Signing up for SS before 70

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irishguy
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Signing up for SS before 70

Post by irishguy »

Hey Bogleheads,

I have read the many posts on timing for taking social security. It is for sure a very complicated process to analyze and I realize everyone's situation is different. I am probably guilty of overanalyzing this as is my usual way of doing things! I even bought "Social Security for Dummies" at Barnes & Noble and also paid $50 to Social Security Solutions to analyze our situation. But I am not sure it is really that difficult a situation to analyze in our case (unless I am missing something). When your wife stops working and you are not working there is no cash flow coming in. So it seems that it doesn't make much sense to wait longer in order to get the extra 8%/year bump in SS benefits (fact: I found it's actually closer to 7%/year if you visit the SS office and they run the numbers). If I don't take SS right now, I need to tap my investments to cover my living expenses. Since I don't turn 70 for another 21 months that means more than $50K taken out of investments. Social Security Solutions indicates that if I waited to age 70 (wife is going to get spousal in all cases) my break-even is just under age 85--the point at which, if I am still living, I would have been better off delaying my SS filing to age 70. But that $50K I had to tap over 16 years ago is gone along with the investment return I would have gotten from it (assuming I have not used it up!). Am I missing anything here??!!

Thanks!
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BL
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Re: Signing up for SS before 70

Post by BL »

You don't say how old your spouse is. If she is taking SS now, you can file for spousal now (since you are past FRA) and change to yours at 70.
This is assuming you have the higher SS. If either you or your spouse (widow) is alive after 85, the higher income would continue until neither of you is living.
Calm Man
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Re: Signing up for SS before 70

Post by Calm Man »

Within 21 months of age 70 I frankly think it can't matter much either way. Probably break even is at age 85 or so.
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Re: Signing up for SS before 70

Post by mickeyd »

So it seems that it doesn't make much sense to wait longer in order to get the extra 8%/year bump in SS benefits
That's the key. Isn't it? With all of the discussions that we have had here about this Q the very first Q that needs to be answered is: Do I need this SS income stream to live on now? If the answer is yes, take the money ASAP. It's that simple.

We can't all take advantage of every SS aspect.
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Re: Signing up for SS before 70

Post by manwithnoname »

irishguy wrote:Hey Bogleheads,

I have read the many posts on timing for taking social security. It is for sure a very complicated process to analyze and I realize everyone's situation is different. I am probably guilty of overanalyzing this as is my usual way of doing things! I even bought "Social Security for Dummies" at Barnes & Noble and also paid $50 to Social Security Solutions to analyze our situation. But I am not sure it is really that difficult a situation to analyze in our case (unless I am missing something). When your wife stops working and you are not working there is no cash flow coming in. So it seems that it doesn't make much sense to wait longer in order to get the extra 8%/year bump in SS benefits (fact: I found it's actually closer to 7%/year if you visit the SS office and they run the numbers). If I don't take SS right now, I need to tap my investments to cover my living expenses. Since I don't turn 70 for another 21 months that means more than $50K taken out of investments. Social Security Solutions indicates that if I waited to age 70 (wife is going to get spousal in all cases) my break-even is just under age 85--the point at which, if I am still living, I would have been better off delaying my SS filing to age 70. But that $50K I had to tap over 16 years ago is gone along with the investment return I would have gotten from it (assuming I have not used it up!). Am I missing anything here??!!

Thanks!
You have figured out that delaying SS to 70 doesnt benefit retirees in all cases. I began SS at 65 after I ran numbers showing that I would have to live to 84 to reach my break even point which was meaningless to me. I elected to take SS benefits to pay expenses so that I could transfer TIRA funds to a roth at 15% tax bracket. You will only have to take 3.6% of 50k when MRD commence in 2 years and any amount left in the TIRA at your death will be transferred to your spouse or you heirs unlike SS benefits which end at our death unless your spouse is alive.

There are no MRDs on Roth IRAs where earnings will compound tax free until death when they will be paid tax free to my heirs.

Reasons for taking SS early include :

1. SS is an annuity that ends a death. IRA benefits can be passed to heirs and if converted to a Roth are tax free.

2. SS is taxed as ordinary income which means that converting as much of a TIRA as possible to a Roth will reduce income tax on required distributions at 70 1/2

3. Maximum of 85% of SS benefits are included as taxable income unlike 100% of distributions from a TIRA which gives you additional space to convert to Roth at low tax rate.
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Ged
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Re: Signing up for SS before 70

Post by Ged »

Yes, probably if that is all that is going on with you, taking it now makes sense.

Some have more elaborate schemes in mind, that is if you delay taking the benefit you may be in a lower tax bracket while waiting, and this period at a lower tax rate make converting a traditional IRA to a ROTH IRA less expensive in terms of the tax bill.

For me delaying means some space in the 15% tax bracket for conversions. If I start right away oops now everything's at 25%.

This additional tax savings, plus reducing the RMD later in life makes delaying SS definitely more interesting.
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Re: Signing up for SS before 70

Post by VictoriaF »

irishguy wrote:But that $50K I had to tap over 16 years ago is gone along with the investment return I would have gotten from it (assuming I have not used it up!). Am I missing anything here?
Yes, you are missing two things:
1. You cannot compare a historical return of investing in equities to the safety of the Social Security.
2. You are not comparing the cost of additional Social Security payouts to the cost of a commercial SPIA.

