S.S. at 62 or 66?? What would you do?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
jjkthunder
Posts: 151
Joined: Thu Apr 05, 2007 12:30 am
Location: Green Bay, Wisconsin

S.S. at 62 or 66?? What would you do?

Post by jjkthunder » Thu May 08, 2008 10:32 am

In reading "5 Retirement Mistakes" on Yahoo finance on 05/08/08, I'm wondering how you feel about this suggestion they give.
If possible, delay taking your Social Security check until age 70. For retirees born in 1943 or later, Social Security benefits increase by about 7 percent each year you delay taking them from age 62 through 66 and by 8 percent until age 70, says Laurence Kotlikoff, an economics professor at Boston University. Plus, your actual payment will be indexed for inflation. So, if inflation is running at 3 percent, your benefit will increase at 10 or 11 percent for each year you delay taking it. Not bad for a little patience.
Quote taken from Mistake #5 of:
http://finance.yahoo.com/focus-retireme ... reparation
My wife and I took S.S. at 62 which has taken place within last year. I understand that you can pay your benefits back and start at different age but is it worth it? If my wife and I don't take it now, means taking more out of R/O IRA to live on. If more is taken out that means there is less in the tax deferred account to compound. I feel this is a good strategy anyway and if I'm wrong and an individual decides to pay back his benefits at 66 would all 4 years of tax returns beable to be redone??

I presume this is the same situation as asset allocation? How much risk do we want to take to gain monetarily by waiting until 66 for our benefits.

How do other Bogleheads feel on this Mistake #5 this article suggests???
GLI...................Jack | | You can call me anything you want but please don't call me NORMAL

User avatar
ddb
Posts: 5509
Joined: Mon Feb 26, 2007 12:37 pm
Location: American Gardens Building, West 81st St.

Re: S.S. at 62 or 66?? What would you do?

Post by ddb » Thu May 08, 2008 10:42 am

jjkthunder wrote:My wife and I took S.S. at 62 which has taken place within last year. I understand that you can pay your benefits back and start at different age but is it worth it? If my wife and I don't take it now, means taking more out of R/O IRA to live on. If more is taken out that means there is less in the tax deferred account to compound. I feel this is a good strategy anyway and if I'm wrong and an individual decides to pay back his benefits at 66 would all 4 years of tax returns beable to be redone??
Click here for some great information on paying back benefits which you took early and re-applying for social security. You don't need to amend past tax returns if/when you do this.

- DDB
"We have to encourage a return to traditional moral values. Most importantly, we have to promote general social concern, and less materialism in young people." - PB

InvestingMom
Posts: 503
Joined: Mon Aug 20, 2007 2:45 pm

check out consurer reports

Post by InvestingMom » Thu May 08, 2008 11:07 am

Check out this article in consumer reports. It might be helpful. Also do a search on bogleheads and you will see that this topic has come up before.

http://www.consumerreports.org/cro/mone ... 20security

Edit: Because I remembered another interesting article that I wanted to reread which was posted on this forum I researched it and thought it might help you as well:
http://www.forbes.com/free_forbes/2007/1112/092.html

canyon
Posts: 67
Joined: Sat Nov 03, 2007 3:28 pm

Post by canyon » Thu May 08, 2008 12:49 pm

I know this topic has been discussed before...many times. However, let me add just a small paranoid note. If you do the math...yes it's a good deal to delay taking SS for a host of reasons. However, if you're retired you're drawing down what could be a significant amount of one's assets, while waiting for the checks to arrive. As long as the program doesn't change or is modified (let's not say eliminated), it all works. When the time comes to decide when to collect I may feel more secure knowing that my nest egg is larger, rather than having complete faith that I can spend my money, and that what I'm expecting in the future from SS will be there. Just some random musings......C

towdie
Posts: 96
Joined: Wed Feb 28, 2007 8:38 am
Location: Maryland Eastern Shore

when to you plan to die?

Post by towdie » Thu May 08, 2008 1:21 pm

That is what you need to know to decide when to take your SS.

The simplistic mathatical answers you usually see to this question are meaningless unless you have some magical way of knowing how long you will live.

When I had to make this decision, I figuired out the break-even age for me to be about 89, That doesn't even factor in that you are going to do something or get some benefit from the payments you receive all those years while you are waiting.

Take the money and run - at 62!

TheEternalVortex
Posts: 2548
Joined: Tue Feb 27, 2007 9:17 pm
Location: San Jose, CA

Post by TheEternalVortex » Thu May 08, 2008 1:42 pm

Well, if you have a decent amount saved up for retirement, then you'll be ok assuming you die early. So it might make sense to wait till you are 70 so you can get the larger payment in case you live a long time.

