Argument for taking social security before 70. Comments?

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duffer
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Argument for taking social security before 70. Comments?

Post by duffer » Tue Sep 11, 2018 9:21 pm

The following is copied from a post by an investor at the the Fidelity website. I assume I am not violating any rules by reproducing it here. The author makes an argument for taking social security benefits at age 66. It would be very interesting to hear what some of the sharp minds here have to say about his argument:
I was firmly convinced that delaying Social Security benefits until age 70 was the smart thing to do … until I actually did the math. Now I intend to start benefits next year at age 66.

There are SO many advantages to deferring benefits:
Between ages 66 and 70, your benefit grows roughly 8% a year. I could use those 4 deferral years to maximize my Roth conversions which would reduce the amount of taxes that I paid on my SS benefits later because my RMDs would be less. If I died before my wife, she would receive higher survivor benefits if I claimed at age 70 instead of age 66.

But a couple of hours banging around in an Excel spreadsheet changed my mind. Everyone is different and “your mileage may vary”, but you might find my results interesting. I have come to understand that a key factor in my situation (but not unlike many others) is that my wife has a limited work history and is only eligible for spousal benefits on my work record. I have always read that the “breakeven” age (the age where you catch up on lost benefits when claiming later) is typically the early 80’s. But in my situation this was not the case. My breakeven age was 88. And it didn’t matter what Full Retirement Age benefits I used in the spreadsheet. If I used a 0% return on investment, the breakeven age was always right at 88. If I used a 2% return on investment, the breakeven age was always right at 94. If I used any return great than 2%, neither I nor my wife could possibly live long enough to recoup the loss of waiting to claim at age 70.

Profuse head scratching brought me to two realizations.

When the IRS says that you will receive the same amount of lifetime benefits regardless of the age that you claim (assuming you die when the tables say you should), they mean exactly that. But what they don’t say is that the increased benefit at age 70 does NOT compensate you for the time value of money. It only compensates you for the four years of missed benefits, not the compound rate of return that you could have gotten on those benefits.

Spousal benefits max out at age 66. They do NOT increase at 8% a year between ages 66 and 70 like workers benefits. So by deferring until age 70, our total benefit is not 32% higher but only 21% higher (or slightly over 5% a year).

So then I began doing “what ifs” to see how increased age 70 spousal benefits would affect the breakeven age. To my amazement I could die at any age between 70 and 95 and it would not affect the breakeven age at all. If my assumed return was 0%, breakeven age was 88. If my assumed return was 2%, breakeven age was 94. This defies conventional logic … but I cannot find an error in the calcs.

The next thing I did was use my tax spreadsheet to compare ending (age 95) portfolio value using age 66 benefits vs age 70 benefits. This would tell me how not being able to maximize Roth conversions for the next 4 years would affect my situation. After a bit of spreadsheet modeling I determined that taking benefits at age 66 was less desirable if my assumed investment return was less than 2%. Any return greater than 2% made taking benefits at age 66 more desirable. 2% is a pretty low hurdle even for me.

So there you have it. Even as stubborn as I am, I have changed my mind about when to start taking SS benefits. Probably the most important takeaway is “Don’t assume … do the math”. I would really love it if one of you other spreadsheet geeks (chuckfinn?) could corroborate or refute my findings.
Last edited by duffer on Sun Sep 16, 2018 12:01 pm, edited 1 time in total.

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Re: Argument for taking social security before 70. Comments?

Post by Grt2bOutdoors » Tue Sep 11, 2018 9:35 pm

2% real or nominal?
Returns are before or after-tax?
Argument for taking it - you have a terminal illness. Your family's history suggests taking it sooner rather than later.
You need the money now.
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Re: Argument for taking social security before 70. Comments?

Post by Kevin8696 » Tue Sep 11, 2018 9:53 pm

Duffer..... I think you are perfectly sane.

After reading tons of articles suggesting that retirees delay benefits from 66 until 70, I put together a cash flow spreadsheet to see what my situation would be.

I calculated the monthly savings/portfolio draw-downs that I would need to support living expenses at the age 66 benefit level, as well as the lost earnings on these draw-downs as my portfolio shrunk. When my spreadsheet got to age 70, I took the extra monthly benefits (as compared to 66 level) and began adding that money to my portfolio. Goal was to calculate the point of break-even, when the two investment portfolios were equal in size.

All this was done using constant dollars, with after-tax calculations based on the pre-2018 tax law, with a reasonable and consistent real rate of return for my portfolio of stocks and bonds.

Bottom line: Taking benefits at age 66 won. In my model, delaying to age 70 took until age 84 to break-even; i.e. rebuild portfolio to parity.

p.s. One article even suggested the following, "max out all your credit cards if you have to, but delay benefits until age 70". :shock:
Last edited by Kevin8696 on Tue Sep 11, 2018 11:23 pm, edited 1 time in total.

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Re: Argument for taking social security before 70. Comments?

Post by radiowave » Tue Sep 11, 2018 10:07 pm

My calculated break even at 66 vs 70 came out to 82 yrs and 68 vs 70 breakeven was 95. So I'll probably cut the difference and retire at 67 :)
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Re: Argument for taking social security before 70. Comments?

Post by xb7 » Tue Sep 11, 2018 10:21 pm

Okay, I see a little spreadsheet work in my future --- I had been sort of taking it on faith that waiting to age 70 was the way to go.

One other wild card that I don't know how to 'weight' in the calculation is the possibility of the government changing the rules of the game as we age. I do NOT mean this as a political comment, and apologize if mentioning this violates anything (?) --- but there seems to me to be a very non-zero chance of some of the underlying rules/benefits changing as we go along. Thus perhaps someone starting to collect SS earlier would end up collecting some monies before such changes went into effect.

If anyone is willing to share a spreadsheet that they've already put together to show this break-even point date calculation, I'm sure others besides me would be interested.

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Re: Argument for taking social security before 70. Comments?

Post by nesdog » Tue Sep 11, 2018 10:23 pm

Thanks for posting this! I will retire next June, a few months before FRA. I had thought to delay one year since I have enough to cover expenses. Also considered that SS is taxed at max of 85% plus no state tax. Finally, also thinking about ACA since my wife won't be on Medicare quite yet and SS will put us close to the cliff given our other investments.

Now you've got me re-thinking all of it!

