My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

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CnC
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My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Post by CnC » Fri May 19, 2017 11:27 am

My dad retired with a pension at 55. He is recently widowed approximately 1 year now and living on his own.

He is looking forward to taking Social Security at 62. I personally think it is a good idea, but most of what I have read says otherwise.

But, looking at the math I cannot find any good reasons to delay taking SS unless you are still working.
Here is my math using my SS benefits since I don't know his exactly.

If you take SS at 62 you get $17664 a year, assuming no annual cola because noone knows what they will be you will make $336k by age 80 424k by age 85 and 512k by age 90.

If you take SS at 67 you get $25128 a year, assuming no annual cola because noone knows what they will be you will make $352k by age 80 477k by age 85 and $603k by age 90.

If you take SS at 70 you get $31164 a year, assuming no annual cola because noone knows what they will be you will make $343k by age 80 499k by age 85 and 654k by age 90.


While those numbers say you will get more money, they are misleading. And I seriously wonder why anyone giving financial advise would use them. Everyone knows that $100 now is worth more than $100 in the future.


If you take 3% inflation into account you are drastically lowering the benifits of delaying taking SSA and that doesn't even take into account how much more enjoyment and utility you get out of money at 62 vs at 82.

Using inflation your returns are:
Taking at 62:
Age 80 259k
Age 85 305k
Age 90 345k

Taking at 67:
Age 80 247k
Age 85 313k
Age 90 369k

Taking at 70:
Age 80 231k
Age 85 314k
Age 90 385k

So my question is this, why on Earth do most financial sites and even a pretty healthy portion of the boggel heads here recommend delaying SS benifits even after you retire. Am I missing something?

It seems like a pretty poor risk vs return senerio to me. Delay getting money when you can get the most use out of it in the hopes you end up with an additional $24-$40k real dollars at age 90 assuming you live that long.

edit

Ok so I have gotten 3 different responses.

1) it's a coin toss one is not really better than the other. One buys longevity one is for better current gains.

2) my math is wrong and when the SSA says that you will get $xxx at age 70 they do not really mean that and you actually will get more money than that due to cola. (I don't understand this, why at age 61 when you look at your potential benefits they don't give you an * saying that the money at 70 will increase as you get older)

3) People are actually telling current workers not to quit their jobs for Social Security at age 62, not referring to retirees
Last edited by CnC on Fri May 19, 2017 12:50 pm, edited 1 time in total.

livesoft
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Re: My dad is taking Social Security at 62, why would anyone not?

Post by livesoft » Fri May 19, 2017 11:32 am

When an older age for starting SS is recommended, the following circumstances are often involved:

1. A younger spouse or a spouse who intends to live much longer is involved.

2. The person starting SS later usually has plenty of assets to pay expenses while delaying SS, so they would get no use out of it anyways.

Have you not noticed those 2 things when you read about delaying SS?
Last edited by livesoft on Fri May 19, 2017 11:33 am, edited 1 time in total.
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dodecahedron
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Re: My dad is taking Social Security at 62, why would anyone not?

Post by dodecahedron » Fri May 19, 2017 11:33 am

I am not going to address your general question because, as a widower who stopped working young, your dad has some very special options you are not taking into account.

He can start collecting as a surviving spouse as early as age 60 AND allow his own record retirement benefits to grow through age 70

OR

He can file for his own record retirement benefits at age 62 AND allow his surviving spouse benefits to grow until they reach their maximum at his Full Retirement Age (FRA) of somewhere between 66 and 67.

An excellent place to get an explanation for all of this (and many other aspects of SS, including your original question) is Mike Piper's inexpensive paperback, Social Security Made Simple. An excellent investment.
Last edited by dodecahedron on Fri May 19, 2017 11:38 am, edited 1 time in total.

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Re: My dad is taking Social Security at 62, why would anyone not?

Post by MindBogler » Fri May 19, 2017 11:37 am

dodecahedron wrote:He can file for his own record retirement benefits at age 62 AND allow his surviving spouse benefits to grow until they reach their maximum at his Full Retirement Age (FRA) of somewhere between 66 and 67.

This depends on the spouse's lifetime income (or lack thereof) but it is a very good point to bring up.

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Re: My dad is taking Social Security at 62, why would anyone not?

Post by flamesabers » Fri May 19, 2017 11:41 am

There are a variety of reasons to delay taking SS besides wanting to get a larger monthly payment:

1. You're still working at 62 and you don't want your SS to be treated as taxable income. (You might be working at this age not so much for the income but for the health insurance).
2. You're retired, but you want to convert your traditional retirement accounts to Roth because you're in a low tax bracket and you want to minimize RMDs at 70 1/2. (This is assuming you have enough money to live off of in the meantime).
3. Longevity runs in your family.

