Does it really matter when you claim Social Security

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tvubpwcisla
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Does it really matter when you claim Social Security

Post by tvubpwcisla »

I am currently planning to start taking Social Security benefits at the full retirement age of 67.

At what age did you start taking SS and does it really matter in the grand scheme of things?

:confused
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OhBoyUhoh
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Re: Does it really matter when you claim Social Security

Post by OhBoyUhoh »

You need to visit

https://opensocialsecurity.com

and see for yourself when the best time is.

Cheers
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Flobes
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Re: Does it really matter when you claim Social Security

Post by Flobes »

tvubpwcisla wrote: Mon Jul 06, 2020 12:29 pm ...does it really matter in the grand scheme of things?
Yes it matters. It might even be the most consequential financial decision of your life. SS, and its timing, create impacts to many other aspects of your money life.
tvubpwcisla wrote: Mon Jul 06, 2020 12:29 pm I am currently planning to start taking Social Security benefits at the full retirement age of 67.
Why?
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BL
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Re: Does it really matter when you claim Social Security

Post by BL »

If you have a spouse, it may matter more.
delamer
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Re: Does it really matter when you claim Social Security

Post by delamer »

If you are single and die at the average age that the Social Security actuaries calculated for the population, then no.

But otherwise, yes.
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Re: Does it really matter when you claim Social Security

Post by tibbitts »

OhBoyUhoh wrote: Mon Jul 06, 2020 12:39 pm You need to visit

https://opensocialsecurity.com

and see for yourself when the best time is.

Cheers
Well, it's an excellent resource, but certainly can't predict when the best time for an given person will turn out to be.
MathWizard
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Re: Does it really matter when you claim Social Security

Post by MathWizard »

It matters more when you are married.
SS was set up to be neutral with respect to claiming age, but that was the average over all
people based upon an individual record.

This does not take into account individual circumstances. If you are in really poor health with
history of short lifespan, this favors taking it earlier. The opposite for a family history of long lives.

Men tend to live shorter lifespans, so on average, a healthy single man is better off taking early.
Women tend to live longer so taking later is slightly better fro a healthy woman.

For married couples though, the survivor's benefit tilts toward the higher earner taking later, especially
if the higher wage earner is a man and the lower wage earner is a woman, and the man is approximately the same
age as the woman or older.
This is because on average, for a man and woman, of the same age, the man will likely die first.
The widowed spouse will automatically get the higher of their benefit or the spouses. Maximizing
the man's benefit in this case allows the surviving spouse to get a larger check.
goblue100
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Re: Does it really matter when you claim Social Security

Post by goblue100 »

Flobes wrote: Mon Jul 06, 2020 12:47 pm
tvubpwcisla wrote: Mon Jul 06, 2020 12:29 pm ...does it really matter in the grand scheme of things?
Yes it matters. It might even be the most consequential financial decision of your life. SS, and its timing, create impacts to many other aspects of your money life.
My own suspicion is that it probably only makes a small difference in most peoples lives.
Since SS is designed to be actuarial neutral, the odds that most people get the average amount is likely. If you have a low or non earning spouse who is in good health, then taking SS later rather than sooner is probably a good decision.
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desiderium
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Re: Does it really matter when you claim Social Security

Post by desiderium »

Planning to delay until 70:

1. Acts as longevity insurance, even if it doesn't ever pay off. As pointed out, this is especially important when 2 lives are taken into account
2. May depend on your financial status at retirement and comfort with assets taking you to age 70
3. Preserves the option of taking it earlier if financial or health circumstances change
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Re: Does it really matter when you claim Social Security

Post by Mr.BB »

The final answer is based on when you die. Unfortunately you won't know the answer until it's too late.
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Re: Does it really matter when you claim Social Security

Post by 02nz »

On average, people get the same amount of benefits whether they claim at 62, FRA, or 70; as has already been pointed out, you don't know the "right" answer for you until it's too late.

