When to claim Social Security: two reasons not to wait

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Church Lady
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When to claim Social Security: two reasons not to wait

Post by Church Lady » Thu Jan 25, 2018 1:50 am

I stumbled upon this article today in my web travels:

http://danielamerman.com/va/BenefitAge.html
Making optimal decisions about when to claim Social Security benefits is of vital importance. For a person of retirement age with average savings, this choice may be more important than any other aspect of financial planning when it comes to the standard of living in retirement – yet, much of the information available is overly simplistic. This analysis looks at the claiming decision on four different levels, to better capture the tradeoffs involved and the impact that different choices can have.
Whereas I see much Boglehead discussion about the benefit to waiting until age 70 to claim, I don't see much discussion of 'hold harmless' and trust fund depletion.

So is this guy onto something? Or not? I have a few years before I can claim, but the discussion may help persons age 62+.
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Re: When to claim Social Security: two reasons not to wait

Post by SGM » Thu Jan 25, 2018 4:23 am

My understanding is that the hold harmless aspect of Medicare does not apply to higher income folks. There is a high probablililty that one of us will live beyond 90. One of us had parents whose average age at death was 102 and 6 months. We are planning on using SS for longevity insurance.

I am not factoring in SS trust fund issues. Future changes to SS law and taxes cannot be discussed on this forum. I generally ignore gloom and doom predictions and am not concerned with things that are completely out of my control.

The analysis is fairly comprehensive but does not cover special issues related to claiming for married couples. The analysis has little import for those concerned with longevity insurance as it only covers normal life expectancy.

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Re: When to claim Social Security: two reasons not to wait

Post by The Wizard » Thu Jan 25, 2018 7:06 am

Church Lady wrote:
Thu Jan 25, 2018 1:50 am
I stumbled upon this article today in my web travels:

http://danielamerman.com/va/BenefitAge.html
Making optimal decisions about when to claim Social Security benefits is of vital importance. For a person of retirement age with average savings, this choice may be more important than any other aspect of financial planning when it comes to the standard of living in retirement – yet, much of the information available is overly simplistic. This analysis looks at the claiming decision on four different levels, to better capture the tradeoffs involved and the impact that different choices can have.
Whereas I see much Boglehead discussion about the benefit to waiting until age 70 to claim, I don't see much discussion of 'hold harmless' and trust fund depletion.

So is this guy onto something? Or not? I have a few years before I can claim, but the discussion may help persons age 62+.
None of this is really new.
For retirees in decently good health with larger than average tax deferred accumulation and larger than average AGI (over $85,000), it makes more sense to delay SS till closer to age 70.

For retirees with significant health problems OR with low to modest retirement savings OR (possibly) with low AGI, it might make more sense to start SS closer to age 62 or when stopping full-time employment...
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Nestegg_User
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Re: When to claim Social Security: two reasons not to wait

Post by Nestegg_User » Thu Jan 25, 2018 2:26 pm

Having glanced over the linked article, a few things came out:
the article assumed higher participation rates in future (returning to prior levels)— this may be optimistic, and further reduction in participation rate may result even larger reduction in the payouts after 2034

didn’t assume really anything specific about the retirees savings ( didn’t even define what “average savings “ might be, although from other studies I would have assumed something like 200-300 k, which to most of us would have made us continue to w@rk as it’s way too low). So it didn’t consider any advantage of not claiming for Roth conversion or tax optimization relative to long term gains versus regular SS income (some of which may push you into higher rates). I suspect that the advantage, long term, of being able to convert to Roth would be higher than that of early claiming for a significant percentage of the BH community. The article appears to be more directed to those without those concerns

it did examine the one case of hold-harmless that would have pushed back the break even of collect at 62 versus 70 to over 90 when also inflation adjusted. not stated is that the retiree could start SS at the time the hold harmless provision might call for such drastic results so as to mitigate the effect. This would be similar to starting SS if a major recession started so as to start cash flow instead of drawing down own portfolio

The article could have examined the collect-at-62 versus collect-at-FRA versus collect-at-70 to better address the cumulative advantage of any scheme as that would better show why the delay to 70, with its 5% increase per year beyond FRA, could outweigh earlier SS start

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Re: When to claim Social Security: two reasons not to wait

Post by DrGoogle2017 » Thu Jan 25, 2018 2:33 pm

Hold harmless works for somebody who is at least 65, otherwise it doesn't work because you are not on Medicare yet.

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Re: When to claim Social Security: two reasons not to wait

Post by Blueskies123 » Thu Jan 25, 2018 2:49 pm

Trust fund depletion gets talked about from time to time but the threads get quickly locked. You might have to go elsewhere.

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Re: When to claim Social Security: two reasons not to wait

Post by montanagirl » Thu Jan 25, 2018 2:52 pm

So, max advantage claiming at 69 - ? Am I reading it wrong?

Works for me since I am thinking of filing at 69 1/2.

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Re: When to claim Social Security: two reasons not to wait

Post by Nestegg_User » Thu Jan 25, 2018 2:56 pm

DrGoogle2017 wrote:
Thu Jan 25, 2018 2:33 pm
Hold harmless works for somebody who is at least 65, otherwise it doesn't work because you are not on Medicare yet.
obviously

(it was included in the article because of the age 70 claiming discussion in it)

for us, the first question is “do we even need Part B?” (understood of course that Part A is free at 65 now) as some FEHB plans now aren’t that bad for total deductible cost versus same with inclusion of Part B when considering the extra cost of part B (at the higher rate due to our expected WR plus pension plus SS)

I expect that, as i’m now in the zone, i’ll delay SS while doing Roth conversions and only consider starting before 70 if we have a major recession/ market drop. ISP has me at 45% equities now, down from 55% earlier in just pre-retirement, with potential increase after starting SS as more needs would be met with (partially) inflation indexed income (pension and SS) so ability to take risk could increase (might go to as high as 60/40 then, no higher)

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Re: When to claim Social Security: two reasons not to wait

Post by MathWizard » Thu Jan 25, 2018 3:08 pm

Church Lady wrote:
Thu Jan 25, 2018 1:50 am

...
Whereas I see much Boglehead discussion about the benefit to waiting until age 70 to claim, I don't see much discussion of 'hold harmless' and trust fund depletion.

So is this guy onto something? Or not? I have a few years before I can claim, but the discussion may help persons age 62+.
Not really, I'm not interested in maximizing what I get from SS, I am interested in making sure every outcome is
acceptable.

The biggest part of waiting until 70 for me are three factors:
1) Longevity insurance: I cannot know how long my spouse and I will live. Averages do not matter. If they did, I would never
buy life insurance, and just buy it for the year of the average age of mortality.

2) Survivor benefits for spouse: For a couple where one has significantly different benefits (more than a factor of 2x), and where
the spouse with the lower benefits can draw some benefits on their own record (at least at their FRA), it pays to have the one
with larger benefits delay to 70, and have the one with lesser benefits take their benefits at FRA, and switch to spousal when
their spouse takes theirs. The key is that the larger benefit becomes the benefit for either surviving spouse, so you need to
look at the expected age when the last of the pair dies, not just the one with the higher benefit.

3) Taxation of SS benefits and RMDs: For people with significant tax deferred, RMDs can push the amount that they are required to
withdraw from tax deferred, and can cause up to 85% of SS benefits to be taxable income. Even not considering that,
RMDs can push you into a higher tax bracket. Deferring SS, and doing ROTH conversions before age 70 can mitigate
those effects.

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Re: When to claim Social Security: two reasons not to wait

Post by JBTX » Thu Jan 25, 2018 3:35 pm

I didn't know about the hold harmless provision. I googled and got some info, but can anybody elaborate on that?

I thought the article was thought provoking, if nothing else.

In our case it could make sense to file early if then adult disabled child is on SSI and becomes eligible for SSDI upon our filing.

If you have significant other financial income in retirement, the tax on social security income could hurt you more if you have higher SS income by delaying.

