Social Security 62 vs 66
Social Security 62 vs 66
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Last edited by TT on Sun Feb 04, 2024 4:21 pm, edited 1 time in total.
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Re: Social Security 62 vs 66
The 4% return on your investment is not guaranteed, while the social security increased return is guaranteed.
Re: Social Security 62 vs 66
One thing is that you did not index the SS payments for inflation. Alternatively one could do the analysis in real dollars. In that case assuming that Jack can get a risk free real return of 4% is unrealistic. The right number to use would be the rate on five year TIPS which is 0.08% today.
A different issue is that break-even is not the only criterion to apply. SS is an insurance proposition providing a guarantee of lifetime inflation indexed income. The two risks insured are longevity risk and inflation risk. Your analysis is an investment analysis which overlooks the true nature of SS. Of course, if the retiree is not interested in opportunities to manage those risks, the decision could be swayed to taking SS earlier. The issues in the first paragraph above still apply.
A different issue is that break-even is not the only criterion to apply. SS is an insurance proposition providing a guarantee of lifetime inflation indexed income. The two risks insured are longevity risk and inflation risk. Your analysis is an investment analysis which overlooks the true nature of SS. Of course, if the retiree is not interested in opportunities to manage those risks, the decision could be swayed to taking SS earlier. The issues in the first paragraph above still apply.
Re: Social Security 62 vs 66
Did you account for Jill getting $6800/yr more than Jack from ages 67-77?
If Jack is getting 4% on his money and Jill is getting ~8% for delaying SS, how would Jack come out ahead?
Jack's 4% has much more risk than Jill's 8%.
If Jack is getting 4% on his money and Jill is getting ~8% for delaying SS, how would Jack come out ahead?
Jack's 4% has much more risk than Jill's 8%.
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Re: Social Security 62 vs 66
It is not as easy to match or beat the value of delay by investing early social security payments as it appears at first sight. It could be done, but it is improbable and becomes virtually impossible if you were to live to 90 or so. Michael Kitces has done a very careful analysis of this matter.
http://www.kitces.com/blog/how-delaying ... y-can-buy/
John
http://www.kitces.com/blog/how-delaying ... y-can-buy/
John
Re: Social Security 62 vs 66
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Re: Social Security 62 vs 66
Let's use real numbers. The maxim SS benefit in 2015 is $31,956 at age 66. At 62 the maxim benefit is $22,369. A difference of $9,587. There will also be a COLA loss on the $9,587 forever, at 2% that would be $192 a year then compounded ever year for life. Also the COLA for those receiving benefits doesn't keep up with what new retirees receive. The only way one should take early SS payments is if one doesn't expect to live as long as the actuarial table states.TT wrote:Jack collects @ age 62 and receives annual payments of 21,000
Jill collects @ age 66 and receives annual payments of 27,800
SS figures payments so no matter what age one retires one gets the same money. This is another area where women get a better deal than men. At 62 men will live another 19.81 years wile women will live another 22.65 years.
Last edited by Uncle Pennybags on Fri Nov 21, 2014 11:54 am, edited 1 time in total.
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Re: Social Security 62 vs 66
Delay gives greater return with smaller risk, where is the downside?
If in reasonable health it's better to delay starting SS.
If serious health issues, may better to start SS earlier.
If in reasonable health it's better to delay starting SS.
If serious health issues, may better to start SS earlier.
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Re: Social Security 62 vs 66
It is easy to try and game Social Security by asking "what if" questions of 62 vs 66 vs 70. But, to me, the issue isn't trying to maximize how much I get from Social Security. It is making sure I have enough money if I live a long time. Clearly, the best way to do that is to maximize my Social Security payment and wait until I am 70 to take it (I'm now 62.5).
It helps that I have enough saved to make it to 70 without needing Social Security. If I didn't, I would take it in a heartbeat.
It helps that I have enough saved to make it to 70 without needing Social Security. If I didn't, I would take it in a heartbeat.
Last edited by Raybo on Fri Nov 21, 2014 12:32 pm, edited 2 times in total.
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Re: Social Security 62 vs 66
There is an irony in the fact that people who need SS the most have the least leverage to optimize the proposition.Raybo wrote:It is easy to try and game Social Security but asking "what if" questions of 62 vs 66 vs 70. But, to me, the issue isn't trying to maximize how much I get from Social Security. It is making sure I have enough money if I live a long time. Clearly, the best way to do that is to maximize my Social Security payment and wait until I am 70 to take it (I'm now 62.5).
It helps that I have enough saved to make it to 70 without needing Social Security. If I didn't, I would take it in a heartbeat.
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Re: Social Security 62 vs 66
They get back at those who have more than SS. Most people pay 0% tax on their SS benefits but many get double taxed and or taxed on tax exempt interest The tax law says, "add one-half of the total Social Security benefits you received to all your other income, including any tax exempt interest and other exclusions from income". If it is $25,000 or more a percent of SS becomes taxable up to 85%.dbr wrote:There is an irony in the fact that people who need SS the most have the least leverage to optimize the proposition.
