Social Security Claiming Question

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
cloneman33
Posts: 92
Joined: Tue Dec 04, 2018 9:05 pm

Social Security Claiming Question

Post by cloneman33 »

Good morning,

DW and I turn 62 in Feb next year. Our PIA Full Retirement Age 66 years 10 months is 5 times hers as she was mostly a homemaker while raising kids, a few part time jobs. I plan on delaying until 70 to max mine out and increase her Survivor benefit also.

Question is, I did the Open Social Security tool and it has starting DW at like age 65 years 6 months to max out total benefits, but the difference from that to starting hers at 62 is only $1,500 which is over, I believe, many years. Just think we should take her small benefit ($345 month) at 62 and benefit from over 3 years of taking that before optimal, if it means such a small difference in total as I delay to 70. Am I thinking clearly, advice welcome? Thanks in advance.
MJS
Posts: 583
Joined: Sat Aug 05, 2017 10:55 pm

Re: Social Security Claiming Question

Post by MJS »

Run some scenarios through your income tax software, or https://www.dinkytown.net/v3/999160/Tax1040.html

Consider:
Are you planning Roth conversions?
Would using Social Security for part of your income reduce your MAGI for Medicare-IRMAA at age 63?
If you are planning some major expenses - renovations or travel or new car -- could your income without SS trigger Net Investment Income Taxes?
Topic Author
cloneman33
Posts: 92
Joined: Tue Dec 04, 2018 9:05 pm

Re: Social Security Claiming Question

Post by cloneman33 »

Thanks MJS, I have done some Roth Conversions. I have quite a bit of space to get to the NIIT threshold for married couples of $250k MAGI. 22% tax bracket right now but considering converting into 24% tax bracket but staying under the $250k MAGI NIIT threshold.
User avatar
Kenkat
Posts: 6672
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: Social Security Claiming Question

Post by Kenkat »

One thing I would add is that optimizing SS claiming strategy based on maximizing total payment misses some assumptions or other factors:

1) First and foremost, it is based on average mortality and while we may not know where we will fall in all that, it will be a major factor in which strategy ends up actually being the best
2) Are there factors around timing that should be considered? Could you use the money now? Are you going to have more money than you know what to do with when you are 70 and you begin receiving the larger amount plus begin taking RMDs soon? Are there things you could do at 62 like a bucket list backpacking trip that might be out of the question at 65 or 70? Or are you just going to end up paying extra taxes on money taken earlier?

As you said, the difference in claiming strategy is relatively small and is uncertain anyway. Other factors could easily override that.
User avatar
#Cruncher
Posts: 3057
Joined: Fri May 14, 2010 2:33 am
Location: New York City
Contact:

Re: Social Security Claiming Question

Post by #Cruncher »

Kenkat wrote: Sat Sep 19, 2020 12:45 pm... optimizing SS claiming strategy based on maximizing total payment ... is based on average mortality and while we may not know where we will fall in all that, it will be a major factor in which strategy ends up actually being the best
The Open Social Security calculator mentioned in the original post is indeed "based on average mortality" for whatever mortality table is chosen. (By default it uses the SSA 2017 Period Life Table.) In determining the optimum age for the wife to claim it uses the probabilities that both the husband and wife are alive. This is because her benefit will cease after either of them dies. [1] (For example the "Alive" sheet of my Longevity Estimator Excel workbook shows -- based on this mortality table -- a 52% chance both members of a man / woman couple each age 62 will survive until age 78 and a 35% chance they'll both live to age 82.)

However, instead of using average mortalities we can base the calculation on benefits continuing until a specific age. The following table does that. It calculates the present value (PV) of the benefits when claimed at ages 63 to 70 compared to the the present value if claimed at age 62. For example it shows -- given the three assumptions in cells B1, B3, & B4 -- if SS is claimed at age 65 and if it continues until age 78, the PV would be $1,101 more than if claimed at age 62. [2] But if benefits continued until age 82, the maximum advantage would be $8,927 by delaying until age 68.

Code: Select all

Row    Col A     Col B     Col C    Col D    Col E    Col F    Col G    Col H    Col I    Col J ColK
  1     Born      1959
  2      NRA    66.833  Normal Retirement Age
  3      PIA       500  Primary Insurance Amount
  4     Rate   (0.57%)  Today's default Open Social Security
               ------------------------ Claiming Age and Percent of PIA -----------------------
  5                 62        63       64       65       66       67       68       69       70
  6            70.833%   75.833%  81.111%  87.778%  94.444% 101.333% 109.333% 117.333% 125.333%
  7  Die Age   PV @ 62   ------------------ Difference vs Claiming at Age 62 ------------------ Best