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Re: Argument for taking social security before 70. Comments?

Post by Kevin8696 » Tue Sep 11, 2018 10:40 pm

xb7 wrote:
Tue Sep 11, 2018 10:21 pm
Okay, I see a little spreadsheet work in my future --- I had been sort of taking it on faith that waiting to age 70 was the way to go.

One other wild card that I don't know how to 'weight' in the calculation is the possibility of the government changing the rules of the game as we age. I do NOT mean this as a political comment, and apologize if mentioning this violates anything (?) --- but there seems to me to be a very non-zero chance of some of the underlying rules/benefits changing as we go along. Thus perhaps someone starting to collect SS earlier would end up collecting some monies before such changes went into effect.

If anyone is willing to share a spreadsheet that they've already put together to show this break-even point date calculation, I'm sure others besides me would be interested.
I would not make any assumptions about changes to the tax code, nor to the tax rates. I think it's more important that you... (1) have a rock solid personal budget estimate, (2) calculate your tax estimates accurately (don't forget the taxation of SSA benefits), (3) do it all in constant dollars, and (4) use various portfolio REAL rates of return in the model.

I went back and looked for my spreadsheet, but I think it got lost in flash drive land :(

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Re: Argument for taking social security before 70. Comments?

Post by adamthesmythe » Tue Sep 11, 2018 10:43 pm

Maybe I'll just claim at 68 because that's the average and then I won't have to think about it anymore.

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Re: Argument for taking social security before 70. Comments?

Post by willthrill81 » Tue Sep 11, 2018 10:45 pm

My problem is that most of the life expectancy calculators that actually take into account health, lifestyle, family history, etc. estimate my lifespan to be between 92 and 101. I suppose that's a good problem to have. :wink:

Consequently, given the current law, I'll very likely defer SS to age 70.
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Re: Argument for taking social security before 70. Comments?

Post by celia » Tue Sep 11, 2018 10:55 pm

I would do different calculations than you. I don't think that getting the optimal "break even point" is the goal, but rather first, are your living expenses (including increased health care costs) covered and, second, how much money is likely to be left when we both have died?

Did you take the following into account when doing your calculations:
duffer wrote:
Tue Sep 11, 2018 9:21 pm
Between ages 66 and 70, your benefit grows roughly 8% a year. I could use those 4 deferral years to maximize my Roth conversions which would reduce the amount of taxes that I paid on my SS benefits later because my RMDs would be less.
and
If I died before my wife, she would receive higher survivor benefits if I claimed at age 70 instead of age 66.
as well as:
celia wrote: After one spouse dies, the survivor will have to file taxes as Single. The space in each bracket is twice as much for MFJ compared to Single. But the RMD will be the same whether there are two people on the tax return or one.


Here are the calculations I would do if I was in your situation. (I assume you and your spouse are the same age.) I would consider my entire portfolio (since some of it includes interest and dividends, RMDs, SS and any other income you can reasonably expect to receive). I would look at all the income you could both have between 66 and 100, estimate the taxes for each year until you turn 100 and only converting until you start SS. Consider growth in each asset over time and that the taxes are part of the living expenses. Then you can see possible spending until you are both 100.

Then repeat this for your spouse dying at 66.

Then repeat this for you dying at age 66.

Then repeat this for delaying SS until age 70 (to do Roth conversions) but your spouse dies at age 71.

Then repeat this for delaying SS until age 70 (to do Roth conversions) but you die at age 70.

I can't tell which of the 5 scenarios ( or a mix of them) will apply to you, but don't you have to plan for each circumstance?
Spousal benefits max out at age 66.
This is true for spousal taken when both are living. But when one has died, the survivor will collect the amount the higher earner was eligible for at the time of the first death.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

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Re: Argument for taking social security before 70. Comments?

Post by MIretired » Tue Sep 11, 2018 11:07 pm

duffer wrote:
Tue Sep 11, 2018 9:21 pm
The following is copied from a post by an investor at the the Fidelity website. I assume I am not violating any rules by reproducing it here. The author makes an argument for taking social security benefits at age 66. It would be very interesting to hear what some of the sharp minds here have to say about his argument:

I was firmly convinced that delaying Social Security benefits until age 70 was the smart thing to do … until I actually did the math. Now I intend to start benefits next year at age 66.

There are SO many advantages to deferring benefits:
Between ages 66 and 70, your benefit grows roughly 8% a year. I could use those 4 deferral years to maximize my Roth conversions which would reduce the amount of taxes that I paid on my SS benefits later because my RMDs would be less. If I died before my wife, she would receive higher survivor benefits if I claimed at age 70 instead of age 66.

But a couple of hours banging around in an Excel spreadsheet changed my mind. Everyone is different and “your mileage may vary”, but you might find my results interesting. I have come to understand that a key factor in my situation (but not unlike many others) is that my wife has a limited work history and is only eligible for spousal benefits on my work record. I have always read that the “breakeven” age (the age where you catch up on lost benefits when claiming later) is typically the early 80’s. But in my situation this was not the case. My breakeven age was 88. And it didn’t matter what Full Retirement Age benefits I used in the spreadsheet. If I used a 0% return on investment, the breakeven age was always right at 88. If I used a 2% return on investment, the breakeven age was always right at 94. If I used any return great than 2%, neither I nor my wife could possibly live long enough to recoup the loss of waiting to claim at age 70.

Profuse head scratching brought me to two realizations.

When the IRS says that you will receive the same amount of lifetime benefits regardless of the age that you claim (assuming you die when the tables say you should), they mean exactly that. But what they don’t say is that the increased benefit at age 70 does NOT compensate you for the time value of money. It only compensates you for the four years of missed benefits, not the compound rate of return that you could have gotten on those benefits.

Spousal benefits max out at age 66. They do NOT increase at 8% a year between ages 66 and 70 like workers benefits. So by deferring until age 70, our total benefit is not 32% higher but only 21% higher (or slightly over 5% a year).

So then I began doing “what ifs” to see how increased age 70 spousal benefits would affect the breakeven age. To my amazement I could die at any age between 70 and 95 and it would not affect the breakeven age at all. If my assumed return was 0%, breakeven age was 88. If my assumed return was 2%, breakeven age was 94. This defies conventional logic … but I cannot find an error in the calcs.