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Re: Social Security 62 vs 66
This is so interesting ... I had a chance to read the article sited previously on this post.
the article states- those who are most concerned about living a long time and funding a long retirement, the decision to delay Social Security - even if it means partially spending down the portfolio in the meantime - can actually
be the best means to securing a successful retirement, by converting the uncertainty of market returns into the certainty of higher Social Security payments!
thanks for the reference.
the article states- those who are most concerned about living a long time and funding a long retirement, the decision to delay Social Security - even if it means partially spending down the portfolio in the meantime - can actually
be the best means to securing a successful retirement, by converting the uncertainty of market returns into the certainty of higher Social Security payments!
thanks for the reference.
Re: Social Security 62 vs 66
The argument advocating investing SS benefits rather than delaying is very common, but as others have said is based on too many assumptions of very rosy returns. Those who advocate this plan often overlook the other substantial benefits of delaying or using various strategies as couples to maximize their income in retirement. The legacy factor alone was enough to sway me.
I'm currently delaying and will hopefully be able to hold off until age 70 when the difference in benefits will be $16,000 a year as opposed to filing at 62. That figure does not take COLA into consideration. That's $16,000 more a year guaranteed for my wife should I die from age 70 on. Not only that but by filing a restricted application at FRA we will receive an additional $50,000 over 4 years while I continue to delay. Truly a no-brainer for a couple, and even for an individual if you can get by without the income for a relatively short time.
Then there are the tax advantages of having a larger percentage of your income subject to at least a 15% federal tax break no matter what your other income is, as well as the advantages of drawing down tax deferred accounts to mitigate RMD exposure after reaching age 70.5.
Regardless, it takes on more meaning than mere speculation when you pass age 62 and realize that you really do have options. I applaud the OP for bringing up the question considering the attitude of many on this board who have done their homework and are used to making informed decisions rather than emotional ones.
I'm currently delaying and will hopefully be able to hold off until age 70 when the difference in benefits will be $16,000 a year as opposed to filing at 62. That figure does not take COLA into consideration. That's $16,000 more a year guaranteed for my wife should I die from age 70 on. Not only that but by filing a restricted application at FRA we will receive an additional $50,000 over 4 years while I continue to delay. Truly a no-brainer for a couple, and even for an individual if you can get by without the income for a relatively short time.
Then there are the tax advantages of having a larger percentage of your income subject to at least a 15% federal tax break no matter what your other income is, as well as the advantages of drawing down tax deferred accounts to mitigate RMD exposure after reaching age 70.5.
Regardless, it takes on more meaning than mere speculation when you pass age 62 and realize that you really do have options. I applaud the OP for bringing up the question considering the attitude of many on this board who have done their homework and are used to making informed decisions rather than emotional ones.
Re: Social Security 62 vs 66
my opinion is the actual net position in your money in taking at 62 versus 70 makes the actual break even age 90. you can look at my prior posts. that is all
Re: Social Security 62 vs 66
My break even point is 77.3, but in my opinion "break even" calculations are meaningless. Who knows if the decision you make will garner the most cumulative income? You won't be spending it all at one time anyway, because you won't receive it all at one time. I doubt that your last thought on Earth will be regret over taking SS early or delaying. Since it's all a gamble one way or the other I prefer to take the money off the table in the form of a guaranteed return rather than an assumption that I'll die long before the national average says I am likely to. This is especially cogent for us since my parents and my wife's parents lived into their 90's.gerrym51 wrote:my opinion is the actual net position in your money in taking at 62 versus 70 makes the actual break even age 90. you can look at my prior posts. that is all
Many people who file early when they can afford not to will defend their position regardless of logic by making pessimistic assumptions about their own mortality and that of others, regardless of statistical proof and actuary tables. Then there are those who after reaching an advanced age look back wistfully at one time lost opportunities that passed them by. Unfortunately there are limited options for a do-over in claiming SS. Those who die earlier aren't thinking anything because they're dead.
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Re: Social Security 62 vs 66
A major flaw is if you are getting enough "other income" so you don't need your SS for living expenses, then you are going to be paying a lot of taxes on the SS. Realistically, you should only invest the after-tax part of the SS money. For example, say you need $50k gross income to live on and you get that from your pension/job ... whatever. If you don't get any SS, on a gross income of $50k TaxCaster says you (filing MFJ) would owe Fed tax of $3431. If you add $21000 SS to that your taxes will go up to $6109.TT wrote:Hypothetical scenario - What am I missing ?
I was thinking about how just about everyone states that collecting social security is advantageous if you wait and collect a larger monthly amount but I have a thought...
Assumption: If you wait till age 66 you obviously do not need the income so this assumes you do not spend but instead invest all SS income from age 62 to age 67 at which time Jill would have completed her first year of collecting SS. Numbers are rounded for simplicity.