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Re: My dad is taking Social Security at 62, why would anyone not?

Post by CnC » Fri May 19, 2017 11:42 am

dodecahedron wrote:I am not going to address your general question because, as a widower who stopped working young, your dad has some very special options you are not taking into account.

He can start collecting as a surviving spouse as early as age 60 AND allow his own record retirement benefits to grow through age 70

OR

He can file for his own record retirement benefits at age 62 AND allow his surviving spouse benefits to grow until they reach their maximum at his Full Retirement Age (FRA) of somewhere between 66 and 67.



My mom was a stay at home wife the majority of her life so her benifits were very low, he has been collecting hers but it is a very small amount $1200 a year or so.

I understand there are other options, but once you already retire I can not see the reason to delay. I am not trying to be a contrarian I am interested in other viewpoint because he will be pulling the trigger on this soon and I certainly would like to know if we are missing something.

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Re: My dad is taking Social Security at 62, why would anyone not?

Post by afan » Fri May 19, 2017 11:43 am

In your exam you are not factoring in inflation, you are applying a discount rate to the future cash flows. I did not check your math but in general your analysis matches others that indicate one needs to live to mean life expectancy for delaying SS to pay off. For those who live long past life expectancy it is a very good deal. For those who die early it is a terrible deal.

One needs to make a projection based on health.

For those who are still working taking SS before FRA does not pay off.

For someone who has retired the value depends on his tax status, his health, family history and whether he needs the money now.

Delaying provides "longevity insurance" giving him a higher benefit late in life, if he lives that long.

There are online calculators.that let you pick discount rates and run the comparison out to whichever ages you want.
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bligh
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Re: My dad is taking Social Security at 62, why would anyone not?

Post by bligh » Fri May 19, 2017 11:45 am

In my case I "plan" to delay taking social security as much as possible because :

1) I have no pension and I would like to maximize the safety of a COLAed guaranteed income stream as a form of longevity insurance
2) I will (hopefully) have a significant chunk of my assets in Tax deferred accounts. I plan to be pulling from these and possibly also doing Roth Conversions from age 59.5 till the start of RMDs. This will allow me to extract funds while paying a lower overall tax.

There is of course the risk that my spouse and I do not live as long as we had hoped, so a lot will depend on how healthy we feel and how things look at that time. Personally, I wouldn't be against taking SSN @ 62 or 65.

In general I do agree with you. Pulling SSN @ 62 isn't a horrible mistake like many people make it out to be. Each dollar that you get from it preserves a dollar in your portfolio which is allowed to continue to grow. It is also a gamble on longevity. It could pay off if you are blessed with a long life, or backfire, if you are not.

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Re: My dad is taking Social Security at 62, why would anyone not?

Post by marcopolo » Fri May 19, 2017 11:46 am

CnC wrote:
assuming no annual cola .....

......Everyone knows that $100 now is worth more than $100 in the future.



This is exactly why there is a COLA. Not sure why you would ignore it in setting up the scenarios, but then consider inflation in the context of evaluating the scenarios. That seems inconsistent.

There are pros/cons to delaying vs starting early. Remember, all the withdrawal scenarios are "supposed" to be actuarially the same. Everyone needs to consider their own situation and needs. But, you do need to do the analysis in a reasonable way.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: My dad is taking Social Security at 62, why would anyone not?

Post by itstoomuch » Fri May 19, 2017 11:58 am

We too, often wondered why.
Then decided that what others did Or didn't, had no affect or concern to what we decide.
We took early SS. Needed the cash flow at the time. Now we don't. I won't make it to breakeven age. Lucky me :|
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: My dad is taking Social Security at 62, why would anyone not?

Post by flamesabers » Fri May 19, 2017 12:01 pm

marcopolo wrote:Everyone needs to consider their own situation and needs.


I completely agree.

There's also a non-financial aspect to this: people's confidence in the liquidity of the SS program as well as their own health. I have older relatives who opted to take SS at 62 because they worry about the program going bankrupt and/or they don't like the possibility of dying before ever getting SS benefits. On the other hand, people who aren't deeply worried about such possibilities may be more inclined to wait later to start to take SS benefits.

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Re: My dad is taking Social Security at 62, why would anyone not?

Post by Smorgasbord » Fri May 19, 2017 12:04 pm

marcopolo wrote:There are pros/cons to delaying vs starting early. Remember, all the withdrawal scenarios are "supposed" to be actuarially the same.