The bigger opportunity lies in using low-income years before starting SS to do withdrawals/Roth conversions of tax-deferred balances at low rates. This can help reduce the exposure of SS to income taxes and mitigate the possibility the surviving spouse faces higher tax rates as a single filer. IMHO that's the best argument for deferring SS until 70 (although of course there are many nuances, particularly for dual-earner couples).
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Re: Does it really matter when you claim Social Security

Post by dbr »

Whether or not it matters depends firstly on how much of your retirement income depends on Social Security and secondly on the unpredictable how long you live. In the average case it is a strong argument that delaying to age 70 is astute planning. But that does not mean everyone has to prefer to do that. Of all the people I know a significant number have small assets and can't work to age 70 and needed to take SS earlier. I also know a significant number of people who have so much money and even other pensions that when to take Social Security does not/did not matter very much. Some people are in a middle zone where managing longevity risk may be a motivation to delay taking Social Security. Others may prefer to spend more earlier and worry less about spending in the far out years.
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Re: Does it really matter when you claim Social Security

Post by ncbill »

Taking at FRA (67)...one and a half (worker & spouse)

Our combined benefits will be low compared to others on this forum & after using various calculators waiting to age 70 adds so little over our projected lifetimes it's pointless to delay past FRA.
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FiveK
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Re: Does it really matter when you claim Social Security

Post by FiveK »

02nz wrote: Mon Jul 06, 2020 1:20 pm The bigger opportunity lies in using low-income years before starting SS to do withdrawals/Roth conversions of tax-deferred balances at low rates. This can help reduce the exposure of SS to income taxes and mitigate the possibility the surviving spouse faces higher tax rates as a single filer. IMHO that's the best argument for deferring SS until 70 (although of course there are many nuances, particularly for dual-earner couples).
+1

Don't know exactly how the math works out, but that's at least a light finger on the "defer SS benefit" side of the scale for those with significant traditional balances.
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Re: Does it really matter when you claim Social Security

Post by lawman3966 »

If you've got the time and the interest, there is research by Shoven and Slavov discussing this topic at length.

As I recall, those authors concluded that the selection of the optimal time to start SS benefits comes down to two factors:

(1) real interest rates; and
(2) expected longevity.

Higher real interest rates favor starting benefits earlier. Higher expected longevity favors waiting to to start benefits.
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Re: Does it really matter when you claim Social Security

Post by R2D2 »

MathWizard wrote: Mon Jul 06, 2020 12:56 pm SS was set up to be neutral with respect to claiming age...
Right, but doesn't that depend on the interest rate used? Whatever that rate is, don't I (assuming I'm single and "average") effectively "earn" that rate tax free by deferring my SS? Yes, I know that there are a bunch of nuances that people on this thread have pointed out; I just want to make sure I understand the base case.

And does anyone know what rate is used in the calculation?
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Re: Does it really matter when you claim Social Security

Post by Jack FFR1846 »

OhBoyUhoh wrote: Mon Jul 06, 2020 12:39 pm You need to visit

https://opensocialsecurity.com

and see for yourself when the best time is.

Cheers
It's a good starting point and saves some excel work but having just run it for DW and me, I see that it doesn't take into account the big drop in 2034 due to the exhaustion of the SS trust fund. My own year by year spread sheet does take this into account, so I have a better idea on the numbers.
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Re: Does it really matter when you claim Social Security

Post by Big Dog »

tibbitts wrote: Mon Jul 06, 2020 12:51 pm
OhBoyUhoh wrote: Mon Jul 06, 2020 12:39 pm You need to visit

https://opensocialsecurity.com

and see for yourself when the best time is.

Cheers
Well, it's an excellent resource, but certainly can't predict when the best time for an given person will turn out to be.
True, but you can click on the advanced tab and change the mortality table. Are you healthy and come from long-lived genes? Or, do you have numerous chronic health issues for which you are taking Rx (and put you in a high-risk COVID category)? What about your spouse?
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Re: Does it really matter when you claim Social Security

Post by Rudedog »

My wife's parents are both 93. As I expect she will outlive me by many years, I will wait to take my SS at 70 years old, so she will get the max survivor benefit. I know "plans change" but if she makes it into her 90's, it will be a great benefit for her.
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Re: Does it really matter when you claim Social Security

Post by Big Dog »

Jack FFR1846 wrote: Mon Jul 06, 2020 1:55 pm
OhBoyUhoh wrote: Mon Jul 06, 2020 12:39 pm You need to visit

https://opensocialsecurity.com

and see for yourself when the best time is.

