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:
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
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.