Jack collects @ age 62 and receives annual payments of 21,000
Jill collects @ age 66 and receives annual payments of 27,800
Jack from age 62 to 67 collects and invests his payments @ 4% return and has 117,000 minus 20% taxes = 95,000
Thoughts , opinions , flaws ??
Try some of your own numbers in Taxcaster.
https://turbotax.intuit.com/tax-tools/c ... taxcaster/
JW
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Re: Social Security 62 vs 66
That is true +1. SS gets taxed like no other income. It is post tax money to start with, then even tax free income increases the amount of SS that can be taxed.JW Nearly Retired wrote:A major flaw is if you are getting enough "other income" so you don't need your SS for living expenses, then you are going to be paying a lot of taxes on the SS.
Re: Social Security 62 vs 66
vested1 wrote:My break even point is 77.3, but in my opinion "break even" calculations are meaningless. Who knows if the decision you make will garner the most cumulative income? You won't be spending it all at one time anyway, because you won't receive it all at one time. I doubt that your last thought on Earth will be regret over taking SS early or delaying. Since it's all a gamble one way or the other I prefer to take the money off the table in the form of a guaranteed return rather than an assumption that I'll die long before the national average says I am likely to. This is especially cogent for us since my parents and my wife's parents lived into their 90's.gerrym51 wrote:my opinion is the actual net position in your money in taking at 62 versus 70 makes the actual break even age 90. you can look at my prior posts. that is all
Many people who file early when they can afford not to will defend their position regardless of logic by making pessimistic assumptions about their own mortality and that of others, regardless of statistical proof and actuary tables. Then there are those who after reaching an advanced age look back wistfully at one time lost opportunities that passed them by. Unfortunately there are limited options for a do-over in claiming SS. Those who die earlier aren't thinking anything because they're dead.
i should have said 'effective break even point"-that is what i've said in my earler posts
Re: Social Security 62 vs 66
You don't need income for living expenses. You need money. I could easily see a situation where dealing SS ends up with a bunch of it taxed at 46% instead of 25.Uncle Pennybags wrote:That is true +1. SS gets taxed like no other income. It is post tax money to start with, then even tax free income increases the amount of SS that can be taxed.JW Nearly Retired wrote:A major flaw is if you are getting enough "other income" so you don't need your SS for living expenses, then you are going to be paying a lot of taxes on the SS.
The big gotcha of course is the return and the risks you need to take to get it. Shifting that risk to someone else is a win for most people
Re: Social Security 62 vs 66
Didn't over think it took SS at age 62,,,24 months ago,,not one regret,best decision I could have made.
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
Re: Social Security 62 vs 66
mhc wrote:Did you account for Jill getting $6800/yr more than Jack from ages 67-77?
If Jack is getting 4% on his money and Jill is getting ~8% for delaying SS, how would Jack come out ahead?
Jack is getting paid alone the way. He is making 4% on his money and getting a payment. Jill is getting 8% but putting off payment for 4 years. To make it clear, think about who has more money if they both die at 66.
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Re: Social Security 62 vs 66
Can anyone do analysis from the government stand point of view, i.e., the government wants to pay as little social security money as possible. My quick thinking is that the government would like to encourage you to delay claiming social security as much as possible.
Re: Social Security 62 vs 66
In addition to Michael Kitces article, I found the paper below to be another objective look at social security utilization. The paper takes a closer look at life expectancy for an individual or couple, which tends to favor deferring for a couple. A description of the benefits for spousal file and suspend strategy is presented as well.
The impact of taxation is difficult to estimate, I have not seen any generalized attempts. A couple in early retirement with sufficient resources might realize a tax opportunity of increased Roth conversions at low tax rate while deferring SSI, while the larger deferred SSI benefit will likely be decremented by taxes. It would be interesting to see a break even analysis assuming max taxation of deferred SSI increase, a reasonable assumption for those considering deferral.
These analyses provide some context for decision making, but there are so many intangibles w/r to life expectancy, taxation, the future of SSI, market returns, etc. The conclusions by Michael Kitces that deferring SSI is the most cost effective method to mitigate risk of longevity, market returns, and inflation are compelling arguments for retirees with sufficient resources to defer.
http://siepr.stanford.edu/system/files/ ... _2013b.pdf
The impact of taxation is difficult to estimate, I have not seen any generalized attempts. A couple in early retirement with sufficient resources might realize a tax opportunity of increased Roth conversions at low tax rate while deferring SSI, while the larger deferred SSI benefit will likely be decremented by taxes. It would be interesting to see a break even analysis assuming max taxation of deferred SSI increase, a reasonable assumption for those considering deferral.