User avatar
mephistophles
Posts: 3110
Joined: Tue Mar 27, 2007 2:34 am

Post by mephistophles » Thu May 08, 2008 1:51 pm

Take Social Security as soon as you are financially able to retire and wish to quit your job.

ole meph

TimDex
Posts: 912
Joined: Mon Feb 19, 2007 5:27 pm

Social Security

Post by TimDex » Thu May 08, 2008 3:09 pm

I think you might wish to read Paul Keck's column at index universe on optimizing SS benefits. Has good links you can use to estimate payments.

http://www.indexuniverse.com/sections/f ... ement.html

Tim
"All man's miseries derive from not being able to sit quietly in a room alone. " -- Pascal

User avatar
CABob
Posts: 4617
Joined: Sun Feb 25, 2007 8:55 pm
Location: Southern California

Post by CABob » Thu May 08, 2008 3:38 pm

I think there is some merit in delaying taking your SS if you can afford it although I didn't. I am, however, giving some consideration to paying back the benefits to date and reapplying based on my current age. For a single person it is primarily an easy mathematical comparison with the only unknown being how long one is going to live.
Another circumstance that add a wrinkle is for a married couple where one has a lower benefit amount than the other. It seems to me it makes more sense for the higher benefit spouse to delay in order to get the higher benefits which would then be the benefit amount for the surviving spouse after the first passes on.

Bob

FinanceGeek
Posts: 836
Joined: Sun Jul 01, 2007 5:27 pm

Post by FinanceGeek » Thu May 08, 2008 4:05 pm

The problem with all of these articles which propose breakeven computations is that there are 2 huge unknowns, your longevity and that of the social security (sic) system.

My mother died at age 69. I'm with those folks planning on taking the money as early as I'm eligible.

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Post by dbr » Thu May 08, 2008 4:12 pm

FinanceGeek wrote:The problem with all of these articles which propose breakeven computations is that there are 2 huge unknowns, your longevity and that of the social security (sic) system.

My mother died at age 69. I'm with those folks planning on taking the money as early as I'm eligible.
The opposite viewpoint to this is that as a COLA'd annuity SS has an insurance purpose against longevity risk. The longer delayed the more value in the insurance. How this plays is a function of individual circumstances. An example of a person who might delay is someone who has a non-COLA DB pension. For that person a significant issue is how to replace the inflation eroded income stream in later years. Risk of diminished SS benefits in the future could be a countervailing concern.

It would be helpful to anlayze the SS problem from an income stream point of view rather than as a break-even problem.

User avatar
BlueEars
Posts: 3634
Joined: Sat Mar 10, 2007 12:15 am
Location: West Coast

Post by BlueEars » Thu May 08, 2008 7:17 pm

I keep a pro/con file for this:

Code: Select all

Take at 62:
1. Ordinary calculations show crossover point is around 80,
    these don't involve Roth conversions or changes in taxation policy
2. Congress risk: full SS taxation and/or means testing to lower deficits
3. If I wait the extra money used up in spending could be lost if I die
    before breakeven
4. Some recent papers say lower earner should take @62 since she 
    steps up to mine if I die.

Take at 66:
1. By waiting you lock up a larger stream of inflation linked SS income
2. Taxation policy may increase rates in coming years, thus Roth
    conversion may be even more important.  
    Not having SS income allows larger conversions.
3. Spouse will receive higher SS payments if I hold off SS and die first
4. According to one source, if I take SS early the spouse benefit will 
    be permanently reduced too 
Don't have to make the decision for a few years yet, but probably will hold off until 66.

User avatar
Peter Foley
Posts: 4609
Joined: Fri Nov 23, 2007 10:34 am
Location: Lake Wobegon

Post by Peter Foley » Thu May 08, 2008 7:46 pm

Do a search on social security + annuity and you will find a January 29, 2008 thread that discusses this topic. Here is my response from that thread.

Henry Hebler in "Getting Started in a Financially Secure Retirement"
compares living off an investment of $290,000 for 8 years and delaying social security to 70 and 66 (the primary wage earner delays SSI until age 70 and the secondary earner begins collecting SSI at age 66)
to buying an annuity that would replace the early social security.
His conclusion was that delaying social security by spending the investment was the equivalent of buying a lifetime immediate annuity of $19,365 with inflation protection.

The best inflation protected lifetime annuity on the market was Vanguard's, which for the $290,000 would pay close to $11,900 per year.
That is only 60% of the value one would get by delaying social security.

The example supposes a couple of equal age approaching age 62 and the $290,000 being invested conservatively in a retirement account.

See: "The best investment when approaching 62" pp. 163-164.