Yes, but unlike life insurance, don't the actuarial tables used in the calculations for social security ignore gender?

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Re: My dad is taking Social Security at 62, why would anyone not?

Post by simplesimon » Fri May 19, 2017 12:08 pm

Your conclusion seems so out of whack from what most people say because your assumption discounting future cash flows by the inflation rate is faulty. The number on the annual statement is adjusted for inflation each year after age 62.

Please consider other factors such as current and near-term health prospects, his current portfolio, his pension, and other non-financial factors that others here mentioned.

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Re: My dad is taking Social Security at 62, why would anyone not?

Post by Nate79 » Fri May 19, 2017 12:19 pm

The benefits to delaying SS have been documented extensively on this site. Suggest you do a very basic 5 second search to find the million threads on the subject. Whether or not to take SS early or delay is a very complex personal decision.

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Re: My dad is taking Social Security at 62, why would anyone not?

Post by mptfan » Fri May 19, 2017 12:19 pm

The answer is longevity insurance.
I eat risk for breakfast. :)

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David Jay
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Re: My dad is taking Social Security at 62, why would anyone not?

Post by David Jay » Fri May 19, 2017 12:20 pm

marcopolo wrote:Not sure why you would ignore [inflation] in setting up the scenarios, but then consider inflation in the context of evaluating the scenarios.


^^^ This!

Your dad's COLA is based on his age 62. So if he takes SS at 62 or waits until age 70, his COLA will be the same, no loss of COLA for delay. Your math is completely off.

SS COLA is based on CPI-W which overstates cost of living for retirees (over the long term) by, perhaps, 40 or 50 basis points. So SS beneficiaries actually come out ahead in periods of high inflation.
Last edited by David Jay on Fri May 19, 2017 12:22 pm, edited 1 time in total.
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Re: My dad is taking Social Security at 62, why would anyone not?

Post by CyberBob » Fri May 19, 2017 12:22 pm

Financial guru Bill Bernstein had an interesting answer to the Social Security now/then question:

Bill Bernstein wrote:There are two possible goals with SS: 1) buy the optimal amount of longevity insurance for a given input, or 2) optimize your total amount of SS benefits. Both are valid goals, but let's assume you want to prioritize the former.

The clearest way to think about this is to imagine a pair of 62-year-old twins, both of who are entitled to $3,000 per month at age 70, which, coincidentally, is also their living expenses.

Twin A defers SS to age 70, when he will get $3,000 monthly benefits. He must thus cover 8 years of living expenses to get to age 70, costing $288,000 in real terms ($36,000 x 8). After he pays that liability, he's home free.

Twin B also has $3,000 per month living expenses, but decides to take $1,705 in SS at age 62. Thus, he has a $1,295 per month of shortfall until he dies. To cover this with a joint-survivorship inflation-adjusted fixed annuity costs approximately $438,000.

The difference between the two is $150,000. That's not chopped liver.

I'd even go so far as to recommend that if twin A runs out of money a year or two before 70, he should max out his credit cards to make it there.

Best,

Bill

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Re: My dad is taking Social Security at 62, why would anyone not?

Post by CnC » Fri May 19, 2017 12:39 pm

simplesimon wrote:Your conclusion seems so out of whack from what most people say because your assumption discounting future cash flows by the inflation rate is faulty. The number on the annual statement is adjusted for inflation each year after age 62.

Please consider other factors such as current and near-term health prospects, his current portfolio, his pension, and other non-financial factors that others here mentioned.


How? We have not seen the projection for the age 70 increase every year.


Are you saying that when the SSA says that your benefits if you wait untill age 70 is $2094 monthly they don't mean that? They actually mean it will be $2500 because on inflation?

I have never heard that and I would have that it would be mentioned somewhere.

Can anyone else confirm that when the SSA website says you will get 1472 monthly at 62 and 2094 monthly at 67 they really mean you will get $2500?

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Re: My dad is taking Social Security at 62, why would anyone not?

Post by Trader/Investor » Fri May 19, 2017 12:45 pm

Sorry about your Mom. That right there should be your answer. I took SS at 62 and will never regret it. I am now 70. You can do the fancy math and all but nothing is a given in life especially how long we will live. I have too many former classmates that are now 6 ft under and I can pretty much guarantee you they all expected to live to 80 and beyond. A few of the closer ones I knew never took SS because they were convinced to maximize their SS by taking it as late as possible. With SS it is best to take the money ASAP and run.

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Re: My dad is taking Social Security at 62, why would anyone not?