These analyses provide some context for decision making, but there are so many intangibles w/r to life expectancy, taxation, the future of SSI, market returns, etc. The conclusions by Michael Kitces that deferring SSI is the most cost effective method to mitigate risk of longevity, market returns, and inflation are compelling arguments for retirees with sufficient resources to defer.
http://siepr.stanford.edu/system/files/ ... _2013b.pdf
Re: Social Security 62 vs 66
one thing to remember-the brackets for deciding if SS is taxed at 50 percent or 85 percent are not adjusted for inflation. will they ever-don't know. however by not adjusting that bracket it eventaully hits more and more as time goes by especially if you have money in tax deferred rmd.
by taking earlier you will obviously have less in the calculations at the time.in a future tax date.
my goal is never to exceed 15 percent taxes in a given year
by taking earlier you will obviously have less in the calculations at the time.in a future tax date.
my goal is never to exceed 15 percent taxes in a given year
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Re: Social Security 62 vs 66
I sure wish people would stop using the 8% number when estimating their SS increases from 62 to 66/67.......closer to 6% at the beginning. Doesn't 8% only come into reality when going past FRA? So from 62 to 66 in this case the 8% is not correct.
Re: Social Security 62 vs 66
The government doesn't care because they make these payouts cost neutral from an actuarial viewpoint. Individuals though are free to use their particular circumstances to make a decision that is more favorable. Few do though because most people just take the money when they retire.flyingaway wrote:Can anyone do analysis from the government stand point of view, i.e., the government wants to pay as little social security money as possible. My quick thinking is that the government would like to encourage you to delay claiming social security as much as possible.
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Re: Social Security 62 vs 66
I know that game, whoever dies with the most toys wins.randomguy wrote: To make it clear, think about who has more money if they both die at 66.
flyingaway wrote:Can anyone do analysis from the government stand point of view, i.e., the government wants to pay as little social security money as possible. My quick thinking is that the government would like to encourage you to delay claiming social security as much as possible.
Uncle Pennybags wrote:SS figures payments so no matter what age one retires one gets the same money. This is another area where women get a better deal than men. At 62 men will live another 19.81 years wile women will live another 22.65 years.
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Re: Social Security 62 vs 66
It is 25% reduction if one retires at 62 instead of 66. Every month one delays increases the payment 40 to 60 bases points.F4mandolin wrote:I sure wish people would stop using the 8% number when estimating their SS increases from 62 to 66/67.......closer to 6% at the beginning. Doesn't 8% only come into reality when going past FRA? So from 62 to 66 in this case the 8% is not correct.
OP have you considered buying a whole life policy with your early SS payments.
Code: Select all
How Your Social Security Benefit Is Reduced If you start getting benefits at age*
62 75.0%
62 + 1 month 75.4
62 + 2 months 75.8
62 + 3 months 76.3
62 + 4 months 76.7
62 + 5 months 77.1
62 + 6 months 77.5
62 + 7 months 77.9
62 + 8 months 78.3
62 + 9 months 78.8
62 + 10 months 79.2
62 + 11 months 79.6
63 80.0
63 + 1 month 80.6
63 + 2 months 81.1
63 + 3 months 81.7
63 + 5 months 82.8
63 + 6 months 83.3
63 + 8 months 84.4
63 + 9 months 85.0
63 + 10 months 85.6
63 + 11 months 86.1
64 86.7
64 + 1 month 87.2 0
64 + 2 months 87.8
64 + 3 months 88.3
64 + 4 months 88.9
64 + 5 months 89.4
64 + 6 months 90.0
64 + 7 months 90.6
64 + 8 months 91.1
64 + 9 months 91.7
64 + 10 months 92.2
64 + 11 months 92.8
65 93.3
65 + 1 month 93.9
65 + 2 months 94.4
65 + 3 months 95.0
65 + 4 months 95.6
65 + 5 months 96.1
65 + 6 months 96.7
65 + 7 months 97.2
65 + 8 months 97.8
65 + 9 months 98.3
65 + 10 months 98.9
65 + 11 months 99.4
66 100.0
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Re: Social Security 62 vs 66
It is 25% reduction if one retires at 62 instead of 66. Every month one delays increases the payment 40 to 60 bases points.
So it would be right close to 6% for those first four years. Not the 8% people (magazine articles etc) keep using. My FRA is 66.5 but I plan on taking mine at 62.....I took a pretty early retirement from teaching at 53 but I have thought about delaying it a couple of years since my wife would only be eligible for a spousal benefit and it would slightly bump her amount as well.
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Re: Social Security 62 vs 66
That 8% is if one delays beyond full retirement age. The increase is 2/3 of 1% a month up to age 70. After age 70 there is no increase.F4mandolin wrote:So it would be right close to 6% for those first four years. Not the 8% people (magazine articles etc) keep using.It is 25% reduction if one retires at 62 instead of 66. Every month one delays increases the payment 40 to 60 bases points.
No matter when one starts payment SS is going to give them the same money actuarially.
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Re: Social Security 62 vs 66
This is our situation. I am quite a few years older than my wife so it is pretty much a given that I will be gone and she will continue to draw off my account. So it's not just how long I think I'll live but how long we think she'll live after I reach age 70 and begin taking delayed benefits. That could be 30+ years.F4mandolin wrote:....but I have thought about delaying it a couple of years since my wife would only be eligible for a spousal benefit and it would slightly bump her amount as well.