The next thing I did was use my tax spreadsheet to compare ending (age 95) portfolio value using age 66 benefits vs age 70 benefits. This would tell me how not being able to maximize Roth conversions for the next 4 years would affect my situation. After a bit of spreadsheet modeling I determined that taking benefits at age 66 was less desirable if my assumed investment return was less than 2%. Any return greater than 2% made taking benefits at age 66 more desirable. 2% is a pretty low hurdle even for me.

So there you have it. Even as stubborn as I am, I have changed my mind about when to start taking SS benefits. Probably the most important takeaway is “Don’t assume … do the math”. I would really love it if one of you other spreadsheet geeks (chuckfinn?) could corroborate or refute my findings.
There's another thread that says delaying to 70 And spend more money starting at 62. If you want to see some other math.
viewtopic.php?t=102609 .

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Re: Argument for taking social security before 70. Comments?

Post by Darwin » Tue Sep 11, 2018 11:41 pm

celia wrote:
Tue Sep 11, 2018 10:55 pm
I would do different calculations than you. I don't think that getting the optimal "break even point" is the goal, but rather first, are your living expenses (including increased health care costs) covered and, second, how much money is likely to be left when we both have died?

Did you take the following into account when doing your calculations:
duffer wrote:
Tue Sep 11, 2018 9:21 pm
Between ages 66 and 70, your benefit grows roughly 8% a year. I could use those 4 deferral years to maximize my Roth conversions which would reduce the amount of taxes that I paid on my SS benefits later because my RMDs would be less.
and
If I died before my wife, she would receive higher survivor benefits if I claimed at age 70 instead of age 66.
as well as:
celia wrote: After one spouse dies, the survivor will have to file taxes as Single. The space in each bracket is twice as much for MFJ compared to Single. But the RMD will be the same whether there are two people on the tax return or one.


Here are the calculations I would do if I was in your situation. (I assume you and your spouse are the same age.) I would consider my entire portfolio (since some of it includes interest and dividends, RMDs, SS and any other income you can reasonably expect to receive). I would look at all the income you could both have between 66 and 100, estimate the taxes for each year until you turn 100 and only converting until you start SS. Consider growth in each asset over time and that the taxes are part of the living expenses. Then you can see possible spending until you are both 100.

Then repeat this for your spouse dying at 66.

Then repeat this for you dying at age 66.

Then repeat this for delaying SS until age 70 (to do Roth conversions) but your spouse dies at age 71.

Then repeat this for delaying SS until age 70 (to do Roth conversions) but you die at age 70.

I can't tell which of the 5 scenarios ( or a mix of them) will apply to you, but don't you have to plan for each circumstance?
Spousal benefits max out at age 66.
This is true for spousal taken when both are living. But when one has died, the survivor will collect the amount the higher earner was eligible for at the time of the first death.
In the scenario that both are equal earners, approximately equal age, equal life expectancy, etc.,
Wouldn't it make sense to live off of taxable after age 62 until a correction occurred (to gain 8%/year), then shift to Social Security once the EF dwindled if a recession hit to protect equity?

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Re: Argument for taking social security before 70. Comments?

Post by tibbitts » Wed Sep 12, 2018 12:05 am

willthrill81 wrote:
Tue Sep 11, 2018 10:45 pm
My problem is that most of the life expectancy calculators that actually take into account health, lifestyle, family history, etc. estimate my lifespan to be between 92 and 101. I suppose that's a good problem to have. :wink:

Consequently, given the current law, I'll very likely defer SS to age 70.
When you say given current law, do you mean including the projected decrease in benefits in your calculation? Are you forecasting as some are that benefits might rise again, after they initially fall?

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Re: Argument for taking social security before 70. Comments?

Post by #Cruncher » Wed Sep 12, 2018 12:13 am

an investor at Fidelity website (as quoted by duffer in original post) wrote:... my wife has a limited work history and is only eligible for spousal benefits on my work record. ... To my amazement I could die at any age between 70 and 95 and it would not affect the breakeven age at all. If my assumed return was 0%, breakeven age was 88. If my assumed return was 2%, breakeven age was 94. This defies conventional logic … but I cannot find an error in the calcs.
If husband and wife are the same age and have normal retirement age (NRA) of 66, the conclusions are correct. A little thought shows that no logic is being defied and there is no reason for amazement.
  • Wife will collect 50% of husband's Primary Insurance Amount (PIA); but can't start collecting until husband does.
  • If he starts at age 66 the combined benefit will be 150% of his PIA. When either of them dies the benefit will fall to 100% of his PIA.
  • If he waits until age 70, he will get 132% of PIA and she will get the same 50%. So the total benefit will be 182% of his PIA. When either of them dies the benefit will fall to 132% of his PIA.
  • So by waiting until 70, the increased benefit will be 32% of his PIA while both of them are alive (182 vs 150). But it will also be 32% of PIA after one of them dies (132 vs 100). So for as long as either of them lives, the increased benefit will be 32% of his PIA.
  • To get this increased benefit, they have to give up four years of 150% of his PIA.
The "70" columns of the following table shows this cash flow and the corresponding Internal Rate of Return (IRR). In addition the table shows the cash flows and IRRs from only delaying to age 67, 68, or 69.

Code: Select all

         Cash Flow Starting at             IRR Starting at
        Following Age versus 66        Following Age versus 66
        -----------------------     ----------------------------
Age     67     68     69     70      67      68      69      70