Cheers
It's a good starting point and saves some excel work but having just run it for DW and me, I see that it doesn't take into account the big drop in 2034 due to the exhaustion of the SS trust fund. My own year by year spread sheet does take this into account, so I have a better idea on the numbers.
It will if you click on the Advanced button at the top.

IMO, Mike's site is the best value out there.
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Re: Does it really matter when you claim Social Security

Post by Mlm »

I am single and will delaying beyond FRA because

--I don't currently need the money

--I want a few more years to convert traditional IRA to Roth IRA.I have modeled my taxes and will get hit with a tax torpedo once social security starts.

--The 8% + COLA annual adjustment that SS gives me is more than I can earn with any other guaranteed investment/annuity

--I can get a 50% reduction in my high property taxes if I keep my income low enough

--Flexibilty, I can change my mind if circumstances change
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Re: Does it really matter when you claim Social Security

Post by willthrill81 »

BL wrote: Mon Jul 06, 2020 12:49 pm If you have a spouse, it may matter more.
delamer wrote: Mon Jul 06, 2020 12:50 pm If you are single and die at the average age that the Social Security actuaries calculated for the population, then no.

But otherwise, yes.
02nz wrote: Mon Jul 06, 2020 1:20 pmThe bigger opportunity lies in using low-income years before starting SS to do withdrawals/Roth conversions of tax-deferred balances at low rates. This can help reduce the exposure of SS to income taxes and mitigate the possibility the surviving spouse faces higher tax rates as a single filer. IMHO that's the best argument for deferring SS until 70 (although of course there are many nuances, particularly for dual-earner couples).
desiderium wrote: Mon Jul 06, 2020 1:06 pm Planning to delay until 70:

1. Acts as longevity insurance, even if it doesn't ever pay off. As pointed out, this is especially important when 2 lives are taken into account
2. May depend on your financial status at retirement and comfort with assets taking you to age 70
3. Preserves the option of taking it earlier if financial or health circumstances change
I 100% agree with all of the above posts.

Even if you have to spend down our accounts to do so, deferring SS benefits for as long as you can is probably the single best move you can make to guarantee (subject to potential changes to the law) inflation-adjusted income for the rest of your life.

Like 02nz mentioned, deferring SS benefits enables one to do more significant and strategic Roth conversions than otherwise. I suspect that if this is taken into account that it could significantly shorten the break-even age from deferring SS benefits. I personally care a whit about the break-even point, but many do. In my view, if you live a long time, then you'll be glad that you deferred. If you don't, then you'll be dead and won't care (but even then, your surviving spouse, if applicable, may wish you had deferred benefits).
Mlm wrote: Mon Jul 06, 2020 2:10 pm I am single and will delaying beyond FRA because
....
--Flexibilty, I can change my mind if circumstances change
Yes, and this benefit to deferring is often overlooked. Claiming SS benefits is an irrevocable decision.
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Re: Does it really matter when you claim Social Security

Post by 02nz »

willthrill81 wrote: Mon Jul 06, 2020 2:23 pm Claiming SS benefits is an irrevocable decision.
You can withdraw the application within one year and repay benefits, so a total do-over. I helped my parents do that last year (total PITA though!). And even after that I think you can suspend and get credits toward a higher benefit later.
Last edited by 02nz on Mon Jul 06, 2020 2:36 pm, edited 1 time in total.
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Re: Does it really matter when you claim Social Security

Post by bobcat2 »

tvubpwcisla wrote: Mon Jul 06, 2020 12:29 pm At what age did you start taking SS and does it really matter in the grand scheme of things?
:confused
The plan is set up in some sense to be actuarially neutral, but that does not make it actuarially neutral for participants. If for instance the plan is actuarially neutral for single men, then it is actuarially beneficial for single women because on average they live longer. If it is actuarially neutral for either single men or women, then it is actuarially beneficial for married couples, because one member of the couple can be expected to live longer than average. Nor can it be actuarially neutral for both couples where both spouses have benefits compared to couples where only one spouse was eligible for benefits.