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Re: When to claim Social Security: two reasons not to wait

Post by vested1 » Thu Jan 25, 2018 4:59 pm

The article bases its conclusions of "break-even" amounts, which don't take couple's strategies into account, such as spousal or restricted application. Additionally, every person's break even date is different, depending on the strategy and marital status, whereas the article implies it is set in stone. For instance, the extra $1,007 a month I will get starting this year by filing a restricted application at age 66, getting half of my wife's PIA amount, adds 48k to the amount cumulatively received by age 70 when I file for my own. How is that accounted for in the article's break even analysis, and if it was how would the author know what my wife's PIA would be as compared to mine?

Break even might have some significance if you could convince SS to save it all up and give it to you as a lump sum with 8% interest. However, it is income, not a pot of gold at the end of a rainbow.

Speculation on the future of SS is not only prohibited in this forum but regularly used as a scare tactic, most often by salesmen trying to get you to buy a variable annuity.

The true intent of the article is found by selecting the tab above it which lists "products". Never listen to someone who's livelihood depends on getting you to give them your money to invest, or convincing you to buy their snake oil.

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Re: When to claim Social Security: two reasons not to wait

Post by DrGoogle2017 » Thu Jan 25, 2018 6:31 pm

Nearing_Destination wrote:
Thu Jan 25, 2018 2:56 pm
DrGoogle2017 wrote:
Thu Jan 25, 2018 2:33 pm
Hold harmless works for somebody who is at least 65, otherwise it doesn't work because you are not on Medicare yet.
obviously

(it was included in the article because of the age 70 claiming discussion in it)

for us, the first question is “do we even need Part B?” (understood of course that Part A is free at 65 now) as some FEHB plans now aren’t that bad for total deductible cost versus same with inclusion of Part B when considering the extra cost of part B (at the higher rate due to our expected WR plus pension plus SS)

I expect that, as i’m now in the zone, i’ll delay SS while doing Roth conversions and only consider starting before 70 if we have a major recession/ market drop. ISP has me at 45% equities now, down from 55% earlier in just pre-retirement, with potential increase after starting SS as more needs would be met with (partially) inflation indexed income (pension and SS) so ability to take risk could increase (might go to as high as 60/40 then, no higher)
In the OP, 62 was mentioned. So it seems like not a legit reason anyway.

Hold harmless is a very small amount, I recall my husband’s premium part B would have been $109 vs $128 or now $134 per month. Not a huge amount unlike the IRMMA(I hope I get the acronym correct).

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Re: When to claim Social Security: two reasons not to wait

Post by Nestegg_User » Thu Jan 25, 2018 8:16 pm

can definitely appreciate that

for us, if we pull 4% of portfolio along with my existing pension and add in just my SS we’d be over twice the average family income ( and ours would be year in year out, with no need for savings, already having paid off house and multiple vehicles) so we’d definitely be in IRMAA territory in addition to higher medicare cost

It may even make sense to bypass medicare part B until I start SS and take the hit of 10%/yr excess versus paying the premium — although that’s unlikely since the increase would be forever. I know ours is a special case in that we have options that not as many have, along with the means to navigate the options. Having waited to retire until the health insurance coverage was guaranteed in retirement (even after FI) gives us options of not requiring Part B if the numbers don’t work out. ( currently, some HI options allow for a rebate towards Part B premium which would tip towards paying the part B and would result in almost no more out of pocket costs over the premiums paid)

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Re: When to claim Social Security: two reasons not to wait

Post by grabiner » Thu Jan 25, 2018 11:57 pm

The first adjustment, for spending power, is almost right. If you claim SS at 62 rather than 70, you could use the SS payments you received at 62-69 to buy TIPS, which would give you a risk-free benefit growing with inflation. The TIPS could cover the difference in SS payments, but not forever; the break-even point is the point at which the TIPS ladder would run out. If TIPS earn 0% above inflation, then the break-even age would be correct as computed in the article. With TIPS of the appropriate duration actually yielding 0.5% above inflation, the break-even moves a bit earlier.

The second adjustment, for Medicare, is not properly computed. Unless you are affected by the hold-harmless rule, or the increased premiums under IRMAA for high-income retirees, the existence of Medicare is irrelevant to your SS benefit; you will spend the same number of dollars on Medicare at each age regardless of how much SS you get. The article does not make an adjustment at ages 65-69 for the Medicare cost when SS has not yet been claimed, and reduces the SS by the same percentage, rather than the same dollar amount, for each year after 70.

Finally, there is the issue of risk. Suppose that you work out that you will break even in expected value. For example, with a proper adjustment, men of average life expectancy are about break-even claiming at 68 or 69, and lose a bit waiting to 70. If you wait to claim, you will have less money if you die young, and more money if you have a long life and thus need to spend more money over your lifetime. Delaying SS (and likewise buying other annuities, but SS is usually the best deal) allows you to increase your safe sustainable standard of living in retirement. If you already have enough to retire on, and will leave a large portfolio to your heirs, then expected value becomes more relevant.
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Re: When to claim Social Security: two reasons not to wait

Post by walkindude » Fri Jan 26, 2018 12:42 pm

Nearing_Destination wrote:
Thu Jan 25, 2018 8:16 pm
for us, if we pull 4% of portfolio along with my existing pension and add in just my SS we’d be over twice the average family income ( and ours would be year in year out, with no need for savings, already having paid off house and multiple vehicles) so we’d definitely be in IRMAA territory in addition to higher medicare cost
Just realize IRMAA starts at $170k (for MFJ), over three times the average family income I've heard of around $53k. Just noting so you don't fool yourself into the wrong calculation with IRMAA.

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Re: When to claim Social Security: two reasons not to wait

Post by Diogenes » Fri Jan 26, 2018 1:09 pm

The Wizard wrote:
Thu Jan 25, 2018 7:06 am
Church Lady wrote:
Thu Jan 25, 2018 1:50 am
I stumbled upon this article today in my web travels:

http://danielamerman.com/va/BenefitAge.html
Making optimal decisions about when to claim Social Security benefits is of vital importance. For a person of retirement age with average savings, this choice may be more important than any other aspect of financial planning when it comes to the standard of living in retirement – yet, much of the information available is overly simplistic. This analysis looks at the claiming decision on four different levels, to better capture the tradeoffs involved and the impact that different choices can have.
Whereas I see much Boglehead discussion about the benefit to waiting until age 70 to claim, I don't see much discussion of 'hold harmless' and trust fund depletion.

So is this guy onto something? Or not? I have a few years before I can claim, but the discussion may help persons age 62+.
None of this is really new.
For retirees in decently good health with larger than average tax deferred accumulation and larger than average AGI (over $85,000), it makes more sense to delay SS till closer to age 70.

For retirees with significant health problems OR with low to modest retirement savings OR (possibly) with low AGI, it might make more sense to start SS closer to age 62 or when stopping full-time employment...
Have to disagree with your opinion on this one. I'm firmly in the over $85K AGI group, but it makes no sense for my spouse to defer past 62. Why? Because we would deplete our own assets first, the breakeven point is about age 75, and we would then increase the percentage for which we are dependent on the government. Also, the estate balance that we could pass on would be reduced meanwhile. A higher SS payment cannot be passed to kids. No thanks.
I prefer to be mostly independent of any changes made by the government. But each to their own...

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Re: When to claim Social Security: two reasons not to wait

Post by DrGoogle2017 » Fri Jan 26, 2018 1:23 pm

walkindude wrote:
Fri Jan 26, 2018 12:42 pm
Nearing_Destination wrote:
Thu Jan 25, 2018 8:16 pm
for us, if we pull 4% of portfolio along with my existing pension and add in just my SS we’d be over twice the average family income ( and ours would be year in year out, with no need for savings, already having paid off house and multiple vehicles) so we’d definitely be in IRMAA territory in addition to higher medicare cost
Just realize IRMAA starts at $170k (for MFJ), over three times the average family income I've heard of around $53k. Just noting so you don't fool yourself into the wrong calculation with IRMAA.
Except, you can’t count on being MFJ, one spouse might die, so if your income is higher than $85k, then you are paying higher premium.

