Vanguard:"Social Security: How to decide when it's time."

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gkaplan
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Vanguard:"Social Security: How to decide when it's time."

Post by gkaplan » Mon Aug 11, 2014 9:32 pm

It's a question every American faces sooner or later: "When should I start taking Social Security?"

There's a lot riding on the answer. Collecting your Social Security benefits before the program's "full retirement age" (65 for those born before 1938, rising gradually to 66 for those born between 1943 and 1954, and rising again to 67 for those born in 1960 and later) is certainly appealing to many people, but there are definite financial advantages to waiting just a few years. The sooner you begin, generally speaking, the lower your monthly payment.

On the other hand, beginning at age 62—the earliest allowable starting point for normal retirement benefits—means you could collect a higher total amount over time … but only if you die before reaching your average life expectancy. Should you live into your 80s, 90s, or beyond, you stand to receive more money from Social Security over time by postponing your start....

https://personal.vanguard.com/us/insigh ... ing-082013
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Re: Vanguard: "Social Security: How to decide when it's time

Post by Johm221122 » Mon Aug 11, 2014 9:51 pm

Thanks for sharing, a great reference for any one.For me being single it's a no brainer if I stay healthy


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Re: Vanguard: "Social Security: How to decide when it's time

Post by Lancelot » Mon Aug 11, 2014 10:36 pm

I am going to defer SS with two caveats:

1 If my portfolio took a severe hit, say down 50% I would probably start at FRA.

2 If my health suddenly failed, I'd probably start receiving SS ASAP. Some thing is better than nothing :)
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Re: Vanguard: "Social Security: How to decide when it's time

Post by ResearchMed » Mon Aug 11, 2014 10:41 pm

Lancelot wrote:I am going to defer SS with two caveats:

1 If my portfolio took a severe hit, say down 50% I would probably start at FRA.

2 If my health suddenly failed, I'd probably start receiving SS ASAP. Some thing is better than nothing :)
This is a good reason to file and suspend at FRA, even if single.
If one does this, one can "back up" to FRA and collect all past benefits since that time, although all future benefits will be at the lower benefit level per FRA.

If one hasn't suspended, one can only "back up" a shorter time, if one suddenly realizes one isn't quite so healthy (or some other reason it no longer makes sense to wait until age 70).

RM
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Re: Vanguard: "Social Security: How to decide when it's time

Post by Lancelot » Tue Aug 12, 2014 12:35 am

ResearchMed wrote:
Lancelot wrote:I am going to defer SS with two caveats:

1 If my portfolio took a severe hit, say down 50% I would probably start at FRA.

2 If my health suddenly failed, I'd probably start receiving SS ASAP. Some thing is better than nothing :)
This is a good reason to file and suspend at FRA, even if single.
If one does this, one can "back up" to FRA and collect all past benefits since that time, although all future benefits will be at the lower benefit level per FRA.

If one hasn't suspended, one can only "back up" a shorter time, if one suddenly realizes one isn't quite so healthy (or some other reason it no longer makes sense to wait until age 70).

RM
I know what you are saying but my strategy is to harvest, if you will, the post FRA bonus of 8% a year. Sill, file and suspend, to collect a lump sum, is just one more option that we have (thankfully.)
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Re: Vanguard: "Social Security: How to decide when it's time

Post by Leif » Tue Aug 12, 2014 9:55 am

ResearchMed wrote:
This is a good reason to file and suspend at FRA, even if single.
If one does this, one can "back up" to FRA and collect all past benefits since that time, although all future benefits will be at the lower benefit level per FRA.

If one hasn't suspended, one can only "back up" a shorter time, if one suddenly realizes one isn't quite so healthy (or some other reason it no longer makes sense to wait until age 70). If a spouse is not in the picture then you simply waiting until 70 to apply.

RM
I don't understand this at all. Perhaps I don't understand SS as well as I thought.

My understanding is the only reason to File and Suspended is to allow a spouse to start collecting spousal benefits while at the same time still collect delayed retirement credits.

I don't know what is meant by "back up". If you realize your health is a problem then you can start collecting SS at that time assuming you are over 62.

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Re: Vanguard: "Social Security: How to decide when it's time

Post by sscritic » Tue Aug 12, 2014 10:00 am

RM is correct. If you suspend (filing being a prerequisite - you can't suspend what you don't have), you must be FRA. If you later decide that you don't want to be in suspension, you can take yourself off suspension. The date that your suspension will be lifted can be in the past, the present, or the future.
The numberholder who requested suspension may request at any time to have benefits reinstated effective for any month of the suspension period.
If you suspend at FRA, you can reinstate as of FRA. If you suspend at age 68, you can only reinstate as of the day your suspension started.

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Re: Vanguard: "Social Security: How to decide when it's time

Post by ResearchMed » Tue Aug 12, 2014 10:06 am

Leif wrote:
ResearchMed wrote:
This is a good reason to file and suspend at FRA, even if single.
If one does this, one can "back up" to FRA and collect all past benefits since that time, although all future benefits will be at the lower benefit level per FRA.

If one hasn't suspended, one can only "back up" a shorter time, if one suddenly realizes one isn't quite so healthy (or some other reason it no longer makes sense to wait until age 70). If a spouse is not in the picture then you simply waiting until 70 to apply.

RM
I don't understand this at all. Perhaps I don't understand SS as well as I thought.

My understanding is the only reason to File and Suspended is to allow a spouse to start collecting spousal benefits while at the same time still collect delayed retirement credits.

I don't know what is meant by "back up". If you realize your health is a problem then you can start collecting SS at that time assuming you are over 62.
Yes, this is apparently a little-known "side effect" :wink: of filing and suspending, one that could work equally well for single and married.
We didn't know about it in time to "do it", but fortunately, we didn't need it, so we ended up waiting until the more typical "married strategy" of file and suspend.

What I meant by "backing up" is to go back as far "as possible" to collect SS benefits that haven't yet been collected.
I think it might be just 6 months (or is it 12?) ordinarily.
That is, if one is 68, and then wishes one had collected sooner, one can NOT go back further, although one *can* get those few months retroactively.
NOTE: If one does this, my understanding is that all future benefits are at the lower "age-determined amount" as whenever the retroactive benefits began.

But IF one did file and suspend (married or single), then one can go all the way back to FRA to collect ALL benefits from that date.
Again, these will be at the reduced monthly amount, per the age of (belatedly) "starting".
However, if this is done because life expectancy is suddenly looking not so good, then this does probably make sense.
That is, if one had known this (bad health prognosis) at FRA, one might have started SS then (or perhaps even earlier!).

