Filing for SS Early and Investing

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vested1
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Filing for SS Early and Investing

Post by vested1 »

As my strategy for when to claim SS continues to evolve I see some justification in various viewpoints and less in others. Comparing the math and relating that to longevity expectations as well as creating a form of longevity insurance for my wife has led me to believe that delaying my benefit until 70 is the primary goal. Asking my wife to delay until 65 has also become a recent consideration which would greatly increase our income while we are both alive.

Those who advocate taking early have a variety of reasons for doing so, and most make some kind of sense. The exception, at least in my mind, is claiming early to allow the claimant to invest the benefit, hoping to beat the guaranteed increase in benefits when delaying SS. "Hoping" is a generous word, as most who promote this tactic claim that beating the SS guaranteed increase is a foregone conclusion. Arguments for this strategy invariable rely on increased risk and assumptions of outrageous sustained ROI over an 8 year term. I must be missing something because some rather astute individuals advocate this path. It seems to me that not all aspects are covered in their arguments.

I just finished reading Mike Piper's book "Social Security Made Simple" and have started "Social Security for Dummies". Mike lists claiming early and investing the benefit as an option yet stops short of advocating it. He also includes it in his "Six Social Security Rules of Thumb" in the conclusion of his book, listing it as #6. Please understand that I'm not criticizing his conclusions, only questioning this strategy being included as an apparent truism. Again there may be something I'm missing and wanted the subject opened (again) for discussion.

Most who advocate this strategy ignore the impact of COLA from SS, and the reduced amount available for investment deducted from the benefit due to taxes and Medicare. Some even brag that they followed their financial advisor's suggestion and used this strategy successfully. They tend to ignore the advisor's fee and the incentive their advisor has to have more money under management. I have little doubt that the advisor is tailoring their projections to make this strategy more appealing, and perhaps using the claimants distrust of government against them. They also fail to track the amount invested from SS alone and merge it with the rest of their investments when commenting, which skews the results.

When taxes, medicare deductions, and loss of COLA are considered, the yearly return needed to match the results of delaying SS ballon to well over 8% per year. Of course the claimant could also get lucky and have 8 years of 2013 like returns, but they could also win the lottery I suppose.

I would like to hear from advocates of filing at 62 and investing the proceeds please.
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midareff
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Re: Filing for SS Early and Investing

Post by midareff »

As you said there are lots of different takes on this. I don't advocate for any exact situation as there are too many variables. I took SS @ 64 when I retired and since repaid that year and restarted at 65. For me it was not about investing the SS income it was about where the breakeven point is for waiting and maintaining/preserving my liquidity. While the differences can be figured many ways it looked like my breakeven was about age 80ish. I think my international travel tour days will have passed by then, based on what I have seen of those anywhere near that age when traveling.

Much of this may have to do with the makeup of an individual's retirement income sources. If you have a cola'd pension that makes up 50% or better of your retirement income, and SS is 20% with your investments supplying the 30% at a low WR, it is what it is and lowering the $$ in your investments to raise your SS only works if you live long enough to get the payback, and of course, have a need to take that risk. BTW, had you done as another poster had referenced, removing a portion of your portfolio to stable money to fund your withdrawals in place of SS may have cost you a sizeable sum in missed portfolio gains for the last 5 years but then again the rear view mirror is always clearer.

For me, I'm just an average guy with a few health issues, maybe I'll live longer than the average guy, maybe I won't. No crystal ball but I do know if I go sooner I want to leave younger wifey the most possible and the wait strategy does not do that. In return I'll be more than happy to announce at my 82nd birthday, I screwed up!

