Social Security -- Take it at 62, 67 or 70

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wolf359
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Re: Social Security -- Take it at 62, 67 or 70

Post by wolf359 » Wed Aug 07, 2019 8:02 am

JoeRetire wrote:
Wed Aug 07, 2019 6:04 am
sixtyforty wrote:
Thu Aug 01, 2019 10:08 am
Seems like the absence or occurrence of a bear market early in retirement might affect the decision on taking SS. If one retires at 62, but plans on taking SS at 67 and a bear market hits at 63, taking SS at 63 may reduce the bad sequence of returns on a portfolio, which as we have all seen can significantly reduce that longevity of one's portfolio.
How does taking SS at 63 reduce the bad sequence of returns on a portfolio? The sequence happens without regard to SS.
It reduces the impact of the bad sequence of returns. If you were retired and living off your portfolio, claiming social security reduces the amount of money that you have to pull from equities while the market is down. However, I think this argument is flawed.

This is more of a sign that you have the wrong asset allocation. If you retire at 62 and have no bonds to sell one year later, then your asset allocation in retirement was 100/0, which is insane not a good idea for your average person. Even someone with an asset allocation of 80/20 (still probably too aggressive for a new retiree) has 5 years of living expenses in bonds, which will take them to age 67 with no equity sales.

Sequence of returns risk is actually reduced by waiting to claim, because it increases your social security payment, making you less exposed to market risk for income.
Last edited by wolf359 on Wed Aug 07, 2019 8:10 am, edited 1 time in total.

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Re: Social Security -- Take it at 62, 67 or 70

Post by LongRoad » Wed Aug 07, 2019 8:10 am

JoeRetire wrote:
Wed Aug 07, 2019 6:04 am
sixtyforty wrote:
Thu Aug 01, 2019 10:08 am
Seems like the absence or occurrence of a bear market early in retirement might affect the decision on taking SS. If one retires at 62, but plans on taking SS at 67 and a bear market hits at 63, taking SS at 63 may reduce the bad sequence of returns on a portfolio, which as we have all seen can significantly reduce that longevity of one's portfolio.
How does taking SS at 63 reduce the bad sequence of returns on a portfolio? The sequence happens without regard to SS.
I think this is because sequence of returns risk refers to the stress placed on a portfolio when distributions are being taken in a declining market, and starting SS at 63 rather than 67 reduces the withdrawals required if the sequence of returns risk appears early in retirement.

It doesn't change the fact that a particular sequence of returns has occurred, but it reduces the impact on the portfolio.

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Re: Social Security -- Take it at 62, 67 or 70

Post by Canoesmith » Wed Aug 07, 2019 8:40 am

I am going to try to keep my taxable income low enough to get ACA subsidies until Medicare. Therefore, I won’t be taking SS until I’m 66 (7 years out), when my spouse will also become Medicare eligible. This will help me be “good” and wait as it’s a tangible reason to wait. At that time I can reassess and determine if I can continue to wait until 70.

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Re: Social Security -- Take it at 62, 67 or 70

Post by willthrill81 » Wed Aug 07, 2019 10:48 am

LongRoad wrote:
Wed Aug 07, 2019 8:10 am
JoeRetire wrote:
Wed Aug 07, 2019 6:04 am
sixtyforty wrote:
Thu Aug 01, 2019 10:08 am
Seems like the absence or occurrence of a bear market early in retirement might affect the decision on taking SS. If one retires at 62, but plans on taking SS at 67 and a bear market hits at 63, taking SS at 63 may reduce the bad sequence of returns on a portfolio, which as we have all seen can significantly reduce that longevity of one's portfolio.
How does taking SS at 63 reduce the bad sequence of returns on a portfolio? The sequence happens without regard to SS.
I think this is because sequence of returns risk refers to the stress placed on a portfolio when distributions are being taken in a declining market, and starting SS at 63 rather than 67 reduces the withdrawals required if the sequence of returns risk appears early in retirement.

It doesn't change the fact that a particular sequence of returns has occurred, but it reduces the impact on the portfolio.
Correct. If you're able to reduce your portfolio withdrawals when your portfolio is suffering, you can reduce the effect of sequence of returns on your portfolio. For this reason, taking SS benefits before age 70 is a potentially valuable option that SS software alone does not, TMK, take into account.
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Re: Social Security -- Take it at 62, 67 or 70

Post by RustyShackleford » Wed Aug 07, 2019 4:53 pm

I haven't read through the whole thread, so forgive me if what has seemed an epiphany to me has actually been discussed before ...

It seems like all the discussions of optimal age of filing for benefits do various calculations to come up with a break-even age, and then you try to figure out if you're likely or not to live beyond that age; and the later you file, then the higher will be that break-even age.

But here's the thing: if you do not live past that break-even age, you don't care - you're dead. To me, this argues for waiting till age 70; thinking of SS as longevity insurance. Now this assumes you're in the enviable position of not having your lifestyle significantly affected by not taking SS at an earlier age and/or not in the unfortunate position of being pretty sure you'll die before reaching the age70 break-even age.

And potentially having surviving spouse or children obviously complicates this. As does the possibility, if your spouse is old enough, of the two of you reaping benefits from a restricted application for spousal benefits.