Hope that is more clear? If not let me know.

There used to be a way to collect ALL benefits at lower age-adjusted benefits, and then, upon reaching 70 or so, pay it all back, and start collecting "for the rest of one's life" at the maximum SS amount for that person.
That's not available any longer, but this comes sort of close, but sort of in reverse.

RM
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Re: Vanguard: "Social Security: How to decide when it's time

Post by sscritic » Tue Aug 12, 2014 10:16 am

ResearchMed wrote: But IF one did file and suspend (married or single), then one can go all the way back to FRA to collect ALL benefits from that date.
Only if you file and suspend at FRA. If you file and suspend at 68, you can't go all the way back to FRA to collect ALL benefits from that date.

I know that in the post that was quoted in the post that you quoted, the words
This is a good reason to file and suspend at FRA
appeared, and they were your words, so I am assuming you were thinking of FRA when you wrote the above. I just wanted to clarify for someone who wouldn't necessarily read the quote inside the quote that you quoted.

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Re: Vanguard: "Social Security: How to decide when it's time

Post by Lynette » Tue Aug 12, 2014 10:59 am

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Re: Vanguard: "Social Security: How to decide when it's time

Post by Leif » Tue Aug 12, 2014 11:43 am

Okay, lets see if I understand.

If you are single, for example, and plan to collect at 70, you can simply wait until 70 and file. Married would be the same, but no spousal benefits issue to consider if single.

At FRA you can file and suspend. If you do that, and prior to 70, perhaps due to health problem, you can retroactively collect from FRA to present at the rate determined by your FRA. If no health problems at 70 then you remove the suspend and start collecting based on an age 70 retirement.

If that is the case I don't see any down side to file and suspend at FRA, even if you plan to wait to 70, and you don't have spousal benefit issues. The upside is you can collect from FRA if you are facing life shortening medical issue.

Is that correct?

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Re: Vanguard: "Social Security: How to decide when it's time

Post by ResearchMed » Tue Aug 12, 2014 11:51 am

Leif wrote:Okay, lets see if I understand.

If you are single, for example, and plan to collect at 70, you can simply wait until 70 and file. Married would be the same, but no spousal benefits issue to consider if single.

At FRA you can file and suspend. If you do that, and prior to 70, perhaps due to health problem, you can retroactively collect from FRA to present at the rate determined by your FRA. If no health problems at 70 then you remove the suspend and start collecting based on an age 70 retirement.

If that is the case I don't see any down side to file and suspend at FRA, even if you plan to wait to 70, and you don't have spousal benefit issues. The upside is you can collect from FRA if you are facing life shortening medical issue.

Is that correct?
Yes, correct.

I'm not aware of any downside.
We would have done that if we knew about it.
DH didn't file/suspend until *I* had reached FRA, so I could collect as Spouse.

As I mentioned, the good news was that we didn't "need" to collect any benefits retroactively, as we still figure on average or better lifespan, based upon current health and older relatives' ages and health.

But a few years of retroactive benefits... it would have been nice to know there was sort of "insurance" there just in case.

Most people seem to focus on the spousal benefit of file/suspend at FRA, as we did, because we didn't know any better.

RM
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Re: Vanguard: "Social Security: How to decide when it's time

Post by Professor Emeritus » Tue Aug 12, 2014 12:06 pm

Lancelot wrote:I am going to defer SS with two caveats:

1 If my portfolio took a severe hit, say down 50% I would probably start at FRA.

2 If my health suddenly failed, I'd probably start receiving SS ASAP. Some thing is better than nothing :)
(no problem with point 2)
IMHO point 1 would indicate that you had not properly structured your portfolio

When deferring social security you should create a "sinking fund" of low risk assets designed to carry you to age 70. That sinking fund is not part of your investment portfolio, it is designed for consumption. You do your asset allocation over and above that fund

Otherwise you are allowing market conditions to effectively dictate "liquidation" i.e. you will be taking an unfavorable action based on a market decline

Normally a sinking fund is approximately 8 x the SS expected at age 70 or some lesser amount based on what you would have gotten by taking SS at an earlier age. . You withdraw 1/8 each year and allow SS to grow. After 8 years you have a lifetime inflation protected annuity. In my case I also have a term life insurance policy that expires at age 70 which I pay for out of the withdrawal.
(that is to deal with the endless "well what happens if you defer and get hit by a truck " I insure against that risk.

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Re: Vanguard: "Social Security: How to decide when it's time

Post by Leif » Tue Aug 12, 2014 12:28 pm

ResearchMed wrote:
Yes, correct.

I'm not aware of any downside.

Most people seem to focus on the spousal benefit of file/suspend at FRA, as we did, because we didn't know any better.

RM
Me either. As many threads that I've read on SS, and believe me I've read many, this is the first I've heard of this.

Thanks very much! Really good to know. :sharebeer
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Re: Vanguard: "Social Security: How to decide when it's time

Post by montanagirl » Tue Aug 12, 2014 12:29 pm

Can you file and suspend your own old-age benefit at FRA *and* file for spousal benefit?

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Re: Vanguard: "Social Security: How to decide when it's time

Post by sscritic » Tue Aug 12, 2014 12:39 pm

caroljm36 wrote:Can you file and suspend your own old-age benefit at FRA *and* file for spousal benefit?
No, not unless your own benefit is very low. Also, your spouse has to have filed for an old age benefit.

When you file and otherwise qualify for a benefit, you are entitled to it. Even if you choose not to collect the benefit to which you are entitled, you are still entitled to it.

You can't be someone's spouse if you are entitled to an old age benefit based on a PIA (Primary Insurance Amount) that is at least half of the spouse's PIA.

Example 1: your PIA = $1500, spouse's PIA = $2000. You can't be a spouse of your spouse if you file for your own benefit (1500 is at least half of 2000).

Example 2: your PIA = $600, spouse's PIA = $2000. Your spouse is collecting an old-age benefit based on the spouse's PIA of $2000. You file as yourself and as a spouse at FRA. Your benefit will be $600 + (1000 - 600) = $1000.

The first part is your own benefit; the second is what you get as a spouse of your spouse. If you then suspend your own benefit, you will collect the $400 as a spouse, but your $600 will be suspended, just as you requested.