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Re: Filing for SS Early and Investing

Post by anonforthis »

We will file at 62 because my husband would like to retire early. He has children late therefore he wants to spend as much time with them as possible. I will be the high earner with pension. I will be 42 when he is 62 and I will carry the family health insurance. His ss payments will go directly to my 457 retirement acct.
Last edited by anonforthis on Sun May 11, 2014 10:52 am, edited 1 time in total.
steve_14
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Re: Filing for SS Early and Investing

Post by steve_14 »

vested1 wrote:Those who advocate taking early have a variety of reasons for doing so, and most make some kind of sense. The exception, at least in my mind, is claiming early to allow the claimant to invest the benefit, hoping to beat the guaranteed increase in benefits when delaying SS. "Hoping" is a generous word, as most who promote this tactic claim that beating the SS guaranteed increase is a foregone conclusion. Arguments for this strategy invariable rely on increased risk and assumptions of outrageous sustained ROI over an 8 year term. I must be missing something because some rather astute individuals advocate this path.
Could you provide links to the threads you're talking about? In reading hundreds of SS posts here, I've never heard an experienced poster claim he can beat the return delaying provides, assuming a normal expected lifespan.
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Re: Filing for SS Early and Investing

Post by cheese_breath »

My wife and I both filed at 62, but it wasn’t about investing the SS payments. It was about preserving the investments I already had. In addition to my small pensions we needed more for living expenses. So it was either take it from the investments or social security. There’s no guarantee one or both of us will make it to the breakeven point for filing later, and if we don’t it will leave a greater inheritance for our children. Also with me turning 62 in 2003 and her in 2008, those were not the best years to begin drawing down investments.
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Re: Filing for SS Early and Investing

Post by ObliviousInvestor »

vested1 wrote:I just finished reading Mike Piper's book "Social Security Made Simple" and have started "Social Security for Dummies". Mike lists claiming early and investing the benefit as an option yet stops short of advocating it. He also includes it in his "Six Social Security Rules of Thumb" in the conclusion of his book, listing it as #6. Please understand that I'm not criticizing his conclusions, only questioning this strategy being included as an apparent truism. Again there may be something I'm missing and wanted the subject opened (again) for discussion.
The only part about it that is a truism, IMO, is that it's more appealing the higher the rate of return you can expect. With interest rates low, most people who can afford to wait would be better off doing so (noteworthy exceptions being lower earners in married couples and unmarried people with shorter than average life expectancies).
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: Filing for SS Early and Investing

Post by Penguin »

anonforthis wrote:We will file at 62 because my husband would like to retire early. He has children late therefore he wants to spend as much time with them as possible. I will be the high earner with pension. I will be 42 when he is 62 and I will carry the family health insurance. His ss payments will go directly to my 457 retirement acct.
If the children are younger than 18 years old or 19 years old and still in high school, then they may also be eligible for social security. If the child is disabled the benefits may last longer. They may not get this benefit unless a parent is entitled to a benefit and he applies for their benefit.
http://www.ssa.gov/pubs/EN-05-10085.pdf
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Re: Filing for SS Early and Investing

Post by PharmerBrown »

When you take that strategy you are theoretically extending the break even point which is the bottom line. The variable that you will never figure out is how long you are going to live. You could create a spreadsheet with estimates of your break even point based on your average market return during the years until you turn 70. It sounds like your primary goal is security for your wife if you are no longer here so it may make the most sense for you to wait regardless of whether you think you will live past your break even point.
anonforthis
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Re: Filing for SS Early and Investing

Post by anonforthis »

Penguin wrote:
anonforthis wrote:We will file at 62 because my husband would like to retire early. He has children late therefore he wants to spend as much time with them as possible. I will be the high earner with pension. I will be 42 when he is 62 and I will carry the family health insurance. His ss payments will go directly to my 457 retirement acct.
If the children are younger than 18 years old or 19 years old and still in high school, then they may also be eligible for social security. If the child is disabled the benefits may last longer. They may not get this benefit unless a parent is entitled to a benefit and he applies for their benefit.
http://www.ssa.gov/pubs/EN-05-10085.pdf

Thank you Jon. This is why my husband should file early correct?
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vested1
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Re: Filing for SS Early and Investing