Code: Select all

 67   (150)  (150)  (150)  (150)
 68      8   (150)  (150)  (150)
 69      8     16   (150)  (150)
 70      8     16     24   (150)
 71      8     16     24     32 
 72      8     16     24     32 
 73      8     16     24     32 
 74      8     16     24     32 
 75      8     16     24     32 
 76      8     16     24     32 
 77      8     16     24     32 
 78      8     16     24     32 
 79      8     16     24     32 
 80      8     16     24     32 
 81      8     16     24     32 
 82      8     16     24     32 
 83      8     16     24     32 
 84      8     16     24     32
 85      8     16     24     32    (0.4%)  (1.0%)  (1.6%)  (2.3%)
 86      8     16     24     32     0.1%   (0.4%)  (1.0%)  (1.5%)
 87      8     16     24     32     0.6%    0.1%   (0.4%)  (0.9%)
 88      8     16     24     32     1.1%    0.6%    0.1%   (0.4%)
 89      8     16     24     32     1.4%    1.0%    0.6%    0.1%  <==
 90      8     16     24     32     1.8%    1.4%    1.0%    0.5% 
 91      8     16     24     32     2.1%    1.7%    1.3%    0.9% 
 92      8     16     24     32     2.3%    2.0%    1.6%    1.3% 
 93      8     16     24     32     2.6%    2.3%    1.9%    1.6% 
 94      8     16     24     32     2.8%    2.5%    2.2%    1.8% 
 95      8     16     24     32     3.0%    2.7%    2.4%    2.1% 
 96      8     16     24     32     3.2%    2.9%    2.6%    2.3% 
 97      8     16     24     32     3.3%    3.1%    2.8%    2.5% 
 98      8     16     24     32     3.5%    3.2%    3.0%    2.7% 
 99      8     16     24     32     3.6%    3.4%    3.1%    2.8% 
100      8     16     24     32     3.8%    3.5%    3.2%    3.0%
If the last one of the couple dies at age 89, the return from delaying four years until age 70 would only be 0.1%. However, the return from delaying only one year to age 67 would be 1.4%.

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Re: Argument for taking social security before 70. Comments?

Post by Watty » Wed Sep 12, 2018 12:24 am

duffer wrote:
Tue Sep 11, 2018 9:21 pm
Spousal benefits max out at age 66. They do NOT increase at 8% a year between ages 66 and 70 like workers benefits. So by deferring until age 70, our total benefit is not 32% higher but only 21% higher (or slightly over 5% a year).
You need to remember that the spouse would also get the higher benefit you were getting if they outlive you.


When comparing strategies you have to be careful to not just look at to see what is best, but also how much better.

I don't know how accurate it was but using one calculator us showed that as a couple waiting beyond my FRA until 70 added about $25K to the expected value of Social Security which is not a lot when you consider that it will be such a long time until you come out ahead.

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Re: Argument for taking social security before 70. Comments?

Post by jalbert » Wed Sep 12, 2018 12:33 am

Bottom line: Taking benefits at age 66 won. In my model, delaying to age 70 took until age 84 to break-even; i.e. rebuild portfolio to parity.
Why is rebuilding the portfolio to parity considered full parity? You are getting a higher benefit level by delaying. The lower benefit level of starting at age 66 requires a larger portfolio to achieve parity since it will require a larger portfolio withdrawal to compensate for the lower benefit level.

But this method of analysis misses a more fundamental point. The benefit of delaying SS is probabilistic and cannot be measured with cash flows on a spreadsheet unless you are calculating the actuarial present value of the cash flows.

The idea of delaying SS is to simulate the purchase of an inflation-adjusted SPIA. If you are comparing taking SS at age 66 or 70 and your benefit at age 66 does not cover your full expenses, then you could delay SS to age 70 to cover more of the expenses. This would require spending assets, say a present value of X number of dollars from age 66 to 70 to replace the SS not received. Those X dollars could instead be used to purchase a COLA’d SPIA. Delaying SS is a more cost-effective way to accomplish the equivalent effect at today’s low real rates.

Another way to look at it is whatever the breakeven age is, delaying SS provides longevity insurance of living past the breakeven age. Not delaying will win if you don’t live to the breakeven age, but then SS gives you less, and you need less.
Risk is not a guarantor of return.

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Re: Argument for taking social security before 70. Comments?

Post by smitcat » Wed Sep 12, 2018 7:40 am

celia wrote:
Tue Sep 11, 2018 10:55 pm
I would do different calculations than you. I don't think that getting the optimal "break even point" is the goal, but rather first, are your living expenses (including increased health care costs) covered and, second, how much money is likely to be left when we both have died?

Did you take the following into account when doing your calculations:
duffer wrote:
Tue Sep 11, 2018 9:21 pm
Between ages 66 and 70, your benefit grows roughly 8% a year. I could use those 4 deferral years to maximize my Roth conversions which would reduce the amount of taxes that I paid on my SS benefits later because my RMDs would be less.
and
If I died before my wife, she would receive higher survivor benefits if I claimed at age 70 instead of age 66.
as well as:
celia wrote: After one spouse dies, the survivor will have to file taxes as Single. The space in each bracket is twice as much for MFJ compared to Single. But the RMD will be the same whether there are two people on the tax return or one.


Here are the calculations I would do if I was in your situation. (I assume you and your spouse are the same age.) I would consider my entire portfolio (since some of it includes interest and dividends, RMDs, SS and any other income you can reasonably expect to receive). I would look at all the income you could both have between 66 and 100, estimate the taxes for each year until you turn 100 and only converting until you start SS. Consider growth in each asset over time and that the taxes are part of the living expenses. Then you can see possible spending until you are both 100.

Then repeat this for your spouse dying at 66.

Then repeat this for you dying at age 66.

Then repeat this for delaying SS until age 70 (to do Roth conversions) but your spouse dies at age 71.

Then repeat this for delaying SS until age 70 (to do Roth conversions) but you die at age 70.

I can't tell which of the 5 scenarios ( or a mix of them) will apply to you, but don't you have to plan for each circumstance?
Spousal benefits max out at age 66.
This is true for spousal taken when both are living. But when one has died, the survivor will collect the amount the higher earner was eligible for at the time of the first death.

I agree with the above and have seen the results of making these varied projections for planning. Additionally you may be surprised to add a calculation for "how much you get after taxes" in each scenario. Due to the interaction between SS , Roth converts, and taxes you may find that even when the SS come out less (accumulated) your spendable after tax dollars still win.
At least that is what we find with our inputs - we will most likely delay till 70 for the oldest spouse.
Perhaps utilize the IORP long version and the RPM spreadsheet calculator to compare and get some real views of 'spendable' dollars vs maximum incomes in one account.

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Re: Argument for taking social security before 70. Comments?

Post by corn18 » Wed Sep 12, 2018 7:56 am

Me 52, wife 48. Wife has no benefits on her own. Taking SS early or late seems like a wash in most of my calculations. Six one way, half dozen the other.

As long as I (the wage earner) am still alive.

If I die first, delaying SS as long as possible really helps out DW a lot. So that makes it easy for me. Delay, delay, delay.

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Re: Argument for taking social security before 70. Comments?