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Re: Vanguard: "Social Security: How to decide when it's time

Post by Professor Emeritus » Tue Aug 12, 2014 2:23 pm

sscritic wrote:
caroljm36 wrote:
Can you file and suspend your own old-age benefit at FRA *and* file for spousal benefit?[
/quote]
.
Is there any possibility the poster is confusing file and suspend with a restricted application?
See for example http://moneyover55.about.com/od/socials ... nefits.htm

If married, or eligible for a benefit on an ex-spouse’s record, once you reach full retirement age, you can use a restricted application to claim a spousal benefit, while letting your own benefit continue to grow. You would then switch to your own higher benefit amount when you reached age 70.

In Social Security’s online Programs Operations Manual System (POMS) their Scope of the Application section says:

“A claimant may choose to limit or restrict the scope of the application to exclude a class of benefits he/she may be eligible to on one or more SSNs for any reason (except where deemed filing applies). The reason may be to receive higher current benefits or to maximize the amount of benefits over a period of time, including the effect of delayed retirement credits (DRCs).”

I realize sscritic always gets the terms right but others do not.

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Re: Vanguard: "Social Security: How to decide when it's time

Post by RustyShackleford » Tue Aug 12, 2014 4:29 pm

So "file and suspend" is beneficial just for married couples, right ? It's not a free pass for me to wait until 70yo** to start collecting, but then change my mind if serious longevity issues appear between FRA and 70yo.

** I'm assuming FRA = 66, because if I were that much older I'd already be receiving benefits, and I were that much younger I probably wouldn't be thinking much about this yet.

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Re: Vanguard: "Social Security: How to decide when it's time

Post by technovelist » Tue Aug 12, 2014 4:31 pm

RustyShackleford wrote:So "file and suspend" is beneficial just for married couples, right ? It's not a free pass for me to wait until 70yo** to start collecting, but then change my mind if serious longevity issues appear between FRA and 70yo.

** I'm assuming FRA = 66, because if I were that much older I'd already be receiving benefits, and I were that much younger I probably wouldn't be thinking much about this yet.
That's not what I'm getting from reading this thread, but I'm certainly not an expert.
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Re: Vanguard: "Social Security: How to decide when it's time

Post by ObliviousInvestor » Tue Aug 12, 2014 5:23 pm

RustyShackleford wrote:So "file and suspend" is beneficial just for married couples, right ? It's not a free pass for me to wait until 70yo** to start collecting, but then change my mind if serious longevity issues appear between FRA and 70yo.

** I'm assuming FRA = 66, because if I were that much older I'd already be receiving benefits, and I were that much younger I probably wouldn't be thinking much about this yet.
File and suspend can be helpful for unmarried people as well. As RM and sscritic have noted, it allows you to "change your mind" back to the date of suspension.

This comes from the following POMS reference:
https://secure.ssa.gov/apps10/poms.nsf/lnx/0202409130#b

The key point to note is that the effective date of reinstatement can be in the past, as long as it was during the suspension period.
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Re: Vanguard: "Social Security: How to decide when it's time

Post by Leif » Tue Aug 12, 2014 5:29 pm

This seems to be another reason to want to wait to 70 that I've only just heard of in this thread.

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Re: Vanguard: "Social Security: How to decide when it's time

Post by stemikger » Tue Aug 12, 2014 5:56 pm

Thanks for sharing!
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Re: Vanguard: "Social Security: How to decide when it's time

Post by stemikger » Tue Aug 12, 2014 5:59 pm

Lancelot wrote:I am going to defer SS with two caveats:

1 If my portfolio took a severe hit, say down 50% I would probably start at FRA.

2 If my health suddenly failed, I'd probably start receiving SS ASAP. Some thing is better than nothing :)
Very true! My dad and two uncles never lived long enough to even take early social security. My dad died at 52, my Uncle at 50 and my other Uncle at 60, so if I reach those ages, the fact that I would still be alive is the real important issues. Getting a smaller social check seems like a minor issue compared to the alternative.
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Re: Vanguard: "Social Security: How to decide when it's time

Post by JW-Retired » Tue Aug 12, 2014 6:07 pm

Another strong reason to maximize your Social Security income is simply because SS is taxed much more favorably than other income like pensions or IRA withdrawals.

For example, single filing twins with the same gross income of $65k. Twin "A" took SS early in order to grow his IRA, so at age 70 he has $25k SS income and $40k RMD income. Per TaxCaster, this results in $8110 federal taxes owed. Twin "B" delayed SS by using up some of his IRA so he has the reverse, $40k SS and $25k RMD, this results in a federal tax of only $3660. Same gross incomes but a 2.2X bigger federal tax owed by twin "A".

This happens because of the way the tax math phases in taxation of SS as your "other" income grows. I think the message is if you stand any chance of being in this phase-in situation you should maximize SS in favor of your "other" income. It might be prudent to run your own personal estimates through TaxCaster (or your tax software of choice) and see what gives you the greatest after-tax retirement income.
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Re: Vanguard: "Social Security: How to decide when it's time

Post by Leif » Tue Aug 12, 2014 6:07 pm

Professor Emeritus wrote:
When deferring social security you should create a "sinking fund" of low risk assets designed to carry you to age 70. That sinking fund is not part of your investment portfolio, it is designed for consumption. You do your asset allocation over and above that fund

Otherwise you are allowing market conditions to effectively dictate "liquidation" i.e. you will be taking an unfavorable action based on a market decline

Normally a sinking fund is approximately 8 x the SS expected at age 70 or some lesser amount based on what you would have gotten by taking SS at an earlier age. . You withdraw 1/8 each year and allow SS to grow. After 8 years you have a lifetime inflation protected annuity. In my case I also have a term life insurance policy that expires at age 70 which I pay for out of the withdrawal.
(that is to deal with the endless "well what happens if you defer and get hit by a truck " I insure against that risk.
I agree. I'm setting up a CD ladder to 70. However, I do consider those CDs as part of my portfolio. If I don't consume those CDs, and the market is down, I could use them to rebalance my equities or bonds.

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Re: Vanguard: "Social Security: How to decide when it's time

Post by montanagirl » Tue Aug 12, 2014 9:36 pm

Professor Emeritus wrote:
sscritic wrote:
caroljm36 wrote:
Can you file and suspend your own old-age benefit at FRA *and* file for spousal benefit?[
/quote]
.
Is there any possibility the poster is confusing file and suspend with a restricted application?
See for example http://moneyover55.about.com/od/socials ... nefits.htm
.
No I wasn't confusing those two terms...I intend to file a restricted application at FRA next year, but now I think it's logically impossible to do that and also file and suspend my own old age pension.