#1 You can logically compare only alternatives that have the same risk levels. Social Security is ultra safe, whereas safe investments such as money market funds currently earn very little.

#2 Let's say that your current calculated Social Security payout is $20k, and by waiting 1.5 years you would get a 12% increase for the new total of $22.4k. While waiting for 1.5 years you would have to take $30k from your taxable account to compensate for not getting Social Security. Check an annuity calculator for how much of an inflation-indexed annuity you could buy for $30k. Social Security has huge advantages of SPIAs in that it increases by 8%/year regardless of the market rates, it's guaranteed by the U.S. government, and it's free of the insurance company's profit.

To wait for 1.5 years you would spend some of your safe assets that don't earn much anyway in return for getting a higher income from Social Security starting at the age of 70, which would reduce your need for income from your investments. Social Security provides you with the longevity insurance; if you happen to live until 100 you are less likely to starve. And it protects you from major mistakes that you will be increasingly likely to make as you age. At the age of 100 you will be much better off with regular payments than with investment decisions.

Victoria
Last edited by VictoriaF on Mon Jan 20, 2014 7:48 pm, edited 1 time in total.
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Re: Signing up for SS before 70

Post by JW-Retired »

You would get more useful advice it you would tell us you and your wife's ages and primary insurance amounts (PIA). That is the amount your would get if had taken SS at your full retirement age (probably that's age 66).

One thing that is glaringly missing from your analysis is the survivor benefit for your wife. You said she will be taking spousal (50% of your PIA) so she is relying on your benefit. If you die first her benefit will be a widows benefit in the amount of the current benefit you were then receiving, or would be receiving if you claimed on the date you died. If you take SS at age 70 it will be 1.32 times greater than if you started at 66. Suppose you take your benefit at 66: that means at age 70 you and wife will together be getting 1.5 x (your PIA). If you die after that then her widow benefit will drop to 1.0 x (your PIA).

If you had delayed SS until age 70 then you together would have been getting (1.32 + 0.5) = 1.82 x (your PIA). If you die after that then her widow benefit will drop to 1.32 x (your PIA). The main point here is the 32% higher SS income from delaying lasts for your joint life expectancy, not just your own life.

The other missing point is you could have filed and suspended your SS benefit at 66, which allows you to continue to get delay credits. Once you do that and she is age 66, she can take spousal. So she can get 0.5 x (your PIA), which could ease 1/3rd of the pain of your waiting until age 70. We would have to know your ages to know exactly.
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irishguy
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Re: Signing up for SS before 70

Post by irishguy »

I am 68 and 2 months and she is 65 and 5 months now. My PIA is $2030 and hers is $1496. It is my understanding if I don't file right now I could instead still file/suspend in August when she turns 66 and then she can claim spousal which would be $1015/month. If I take benefits right now I would have $2565/month according to SS office. Yes, it's a good point that the extra money would be available to my spouse if I pass before her. I still have a hard time understanding how one can make up the money taken out of investments now to fund delayed SS. $50-75K year invested in a diversified portfolio over 16+ years should typically average at least 3-4%/year (or we will all be in trouble!) and that's a lot of money to make up for delaying SS for higher monthly amounts!
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Ged
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Re: Signing up for SS before 70

Post by Ged »

irishguy wrote: I still have a hard time understanding how one can make up the money taken out of investments now to fund delayed SS.
Runs some sims?

http://www.i-orp.com/coverORP.html
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Re: Signing up for SS before 70

Post by VictoriaF »

irishguy wrote:I am 68 and 2 months and she is 65 and 5 months now. My PIA is $2030 and hers is $1496. It is my understanding if I don't file right now I could instead still file/suspend in August when she turns 66 and then she can claim spousal which would be $1015/month. If I take benefits right now I would have $2565/month according to SS office. Yes, it's a good point that the extra money would be available to my spouse if I pass before her. I still have a hard time understanding how one can make up the money taken out of investments now to fund delayed SS. $50-75K year invested in a diversified portfolio over 16+ years should typically average at least 3-4%/year (or we will all be in trouble!) and that's a lot of money to make up for delaying SS for higher monthly amounts!

$2,565/month is ~$31k/year. If you delay by 1.75 years, you'll need ~$55k to compensate for it.

There is no certainty that a diversified portfolio will return 3-4% per year. It could be much more and it could be much less; it could be negative.

If the markets severely decline and stay there for several years, we all will not be in trouble. Those in the workforce will make up with their future earnings. Those in or nearing retirement will have maximized their safe assets and income. Social Security provides the safest income available to a U.S. citizen.