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Re: When to claim Social Security: two reasons not to wait

Post by Nestegg_User » Fri Jan 26, 2018 1:26 pm

walkindude wrote:
Fri Jan 26, 2018 12:42 pm
Nearing_Destination wrote:
Thu Jan 25, 2018 8:16 pm
for us, if we pull 4% of portfolio along with my existing pension and add in just my SS we’d be over twice the average family income ( and ours would be year in year out, with no need for savings, already having paid off house and multiple vehicles) so we’d definitely be in IRMAA territory in addition to higher medicare cost
Just realize IRMAA starts at $170k (for MFJ), over three times the average family income I've heard of around $53k. Just noting so you don't fool yourself into the wrong calculation with IRMAA.
Thanks

stand corrected for a single SS

i suspect that I was remembering the IRMAA issue from calculating potential Roth after SS where we would likely be there with any significant conversions after SS

i’ll revisit, I think that’s why we needed to start the conversions earlier; I’m still in early 60’s so have time before, but with the amount in tax deferred we’ve got to get going so we get the benefit and not the “uncle “

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Re: When to claim Social Security: two reasons not to wait

Post by PapaGeek » Fri May 11, 2018 10:15 am

The thing that bothers me about most of these “break even” articles and threads is that they do all of their calculations based solely on the size of the Social Security check that you will receive each year.

What they do not consider is that the size of your benefit determines how much “tax deferred” income you receive and therefore how much income you will need from other sources to achieve the same after federal tax lifestyle.

When you use your “Net Benefit”, Benefits minus taxes, instead of the gross benefits you can reduce your break even point by multiple years!

If the government gives you $20,000 and then takes back $3,000 in taxes, bottom line, how much did the government actually give you?

Here is a chart that I created for another forum!

Image

If you compare the full benefits for age 63 vs age 66, break even does not happen until age 77. When you consider the net benefits, how much did you get from the Federal Government after tax, break even happens at age 73 and 4 months, 42 months earlier!

Looking at the right hand columns based on the 50% and 85% taxability factors of your Social Security benefits and based on the income needed for this $48,000 after tax lifestyle, you can see where less of your benefit is taxable as your benefit increases because more of your gross income is tax deferred. If you wait until 70 you will hardly pay any federal taxes at all!

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Re: When to claim Social Security: two reasons not to wait

Post by jeffyscott » Fri May 11, 2018 11:04 am

PapaGeek wrote:
Fri May 11, 2018 10:15 am
What they do not consider is that the size of your benefit determines how much “tax deferred” income you receive and therefore how much income you will need from other sources to achieve the same after federal tax lifestyle.

When you use your “Net Benefit”, Benefits minus taxes, instead of the gross benefits you can reduce your break even point by multiple years!
The best filing decision, including tax impacts, is something I have wondered about. But in my case, I think the effect might be the reverse. Pension income, alone, will make our SS 85% taxable, so that part is not an issue.

If we both claim at 62, we will be able to stay in the 12% Federal bracket while still doing some Roth conversions as long as we both are alive. When there is one survivor, the 12% bracket will be completely filled (or nearly so) by pension. So delaying may cause more income to be taxed at 22%. But it's complicated by the fact that delay allows more conversions at 12% prior to 70 (but less after) as long as we both are alive.

I've not done any detailed analysis at this time as we won't need to make our first decision regarding SS for several more years.
press on, regardless - John C. Bogle

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Re: When to claim Social Security: two reasons not to wait

Post by jeffyscott » Fri May 11, 2018 11:24 am

DrGoogle2017 wrote:
Thu Jan 25, 2018 2:33 pm
Hold harmless works for somebody who is at least 65, otherwise it doesn't work because you are not on Medicare yet.
This makes me lean toward starting SS no later than 65. Or maybe it would depend on the Medicare premiums that year, if the non-hold harmless beneficiaries got a large increase, maybe it would make sense to wait and see if rates go down?

Barring major changes, spouse will definitely start at 62, as she had the lower income.
press on, regardless - John C. Bogle

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Re: When to claim Social Security: two reasons not to wait

Post by wolf359 » Fri May 11, 2018 11:41 am

The article had some valuable points, but I had already accounted for most of them in my own analysis. One of his key considerations is the point at which the trust fund depletion may hit. A factor that he did not consider was where the timing of the trust fund depletion hits on your own personal timeframe.

He essentially wrote the article for someone who is 62 now. I am 50 now, and won't even turn 62 until around the time the depletion is estimated to occur. Therefore, most of the timing issues are moot -- I'm trying to maximize benefits under whatever circumstances are present at the time I'm hitting ages 62-70, under whatever rules are applicable at that time (The laws will probably change. No one knows what they'll look like.) I have to wait to wait.

I'm intending to wait partially because if the benefits are cut, I'd want to maximize the benefits that I do get. I don't really have any expectation that I'd get the full payments that are stated in the current program. (The SSA funding warning on my current statements pretty much provide notification of that.) As a result, I am planning for life without relying on SS, and use a delay to 70 to treat it as a longevity annuity.

It's not supposed to be a retirement program. It's supposed to be an insurance program. It's in the name. The formal name is the "'Old-Age, Survivors and Disability Insurance Program."

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Re: When to claim Social Security: two reasons not to wait

Post by dm200 » Fri May 11, 2018 11:44 am

Hard to predict the future!!

I tend to lean towards existing and qualified recipients not being as adversely affected by future changes as the younger segment of the population.

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Re: When to claim Social Security: two reasons not to wait

Post by afan » Fri May 11, 2018 11:45 am

Currently, for someone who is still working and in good health, it would seem hard to justify collecting early. Eighty five percent of the benefit will be taxed at a high rate, so you have only the after tax value of the benefit to weigh against the increased monthly amounts to be had by waiting. Since there is no advantage to delaying past 70, people who are still working might as well start collecting at that age. But taking the money earlier does not seem to pay off.

Unpredictable changes in the economy, SS or tax law might change that, but until they happen there is no way to know whether the optimum would shift towards earlier or later initiation of benefits. Each person can make a guess of longevity, constantly updated, based on their health. That is the biggest unknown and prediction of longevity could be wildly off base. So much so that debating fine deatils of discount rates seems beside the point. You can plan based on a life expectancy of 92, then get a fatal cancer at 65.
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Re: When to claim Social Security: two reasons not to wait

Post by The Wizard » Fri May 11, 2018 11:48 am

jeffyscott wrote:
Fri May 11, 2018 11:24 am
DrGoogle2017 wrote:
Thu Jan 25, 2018 2:33 pm
Hold harmless works for somebody who is at least 65, otherwise it doesn't work because you are not on Medicare yet.
This makes me lean toward starting SS no later than 65. Or maybe it would depend on the Medicare premiums that year, if the non-hold harmless beneficiaries got a large increase, maybe it would make sense to wait and see if rates go down?
Medicare premiums are definitely not going to "go down", imo.

It's true that you'll have five years, from 65 to 70, where your base tier premium is not covered by the Hold Harmless thing if you delay SS until age 70.
But I don't think that alone is a big enough issue to make claiming SS at 65 a slam dunk vs claiming at 70.
We need DATA over the past decade showing base tier Medicare premiums with and without the Hold Harmless cap...
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Re: When to claim Social Security: two reasons not to wait

Post by dm200 » Fri May 11, 2018 12:02 pm

The Wizard wrote:
Fri May 11, 2018 11:48 am
jeffyscott wrote:
Fri May 11, 2018 11:24 am
DrGoogle2017 wrote:
Thu Jan 25, 2018 2:33 pm
Hold harmless works for somebody who is at least 65, otherwise it doesn't work because you are not on Medicare yet.
This makes me lean toward starting SS no later than 65. Or maybe it would depend on the Medicare premiums that year, if the non-hold harmless beneficiaries got a large increase, maybe it would make sense to wait and see if rates go down?
Medicare premiums are definitely not going to "go down", imo.
It's true that you'll have five years, from 65 to 70, where your base tier premium is not covered by the Hold Harmless thing if you delay SS until age 70.
But I don't think that alone is a big enough issue to make claiming SS at 65 a slam dunk vs claiming at 70.
We need DATA over the past decade showing base tier Medicare premiums with and without the Hold Harmless cap...
We cannot talk (much) about them, but there are proposals/discussions about further capping Medicare premiums in relation to SS retirement levels/increases.