What would I do? If I were in good health at age 62 and had good longevity in my family, I would delay until 66. If my spouse had a lower SS benefit, I would have her take the benefit at 62 and just delay my own. I've been on the fence about this but the investment math cited above convinced me.

sscritic
Posts: 21858
Joined: Thu Sep 06, 2007 8:36 am

Post by sscritic » Thu May 08, 2008 7:47 pm

Les wrote:4. According to one source, if I take SS early the spouse benefit will be permanently reduced too
This is not correct. Remember that a spouse requires a living worker while a widow requires that the worker not be living. A spouse's benefit is determined by the age the spouse starts benefits and the work record of the worker, but is not affected by the age the worker begins benefits. A widow's benefit depends on the worker's benefit (which depends on the age the worker begins benefits) and the age the widow begins benefits.

To paraphrase the statement: If I take SS early, the spouse benefit is not affected. If I take SS early, the widow's benefit is reduced too.

baldeagle
Posts: 61
Joined: Sun Mar 04, 2007 6:23 pm
Location: Portland, OR

Post by baldeagle » Thu May 08, 2008 8:19 pm

This decision has always been a thorny one for me too. So I did a big spreadsheet to model 7 scenarios, described below. Scenarios 5 and 6 apply to this discussion. The results of the model are shown in the first three charts, for three different economic climates, at http://www.geocities.com/baldeagleNW/.

Conclusion for us:
  • 1. Stick to our plan of having taken SS a year ago at age 62. Per our model, total portfolio value over time is only improved with late SS during protracted down economic conditions.

    2. Stay open to the idea of paying back and restarting SS at age 66 or 70 anyway. Behaviorily, we may want some annuity in our portfolio out then, and SS is the best annuity I've seen.
Here's the legend for the graphs:
  • 1. Min RMD -- Target Roth converting so as to keep MRDs from ever exceeding our personal IRA withdrawal needs. I.e., we wag the tail, the tail doesn't wag us.

    2. No Roth Conv -- just stay low in 15% bracket until age 70.5 when RMDs take control

    3. 15% Top Conv -- This was our "current" approach with living expenses from IRA, taxes and extraordinary expenses from taxable account (for as long as it survives, then switch to Roth), and convert IRA to Roth up to the top of the 15% bracket for as long as we can.

    4. Min 25% Bracket -- Target Roth converting so as to keep us out of the 25% bracket for life after age 70.5

    5. Restart SS@66 15% -- Current approach but repay SS and restart at age 66, plus Roth convert to top of 15% bracket

    6. Restart SS@70 15% -- Current approach but repay SS and restart at age 70, plus Roth convert to top of 15% bracket

    7. Taxable 1st Conv -- Living expenses and taxes from taxable until exhausted, then revert to current approach, plus Roth-convert to top of 15% bracket. We shifted from scenario 3 to this one after doing this modeling.

User avatar
BlueEars
Posts: 3634
Joined: Sat Mar 10, 2007 12:15 am
Location: West Coast

Post by BlueEars » Thu May 08, 2008 9:00 pm

sscritic wrote:...To paraphrase the statement: If I take SS early, the spouse benefit is not affected. If I take SS early, the widow's benefit is reduced too.
So it seems that under my list of "take at 66:" that #4 should be removed. The #3 covers sscritic's second sentence above.

Thanks for the correction, I'm assuming you are correct sscritic. Please feel free to also add to my list. Somehow my eyes kind of glaze over on some of this SS lingo. That's why I tried to boil all this stuff down to a short list.

Even though SS is perhaps a nice annuity that keeps getting better if delayed, eventually we should all find a point to just take it and enjoy the ride. My mother also died fairly early but I'll probably still delay until 66 because of tax benefits and possibly a larger payoff in my dotage :) .

JW-Retired
Posts: 6994
Joined: Sun Dec 16, 2007 12:25 pm

Post by JW-Retired » Fri May 09, 2008 5:43 am

If you would ever give the slighest consideration to buying an annuity, SS delay should be it. Look at it one year at a time. You give up this year's SS payments and it "buys" you an annuity that pays you a cola adjusted 8% of that amount for life. Plus your spouse can take it over when you die. If you do a little annuity shopping you will find that is a real bargain price.
JW

NYnative
Posts: 393
Joined: Thu Mar 01, 2007 10:41 am

Post by NYnative » Fri May 09, 2008 9:33 am

Even after reading as much as I can get my hands (and eyes) on, this still remains a very confusing issue to me. In my case, I am the lower wage earner, so I guess it makes more sense for me to take SS at 62, especially since my wife's female relatives tend to live into their 90s while the males on my side rarely make it past 70. Modern medicine may change that a bit, but my current plan is to take it at 62 and have her hold off to at least 66.