Victoria
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Re: Signing up for SS before 70

Post by Professor Emeritus »

irishguy wrote:I am 68 and 2 months and she is 65 and 5 months now. My PIA is $2030 and hers is $1496. It is my understanding if I don't file right now I could instead still file/suspend in August when she turns 66 and then she can claim spousal which would be $1015/month. If I take benefits right now I would have $2565/month according to SS office. Yes, it's a good point that the extra money would be available to my spouse if I pass before her. I still have a hard time understanding how one can make up the money taken out of investments now to fund delayed SS. $50-75K year invested in a diversified portfolio over 16+ years should typically average at least 3-4%/year (or we will all be in trouble!) and that's a lot of money to make up for delaying SS for higher monthly amounts!
Im sorry you said you are 68 and 2 months so we are talking 22 months times 2565 for this you get an increase of .66% per month times 22 x 2565 x 12
4469 per year
Where can you buy an inflation protected annuity at that price?

Not deferring social security plays to people's ego trip that they are Masters of the Universe and can guarantee above market returns.
Much better to have the money you need for the rest of your life

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Re: Signing up for SS before 70

Post by kttpn »

Social Security will be paying about 66% of calculated benefits starting around 2033 as funds are drying up. Need to factor that information into the equation when deciding whether or not to delay benefits until age 70. The numbers do not make sense for my situation.
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Re: Signing up for SS before 70

Post by Professor Emeritus »

kttpn wrote:Social Security will be paying about 66% of calculated benefits starting around 2033 as funds are drying up. Need to factor that information into the equation when deciding whether or not to delay benefits until age 70. The numbers do not make sense for my situation.
OFGS we are now into forbidden territory under the forum rules So I won't post a reply
Topic Author
irishguy
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Re: Signing up for SS before 70

Post by irishguy »

Some good insight, Victoria. I basically agree with what you are saying and I know you are well respected for your posts so I appreciate your input. Just curious if you know, have there been any 15 year periods where a diversified portfolio (not sure how you would exactly define that, though) did not return at least 3% average annually??

Like my CPA said "in twenty years are you really going to be that concerned about the extra $200/month or so you could have gotten by delaying social security until 70??" (Of course, that whopping 1.5% annual adjustment by the government will make for a higher monthly amount by then).

I guess I basically am just a little anxious about tapping my investments for another 21 months even though I have just over 7 figures invested and it would likely come from cash and short term investments as you say. My wife and I want to start traveling and doing some improvements on our house. I believe I will take the money now and then my wife will take spousal this summer at age 66 and then she will get maximum benefits at age 70. On the Social Security Solutions website the difference between our doing this and my waiting to age 70 was only $33,000 total over a 20 year lifespan and that's not a whole lot of money per year if their figures are accurate.
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Re: Signing up for SS before 70

Post by englishgirl »

I think what really matters in your calculations is 1) can you live on what you'd get from SS now? 2) how much will your wife need to live on after you pass (assuming you go first)? and 3) how long do you expect the longest lived one of you to hang on for?

IF SS covers all your expenses if you were to claim now, and your wife can live on your PIA alone, then anything you take from your portfolio is gravy to be used for luxuries, and you don't have to take any extra if you don't want to.

For most of us, though, what we'd get from early claiming SS or claiming at one partner's full retirement age only covers a percentage of our desired retirement income levels. So our portfolio would have to cover extra income for life, and that extra income would have to be continually adjusted upwards for inflation.

When I run my numbers, I could live on what I expect to get from SS at age 70. So my portfolio actually only needs to cover retirement income from the time I stop working up to age 70. And then I can stop withdrawing, except what I want to for luxuries. As my grandpa is still going strong at 97, and granny's cousin made it to 99, I feel I need to plan for a long life. I'd much rather make say 5 years withdrawals of a higher amount, and then stop, than have to make 30 years withdrawals of a lesser amount that I'm going to have to keep increasing due to inflation.
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Re: Signing up for SS before 70

Post by VictoriaF »

Irishguy,

I don't have the market performance statistics handy. The 100-year averages are something like 6% return of stocks and 3% return of bonds. However, the historical data do not tell us much about the future. The stocks had a nice run in the last few years. Are they ready for a correction? People are expecting a decline in bonds as the interest rates will be rising. When this would happen and to what extent no one knows. The next 16 years can be great or they can be horrible; they can be so bad that they would become a new "historical" example of how bad it could get. Those with significant human capital remaining will survive it; those in retirement may not recover.

As for the Social Security, remember that it's inflation adjusted. If several years from now, we have a repeat of the 1980s with the double-digit inflation, your SS payments will be increasing accordingly.

Cheers,
Victoria
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Re: Signing up for SS before 70

Post by SGM »

At zero percent real return and an increase in $372 per month at age 70, I figure the break even point is less than age 83. You really have to compare the returns you would get with a safe investment. Also remember that your future payments of SS will be adjusted for inflation even as you wait to claim.

A second way of looking at it is comparing it to an SPIA. The cost of a non inflation protected annuity paying $372 per month with full survivor benefit for your spouse at today's rates is about $71,000 as an immediate payment. The annuity you are buying from SS is much better in that it is inflation protected and you make the payment of $55,000 in installments over 22 months. You would pay even more than the $71,000 for an inflation protected annuity.