What I'm still confused about is whether I can get 1/2 of my husband's SS amount as a spouse even though it is not more than my own would be at that time.

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Re: Vanguard: "Social Security: How to decide when it's time

Post by sscritic » Tue Aug 12, 2014 10:14 pm

caroljm36 wrote: No I wasn't confusing those two terms...I intend to file a restricted application at FRA next year, but now I think it's logically impossible to do that and also file and suspend my own old age pension.

What I'm still confused about is whether I can get 1/2 of my husband's SS amount as a spouse even though it is not more than my own would be at that time.
The benefit is never the issue; the issue is the PIA. Please refer back to my reply immediately after your question was posted. I think I answered your questions, but if something is not clear, please ask with reference to the information I gave you in that reply. Perhaps if you start by quoting it rather than another post it would help me give you a better answer.

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Re: Vanguard: "Social Security: How to decide when it's time

Post by Professor Emeritus » Tue Aug 12, 2014 10:22 pm

Leif wrote:
Professor Emeritus wrote:
When deferring social security you should create a "sinking fund" of low risk assets designed to carry you to age 70. That sinking fund is not part of your investment portfolio, it is designed for consumption. You do your asset allocation over and above that fund

Otherwise you are allowing market conditions to effectively dictate "liquidation" i.e. you will be taking an unfavorable action based on a market decline

Normally a sinking fund is approximately 8 x the SS expected at age 70 or some lesser amount based on what you would have gotten by taking SS at an earlier age. . You withdraw 1/8 each year and allow SS to grow. After 8 years you have a lifetime inflation protected annuity. In my case I also have a term life insurance policy that expires at age 70 which I pay for out of the withdrawal.
(that is to deal with the endless "well what happens if you defer and get hit by a truck " I insure against that risk.
I agree. I'm setting up a CD ladder to 70. However, I do consider those CDs as part of my portfolio. If I don't consume those CDs, and the market is down, I could use them to rebalance my equities or bonds.
I'm sorry but this is not thinking clearly, unless you simply mean that each year when you take it out of your sinking fund you can put it in your portfolio instead of spending it , which is fine. but you dont invade a sinking fund to play the market.

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Re: Vanguard: "Social Security: How to decide when it's time

Post by Professor Emeritus » Tue Aug 12, 2014 10:27 pm

caroljm36 wrote:
Professor Emeritus wrote:
sscritic wrote:
caroljm36 wrote:
Can you file and suspend your own old-age benefit at FRA *and* file for spousal benefit?[
/quote]
.
Is there any possibility the poster is confusing file and suspend with a restricted application?
See for example http://moneyover55.about.com/od/socials ... nefits.htm
.
No I wasn't confusing those two terms...I intend to file a restricted application at FRA next year, but now I think it's logically impossible to do that and also file and suspend my own old age pension.

What I'm still confused about is whether I can get 1/2 of my husband's SS amount as a spouse even though it is not more than my own would be at that time.
Why would you "file and suspend your own pension? You just don't file for yours. At FRA you file a RA for spouses benefits. You get your spouse benefit, whatever it is and at 70 you get your own benefit with delayed retirement credits. File and suspend is to allow spousal benefits. and no both people cant.

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Re: Vanguard: "Social Security: How to decide when it's time

Post by Lancelot » Tue Aug 12, 2014 10:42 pm

stemikger wrote:
Lancelot wrote:I am going to defer SS with two caveats:

1 If my portfolio took a severe hit, say down 50% I would probably start at FRA.

2 If my health suddenly failed, I'd probably start receiving SS ASAP. Some thing is better than nothing :)
Very true! My dad and two uncles never lived long enough to even take early social security. My dad died at 52, my Uncle at 50 and my other Uncle at 60, so if I reach those ages, the fact that I would still be alive is the real important issues. Getting a smaller social check seems like a minor issue compared to the alternative.
Rule #1- Do what makes you happy and sleep well at night :)

I have many friends that are healthy but took SS as soon as they were 62. Most didn't need the money to maintain their lifestyle, its just the way they roll. Several plan on investing the SS proceeds in Vanguard Total Stock Market, betting that their returns will beat the guaranteed (as of this writing any way) 8% returns for deferring from 66 to 70.

We'll know who was right in about 20 years :)

*My Dad took SS at 62 and he is now in his late 80's and pretty healthy. But he simply wasn't comfortable with deferring payments. A bird in the hand... :dollar
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Re: Vanguard: "Social Security: How to decide when it's time

Post by Lancelot » Tue Aug 12, 2014 11:04 pm

Professor Emeritus wrote:
Lancelot wrote:I am going to defer SS with two caveats:

1 If my portfolio took a severe hit, say down 50% I would probably start at FRA.

2 If my health suddenly failed, I'd probably start receiving SS ASAP. Some thing is better than nothing :)
(no problem with point 2)
IMHO point 1 would indicate that you had not properly structured your portfolio

When deferring social security you should create a "sinking fund" of low risk assets designed to carry you to age 70. That sinking fund is not part of your investment portfolio, it is designed for consumption. You do your asset allocation over and above that fund

Otherwise you are allowing market conditions to effectively dictate "liquidation" i.e. you will be taking an unfavorable action based on a market decline

Normally a sinking fund is approximately 8 x the SS expected at age 70 or some lesser amount based on what you would have gotten by taking SS at an earlier age. . You withdraw 1/8 each year and allow SS to grow. After 8 years you have a lifetime inflation protected annuity. In my case I also have a term life insurance policy that expires at age 70 which I pay for out of the withdrawal.
(that is to deal with the endless "well what happens if you defer and get hit by a truck " I insure against that risk.
A sinking fund is the correct strategy; I'm just OK with a bit more risk. :)

I'm single so I have the luxury of only looking after myself. I'm OK with asset allocation for a cushion and not have to sell equities at severely depressed prices. I am also mobile, so I can move to a lower cost area, effectively lowering my with drawl rate, if need be :)
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Re: Vanguard: "Social Security: How to decide when it's time

Post by Professor Emeritus » Tue Aug 12, 2014 11:08 pm

Lancelot wrote: *My Dad took SS at 62 and he is now in his late 80's and pretty healthy. But he simply wasn't comfortable with deferring payments. A bird in the hand... :dollar
Why would anyone save at age 25 if he "wasn't comfortable with deferring payments"? I put salary into a DB pension for 30 years.
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Re: Vanguard: "Social Security: How to decide when it's time

Post by RustyShackleford » Tue Aug 12, 2014 11:23 pm

File and suspend can be helpful for unmarried people as well. ... it allows you to "change your mind" back to the date of suspension. The key point to note is that the effective date of reinstatement can be in the past, as long as it was during the suspension period.
Sorry to be dim, but what is a scenerio where it'd be helpful ? Let's say I "file and suspend" at FRA (66yo for me). If, sometime between then and age 70, I decide I'd like to start receiving benefits, I can imagine two things. A, I start getting benefits at that time, at the same level as if I'd waited until that age to file; or B, I retroactively receive all the benefits I would have received if I hadn't suspended. Can I choose between those two things ? If so, I see the benefit: I wait until 70yo and then pick box A, unless significant health issues or financial duress arise in the interim, in which case I pick B at that time. Otherwise, if A, I might as well just wait to file until I want benefits; or, if B, I might as well just file at FRA and not suspend.