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Re: When to claim Social Security: two reasons not to wait

Post by Boglegrappler » Fri May 11, 2018 12:16 pm

We cannot talk (much) about them, but there are proposals/discussions about further capping Medicare premiums in relation to SS retirement levels/increases.
I'm not sure I'm up on the various discussions, but those interested in how Medicare is paid for should read the Kaiser Family Foundation articles, which usually have nice charts to help inform you. The basic facts are that Medicare Premiums cover about 1/8 of the total program expenditures, and another roughly 3/8 of the program cost is paid for by the medicare portion of the payroll taxes. So the medicare specific premiums and taxes cover about half of the current actual cost. The remaining half comes from "general revenues", which basically means income taxes and borrowing.

People can make their own guesses about what may happen in the future. It helps to have a handle on what happens currently.

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Re: When to claim Social Security: two reasons not to wait

Post by dm200 » Fri May 11, 2018 12:25 pm

Boglegrappler wrote:
Fri May 11, 2018 12:16 pm
We cannot talk (much) about them, but there are proposals/discussions about further capping Medicare premiums in relation to SS retirement levels/increases.
I'm not sure I'm up on the various discussions, but those interested in how Medicare is paid for should read the Kaiser Family Foundation articles, which usually have nice charts to help inform you. The basic facts are that Medicare Premiums cover about 1/8 of the total program expenditures, and another roughly 3/8 of the program cost is paid for by the medicare portion of the payroll taxes. So the medicare specific premiums and taxes cover about half of the current actual cost. The remaining half comes from "general revenues", which basically means income taxes and borrowing.
People can make their own guesses about what may happen in the future. It helps to have a handle on what happens currently.
Yes, I agree.

To me, one (of several) disturbing trends is the apparent worsening health of so many folks coming on to medicare - overweight, obesity, type 2 diabetes, etc. -- all pf which increase the cost of their healthcare.

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Re: When to claim Social Security: two reasons not to wait

Post by jeffyscott » Fri May 11, 2018 12:55 pm

The Wizard wrote:
Fri May 11, 2018 11:48 am
jeffyscott wrote:
Fri May 11, 2018 11:24 am
DrGoogle2017 wrote:
Thu Jan 25, 2018 2:33 pm
Hold harmless works for somebody who is at least 65, otherwise it doesn't work because you are not on Medicare yet.
This makes me lean toward starting SS no later than 65. Or maybe it would depend on the Medicare premiums that year, if the non-hold harmless beneficiaries got a large increase, maybe it would make sense to wait and see if rates go down?
Medicare premiums are definitely not going to "go down", imo.
I was thinking of the hold harmless thing resulting in a narrow group paying all the increases for at least one year, but then group would expand based on future increases in SS and this might result in lower premiums. But after further thought, I realized this would not matter as you would pay the temporary higher rate whether you took SS or not.
press on, regardless - John C. Bogle

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Re: When to claim Social Security: two reasons not to wait

Post by JoinToday » Fri May 11, 2018 1:11 pm

afan wrote:
Fri May 11, 2018 11:45 am
Currently, for someone who is still working and in good health, it would seem hard to justify collecting early. Eighty five percent of the benefit will be taxed at a high rate, so you have only the after tax value of the benefit to weigh against the increased monthly amounts to be had by waiting. Since there is no advantage to delaying past 70, people who are still working might as well start collecting at that age. But taking the money earlier does not seem to pay off.

Unpredictable changes in the economy, SS or tax law might change that, but until they happen there is no way to know whether the optimum would shift towards earlier or later initiation of benefits. Each person can make a guess of longevity, constantly updated, based on their health. That is the biggest unknown and prediction of longevity could be wildly off base. So much so that debating fine deatils of discount rates seems beside the point. You can plan based on a life expectancy of 92, then get a fatal cancer at 65.
Is longevity (which is unknown / has really large uncertainty) really the dominant factor? I am trying to plan Roth conversions, RMDs, and when to file for SS. I haven't spent a lot of time looking at it, but if taxes, etc are not a big factor compared to longevity error, maybe I should just flip a coin. As it is right now, between qualified dividends and using losses (from tax loss harvesting in 2008), I will probably pay very little tax for the next 9 years until RMDs start. (at which time all hell breaks loose with taxes). I may move from California to a low/non-tax state like Florida or Texas when the time comes.
I wish I had learned about index funds 25 years ago

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Re: When to claim Social Security: two reasons not to wait

Post by dm200 » Sat May 12, 2018 1:13 pm

JoinToday wrote:
Fri May 11, 2018 1:11 pm
afan wrote:
Fri May 11, 2018 11:45 am
Currently, for someone who is still working and in good health, it would seem hard to justify collecting early. Eighty five percent of the benefit will be taxed at a high rate, so you have only the after tax value of the benefit to weigh against the increased monthly amounts to be had by waiting. Since there is no advantage to delaying past 70, people who are still working might as well start collecting at that age. But taking the money earlier does not seem to pay off.

Unpredictable changes in the economy, SS or tax law might change that, but until they happen there is no way to know whether the optimum would shift towards earlier or later initiation of benefits. Each person can make a guess of longevity, constantly updated, based on their health. That is the biggest unknown and prediction of longevity could be wildly off base. So much so that debating fine deatils of discount rates seems beside the point. You can plan based on a life expectancy of 92, then get a fatal cancer at 65.
Is longevity (which is unknown / has really large uncertainty) really the dominant factor? I am trying to plan Roth conversions, RMDs, and when to file for SS. I haven't spent a lot of time looking at it, but if taxes, etc are not a big factor compared to longevity error, maybe I should just flip a coin. As it is right now, between qualified dividends and using losses (from tax loss harvesting in 2008), I will probably pay very little tax for the next 9 years until RMDs start. (at which time all hell breaks loose with taxes). I may move from California to a low/non-tax state like Florida or Texas when the time comes.
I tend to think so.

Longevity (on average) has been increasing in recent decades, however, that trend (unfortunately) may be reversing due to (apparent) increased health problems of the retiring population.

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Re: When to claim Social Security: two reasons not to wait

Post by delamer » Sat May 12, 2018 1:27 pm

dm200 wrote:
Sat May 12, 2018 1:13 pm
JoinToday wrote:
Fri May 11, 2018 1:11 pm
afan wrote:
Fri May 11, 2018 11:45 am
Currently, for someone who is still working and in good health, it would seem hard to justify collecting early. Eighty five percent of the benefit will be taxed at a high rate, so you have only the after tax value of the benefit to weigh against the increased monthly amounts to be had by waiting. Since there is no advantage to delaying past 70, people who are still working might as well start collecting at that age. But taking the money earlier does not seem to pay off.

Unpredictable changes in the economy, SS or tax law might change that, but until they happen there is no way to know whether the optimum would shift towards earlier or later initiation of benefits. Each person can make a guess of longevity, constantly updated, based on their health. That is the biggest unknown and prediction of longevity could be wildly off base. So much so that debating fine deatils of discount rates seems beside the point. You can plan based on a life expectancy of 92, then get a fatal cancer at 65.
Is longevity (which is unknown / has really large uncertainty) really the dominant factor? I am trying to plan Roth conversions, RMDs, and when to file for SS. I haven't spent a lot of time looking at it, but if taxes, etc are not a big factor compared to longevity error, maybe I should just flip a coin. As it is right now, between qualified dividends and using losses (from tax loss harvesting in 2008), I will probably pay very little tax for the next 9 years until RMDs start. (at which time all hell breaks loose with taxes). I may move from California to a low/non-tax state like Florida or Texas when the time comes.
I tend to think so.