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Re: Social Security -- Take it at 62, 67 or 70

Post by sometimesinvestor » Wed Aug 07, 2019 5:18 pm

To all who are single without young kids your dr. is a better adviser than your cfp

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Re: Social Security -- Take it at 62, 67 or 70

Post by JoeRetire » Wed Aug 07, 2019 7:13 pm

sometimesinvestor wrote:
Wed Aug 07, 2019 5:18 pm
To all who are single without young kids your dr. is a better adviser than your cfp
No.
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HomerJ
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Re: Social Security -- Take it at 62, 67 or 70

Post by HomerJ » Wed Aug 07, 2019 9:15 pm

RustyShackleford wrote:
Wed Aug 07, 2019 4:53 pm
But here's the thing: if you do not live past that break-even age, you don't care - you're dead.
I'm not going to want to spend a large chunk of my own money in my 60s.

If I die at 69, there will be a bunch of things I will not have done with my kids and my wife. I may not care when I'm dead, but I will care for the month before I am dead, lying in hospice wishing I had taken the money and done stuff with the wife, kids, and grandkids while I was still healthy.
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Re: Social Security -- Take it at 62, 67 or 70

Post by WhyNotUs » Wed Aug 07, 2019 9:27 pm

Open Social Security is a lovely gift, thanks Mike.
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Re: Social Security -- Take it at 62, 67 or 70

Post by RustyShackleford » Wed Aug 07, 2019 9:29 pm

HomerJ wrote:
Wed Aug 07, 2019 9:15 pm
RustyShackleford wrote:
Wed Aug 07, 2019 4:53 pm
But here's the thing: if you do not live past that break-even age, you don't care - you're dead.
If I die at 69, there will be a bunch of things I will not have done with my kids and my wife.
Like I said, my argument isn't to wait till 70yo, if it would affect your lifestyle; I count not doing the things you want to do with your family as affecting your lifestyle.

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Re: Social Security -- Take it at 62, 67 or 70

Post by cbeck » Wed Aug 07, 2019 9:50 pm

RustyShackleford wrote:
Wed Aug 07, 2019 4:53 pm
I haven't read through the whole thread, so forgive me if what has seemed an epiphany to me has actually been discussed before ...

It seems like all the discussions of optimal age of filing for benefits do various calculations to come up with a break-even age, and then you try to figure out if you're likely or not to live beyond that age; and the later you file, then the higher will be that break-even age.

But here's the thing: if you do not live past that break-even age, you don't care - you're dead. To me, this argues for waiting till age 70; thinking of SS as longevity insurance. Now this assumes you're in the enviable position of not having your lifestyle significantly affected by not taking SS at an earlier age and/or not in the unfortunate position of being pretty sure you'll die before reaching the age70 break-even age.
Quite true. The risks are profoundly asymmetrical. But, in fact, the case to delay is even stronger than that, because for many people delaying means that they are able to increase their spending in the period prior to making the claim. How could that be? Well, do the thought experiment: let's assume there is no social security. So, now you have to rely on your savings to avoid poverty in old age and, since you don't know how long you will live, you have to assume you will live rather longer than otherwise to be on the safe side. This is a tremendous burden on current spending. We can observe the resulting behavior in the Chinese population who have no social safety net against old age poverty, especially if their only child is a daughter. The result is a Chinese household savings rate estimated variously at around 48% of income. Without SS Americans would do the same, hard as it is to imagine.

So, in our real-life situation with SS, retirees who reduce their SS still face the long-term problem of the need for increasing precautionary savings, which for most people, like the Chinese, means reducing consumption. It is interesting to note that none of the proponents of early claiming in this discussion have mentioned increasing their household savings rate to protect against old age poverty. They just blithely assume the problem away.

I realized this effect when I was doing my pre-retirement planning using Esplanner which calculates our whole life according to the assumptions we provide, which are extensive. The output is to show what your safe level of discretionary spending would be under the scenarios you evaluate. It was simple for me to see that, when I ran delaying SS, my current and future discretionary spending levels went up for my whole life. It is hardly necessary to point out that such calculators do not predict the future. We predict the future. The program compares alternative futures that are far too complex for us to evaluate off the top of our heads.

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Re: Social Security -- Take it at 62, 67 or 70

Post by SGM » Thu Aug 08, 2019 4:06 am

We look at SS as longevity insurance. While delaying my SS until 70 we used the extra space for Roth conversions. There is no federal tax on 15% of my SS. SS is also a better annuity than one can buy on the open market. Higher non-portfolio income means less need to spend from our portfolio.

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Re: Social Security -- Take it at 62, 67 or 70

Post by 3-20Characters » Thu Aug 08, 2019 4:18 am

I wonder why we need another “should I delay SS” thread when we can read this one. It seems that pretty much every opinion and analysis has been covered in it (maybe it should be a sticky):
Delay Social Security to age 70 and Spend more money at 62 - bogleheads.org
viewtopic.php?t=102609
It seems elementary to me that delaying SS until 70, while borrowing the money you would have received from SS from your portfolio, is the better option for most any boglehead because bogleheads have suitable savings. Many Americans have little or no savings so this is not an option for them. The only reason I can think of for any boglehead to take SS at 62 is that they’ve received a diagnosis of terminal illness and imminent death. “Bad genes” is not a good reason. Lots of people outlive their expectations and it’s silly to give up the longevity benefits of the higher, inflation adjusted SS income in hopes that you will die early.