Have a plan, stay the course and simplify. Then ignore the noise!
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Re: Social Security 62 vs 66
This is only true under a very specific set of circumstances.Uncle Pennybags wrote:No matter when one starts payment SS is going to give them the same money actuarially.
For most individuals, either claiming early or late will be actuarially advantageous due to the presence of survivor benefits or due to real interest rates being higher or lower than those built into the NPV calculation.
For example, right now, with real rates where they are, the general rule would be:
1) Delaying is distinctly actuarially advantageous for the high-PIA spouse in most married couples,
2) Delaying is slightly actuarially advantageous for most unmarried people, and
3) Delaying is slightly actuarially disadvantageous for the lower-PIA spouse in most married couples.
Of course, those are just general rules. If a person has specific information about their life expectancy and/or their spouse's life expectancy being significantly longer or shorter than average, the analysis changes.
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Re: Social Security 62 vs 66
If one was never counting on SS and it is not part of their retirement plan. Should they wait or take early payment?
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Re: Social Security 62 vs 66
This is not enough information. It depends on marital status, expected returns of the portfolio, and life expectancy (of both spouses, if married). A more thorough analysis would also include tax planning considerations.Wricha wrote:If one was never counting on SS and it is not part of their retirement plan. Should they wait or take early payment?
Mike Piper |
Roth is a name, not an acronym. If you type ROTH, you're just yelling about retirement accounts.
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Re: Social Security 62 vs 66
FrugalInvestor wrote: I am quite a few years older than my wife.
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Re: Social Security 62 vs 66
We took the SS at 62 and 64. We needed the cash flow.
Low income, effective tax rate =0. No debts. When all of the Income annuities come out of surrender charge period, we may jump to the 25% marginal rate. I figure that I can manage the investments better than the SS people.
Unfortunately, being correct is not always fortuitous. I'll get a better idea, next month when I see the doctor for followup.
Low income, effective tax rate =0. No debts. When all of the Income annuities come out of surrender charge period, we may jump to the 25% marginal rate. I figure that I can manage the investments better than the SS people.
Unfortunately, being correct is not always fortuitous. I'll get a better idea, next month when I see the doctor for followup.
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Re: Social Security 62 vs 66
You are both correct because you are not using the same concepts. Pennybags used the term "give" Social security is designed to give or pay the actuarially equivalent amount no matter what the age of the applicant. SS is indifferent as to the age you apply. OI correctly points out that the value of SS payments to the recipient varies by interest rate and survivor status. I suspect it would be clearer if OI used the term finanicially advantageous rather than actuarially advantageous.ObliviousInvestor wrote:This is only true under a very specific set of circumstances.Uncle Pennybags wrote:No matter when one starts payment SS is going to give them the same money actuarially.
For most individuals, either claiming early or late will be actuarially advantageous due to the presence of survivor benefits or due to real interest rates being higher or lower than those built into the NPV calculation.
For example, right now, with real rates where they are, the general rule would be:
1) Delaying is distinctly actuarially advantageous for the high-PIA spouse in most married couples,
2) Delaying is slightly actuarially advantageous for most unmarried people, and
3) Delaying is slightly actuarially disadvantageous for the lower-PIA spouse in most married couples.
Of course, those are just general rules. If a person has specific information about their life expectancy and/or their spouse's life expectancy being significantly longer or shorter than average, the analysis changes.
personal knowledge of life expectancy means that the actuarial prediction does not map well on the personal history.
I also do not understand #3. Assume you have a two earner couple and one is at the Max and the other is .97 of the max.
How is delaying disadvantagous to the lower PIA if the higher one Files and suspends? The lower gets spousal for 4 years and both file at 70
Re: Social Security 62 vs 66
Pretty much any plan to take SS early and invest the difference to me is a poor bet. A very poor bet if you are the higher earner and married. There are always exceptions but I think they are rare. What tends to matter is if you have enough money to fund the wait. If not, then you really don't have a choice.
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Re: Social Security 62 vs 66
A big factor is "how old are you now?".
If you're 60, then it's a good bet that waiting will pay off. But look at articles examining funding of social security and possible remedies as time goes on. Most converge on 2033 as the point where benefits will drop to 75% of where they are now. Already, the COLA calculations are changing. If you're asking and you're 20, you're likely looking at when the next drop in payout will happen and how much that will be. We don't know what it might be as there has been no action to address it.
I'm 57 and will be collecting at 62 because I do not have faith that waiting until 70 will end up with higher overall payments. Make your own analysis.
If you're 60, then it's a good bet that waiting will pay off. But look at articles examining funding of social security and possible remedies as time goes on. Most converge on 2033 as the point where benefits will drop to 75% of where they are now. Already, the COLA calculations are changing. If you're asking and you're 20, you're likely looking at when the next drop in payout will happen and how much that will be. We don't know what it might be as there has been no action to address it.
I'm 57 and will be collecting at 62 because I do not have faith that waiting until 70 will end up with higher overall payments. Make your own analysis.