Post by dodecahedron » Fri May 19, 2017 12:45 pm

Smorgasbord wrote:
marcopolo wrote:There are pros/cons to delaying vs starting early. Remember, all the withdrawal scenarios are "supposed" to be actuarially the same.

Yes, but unlike life insurance, don't the actuarial tables used in the calculations for social security ignore gender?


Yes, they do ignore gender and also, of course, they ignore genetics/health history.

The actuarial calculations were also made at a time (almost two decades ago) when interest rates were higher and general longevity was somewhat lower.

As a female in good health with a good family history of longevity, deferring claiming my surviving spouse SS (the greater of my two benefits) until it reaches its maximum at FRA is an obvious and easy choice, given the current low interest rate environment, especially since I get to collect my record benefit while I am waiting. Effectively by deferring collecting my larger benefit, I am purchasing an inflation-adjusted annuity at far better terms than the commercial market would offer me.

The math would be less compelling for a male in poor health with a bad family history of longevity, especially if interest rates return to their previous levels.

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Re: My dad is taking Social Security at 62, why would anyone not?

Post by dodecahedron » Fri May 19, 2017 12:49 pm

CnC wrote:
Are you saying that when the SSA says that your benefits if you wait untill age 70 is $2094 monthly they don't mean that? They actually mean it will be $2500 because on inflation?


SSA predictions assume a zero-percent inflation rate, because there is no sure prediction as to future inflation rates. If inflation turns out to be positive (as it usually is), your benefits will be higher than the current official projections. If inflation turns out to be negative or zero, their prediction will be accurate.

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Re: My dad is taking Social Security at 62, why would anyone not?

Post by knpstr » Fri May 19, 2017 12:54 pm

dodecahedron wrote:
CnC wrote:
Are you saying that when the SSA says that your benefits if you wait untill age 70 is $2094 monthly they don't mean that? They actually mean it will be $2500 because on inflation?


SSA predictions assume a zero-percent inflation rate, because there is no sure prediction as to future inflation rates. If inflation turns out to be positive (as it usually is), your benefits will be higher than the current official projections. If inflation turns out to be negative or zero, their prediction will be accurate.


If I look at my projected benefits by SSA (only in 30s now) it lets me look at nominal or inflation adjusted benefits.
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Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Post by CnC » Fri May 19, 2017 1:07 pm

Thanks for all the replies and the condolences. I realize my title and opening post may have come across as a bit inflamitory. But it was not meant as such.

Ultimately i guess it is up to the person and the situation, it sounds like even if my math isn't completely accurate most people agree that he isn't making a huge mistake even if they plan to choose differently for themselves.

If he listened to convention wisdom he would still be working and not got to spend any time in retirement with his wife. So there was not much that was going to change his mind. We talked and agreed money buys a 60 year old a lot more enjoyment than it does an 80 year old


Ultimately he isn't going to run out of money, he has a greatfull son who was taken care of and raised well and will make sure dad isn't shivering in the dark eating dog food. So those dollars spent raising me can count as an investment into longevity insurance.

Thanks for the thought out replies to whoever gave them.

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Re: My dad is taking Social Security at 62, why would anyone not?

Post by David Jay » Fri May 19, 2017 1:11 pm

knpstr wrote:If I look at my projected benefits by SSA (only in 30s now) it lets me look at nominal or inflation adjusted benefits.


Are you confident that it is an inflation adjustment you are looking at? As I recall you can see your SS benefit today (i.e. if you stopped working) and at age 6x (if you continued to work and added more years of work history). I am pretty sure they do not attempt to guess at future inflation.
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Re: My dad is taking Social Security at 62, why would anyone not?

Post by knpstr » Fri May 19, 2017 1:32 pm

David Jay wrote:
knpstr wrote:If I look at my projected benefits by SSA (only in 30s now) it lets me look at nominal or inflation adjusted benefits.


Are you confident that it is an inflation adjustment you are looking at? As I recall you can see your SS benefit today (i.e. if you stopped working) and at age 6x (if you continued to work and added more years of work history). I am pretty sure they do not attempt to guess at future inflation.


Well, I looked again.
On the official statement it does not estimate, but if you use the SSA quick calculator it will allow you to see your benefit in "inflated" dollars. The benefit in inflated dollars is absurdly high. FWIW, If you leave it (quick calc) in nominal dollars it comes to the same benefit as the official statements estimate as well.

here are their assumptions: https://www.ssa.gov/OACT/TR/TRassum.html
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Re: My dad is taking Social Security at 62, why would anyone not?

Post by hushpuppy » Fri May 19, 2017 2:09 pm

David Jay wrote:
SS COLA is based on CPI-W which overstates cost of living for retirees (over the long term) by, perhaps, 40 or 50 basis points. So SS beneficiaries actually come out ahead in periods of high inflation.