The other reason often cited (cuts to SS), I suppose is compelling to some but not to me. There is so much speculation involved on how such cuts would be implemented were they to occur as to make the analysis meaningless. Still, the case has been made that even with cuts, you’re still better off waiting. The most generous I can be is to give that scenario a coin toss but it seems like a poor bet to claim early for that reason.

There is a case to be made for the lower benefits spouse claiming early. This can be explored at https://opensocialsecurity.com/

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Re: Social Security -- Take it at 62, 67 or 70

Post by MikeG62 » Thu Aug 08, 2019 6:28 am

BigJohn wrote:
Wed Jul 31, 2019 8:13 pm
wolf359 wrote:
Wed Jul 31, 2019 7:25 pm
You're asking an optimization question about an insurance program.

Social Security's official name is the Old Age, Survivors, and Disability Insurance Program (OASDI). It is designed to help prevent seniors from outliving their income and keeping them out of poverty.

It is not an investment. It is longevity insurance.

If you claim later and don't make it to breakeven, you will not have any regrets about claiming later. You will be dead. On the other hand, your spouse will be reduced to the higher of your two Social Security checks. Your claiming later still has a benefit, because SHE will be better off even if you had passed early.

If you claim early and live way past breakeven, you may have regrets if you run out of money and are reduced to living off of Social Security. When you pass, your surviving spouse will have to live on a greatly reduced SS check.

If your assets are high enough that you never run out of money, then it doesn't matter. But if it doesn't matter, you should probably maximize, just in case. Insurance that you have but didn't use isn't wasted -- it's peace of mind. (Especially because you already "paid" for it by paying into the system.)

Did you cancel your family's health insurance because you'll get a better return on the premiums if you pay for routine care out of pocket? Insurance isn't about return, it's about avoiding catastrophe. In the case of health insurance, it's cheaper to pay for routine care out of pocket, but an unexpected car crash or cancer could wipe you out.

In the case of Social Security, the risk you are insuring against is longevity, or outliving your income.

If you plan to wait, you always have the option to change your mind if circumstances change. But once you claim, you only have a limited window to undo your decision. Waiting is more prudent.
One of the best responses on this question I’ve read on this forum. You have to think of SS as insurance not an investment unless you have so little you can’t wait or so much it doesn’t matter.
+1. Totally agree. Well said and written wolf359.
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JoeRetire
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Re: Social Security -- Take it at 62, 67 or 70

Post by JoeRetire » Thu Aug 08, 2019 6:34 am

HomerJ wrote:
Wed Aug 07, 2019 9:15 pm
RustyShackleford wrote:
Wed Aug 07, 2019 4:53 pm
But here's the thing: if you do not live past that break-even age, you don't care - you're dead.
I'm not going to want to spend a large chunk of my own money in my 60s.

If I die at 69, there will be a bunch of things I will not have done with my kids and my wife. I may not care when I'm dead, but I will care for the month before I am dead, lying in hospice wishing I had taken the money and done stuff with the wife, kids, and grandkids while I was still healthy.
I'm sure that social security will be foremost in your thoughts as you lie there dying. :oops:
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Re: Social Security -- Take it at 62, 67 or 70

Post by RickBoglehead » Thu Aug 08, 2019 6:59 am

For the lower earning spouse, doesn't it always make sense to take it at 62 (or Jan 1 of the following year), then getting spousal benefits when those kick in? That's what my analysis showed.
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Re: Social Security -- Take it at 62, 67 or 70

Post by is50xenough » Thu Aug 08, 2019 7:08 am

RickBoglehead wrote:
Thu Aug 08, 2019 6:59 am
For the lower earning spouse, doesn't it always make sense to take it at 62 (or Jan 1 of the following year), then getting spousal benefits when those kick in? That's what my analysis showed.
Did you factor in Roth conversions rick?

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Re: Social Security -- Take it at 62, 67 or 70

Post by DecumulatorDoc » Thu Aug 08, 2019 7:13 am

wolf359 wrote:
Wed Jul 31, 2019 7:25 pm


If you plan to wait, you always have the option to change your mind if circumstances change. But once you claim, you only have a limited window to undo your decision. Waiting is more prudent.
It is true there is a limited 12 month window to change your mind if you claim before FRA. However, after you reach FRA, 66 years 2 month in my case, you then have the option to change your mind again. If you have reached your FRA but you are not yet age 70, you can stop Social Security benefits anytime by asking them to suspend your benefits. Your benefits can then start accumulating delayed retirement credits, so you can collect more when you reapply later. You can then reapply at any time up to age 70. This is referred to as a "voluntary suspension" of benefits. I found this is commonly misunderstood by even the employees at the SS office.

This option did not change with The Bipartisan Budget Act of 2015. That law change affected the ability to file and suspend in order to get spousal benefits. Voluntary suspension is still possible if needed.

This is a nice option to have, if circumstances change from your original decision.

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Re: Social Security -- Take it at 62, 67 or 70

Post by DecumulatorDoc » Thu Aug 08, 2019 7:42 am

This is a very good thread, with many of the same thoughts I have tossed around for a couple of years since turning 62.

For me, not needing the SS income right now, the factor that lead me to wait is my desire to aggressively do partial Roth conversions to whittle down that RMD later on. I didn't want to encroach upon that conversion opportunity space.

What I take away from the discussion here is that there is no cut and dry one answer for all.