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Re: Vanguard: "Social Security: How to decide when it's time

Post by sscritic » Tue Aug 12, 2014 11:28 pm

RustyShackleford wrote: Sorry to be dim, but what is a scenerio where it'd be helpful ? Let's say I "file and suspend" at FRA (66yo for me). If, sometime between then and age 70, I decide I'd like to start receiving benefits, I can imagine two things. A, I start getting benefits at that time, at the same level as if I'd waited until that age to file; or B, I retroactively receive all the benefits I would have received if I hadn't suspended. Can I choose between those two things ? If so, I see the benefit: I wait until 70yo and then pick box A, unless significant health issues or financial duress arise in the interim, in which case I pick B at that time. Otherwise, if A, I might as well just wait to file until I want benefits; or, if B, I might as well just file at FRA and not suspend.
Yes, it allows you to choose at anytime between FRA (66) and 70, so for example, at 69 you decide you want some of the money you have foregone, but not all of it, so you restart at age 67 and collect the back two years, but still get the age 67 benefit going forward, 8% more than the age 66 benefit.

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Re: Vanguard: "Social Security: How to decide when it's time

Post by Leif » Wed Aug 13, 2014 1:03 am

Professor Emeritus wrote:
I'm sorry but this is not thinking clearly, unless you simply mean that each year when you take it out of your sinking fund you can put it in your portfolio instead of spending it , which is fine. but you dont invade a sinking fund to play the market.
Professor,
I don't know what you mean by sinking fund. According to Investopedia a sinking fund is:
A means of repaying funds that were borrowed through a bond issue. The issuer makes periodic payments to a trustee who retires part of the issue by purchasing the bonds in the open market.
Doesn't seem to have any relation to anything I'm doing.

I also don't know what you mean by playing the market. My equity % declines 2% each year until 65 when I reach my 40% equity target. If I'm above my allocated percent I will sell equities I have in my taxable and place that amount in a CD ladder. That ladder will be my paycheck from retirement to 70 when I will start my SS (assuming I'm still around).

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Re: Vanguard: "Social Security: How to decide when it's time

Post by Lancelot » Wed Aug 13, 2014 3:56 am

Professor Emeritus wrote:
Lancelot wrote: *My Dad took SS at 62 and he is now in his late 80's and pretty healthy. But he simply wasn't comfortable with deferring payments. A bird in the hand... :dollar
[OT comment removed by admin LadyGeek] Why would anyone save at age 25 if he "wasn't comfortable with deferring payments"? I put salary into a DB pension for 30 years.
[Response to OT comment removed by admin LadyGeek]
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Re: Vanguard: "Social Security: How to decide when it's time

Post by Professor Emeritus » Wed Aug 13, 2014 4:05 am

Lancelot wrote:
Professor Emeritus wrote:
Lancelot wrote: *My Dad took SS at 62 and he is now in his late 80's and pretty healthy. But he simply wasn't comfortable with deferring payments. A bird in the hand... :dollar
[OT comment removed by admin LadyGeek] Why would anyone save at age 25 if he "wasn't comfortable with deferring payments"? I put salary into a DB pension for 30 years.
[Response to OT comment removed by admin LadyGeek]

Deferring social security makes no sense if you are ill or poor. But to take it just so you have the money in hand is poor financial judgment.
I had no desire or intent to insult anyone . You were the one who made the "bird in the hand" comment. Deferring social security is a savings plan. It requires delaying gratification
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Re: Vanguard: "Social Security: How to decide when it's time

Post by Professor Emeritus » Wed Aug 13, 2014 4:14 am

Leif wrote:
Professor Emeritus wrote:
I'm sorry but this is not thinking clearly, unless you simply mean that each year when you take it out of your sinking fund you can put it in your portfolio instead of spending it , which is fine. but you dont invade a sinking fund to play the market.
Professor,
I don't know what you mean by sinking fund. According to Investopedia a sinking fund is:
A means of repaying funds that were borrowed through a bond issue. The issuer makes periodic payments to a trustee who retires part of the issue by purchasing the bonds in the open market.
Doesn't seem to have any relation to anything I'm doing.

I also don't know what you mean by playing the market. My equity % declines 2% each year until 65 when I reach my 40% equity target. If I'm above my allocated percent I will sell equities I have in my taxable and place that amount in a CD ladder. That ladder will be my paycheck from retirement to 70 when I will start my SS (assuming I'm still around).
Sinking funds have different meanings in different environments.

Sinking funds can also be used to set aside money for purposes of replacing capital equipment as it becomes obsolete, or major maintenance or renewal of elements of a fixed asset, typically a building. Such a fund is also commonly called a reserve fund, however the distinguishing feature of a sinking fund is that the payments into it are calculated to amortize a forecast future expenditure whereas a reserve fund is intended to equalise expenditure in respect of regularly recurring service items to avoid fluctuations in the amount of service charge payable each year
http://en.wikipedia.org/wiki/Sinking_fund

The capital asset you are buying is an enhanced social security annuity. buying that annuity requires forgoing the annual SS payment from age 62-70. You know exactly how much you need to substitute withdrawals for for SS income. you put that in the sinking fund and withdraw it annually. at age 70 you have a shiny
enhanced SS annuity.

Your sinking fund is not part of your investment portfolio. Your "equity percentage" applies only to your investment portfolio, not your over all assets.
A cd ladder is a fine place to put a sinking fund. but it is a consumption fund, not an investment portfolio.