This seems an unusual thing to state/believe. As medical costs are much more predominant for older persons on average, doesn't inflation generally hurt SS recipients even more than the overall population?

Regards,

hushpuppy

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Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Post by Ron » Fri May 19, 2017 2:10 pm

For me, the key words of your statement/question is "why would anyone not?".

I'll agree that in your father's case (not knowing all his financial details), it might be the answer to your question. As marcopolo wrote:
"Everyone needs to consider their own situation and needs."

Our situation is much different. My wife/me have chose to delay our respective claims until age 70 (next year). However, that doesn't mean that we are not getting current benefits available to us based upon our age and existing legislation at the time of our claims.

Here are the reasons why we are delaying:

1. My wife has already received in excess of $45k for the last three years due to taking advantage of the old file/suspend and restricted application technique. She will be getting an additional $15k+ over the next year for a total exceeding $60k of benefits while both of us delay our respective normal claims.

2. 15% of our current and future SS income will become FIT free. Using a much larger SS age 70 benefit than age 62 will result in more income overall.

3. I retired at age 59 and my wife at age 64. We currently are getting 65% of our required annual income from our respective tax-deferred retirement portfolio. By drawing down our respective portfolios will result in having less RMD's starting next year. If we would have started reduced SS at an earlier age, our RMD's would probably be much higher resulting in more taxes being paid. Next year with the start of our respective SS, we will only need to withdraw around 10% of our income from our joint portfolios (a forecast withdrawal rate of 2%).

4. Since we are married and I'm assuming that I will pass first (not guaranteed, but certainly likely), my surviving wife will have a much larger SS benefit than she would have on her own and much larger than if I took SS at an earlier age.

5. Finally, I/we look at SS (along with our other retirement income) as reducing income risk as we get older. It means that more income will be coming from "set and forget" sources - not requiring constant monitoring of our investments to ensure we know where the next paycheck is coming from.

Just a few reasons we're not taking SS until age 70, FWIW.

- Ron

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Re: My dad is taking Social Security at 62, why would anyone not?

Post by dodecahedron » Fri May 19, 2017 2:18 pm

hushpuppy wrote:David Jay wrote:
SS COLA is based on CPI-W which overstates cost of living for retirees (over the long term) by, perhaps, 40 or 50 basis points. So SS beneficiaries actually come out ahead in periods of high inflation.


This seems an unusual thing to state/believe. As medical costs are much more predominant for older persons on average, doesn't inflation generally hurt SS recipients even more than the overall population?

Regards,

hushpuppy


BLS statistics show that this has indeed been true over the past few decades, but less so recently. Future trends are anyone's guess.

https://www.bls.gov/opub/ted/2012/ted_20120302.htm

More discussion here:
http://crr.bc.edu/wp-content/uploads/20 ... _15-18.pdf
Last edited by dodecahedron on Fri May 19, 2017 2:26 pm, edited 1 time in total.

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Re: My dad is taking Social Security at 62, why would anyone not?

Post by TravelforFun » Fri May 19, 2017 2:20 pm

CyberBob wrote:Financial guru Bill Bernstein had an interesting answer to the Social Security now/then question:

Bill Bernstein wrote:There are two possible goals with SS: 1) buy the optimal amount of longevity insurance for a given input, or 2) optimize your total amount of SS benefits. Both are valid goals, but let's assume you want to prioritize the former.

The clearest way to think about this is to imagine a pair of 62-year-old twins, both of who are entitled to $3,000 per month at age 70, which, coincidentally, is also their living expenses.

Twin A defers SS to age 70, when he will get $3,000 monthly benefits. He must thus cover 8 years of living expenses to get to age 70, costing $288,000 in real terms ($36,000 x 8). After he pays that liability, he's home free.

Twin B also has $3,000 per month living expenses, but decides to take $1,705 in SS at age 62. Thus, he has a $1,295 per month of shortfall until he dies. To cover this with a joint-survivorship inflation-adjusted fixed annuity costs approximately $438,000.

The difference between the two is $150,000. That's not chopped liver.

I'd even go so far as to recommend that if twin A runs out of money a year or two before 70, he should max out his credit cards to make it there.

Best,

Bill

This assumes both twins live a long time. If they die young, they're both screwed. Twin A for delaying and Twin B for buying an unused annuity.

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Re: My dad is taking Social Security at 62, why would anyone not?

