Taking Social Security in a down market

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Raybo
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Taking Social Security in a down market

Post by Raybo » Fri Mar 13, 2020 11:00 am

I will be 68 this year. My plan has been to wait until 70 to take Social Security, funding my expenses by non-IRA assets until then. I wanted to wait for the lifetime higher annuity amount. Another reason to wait is to assure my wife of a higher payout, but her payout is already higher than mine, so this isn't a meaningful reason to wait for me.

I got to wondering how starting Social Security early in a down market would affect me. Since I have to fund my expenses out of my investments, waiting 2.5 years to take my Social Security is akin to having higher expenses for the next 3 years. Put another way, it is like a mild case of a worse sequence of returns. Given that this year is likely to be a down year, I got to wondering what the difference would be between taking Social Security this year versus waiting another 2.5 years?

Here are my assumptions:

Assets: $1,000,000
Expenses: $40,000
Real Return: 3%
SS at 68: $26,000
SS at 70: $30,300
Percent loss this year: 20%

In essence, the question comes down to what benefit, if any, do I get for taking $68,000 ($26,000 * 2.5 years) less out of my assets by taking Social Security early versus having lowering my assets by that same amount for an additional $4,300 at age 70?

Here is what the spreadsheet said:

Code: Select all

Age      SS@68      SS@70
68       $810K      $784K
70       $831K      $766K (1/2 year of SS)
...
75       $889K      $836K
...
80       $957K      $918K
...
90      $1,125K   $1,123K
...
100     $1,352K   $1,398K
At 3% return (real), the asset totals are equal at age 91. At 4% return, the totals are equal at 94. At 2% return, the totals are equal at 88. The amount of the loss in the first year has no effect on this.

My conclusion is that it makes no meaningful difference whether I wait 2.5 years to take SS or do it this year.

Issues that might determine my decision:

1) If the market continues to fall and I have to tap my IRAs for yearly expenses, then I will have to pay more taxes on those withdrawals then I would have to pay on Social Security payments (not taxed in California). Not sure what the difference would be, but it likely isn't all that much since SS is taxed, albeit, not at 100%.

2) Taking SS early will give me a smaller amount of SS income to pay taxes on when RMDs hit.

I'd appreciate any comments on this analysis.
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billfromct
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Re: Taking Social Security in a down market

Post by billfromct » Fri Mar 13, 2020 11:53 am

How old is your wife? Is your wife taking SS now?

I believe if your wife is taking SS & you were born before 2 January 1954, you can take SS spousal benefits (1/2 of her benefit) then claim your own higher benefit at age 70.

Or this may be something your wife could do if she was born before 2 January 1954 with your SS benefit.

Goggle "Social Security Spousal Benefits" to get the details.

Also you may want to do some "what if's" on opensocialsecurity.com. From what I read it's a pretty good SS calculator to figure out when to take SS.

bill

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Re: Taking Social Security in a down market

Post by dkturner » Fri Mar 13, 2020 12:08 pm

Have you considered taking $40,000 per year solely from the fixed income portion of your portfolio? At current interest rates your fixed income (which should be up in value this year) is unlikely to experience substantial returns. Over the next two years. That way you can hold on to all of your, seriously devalued, equities and wait for them to rebound in value.

You may only be getting an additional $4,000 in SS benefits for the first year of delayed benefits, but that extra benefit is indexed for inflation - a valuable additional benefit. It’s getting increasingly difficult to purchase inflation indexed fixed income benefits at a reasonable price.

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Re: Taking Social Security in a down market

Post by dkturner » Fri Mar 13, 2020 12:10 pm

dkturner wrote:
Fri Mar 13, 2020 12:08 pm
Have you considered taking $40,000 per year solely from the fixed income portion of your portfolio? At current interest rates your fixed income (which should be up in value this year) is unlikely to experience substantial returns. That way you can hold on to all of your, seriously devalued, equities and wait for them to rebound in value.

You may only be getting an additional $4,000 in SS benefits for the first year of delayed benefits, but that extra benefit is indexed for inflation - a valuable additional benefit. It’s getting increasingly difficult to purchase inflation indexed fixed income benefits at a reasonable price.