PS: Sure wish we could discuss proposed bipartisan legislative changes that could delay the RMD even further...but alas that is not allowed and can wait for another day.

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Re: Social Security -- Take it at 62, 67 or 70

Post by basspond » Thu Aug 08, 2019 7:56 am

Everyone has their own personal reason to take at a certain age. Here is just more information to make that decision:

Life expectancy at different ages: (Kaiser Family Foundation)

Age Men Women
Birth - 76.1 - 81.1
40 - 78.7 - 82.6
65 - 83.0 - 85.6
80 - 88.4 - 89.7

Disclaimer: Past performance is no guarantee of future results.

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Re: Social Security -- Take it at 62, 67 or 70

Post by DecumulatorDoc » Thu Aug 08, 2019 8:10 am

basspond wrote:
Thu Aug 08, 2019 7:56 am
Everyone has their own personal reason to take at a certain age. Here is just more information to make that decision:

Life expectancy at different ages: (Kaiser Family Foundation)

Age Men Women
Birth - 76.1 - 81.1
40 - 78.7 - 82.6
65 - 83.0 - 85.6
80 - 88.4 - 89.7

Disclaimer: Past performance is no guarantee of future results.
I'm encouraged by the fact that as men age they close the life expectancy gap. I just gotta hang on as long as possible.

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Re: Social Security -- Take it at 62, 67 or 70

Post by wolf359 » Thu Aug 08, 2019 8:39 am

HomerJ wrote:
Wed Aug 07, 2019 9:15 pm
RustyShackleford wrote:
Wed Aug 07, 2019 4:53 pm
But here's the thing: if you do not live past that break-even age, you don't care - you're dead.
I'm not going to want to spend a large chunk of my own money in my 60s.

If I die at 69, there will be a bunch of things I will not have done with my kids and my wife. I may not care when I'm dead, but I will care for the month before I am dead, lying in hospice wishing I had taken the money and done stuff with the wife, kids, and grandkids while I was still healthy.
At 62, the average American male has a life expectancy of 20.11 years (Ref: Social Security Acturial Table: https://www.ssa.gov/oact/STATS/table4c6.html) You probably won't be dying at 69.

If you are delaying and your health prospects change, nothing stops you from filing at that point. Delaying gives you more flexibility and lets you change your mind. Filing early locks in your decision.

Why wouldn't you have done stuff with your wife, kids, and grandkids while you were healthy? In 2019, the average Social Security check was $1,461 per month. That's a life-changing amount if that's all that's standing between you and poverty, but it's not life-changing in terms of additional recreational activities. If you're not spending time with your family, that's because you chose not to do so, not because of a Social Security check of that size.

Speaking of poverty, your surviving wife would now have to live on only one Social Security payment. If you claim at 62, that check will be significantly smaller. It doesn't mean that she'll be facing poverty, but she'll have to be relying on investments that much more heavily. Are you the person handling the investments, or is she? Can she do it without you as she gets older or suffers cognitive decline? Wouldn't it be better if the one income stream that is inflation adjusted, not subject to market risks, and just shows up as a check that is as large as possible? Yes, you may be dead, but she won't be. Is she part of this decision? What does she think?

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Re: Social Security -- Take it at 62, 67 or 70

Post by 3-20Characters » Thu Aug 08, 2019 8:45 am

RickBoglehead wrote:
Thu Aug 08, 2019 6:59 am
For the lower earning spouse, doesn't it always make sense to take it at 62 (or Jan 1 of the following year), then getting spousal benefits when those kick in? That's what my analysis showed.
Could be. I haven’t looked into that for myself because my wife and I are similar ages and have similar work histories. Of course, consider other factors like Roth conversions and ACA subsidies.

But I don’t think you’ll get an argument on that strategy. What’s often argued (to death) in these SS threads is single people claiming at 62 or couples both claiming before 70. What’s really underneath the arguments I think, is whether one believes SS to be insurance or an investment.

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Re: Social Security -- Take it at 62, 67 or 70

Post by HomerJ » Thu Aug 08, 2019 8:57 am

SGM wrote:
Thu Aug 08, 2019 4:06 am
We look at SS as longevity insurance. While delaying my SS until 70 we used the extra space for Roth conversions. There is no federal tax on 15% of my SS. SS is also a better annuity than one can buy on the open market. Higher non-portfolio income means less need to spend from our portfolio.
See I totally understand this plan. It makes total sense.

EXCEPT.... The contract you have with Social Security can be changed. At any time.

So it's not quite as a good as an annuity contract with an insurance company, in that regard.
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Re: Social Security -- Take it at 62, 67 or 70

Post by willthrill81 » Thu Aug 08, 2019 9:14 am

HomerJ wrote:
Thu Aug 08, 2019 8:57 am
SGM wrote:
Thu Aug 08, 2019 4:06 am
We look at SS as longevity insurance. While delaying my SS until 70 we used the extra space for Roth conversions. There is no federal tax on 15% of my SS. SS is also a better annuity than one can buy on the open market. Higher non-portfolio income means less need to spend from our portfolio.
See I totally understand this plan. It makes total sense.

EXCEPT.... The contract you have with Social Security can be changed. At any time.