Post by Jack FFR1846 » Wed Sep 12, 2018 7:57 am

Enlightening comments for me in this thread. Thanks for posting. I did not realize that spousal benefits froze at FRA if they have less on their own work record. I did not see a key consideration in any posts, however. It's widely accepted that payouts are going to drop to something like 75% in about 2034 when the trust fund runs completely out and payments have to be covered by new contributions. I've done my own spreadsheets and come to my own conclusions with and without this assumption.

There's a lot of moving parts in calculations. In the past, I've looked simply at the payments from SS and not taxes, the cost of medicare, or anything else. My thoughts on when to take SS continue to evolve from "take it at 62 before they run out of money" to considering taking it later, reducing RMDs in the process. I still have not decided for sure what I'm going to do. I doubt I'll live past mid 70's and wife may make it to 80's based on family and medical conditions. 85? Not gonna happen. I guess that makes calculations easier, right?
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Re: Argument for taking social security before 70. Comments?

Post by restingonmylaurels » Wed Sep 12, 2018 7:59 am

#Cruncher wrote:
Wed Sep 12, 2018 12:13 am
If husband and wife are the same age and have normal retirement age (NRA) of 66, the conclusions are correct. A little thought shows that no logic is being defied and there is no reason for amazement.
  • Wife will collect 50% of husband's Primary Insurance Amount (PIA); but can't start collecting until husband does.
  • If he starts at age 66 the combined benefit will be 150% of his PIA. When either of them dies the benefit will fall to 100% of his PIA.
  • If he waits until age 70, he will get 132% of PIA and she will get the same 50%. So the total benefit will be 182% of his PIA. When either of them dies the benefit will fall to 132% of his PIA.
  • So by waiting until 70, the increased benefit will be 32% of his PIA while both of them are alive (182 vs 150). But it will also be 32% of PIA after one of them dies (132 vs 100). So for as long as either of them lives, the increased benefit will be 32% of his PIA.
  • To get this increased benefit, they have to give up four years of 150% of his PIA.
This is a really excellent summary and makes the point for the before-tax cash flows.

Two things to note. First, not all of us reach FRA at 66, so our window between FRA and age 70 is smaller and so there is less to overcome to reach breakeven.

Also, if a dependent spouse is not the same age, her own benefit goes from 50% down to 32.71% if starting at age 62, again making the amount missed by not taking the benefit early smaller. Haven't run the numbers but the breakeven would be several years earlier I imagine.

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Re: Argument for taking social security before 70. Comments?

Post by Angst » Wed Sep 12, 2018 8:00 am

radiowave wrote:
Tue Sep 11, 2018 10:07 pm
My calculated break even at 66 vs 70 came out to 82 yrs and 68 vs 70 breakeven was 95. So I'll probably cut the difference and retire at 67 :)
My suspician is that you need to check your math, unless what you're doing simply escapes me - granted, I have not crunched any of the numbers, but what you say above seems counter-intuitive: Shouldn't the breakeven age fall, not rise as the comparison year rises closer to 70? E.g., if you calculated 69.5 vs 70, the breakeven age is not going to be, say 101, it ought to be close to 70.

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Re: Argument for taking social security before 70. Comments?

Post by MIretired » Wed Sep 12, 2018 8:02 am

You almost have to compare with the amount you pay out of your portfolio while waiting on SS as set up in TIPS funds, or at least intermed. bonds. Else the uncertainty over that short 4 yrs. is too great.

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Re: Argument for taking social security before 70. Comments?

Post by Ged » Wed Sep 12, 2018 8:10 am

The thing that pushed me to delaying benefits was that I could use some additional space in a lower tax bracket for ROTH conversions, thereby reducing future RMDs.

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Re: Argument for taking social security before 70. Comments?

Post by SGM » Wed Sep 12, 2018 8:29 am

I delayed SS until 70 for several reasons.

DW has excellent health and both her parents lived to be over 102.

We used the time with slightly lower income to convert to Roth accounts.

I liked the idea of trading some of my taxable portfolio for higher income payments on a regular basis. I like separate income streams outside of my portfolio.

With multiple income streams for many years of retirement, a smaller amount wil be withdrawn from the portfolio over a longer period of time.

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Re: Argument for taking social security before 70. Comments?

Post by dknightd » Wed Sep 12, 2018 8:36 am

This is an excellent example of why each couple should run their own numbers. Each couple is unique. There is no right answer that fits everybody.

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Re: Argument for taking social security before 70. Comments?

Post by marcopolo » Wed Sep 12, 2018 8:42 am

SGM wrote:
Wed Sep 12, 2018 8:29 am
I delayed SS until 70 for several reasons.

DW has excellent health and both her parents lived to be over 102.

We used the time with slightly lower income to convert to Roth accounts.

I liked the idea of trading some of my taxable portfolio for higher income payments on a regular basis. I like separate income streams outside of my portfolio.

With multiple income streams for many years of retirement, a smaller amount wil be withdrawn from the portfolio over a longer period of time.
This is an important consideration for me, and probably a lot of future retirees without pensions. It is a form of risk mitigation/diversification.

My income in retirement is very heavily skewed to withdrawals from my portfolio. So, there is a lot of market risk.
I view delaying social security as a way of using some of my investments to purchase a (inflation adjusted) deferred annuity. In that light, Soc Sec is a better deal that i could get in the open market for a deferred annuity.
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: Argument for taking social security before 70. Comments?

Post by bradpevans » Wed Sep 12, 2018 8:45 am

Angst wrote:
Wed Sep 12, 2018 8:00 am
radiowave wrote:
Tue Sep 11, 2018 10:07 pm
My calculated break even at 66 vs 70 came out to 82 yrs and 68 vs 70 breakeven was 95. So I'll probably cut the difference and retire at 67 :)
My suspician is that you need to check your math, unless what you're doing simply escapes me - granted, I have not crunched any of the numbers, but what you say above seems counter-intuitive: Shouldn't the breakeven age fall, not rise as the comparison year rises closer to 70? E.g., if you calculated 69.5 vs 70, the breakeven age is not going to be, say 101, it ought to be close to 70.
I don't know if the calculations included any investment returns. Ignoring that (i.e. put all your SS money under the pillow), the breakeven AGE should be about the same regardless what two ages are being compared. The is what many refer to as "actuarially equivalent".