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Re: Taking Social Security in a down market

Post by Raybo » Fri Mar 13, 2020 12:17 pm

My wife gets SS disability. I can't take spousal benefits from that.

I have less than 1 year's expenses in after-tax money, all in stocks with minimal gains (heading to l/t losses soon). All other money is in tax-deferred accounts, so it will all be taxed regardless of which asset type I sell.

Using this year's tax program, if I took all my expenses out of my IRA's, I'd have paid $10.5K in taxes. If I had used a combination of SS and IRA withdrawals, I'd have paid $8K in taxes. Thus, taking SS early would save me $5K in taxes over 2 years.
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Re: Taking Social Security in a down market

Post by ObliviousInvestor » Fri Mar 13, 2020 12:21 pm

Ideally, the extra spending necessary to delay Social Security is coming from something that is inoculated from market risk (e.g., CD ladder or bond ladder).
Raybo wrote:
Fri Mar 13, 2020 12:17 pm
My wife gets SS disability. I can't take spousal benefits from that.
Yes you can (provided the other requirements are met).
https://www.ssa.gov/OP_Home/cfr20/404/404-0330.htm
CFR § 404.330 wrote:You are entitled to benefits as the wife or husband of an insured person who is entitled to old-age or disability benefits if—
I'd encourage you to look into the restricted application concept as suggested above. (Also, ask about getting it 6 months retroactive.)
Mike Piper, author/blogger

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Re: Taking Social Security in a down market

Post by curmudgeon » Fri Mar 13, 2020 12:37 pm

Taking SS earlier than planned, especially for the lower benefit in a couple, has always been on my radar in case of a really down market. There are a lot of moving parts when you get down into the details of what is optimal. Reduced taxation of SS benefits, what happens when RMDs start, what is your source of income while you are delaying...

I'm still leaning towards deferring my claim until 70, but we may start my wife's smaller benefit somewhere between age 62 and 65.

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Re: Taking Social Security in a down market

Post by Raybo » Fri Mar 13, 2020 5:27 pm

ObliviousInvestor wrote:
Fri Mar 13, 2020 12:21 pm
Raybo wrote:
Fri Mar 13, 2020 12:17 pm
My wife gets SS disability. I can't take spousal benefits from that.
Yes you can (provided the other requirements are met).
https://www.ssa.gov/OP_Home/cfr20/404/404-0330.htm
CFR § 404.330 wrote:You are entitled to benefits as the wife or husband of an insured person who is entitled to old-age or disability benefits if—
I'd encourage you to look into the restricted application concept as suggested above. (Also, ask about getting it 6 months retroactive.)
Thanks for the link. My wife isn't 60 yet. Does that make a difference? Also, we don't have kids. Is that necessary?

According to this link: https://www.nolo.com/legal-encyclopedia ... ients.html
If your spouse is 62 years or older when you start receiving disability benefits, he or she can also get a monthly benefit based on your earnings record unless he or she can get a higher benefit amount on his or her own record.
Does this "higher benefit amount" mean my FRA benefit compared to her Disability benefit or my FRA benefit compared to what I would get as a spousal benefit (1/2 of her benefit)?
No matter how long the hill, if you keep pedaling you'll eventually get up to the top.

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Re: Taking Social Security in a down market