Longevity (on average) has been increasing in recent decades, however, that trend (unfortunately) may be reversing due to (apparent) increased health problems of the retiring population.

We are all subject to the same uncertainty with regard to taxes, the stock market, Social Security, etc. and we will both individually and collectively feel their impacts.

But each of us has a very individual time of death.

So yes, if I knew how long I was going to live that would have a bigger impact on my planning than if I knew what tax rates were going to be in 20 years (if nothing else, I might not care about tax rates then if I was going to die in 19 years).

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Re: When to claim Social Security: two reasons not to wait

Post by #Cruncher » Sat May 12, 2018 3:07 pm

PapaGeek wrote:
Fri May 11, 2018 10:15 am
If you compare the full benefits for age 63 vs age 66, break even does not happen until age 77. When you consider the net benefits, how much did you get from the Federal Government after tax, break even happens at age 73 and 4 months, 42 months earlier!
You're making two mistakes here, PapaGeek. The minor one is that the simple breakeven considering just SS benefits is age 78, not age 77.
20,343 * (78 - 63) = 25,429 * (78 - 66)

But the major error is that you didn't consider, during the delay from age 63 to 66, the larger withdrawal needed to provide $48,000 of after tax income. It turns out this is $52,497. (Based on a 2018 Single return with an age 65+ standard deduction -- the same assumptions made in your table.) When this is considered the breakeven falls to about age 76.5 (10.5 years beyond age 66), not 73 and 4 months.
10.5 = (3 * (52497 - 30781)) / (30781 - 24574)

This can also be seen by looking at the balance of an assumed retirement account from which withdrawals are made. Here it is assuming an initial balance of $1,000,000 -- but I could pick any initial balance and it wouldn't affect the breakeven age.

Code: Select all

     -- Start at 63 --   -- Start at 66 --     Balance
Age   Balance Withdraw    Balance Withdraw  Difference

Code: Select all

 63  1,000,000  30,781   1,000,000  52,497          0 
 64    969,219  30,781     947,503  52,497    (21,716)
 65    938,438  30,781     895,006  52,497    (43,432)
 66    907,657  30,781     842,509  24,574    (65,148)
 67    876,876  30,781     817,935  24,574    (58,941)
 68    846,095  30,781     793,361  24,574    (52,734)
 69    815,314  30,781     768,787  24,574    (46,527)
 70    784,533  30,781     744,213  24,574    (40,320)
 71    753,752  30,781     719,639  24,574    (34,113)
 72    722,971  30,781     695,065  24,574    (27,906)
 73    692,190  30,781     670,491  24,574    (21,699)
 74    661,409  30,781     645,917  24,574    (15,492)
 75    630,628  30,781     621,343  24,574     (9,285)
 76    599,847  30,781     596,769  24,574     (3,078) <-- break
 77    569,066  30,781     572,195  24,574      3,129  <-- even
 78    538,285  30,781     547,621  24,574      9,336 
 79    507,504  30,781     523,047  24,574     15,543 
 80    476,723  30,781     498,473  24,574     21,750 
 81    445,942  30,781     473,899  24,574     27,957 
 82    415,161  30,781     449,325  24,574     34,164 
 83    384,380  30,781     424,751  24,574     40,371 
 84    353,599  30,781     400,177  24,574     46,578 
 85    322,818  30,781     375,603  24,574     52,785 
If one assumes growth in the retirement account, the breakeven age is later. For example, with a constant 2% real growth every year it is just past age 78. (Again the initial balance doesn't affect the breakeven.)

Code: Select all

     -- Start at 63 --   -- Start at 66 --     Balance
Age   Balance Withdraw    Balance Withdraw  Difference

Code: Select all

 63  1,000,000  30,781   1,000,000  52,497          0 
 64    989,219  30,781     967,503  52,497    (21,716)
 65    978,222  30,781     934,356  52,497    (43,866)
 66    967,006  30,781     900,546  24,574    (66,460)
 67    955,565  30,781     893,983  24,574    (61,582)
 68    943,895  30,781     887,289  24,574    (56,606)
 69    931,992  30,781     880,461  24,574    (51,532)
 70    919,851  30,781     873,496  24,574    (46,355)
 71    907,467  30,781     866,392  24,574    (41,075)
 72    894,835  30,781     859,146  24,574    (35,690)
 73    881,951  30,781     851,754  24,574    (30,197)
 74    868,809  30,781     844,215  24,574    (24,594)
 75    855,404  30,781     836,526  24,574    (18,878)
 76    841,731  30,781     828,682  24,574    (13,049)
 77    827,785  30,781     820,682  24,574     (7,103)
 78    813,560  30,781     812,522  24,574     (1,038) <-- break
 79    799,050  30,781     804,198  24,574      5,148  <-- even
 80    784,250  30,781     795,708  24,574     11,458 
 81    769,154  30,781     787,048  24,574     17,894 
 82    753,756  30,781     778,215  24,574     24,459 
 83    738,050  30,781     769,205  24,574     31,155 
 84    722,030  30,781     760,016  24,574     37,985 
 85    705,690  30,781     750,642  24,574     44,952

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tennisplyr
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Re: When to claim Social Security: two reasons not to wait

Post by tennisplyr » Sun May 13, 2018 7:35 am

#Cruncher wrote:
Sat May 12, 2018 3:07 pm
PapaGeek wrote:
Fri May 11, 2018 10:15 am
If you compare the full benefits for age 63 vs age 66, break even does not happen until age 77. When you consider the net benefits, how much did you get from the Federal Government after tax, break even happens at age 73 and 4 months, 42 months earlier!
You're making two mistakes here, PapaGeek. The minor one is that the simple breakeven considering just SS benefits is age 78, not age 77.
20,343 * (78 - 63) = 25,429 * (78 - 66)

But the major error is that you didn't consider, during the delay from age 63 to 66, the larger withdrawal needed to provide $48,000 of after tax income. It turns out this is $52,497. (Based on a 2018 Single return with an age 65+ standard deduction -- the same assumptions made in your table.) When this is considered the breakeven falls to about age 76.5 (10.5 years beyond age 66), not 73 and 4 months.
10.5 = (3 * (52497 - 30781)) / (30781 - 24574)

This can also be seen by looking at the balance of an assumed retirement account from which withdrawals are made. Here it is assuming an initial balance of $1,000,000 -- but I could pick any initial balance and it wouldn't affect the breakeven age.

Code: Select all

     -- Start at 63 --   -- Start at 66 --     Balance
Age   Balance Withdraw    Balance Withdraw  Difference

Code: Select all

 63  1,000,000  30,781   1,000,000  52,497          0 
 64    969,219  30,781     947,503  52,497    (21,716)
 65    938,438  30,781     895,006  52,497    (43,432)
 66    907,657  30,781     842,509  24,574    (65,148)
 67    876,876  30,781     817,935  24,574    (58,941)
 68    846,095  30,781     793,361  24,574    (52,734)
 69    815,314  30,781     768,787  24,574    (46,527)
 70    784,533  30,781     744,213  24,574    (40,320)
 71    753,752  30,781     719,639  24,574    (34,113)
 72    722,971  30,781     695,065  24,574    (27,906)
 73    692,190  30,781     670,491  24,574    (21,699)
 74    661,409  30,781     645,917  24,574    (15,492)
 75    630,628  30,781     621,343  24,574     (9,285)
 76    599,847  30,781     596,769  24,574     (3,078) <-- break
 77    569,066  30,781     572,195  24,574      3,129  <-- even
 78    538,285  30,781     547,621  24,574      9,336 
 79    507,504  30,781     523,047  24,574     15,543 
 80    476,723  30,781     498,473  24,574     21,750 
 81    445,942  30,781     473,899  24,574     27,957 
 82    415,161  30,781     449,325  24,574     34,164 
 83    384,380  30,781     424,751  24,574     40,371 
 84    353,599  30,781     400,177  24,574     46,578 
 85    322,818  30,781     375,603  24,574     52,785 
If one assumes growth in the retirement account, the breakeven age is later. For example, with a constant 2% real growth every year it is just past age 78. (Again the initial balance doesn't affect the breakeven.)