Post by hushpuppy » Fri May 19, 2017 2:31 pm

dodecahedron wrote:

BLS statistics show that this has indeed been true over the past few decades, but less so recently. Future trends are anyone's guess.

https://www.bls.gov/opub/ted/2012/ted_20120302.htm

More discussion here:
http://crr.bc.edu/wp-content/uploads/20 ... _15-18.pdf


Thanks for the links.

Regards,

hushpuppy

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Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Post by hafjell » Fri May 19, 2017 2:42 pm

Sorry for the thread hijack, but what if you have a history of health problems and your 7 year younger spouse does not? Would that change the withdrawal strategy?

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Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Post by dodecahedron » Fri May 19, 2017 2:49 pm

hafjell wrote:Sorry for the thread hijack, but what if you have a history of health problems and your 7 year younger spouse does not? Would that change the withdrawal strategy?


Possibly or not--an important consideration could be the relative earnings of the two spouses. If the younger spouse (let's say it is the wife) has little or no earnings history of her own, then value of deferral by older spouse increases even more since his deferral is purchasing an inflation-adjusted annuity for someone younger. If her earnings history is stronger than his, maybe he should claim early and she should defer.

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Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Post by hafjell » Fri May 19, 2017 2:51 pm

dodecahedron wrote:Possibly or not--an important consideration could be the relative earnings of the two spouses. If the younger spouse (let's say it is the wife) has little or no earnings history of her own, then value of deferral by older spouse increases even more since his deferral is purchasing an inflation-adjusted annuity for someone younger. If her earnings history is stronger than his, maybe he should claim early and she should defer.

Thank you. We're about even.

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David Jay
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Re: My dad is taking Social Security at 62, why would anyone not?

Post by David Jay » Fri May 19, 2017 3:03 pm

hushpuppy wrote:David Jay wrote:
SS COLA is based on CPI-W which overstates cost of living for retirees (over the long term) by, perhaps, 40 or 50 basis points. So SS beneficiaries actually come out ahead in periods of high inflation.


This seems an unusual thing to state/believe. As medical costs are much more predominant for older persons on average, doesn't inflation generally hurt SS recipients even more than the overall population?

Regards,

hushpuppy


I was not clear, I did not mean that it specifically has unique application to retirees (except that they are part of the larger population). "CPI-W" is the index for urban wage earners (a narrow group of largely hourly workers, representing 32% of households). It widely recognized to exceed CPI-U (representing all urban households or about 87% of the population) although the amount of difference is widely debated.
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Re: My dad is taking Social Security at 62, why would anyone not?

Post by TimeRunner » Fri May 19, 2017 3:09 pm

TravelforFun wrote:This assumes both twins live a long time. If they die young, they're both screwed. Twin A for delaying and Twin B for buying an unused annuity.
They're not screwed, they're dead, and therefore it makes no difference to them. There are probably no regrets after death, but YMMV of course.
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Re: My dad is taking Social Security at 62, why would anyone not?

Post by mptfan » Fri May 19, 2017 3:17 pm

TimeRunner wrote:They're not screwed, they're dead, and therefore it makes no difference to them. There are probably no regrets after death, but YMMV of course.

Exactly. I hope there are no regrets after death, that would be awful!
I eat risk for breakfast. :)

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Re: My dad is taking Social Security at 62, why would anyone not?

Post by TravelforFun » Fri May 19, 2017 4:45 pm

mptfan wrote:
TimeRunner wrote:They're not screwed, they're dead, and therefore it makes no difference to them. There are probably no regrets after death, but YMMV of course.

Exactly. I hope there are no regrets after death, that would be awful!

I should have stated their families would be screwed.

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dodecahedron
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Re: My dad is taking Social Security at 62, why would anyone not?

Post by dodecahedron » Fri May 19, 2017 5:07 pm

TravelforFun wrote:
mptfan wrote:
TimeRunner wrote:They're not screwed, they're dead, and therefore it makes no difference to them. There are probably no regrets after death, but YMMV of course.

Exactly. I hope there are no regrets after death, that would be awful!

I should have stated their families would be screwed.


Not necessarily. SS deferral provides an even better deal if there is a surviving spouse who will get a larger survivor benefit if the decedent deferred claiming.

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Re: My dad is taking Social Security at 62, why would anyone not?

Post by jebmke » Fri May 19, 2017 5:12 pm

mptfan wrote:
TimeRunner wrote:They're not screwed, they're dead, and therefore it makes no difference to them. There are probably no regrets after death, but YMMV of course.

Exactly. I hope there are no regrets after death, that would be awful!

So that old saying about "not being caught dead in that suit" is a red herring?
When you discover that you are riding a dead horse, the best strategy is to dismount.