Code: Select all

  8       71    39,363   (1,797)  (4,106)  (6,566)  (9,872) (13,977) (18,762) (24,582) (31,446)   62
  9       72    43,863   (1,480)  (3,453)  (5,489)  (8,372) (12,040) (16,316) (21,628) (27,984)   62
 10       73    48,389   (1,160)  (2,796)  (4,406)  (6,864) (10,091) (13,856) (18,657) (24,502)   62
 11       74    52,941     (839)  (2,136)  (3,318)  (5,346)  (8,131) (11,382) (15,669) (21,000)   62
 12       75    57,519     (516)  (1,471)  (2,222)  (3,820)  (6,160)  (8,894) (12,664) (17,477)   62
 13       76    62,123     (191)    (803)  (1,121)  (2,286)  (4,177)  (6,392)  (9,641) (13,935)   62
 14       77    66,753      136     (131)     (13)    (742)  (2,184)  (3,875)  (6,601) (10,372)   63
 15  ===> 78    71,410      465      544  **1,101**    810     (178)  (1,344)  (3,544)  (6,789)   65 <===
 16       79    76,094      795    1,224    2,221    2,371    1,838    1,202     (470)  (3,185)   66
 17       80    80,805    1,128    1,907    3,348    3,942    3,867    3,762    2,623      439    66
 18       81    85,542    1,462    2,595    4,481    5,521    5,907    6,337    5,733    4,084    68
 19  ===> 82    90,307    1,799    3,286    5,621    7,109    7,958  **8,927**  8,861    7,750    68 <===
 20       83    95,099    2,137    3,982    6,767    8,706   10,022   11,532   12,007   11,437    69
 21       84    99,919    2,477    4,681    7,920   10,313   12,097   14,151   15,171   15,146    69
 22       85   104,766    2,819    5,384    9,080   11,929   14,184   16,786   18,353   18,875    70
 23       86   109,641    3,163    6,091   10,246   13,554   16,283   19,436   21,553   22,626    70
 24       87   114,544    3,509    6,803   11,419   15,188   18,394   22,101   24,771   26,398    70
 25       88   119,475    3,857    7,518   12,598   16,832   20,518   24,781   28,009   30,192    70
 26       89   124,434    4,207    8,238   13,785   18,485   22,653   27,476   31,264   34,008    70
 27       90   129,422    4,560    8,962   14,978   20,147   24,801   30,187   34,538   37,846    70
 28       91   134,438    4,914    9,689   16,178   21,819   26,961   32,914   37,831   41,705    70
 29       92   139,483    5,270   10,422   17,385   23,501   29,133   35,656   41,143   45,587    70
 30       93   144,557    5,628   11,158   18,598   25,192   31,318   38,414   44,474   49,491    70
 31       94   149,660    5,988   11,898   19,819   26,893   33,515   41,187   47,824   53,417    70
 32       95   154,792    6,350   12,643   21,047   28,604   35,725   43,977   51,194   57,366    70
  1. If she dies first, he will continue to receive his benefit; and if he dies first, she will begin receiving his benefit as a widow.
  2. Calculation using the Excel PV function:

    Code: Select all

    72,511 = -PV(-0.57%, 78 - 65, 500 * 12 * 87.778%, 0, 0) / (1 - 0.0057) ^ (65 - 62)
    71,410 = -PV(-0.57%, 78 - 62, 500 * 12 * 70.833%, 0, 0)
     1,101 = 72511 - 71410
User avatar
JoeRetire
Posts: 5786
Joined: Tue Jan 16, 2018 2:44 pm

Re: Social Security Claiming Question

Post by JoeRetire »

cloneman33 wrote: Sat Sep 19, 2020 10:22 amJust think we should take her small benefit ($345 month) at 62 and benefit from over 3 years of taking that before optimal, if it means such a small difference in total as I delay to 70.
Didn't you just prove it makes little difference? So why do you think you should take hers early?
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
User avatar
JoeRetire
Posts: 5786
Joined: Tue Jan 16, 2018 2:44 pm

Re: Social Security Claiming Question

Post by JoeRetire »

#Cruncher wrote: Sun Sep 20, 2020 9:00 am However, instead of using average mortalities we can base the calculation on benefits continuing until a specific age.
Of course https://opensocialsecurity.com/ can do that as well.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
BernardShakey
Posts: 156
Joined: Tue Jun 25, 2019 10:52 pm
Location: CA

Re: Social Security Claiming Question

Post by BernardShakey »

Kenkat wrote: Sat Sep 19, 2020 12:45 pm One thing I would add is that optimizing SS claiming strategy based on maximizing total payment misses some assumptions or other factors:

1) First and foremost, it is based on average mortality and while we may not know where we will fall in all that, it will be a major factor in which strategy ends up actually being the best
2) Are there factors around timing that should be considered? Could you use the money now? Are you going to have more money than you know what to do with when you are 70 and you begin receiving the larger amount plus begin taking RMDs soon? Are there things you could do at 62 like a bucket list backpacking trip that might be out of the question at 65 or 70? Or are you just going to end up paying extra taxes on money taken earlier?

As you said, the difference in claiming strategy is relatively small and is uncertain anyway. Other factors could easily override that.
+1 These less quantifiable factors should be considered. Sometimes we get too focused on the math.
An important key to investing is having a well-calibrated sense of your future regret.
Post Reply