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Re: Vanguard: "Social Security: How to decide when it's time

Post by vested1 » Wed Aug 13, 2014 6:58 am

Professor Emeritus wrote:
Lancelot wrote:I am going to defer SS with two caveats:

1 If my portfolio took a severe hit, say down 50% I would probably start at FRA.

2 If my health suddenly failed, I'd probably start receiving SS ASAP. Some thing is better than nothing :)
(no problem with point 2)
IMHO point 1 would indicate that you had not properly structured your portfolio

When deferring social security you should create a "sinking fund" of low risk assets designed to carry you to age 70. That sinking fund is not part of your investment portfolio, it is designed for consumption. You do your asset allocation over and above that fund

Otherwise you are allowing market conditions to effectively dictate "liquidation" i.e. you will be taking an unfavorable action based on a market decline

Normally a sinking fund is approximately 8 x the SS expected at age 70 or some lesser amount based on what you would have gotten by taking SS at an earlier age. . You withdraw 1/8 each year and allow SS to grow. After 8 years you have a lifetime inflation protected annuity. In my case I also have a term life insurance policy that expires at age 70 which I pay for out of the withdrawal.
(that is to deal with the endless "well what happens if you defer and get hit by a truck " I insure against that risk.
Thank you Professor for validating my personal strategy. I plan on retiring next year in July at 63 and delaying SS until 70 while my wife who will retire at the same time files at 62. Rather than filing and suspending I will file a restricted application at my FRA and collect about 1k monthly on her benefit while allowing my benefit to grow. The amount taken yearly from the sinking fund would match my SS benefit at age 70. The "sinking fund" will be supplied by tax deferred money previously placed in a fixed 5 year annuity that matures in March of next year. I will draw a larger portion from the fund during ages 63 to 66. At my FRA of 66 I will be able to cut back on withdrawals by the 12k yearly realized from the restricted application.

If all goes as planned I will still have a modest balance of10k left in my "sinking fund" at age 70, discounting interest on CD's or whatever vehicle I park the fund in for the 7 years of withdrawal. This will allow the AA to stay the same on the rest of our portfolio, with the portfolio remaining untouched for those 7 years. Modest growth of 4% to 5% yearly should hopefully replace the sinking fund amount. The total amount of my wife's and my own benefit at my age 70 will be about 1/3 of our retirement income. Along with her pension, which is also "safe" money it will allow for a variable withdrawal rate from the IRA's depending on market performance.

Please shoot holes in this strategy if I have missed something.

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Re: Vanguard: "Social Security: How to decide when it's time

Post by cherijoh » Wed Aug 13, 2014 7:33 am

JW Nearly Retired wrote:Another strong reason to maximize your Social Security income is simply because SS is taxed much more favorably than other income like pensions or IRA withdrawals.

For example, single filing twins with the same gross income of $65k. Twin "A" took SS early in order to grow his IRA, so at age 70 he has $25k SS income and $40k RMD income. Per TaxCaster, this results in $8110 federal taxes owed. Twin "B" delayed SS by using up some of his IRA so he has the reverse, $40k SS and $25k RMD, this results in a federal tax of only $3660. Same gross incomes but a 2.2X bigger federal tax owed by twin "A".

This happens because of the way the tax math phases in taxation of SS as your "other" income grows. I think the message is if you stand any chance of being in this phase-in situation you should maximize SS in favor of your "other" income. It might be prudent to run your own personal estimates through TaxCaster (or your tax software of choice) and see what gives you the greatest after-tax retirement income.
JW
Excellent point. My guess is that the way SS is taxed is a mystery to most people until they start collecting it. I helped my widowed mother with her taxes and wondered more than once who came up with this crazy formula.

The file and suspend mentioned in this thread was news to me. As a single person, I didn't realize there was any benefit to this technique for me.

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Re: Vanguard: "Social Security: How to decide when it's time

Post by Professor Emeritus » Wed Aug 13, 2014 8:06 am

vested1 wrote:
Thank you Professor for validating my personal strategy. I plan on retiring next year in July at 63 and delaying SS until 70 while my wife who will retire at the same time files at 62. Rather than filing and suspending I will file a restricted application at my FRA and collect about 1k monthly on her benefit while allowing my benefit to grow. The amount taken yearly from the sinking fund would match my SS benefit at age 70. The "sinking fund" will be supplied by tax deferred money previously placed in a fixed 5 year annuity that matures in March of next year. I will draw a larger portion from the fund during ages 63 to 66. At my FRA of 66 I will be able to cut back on withdrawals by the 12k yearly realized from the restricted application.

If all goes as planned I will still have a modest balance of10k left in my "sinking fund" at age 70, discounting interest on CD's or whatever vehicle I park the fund in for the 7 years of withdrawal. This will allow the AA to stay the same on the rest of our portfolio, with the portfolio remaining untouched for those 7 years. Modest growth of 4% to 5% yearly should hopefully replace the sinking fund amount. The total amount of my wife's and my own benefit at my age 70 will be about 1/3 of our retirement income. Along with her pension, which is also "safe" money it will allow for a variable withdrawal rate from the IRA's depending on market performance.

Please shoot holes in this strategy if I have missed something.
Why is your wife filing at 62? My wife is totally disabled so she has been on SSDI for several years and does not suffer the early taking reduction.
At FRA I can get half of her pension. 1k a month for a spouse at FRA indicates an age 62 pension of about 24k .
Her pension would increase to FRA and then on to age 70. since you indicate the total is about a third of your retirement income your age 70 pension must be about 30K hers 24 k and 100k from other sources. you have substantial assets
Why not defer her too?
If it's a health issue I understand since that is my boat.

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Re: Vanguard: "Social Security: How to decide when it's time

Post by montanagirl » Wed Aug 13, 2014 9:51 am

Professor Emeritus wrote:
Why would you "file and suspend your own pension? You just don't file for yours. At FRA you file a RA for spouses benefits. You get your spouse benefit, whatever it is and at 70 you get your own benefit with delayed retirement credits. File and suspend is to allow spousal benefits. and no both people cant.
Why file and suspend my own? to take advantage of the retroactive payments should my health go south prior to age 70. I thought that was a main point of the discussion here.

So, I could either get spousal until 70, or ditch that and decide to file at FRA after all before that.

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Re: Vanguard: "Social Security: How to decide when it's time

Post by Professor Emeritus » Wed Aug 13, 2014 10:01 am

caroljm36 wrote:
Professor Emeritus wrote:
Why would you "file and suspend your own pension? You just don't file for yours. At FRA you file a RA for spouses benefits. You get your spouse benefit, whatever it is and at 70 you get your own benefit with delayed retirement credits. File and suspend is to allow spousal benefits. and no both people cant.
Why file and suspend my own? to take advantage of the retroactive payments should my health go south prior to age 70. I thought that was a main point of the discussion here.