Equally important, the plan is set up assuming an implicit LT real interest rate of about 2.8%. Currently LT real interest rates are zero or a little less. This makes delaying SS benefits actuarially beneficial for nearly everyone. As someone else has pointed out the series of papers by Shoven, Slavov, et al go into considerable detail on this last point. I believe some of the early papers by Shoven & Slavov have links to them in the Bogleheads Wiki section on SS. They at least used to, because I put them there.

BTW, the Social Security Full Retirement age is practically meaningless. The SSA has to pick some age as a base for benefit calculations. Social Security calls that base age for benefit calculations the Full Retirement age. A more meaningful Full Retirement age would be age 70. :happy

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Re: Does it really matter when you claim Social Security

Post by Northern Flicker »

tvubpwcisla wrote: Mon Jul 06, 2020 12:29 pm I am currently planning to start taking Social Security benefits at the full retirement age of 67.

At what age did you start taking SS and does it really matter in the grand scheme of things?

:confused
Per the SSA it is actuarially neutral. This means id you live to the age of life expectancy, it does not matter. If you live longer than that, you benefit from delaying since payments after that age are higher. Thus, delaying SS is easentially buying longevity insurance. The earlier (and lower) benefits you give up by delaying constitute an imputed payment for the longevity insurance.

COLA'd income annuities are no longer available, but it is equivalent to buying such an annuity with the imputed payment. The payout for the equivalent COLA'd annuity is the amoubt by which your SS benefit increases by delaying.

Once you turn 62, you can evaluate the effect of delaying for one year each year per the above and make the decision on a year-by-year basis.

There are other pieces to the decision based on ages and benefits of both spouses, and the optimizer tool referenced above will generate a candidate for the optimal strategy that you can verify in the interest of due diligence.
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Re: Does it really matter when you claim Social Security

Post by willthrill81 »

02nz wrote: Mon Jul 06, 2020 2:30 pm
willthrill81 wrote: Mon Jul 06, 2020 2:23 pm Claiming SS benefits is an irrevocable decision.
You can withdraw the application within one year and repay benefits, so a total do-over. I helped my parents do that last year (total PITA though!). And even after that I think you can suspend and get credits toward a higher benefit later.
I wasn't aware of that option. And I don't doubt at all that it was a royal pain to do so. Take together with the fact that relatively few would be able to repay the benefits due to having spent the money, I would still recommend treating it as an irrevocable decision.
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Re: Does it really matter when you claim Social Security

Post by Flobes »

delamer wrote: Mon Jul 06, 2020 12:50 pm If you are single and die at the average age that the Social Security actuaries calculated for the population, then no.
Yes, Social Security was designed to be actuarily neutral. Meaning it supposedly matters not when you take it; it all comes out the same.

But that's based on a series of assumptions that you are an average person living an average lifespan with average circumstances in average times. In reality, this equates to nobody.
BL wrote: Mon Jul 06, 2020 12:49 pm If you have a spouse, it may matter more.
If you have a spouse, then the decision is very different. You are making SS choice for two of you not one, with consideration of the complexities of spousal and survivor's benefits.

But taxation issues can be more challenging for singles, because there's less headroom in the brackets. Widows and widowers soon discover the joys of paying more tax on less income once they become single filers.

SS decisions matter for everyone.
goblue100 wrote: Mon Jul 06, 2020 12:58 pm My own suspicion is that it probably only makes a small difference in most peoples lives.
Other financial resources and benefits can be over-taxed or under-utilized because of the impact of SS on AGI/MAGI.

Few, if any, Bogleheads have Social Security as their sole financial reservoir in retirement, and for most here SS is but one cache. We are not like "most people" in matters of retirement planning.