I am astounded at how many people who could afford to wait to take SS at 70 choose not to do so. Many of my friends are taking it at the first opportunity. Then again they all pay fees to advisors and don't invest in low cost index funds either.
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Re: Signing up for SS before 70

Post by 2comma »

As someone said above it probably isn't going to make a big difference either way but, I am going to use the worst case I can come up with as an example of why you might want to continue to delay. Say you pass sooner rather than later after you file for SS, the market enters a poor sequence of returns for 10 years and or inflation takes off. How will your spouse do if she lives into her 90's? Don't forget she will be filing as single and she might like dealing with a monthly check more than portfolio management.

I don't need to maximize our lifetime SS withdrawals as much as I need the longevity insurance, just in case things don't go as hoped.

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Re: Signing up for SS before 70

Post by tadamsmar »

manwithnoname wrote: There are no MRDs on Roth IRAs where earnings will compound tax free until death when they will be paid tax free to my heirs.

Reasons for taking SS early include :

1. SS is an annuity that ends a death. IRA benefits can be passed to heirs and if converted to a Roth are tax free.

2. SS is taxed as ordinary income which means that converting as much of a TIRA as possible to a Roth will reduce income tax on required distributions at 70 1/2

3. Maximum of 85% of SS benefits are included as taxable income unlike 100% of distributions from a TIRA which gives you additional space to convert to Roth at low tax rate.
You know, if you calculate the break even point correctly, is the point where you estimate you end up having more money for your heirs.

People should just take SS early if they want to, there is no need to try to repeal mathematics to justify their behavior.
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Re: Signing up for SS before 70

Post by The Wizard »

The OP has something over $1M in investments, which makes the $54K to span 21 months a small percentage of his portfolio.
If he only had a bit over $100K, then the situation would be different and we'd recommend starting SS now...
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Re: Signing up for SS before 70

Post by ObliviousInvestor »

irishguy wrote:I am 68 and 2 months and she is 65 and 5 months now. My PIA is $2030 and hers is $1496. It is my understanding if I don't file right now I could instead still file/suspend in August when she turns 66 and then she can claim spousal which would be $1015/month. If I take benefits right now I would have $2565/month according to SS office. Yes, it's a good point that the extra money would be available to my spouse if I pass before her. I still have a hard time understanding how one can make up the money taken out of investments now to fund delayed SS. $50-75K year invested in a diversified portfolio over 16+ years should typically average at least 3-4%/year (or we will all be in trouble!) and that's a lot of money to make up for delaying SS for higher monthly amounts!
How about, she files for her retirement benefit right now, you file a restricted application for spousal benefits based on her work record, and you wait on your own until 70?

For the higher earner in a married couple, who is also the older of the two, who has cash available to live on while delaying, and who could claim a spousal benefit while delaying, not delaying does not often make sense.

Edited to add: "Does not often" does not mean "never." Two examples: In a period of high real interest rates, it could make sense. Or if you have reason to think that both you and your spouse have meaningfully shorter than average life expectancies, it could make sense.
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Re: Signing up for SS before 70

Post by ObliviousInvestor »

irishguy wrote:Social Security Solutions indicates that if I waited to age 70 (wife is going to get spousal in all cases) my break-even is just under age 85--the point at which, if I am still living, I would have been better off delaying my SS filing to age 70.
A key point here is that you do not necessarily have to make it to that point. To come out ahead (pre-tax, pre-investment return), you or your wife must make it to the point at which you would be age 85. According to this calculator from Vanguard (which uses data from the Society of Actuaries Retirement Participant 2000 Table), for a couple (male age 68, female age 65), there is an 80% chance that one of them will live another 17 years.
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Re: Signing up for SS before 70

Post by JW-Retired »

irishguy wrote:I am 68 and 2 months and she is 65 and 5 months now. My PIA is $2030 and hers is $1496. It is my understanding if I don't file right now I could instead still file/suspend in August when she turns 66 and then she can claim spousal which would be $1015/month. If I take benefits right now I would have $2565/month according to SS office. Yes, it's a good point that the extra money would be available to my spouse if I pass before her. I still have a hard time understanding how one can make up the money taken out of investments now to fund delayed SS. $50-75K year invested in a diversified portfolio over 16+ years should typically average at least 3-4%/year (or we will all be in trouble!) and that's a lot of money to make up for delaying SS for higher monthly amounts!
Were you both considering delaying until age 70? Usually, the higher earner should delay and the lower earner should take SS at 66 or earlier. If she files right now she will get just a little less than $1496/month and you could file for spousal and add another $748/month. That is getting pretty close to your $2565 above. Then at age 70 you switch to your benefit of 2030 x 1.32 = $2680/month.
JW
ps: If your PIA of $2030 is right, something is wrong with the $2565/month at age 68 & 2 months. Your benefit goes up by 2/3rds of 1% of PIA for every month delayed. 26 months delay should give you a taking right now benefit of 1.173 x 2030 = 2382.
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Re: Signing up for SS before 70

Post by vested1 »

Another alternative is for you to file and suspend right now, which you can do anytime after your FRA and start collecting spousal immediately after your wife files. If she waits until FRA to file, in 7 months your total would be $1496 plus $725 (spousal), or $2221 a month. If you used the same strategy and she filed now it would be about $2175 a month (reducing her amount to around $1450). If you both filed when she turned FRA your total with both claiming their own benefits you would be getting $3,580 a month.