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Re: Social Security 62 vs 66
Given your observation about uncertainty in benefits, why not wait until you are 62 and decide then? Also the decision can be revisited at any time after you are 62.Jack FFR1846 wrote:A big factor is "how old are you now?".
If you're 60, then it's a good bet that waiting will pay off. But look at articles examining funding of social security and possible remedies as time goes on. Most converge on 2033 as the point where benefits will drop to 75% of where they are now. Already, the COLA calculations are changing. If you're asking and you're 20, you're likely looking at when the next drop in payout will happen and how much that will be. We don't know what it might be as there has been no action to address it.
I'm 57 and will be collecting at 62 because I do not have faith that waiting until 70 will end up with higher overall payments. Make your own analysis.
Re: Social Security 62 vs 66
This is exactly why you should reconsider delaying SS. Since you are much older than your wife and expect to die sooner, delaying will increase the amount she will receive for the rest of her life. If she is only eligible for a spousal benefit it makes even more sense, as her options would be limited.FrugalInvestor wrote:This is our situation. I am quite a few years older than my wife so it is pretty much a given that I will be gone and she will continue to draw off my account. So it's not just how long I think I'll live but how long we think she'll live after I reach age 70 and begin taking delayed benefits. That could be 30+ years.F4mandolin wrote:....but I have thought about delaying it a couple of years since my wife would only be eligible for a spousal benefit and it would slightly bump her amount as well.
Re: Social Security 62 vs 66
Nitpicking here:Uncle Pennybags wrote:It is 25% reduction if one retires at 62 instead of 66. Every month one delays increases the payment 40 to 60 bases points.F4mandolin wrote:I sure wish people would stop using the 8% number when estimating their SS increases from 62 to 66/67.......closer to 6% at the beginning. Doesn't 8% only come into reality when going past FRA? So from 62 to 66 in this case the 8% is not correct.
OP have you considered buying a whole life policy with your early SS payments.
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How Your Social Security Benefit Is Reduced If you start getting benefits at age* 62 75.0% 62 + 1 month 75.4 62 + 2 months 75.8 62 + 3 months 76.3 62 + 4 months 76.7 62 + 5 months 77.1 62 + 6 months 77.5 62 + 7 months 77.9 62 + 8 months 78.3 62 + 9 months 78.8 62 + 10 months 79.2 62 + 11 months 79.6 63 80.0 63 + 1 month 80.6 63 + 2 months 81.1 63 + 3 months 81.7 63 + 5 months 82.8 63 + 6 months 83.3 63 + 8 months 84.4 63 + 9 months 85.0 63 + 10 months 85.6 63 + 11 months 86.1 64 86.7 64 + 1 month 87.2 0 64 + 2 months 87.8 64 + 3 months 88.3 64 + 4 months 88.9 64 + 5 months 89.4 64 + 6 months 90.0 64 + 7 months 90.6 64 + 8 months 91.1 64 + 9 months 91.7 64 + 10 months 92.2 64 + 11 months 92.8 65 93.3 65 + 1 month 93.9 65 + 2 months 94.4 65 + 3 months 95.0 65 + 4 months 95.6 65 + 5 months 96.1 65 + 6 months 96.7 65 + 7 months 97.2 65 + 8 months 97.8 65 + 9 months 98.3 65 + 10 months 98.9 65 + 11 months 99.4 66 100.0
When I noticed the discrepancy in statements claiming an 8% increase in benefits for every year of delay it made me wonder what else was being misrepresented. After finding the actual percentages on the SS website some time ago I started to think of it from a different perspective. Thinking of the delay as reducing the amount of the reduction seems punitive in my opinion, and I prefer to think of it as a reward for being patient.
For instance, the reward for waiting until age 63 to file is a 5% increase plus COLA over what the amount would have been at age 62. The rewards for patience increase monthly in fits and starts (not a consistently equal increase) until FRA then remain constant on a yearly basis until age 70. There may be a monthly breakdown of the increase in benefits from FRA to age 70 but I haven't found one. Although it works out the same numerically, thinking of the delay as a reward for patience before FRA, as it is treated for calculations from FRA to age 70 helps me personally to stay focused on my goals. Once I pass a landmark goal I feel more justified in my decision to delay.
Re: Social Security 62 vs 66
and then again let's assume Jack turned 62 in 2009 although it could be 2010 or seemingly 2011 for that matter. He made this decision since he did not want to use up his liquidity and left his equity money invested in TSM. Jack has since more than doubled the money he did not use in those four years.. Jack was on the very lucky side of sequence of return risk and doubling his equities holdings allowed Jack to start his withdrawal rate more conservatively AND at a far higher number than the additional SS money would have brought him.
While the gain in SS is a known factor the sequence of returns is not. You can get lucky, or, unlucky.
All of this is also dependent on how long you live, another factor to account for which we have no or limited control over. We like to think we will live longer than 78 years, 8 months, 12 days, or wherever the exact crossover point is but how can you really know?