So it's not quite as a good as an annuity contract with an insurance company, in that regard.
That's true, but the insurance company could go belly up, and unless your annuity is within your state guarantor association's limits, you could be left holding the empty bag. And the guarantor association could become insolvent as well. I'm not saying that any of that is likely to ever happen, but it could.
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Re: Social Security -- Take it at 62, 67 or 70

Post by JoeRetire » Thu Aug 08, 2019 11:01 am

RickBoglehead wrote:
Thu Aug 08, 2019 6:59 am
For the lower earning spouse, doesn't it always make sense to take it at 62 (or Jan 1 of the following year), then getting spousal benefits when those kick in? That's what my analysis showed.
No. A spouse could be lower earning, yet still receive more benefits on their own record than 1/2 of yours. It's quite possible that FRA is more optimal, or even 70.

Use https://opensocialsecurity.com/ and experiment with different combinations of PIAs, relative ages, etc. You'll see that it's often not quite as simple as "always make sense to take it at 62".
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Re: Social Security -- Take it at 62, 67 or 70

Post by bberris » Thu Aug 08, 2019 12:25 pm

Peter Foley wrote:
Wed Jul 31, 2019 7:46 pm
One also has to think in terms of spendable income, i.e., the after tax value of the social security. If there is other taxable income as part of the equation, one's SS benefit can cause that income to be taxed at a very high marginal rate.
This is true, but it can lead people to make wrong decisions. The fact is, social security benefit is taxed at a lower rate than earned income or ordinary IRA withdrawals. This is true no matter how much your outside income (possibly an exception for ACA subsidies). But the decision to be made in timing SS claiming is a trade off. By delaying SS, you have higher social security benefits and lower IRA withdrawals.

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Re: Social Security -- Take it at 62, 67 or 70

Post by RustyShackleford » Thu Aug 08, 2019 1:51 pm

SGM wrote:
Thu Aug 08, 2019 4:06 am
We look at SS as longevity insurance. While delaying my SS until 70 we used the extra space for Roth conversions. There is no federal tax on 15% of my SS. SS is also a better annuity than one can buy on the open market. Higher non-portfolio income means less need to spend from our portfolio.
Summarizes my philosophy on claiming age perfectly.

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Re: Social Security -- Take it at 62, 67 or 70

Post by RustyShackleford » Thu Aug 08, 2019 1:53 pm

3-20Characters wrote:
Thu Aug 08, 2019 4:18 am
The only reason I can think of for any boglehead to take SS at 62 is that they’ve received a diagnosis of terminal illness and imminent death. “Bad genes” is not a good reason. Lots of people outlive their expectations and it’s silly to give up the longevity benefits of the higher, inflation adjusted SS income in hopes that you will die early.
My parents are a perfect case in point. Father dropped dead in his 40s. Mother lived till almost 90, smoking like a chimney.

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Re: Social Security -- Take it at 62, 67 or 70

Post by willthrill81 » Thu Aug 08, 2019 2:03 pm

RustyShackleford wrote:
Thu Aug 08, 2019 1:51 pm
SGM wrote:
Thu Aug 08, 2019 4:06 am
We look at SS as longevity insurance. While delaying my SS until 70 we used the extra space for Roth conversions. There is no federal tax on 15% of my SS. SS is also a better annuity than one can buy on the open market. Higher non-portfolio income means less need to spend from our portfolio.
Summarizes my philosophy on claiming age perfectly.
Mine as well. However, if we genuinely need the benefits before age 70, we'll claim them and be glad that we have them.
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Re: Social Security -- Take it at 62, 67 or 70

Post by RickBoglehead » Thu Aug 08, 2019 3:39 pm

is50xenough wrote:
Thu Aug 08, 2019 7:08 am
RickBoglehead wrote:
Thu Aug 08, 2019 6:59 am
For the lower earning spouse, doesn't it always make sense to take it at 62 (or Jan 1 of the following year), then getting spousal benefits when those kick in? That's what my analysis showed.
Did you factor in Roth conversions rick?
95% of our IRA and other retirement funds are already Roth.

DW's Social Security benefit is pretty small.
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Big Dog
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Re: Social Security -- Take it at 62, 67 or 70

Post by Big Dog » Thu Aug 08, 2019 3:50 pm

For the lower earning spouse, doesn't it always make sense to take it at 62 (or Jan 1 of the following year), then getting spousal benefits when those kick in? That's what my analysis showed.
Nope. OpenSocialSecurity showed me that the lower earning spouse when I make FRA (and she is 63++), so I can apply for spousal under her account. (I'm a pre Jan 2-54 bd.)

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celia
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Re: Social Security -- Take it at 62, 67 or 70

Post by celia » Thu Aug 08, 2019 10:11 pm

JoeRetire wrote:
Wed Aug 07, 2019 6:04 am
sixtyforty wrote:
Thu Aug 01, 2019 10:08 am
Seems like the absence or occurrence of a bear market early in retirement might affect the decision on taking SS. If one retires at 62, but plans on taking SS at 67 and a bear market hits at 63, taking SS at 63 may reduce the bad sequence of returns on a portfolio, which as we have all seen can significantly reduce that longevity of one's portfolio.
How does taking SS at 63 reduce the bad sequence of returns on a portfolio? The sequence happens without regard to SS.
If you take SS at 63 instead of spending from your portfolio, your portfolio has time to rebound. Let's assume you need $x per month for living expenses. If you take that from your portfolio while the markets are down, you have to sell more shares each month than you normally would. You will also be taking a larger percentage of your portfolio than you normally would. This is critical if 4% of your portfolio is now being withdrawn each year when you are 63, but not as important if your portfolio is large enough that you are only spending 1-2% of your portfolio.

