Dash, Grub Hub, Task Rabbit and other “contractors” shoveled around the tickets into barrels to keep the machine running until, Presto! We have a winner!
My proposal is to give “low information Americans” the option to claim at age 50 (12 x 8 = 96% haircut) with a monthly benefit of 4% of the age 62 amount.
I started taking SS benefits at age 64. I know mathematically that it’s better to wait, but I was using SS to pay for Obamacare, so it helped my cash flow. Plus, I think that it’s likely that politicians will decimate SS in the future – before I’m 78, so it makes sense to take it now.
Obviously, I don’t know what your personal situation is, but retirement savings can be converted to cash flow.
When economists do these studies, they find that retirees with fairly modest savings would benefit by spending down at least half of their retirement assets to delay taking SS for as long as they can, even if it’s not all the way to age 70 – it’s that good a deal.
I took SS at 69. I was in a toxic work environment and I did the numbers and my retired paycheck would be the same (SS and pension) as what I was being paid to work.
“No action” is the easiest thing to do. As the panelist in the Concord Coalition relayed the “starve the beast” advocate’s position “do nothing, until there is some sort of crisis, then tell the old people “sorry, can’t do it anymore””. Everyone in government is expert at “the blame game”.
“Tax-free SS” and “no tax on tips” are the first things that will be eliminated to preserve “tax cuts for the rich”
Once you remove yourself from the need for wage & salary employment, life is sweet – no matter who’s in charge. The bipartisan culture of corruption has your back.
If you’re funding your lifestyle with qualified dividends & capital gains, or the proceeds of inherited wealth with the stepped -up cost basis, you don’t have anything to worry about.
That’s where people get the math wrong. If you have more money over your lifetime with a larger monthly SS benefit at age 70, that means you can withdraw more from your retirement nestegg today for travel and other leisure pursuits because you’ll need a smaller portfolio withdrawal at age 70 when SS kicks in.
Take the $182,000 that the average person leaves on the table and go on a World cruise today. If you don’t live to the SS breakeven age of 78, you won’t need a nest egg large enough to last until age 90 either.
Most people have a hard time understanding the fact that a simple S&P 500 index fund out performs 95% of active mutual fund managers. It’s doubly hard where you’re talking about actuarial science and the “contingent life probabilities” of dying at various ages with a portfolio under annual withdrawals.
It’s much easier to just believe what they tell you on Fox News, “Social Security is going broke, so take it early.”, and not do any thinking.
I think you and I are about the same age. I also regularly argued your side of the argument for about a decade. And yet, since I also did not really need the money I started taking my SS at FRA (66 years, 4 months). That was August 2022. I put my SS (actually SS minus 20% for taxes) in a trading account that had about $95,000 in cash. I rolled that money into an etf plus each monthly SS check into the same etf which now stands at about $218,000. It is a taxable account but if I wanted the money for something nutty like a plot of land in another country because of my very liberal political leanings, I can cash that account, pay a relatively small tax on my capital gains, and put it toward that nutty purchase now.
It seems to me that there is some sort of noneconomic value in maximizing your money while you are young enough to enjoy it.
The stock market delivers variable returns. While 2022 to date has been favorable (I’ve enjoyed the best portfolio returns during the COVID pandemic since the Great Bull Market of the late 1990’s) you could just have easily seen something like 2000 to 2008 where you had a 50% stock market drop in 2000 and then a second one in 2008. That’s why the “safe” withdrawal rate is 4% even though the long term S&P 500 average return is 10% plus.
For the 8-year holding period from age 62 to age 70, the stock market historical return is between +5% and -8% annualized, in 25% of the periods examined – and of course, it’s less than the 10.7% average about half the time.
If the long term S&P returns are 10% plus, and I am withdrawing money that I don’t need, then sequence risk is irrelevant. Isn’t 10% more than 8% over the long haul?