Post by vested1 »

steve_14 wrote:
vested1 wrote:Those who advocate taking early have a variety of reasons for doing so, and most make some kind of sense. The exception, at least in my mind, is claiming early to allow the claimant to invest the benefit, hoping to beat the guaranteed increase in benefits when delaying SS. "Hoping" is a generous word, as most who promote this tactic claim that beating the SS guaranteed increase is a foregone conclusion. Arguments for this strategy invariable rely on increased risk and assumptions of outrageous sustained ROI over an 8 year term. I must be missing something because some rather astute individuals advocate this path.
Could you provide links to the threads you're talking about? In reading hundreds of SS posts here, I've never heard an experienced poster claim he can beat the return delaying provides, assuming a normal expected lifespan.
I've never read any comments on this forum advocating the strategy of claiming early and investing the proceeds, but it is a very common option that is continually brought up when SS claiming strategies are discussed in the comment section of articles. I have been to a couple of SS strategy seminars where one or more of the people attending also said they were going to do this, which to me was astounding. They seem to be convinced that they can do better than the increases offered by SS for delaying. Most of them seem smug when they claim that they can. :confused

That is why I wondering if I had missed something. Mike responded to this thread as well and repeated something he said in his book.
ObliviousInvestor wrote:
vested1 wrote:I just finished reading Mike Piper's book "Social Security Made Simple" and have started "Social Security for Dummies". Mike lists claiming early and investing the benefit as an option yet stops short of advocating it. He also includes it in his "Six Social Security Rules of Thumb" in the conclusion of his book, listing it as #6. Please understand that I'm not criticizing his conclusions, only questioning this strategy being included as an apparent truism. Again there may be something I'm missing and wanted the subject opened (again) for discussion.
The only part about it that is a truism, IMO, is that it's more appealing the higher the rate of return you can expect. With interest rates low, most people who can afford to wait would be better off doing so (noteworthy exceptions being lower earners in married couples and unmarried people with shorter than average life expectancies).
Unless you are "invested" in a guaranteed return product, such as an SPIA, a TIPS, or a guaranteed bond I don't know how you can predict your return. In order to purchase such a product you would need a lump sum, not small monthly payments from SS unless I'm mistaken. A deferred or variable annuity that is purchased with payments may be another tactic but I fail to see the advantage. While it's true that in various times in the past CD rates were possibly paying better than SS did by delaying, they certainly haven't been for some time. This also ignores the fact that the advantage of claiming early and investing, if any, disappears over time considering the much larger SS base when delaying with a larger COLA as a added feature. Your gains can always be lost in a bear market, while a larger SS base will continue through good times and bad. The only possible justification I can see is for legacy purposes.

I certainly don't consider myself an expert or even anywhere near as knowledgable as Mike. It was only an observation and my honest curiosity over something I thought I might not understand.
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Re: Filing for SS Early and Investing

Post by Austintatious »

ObliviousInvestor wrote:
vested1 wrote:I just finished reading Mike Piper's book "Social Security Made Simple" and have started "Social Security for Dummies". Mike lists claiming early and investing the benefit as an option yet stops short of advocating it. He also includes it in his "Six Social Security Rules of Thumb" in the conclusion of his book, listing it as #6. Please understand that I'm not criticizing his conclusions, only questioning this strategy being included as an apparent truism. Again there may be something I'm missing and wanted the subject opened (again) for discussion.
The only part about it that is a truism, IMO, is that it's more appealing the higher the rate of return you can expect. With interest rates low, most people who can afford to wait would be better off doing so (noteworthy exceptions being lower earners in married couples and unmarried people with shorter than average life expectancies).
A very important thread for many, I think. There's another thread making the rounds wherein the OP presents a survey asking Bogleheads about their most difficult financial decision.