This isn't exact, because, relative to the PIA at FRA, the drops for each year early are not the same as the increases for delaying each year.

I usually figure about 12-12.5 years (after starting) to even out on cash flow, again ignoring how one might invest that money.

You can find the increases / reductions here: https://www.ssa.gov/oact/ProgData/ar_drc.html
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Re: Argument for taking social security before 70. Comments?

Post by smitcat » Wed Sep 12, 2018 8:46 am

Jack FFR1846 wrote:
Wed Sep 12, 2018 7:57 am
Enlightening comments for me in this thread. Thanks for posting. I did not realize that spousal benefits froze at FRA if they have less on their own work record. I did not see a key consideration in any posts, however. It's widely accepted that payouts are going to drop to something like 75% in about 2034 when the trust fund runs completely out and payments have to be covered by new contributions. I've done my own spreadsheets and come to my own conclusions with and without this assumption.

There's a lot of moving parts in calculations. In the past, I've looked simply at the payments from SS and not taxes, the cost of medicare, or anything else. My thoughts on when to take SS continue to evolve from "take it at 62 before they run out of money" to considering taking it later, reducing RMDs in the process. I still have not decided for sure what I'm going to do. I doubt I'll live past mid 70's and wife may make it to 80's based on family and medical conditions. 85? Not gonna happen. I guess that makes calculations easier, right?
"It's widely accepted that payouts are going to drop to something like 75% in about 2034 when the trust fund runs completely out and payments have to be covered by new contributions"
It is not widely accepted that this one method (out of 10+) of correcting the future shortfall will be implemented nor that it will be applicable to persons which were receiving benefit's at that time.

"I doubt I'll live past mid 70's and wife may make it to 80's based on family and medical conditions. 85? Not gonna happen. I guess that makes calculations easier, right?"
Knowing the date or even range of dates of future passing will make the future calculation(s) much more accurate - knowing the affects of taxes on the proposed SS collecctions and overall portfolio will aslo be easier. If one should pass at an earlier age the calculations on any estates and the affects of taxes and RMD's on heirs also become easier. Even with surviing heirs the taxes would likely come into the planning picture.

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Re: Argument for taking social security before 70. Comments?

Post by smitcat » Wed Sep 12, 2018 8:48 am

dknightd wrote:
Wed Sep 12, 2018 8:36 am
This is an excellent example of why each couple should run their own numbers. Each couple is unique. There is no right answer that fits everybody.
Absolutely correct ….

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Re: Argument for taking social security before 70. Comments?

Post by duffer » Wed Sep 12, 2018 9:04 am

Just to be clear--the argument I posted on why one should perhaps take social security before age 70 is not an argument that I constructed. Rather, it is from a posting someone else, another investor, made on the Fidelity web site. I said this in the original post, but some folks may skim a bit and seem to think it is my argument.

It is very striking to hear how many bogleheads find the argument to be sound. I posted it to see what an informed group would make of the argument. I will be 69 in November. Perhaps I should in fact take social security then, especially since I am still working and could invest the money.

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Re: Argument for taking social security before 70. Comments?

Post by BigoteGato » Wed Sep 12, 2018 9:25 am

Like the author of the article quoted by the OP my spouse will have very little social security on her own. I ran several scenarios on both opensocialsecurity.com (great free tool) & Social Security Solutions (fee required) with similar results. Assuming real returns of 0.88% (on the first tool), optimal was her retiring at 66 and me sometime afterwards, but not at 70. If I upped the assumed returns somewhat, the optimal retirement age for me dropped closer to 66. One interesting data point - if I assumed 1.88% real returns, the difference between the optimal ages and both of us taking SS at 66 was about $5K, hardly worth worrying about.

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Re: Argument for taking social security before 70. Comments?

Post by alter » Wed Sep 12, 2018 9:44 am

I will take it at 62, and invest 100% of the proceeds into an S&P500 fund, and watch that grow into another small nest egg by the time I'm 70. Meanwhile it's sad to say but many of the people waiting til 70 will never see a penny of their SS money if they say, pass away at 69. They might even be healthy with no family history of illness, but it won't help if they get hit by a bus. I don't expect I'm going to get anywhere near my contributions back that I contributed over the years, but I want at least some, and to me, delaying SS to 70 is in effect gambling with your hard earned money.

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Re: Argument for taking social security before 70. Comments?

Post by mariezzz » Wed Sep 12, 2018 9:52 am

Seems the argument in OP only applies to couples then, and only cases where one spouse will get quite a bit more from the spousal benefit than own benefit. Be nice to add that to the thread title.

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Re: Argument for taking social security before 70. Comments?

Post by The Wizard » Wed Sep 12, 2018 9:54 am

MIretired wrote:
Wed Sep 12, 2018 8:02 am
You almost have to compare with the amount you pay out of your portfolio while waiting on SS as set up in TIPS funds, or at least intermed. bonds. Else the uncertainty over that short 4 yrs. is too great.
No we don't.
I'm withdrawing an equivalent amount to SS from my tax deferred accounts each month on a pro rata basis with investments 60% in stock funds.
And I've been doing this for 5.5 years so far with 1.5 years left until the finish line...
Attempted new signature...

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Re: Argument for taking social security before 70. Comments?

Post by The Wizard » Wed Sep 12, 2018 9:59 am

mariezzz wrote:
Wed Sep 12, 2018 9:52 am
Seems the argument in OP only applies to couples then, and only cases where one spouse will get quite a bit more from the spousal benefit than own benefit. Be nice to add that to the thread title.
Indeed.
For single folks in good health with a decently large amount in tax deferred, the answer is clear...
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Re: Argument for taking social security before 70. Comments?

Post by retiredjg » Wed Sep 12, 2018 9:59 am

duffer wrote:
Wed Sep 12, 2018 9:04 am
Just to be clear--the argument I posted on why one should perhaps take social security before age 70 is not an argument that I constructed. Rather, it is from a posting someone else, another investor, made on the Fidelity web site. I said this in the original post, but some folks may skim a bit and seem to think it is my argument.
It would be clearer if you used quotation marks or italics for the part you copied or even indented it. I was not sure what part was you and what part was quoted.

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Re: Argument for taking social security before 70. Comments?