Code: Select all

     -- Start at 63 --   -- Start at 66 --     Balance
Age   Balance Withdraw    Balance Withdraw  Difference

Code: Select all

 63  1,000,000  30,781   1,000,000  52,497          0 
 64    989,219  30,781     967,503  52,497    (21,716)
 65    978,222  30,781     934,356  52,497    (43,866)
 66    967,006  30,781     900,546  24,574    (66,460)
 67    955,565  30,781     893,983  24,574    (61,582)
 68    943,895  30,781     887,289  24,574    (56,606)
 69    931,992  30,781     880,461  24,574    (51,532)
 70    919,851  30,781     873,496  24,574    (46,355)
 71    907,467  30,781     866,392  24,574    (41,075)
 72    894,835  30,781     859,146  24,574    (35,690)
 73    881,951  30,781     851,754  24,574    (30,197)
 74    868,809  30,781     844,215  24,574    (24,594)
 75    855,404  30,781     836,526  24,574    (18,878)
 76    841,731  30,781     828,682  24,574    (13,049)
 77    827,785  30,781     820,682  24,574     (7,103)
 78    813,560  30,781     812,522  24,574     (1,038) <-- break
 79    799,050  30,781     804,198  24,574      5,148  <-- even
 80    784,250  30,781     795,708  24,574     11,458 
 81    769,154  30,781     787,048  24,574     17,894 
 82    753,756  30,781     778,215  24,574     24,459 
 83    738,050  30,781     769,205  24,574     31,155 
 84    722,030  30,781     760,016  24,574     37,985 
 85    705,690  30,781     750,642  24,574     44,952
So I started taking SS at 62 which was 6 years ago. Guess because of the market run up over that time, I've done OK. I'm happy I took it @62. :happy
Those who move forward with a happy spirit will find that things always work out.

JoeRetire
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Re: When to claim Social Security: two reasons not to wait

Post by JoeRetire » Sun May 13, 2018 7:52 am

tennisplyr wrote:
Sun May 13, 2018 7:35 am
So I started taking SS at 62 which was 6 years ago. Guess because of the market run up over that time, I've done OK. I'm happy I took it @62. :happy
It's a pretty common theme here and at other financial forums. No matter when people start their social security benefits, they are happy with their choice.

"I started taking SS at [anywhere from 62 to 70]. I've done okay. So I am happy with my decision."

I've never personally spoken to anyone who claims to be unhappy and wishes they had started at a different age. I don't know if that's because of the behavioral economics aspects of making such a choice, or because most people value the financial choice in their own unique way, or if nobody wants to ever admit they may have made a "mistake".

I'm sure that however people end up making their decision, they then look for reasons to validate that decision - factors that point to them being "right".

It should be comforting to realize that no matter what conclusion you reach, you'll almost certainly be happy with it. So when the time comes, just decide, don't look back, and smile!

(Full disclosure: I'm 64 and my wife is 63 this year. We are planning to both wait until 70 to start our benefits. We still have 6-7 years to change our minds. No matter what, we intend to be happy.)
Last edited by JoeRetire on Sun May 13, 2018 8:03 am, edited 1 time in total.

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Re: When to claim Social Security: two reasons not to wait

Post by dknightd » Sun May 13, 2018 7:56 am

SGM wrote:
Thu Jan 25, 2018 4:23 am
We are planning on using SS for longevity insurance.
+1
If both my and DW health looked bad we might claim before 70. Or if we really needed money now, we might claim early. Otherwise we are going to wait as long as possible before I claim. She'll claim on her record at FRA age, then switch to spousal when I claim. I'm not too concerned about getting maximum benefit from the system, so I'm not too concerned about when the cross over might occur. As long as we can pay our bills, and have a little fun, I'm a happy camper :)

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Re: When to claim Social Security: two reasons not to wait

Post by dknightd » Sun May 13, 2018 8:53 am

Nestegg_User wrote:
Thu Jan 25, 2018 8:16 pm

It may even make sense to bypass medicare part B until I start SS and take the hit of 10%/yr excess versus paying the premium — although that’s unlikely since the increase would be forever. I know ours is a special case in that we have options that not as many have, along with the means to navigate the options. Having waited to retire until the health insurance coverage was guaranteed in retirement (even after FI) gives us options of not requiring Part B if the numbers don’t work out. ( currently, some HI options allow for a rebate towards Part B premium which would tip towards paying the part B and would result in almost no more out of pocket costs over the premiums paid)
I would look very carefully about not claiming part B when you eligible. Actually it sounds like you have already started looking closely.
I'm starting to look into these things now. As near as I can tell the best thing to do is to take part B when I am eligible. When I'm eligible for medicare my insurance becomes secondary if I'm retired. Essentially it turns into a medicare advantage plan, and they will reimburse me for part B if I file on time (so no penalty for late filing). I'm in NYSHIP. Is that what you have? I'm sure it depends on what plan you are in, and the rules might change before I retire . . .

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Re: When to claim Social Security: two reasons not to wait

Post by tennisplyr » Sun May 13, 2018 10:32 am

JoeRetire wrote:
Sun May 13, 2018 7:52 am
tennisplyr wrote:
Sun May 13, 2018 7:35 am
So I started taking SS at 62 which was 6 years ago. Guess because of the market run up over that time, I've done OK. I'm happy I took it @62. :happy
It's a pretty common theme here and at other financial forums. No matter when people start their social security benefits, they are happy with their choice.

"I started taking SS at [anywhere from 62 to 70]. I've done okay. So I am happy with my decision."

I've never personally spoken to anyone who claims to be unhappy and wishes they had started at a different age. I don't know if that's because of the behavioral economics aspects of making such a choice, or because most people value the financial choice in their own unique way, or if nobody wants to ever admit they may have made a "mistake".

I'm sure that however people end up making their decision, they then look for reasons to validate that decision - factors that point to them being "right".

It should be comforting to realize that no matter what conclusion you reach, you'll almost certainly be happy with it. So when the time comes, just decide, don't look back, and smile!

(Full disclosure: I'm 64 and my wife is 63 this year. We are planning to both wait until 70 to start our benefits. We still have 6-7 years to change our minds. No matter what, we intend to be happy.)
Healthy attitude: make a decision, move on, be happy :happy My point was given when I took SS there was a coincident bull market, hence, lucky me.
Those who move forward with a happy spirit will find that things always work out.

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Re: When to claim Social Security: two reasons not to wait

Post by SeeMoe » Sun May 13, 2018 1:08 pm

Personally I prefer to “take the SS bird in hand “ soon as possible and pay the additional taxes while investing the proceeds. That gives you about 7-8 years to accumulate wealth on just SS alone. Taking RMD’s on the TIRA at 70 1/2 means more taxable income, but I’m glad to pay the taxes while still living large along with pensions too from government and private job sources.

SeeMoe.. :dollar
"By gnawing through a dike, even a Rat can destroy a nation ." {Edmund Burke}

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Re: When to claim Social Security: two reasons not to wait

Post by Dottie57 » Sun May 13, 2018 1:20 pm

PapaGeek wrote:
Fri May 11, 2018 10:15 am
The thing that bothers me about most of these “break even” articles and threads is that they do all of their calculations based solely on the size of the Social Security check that you will receive each year.

What they do not consider is that the size of your benefit determines how much “tax deferred” income you receive and therefore how much income you will need from other sources to achieve the same after federal tax lifestyle.