One thing that may make a difference is that neither of us will be working after age 62, so that means she will only get the 7% a year increase in value. Nothing from extra earnings. As inflation is concerned, wouldn't she get that in either case, albeit at a lower rate if she were to take it at 62??

sscritic
Posts: 21858
Joined: Thu Sep 06, 2007 8:36 am

Post by sscritic » Fri May 09, 2008 9:54 am

restonham wrote:Even after reading as much as I can get my hands (and eyes) on, this still remains a very confusing issue to me. In my case, I am the lower wage earner, so I guess it makes more sense for me to take SS at 62, especially since my wife's female relatives tend to live into their 90s while the males on my side rarely make it past 70. Modern medicine may change that a bit, but my current plan is to take it at 62 and have her hold off to at least 66.

One thing that may make a difference is that neither of us will be working after age 62, so that means she will only get the 7% a year increase in value. Nothing from extra earnings. As inflation is concerned, wouldn't she get that in either case, albeit at a lower rate if she were to take it at 62??
The cola is applied to the PIA (primary insurance amount) which in turn is used to determine your benefit. When you stop work at age 62, your PIA is computed. If you work no more and wait until age 66 to begin benefits, you will receive the PIA increased by four years of colas. The "rate" of the cola is exactly the same whether you are taking benefits or waiting to take benefits. Remember, the cola is applied to the PIA before any reduction for taking benefits early or increase for delaying benefits.

Waiting to take benefits from age 62 to age 63 increases your benefits in real terms by the same amount that 80% is greater than 75% (6.67%) but increases your benefits in nominal terms by 6.67% times (1 + cola). For example, if the cola is 3.5%, your nominal benefits increase by 10.4% by waiting from age 62 to age 63. On the other hand, if you started at age 62, your nominal benefits would increase by the same 3.5% cola at age 63.

NYnative
Posts: 393
Joined: Thu Mar 01, 2007 10:41 am

Post by NYnative » Fri May 09, 2008 10:19 am

Thank you for the explanation. Is it then correct to say that, if my full benefit at 66 would have been $1000 a year (as an example) and is reduced to $750 a year because I took it at 62, then a 3% COLA when I turned 63 would be $30 (3% of $1000) and not $22.50 (3% of 750)?

That's something I would not have anticipated, but would be glad to see.

chaz
Posts: 13601
Joined: Tue Feb 27, 2007 2:44 pm

Post by chaz » Fri May 09, 2008 10:33 am

If you are in good health, take it at age 70.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page

sscritic
Posts: 21858
Joined: Thu Sep 06, 2007 8:36 am

Post by sscritic » Fri May 09, 2008 10:35 am

restonham wrote:Thank you for the explanation. Is it then correct to say that, if my full benefit at 66 would have been $1000 a year (as an example) and is reduced to $750 a year because I took it at 62, then a 3% COLA when I turned 63 would be $30 (3% of $1000) and not $22.50 (3% of 750)?

That's something I would not have anticipated, but would be glad to see.
No. The cola is applied to the PIA (which equals the benefit at full retirement age). So if your age 66 benefit as calculated at age 62 (before the four years of colas to age 66) is $1000, your benefit at age 62 is $750 (75% of PIA). With a 3% cola, at age 63 your PIA is $1030 (cola applied to PIA) and your benefit is $772.50 (75% of $1030).
Remember, the cola is applied to the PIA before any reduction for taking benefits early or increase for delaying benefits.
Since benefits are rounded down to the nearest dollar, your benefit would be $772 at age 63, an increase of 2.93% in your benefit. If there were another 3% cola the next year, your PIA would increase to 1060.90 and your benefit to $795 (a 2.98% increase). (The PIA is rounded down to the nearest $0.10.)

NYnative
Posts: 393
Joined: Thu Mar 01, 2007 10:41 am

Post by NYnative » Fri May 09, 2008 10:53 am

That's what I was afraid of - no free lunch :-).

We will probably stick with me taking benefits at 62 and my wife at 66. Even then, we can still undo the whole thing later - something else I found out about on this board.

Thank you.

swyck
Posts: 327
Joined: Mon Mar 17, 2008 11:58 am

Post by swyck » Fri May 09, 2008 11:48 am

I take exception to calling taking your SS at 62 as a "mistake".

Sure its possible that you would come out ahead if you waited, and if you're healthy, still working or don't need the money waiting is a reasonable thing to do. However, this is your money and if you can use it to augment cash flow then do it.