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Re: Social Security -- Take it at 62, 67 or 70

Post by tibbitts » Thu Aug 08, 2019 11:03 pm

To me, deciding to defer at 62 today is especially difficult because the benefit reductions already provided for in roughly 15 years seem like a best-case scenario. Had we been looking at the same decision right after the last fix to social security, I wouldn't have said that. The possibility of benefit reductions would still have been there, but they would have seemed less inevitable and definitely farther off.

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Re: Social Security -- Take it at 62, 67 or 70

Post by SGM » Fri Aug 09, 2019 4:09 am

HomerJ wrote:
Thu Aug 08, 2019 8:57 am
SGM wrote:
Thu Aug 08, 2019 4:06 am
We look at SS as longevity insurance. While delaying my SS until 70 we used the extra space for Roth conversions. There is no federal tax on 15% of my SS. SS is also a better annuity than one can buy on the open market. Higher non-portfolio income means less need to spend from our portfolio.
See I totally understand this plan. It makes total sense.

EXCEPT.... The contract you have with Social Security can be changed. At any time.

So it's not quite as a good as an annuity contract with an insurance company, in that regard.
Hello Homer. There is some danger that an insurance company will not be able to pay its obligation. There are varying insurance guarantees that vary by state. If the limit in your state of residency is $100k then you may need to buy contracts from several insurance companies. I do have plans to annuitize a bit of my portfolio at a later date on top of my delay of SS. Currently the Oblivious Investor has a reference to a paper by Joe Tomlinson on annuitizing portfolios. I think Joe is very sharp. I am unaware of any more recent papers by him since he moved to England.

bltn
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Re: Social Security -- Take it at 62, 67 or 70

Post by bltn » Fri Aug 09, 2019 5:31 am

For most of the participants in this thread, the time to start taking SS benefits is completely optional. That consideration alone puts them in a minority of recipients.

Thinking in simple terms, two points I consider.
1. Most likely, if one starts taking his benefits at age 62, all of these benefits will not be invested, but spent. So any aspect of compounding of returns may not be correct.
2. Based on likelihood of health limitations as we age, most of us will be much more active and able to use added income in our 60 s than in our 70 s. For example, one is more likely to travel in his sixties. To limit our income during a period of increased vitality might be a mistake.
A good compromise might be to wait until somewhere around full retirement age to start receiving benefits.

jw11
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Re: Social Security -- Take it at 62, 67 or 70

Post by jw11 » Fri Aug 09, 2019 5:42 am

I read PAGE 1 of this thread.
Pardon me if this has been answered.

Married couple.
Same age.
Male will get $2500/month at 67 years old
Female will get $1300/mo at 67 years old.

Male dies suddenly (age 65) before he applies for SS payment.

QUESTION.... Female will never get the Males (higher earner) SS payment and has to settle for her $1300/month ??

If that is true, that may enter into equation of OP of this thread ??

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susa
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Re: Social Security -- Take it at 62, 67 or 70

Post by susa » Fri Aug 09, 2019 5:48 am

jw11 wrote: I read PAGE 1 of this thread.,,... Female will never get the Males (higher earner) SS payment and has to settle for her $1300/month ??
when one dies, the other gets the higher payment

https://www.nasi.org/learn/socialsecuri ... ed-spouses

pennywise
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Re: Social Security -- Take it at 62, 67 or 70

Post by pennywise » Fri Aug 09, 2019 7:00 am

Big Dog wrote:
Thu Aug 08, 2019 3:50 pm
For the lower earning spouse, doesn't it always make sense to take it at 62 (or Jan 1 of the following year), then getting spousal benefits when those kick in? That's what my analysis showed.
Nope. OpenSocialSecurity showed me that the lower earning spouse when I make FRA (and she is 63++), so I can apply for spousal under her account. (I'm a pre Jan 2-54 bd.)
Same here. My husband and I have very similar SS benefits at FRA. However I'm turning 62 this year and he will be 66 which means he/we are fortunate enoght that he is both at FRA and his birthday falls before the cutoff for the spousal benefit hack. Both Mike Piper and the SS administration rep I spoke to agreed our best strategy is for me to start my benefits at 62 with him taking spousal, then he will start taking his at age 70.

It makes logical sense but it's still hard to justify viscerally! Point of my example being that as has been mentioned social security is most assuredly not a one size fits all model. There are so many permutations and variable situations.

Advice: start with Mike Piper's incredibly useful calculator. Then do your own research and figure out what works best for your situation.

mancich
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Re: Social Security -- Take it at 62, 67 or 70

Post by mancich » Fri Aug 09, 2019 7:14 am

What if one were to take the benefits starting at 62 (assuming they don't need the SS to live on), and invest it at a conservative rate of return (say 4%)? Would the combination of the lower payment invested for 8 years (age 62 through 69), plus the out years (age 70 to death, whenever that is) result in a higher overall amount, vs. waiting until 70 to start taking the money (and then using it or investing it)? Lot of variables to wrap one's head around...