When you use your “Net Benefit”, Benefits minus taxes, instead of the gross benefits you can reduce your break even point by multiple years!

If the government gives you $20,000 and then takes back $3,000 in taxes, bottom line, how much did the government actually give you?

Here is a chart that I created for another forum!

Image

If you compare the full benefits for age 63 vs age 66, break even does not happen until age 77. When you consider the net benefits, how much did you get from the Federal Government after tax, break even happens at age 73 and 4 months, 42 months earlier!

Looking at the right hand columns based on the 50% and 85% taxability factors of your Social Security benefits and based on the income needed for this $48,000 after tax lifestyle, you can see where less of your benefit is taxable as your benefit increases because more of your gross income is tax deferred. If you wait until 70 you will hardly pay any federal taxes at all!
Thank you!

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Re: When to claim Social Security: two reasons not to wait

Post by JoeRetire » Mon May 14, 2018 9:04 am

tennisplyr wrote:
Sun May 13, 2018 10:32 am
JoeRetire wrote:
Sun May 13, 2018 7:52 am
tennisplyr wrote:
Sun May 13, 2018 7:35 am
So I started taking SS at 62 which was 6 years ago. Guess because of the market run up over that time, I've done OK. I'm happy I took it @62. :happy
It's a pretty common theme here and at other financial forums. No matter when people start their social security benefits, they are happy with their choice.

"I started taking SS at [anywhere from 62 to 70]. I've done okay. So I am happy with my decision."

I've never personally spoken to anyone who claims to be unhappy and wishes they had started at a different age. I don't know if that's because of the behavioral economics aspects of making such a choice, or because most people value the financial choice in their own unique way, or if nobody wants to ever admit they may have made a "mistake".

I'm sure that however people end up making their decision, they then look for reasons to validate that decision - factors that point to them being "right".

It should be comforting to realize that no matter what conclusion you reach, you'll almost certainly be happy with it. So when the time comes, just decide, don't look back, and smile!

(Full disclosure: I'm 64 and my wife is 63 this year. We are planning to both wait until 70 to start our benefits. We still have 6-7 years to change our minds. No matter what, we intend to be happy.)
Healthy attitude: make a decision, move on, be happy :happy My point was given when I took SS there was a coincident bull market, hence, lucky me.
I wasn't replying to your post because I disagreed with it. Sorry if it came off that way. It was just a good example of "... and so I'm happy with our decision."

I agree, you are lucky.
But I'm guessing you would have been happy even if you weren't as lucky. Pretty much everyone is.

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Re: When to claim Social Security: two reasons not to wait

Post by SGM » Mon May 14, 2018 10:41 am

I agree that the majority of people are happy with their decision regardless of whether they took SS late or early. I do know a few widows who wish their higher earning husbands had delayed taking SS.

As I have earlier stated my chief reason to delay taking SS until 70 was I considered it a form of longevity insurance. Break even analysis was pointless as we greatly desired higher inflation adjusted payments at 70 over lower earlier payments. SS is unique compared to other possible ways of getting retirement income. I do not speculate on the future of SS and other government actions.

Another advantage for me was that I could make Roth conversions while either working part time or while retired. Part of the reason to convert was to decrease ongoing taxes on dividends in my taxable account.

My income has been high enough that I my Medicare payments would go up whether I was taking SS or not. We would not be held harmless under these circumstances.

Fortunately we were able to take advantage of file and suspend and a restricted spousal benefit before the law changed.

Another consideration is that I plan on buying a ladder of SPIAs at a later date. Since delaying SS is like buying a cost of living adjusted annuity it is a better plan than buying a SPIA ladder. However, I am going to combine both of these tactics as it will allow me to be more aggressive with my portfolio and allow me to make gifts to my children while I am still alive and they are relatively young.

Also if I took SS earlier it would have been subject to state taxes as well because of other retirement benefits. Of course delayed SS is subject to state taxes as well.

The extra SS income after age 70 will likely decrease the need to take capital gains from my taxable account.

I certainly see good reasons to take SS early in some situations. It is interesting to see how people have such strong feelings about the decision concerning when to take SS. I have seen this with some of my friends who have taken SS and 62 or at 70.

We have been lucky in that our taxable and Roth accounts have gone up considerably while delaying SS. In a couple of years I will get a much better read as to whether my plan is a good one. I think the lack of unneeded RMDs and the extra taxation will be helpful. Although money is fungible I think I will more readily spend money from SS and annuities than from selling and stock or bonds. Second spending tier will be dividends, even though I know they are less tax efficient than using capital gains. However, with enough varied income streams I think it will be an unusual circumstance that would require me to sell stock or bond funds to any great degree.

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Re: When to claim Social Security: two reasons not to wait

Post by #Cruncher » Mon May 14, 2018 11:53 am

tennisplyr wrote:
Sun May 13, 2018 7:35 am
So I started taking SS at 62 which was 6 years ago. Guess because of the market run up over that time, I've done OK. I'm happy I took it @62. :happy
Whether taking early turns out better financially depends on future returns and longevity. The following table shows for given past and future returns how many years before delaying would break even. [1] For example it shows that if benefits were invested at 8% for the past six years [2] and future benefits at 4%, it would take 19.6 more years [3] to break even.

Code: Select all

     Col A  Col B  Col C  Col D  Col E  Col F  Col G  Col H  Col I  Col J
      Past
Row Growth   ---------------------- Future Growth -----------------------
  4           0%     1%     2%     3%     4%     5%     6%     7%     8%

Code: Select all

  5    0%    11.0   11.7   12.5   13.5   14.7   16.3   18.4   21.6   27.3 
  6    1%    11.3   12.0   12.9   13.9   15.2   17.0   19.3   22.9   30.0 
  7    2%    11.5   12.3   13.2   14.4   15.8   17.6   20.2   24.4   33.3 
  8    3%    11.8   12.7   13.6   14.8   16.3   18.4   21.2   26.0   38.1 
  9    4%    12.1   13.0   14.0   15.3   16.9   19.1   22.3   28.0   45.9 
 10    5%    12.4   13.4   14.5   15.8   17.6   19.9   23.6   30.3   69.9 
 11    6%    12.8   13.7   14.9   16.3   18.2   20.8   24.9   33.1 
 12    7%    13.1   14.1   15.3   16.9   18.9   21.8   26.4   36.6 
 13    8%    13.4   14.5   15.8   17.4  [19.6]  22.8   28.1   41.4 
 14    9%    13.8   14.9   16.3   18.0   20.4   23.9   30.0   48.9 
 15   10%    14.1   15.3   16.7   18.6   21.2   25.1   32.2   65.3 
 16   11%    14.5   15.7   17.3   19.3   22.1   26.4   34.8 
 17   12%    14.8   16.1   17.8   19.9   23.0   27.8   38.0 
 18   13%    15.2   16.6   18.3   20.6   23.9   29.4   42.0 
 19   14%    15.6   17.1   18.9   21.4   25.0   31.1   47.4 
 20   15%    16.0   17.5   19.5   22.1   26.1   33.1   55.6
This assumes

Code: Select all

Row     Col A     Col B
  1  Early amount    75  % of PIA [4]
  2  Later amount   116  % of PIA [4]
  3  Delay years      6
Here is the formula in cell B5 that is copied down to row 20 and right to column J. It uses the Excel FV and LN functions.