Post by retiredjg » Wed Sep 12, 2018 10:02 am

I did a quick "break even" calculation a few years ago. None of my family has lived that long, so I took SS at 62.

Part of this was because I'm single. It does appear there may be benefits for survivors that would not apply to my situation.

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Re: Argument for taking social security before 70. Comments?

Post by Beehave » Wed Sep 12, 2018 10:03 am

Why assume a positive market result between the time you are 66 and 70? I wonder what the spreadsheet results were for a return of minus two percent? I'll bet delaying looked mighty good. How about a market loss greater than 10% with mixed with some added inflation? That delayed benefit might start to look mighty, mighty good. Or maybe not, if you had to sell stocks at a loss in order to sleep and eat indoors while waiting.

The purpose of Social security is to help you secure your future. There are lots of unknowns about its funding, tax policies, where the market and inflation will be, your longevity, your spouse's longevity, etc. That's why the prudent thing to do is delay if you can. This is not necessarily the optimal thing, just like a three-fund Boglehead portfolio does not necessarily guarantee the optimal financial outcome. It is designed to be good enough financially and best at keeping you from hurting yourself by trying to outsmart things no one really knows.

P.S. I suppose I'm one of the "spreadsheet geeks" solicited for comments in the first post in this string. Here's some of what I learned. If you want to analyze your own situation, create a spreadsheet that month-by-month tells you what you are gaining by waiting that extra month, and what you are giving up to get it. I do not believe the person quoted as posting on Fidelity could possibly have done this if she or he asserted that they were going to claim exactly at age 66 (FRA) and that somehow this was optimal from their cost-benefit analysis. The month one turns 66 and the month one turns 70 are the two most "expensive" (or, put another way, the two most costly) months to delay. That does not mean that these months are wrong or bad, but from a cost perspective (what you pay and what you get) they make the least sense of all. That said I, waited until 70. It's hard enough to sleep well at night as you age (at least for some of us) and for me, 70 was the best sleep at night option.

Best wishes.

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Re: Argument for taking social security before 70. Comments?

Post by siamond » Wed Sep 12, 2018 10:10 am

I have my own big tax planning spreadsheet, which I initially developed to analyze the Roth conversion process, following my early retirement. Doing the math post-tax (*including* state taxes) and in net-present-value, the gains of postponing SSA seemed rather elusive, although in our case, this still seems somewhat beneficial.

Let me mention another perspective which I never see discussed. While waiting for fixed income (SSA/etc), I elected to use a variable withdrawal method from our portfolio. To account for the future stream of fixed income, I do a simple NPV() computation of such future cash flows with a given rate, then compute an annual equivalent with a PMT() computation with the same rate as the one I used for NPV(). And we plan to spend this extra amount from our regular portfolio in addition to what the variable method dictated. This is all very logical, but in a time of distress (deep crisis), this is a kind of a double-whammy on the portfolio's balance at a time where it is (relatively speaking) low. And since I elected to keep a fairly high equity exposure during retirement (planning for the long term), this could hurt the sequence of returns more than usual.

So I decided to postpone SSA by default, but between 66 and 70, if a deep crisis strikes, then I will not hesitate to stop postponing and to claim SSA ASAP, to lessen the burden on portfolio withdrawals while the crisis unfolds (and hopefully recovers after a few years).

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Re: Argument for taking social security before 70. Comments?

Post by Dottie57 » Wed Sep 12, 2018 10:18 am

willthrill81 wrote:
Tue Sep 11, 2018 10:45 pm
My problem is that most of the life expectancy calculators that actually take into account health, lifestyle, family history, etc. estimate my lifespan to be between 92 and 101. I suppose that's a good problem to have. :wink:

Consequently, given the current law, I'll very likely defer SS to age 70.
Me too. Many relatives lived well into 90’s. Dad, having family heart problems, a heart attack, colon cancer, and a stroke livedr to 90. Mom will be 87 in Nov.

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Re: Argument for taking social security before 70. Comments?

Post by JW-Retired » Wed Sep 12, 2018 10:20 am

duffer wrote:
Tue Sep 11, 2018 9:21 pm
The following is copied from a post by an investor at the the Fidelity website. I assume I am not violating any rules by reproducing it here. The author makes an argument for taking social security benefits at age 66. It would be very interesting to hear what some of the sharp minds here have to say about his argument:
I'm just now seeing this argument is from the Fidelity website investor and not you duffer. That would seem to partly explain why the guy is leaving out the 2 most important reasons to delay social security benefits to age 70. One being your spouse survivor benefits and the other taxes, particularly state taxes in a high income tax state.

The guy mentions that spousal benefits don't increase for the spouse taking the benefit past full retirement age, but doesn't mention that survivor benefits do keep on growing up to the deceased death. If the widow/widower has a lower benefit than the spouse had, they will get bumped up to the current amount the deceased spouse was drawing (or what it would have been had he/she claimed at that age), along with it's continuing cola. IMO, that is huge and explains the rule of thumb that lower earner takes SS at FRA and higher earner delays to 70.

Secondly, no mention of the federal and state tax effect. No more than 85% of SS is Federally taxed and most states don't tax SS at all. I think the really high income tax ones all give it a pass. Mine certainly does. Based on fooling with my tax software, my own SS dollars are worth 29% more after tax than my RMD & pension dollars are. I consider that 29% really huge too.

What state do you live in duffer?
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Re: Argument for taking social security before 70. Comments?

Post by aristotelian » Wed Sep 12, 2018 10:27 am

Ged wrote:
Wed Sep 12, 2018 8:10 am
The thing that pushed me to delaying benefits was that I could use some additional space in a lower tax bracket for ROTH conversions, thereby reducing future RMDs.
This is the key. Even if OP is correct that he would get as much or more from his SS checks, claiming earlier will eat up his lower tax brackets, increasing taxes on his investments. He still might come out ahead but he needs to factor the tax implications instead of just looking at the payout.

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Re: Argument for taking social security before 70. Comments?