http://www.bogleheads.org/forum/viewtop ... st=2055051

One of the options is the decision re when to collect Social Security benefits. I've been quite surprised to see such a relative few choosing when to collect Social Security decision as their most difficult financial decision. IMO, it's got to be one of, if not the, most difficult financial decision folks struggle with, maybe not those Mike Piper speaks of who know they can afford to wait, but for those who just aren't so sure. For them, because there are so many variables and uncertainties impacting the Social Security decision, it can be a very difficult one and the "opt in early and invest" option may be a real consideration for many, if only when that "inevitable" rise in interest rates that's been just around the corner for so long actually materializes . I'm looking forward to this discussion.
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Re: Filing for SS Early and Investing

Post by PharmerBrown »

I have been to a couple of SS strategy seminars where one or more of the people attending also said they were going to do this, which to me was astounding. They seem to be convinced that they can do better than the increases offered by SS for delaying. Most of them seem smug when they claim that they can.

They may do better in the long run depending on their life span. I don't think people would be advocating that strategy if we knew we would live or be paid until we are 90.
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Re: Filing for SS Early and Investing

Post by Penguin »

anonforthis wrote:
Penguin wrote:
anonforthis wrote:We will file at 62 because my husband would like to retire early. He has children late therefore he wants to spend as much time with them as possible. I will be the high earner with pension. I will be 42 when he is 62 and I will carry the family health insurance. His ss payments will go directly to my 457 retirement acct.
If the children are younger than 18 years old or 19 years old and still in high school, then they may also be eligible for social security. If the child is disabled the benefits may last longer. They may not get this benefit unless a parent is entitled to a benefit and he applies for their benefit.
http://www.ssa.gov/pubs/EN-05-10085.pdf

Thank you Jon. This is why my husband should file early correct?
Judging from your old posts, if your husband was born in 1961 and applies at age 62 in 2023 then he will receive 70 % of his PIA (the amount he would receive at age 67). If your children are 11 and 12 years old in 2023 then they will be entitled to child benefits until about 2030. The amount of their combined benefit may be about 50-80% of his PIA and is limited by the Maximum Family Benefit, that amount should be listed on your Social Security statement.
So, to answer your question, it is appealing to get about 7 years of extra benefits for your family because your husband files early. You can calculate if the extra benefits are sufficient to compensate for the lower benefit (70 % of PIA) that he will receive for the rest of his life.
Jon
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Re: Filing for SS Early and Investing

Post by billyt »

Consider these results from the FIRECALC monte carlo simulator: Today's retiree, age 62, has a nest egg of $500,000 and wants to withdraw $38,000 a year, inflation adjusted. This retiree has a SS PIA of $20,000. Starting SS at 62 yields $15,000 a year, inflation adjusted. This strategy has a 78% probability of success and an average portfolio value of $663k. Starting at 70 yields $26,000 annually, inflation adjusted. This strategy has a 90% probability of success and an average portfolio balance of $669k.
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Re: Filing for SS Early and Investing

Post by gerrym51 »

if you claim at 62and don't have to remove that amount of money from your savings you have a double bang for the buck. it does not give you more-from ss- than claiming at 70 if you live to 90 but it does make the effective break even point about 90.
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Re: Filing for SS Early and Investing

Post by ObliviousInvestor »

gerrym51 wrote:if you claim at 62and don't have to remove that amount of money from your savings you have a double bang for the buck. it does not give you more-from ss- than claiming at 70 if you live to 90 but it does make the effective break even point about 90.
As people have explained previously, the math behind this statement is incorrect.
http://www.bogleheads.org/forum/viewtop ... 2&t=117770
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Re: Filing for SS Early and Investing

Post by freddie »

If you knew you would be dead at 67, nobody would wait til 70 to take SS:)

There are two bets being placed
a) They can get more than about 6% from their money (the exact number depends on how you account for taxes and inflation)
b) Longevity. Even if you only get 4%, as long as you die before like 86, you still come out ahead.