Code: Select all

=IF(B$4=0,FV($A5,$B$3,-$B$1,0,0)/($B$2-$B$1),LN(1/(1-(FV($A5,$B$3,-$B$1,0,0)*B$4/($B$2-$B$1))))/LN(1+B$4))
  1. Blanks in the table indicate one would never break even. E.g., with 8% future growth, delaying would never pay off if past growth had been 6% or more.
  2. According to Morningstar, the Vanguard Balanced Index Fund Admiral Shares (VBIAX) grew 1.7173 fold over the past six years. During that time the CPI rose 1.0889 fold (see April 2012 to April 2018 here). This translates to an average annual real return of about 8%:
    7.89% = (1.7173 / 1.0889) ^ (1 / 6) - 1
  3. 19.6 years is illustrated by this table that shows breakeven reached between age 87 and 88 (68 + 19.6):

    Code: Select all

                    ---- Cumulative Balance ----
     Age Growth    Early      Later  Difference

    Code: Select all

      63    8%      75.00       0.00     (75.00)
      64    8%     156.00       0.00    (156.00)
      65    8%     243.48       0.00    (243.48)
      66    8%     337.96       0.00    (337.96)
      67    8%     440.00       0.00    (440.00)
      68    8%     550.19       0.00    (550.19)
      69    4%     647.20     116.00    (531.20)
      70    4%     748.09     236.64    (511.45)
      71    4%     853.01     362.11    (490.91)
      72    4%     962.13     492.59    (469.54)
      73    4%   1,075.62     628.29    (447.33)
      74    4%   1,193.64     769.43    (424.22)
      75    4%   1,316.39     916.20    (400.19)
      76    4%   1,444.05   1,068.85    (375.20)
      77    4%   1,576.81   1,227.60    (349.20)
      78    4%   1,714.88   1,392.71    (322.17)
      79    4%   1,858.48   1,564.42    (294.06)
      80    4%   2,007.81   1,742.99    (264.82)
      81    4%   2,163.13   1,928.71    (234.41)
      82    4%   2,324.65   2,121.86    (202.79)
      83    4%   2,492.64   2,322.74    (169.90)
      84    4%   2,667.34   2,531.65    (135.70)
      85    4%   2,849.04   2,748.91    (100.13)
      86    4%   3,038.00   2,974.87     (63.13)
      87    4%   3,234.52   3,209.86     (24.66) break
      88    4%   3,438.90   3,454.26      15.36  even
      89    4%   3,651.46   3,708.43      56.97 
      90    4%   3,872.51   3,972.76     100.25 
      91    4%   4,102.42   4,247.68     145.26 
      92    4%   4,341.51   4,533.58     192.07 
      93    4%   4,590.17   4,830.93     240.75 
      94    4%   4,848.78   5,140.16     291.38 
      95    4%   5,117.73   5,461.77     344.04 
      96    4%   5,397.44   5,796.24     398.80 
      97    4%   5,688.34   6,144.09     455.75 
      98    4%   5,990.87   6,505.85     514.98 
      99    4%   6,305.51   6,882.09     576.58 
     100    4%   6,632.73   7,273.37     640.64
  4. 75% at age 62 and 116% at age 68 of Primary Insurance Amount (PIA) assume a Normal Retirement Age of 66. (See Effect of Early or Delayed Retirement on Retirement Benefits.)

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Re: When to claim Social Security: two reasons not to wait

Post by dm200 » Mon May 14, 2018 12:25 pm

Years ago, I was concerned about my inlaws running out of money if they lived a long time. I thought they made a mistake by collecting SS retirement early. With 20/20 hindsight, I was 100% wrong. Collecting when they did gave them a degree of a better quality of life - and neither lived a long time.

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Re: When to claim Social Security: two reasons not to wait

Post by JoeRetire » Mon May 14, 2018 3:25 pm

dm200 wrote:
Mon May 14, 2018 12:25 pm
Years ago, I was concerned about my inlaws running out of money if they lived a long time. I thought they made a mistake by collecting SS retirement early. With 20/20 hindsight, I was 100% wrong. Collecting when they did gave them a degree of a better quality of life - and neither lived a long time.
Since you were concerned about what would happen if they lived a long time, but they didn't live a long time, then you weren't wrong. You were just rightly concerned about something that didn't happen to occur.

When my children were living at home, I was concerned about what would happen to my family if I died young. So I purchased life insurance to cover that risk. But I didn't die young. Was I 100% wrong?

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Re: When to claim Social Security: two reasons not to wait

Post by marcopolo » Mon May 14, 2018 3:37 pm

JoeRetire wrote:
Mon May 14, 2018 3:25 pm

When my children were living at home, I was concerned about what would happen to my family if I died young. So I purchased life insurance to cover that risk. But I didn't die young. Was I 100% wrong?
I had not heard it stated like that before, but i think that is a great way of thinking about it.
That is why i plan to delay till 70, as a form of longevity insurance for my wife or myself, whomever lives longer.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: When to claim Social Security: two reasons not to wait

Post by David Jay » Mon May 14, 2018 3:52 pm

JoeRetire wrote:
Sun May 13, 2018 7:52 am
(Full disclosure: I'm 64 and my wife is 63 this year. We are planning to both wait until 70 to start our benefits. We still have 6-7 years to change our minds. No matter what, we intend to be happy.)
Joe:

I would take a good look at the numbers if the lower-earning spouse takes SS at FRA (likely 66 for you two) and higher earner waits until 70. There is no impact on survivor's benefit (survivor's benefit is the higher earner's benefit) and yields 4 years of additional benefits at the rate of the lower-earning spouse.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: When to claim Social Security: two reasons not to wait

Post by jeffyscott » Mon May 14, 2018 5:25 pm

David Jay wrote:
Mon May 14, 2018 3:52 pm
JoeRetire wrote:
Sun May 13, 2018 7:52 am
(Full disclosure: I'm 64 and my wife is 63 this year. We are planning to both wait until 70 to start our benefits. We still have 6-7 years to change our minds. No matter what, we intend to be happy.)
Joe:

I would take a good look at the numbers if the lower-earning spouse takes SS at FRA (likely 66 for you two) and higher earner waits until 70. There is no impact on survivor's benefit (survivor's benefit is the higher earner's benefit) and yields 4 years of additional benefits at the rate of the lower-earning spouse.
That is the case even if lower earning spouse takes it at 62, isn't it?
press on, regardless - John C. Bogle

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Re: When to claim Social Security: two reasons not to wait

Post by David Jay » Mon May 14, 2018 6:15 pm

jeffyscott wrote:
Mon May 14, 2018 5:25 pm
David Jay wrote:
Mon May 14, 2018 3:52 pm
JoeRetire wrote:
Sun May 13, 2018 7:52 am
(Full disclosure: I'm 64 and my wife is 63 this year. We are planning to both wait until 70 to start our benefits. We still have 6-7 years to change our minds. No matter what, we intend to be happy.)
Joe:

I would take a good look at the numbers if the lower-earning spouse takes SS at FRA (likely 66 for you two) and higher earner waits until 70. There is no impact on survivor's benefit (survivor's benefit is the higher earner's benefit) and yields 4 years of additional benefits at the rate of the lower-earning spouse.
That is the case even if lower earning spouse takes it at 62, isn't it?
Yes it is.

Spousal (if lower earning spouse qualifies) is reduced if filing before FRA, which is our case. That may have been what I was thinking, good catch.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: When to claim Social Security: two reasons not to wait

Post by FIREchief » Mon May 14, 2018 7:01 pm

jeffyscott wrote:
Mon May 14, 2018 5:25 pm
David Jay wrote:
Mon May 14, 2018 3:52 pm
JoeRetire wrote:
Sun May 13, 2018 7:52 am
(Full disclosure: I'm 64 and my wife is 63 this year. We are planning to both wait until 70 to start our benefits. We still have 6-7 years to change our minds. No matter what, we intend to be happy.)
Joe:

I would take a good look at the numbers if the lower-earning spouse takes SS at FRA (likely 66 for you two) and higher earner waits until 70. There is no impact on survivor's benefit (survivor's benefit is the higher earner's benefit) and yields 4 years of additional benefits at the rate of the lower-earning spouse.
That is the case even if lower earning spouse takes it at 62, isn't it?
This is a good question. If a lower earning spouse takes SS at 62 and the (much) higher earning spouse takes at 70. Is the survivor benefit for the lower earning spouse reduced??
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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