If you file and both take benefits the amount is permanently reduced. Taking the worst case of her filing now and you suspending now that is only a short fall of $1,359 a month for a period of 21 months. Taking that amount from your retirement account for 21 months is $28,539, not $50,000, is less than 3% of your portfolio, and certainly safe over a period of 21 months. When you turn 70 you would take your increased amount, which I don't know but would estimate at approximately 14% more, or $2,924, which would be her benefit in the event of your death.
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Re: Signing up for SS before 70

Post by ObliviousInvestor »

vested1 wrote:Another alternative is for you to file and suspend right now, which you can do anytime after your FRA and start collecting spousal immediately after your wife files. If she waits until FRA to file, in 7 months your total would be $1496 plus $725 (spousal), or $2221 a month. If you used the same strategy and she filed now it would be about $2175 a month (reducing her amount to around $1450). If you both filed when she turned FRA your total with both claiming their own benefits you would be getting $3,580 a month.

If you file and both take benefits the amount is permanently reduced. Taking the worst case of her filing now and you suspending now that is only a short fall of $1,359 a month for a period of 21 months. Taking that amount from your retirement account for 21 months is $28,539, not $50,000, is less than 3% of your portfolio, and certainly safe over a period of 21 months. When you turn 70 you would take your increased amount, which I don't know but would estimate at approximately 14% more, or $2,924, which would be her benefit in the event of your death.
I think you might be saying "file and suspend" when you mean "file a restricted application."

For example, if the OP files and suspends right now, he would not be able to receive a spousal benefit based on his wife's work record. To claim a spousal benefit based on his wife's work record, he would have to file a restricted application.

Or maybe I'm just misunderstanding what you're suggesting here.
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Re: Signing up for SS before 70

Post by jjustice »

Thank you, Mike Piper, for frequently taking the time to contribute clear, concise, and well reasoned posts. I know that I speak for others as well.

John
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Re: Signing up for SS before 70

Post by vested1 »

ObliviousInvestor wrote:
vested1 wrote:Another alternative is for you to file and suspend right now, which you can do anytime after your FRA and start collecting spousal immediately after your wife files. If she waits until FRA to file, in 7 months your total would be $1496 plus $725 (spousal), or $2221 a month. If you used the same strategy and she filed now it would be about $2175 a month (reducing her amount to around $1450). If you both filed when she turned FRA your total with both claiming their own benefits you would be getting $3,580 a month.

If you file and both take benefits the amount is permanently reduced. Taking the worst case of her filing now and you suspending now that is only a short fall of $1,359 a month for a period of 21 months. Taking that amount from your retirement account for 21 months is $28,539, not $50,000, is less than 3% of your portfolio, and certainly safe over a period of 21 months. When you turn 70 you would take your increased amount, which I don't know but would estimate at approximately 14% more, or $2,924, which would be her benefit in the event of your death.
I think you might be saying "file and suspend" when you mean "file a restricted application."

For example, if the OP files and suspends right now, he would not be able to receive a spousal benefit based on his wife's work record. To claim a spousal benefit based on his wife's work record, he would have to file a restricted application.

Or maybe I'm just misunderstanding what you're suggesting here.
Thank you, I misstated that in my haste.
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Re: Signing up for SS before 70

Post by ObliviousInvestor »

jjustice wrote:Thank you, Mike Piper, for frequently taking the time to contribute clear, concise, and well reasoned posts. I know that I speak for others as well.
Well that was unexpected. Thank you.

Of note here: sscritic deserves a great deal of the credit for any knowledge I have of Social Security.
vested1 wrote:
ObliviousInvestor wrote:
vested1 wrote:Another alternative is for you to file and suspend right now, which you can do anytime after your FRA and start collecting spousal immediately after your wife files. If she waits until FRA to file, in 7 months your total would be $1496 plus $725 (spousal), or $2221 a month. If you used the same strategy and she filed now it would be about $2175 a month (reducing her amount to around $1450). If you both filed when she turned FRA your total with both claiming their own benefits you would be getting $3,580 a month.

If you file and both take benefits the amount is permanently reduced. Taking the worst case of her filing now and you suspending now that is only a short fall of $1,359 a month for a period of 21 months. Taking that amount from your retirement account for 21 months is $28,539, not $50,000, is less than 3% of your portfolio, and certainly safe over a period of 21 months. When you turn 70 you would take your increased amount, which I don't know but would estimate at approximately 14% more, or $2,924, which would be her benefit in the event of your death.
I think you might be saying "file and suspend" when you mean "file a restricted application."

For example, if the OP files and suspends right now, he would not be able to receive a spousal benefit based on his wife's work record. To claim a spousal benefit based on his wife's work record, he would have to file a restricted application.

Or maybe I'm just misunderstanding what you're suggesting here.
Thank you, I misstated that in my haste.
That's a relief. In that case, it appears that you, JW, and I are all getting at the same point here: The amount of benefits given up in the short term (by waiting) is significantly minimized by the OP's ability to claim spousal benefits while waiting.
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Re: Signing up for SS before 70

Post by VictoriaF »

ObliviousInvestor wrote:That's a relief. In that case, it appears that you, JW, and I are all getting at the same point here: The amount of benefits given up in the short term (by waiting) is significantly minimized by the OP's ability to claim spousal benefits while waiting.
Is it better for him to claim the spousal benefit or for his wife? If he filed and suspended for 22 months, she could claim a half of his. Right?