Want to do Roth conversions in your 60s? Need ACA subsidies? Plan to sell a tranche of IBonds? Got some capital gains to harvest? On and on...
ncbill wrote: Mon Jul 06, 2020 1:29 pm Our combined benefits will be low compared to others on this forum & after using various calculators waiting to age 70 adds so little over our projected lifetimes it's pointless to delay past FRA.
For most of us here, the SS timing decision is much about the management of our other piles of retirement money. Then it about advantageous longevity insurance. Maximizing SS payout is least important.
MathWizard wrote: Mon Jul 06, 2020 12:56 pm If you are in really poor health with history of short lifespan, this favors taking it earlier.
If you are in poor health, then what you really need is excellent healthcare. Taking SS early at 62 will reduce or eliminate ACA subsidies, cost-sharing benefits and/or expanded Medicaid.
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Re: Does it really matter when you claim Social Security

Post by TLB »

I just signed up for SS last week on-line, turning 67 this week. Wife will sign up in a couple of years when she hits he FRA.
I've been paying into SS since I was 16, it will finally feel good receiving money than paying out ever year.
I agree it's a smarter move to wait until I'm 70 to receive the extra 8% per year but it really doesn't matter.
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Re: Does it really matter when you claim Social Security

Post by rob »

willthrill81 wrote: Mon Jul 06, 2020 2:38 pm
02nz wrote: Mon Jul 06, 2020 2:30 pm
willthrill81 wrote: Mon Jul 06, 2020 2:23 pm Claiming SS benefits is an irrevocable decision.
You can withdraw the application within one year and repay benefits, so a total do-over. I helped my parents do that last year (total PITA though!). And even after that I think you can suspend and get credits toward a higher benefit later.
I wasn't aware of that option. And I don't doubt at all that it was a royal pain to do so. Take together with the fact that relatively few would be able to repay the benefits due to having spent the money, I would still recommend treating it as an irrevocable decision.
Is that option available to everyone? I thought I remembered something about that been age based so younger people no longer get that option - might be wrong....
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Re: Does it really matter when you claim Social Security

Post by ObliviousInvestor »

People sometimes point out that you can't know which filing age will work out best until you know how long you will live (and/or how long your spouse will live, if married). That's true.

But sometimes people then take that to mean that it's a "then who cares? Just pick something." sort of decision. And that's a mistake.

It's analogous to saying that you don't know whether a 1.25%-expense ratio fund will outperform or underperform a low-cost index fund in the same category. That's true. We don't know. But we have good (data-based) reason to make a particular bet between one of the two options.
Last edited by ObliviousInvestor on Mon Jul 06, 2020 2:52 pm, edited 1 time in total.
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Re: Does it really matter when you claim Social Security

Post by ObliviousInvestor »

bobcat2 wrote: Mon Jul 06, 2020 2:36 pm The plan is set up in some sense to be actuarially neutral, but that does not make it actuarially neutral for participants. If for instance the plan is actuarially neutral for single men, then it is actuarially beneficial for single women because on average they live longer. If it is actuarially neutral for either single men or women, then it is actuarially beneficial for married couples, because one member of the couple can be expected to live longer than average. Nor can it be actuarially neutral for both couples where both spouses have benefits compared to couples where only one spouse was eligible for benefits.

Equally important, the plan is set up assuming an implicit LT real interest rate of about 2.8%. Currently LT real interest rates are zero or a little less. This makes delaying SS benefits actuarially beneficial for nearly everyone. As someone else has pointed out the series of papers by Shoven, Slavov, et al go into considerable detail on this last point. I believe some of the early papers by Shoven & Slavov have links to them in the Bogleheads Wiki section on SS. They at least used to, because I put them there.

BTW, the Social Security Full Retirement age is practically meaningless. The SSA has to pick some age as a base for benefit calculations. Social Security calls that base age for benefit calculations the Full Retirement age. A more meaningful Full Retirement age would be age 70. :happy
This is an excellent post.
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Re: Does it really matter when you claim Social Security