User avatar
murfields
Posts: 147
Joined: Tue Feb 20, 2007 4:25 pm
Location: Surprise, AZ

Post by murfields » Fri May 09, 2008 1:34 pm

Medical history of your genes should be the determining fact when you take your SS plus your job, your leisure activities, etc. Medical history was mine. Dad died at 61 heart, mother at 62 with diabetic complication and most relative in the early 60ish. I have been insulin dependent diabetic since 35. My well qualified medical physician said I had all the medical problems to be in the same category. So with his advices I retired at 62 and took my SS. But statistics didn't work. I am 84 and was suppose to go first among 6 brothers and sisters because I had diabetes. They all have pasted away. There is symbolic curve even among genetic patterns. I am in the third standard deviation.

Murfield
"Nobody wants to have in his cash holdings a definite number of pieces of money; he wants to keep a cash holdings of a definite amount of purchasing power"

gkaplan
Posts: 7034
Joined: Sat Mar 03, 2007 8:34 pm
Location: Portland, Oregon

Post by gkaplan » Fri May 09, 2008 5:11 pm

My father and mother died at eighty-three. My father was a life-long smoker. My mother was not, but she had to breathe in that smoke for forty plus years of marriage. I quit smoking thirty years ago.

I plan to wait until seventy until I begin taking Social Security, if I can swing it financially.
Gordon

User avatar
jjkthunder
Posts: 151
Joined: Thu Apr 05, 2007 12:30 am
Location: Green Bay, Wisconsin

Post by jjkthunder » Sat May 10, 2008 8:30 am

Thanks very much for everyone's responses, their situations and opinions on this matter plus links provided.

Actually there are so many scenarios to weigh on this subject that it's a stab in the dark which would best work out for each individual/couple.

It truly does boil down too "towdies" response:
The simplistic mathatical answers you usually see to this question are meaningless unless you have some magical way of knowing how long you will live.
Special thanks to DDB for the very informational link "Click here" http://www.retireearlyhomepage.com/cheap_annuity.html
GLI...................Jack | | You can call me anything you want but please don't call me NORMAL

User avatar
BlueEars
Posts: 3634
Joined: Sat Mar 10, 2007 12:15 am
Location: West Coast

Post by BlueEars » Sat May 10, 2008 9:54 am

I read the paper on getting an "annuity from the SSA" by paying back the SS received in prior years. It seems to me this is most relevent to those who have been getting SS and now would like to step up to the higher benefits available for waiting to file until later (like age 70).

There are a few problems I see for our situation where we are not eligible for SS until a few years from now. Thus this scheme would require us to plan out more then a decade in advance. The problems with this are:
1) taking early SS reduces our ability to convert IRA money to Roth in the lowest tax bracket
2) we cannot be sure that the rules will stay the same and this scheme will work a decade or so from now
3) the scheme is a little complicated and one should try to keep complexity out of their finances if possible (this is just a mild criticism)
4) if higher earning spouse dies before the revision to SS is done at age 70 the lower earning spouse will be stuck with the lower SS check

heyyou
Posts: 3196
Joined: Tue Feb 20, 2007 4:58 pm

Post by heyyou » Sat May 10, 2008 10:29 am

So there is a litany of risks with each scenario, why am I not suprised?

A no-COLA pension with family longevity here, so the inflation protected, larger benefit is paramount.

Delayed gratification eventually looked wise during my working years, therefore I'm trying that with SS too. No politician is going to reduce the benefits currently promised to senior voters. COLA will continue to be manipulated by any incumbent. Life is risky, but the alternative doesn't look so good either.

User avatar
Christine_NM
Posts: 2636
Joined: Tue Feb 20, 2007 1:13 am
Location: New Mexico

Post by Christine_NM » Sat May 10, 2008 3:34 pm

Thanks to baldeagle for the charts at geocities, link somewhere above. Recommended.

Question for baldeagle: do you think the charts change significantly depending on how much of a portfolio is taxable, how much in tax-deferred, and how much in Roth at the start?

Your "low economic conditions" chart was an eyeopener. Rebooting your SS at 66 or 70 is indeed the only method of those shown that overcomes a significant downturn.

Now the question is, should we reboot at 66 or 70? I started SS at 62 and saved it all, and next year (66) could start again at full-retirement-age benefits.

I notice on baldeagle's chart that restarting at 66 surpasses restarting at 70 until about age 93. Looking at the payback amounts involved with my own SS, I can see why. Paying back 4 years of benefits (62-66) puts less strain on the portfolio than paying back 8 years (62-70) in a lump sum.

Nobody in my family has made it to age 90, and I'm the only one left. OTOH I have better health care coverage than anyone else had. But on the third hand, I have to take meds for a chronic condition which won't kill me (as long as I take the meds), but side effects of the meds could possibly shorten my life. It's a wash.