While the gain in SS is a known factor the sequence of returns is not. You can get lucky, or, unlucky.
All of this is also dependent on how long you live, another factor to account for which we have no or limited control over. We like to think we will live longer than 78 years, 8 months, 12 days, or wherever the exact crossover point is but how can you really know?
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Re: Social Security 62 vs 66
This was posted in this thread.vested1 wrote:There may be a monthly breakdown of the increase in benefits from FRA to age 70 but I haven't found one.
This was his source.Uncle Pennybags wrote:That 8% is if one delays beyond full retirement age. The increase is 2/3 of 1% a month up to age 70. After age 70 there is no increase.
http://www.ssa.gov/retire2/delayret.htm
Re: Social Security 62 vs 66
Neither is guaranteed. One has a bigger short term threat against it, the other, a bigger long term threat against it.flyingaway wrote:The 4% return on your investment is not guaranteed, while the social security increased return is guaranteed.
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Re: Social Security 62 vs 66
I think the only way to come out ahead by claiming social security early is by having inside information.
This type of inside information has to do with your health and longevity. E.g., certain races have lower life expectancy (blacks, for example), or you might have a history of certain deadly disease in your family, etc.
This type of inside information has to do with your health and longevity. E.g., certain races have lower life expectancy (blacks, for example), or you might have a history of certain deadly disease in your family, etc.
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Re: Social Security 62 vs 66
Separately, one must also ask: if delaying social security is such a good investment (and on paper, it is), where is the catch?
Put another way: how can the government provide such a good return (in terms of rewarding delayed claiming of benefits, while the private sector can not? Thinking only at the high level, I think these are the reasons:
- early claimers leave money on the table, and there is a lot of them. If everyone delayed benefits until 70, this won't be sustainable,
- there is a Ponzi scheme element in social security. What you are collecting is not JUST the fruit of your own contributions, but the contributions of those who are currently being taxed. In fact, your contributions have long been spent,
- govt can always increase taxes, reduce benefits, as has already happened,
- you might never get the full amount of what you think you can get.
When you add (1), (2), and (3), I think you see orthogonal rates of return that you can not get elsewhere in the private sector.
(1) in particular is a very interesting type of investment, because no one is doing that investment at a large scale. E.g., imagine an insurance company that would: (a) give you your benefits at age 62, (b) in exchange for collecting your benefits at 70. So, basically, they would analyze how long you will leave using their model, and then, using their cash, fund you a copy-cat SS pension out of their pocket, starting at your age 62, while collecting your actual SS pension at your age 70. Every expert on the subject claims this is a good investment, so why not engage in it? Well, the fact is, this is not a harvestable investment, and thus, there are market inefficiencies, and thus, those of us who can do this trade, benefit.
(2) is a beautiful situation too. While SS is not a "losing" Ponzi scheme, it is definitely a scheme that fits the definition of Ponzi. And, correct me if I am wrong, but unlike any other type of investment, this one has an additional multiplier. What I mean by this is the following. In the long term, stocks return: (a) inflation, plus (b) earnings growth, plus (c) dividends. IMO, social security also has (d) population growth. Whether (d) is already accounted for in (b) (or a/c), it is hard to tell, but to a first approximation, it represents a different source of "return".
(3) is pretty obvious, and you can rarely get an investment out there that gets benefits from increased taxation. Maybe the healthcare industry, or the insurance industry (from ACA), but this is direct transfer of new taxation to SS beneficiaries.
Put another way: how can the government provide such a good return (in terms of rewarding delayed claiming of benefits, while the private sector can not? Thinking only at the high level, I think these are the reasons:
- early claimers leave money on the table, and there is a lot of them. If everyone delayed benefits until 70, this won't be sustainable,
- there is a Ponzi scheme element in social security. What you are collecting is not JUST the fruit of your own contributions, but the contributions of those who are currently being taxed. In fact, your contributions have long been spent,
- govt can always increase taxes, reduce benefits, as has already happened,
- you might never get the full amount of what you think you can get.
When you add (1), (2), and (3), I think you see orthogonal rates of return that you can not get elsewhere in the private sector.
(1) in particular is a very interesting type of investment, because no one is doing that investment at a large scale. E.g., imagine an insurance company that would: (a) give you your benefits at age 62, (b) in exchange for collecting your benefits at 70. So, basically, they would analyze how long you will leave using their model, and then, using their cash, fund you a copy-cat SS pension out of their pocket, starting at your age 62, while collecting your actual SS pension at your age 70. Every expert on the subject claims this is a good investment, so why not engage in it? Well, the fact is, this is not a harvestable investment, and thus, there are market inefficiencies, and thus, those of us who can do this trade, benefit.
(2) is a beautiful situation too. While SS is not a "losing" Ponzi scheme, it is definitely a scheme that fits the definition of Ponzi. And, correct me if I am wrong, but unlike any other type of investment, this one has an additional multiplier. What I mean by this is the following. In the long term, stocks return: (a) inflation, plus (b) earnings growth, plus (c) dividends. IMO, social security also has (d) population growth. Whether (d) is already accounted for in (b) (or a/c), it is hard to tell, but to a first approximation, it represents a different source of "return".