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Re: Signing up for SS before 70

Post by sscritic »

ObliviousInvestor wrote:
jjustice wrote:Thank you, Mike Piper, for frequently taking the time to contribute clear, concise, and well reasoned posts. I know that I speak for others as well.
Well that was unexpected. Thank you.

Of note here: sscritic deserves a great deal of the credit for any knowledge I have of Social Security.
Since we are into mutual admiration, I want to thank Mike for the acknowledgment, but especially for clearly explaining SS to others. Knowing Mike is around gives me the freedom to watch more Chinese soap operas. As jjustice says, Mike can be concise in ways I never can be. :)
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Re: Signing up for SS before 70

Post by JW-Retired »

VictoriaF wrote:
ObliviousInvestor wrote:That's a relief. In that case, it appears that you, JW, and I are all getting at the same point here: The amount of benefits given up in the short term (by waiting) is significantly minimized by the OP's ability to claim spousal benefits while waiting.
Is it better for him to claim the spousal benefit or for his wife? If he filed and suspended for 22 months, she could claim a half of his. Right?

Victoria
She would need to wait until she is 66 to be able claim spousal without triggering her own benefit. And then they would only get the "half of his", not (hers + half of her PIA as spousal for him) starting now.
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Re: Signing up for SS before 70

Post by vested1 »

VictoriaF wrote:
ObliviousInvestor wrote:That's a relief. In that case, it appears that you, JW, and I are all getting at the same point here: The amount of benefits given up in the short term (by waiting) is significantly minimized by the OP's ability to claim spousal benefits while waiting.
Is it better for him to claim the spousal benefit or for his wife? If he filed and suspended for 22 months, she could claim a half of his. Right?

Victoria
I almost added that option but the OP didn't say if his wife was already receiving SS. sscritic could answer this better, although he would undoubtedly pose the question of who wants to be who's spouse. :)
sscritic wrote:
ObliviousInvestor wrote:
jjustice wrote:Thank you, Mike Piper, for frequently taking the time to contribute clear, concise, and well reasoned posts. I know that I speak for others as well.
Well that was unexpected. Thank you.

Of note here: sscritic deserves a great deal of the credit for any knowledge I have of Social Security.

Since we are into mutual admiration, I want to thank Mike for the acknowledgment, but especially for clearly explaining SS to others. Knowing Mike is around gives me the freedom to watch more Chinese soap operas. As jjustice says, Mike can be concise in ways I never can be. :)
While possibly galling to some, my appreciation for the advice here can't be overstated.
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Re: Signing up for SS before 70

Post by ObliviousInvestor »

VictoriaF wrote:
ObliviousInvestor wrote:That's a relief. In that case, it appears that you, JW, and I are all getting at the same point here: The amount of benefits given up in the short term (by waiting) is significantly minimized by the OP's ability to claim spousal benefits while waiting.
Is it better for him to claim the spousal benefit or for his wife? If he filed and suspended for 22 months, she could claim a half of his. Right?
Yes, if he filed and suspended, she could claim a spousal benefit. She would, however, have to wait until her FRA to be able to claim just a spousal benefit -- via a restricted application on her part. This spousal benefit (if she is waiting until her age 70 to claim her own retirement benefit) would be half of his PIA.

As far as which is better, there is no definitely-correct answer. If he files and suspends and she files a restricted application (at her FRA) she can wait until 70 for her own. That might be advantageous, depending on how long it is before the first spouse dies.

In most cases though, it is not actuarially advantageous for both spouses to wait all the way until 70. There's a good chance that what would have been best here would be for the OP's wife to have filed for her own retirement benefit as soon as he reached his FRA, and for him to file a restricted application at that time. Then for him to switch to his own at age 70. But that ship has sailed, so to speak. So that changes the analysis.
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Re: Signing up for SS before 70

Post by dbr »

I ran the program at Social Security Solutions and got a good analysis for us. The upshot was for me to file and suspend when she reaches FRA so she can take spousal benefits. I claim benefits at age 70 for maximum benefits and she claims her own benefit at her age 70 to get a little more than the spousal benefit at that time.

It is obviously a little complex, but this answer is designed to provide maximum longevity insurance.

That model at SSS was not input with a scenario that someone dies before age 70, but I think it can be.
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Re: Signing up for SS before 70

Post by tadamsmar »

My theory is that delaying till 70 should be good for the health and longevity of a Boglehead.

Delaying till 70 is basically a bet that you will live to 85 or so. Having committed to this bet, a Boglehead would be super-motivated to maintain healthy habits, since he/she would particularly hate losing a buck on a sub-optimal retirement strategy.

How's that for behavioral economics? :D
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Re: Signing up for SS before 70

Post by RobertAlanK »

tadamsmar wrote:My theory is that delaying till 70 should be good for the health and longevity of a Boglehead.