So I'm thinking paying back SS at age 66 may be a good way to go. I'm averse to paying taxes in advance so have not done any Roth conversion. Also, I'm in mid-high 25% bracket so conversion isn't as attractive as for those with room in the 15% bracket.

Levett
Posts: 4177
Joined: Fri Feb 23, 2007 2:10 pm
Location: upper Midwest

Post by Levett » Sat May 10, 2008 4:32 pm

Thanks from me, as well, for a baldeagle's spreadsheet that quantitatively reinforces a less sophisticated set of assumptions made by me re advantages of payback in "low economic conditions" scenario.

I took SS early, met with SS at the end of March, went over various scenarios (including family longevity), was stunned by the difference in SS payment vs any immediate annuity out there (how right Larry Kotlikoff is), and cut the SSA a payback check.

I'm in the 65/10 group for full retirement benefits. The process is moving along, with written confirmations all along the way and a local rep overseeing each step. Prepare to pick up your Medicare premiums until everything is in place, and since I was doing withholding from SS check I will work with my accountant on appropriate filing for '08 return.

I strongly recommend that if one chooses payback that you work with an individual, experienced SS adviser. Preliminary phone calls demonstrated to me that payback is not a familiar situation for some reps.

I might also add that I was warned in advance that the payback process takes longer--occasionally much longer--to complete than first filing for initial benefits. Bob U.

User avatar
Peter Foley
Posts: 4609
Joined: Fri Nov 23, 2007 10:34 am
Location: Lake Wobegon

Post by Peter Foley » Sat May 10, 2008 7:47 pm

Another thanks for baldeagle's spreadsheet. Looking at the low economic asumption's portfolios low points and peaks make me think that the age 66 option is superior to the age 70 option. I don't care if I'm wealthy if I am too old to enjoy it. I have watched the level of activity of my in-laws (late 80's)and my mother (early 90's) over the past decades. All three were very active into their early 80's. There has been a notable decline starting in about the 82-85 age range. They spend much less money now simply because they are less active. As it becomes more difficult to go out, they enjoy it less.

I'd prefer to have the additional funds from age 66 to age 89.

Spirit Rider
Posts: 9128
Joined: Fri Mar 02, 2007 2:39 pm

Post by Spirit Rider » Sun May 11, 2008 7:41 am

I didn't see this mentioned yet. Up to 85% of your social security benefits can be taxed. This is likely to apply to many people here. This should be factored into the mix. It might be a little complicated to determine if using more money from your portfolio earlier is beneficial. You have to consider the increased tax on the distributions, reduced deferral. Then you have higher SS payments, but lower distributions later.

Also, this is not simply a mathematical determination if your payout is larger one way or another. As someone else said, by waiting for the increased payments, you are effectively buying an annuity at extremely advantageous rates. This minimizes the risk to your long term withdrawal strategies.

Spirit Rider
Posts: 9128
Joined: Fri Mar 02, 2007 2:39 pm

Post by Spirit Rider » Sun May 11, 2008 7:45 am

Also, you can separate the "act" of retiring from "when" you collect SS. Consider that you sign up for Medicare at 65, "retire" at 66, but wait to start collecting SS until 70.

JW-Retired
Posts: 6994
Joined: Sun Dec 16, 2007 12:25 pm

Post by JW-Retired » Sun May 11, 2008 12:24 pm

Christine_NM wrote: I started SS at 62 and saved it all, and next year (66) could start again at full-retirement-age benefits.
Christine,
I'm curious, you say you "saved it all", why did you start at 62 if you didn't really need the money?
JW

baldeagle
Posts: 61
Joined: Sun Mar 04, 2007 6:23 pm
Location: Portland, OR

Post by baldeagle » Sun May 11, 2008 3:11 pm

Spirit Rider -- your point of SS being 85% taxable sure applies to me. So I included that in my spreadsheet.

Christine_NM -- a good question about how asset location would affect things. I might be able to make some changes to find out. If I do, I'll post back to this thread.

firewynd
Posts: 184
Joined: Sun May 04, 2008 2:47 am

Post by firewynd » Sun May 11, 2008 3:29 pm

My dad who is now retired had the same question for me several years back. He gave me what he would get each year if he retired at that year.

I wrote a simple program that just calculated the total returns.

I don't remember the results exactly - but it was something like 20-30+ years before you actually made up the difference by taking it a year later. IE you need to catch up and make up an entire years worth of distributions... and it takes a long time to make up that difference before you actually start to surpass it in total payout.

I'm sure someone has done something like this before. But needless to say we were both surprised by the results. So based off that - I would recommend that you take it as soon as possible unless you really think you are going to live a LONG LONG time past when you start taking the distributions.