(3) is pretty obvious, and you can rarely get an investment out there that gets benefits from increased taxation. Maybe the healthcare industry, or the insurance industry (from ACA), but this is direct transfer of new taxation to SS beneficiaries.
Re: Social Security 62 vs 66
Bob K (bobcat2) posted several messages about this issue. A principal difference between Social Security and insurance companies is the lack of agility. When interest rates are low, insurance companies reduce payouts, and vice versa. In contrast, Social Security annuities are regulated by the Congress, and the process for changing the formula is rather lengthy. Bob has pointed out that in a low interest rate environment, such as the one we are having now, delaying Social Security is to most people's advantage, single and married, men and women.TradingPlaces wrote:Separately, one must also ask: if delaying social security is such a good investment (and on paper, it is), where is the catch?
Another important difference is that Social Security provides a safety net for many of its recipients. If it were made actuarially fair, these recipients would need to claim other benefits or need increases in other benefits. In contrast, insurance companies are seeking profit and are not responsible for the social welfare.
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Re: Social Security 62 vs 66
Sounds like a fun exercise. Let's take a look.Professor Emeritus wrote:You are both correct because you are not using the same concepts. Pennybags used the term "give" Social security is designed to give or pay the actuarially equivalent amount no matter what the age of the applicant. SS is indifferent as to the age you apply. OI correctly points out that the value of SS payments to the recipient varies by interest rate and survivor status. I suspect it would be clearer if OI used the term finanicially advantageous rather than actuarially advantageous.ObliviousInvestor wrote:For most individuals, either claiming early or late will be actuarially advantageous due to the presence of survivor benefits or due to real interest rates being higher or lower than those built into the NPV calculation.
For example, right now, with real rates where they are, the general rule would be:
1) Delaying is distinctly actuarially advantageous for the high-PIA spouse in most married couples,
2) Delaying is slightly actuarially advantageous for most unmarried people, and
3) Delaying is slightly actuarially disadvantageous for the lower-PIA spouse in most married couples.
Of course, those are just general rules. If a person has specific information about their life expectancy and/or their spouse's life expectancy being significantly longer or shorter than average, the analysis changes.
personal knowledge of life expectancy means that the actuarial prediction does not map well on the personal history.
I also do not understand #3. Assume you have a two earner couple and one is at the Max and the other is .97 of the max.
How is delaying disadvantagous to the lower PIA if the higher one Files and suspends? The lower gets spousal for 4 years and both file at 70
Assumptions:
Both spouses are the same age.
Both spouses have an FRA of 66.
Husband has a PIA of $1,000
Wife has a PIA of $970 (i.e., 97% of higher earner's PIA).
Strategy A
Wife files for her own retirement benefit at 62. Husband files a restricted application at 66. Husband then files for his own retirement benefit at 70.
Strategy B
Nobody does anything until FRA. At FRA, Husband files and suspends and Wife files a restricted application. At 70, Husband unsuspends and Wife files for her own retirement benefit.
The outcome I get when comparing these strategies is that:
The breakeven occurs during age 80 (i.e., after reaching 80, before reaching 81) assuming a 0% real return on early-received benefits.
The breakeven occurs during age 81 assuming a 1% real return.
The breakeven occurs during age 82 assuming a 2% real return.
The breakeven occurs during age 84 assuming a 3% real return.
According to this Vanguard calculator (and making the dubious assumption that the spouses' respective probabilities of death in any year are not influenced by each other):
The probability of both spouses making it to age 80 is roughly 42%.
The probability of both spouses making it to age 81 is roughly 38%.
The probability of both spouses making it to age 82 is roughly 33%.
The probability of both spouses making it to age 84 is roughly 25%.
Now of course the above has to come with a bunch of caveats. Such as:
1) The Vanguard calculator is using data from the Society of Actuaries Retirement Participant 2000 Table. That's a bit outdated, and life expectancies naturally continue to get longer.
2) On the other hand, I believe the Retirement Participant Table has longer life expectancies than the average population.
3) While Strategy B (the one you proposed) is not as likely to maximize total dollars available as Strategy A (at least, according to my math), it does have the nontrivial benefit of protecting better in the event that both spouses live a long time.
4) It's possible I messed up the math somewhere.
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Re: Social Security 62 vs 66
I think you need to assume that Jack and Jill both need $27,800 at age 66. So while Jack and Jill both worked until 66, with Jack banking $84,000 of his SS, he needs to start drawing $6,800 per year FOREVER to keep up with Jill. His $84k would be gone when he reaches age 78.3. If he earns anything beyond inflation on the SS savings account, it might last a little bit longer. But to match Jill, only his $21k SS is COLA'd, so the $6,800 draw would have to increase each year, depleting it earlier. At some point he runs out of money near the "break even" point.