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Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Post by NiceUnparticularMan » Fri May 19, 2017 5:58 pm

Bernstein's example is very helpful, for both sides of the issue in fact.

If you have $288,000 in real income to spend over the next 8 years, then do Twin A's plan.

But that's a lot of income! If you don't have that much income, you may have to go with Twin B's plan. But note that means you will permanently have less to spend than Twin A. But that's because Twin A had more savings, which is how the world works.

The point is Social Security deferral can be a good idea if you don't need the money right away, which is presumably because you have lots of other savings. If you don't have lots of other savings, and therefore do need the money right away, then deferring Social Security is not an option, so it is a moot point.

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Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Post by One Ping » Fri May 19, 2017 6:25 pm

NiceUnparticularMan wrote:The point is Social Security deferral can be a good idea if you don't need the money right away, which is presumably because you have lots of other savings.

I agree, NUM.

However, I have a 58 yo friend who is single, has a sizable (non-COLA'd) pension, has way more than enough money to defer to 70, but is planning on taking @ 62. His reasoning is that, even though he is single, he has a strong bequest motive and he wants to preserve his estate value/growth at almost all costs.

Universal answer on when to claim SS is ... it depends. :wink:

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NiceUnparticularMan
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Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Post by NiceUnparticularMan » Fri May 19, 2017 6:45 pm

One Ping wrote:His reasoning is that, even though he is single, he has a strong bequest motive and he wants to preserve his estate value/growth at almost all costs.


That too! But I would describe that as a variation on the theme--now instead of not having the $288,000 to spend, you'll have it, but you want to save it for your heirs. The consequence is going to be less money to spend on yourself, but if that is what you want to accomplish, deferral is again moot.

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Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Post by One Ping » Fri May 19, 2017 6:53 pm

NiceUnparticularMan wrote:The consequence is going to be less money to spend on yourself ...

Maybe, but in his case his DB pension + SS (@ 62) are probably $90K/yr. You are right, he will have less to spend on himself, from a cash flow perspective, doing it his way ... but he won't be hurting. :happy
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Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Post by NiceUnparticularMan » Fri May 19, 2017 8:11 pm

One Ping wrote:
NiceUnparticularMan wrote:The consequence is going to be less money to spend on yourself ...

Maybe, but in his case his DB pension + SS (@ 62) are probably $90K/yr. You are right, he will have less to spend on himself, from a cash flow perspective, doing it his way ... but he won't be hurting. :happy


And good for him! Sounds like a well-lived life to me.

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Re: My Dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Post by #Cruncher » Fri May 19, 2017 8:38 pm

Here's a variant of the argument given by Bill Bernstein in this post by Cyberbob:

According to the original post, the father can collect $17,664 annually in SS starting at age 62. Assume each year he uses this money to buy a deferred annuity commencing at age 70. I went to Immediate Annuities and got the following eight quotes. [*]

Code: Select all

Age  Defer    Amount
---  -----    ------
 62     8     158.40
 63     7     150.90
 64     6     144.90
 65     5     138.40
 66     4     132.10
 67     3     124.90
 68     2     118.90
 69     1     115.00
            --------
 Total/mo   1,083.50
 Total/yr  13,002.00
When combined, the eight deferred annuities provide a $13,002 annual payment beginning at age 70.

Assume the father is turning 62 this year and was therefore born in 1955. According to the table on this SSA web page his annual benefit at age 70 would be $31,138 (17664 / 74.125 * 130.667). This is $13,474 more than the $17,664 benefit at age 62. By delaying benefits eight years, the father would implicitly be purchasing a $13,474 per year annuity beginning at age 70. This is about the same as the $13,002 he could obtain commercially. But -- and this is a big "but" -- the implicit annuity from SS is inflation-indexed while the one I got quotes for is not.

Following is a table showing the Internal Rate of Return (IRR) for the implicit annuity from Social Security.

Code: Select all

Age  Cash Flow    IRR

Code: Select all

 62   (17,664)        
 63   (17,664)       
 64   (17,664)       
 65   (17,664)       
 66   (17,664)       
 67   (17,664)       
 68   (17,664)       
 69   (17,664)       
 70    13,474         
 71    13,474         
 72    13,474         
 73    13,474         
 74    13,474         
 75    13,474         
 76    13,474         
 77    13,474         
 78    13,474         
 79    13,474   (0.5%)
 80    13,474    0.5%
 81    13,474    1.4%
 82    13,474    2.1%
 83    13,474    2.7%
 84    13,474    3.2%
 85    13,474    3.7%
 86    13,474    4.1%
 87    13,474    4.4%
 88    13,474    4.7%
 89    13,474    5.0%
 90    13,474    5.2%
According to the 2013 SSA Period Life Table, a 62 year old male has a life expectancy of 19.97 years. If the father lived this long, he would die just before reaching age 82. Assuming the payments ceased after age 81, the return would be 1.4%. If this cash flow represented the commercial annuity, it would be a poor return because the payments are not inflation-indexed. But if the cash flow represents the implicit SS annuity, I'd consider the 1.4% return acceptable since the payments are inflation-indexed. For comparison, Treasury Inflation Protected Securities (TIPS) are also inflation-indexed; but they currently yield less than 1%. (See Daily Treasury Real Yield Curve Rates.)