User avatar
SpringMan
Posts: 5369
Joined: Wed Mar 21, 2007 11:32 am
Location: Michigan

Post by SpringMan » Sun May 11, 2008 3:53 pm

firewynd wrote:My dad who is now retired had the same question for me several years back. He gave me what he would get each year if he retired at that year.

I wrote a simple program that just calculated the total returns.

I don't remember the results exactly - but it was something like 20-30+ years before you actually made up the difference by taking it a year later. IE you need to catch up and make up an entire years worth of distributions... and it takes a long time to make up that difference before you actually start to surpass it in total payout.

I'm sure someone has done something like this before. But needless to say we were both surprised by the results. So based off that - I would recommend that you take it as soon as possible unless you really think you are going to live a LONG LONG time past when you start taking the distributions.
That does not sound right. Are you saying it takes 20-30 years to break even for each year you delay? If you delay 4 years, from age 62 to 66, based on your formula, it would be 80 to 120 years to break even. Maybe I am not understanding your statement, if so, my apologies.
Regards,
Best Wishes, SpringMan

Levett
Posts: 4177
Joined: Fri Feb 23, 2007 2:10 pm
Location: upper Midwest

Post by Levett » Sun May 11, 2008 4:29 pm

Here's a link to Social Security's way(s) of looking at breakeven points. As they wisely suggest, there are multiple scenarios depending on an individual's circumstances. I suggest that one looks at all the links SS provides.

Here's where you can start. http://www.ssa.gov/retire2/breakeven-example.htm

Clearly, family longevity, current health, disposable income, and investment assumptions are extremely important matters. Bob U.[/url]

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Post by dbr » Sun May 11, 2008 4:59 pm

Be sure in doing any comparative calculation to apply the wage inflation adjustments to benefits scheduled to begin at various times in the future. I am not sure that all the calculators that one uses do this correctly. Note that SS themselves do not know what these adjustements will be for future years. This is not the same thing as the penalty adjustment for taking benefits early or the increase in benefits for taking benefits late.

User avatar
SpringMan
Posts: 5369
Joined: Wed Mar 21, 2007 11:32 am
Location: Michigan

Post by SpringMan » Sun May 11, 2008 5:33 pm

For me based on the link provided by Bob U., delaying from age 62 to age 66 the break even point is at age 78 years, 4 months. There is more to it though because my wife has much lower SS. Delaying my SS will help her if I checkout first. If I were a single person, I might be inclined to take SS at 62 as my dad died at 78 and mom at 72. Wife's dad lived to 89 and her mom died in her early 30s from cancer at the time of my wife's birth, my maternal grandmother lived to 98, so who knows. I look at delaying SS from 62 to 66 as an opportunity to do some IRA to Roth conversions while in a low tax bracket.
Best,
Best Wishes, SpringMan

sscritic
Posts: 21858
Joined: Thu Sep 06, 2007 8:36 am

Post by sscritic » Sun May 11, 2008 5:34 pm

dbr wrote:Be sure in doing any comparative calculation to apply the wage inflation adjustments to benefits scheduled to begin at various times in the future. I am not sure that all the calculators that one uses do this correctly. Note that SS themselves do not know what these adjustements will be for future years. This is not the same thing as the penalty adjustment for taking benefits early or the increase in benefits for taking benefits late.
Wage indexing (as opposed to inflation adjusting) occurs only on your earnings to age 60. Earnings after age 60 are not indexed for average US wages.

With regard to the cola, the best way to compute benefits is in real dollars. Do not apply any colas to current or future benefits. For example, if your age 66 benefit (PIA) would be $1000, your age 62 benefit will be $750, even though by the time you reach age 66, both the $1000 and the $750 will be increased by the colas. However, the benefit you get if you start at age 62 will always be 75% of the benefit you would have received at age 66 (assuming you have stopped work and have no earnings between age 62 and 66).

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Post by dbr » Sun May 11, 2008 6:04 pm

sscritic wrote:
dbr wrote:Be sure in doing any comparative calculation to apply the wage inflation adjustments to benefits scheduled to begin at various times in the future. I am not sure that all the calculators that one uses do this correctly. Note that SS themselves do not know what these adjustements will be for future years. This is not the same thing as the penalty adjustment for taking benefits early or the increase in benefits for taking benefits late.
Wage indexing (as opposed to inflation adjusting) occurs only on your earnings to age 60. Earnings after age 60 are not indexed for average US wages.