Post by ObliviousInvestor »

rob wrote: Mon Jul 06, 2020 2:49 pm
willthrill81 wrote: Mon Jul 06, 2020 2:38 pm
02nz wrote: Mon Jul 06, 2020 2:30 pm
willthrill81 wrote: Mon Jul 06, 2020 2:23 pm Claiming SS benefits is an irrevocable decision.
You can withdraw the application within one year and repay benefits, so a total do-over. I helped my parents do that last year (total PITA though!). And even after that I think you can suspend and get credits toward a higher benefit later.
I wasn't aware of that option. And I don't doubt at all that it was a royal pain to do so. Take together with the fact that relatively few would be able to repay the benefits due to having spent the money, I would still recommend treating it as an irrevocable decision.
Is that option available to everyone? I thought I remembered something about that been age based so younger people no longer get that option - might be wrong....
Yes, the option to withdraw an application within 12 months is still available to anybody.
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Re: Does it really matter when you claim Social Security

Post by retireIn2020 »

Yes, the option to withdraw an application within 12 months is still available to anybody.
Also, you have to return all of the money received in that 12 months.
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Re: Does it really matter when you claim Social Security

Post by ncbill »

Flobes wrote: Mon Jul 06, 2020 2:41 pm
ncbill wrote: Mon Jul 06, 2020 1:29 pm Our combined benefits will be low compared to others on this forum & after using various calculators waiting to age 70 adds so little over our projected lifetimes it's pointless to delay past FRA.
For most of us here, the SS timing decision is much about the management of our other piles of retirement money. Then it about advantageous longevity insurance. Maximizing SS payout is least important.
We'll be spending more money early on in retirement when we can enjoy it...most posters here overestimate their life expectancy.

They should spend more time with the "rich, broke, dead" retirement calculator to get a dose of reality.

e.g. I have a 1 in 5 chance of being dead by age 70, rising to 1 in 3 by age 75...even money around age 80.

Others are free to hoard their retirement money until they've either died or are too physically feeble to enjoy its use.
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Re: Does it really matter when you claim Social Security

Post by Xrayman69 »

I’ve assumed it will be a non refundable tax liability when I’m eligible to receive benefits in another 15-20 years. If given the opportunity to cash out today I would take it. I realize the feds can print money for future liabilities but will still make savings a top priority with the assumption it won’t be available and anything will be be considered found money that I lost to begin with.
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Re: Does it really matter when you claim Social Security

Post by Mitchell777 »

For me it gets back to a recent post I made regarding does it matter what month you begin. The link on THIS post above says I should start at 68 and 10 months. When I use the SS "Retirement Estimator" it says I would get $3247/month at 68 and 10 months, but $3467 at 69 and 3 months (due to delayed retirement credits (DRC) being posted in January - 3 months after my birth month).
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Re: Does it really matter when you claim Social Security

Post by Watty »

Even for a single person it is not actuarial neutral because;

1) It does not take gender into account. A 62 year old woman will statistically live a lot longer than a man so it would favor them starting later and men starting earlier.

2) It does not change when interest rates change. When interest rates are low that favors delaying when you start it.

3) If does not take your health and lifestyle into account. For example if you smoke that would make it more likely that you would die younger so you may want to start it earlier.

One thing to keep in mind is that if you delay filing beyond your full retirement age then your benefit keeps increasing but your spouses spousal benefit does not keep increasing. It maxes out at your FRA. If they outlive you they will get the larger survivor benefit though.
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Re: Does it really matter when you claim Social Security

Post by MathWizard »

R2D2 wrote: Mon Jul 06, 2020 1:52 pm
MathWizard wrote: Mon Jul 06, 2020 12:56 pm SS was set up to be neutral with respect to claiming age...
Right, but doesn't that depend on the interest rate used? Whatever that rate is, don't I (assuming I'm single and "average") effectively "earn" that rate tax free by deferring my SS? Yes, I know that there are a bunch of nuances that people on this thread have pointed out; I just want to make sure I understand the base case.

And does anyone know what rate is used in the calculation?
I think that it is mostly the mortality credits. If they looked at opportunity costs of the money, they probably
figured that at the rate of long treasuries, but I do not know.

They would use both genders, and would sum up over all lifespans, but for a simple case, assume
a male age 67 comparing taking at age 67 or 68, who would get $2000/month ($24K/yr) at age 67. We'll use inflation adjused dollars
throughout, so we do not need to consider the COLA, it is built in.