Post by willthrill81 » Wed Sep 12, 2018 10:30 am

tibbitts wrote:
Wed Sep 12, 2018 12:05 am
willthrill81 wrote:
Tue Sep 11, 2018 10:45 pm
My problem is that most of the life expectancy calculators that actually take into account health, lifestyle, family history, etc. estimate my lifespan to be between 92 and 101. I suppose that's a good problem to have. :wink:

Consequently, given the current law, I'll very likely defer SS to age 70.
When you say given current law, do you mean including the projected decrease in benefits in your calculation? Are you forecasting as some are that benefits might rise again, after they initially fall?
No, I'm just saying that as the law currently stands. I believe that the laws surrounding SS, both on the contributions and benefits sides, will be changed over the course of the next ~30 years, but we obviously cannot discuss here what such changes might be.
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Re: Argument for taking social security before 70. Comments?

Post by orlandoman » Wed Sep 12, 2018 10:48 am

So, many variables ... let's say you are married & your SS annual benefit would be $25,000 at age 62.

You decide to collect at age 70 (I'm just going to use 25K yr benefit for simplicity):
- age 62-63 would have collected $25,000
- age 63-64 would have collected $25,000
- age 64-65 would have collected $25,000
- age 65-66 would have collected $25,000
- age 66-67 would have collected $25,000
- age 67-68 would have collected $25,000
- you unexpectedly die at age 68

You & your spouse have lost the benefit/use of the $150,000 if you had claimed at age 62 ... not sure how you factor that variable in to a claiming age decision, so many variables.
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Re: Argument for taking social security before 70. Comments?

Post by bradpevans » Wed Sep 12, 2018 11:00 am

orlandoman wrote:
Wed Sep 12, 2018 10:48 am
So, many variables ... let's say you are married & your SS annual benefit would be $25,000 at age 62.

You decide to collect at age 70 (I'm just going to use 25K yr benefit for simplicity):
- age 62-63 would have collected $25,000
- age 63-64 would have collected $25,000
- age 64-65 would have collected $25,000
- age 65-66 would have collected $25,000
- age 66-67 would have collected $25,000
- age 67-68 would have collected $25,000
- you unexpectedly die at age 68

You & your spouse have lost the benefit/use of the $150,000 if you had claimed at age 62 ... not sure how you factor that variable in to a claiming age decision, so many variables.
Can't argue with that ... but of course one of your/your spouse might LIVE to 92, so that tips toward waiting.

Another "lens" to view this through is:
What do I plan to do with SS income?
Invest it? Spend it? Spend part of it, save part of it? Pass it on to my heirs?
Different choices might drive different strategies.

For *me*, I plan to use it as a fixed income stream, covering a decent % of my expenses .. while I'm alive.

So delaying means i can:
have more room to Roth convert pre 70.5
have a greater of my expenses NOT subject to market returns (nor to state tax)
have 15% of a now larger number NOT subject to taxation at all
have a bit of longevity insurance

Between retire and 70.5 I will have to hit my 401K/Roth/Taxable a bit harder, then back off at 70 when SS kicks in
My FRA is 67

From a cash flow only basis, the net sum delaying to 70 has these cross-overs points:
vs 62, 63, 64: around age 81
vs 65, 66: around age 82
vs 67, 68 around age 83
vs 69 around age 84

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Re: Argument for taking social security before 70. Comments?

Post by smitcat » Wed Sep 12, 2018 11:42 am

orlandoman wrote:
Wed Sep 12, 2018 10:48 am
So, many variables ... let's say you are married & your SS annual benefit would be $25,000 at age 62.

You decide to collect at age 70 (I'm just going to use 25K yr benefit for simplicity):
- age 62-63 would have collected $25,000
- age 63-64 would have collected $25,000
- age 64-65 would have collected $25,000
- age 65-66 would have collected $25,000
- age 66-67 would have collected $25,000
- age 67-68 would have collected $25,000
- you unexpectedly die at age 68

You & your spouse have lost the benefit/use of the $150,000 if you had claimed at age 62 ... not sure how you factor that variable in to a claiming age decision, so many variables.
It depends - what is each SS amount? What are their ages? Do they get pensions? Where (pre tax/401K/Roth) are their portfolio investments and how large are they?
If that happens what will the tax ramifications be on the surviving spouse? What is the spendable dollars before the spouse dies? And if both spouses die what is the affect to the heirs?
If you want to do a comparison of these potential outcomes I suggest the long form IORP to get a quick and varied look. Then I would use the RPM for a more time consuming but more detailed output on the most favored variables.

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Re: Argument for taking social security before 70. Comments?

Post by jjface » Wed Sep 12, 2018 12:03 pm

I think survivors benefits are a key consideration. Delaying does increase those as a few others have mentioned.

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Re: Argument for taking social security before 70. Comments?

Post by heyyou » Wed Sep 12, 2018 12:20 pm

Like much of the rest of life, there is not just one best answer for all, due to so many variables. This thread is the first one where I've noticed multiple market returns being considered in the waiting period. Most just assume one average number. For the polling, I'm delaying to 70 (high earner), and she is starting at 62, with our 9.5 years of age difference.

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Re: Argument for taking social security before 70. Comments?

Post by Artsdoctor » Wed Sep 12, 2018 12:32 pm

jjface wrote:
Wed Sep 12, 2018 12:03 pm
I think survivors benefits are a key consideration. Delaying does increase those as a few others have mentioned.
Yes. This is an important point.

When you're reading about timing of social security benefits, it's important to remember a few things.

It's very different comparing single to married strategies.

Although it may be likely that one will live a long time, it's much less likely that both will live to be the same age; when you see the mortality data, we'll find individual graphs--and married couple graphs. They're very different. Also, the data only look at straight couples; the numbers are different for gay couples given the life expectancy variability between men and women.

You'll want to consider exactly what you're hoping to accomplish with your social security benefit. Do you want to "get back" your investment and try to estimate the "breakeven" point or are you going to view it as longevity insurance.

Michael Kitces has touched on these topics over the past few years if you want to do a little digging. However, these particular points are only rarely addressed.

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Re: Argument for taking social security before 70. Comments?

Post by alexander29 » Wed Sep 12, 2018 12:37 pm

Hope we all live long lives, but the Brookings Institution Hamilton Project calculated that if you've already made it to 65 (which is good, because nearly a fifth of Americans die before that age):

Men have a 90 percent chance of living to 70, 62 percent of living to 80, and just 22 percent of living to 90.

For women it's 93 percent, 71 percent and 34 percent.

Here's the chart: http://www.hamiltonproject.org/ee-ce-im ... 729_80.jpg

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