With regard to the cola, the best way to compute benefits is in real dollars. Do not apply any colas to current or future benefits. For example, if your age 66 benefit (PIA) would be $1000, your age 62 benefit will be $750, even though by the time you reach age 66, both the $1000 and the $750 will be increased by the colas. However, the benefit you get if you start at age 62 will always be 75% of the benefit you would have received at age 66 (assuming you have stopped work and have no earnings between age 62 and 66).
Yes, exactly. The problem calculation is when one wants to compare what a 62 year old gets now with what a 66 year old will get four years from now, for the two cases that one started at 62 and that one started at 66, assuming that one has stopped work at 62. One can work in real dollars or in nominal dollars, but if the results are to be worked in with other numbers then either those numbers need to be pulled back to real dollars or the SS numbers need to be pushed forward to nominal dollars.

I was only warning that when running computations one needs to be sure the calculator one uses is clear on the assumptions and that the comparisons are truly on the same footing. Example: how to predict future income flows in the presence of both cola'd and non-cola'd annuites (pensions).

JMahaney
Posts: 16
Joined: Fri Sep 21, 2007 5:38 pm

Again

Post by JMahaney » Thu May 15, 2008 3:03 pm

Again - As I have posted before and laid out in my paper which is housed in your library, it's not just about break-even (which is usually 77 if you include COLA projections and ignore the time value of money and the potential survivor benefit) but the extreme tax efficiency retirees can receive by delaying SS and creating larger retirement income streams made of SS..I have run examples and someone earning $70,000 in after-tax income might pay $15,000 more in taxes if he took SS early compared to someone earning the same $70,000 who delayed.

Lower taxes allow a better quality of retirement and/or a more secure retirement and/or opportunity to build greater wealth through investing.

OptionAl
Posts: 386
Joined: Wed Mar 26, 2008 2:05 pm

Post by OptionAl » Thu May 15, 2008 6:37 pm

Very simple. Ask these questions:
Do you need the money at 62? If you do, you probably shouldn't be retiring at that age anyway.
Do you trust that the government will not change the benefit formula on current retirees? If you do, wait. If you're not so sure, take it now ( a bird in the hand...).

Bradley
Posts: 486
Joined: Tue May 01, 2007 2:41 pm

Re: S.S. at 62 or 66?? What would you do?

Post by Bradley » Wed Mar 24, 2010 11:17 am

ddb wrote:
jjkthunder wrote:My wife and I took S.S. at 62 which has taken place within last year. I understand that you can pay your benefits back and start at different age but is it worth it? If my wife and I don't take it now, means taking more out of R/O IRA to live on. If more is taken out that means there is less in the tax deferred account to compound. I feel this is a good strategy anyway and if I'm wrong and an individual decides to pay back his benefits at 66 would all 4 years of tax returns beable to be redone??
Click here for some great information on paying back benefits which you took early and re-applying for social security. You don't need to amend past tax returns if/when you do this.

- DDB


DDB,

Could you elaborate on the need not to have to amend past returns? How are your previous years taxes refunded?

Thanks,
Bradley

User avatar
ddb
Posts: 5509
Joined: Mon Feb 26, 2007 12:37 pm
Location: American Gardens Building, West 81st St.

Re: S.S. at 62 or 66?? What would you do?

Post by ddb » Wed Mar 24, 2010 11:24 am

Bradley wrote:
ddb wrote:Click here for some great information on paying back benefits which you took early and re-applying for social security. You don't need to amend past tax returns if/when you do this.
Could you elaborate on the need not to have to amend past returns? How are your previous years taxes refunded?
See the section entitled "Tax treatment of repayment of Social Security Benefits" in the link above.

- DDB
"We have to encourage a return to traditional moral values. Most importantly, we have to promote general social concern, and less materialism in young people." - PB

Bradley
Posts: 486
Joined: Tue May 01, 2007 2:41 pm

Post by Bradley » Wed Mar 24, 2010 11:39 am

Man, that was fast.

Thanks,
Bradley

MWCA
Posts: 2819
Joined: Fri Nov 30, 2007 4:21 pm
Location: A wonderful place

Post by MWCA » Wed Mar 24, 2010 12:45 pm

TheEternalVortex wrote:Well, if you have a decent amount saved up for retirement, then you'll be ok assuming you die early. So it might make sense to wait till you are 70 so you can get the larger payment in case you live a long time.
Thats what I think. Specially if you are closing in on retirement age (past 55). I doubt SS will be messed with past that age. At least thats what Im betting on :P
We are all worms. But I believe that I am a glow-worm.

marvin7197
Posts: 11
Joined: Sun Nov 01, 2009 11:36 am

Post by marvin7197 » Wed Mar 24, 2010 1:09 pm

Given the current political climate, it is possible that we are being very trusting to believe that we will receive payments from a bankrupt arm of the Federal government. I vote for taking payments at age 62 if possible.

Post Reply