It should be pointed out that the numbers change drastically between a single man and married couple (especially if you have a female partner 5+ years younger than the hubby) as far as the odds of it being a win or not as your odds of collecting for 20+ years go way up.

If you can take on the risk (if your buying treasuries with this money, you can't afford the risk), the odds favor you ending up with more money. 6% is well below historical numbers for something like a 60/40 portfolio over 30 years. If I had a 1% SWR I would think about taking SS at 62 and gambling that I end up with more money. The upside is might be enough. At a 3-4% SWR you are at the place where you can't afford to take on the risk needed to make it work. If I had to guess even in the 1% case, ending up with an extra 500k (imagine it was some really good years) probably doesn't justify the risk.


PharmerBrown wrote:I have been to a couple of SS strategy seminars where one or more of the people attending also said they were going to do this, which to me was astounding. They seem to be convinced that they can do better than the increases offered by SS for delaying. Most of them seem smug when they claim that they can.

They may do better in the long run depending on their life span. I don't think people would be advocating that strategy if we knew we would live or be paid until we are 90.
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Re: Filing for SS Early and Investing

Post by Phineas J. Whoopee »

PharmerBrown wrote:When you take that strategy you are theoretically extending the break even point which is the bottom line. ....
It's the bottom line only if one's frame of reference is to collect the maximum possible number of dollars. Some posters occasionally speak of their potential to be angry or otherwise emotionally unhappy after they've died if they didn't collect enough. You haven't written that. :happy

There's an entirely different frame of reference in which there is no "bottom line" because what's being optimized is far different. That one is to reduce the risk of running out of money even if one lives much longer than average. If that's the goal, if and only if that's the goal, then it's clearly better to wait if one possibly can. Bottom lines don't enter into it.

Each viewpoint is valid, but we get into trouble here when posters assume everybody else automatically agrees with their own.

For what it's worth, I'm in the risk-reduction camp and plan to wait until age 70. If I die before then everybody else is welcome to my share I never took because that's the only way life annuities can remain viable over the long term.

And I promise I'll chill after I shuffle off this mortal coil.

PJW
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Re: Filing for SS Early and Investing

Post by Phineas J. Whoopee »

gerrym51 wrote:if you claim at 62and don't have to remove that amount of money from your savings you have a double bang for the buck. it does not give you more-from ss- than claiming at 70 if you live to 90 but it does make the effective break even point about 90.
We've gone through why your statement is incorrect again and again. If you want to keep posting it could you at least include a link to one of the many refutations so nobody gets misled? Call it academic honesty: "There is an opposing viewpoint which often has been expressed." Thanks.
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vested1
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Re: Filing for SS Early and Investing

Post by vested1 »

I still haven't heard a convincing argument for filing early and investing your entire SS benefit. I can see the logic if, as Mike and others have said, the interest rates on short term products rises dramatically, or if you have no need for SS benefits and want to increase your legacy with investing as much as possible as soon as possible. For others, like myself, SS is an income stream, pure and simple. If I can bite the bullet and delay, and thus increase the possible monthly income while in my most vulnerable years, I will do so.

After all, I've built up retirement accounts to ensure we don't run out of money. We might as well use them to best advantage.

Since my wife is exactly a year younger than me if she files at 65 and I file a restricted application at 66 (simultaneously) our income will take a dramatic jump at that point and we can ratchet back on IRA withdrawals. In 4 years subsequent to that there will another big bump. We're still working currently, but who knows what will transpire in the next few years. Perhaps Roth conversion will be in the cards depending on tax levels.