So, I could either get spousal until 70, or ditch that and decide to file at FRA after all before that.
I apologize if I misread you.
I don't think you can file and suspend and get an RA for spousal benefits. Since you can always ditch the spousal and file your own it would take a fairly complex risk analysis to show any benefit from forgoing the spouse.

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Re: Vanguard: "Social Security: How to decide when it's time

Post by Leif » Wed Aug 13, 2014 11:23 am

Professor Emeritus wrote:

Your sinking fund is not part of your investment portfolio. Your "equity percentage" applies only to your investment portfolio, not your over all assets.
A cd ladder is a fine place to put a sinking fund. but it is a consumption fund, not an investment portfolio.
I view my CDs as a investment. It is fixed income until I consume the principal. True they are targeted toward providing a paycheck when due. But even if instead of CDs I had 100% stock, and planned to withdraw $50,000 a year, I would consider the stock as part of my investment portfolio. I don't see any advantage in excluding the CDs as part of my investment portfolio.

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Re: Vanguard:"Social Security: How to decide when it's time.

Post by nisiprius » Wed Aug 13, 2014 1:05 pm

Oh, &*%$. To their credit, Vanguard (accidentally?) reproduces a really important footnote regarding the earned income limit. But nobody is going to notice unless they already happen to know the answer.

Almost everybody writing about Social Security says, like Vanguard, "What happens if I collect benefits while working? If you decide to start collecting Social Security before you fully retire, you may forgo a portion of your total allowable benefit." I would guess that almost everybody who reads that misreads that as The Government Punishes People For Working By Confiscating Some Of Their Benefit. And misses the little fine-print detail. Since Vanguard put it in smaller type, I will put it in larger type:

However, once you reach full retirement age, the Social Security Administration will recalculate your benefits to take into account any months in which your payments were reduced.

It's actuarially neutral, statistically any benefits withheld are later returned. Doubtless that's not strictly true to six decimal places but that's the idea.

It actually makes sense. They say "you can retire at 62 or full retirement age (FRA) or anywhere in between, and you get $A/month for life if you retire at 62, a higher $B/month for life if you retire at 64, still higher $C/month if you retire at FRA, etc." What would DO about in-between cases? How much would you pay someone with fluctuating work income, high and low, on and off, between age 62 and FRA? They ought to get something in between $A and $C, but you can't figure out what it should be until they actually reach FRA and have their actual work history.

So, what does SSA do? They make rough adjustments between ages 62 and FRA by only paying part of your benefits if you're only partly retired. Then at FRA, they make a final adjustment and correct everything.

To make the situation clear, and to understand why this provision is basically sensible, suppose X has a full retirement age of 66.

Let's say that the benefit schedule is that if he retires at 62 and doesn't work, he receives $A a month for life.
If he waits until age 64, retires, and then doesn't work, he receives a large number, $B a month for life.

Suppose X files at age 62, starts to receive benefits, and immediately starts working at a full-time job that exceeds the earned income limit so much that his benefits are cut back to zero. In effect the SSA says "Hey, you're not actually retired, so you don't get benefits."

(In real life, the adjustment happens in fits and starts, irregularly--they don't cut back benefits for months and then sent you a notice saying you owe them money, etc.)

Suppose X works for two years, receives no benefits due to the earned income limit, and then stops working. He now begins to receive the full $A a year. This goes on for two years.

CORRECTED:
He reaches full retirement age and at within maybe a year the SSA reviews his records. They say "Hey, we were planning to go on paying you $A a month. But looking at your records, it appears that you retired at age 64, not age 62, so we should be paying $B a month. We are now adjusting your benefit rate up to $B a month and a lump-sum retroactive payment for the time it took us to get around to doing this."
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Re: Vanguard:"Social Security: How to decide when it's time.

Post by technovelist » Wed Aug 13, 2014 1:20 pm

nisiprius wrote:Oh, &*%$. To their credit, Vanguard (accidentally?) reproduces a really important footnote regarding the earned income limit. But nobody is going to notice unless they already happen to know the answer.

Almost everybody writing about Social Security says, like Vanguard, "What happens if I collect benefits while working? If you decide to start collecting Social Security before you fully retire, you may forgo a portion of your total allowable benefit." I would guess that almost everybody who reads that misreads that as The Government Punishes People For Working By Confiscating Some Of Their Benefit. And misses the little fine-print detail, which--to compensate for Vanguard putting in smaller type, I will put in larger type:

However, once you reach full retirement age, the Social Security Administration will recalculate your benefits to take into account any months in which your payments were reduced.

It's actuarially neutral, statistically any benefits withheld are later returned, doubtless that's not strictly true to six decimal places.

It actually makes sense. They say "you can retire at 62 or full retirement age (FRA) or anywhere in between, and you get $A/month for life if you retire at 62, a higher $B/month for life if you retire at 64, still higher $C/month if you retire at FRA, etc." Then they need to deal with the in-between cases. "What about someone who is partially retired, more and less, on and off, to varying degrees, between age 62 and FRA?" They ought to get something in between $A and $C, but you can't figure out what it should be until they actually reach FRA and have their actual work history.

So, what does SSA do? They make rough adjustments between ages 62 and FRA, and then make a final adjustment and correct everything at full retirement age.

To make the situation clear, and to understand why this provision is basically sensible, suppose X has a full retirement age of 66.

Let's say that the benefit schedule is that if he retires at 62 and doesn't work, he receives $A a month for life.
If he waits until age 64, retires, and then doesn't work, he receives a large number, $B a month for life.

Suppose X files at age 62, starts to receive benefits, and immediately starts working at a full-time job that exceeds the earned income limit so much that his benefits are cut back to zero. In effect the SSA says "Hey, you're not actually retired, so you don't get benefits."

(In real life, the adjustment happens in fits and starts, irregularly--they don't cut back benefits for months and then sent you a notice saying you owe them money, etc.)

Suppose X works for two years, receives no benefits due to the earned income limit, and then stops working. He now begins to receive the full $A a year. This goes on for two years.

He reaches full retirement age and the SSA reviews his records. They say "Hey, we've been paying you $A a month and we were planning to go on paying $A a month. But looking at your records, it appears that you retired at age 64, not age 62, so we should have been paying you $B a month for the last two years. So, you get a lump-sum check for the difference, retroactive for two years, and we are now adjusting your benefit rate up to $B a month."
I believe this is slightly incorrect. IIRC, this review won't happen until the year after he reaches FRA, and the lump sum will be retroactive back to FRA.
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Re: Vanguard:"Social Security: How to decide when it's time.