Delaying till 70 is basically a bet that you will live to 85 or so. Having committed to this bet, a Boglehead would be super-motivated to maintain healthy habits, since he/she would particularly hate losing a buck on a sub-optimal retirement strategy.

How's that for behavioral economics? :D
I think you've nailed it!
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Re: Signing up for SS before 70

Post by VictoriaF »

RobertAlanK wrote:
tadamsmar wrote:My theory is that delaying till 70 should be good for the health and longevity of a Boglehead.

Delaying till 70 is basically a bet that you will live to 85 or so. Having committed to this bet, a Boglehead would be super-motivated to maintain healthy habits, since he/she would particularly hate losing a buck on a sub-optimal retirement strategy.

How's that for behavioral economics? :D
I think you've nailed it!
Is the opposite also true? Are people who did NOT delay Social Security dying around their break-even age to prove that they had made the right decision?

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Re: Signing up for SS before 70

Post by tadamsmar »

VictoriaF wrote:Is the opposite also true? Are people who did NOT delay Social Security dying around their break-even age to prove that they had made the right decision?

Victoria
If it were me, I'd start burning the candle at both ends and living for today as soon as that first SS check arrived. You don't have to wait till near the break-even date ensure you made the optimal decision.
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Re: Signing up for SS before 70

Post by MathWizard »

You might want to look at the white paper on SS benefits from Prudential.

http://research.prudential.com/document ... ov2012.pdf

It details several strategies and looks at the tax savings for a few different scenarios.

This paper brings together much of what has been discussed here and provides concrete examples.
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Re: Signing up for SS before 70

Post by Aptenodytes »

irishguy wrote:On the Social Security Solutions website the difference between our doing this and my waiting to age 70 was only $33,000 total over a 20 year lifespan and that's not a whole lot of money per year if their figures are accurate.
Ah, there's the rub. If you are asking what the most likely impact of your SS timing decision is, the answer is, almost by definition, it doesn't matter. The SS administration adjusts the numbers to be actuarially neutral. The logic of delaying is not to increase your expected payout, but to increase your payout if you happen to live longer than normal. It is the equivalent, as Victoria said, of buying an inexpensive, high-quality annuity.

So what you want to consider is not the relative payouts over an 86-year life span, but over a 100-year or even longer life span. Run that kind of scenario both ways, with prudent assumptions regarding your investment returns, and then decide.

Such a calculation is often mistakenly called a "bet" that you will live longer than expected, with the implication that you think the most likely outcome is that you will outlive the average person. That's wrong. If you buy such longevity insurance, you aren't betting on this outcome any more than when you buy term life insurance you think you are going to die early. It is an act that insures against a risk, and that can make sense even if the most likely outcome is that the risk doesn't materialize.
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Re: Signing up for SS before 70

Post by ObliviousInvestor »

Aptenodytes wrote:The SS administration adjusts the numbers to be actuarially neutral.
While the system is set up to be (kinda-sorta) actuarially neutral for unmarried people, it cannot simultaneously be actuarially neutral for each spouse in a married couple. That is, if it's actuarially neutral for an unmarried person to delay benefits, it's better than actuarially neutral for the higher earner in a married couple to delay benefits and worse than actuarially neutral for the lower earner in a married couple to delay benefits.*

*Assuming there's no government pension offset or other complicating factors.
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Re: Signing up for SS before 70

Post by bsteiner »

Aptenodytes wrote:...Such a calculation is often mistakenly called a "bet" that you will live longer than expected, with the implication that you think the most likely outcome is that you will outlive the average person. That's wrong. If you buy such longevity insurance, you aren't betting on this outcome any more than when you buy term life insurance you think you are going to die early. It is an act that insures against a risk, and that can make sense even if the most likely outcome is that the risk doesn't materialize.
That's an important point if you want to protect against the risk of outliving your money.
ObliviousInvestor wrote:
Aptenodytes wrote:The SS administration adjusts the numbers to be actuarially neutral.
While the system is set up to be (kinda-sorta) actuarially neutral for unmarried people, it cannot simultaneously be actuarially neutral for each spouse in a married couple. That is, if it's actuarially neutral for an unmarried person to delay benefits, it's better than actuarially neutral for the higher earner in a married couple to delay benefits and worse than actuarially neutral for the lower earner in a married couple to delay benefits.*

*Assuming there's no government pension offset or other complicating factors.
That's also an important point where spouse benefits are available.

However, if you have enough assets so that you're not concerned about the risk of outliving your assets, and if there is no spouse benefit (because you're single, or because your spouse is a Federal CSRS employee so the government pension offset applies, ignoring the possibility that a single person might marry or that a married person might outlive his/her spouse and remarry), then it's more like a bet, or a guess as to how long you expect to live.

The result (in other words, the age at which waiting until 70 was better than beginning at 66) varies depending on the discount rate used to equate the two (in other words, the assumed after-tax rate of return on the benefits received). One might use a relatively low discount rate because Social Security is safe (ignoring the possibility of a future reduction in benefits), or one might use a relatively high discount rate since future benefits can't be sold or pledged.
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Re: Signing up for SS before 70

Post by VictoriaF »

bsteiner wrote:One might use a relatively low discount rate because Social Security is safe (ignoring the possibility of a future reduction in benefits), or one might use a relatively high discount rate since future benefits can't be sold or pledged.
The fact that future benefits can't be sold or pledged has behavioral advantages. After the age of, say, 90 people's analytical abilities weaken and they are more likely to fall prey to scams or their own cognitive biases. A locked-up income provides the basis of safety.