We are all gamblers of a sort, and delving into these issues is like counting cards for me. I just hope the house doesn't notice. :wink:
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Re: Filing for SS Early and Investing

Post by basspond »

I will take SS at the earliest, which at the moment is 62. I have saved all my career with a company that has a good pension and 401, and lived well below my means. SS is great, it could be better, but I am not including it in any of my retirement income projections. If I live past 81 I will let ya'll know if I would have more money if I delayed.
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Re: Filing for SS Early and Investing

Post by PharmerBrown »

Phineas J. Whoopee wrote:
PharmerBrown wrote:When you take that strategy you are theoretically extending the break even point which is the bottom line. ....
It's the bottom line only if one's frame of reference is to collect the maximum possible number of dollars. Some posters occasionally speak of their potential to be angry or otherwise emotionally unhappy after they've died if they didn't collect enough. You haven't written that. :happy

There's an entirely different frame of reference in which there is no "bottom line" because what's being optimized is far different. That one is to reduce the risk of running out of money even if one lives much longer than average. If that's the goal, if and only if that's the goal, then it's clearly better to wait if one possibly can. Bottom lines don't enter into it.

Each viewpoint is valid, but we get into trouble here when posters assume everybody else automatically agrees with their own.

For what it's worth, I'm in the risk-reduction camp and plan to wait until age 70. If I die before then everybody else is welcome to my share I never took because that's the only way life annuities can remain viable over the long term.

And I promise I'll chill after I shuffle off this mortal coil.

PJW
This is very true but I think most that consider taking the money before 70 and before they need it are attempting to maximize their total received... :?: We debate these things a lot considering there are always variables that we don't know. Along with age at death, this adds investment return on your SS deposits.
I'm in the same boat as you, and although it is a long time from now, I anticipate I will see SS as an insurance during my/my wife's later years and hopefully we make it there.
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Re: Filing for SS Early and Investing

Post by BigFoot48 »

When I look at this question in my Retiree Portfolio Model it's interesting to see how a higher annual return rate moves the overall portfolio breakeven age out to later years. But returns are unpredictable, and I think the the amount of benefits in those later years and how much of estimated expenses they will cover is even more interesting. Here's what benefits at age 89 would look like for a surviving spouse (model's Example data, with starting ages shown, and primary person dying at 80):

Image
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Re: Filing for SS Early and Investing

Post by The Wizard »

ObliviousInvestor wrote:
gerrym51 wrote:if you claim at 62and don't have to remove that amount of money from your savings you have a double bang for the buck. it does not give you more-from ss- than claiming at 70 if you live to 90 but it does make the effective break even point about 90.
As people have explained previously, the math behind this statement is incorrect.
http://www.bogleheads.org/forum/viewtop ... 2&t=117770
Correct, but most of us have learned to ignore his claims on this specific issue...
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Re: Filing for SS Early and Investing

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steve_14
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Re: Filing for SS Early and Investing

Post by steve_14 »

vested1 wrote:I've never read any comments on this forum advocating the strategy of claiming early and investing the proceeds, but it is a very common option that is continually brought up when SS claiming strategies are discussed in the comment section of articles. I have been to a couple of SS strategy seminars where one or more of the people attending also said they were going to do this, which to me was astounding. They seem to be convinced that they can do better than the increases offered by SS for delaying. Most of them seem smug when they claim that they can.
Oh, yes the average Joe probably thinks he can. I'd look elsewhere for investment advice.
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Re: Filing for SS Early and Investing

Post by gerrym51 »

steve_14 wrote:
vested1 wrote:I've never read any comments on this forum advocating the strategy of claiming early and investing the proceeds, but it is a very common option that is continually brought up when SS claiming strategies are discussed in the comment section of articles. I have been to a couple of SS strategy seminars where one or more of the people attending also said they were going to do this, which to me was astounding. They seem to be convinced that they can do better than the increases offered by SS for delaying. Most of them seem smug when they claim that they can.
Oh, yes the average Joe probably thinks he can. I'd look elsewhere for investment advice.

all i can say this-before the downturn in the market in 2008 the conventional wisdom was take ss as early as possible.

after the downturn and with bond rates low the conventional wisdom has changed.

however if your heavy in equities and believe you can do better you've just gone back to the pre 2008 wisdom minus bonds
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