At age 67, the life expectancy is 16.47 years.

If he claims at 67, and makes it exactly 16.47 years, he will get $24K*16.47 = $395.04K
If he claims at 68, he will get 8% more for waiting a year, so he gets $24K*(1.08)*15.47 = $400.723K
Note that these are pretty close.

This is just the mortality credit at work, though simplified.
I assumed I could use the life expectancy, but I should have used a weighted averaged over all possible
outcomes for comparison. I was just trying to make example simple.

Also, the 8% deferred credit here is a federal regulation, so it is a compromise as all such things are.
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Re: Does it really matter when you claim Social Security

Post by JustinR »

Watty wrote: Mon Jul 06, 2020 3:13 pm Even for a single person it is not actuarial neutral because;

1) It does not take gender into account.
Just curious, how do you know this?
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Re: Does it really matter when you claim Social Security

Post by Big Dog »

re: so-called actuarial neutrality:

https://obliviousinvestor.com/social-se ... eutrality/
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Re: Does it really matter when you claim Social Security

Post by Big Dog »

JustinR wrote: Mon Jul 06, 2020 3:23 pm
Watty wrote: Mon Jul 06, 2020 3:13 pm Even for a single person it is not actuarial neutral because;

1) It does not take gender into account.
Just curious, how do you know this?
SSA is clear that they use a Unisex actuarial table. Good for guys, less good for women.
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Re: Does it really matter when you claim Social Security

Post by ObliviousInvestor »

JustinR wrote: Mon Jul 06, 2020 3:23 pm
Watty wrote: Mon Jul 06, 2020 3:13 pm Even for a single person it is not actuarial neutral because;

1) It does not take gender into account.
Just curious, how do you know this?
Because the calculations (i.e., increase for each month that you wait) are the same regardless of whether the person in question is male or female.
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Re: Does it really matter when you claim Social Security

Post by dodecahedron »

JustinR wrote: Mon Jul 06, 2020 3:23 pm
Watty wrote: Mon Jul 06, 2020 3:13 pm Even for a single person it is not actuarial neutral because;

1) It does not take gender into account.
Just curious, how do you know this?
Easy to see this. The SS formula relating age of claiming to filing benefits is the same for all genders.

However, males have demonstrably shorter lifespans on average than females. An actuarially neutral formula computed for men and women would result in formulas that differ by gender. On average, single women gain more by waiting than single men do. (If there is a survivor involved, things get more complicated. But two women married to one another definitely get a better actuarial deal from delaying the higher earner´s claiming age than two men married to one another, assuming that all are in ¨average health¨ for their respective genders.)
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Re: Does it really matter when you claim Social Security

Post by Ben Mathew »

Even at actuarially fair rates, it usually make sense to delay because:

(1) It is the only way we have to purchase a real annuity.

(2) Not only is it the only way to get a real annuity, it's also a cheap way to get a real annuity. You are getting it at actuarially fair rates, which is fantastic.

(3) It's tax advantaged. You give up your benefit today and get benefit+growth later. So it's equivalent to putting the foregone benefit in a traditional account (you're not taxed on the foregone benefit today, but are taxed on the benefit+growth at withdrawal.)
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Re: Does it really matter when you claim Social Security

Post by Watty »

JustinR wrote: Mon Jul 06, 2020 3:23 pm
Watty wrote: Mon Jul 06, 2020 3:13 pm Even for a single person it is not actuarial neutral because;

1) It does not take gender into account.
Just curious, how do you know this?
Other people have already responded but out of curiosity I looked it up and according to this table,

https://www.ssa.gov/oact/STATS/table4c6.html

a 62 year old man has a life expectancy of 20.08 years and woman has 22.90 years.
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Re: Does it really matter when you claim Social Security

Post by JustinR »

So then, doesn't it obviously follow that men should take it early while women should take it later?