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Re: Signing up for SS before 70

Post by frugaltype »

Professor Emeritus wrote:
kttpn wrote:Social Security will be paying about 66% of calculated benefits starting around 2033 as funds are drying up. Need to factor that information into the equation when deciding whether or not to delay benefits until age 70. The numbers do not make sense for my situation.
OFGS we are now into forbidden territory under the forum rules So I won't post a reply
Well, I will note that all that has to be done to fix this is to lift the cap on salaries that are affected. I find it hard to believe that that won't happen.

Deleted in 1, 2, 3...
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Re: Signing up for SS before 70

Post by technovelist »

frugaltype wrote:
Professor Emeritus wrote:
kttpn wrote:Social Security will be paying about 66% of calculated benefits starting around 2033 as funds are drying up. Need to factor that information into the equation when deciding whether or not to delay benefits until age 70. The numbers do not make sense for my situation.
OFGS we are now into forbidden territory under the forum rules So I won't post a reply
Well, I will note that all that has to be done to fix this is to lift the cap on salaries that are affected. I find it hard to believe that that won't happen.

Deleted in 1, 2, 3...
Yes, that would "fix" the problem... so long as the benefits cap is not lifted at the same time, which would pose quite an issue of fairness.
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Re: Signing up for SS before 70

Post by The Wizard »

Aptenodytes wrote:
irishguy wrote:On the Social Security Solutions website the difference between our doing this and my waiting to age 70 was only $33,000 total over a 20 year lifespan and that's not a whole lot of money per year if their figures are accurate.
Ah, there's the rub. If you are asking what the most likely impact of your SS timing decision is, the answer is, almost by definition, it doesn't matter. The SS administration adjusts the numbers to be actuarially neutral. The logic of delaying is not to increase your expected payout, but to increase your payout if you happen to live longer than normal. It is the equivalent, as Victoria said, of buying an inexpensive, high-quality annuity.

So what you want to consider is not the relative payouts over an 86-year life span, but over a 100-year or even longer life span. Run that kind of scenario both ways, with prudent assumptions regarding your investment returns, and then decide.

Such a calculation is often mistakenly called a "bet" that you will live longer than expected, with the implication that you think the most likely outcome is that you will outlive the average person. That's wrong. If you buy such longevity insurance, you aren't betting on this outcome any more than when you buy term life insurance you think you are going to die early. It is an act that insures against a risk, and that can make sense even if the most likely outcome is that the risk doesn't materialize.
The above is probably the most well-explained essay on delaying SS that I've read in a while.
I'm in complete agreement with it...
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Re: Signing up for SS before 70

Post by tadamsmar »

Aptenodytes wrote: Such a calculation is often mistakenly called a "bet" that you will live longer than expected, with the implication that you think the most likely outcome is that you will outlive the average person. That's wrong. If you buy such longevity insurance, you aren't betting on this outcome any more than when you buy term life insurance you think you are going to die early. It is an act that insures against a risk, and that can make sense even if the most likely outcome is that the risk doesn't materialize.
It is possible to come to the conclusion that you will live longer than the average person and use this information. SS and annuities are both longevity insurance, but annuities are different in that their pricing takes both adverse selection and the need to make a profit into account. SS can be free longevity insurance, or longevity insurance that has a positive expected return as does a favorable bet.
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Re: Signing up for SS before 70

Post by englishgirl »

ObliviousInvestor wrote:
Aptenodytes wrote:The SS administration adjusts the numbers to be actuarially neutral.
While the system is set up to be (kinda-sorta) actuarially neutral for unmarried people, it cannot simultaneously be actuarially neutral for each spouse in a married couple. That is, if it's actuarially neutral for an unmarried person to delay benefits, it's better than actuarially neutral for the higher earner in a married couple to delay benefits and worse than actuarially neutral for the lower earner in a married couple to delay benefits.*

*Assuming there's no government pension offset or other complicating factors.
Question: where can I go to learn about actuarial neutrality in this sense. I don't understand why it is worse than actuarially neutral for the lower earner to delay. Are you talking completely delaying, or taking spousal and then delaying to 70? Does it make a difference if by delaying, the lower earner's age 70 benefit becomes higher than the spousal benefit or not? Does it make a difference if the lower earner is the male and thus expected to have the lower longevity? Or if the lower earner is female?

OP: sorry for thread jacking.
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Re: Signing up for SS before 70

Post by bobcat2 »

I think a lot of good points have been made on this thread. Here are two points that I don't think have been made.

You could wait to age 69 and take SS and then repay at age 70 and get the age 70 benefit. The option to repay still exists, but you are now restricted to doing it only once and for a period of 12 months or less.

Delaying SS benefits is more beneficial when real interest rates are low as they are today. Given how low real interest rates are currently, this is a significant additional benefit to delaying taking SS benefits at this time.

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