* Immediate Annuities doesn't allow a premium as small as $17,664. So I entered a premium ten times as large and then divided the resulting annuity payment by ten.
Last edited by #Cruncher on Fri May 19, 2017 9:15 pm, edited 2 times in total.

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Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Post by chuckb84 » Fri May 19, 2017 8:42 pm

This is always contentious, and the reason is that there is not one-size-fits-all answer. I suggest:

Use a planner you like (I like https://www.i-orp.com/ORPparms.html) and then put in all your particulars. THEN vary SS claiming ages, while changing nothing else, and see how things vary.

It's been somewhat controversial when I've said this in the past, but those "big age 70 payments" are NOT set in stone. SS payments are NOT a zero risk guarantee. Witness the demise of file-and-suspend if you don't agree. Ask yourself "Will SS stay the same, get more generous, or---just possibly--change to decrease benefits, possibly means tested?". I don't know, but I DO KNOW that SS future payments are not risk free and there should be some discounting of those hypothetical future dollars. In all the discussions I've seen on this topic, no such discounting is applied and that's just incorrect. You can certainly argue over how much discounting is appropriate, but it isn't zero.

If you have stopped working before age 70 (or 67, or whatever you intend as your claiming age) then you will likely draw down your own funds significantly to get to the rainbow at age 70. How much drawdown are you comfortable with? How much is the benefit in TOTAL retirement income, not just SS in delaying? Again, see i-orp or similar.

The personal decision for me: (1) I retired at 60.4 :) and (2) didn't want to draw down my 401K too much, (3) smaller SS at age 62 is worth more to me than cackling at age 78 "Now I'm ahead!".

Others may disagree, have different circumstances, or different goals, but the "conventional wisdom" is just not correct for everyone, so evaluate this carefully based on your personal situation

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Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Post by avalpert » Fri May 19, 2017 8:42 pm

CnC wrote: assuming no annual cola because noone knows what they will be


If you take 3% inflation into account


So my question is this, why on Earth do most financial sites and even a pretty healthy portion of the boggel heads here recommend delaying SS benifits even after you retire. Am I missing something?

Because most financial sites know that you can't ignore inflation adjustment on one side of the ledger and compare it to inflation-adjusted numbers on the other...

It's fine to ignore the COLA to make comparisons, but then you need to recognize you are already dealing with real numbers, not nominal ones that need to be adjusted for inflation.

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Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Post by One Ping » Fri May 19, 2017 10:41 pm

NiceUnparticularMan wrote:
One Ping wrote:
NiceUnparticularMan wrote:The consequence is going to be less money to spend on yourself ...

Maybe, but in his case his DB pension + SS (@ 62) are probably $90K/yr. You are right, he will have less to spend on himself, from a cash flow perspective, doing it his way ... but he won't be hurting. :happy


And good for him! Sounds like a well-lived life to me.

Most definitely! :beer
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Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Post by itstoomuch » Fri May 19, 2017 10:54 pm

We had 5 years of SS without it being taxed. Now 85% of our benefit is taxed. Spouse will hit RMD age this year and we don't need the proceeds. I may make it to RMD in 3 years and have started to draw down my IRA, and I don't need the Money.
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Re: My dad is taking Social Security at 62, why would anyone not? (If they already quit working)

Post by TBillT » Fri May 19, 2017 11:05 pm

Taking SS depends on how many other savings/IRA money you have. If you need the income, then taking SS is OK.
If you have other IRA money, stocks to sell, etc., you may want to avoid your SS income so you can take other types of income to keep taxes down.
Some today have fairly large IRA accounts from 401k rollovers, and so those folks have to plan ahead for IRA Required Minimum Distributions at age 70.5, so one approach is to take more IRA income before that and defer SS. If you can afford it, you can use SS as more of an insurance policy in case you live a long life.

Depends if you are looking at SS as trying to get your money back, in which case early withdrawal is probably best, or if you are looking at it as a hedge against losing ground to inflation and having such a long life that your savings dwindle.

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