Or is it still more complicated than that?
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Re: Does it really matter when you claim Social Security

Post by Ben Mathew »

02nz wrote: Mon Jul 06, 2020 1:20 pm The bigger opportunity lies in using low-income years before starting SS to do withdrawals/Roth conversions of tax-deferred balances at low rates. This can help reduce the exposure of SS to income taxes and mitigate the possibility the surviving spouse faces higher tax rates as a single filer. IMHO that's the best argument for deferring SS until 70 (although of course there are many nuances, particularly for dual-earner couples).
Trying to understand the mechanism behind this. At first glance, it seems that if you defer $1 of Social Security payout now and get $1.50 extra later, then you get more space for conversions now, but will have less space later. So while you get to convert $1 more now, you are blocked from converting $1.50 later. If the investments in the traditional account is growing at the same rate as the implicit interest rate offered by SS deferment (so $1 becomes $1.50 later), it seems it shouldn't matter: taxable income is $1 now and $1.50 later in either case.

Does the rationale then have something to do with how social security is taxed, or with the expectation that the growth rate of the traditional portfolio will be higher than the implicit return offered by social security deferment? Unpredictability in the age of death (and subsequent high tax brackets as single filer) might also argue for taking traditional withdrawals earlier and social security later because social security will automatically reduce after the first spouse's death, but traditional account withdrawals won't.
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Re: Does it really matter when you claim Social Security

Post by ObliviousInvestor »

JustinR wrote: Mon Jul 06, 2020 4:43 pm So then, doesn't it obviously follow that men should take it early while women should take it later?

Or is it still more complicated than that?
That would be the case if 1) survivor/spousal benefits did not exist and 2) the system were neutral for the average unmarried person. But #2 is not true and #1 is only true for unmarried people (and certain married couples when there is a government pension involved).
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Re: Does it really matter when you claim Social Security

Post by Bernard »

If you have a 7-figure nest egg, it really doesn't matter, nor would delaying 'til age 70 make much sense. But if you need to live off SS for the rest of your life, you must work as long as you are able to and delay for as long as possible. There's quite a difference on whether you get $650 at age 62, or $1,100 at age 67, or $1,400 at age 70, if that's your sole or at least primary source of income as it is for millions of Americans.

But if you are falling apart in your early 60s, can't work anymore, feel that you have reached the end of a line, you can't afford to wait any longer.
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Re: Does it really matter when you claim Social Security

Post by FiveK »

Ben Mathew wrote: Mon Jul 06, 2020 4:51 pm
02nz wrote: Mon Jul 06, 2020 1:20 pm The bigger opportunity lies in using low-income years before starting SS to do withdrawals/Roth conversions of tax-deferred balances at low rates. This can help reduce the exposure of SS to income taxes and mitigate the possibility the surviving spouse faces higher tax rates as a single filer. IMHO that's the best argument for deferring SS until 70 (although of course there are many nuances, particularly for dual-earner couples).
Trying to understand the mechanism behind this. At first glance, it seems that if you defer $1 of Social Security payout now and get $1.50 extra later, then you get more space for conversions now, but will have less space later.
Yes, and that's one reason "it depends..." is often needed for a useful discussion of details. One common situation is the ability to do conversions at 12% without SS, vs. paying 22% (or more) with SS.
So while you get to convert $1 more now, you are blocked from converting $1.50 later. If the investments in the traditional account is growing at the same rate as the implicit interest rate offered by SS deferment (so $1 becomes $1.50 later), it seems it shouldn't matter: taxable income is $1 now and $1.50 later in either case.
The usual (again, "it depends...") strategy is to convert faster than the growth rate so the traditional balance declines while the Roth balance grows. Later withdrawals (e.g., RMDs) from a lower traditional balance may be subject to lower marginal tax rates than withdrawals from higher balances.
Does the rationale then have something to do with how social security is taxed
One nuance is that at most 85% of SS benefits are taxed. If a higher SS benefit stays within the same nominal bracket as a lower benefit, the marginal tax rate on the increased SS benefit may be 85% of the bracket amount. E.g., 10.2% in the 12% bracket, 18.7% in the 22%, etc.
Unpredictability in the age of death (and subsequent high tax brackets as single filer) might also argue for taking traditional withdrawals earlier and social security later because social security will automatically reduce after the first spouse's death, but traditional account withdrawals won't.
Yes, that's another reason.
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