Post by ResearchMed » Wed Aug 13, 2014 1:27 pm

technovelist wrote:
nisiprius wrote:Oh, &*%$. To their credit, Vanguard (accidentally?) reproduces a really important footnote regarding the earned income limit. But nobody is going to notice unless they already happen to know the answer.

Almost everybody writing about Social Security says, like Vanguard, "What happens if I collect benefits while working? If you decide to start collecting Social Security before you fully retire, you may forgo a portion of your total allowable benefit." I would guess that almost everybody who reads that misreads that as The Government Punishes People For Working By Confiscating Some Of Their Benefit. And misses the little fine-print detail, which--to compensate for Vanguard putting in smaller type, I will put in larger type:

However, once you reach full retirement age, the Social Security Administration will recalculate your benefits to take into account any months in which your payments were reduced.

It's actuarially neutral, statistically any benefits withheld are later returned, doubtless that's not strictly true to six decimal places.

It actually makes sense. They say "you can retire at 62 or full retirement age (FRA) or anywhere in between, and you get $A/month for life if you retire at 62, a higher $B/month for life if you retire at 64, still higher $C/month if you retire at FRA, etc." Then they need to deal with the in-between cases. "What about someone who is partially retired, more and less, on and off, to varying degrees, between age 62 and FRA?" They ought to get something in between $A and $C, but you can't figure out what it should be until they actually reach FRA and have their actual work history.

So, what does SSA do? They make rough adjustments between ages 62 and FRA, and then make a final adjustment and correct everything at full retirement age.

To make the situation clear, and to understand why this provision is basically sensible, suppose X has a full retirement age of 66.

Let's say that the benefit schedule is that if he retires at 62 and doesn't work, he receives $A a month for life.
If he waits until age 64, retires, and then doesn't work, he receives a large number, $B a month for life.

Suppose X files at age 62, starts to receive benefits, and immediately starts working at a full-time job that exceeds the earned income limit so much that his benefits are cut back to zero. In effect the SSA says "Hey, you're not actually retired, so you don't get benefits."

(In real life, the adjustment happens in fits and starts, irregularly--they don't cut back benefits for months and then sent you a notice saying you owe them money, etc.)

Suppose X works for two years, receives no benefits due to the earned income limit, and then stops working. He now begins to receive the full $A a year. This goes on for two years.

He reaches full retirement age and the SSA reviews his records. They say "Hey, we've been paying you $A a month and we were planning to go on paying $A a month. But looking at your records, it appears that you retired at age 64, not age 62, so we should have been paying you $B a month for the last two years. So, you get a lump-sum check for the difference, retroactive for two years, and we are now adjusting your benefit rate up to $B a month."
I believe this is slightly incorrect. IIRC, this review won't happen until the year after he reaches FRA, and the lump sum will be retroactive back to FRA.
This is something I've never understood, HOW they "adjust" for the $$ benefits not paid because of "too much" in earnings.

IS it a lump sum?
If so, I assume that could bump someone into a higher tax bracket.
(And could it end up with more of the SS benefits being subject to tax than if the amount was spread out over several years?)

If it's not a lump sum, then how is it determined "how much per month" and for "how many months" to pay the person until the full amount is recovered?

And I assume that either way, there is no interest paid for the months/years that SS did NOT make those earlier payments?

Thanks.

RM
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Re: Vanguard:"Social Security: How to decide when it's time.

Post by nisiprius » Wed Aug 13, 2014 1:29 pm

technovelist wrote:I believe this is slightly incorrect. IIRC, this review won't happen until the year after he reaches FRA, and the lump sum will be retroactive back to FRA.
It's even more complicated than that, because it involves batch processing that is only done once or maybe twice a year, so it's something like "the next processing cycle after the month after your birthday." And amusingly enough the acronym is ARF, Adjusted Reduction Factor. But as you say it's retroactive, and nothing in Social Security happens continuously, it all happens in fits and starts with them sending you retroactive payments for things and (sigh) retroactive BILLS for things.
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Re: Vanguard:"Social Security: How to decide when it's time.

Post by ObliviousInvestor » Wed Aug 13, 2014 1:30 pm

ResearchMed wrote:This is something I've never understood, HOW they "adjust" for the $$ benefits not paid because of "too much" in earnings.

IS it a lump sum?
If so, I assume that could bump someone into a higher tax bracket.
(And could it end up with more of the SS benefits being subject to tax than if the amount was spread out over several years?)

If it's not a lump sum, then how is it determined "how much per month" and for "how many months" to pay the person until the full amount is recovered?

And I assume that either way, there is no interest paid for the months/years that SS did NOT make those earlier payments?

Thanks.

RM
Once you reach FRA, they count up the number of months during which you received no benefit or a reduced benefit due to the earnings test. Then they recalculate your benefit as if you claimed that many months later than you actually did. (Though as technovelist and nisiprius are discussing now, the correction isn't actually done immediately upon reaching FRA.)
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ResearchMed
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Re: Vanguard:"Social Security: How to decide when it's time.

Post by ResearchMed » Wed Aug 13, 2014 1:35 pm

ObliviousInvestor wrote:
ResearchMed wrote:This is something I've never understood, HOW they "adjust" for the $$ benefits not paid because of "too much" in earnings.

IS it a lump sum?
If so, I assume that could bump someone into a higher tax bracket.
(And could it end up with more of the SS benefits being subject to tax than if the amount was spread out over several years?)

If it's not a lump sum, then how is it determined "how much per month" and for "how many months" to pay the person until the full amount is recovered?

And I assume that either way, there is no interest paid for the months/years that SS did NOT make those earlier payments?

Thanks.

RM
Once you reach FRA, they count up the number of months during which you received no benefit or a reduced benefit due to the earnings test. Then they recalculate your benefit as if you claimed that many months later than you actually did. (Though as technovelist and nisiprius are discussing now, the correction isn't actually done immediately upon reaching FRA.)
And I assume that there is no interest taken into account, since they are "paying you back" for benefits from previous years?

I certainly agree with Nisiprius that many people interpret this as "if you earn too much before FRA, you lose your benefits - or some of them - forever", just like many people think that up to 85% of SS benefits are totally lost to tax, rather than up to 85% being "taxable" (also meaning at least 15% is not subject to tax).

Given the widespread confusion, it would be nice if SS made these things more clear.

RM
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