Post by ObliviousInvestor » Fri Mar 13, 2020 7:22 pm

Raybo wrote:
Fri Mar 13, 2020 5:27 pm
ObliviousInvestor wrote:
Fri Mar 13, 2020 12:21 pm
Raybo wrote:
Fri Mar 13, 2020 12:17 pm
My wife gets SS disability. I can't take spousal benefits from that.
Yes you can (provided the other requirements are met).
https://www.ssa.gov/OP_Home/cfr20/404/404-0330.htm
CFR § 404.330 wrote:You are entitled to benefits as the wife or husband of an insured person who is entitled to old-age or disability benefits if—
I'd encourage you to look into the restricted application concept as suggested above. (Also, ask about getting it 6 months retroactive.)
Thanks for the link. My wife isn't 60 yet. Does that make a difference? Also, we don't have kids. Is that necessary?
No. And no.
Raybo wrote:
Fri Mar 13, 2020 12:17 pm
According to this link: https://www.nolo.com/legal-encyclopedia ... ients.html
If your spouse is 62 years or older when you start receiving disability benefits, he or she can also get a monthly benefit based on your earnings record unless he or she can get a higher benefit amount on his or her own record.
Does this "higher benefit amount" mean my FRA benefit compared to her Disability benefit or my FRA benefit compared to what I would get as a spousal benefit (1/2 of her benefit)?
What they're referring to there is the rule from subsection (d) in the link I posted above. What the rule specifically states is that in order to receive a benefit as a wife/husband, you cannot be "entitled to an old-age or disability benefit based upon a primary insurance amount that is equal to or larger than the full wife's or husband's benefit." In other words, you can't receive a benefit as a spouse if a) you are entitled to a retirement benefit or disability benefit and b) your PIA is at least half of your spouse's PIA.

But that's the whole point of a restricted application. If you file for just spousal benefits, you aren't yet "entitled" to your retirement benefit. You're only "eligible" for it. So you can get a benefit as a spouse (equal to half of her PIA) even if your PIA is > 50% of her PIA.

(Her disability benefit amount is her PIA.)
Mike Piper, author/blogger

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Re: Taking Social Security in a down market

Post by Raybo » Sun Mar 15, 2020 1:28 pm

Just applied for Social Security Spousal Benefits on-line. Actually, it is simply an application for benefits with a checkbox for saying if I am eligible for spousal benefits then I don't want my benefits to start.

We'll see what happens.
No matter how long the hill, if you keep pedaling you'll eventually get up to the top.

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Re: Taking Social Security in a down market

Post by ObliviousInvestor » Sun Mar 15, 2020 4:29 pm

Raybo wrote:
Sun Mar 15, 2020 1:28 pm
Just applied for Social Security Spousal Benefits on-line. Actually, it is simply an application for benefits with a checkbox for saying if I am eligible for spousal benefits then I don't want my benefits to start.

We'll see what happens.
:thumbsup :thumbsup

Online is the way to do it whenever possible. Much lower error rate (in terms of application being processed correctly) than in person or over the phone.
Mike Piper, author/blogger

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Re: Taking Social Security in a down market

Post by Raybo » Sun Apr 05, 2020 10:19 am

Based on advice here, I applied for spousal benefits. The person who handled my claim though that I would only be allowed to get spousal benefits if my wife was over 62, which is what I thought. But, she asked an internal expert and was told this wasn't a requirement and that I was eligible.

I am waiting for SSA to approve my application after getting the form SS03 which is an affidavit from my wife (the "wage earner") saying we are married.

I applied for 6 months retroactive eligibility. I was told that due to some problem on my application, I'd have to show up in person with ID in order to get the lump sum 6-month retroactive check. Since SS offices are closed, this will have to wait. But, once the SS03 form is approved, I should start getting monthly benefits.

This is an interim update and I haven't been approved yet. I'll post again when a final determination is made.

I want to thank Oblivious Investor and others for letting know this option was available to me!!
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Re: Taking Social Security in a down market

Post by Raybo » Wed Apr 08, 2020 5:01 pm

Just to finish up this thread, I check on the SSA site today and saw this message:

Decision Has Been Made On Your Benefit Application

Your claim for Spouse benefits has been approved. A detailed notice has been sent to you with your benefit information.

My only regret is that I didn't now about this 22 months ago. Since I backed dated my application 6 months, I ended up leaving 16 months of spousal benefits on the table. Live and learn.
No matter how long the hill, if you keep pedaling you'll eventually get up to the top.

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Re: Taking Social Security in a down market

Post by ObliviousInvestor » Wed Apr 08, 2020 5:13 pm

Raybo wrote:
Wed Apr 08, 2020 5:01 pm
Just to finish up this thread, I check on the SSA site today and saw this message:

Decision Has Been Made On Your Benefit Application

Your claim for Spouse benefits has been approved.
:thumbsup :thumbsup

Happy to hear that it went well!
Mike Piper, author/blogger

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