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HomerJ
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Re: Social Security -- Take it at 62, 67 or 70

Post by HomerJ » Fri Aug 09, 2019 8:50 am

SGM wrote:
Fri Aug 09, 2019 4:09 am
HomerJ wrote:
Thu Aug 08, 2019 8:57 am
SGM wrote:
Thu Aug 08, 2019 4:06 am
We look at SS as longevity insurance. While delaying my SS until 70 we used the extra space for Roth conversions. There is no federal tax on 15% of my SS. SS is also a better annuity than one can buy on the open market. Higher non-portfolio income means less need to spend from our portfolio.
See I totally understand this plan. It makes total sense.

EXCEPT.... The contract you have with Social Security can be changed. At any time.

So it's not quite as a good as an annuity contract with an insurance company, in that regard.
Hello Homer. There is some danger that an insurance company will not be able to pay its obligation. There are varying insurance guarantees that vary by state. If the limit in your state of residency is $100k then you may need to buy contracts from several insurance companies. I do have plans to annuitize a bit of my portfolio at a later date on top of my delay of SS. Currently the Oblivious Investor has a reference to a paper by Joe Tomlinson on annuitizing portfolios. I think Joe is very sharp. I am unaware of any more recent papers by him since he moved to England.
But the government then covers you if an insurance company fails (under certain limits). There's another fall back plan, another layer of security with an insurance company.

It's true nothing is 100% risk-free.

But Congress can change the SS contract at any time. People are making calculations above assuming that won't happen.

That's not unreasonable, but I think there is a real non-zero chance of means-testing being implemented someday. We're talking about 30 years of retirement spending. That's a long time to assume no changes at all.

I don't like the idea of depleting my OWN money faster in my 60s assuming that SS will not change in my 70s.
The J stands for Jay

infotrader
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Re: Social Security -- Take it at 62, 67 or 70

Post by infotrader » Fri Aug 09, 2019 9:13 am

willthrill81 wrote:
Wed Jul 31, 2019 8:56 pm
I find it funny that when people are talking about claiming SS benefits, they portray their remaining life expectancy as being very short. But when people talk about safe withdrawal rates, they portray themselves living to age 95 or older. :D

After having read a lot about this issue, my conclusion is that the 'best' strategy can usually be closely approximated as follows: delay SS as long as you can, but if you really need the benefits, just claim them. This seems to balance the use of SS benefits as longevity insurance with current spending needs fairly well.
Well said.

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Re: Social Security -- Take it at 62, 67 or 70

Post by Spirit Rider » Fri Aug 09, 2019 9:19 am

HomerJ wrote:
Fri Aug 09, 2019 8:50 am
I don't like the idea of depleting my OWN money faster in my 60s assuming that SS will not change in my 70s.
This is an emotional response, not a financial one.

Most people I personally know who took SS at 62 when they did not need the money, primarily based this on an emotional response. The overriding response was that they couldn't bear the thought that the government would "win" if they died before "breaking even".

Like you, they can't bear the thought of drawing down their own money first, when they could be taking the government's money. They fundamentally couldn't grasp the benefits of delaying SS to buy longevity insurance.

I'll admit it is very hard to switch from having earned income that allows you to add to your portfolio. To only making withdrawals from your portfolio. In my case it is especially hard with an additional $50K/year adding to the burn rate from my youngest girl's college costs.

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HomerJ
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Re: Social Security -- Take it at 62, 67 or 70

Post by HomerJ » Fri Aug 09, 2019 9:50 am

Spirit Rider wrote:
Fri Aug 09, 2019 9:19 am
HomerJ wrote:
Fri Aug 09, 2019 8:50 am
I don't like the idea of depleting my OWN money faster in my 60s assuming that SS will not change in my 70s.
This is an emotional response, not a financial one.
This is incorrect.
Most people I personally know who took SS at 62 when they did not need the money, primarily based this on an emotional response. The overriding response was that they couldn't bear the thought that the government would "win" if they died before "breaking even".

Like you, they can't bear the thought of drawing down their own money first, when they could be taking the government's money. They fundamentally couldn't grasp the benefits of delaying SS to buy longevity insurance.
It has nothing to do with dying early or worrying about winning or losing.

It's a risk mitigation issue for me.

$500,000 in my account is worth more to me than $500,000 promised to me later.

If I spend down my money, and the laws change, I could end up with less. There is no guarantee. Congress is allowed to change the Social Security "contract".

It's a financial and risk-mitigation issue.

We're still a few years away, so I will continue to think about the issue. You guys are probably right that delaying is the best bet... But it does bug me that everyone seems to do the calculations with ZERO awareness that things could change.

Can the government run trillion dollar deficits forever? Maybe.... But I'm not sure I want to spend down my own money assuming the Social Security numbers will remain exactly the same for the next 40 years.
The J stands for Jay

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Re: Social Security -- Take it at 62, 67 or 70

Post by TBillT » Fri Aug 09, 2019 10:08 am

In case the point has not been made, this decision depends somewhat on your and your spouses Ages!
Older taxpayers 65+ as of 2_Jan_2019 have some "double dip" spousal SS options that are no longer available to the younger SS recipients.

I second (or third) Mike Piper's Open Social Security tool and that tool's recommemndation is how we are managing our SS.

orlandoman
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Re: Social Security -- Take it at 62, 67 or 70

Post by orlandoman » Fri Aug 09, 2019 10:36 am

Assume you are married. For simplicity you would get $2,000 a month at age 62 ($24,000yr). You decide to postpone SS till age 70 and use your assets until then. Six years later at age 78 you die. You have reduced your assets by $144,000 ($24,000 x 6).

Your spouse now has $144,000 less assets for their use. Should you not consider this in your decision to postpone SS ... I have not seen anyone mention/address this possibility?
"Don't Believe Everything You Think"

Big Dog
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Re: Social Security -- Take it at 62, 67 or 70

Post by Big Dog » Fri Aug 09, 2019 11:33 am

mancich wrote:
Fri Aug 09, 2019 7:14 am
What if one were to take the benefits starting at 62 (assuming they don't need the SS to live on), and invest it at a conservative rate of return (say 4%)? Would the combination of the lower payment invested for 8 years (age 62 through 69), plus the out years (age 70 to death, whenever that is) result in a higher overall amount, vs. waiting until 70 to start taking the money (and then using it or investing it)? Lot of variables to wrap one's head around...
The question then becomes, what is the appropriate discount rate?

Per Mike Piper:

https://obliviousinvestor.com/claiming- ... we-assume/

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JoeRetire
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Re: Social Security -- Take it at 62, 67 or 70

Post by JoeRetire » Fri Aug 09, 2019 11:36 am

celia wrote:
Thu Aug 08, 2019 10:11 pm
JoeRetire wrote:
Wed Aug 07, 2019 6:04 am
sixtyforty wrote:
Thu Aug 01, 2019 10:08 am
Seems like the absence or occurrence of a bear market early in retirement might affect the decision on taking SS. If one retires at 62, but plans on taking SS at 67 and a bear market hits at 63, taking SS at 63 may reduce the bad sequence of returns on a portfolio, which as we have all seen can significantly reduce that longevity of one's portfolio.
How does taking SS at 63 reduce the bad sequence of returns on a portfolio? The sequence happens without regard to SS.
If you take SS at 63 instead of spending from your portfolio, your portfolio has time to rebound. Let's assume you need $x per month for living expenses. If you take that from your portfolio while the markets are down, you have to sell more shares each month than you normally would. You will also be taking a larger percentage of your portfolio than you normally would. This is critical if 4% of your portfolio is now being withdrawn each year when you are 63, but not as important if your portfolio is large enough that you are only spending 1-2% of your portfolio.
So something bad about sequence of returns happens at 63, but not at seven years later? And you are willing to give up the extra income starting at 70, and perhaps more for a surviving spouse, so that you might need to spend a little less of "your money" now?

I'm not seeing that as a convincing argument for taking SS benefits early.

And remember, if somehow you see a "bad sequence of returns" starting at any point in time, you can always change your mind if your plan was to delay. You can't do the same if you start your benefits early while anticipating that a "bad sequence of returns" might occur.

"Nonetheless, the decision to delay Social Security can be evaluated based on the implicit rate of return it creates by choosing to delay, and over longer time horizons – when clients may “need the money most” as they have more years of retirement expenses to cover in the first place – the return of the Social Security delay becomes quite compelling. In fact, the return is generally far superior to any risk-adjusted returns that can be achieved over comparable time periods by the available alternatives, whether investing in risk-free bonds, growth equities, or buying a commercially available annuity. And because the system is indexed to inflation, its real returns will be maintained even if inflation rises, and will only become better if longevity continues to increase as well. In fact, ultimately the decision to delay Social Security delivers the best results when there is either unexpected inflation, unusually long longevity, or especially bad market returns, which are the exact three scenarios that traditional portfolios are the least effective at managing, making the decision to delay Social Security the ultimate form of “anti-fragile” triple hedge!"

- https://www.kitces.com/blog/how-delayin ... y-can-buy/
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Big Dog
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Re: Social Security -- Take it at 62, 67 or 70

Post by Big Dog » Fri Aug 09, 2019 11:39 am

orlandoman wrote:
Fri Aug 09, 2019 10:36 am
Assume you are married. For simplicity you would get $2,000 a month at age 62 ($24,000yr). You decide to postpone SS till age 70 and use your assets until then. Six years later at age 78 you die. You have reduced your assets by $144,000 ($24,000 x 6).

Your spouse now has $144,000 less assets for their use. Should you not consider this in your decision to postpone SS ... I have not seen anyone mention/address this possibility?
Actually, that is a commonly discussed. Don't forget that the spouse's survivor benefits can be higher if the other spouse waited to age 70. But your point about mortality is correct. If you knew with certainty that you would die at age 78, then taking earlier makes sense. OTOH, one of a healthy couple aged 65 has a ~50% chance of making it to 90....

It's all covered in Mike's incredible model. Click on the Advanced tabs and you can change the mortality tables.

https://opensocialsecurity.com

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JoeRetire
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Re: Social Security -- Take it at 62, 67 or 70

Post by JoeRetire » Fri Aug 09, 2019 11:41 am

bltn wrote:
Fri Aug 09, 2019 5:31 am
2. Based on likelihood of health limitations as we age, most of us will be much more active and able to use added income in our 60 s than in our 70 s. For example, one is more likely to travel in his sixties. To limit our income during a period of increased vitality might be a mistake.
Why would anyone limit their income?

Wouldn't you be confident spending more now, knowing that you have a larger risk-free, inflation-protected income stream headed your way starting at 70 for the rest of your life? Particularly since you seem to assume you'll need less income in your 70's?
Very Stable Genius

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