Social security. Take it at 62 [Motley Fool article]

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Topic Author
bog007
Posts: 104
Joined: Fri Feb 28, 2020 3:27 am

Social security. Take it at 62 [Motley Fool article]

Post by bog007 »

Is it a bad idea to take social security at 62? This article seems to suggest to take it early


https://www.google.com/amp/s/www.fool.c ... hat-n.aspx
Carl von Clausewitz, ‘The greatest enemy of a good plan is the dream of a perfect plan.’
User avatar
LiveSimple
Posts: 1771
Joined: Thu Jan 03, 2013 7:55 am

Re: Social security. Take it at 62

Post by LiveSimple »

I am planning to take at 62.... get the money early.

The counter argument is that if we delay the payout is larger, such as a guaranteed annuity.

So it depends on the ones individual needs, thinking, health and some luck !!!
terran
Posts: 1698
Joined: Sat Jan 10, 2015 10:50 pm

Re: Social security. Take it at 62

Post by terran »

I didn't read the article, but from the title I would say the subtext is "people always talk about all the reasons to wait to take social security, but here's 1 reason you might want to take it early." Here's a good question that can help you decide when to take social security: https://opensocialsecurity.com/. Then the only question is whether you think you'll die sooner that that calculator assumes? If so, then you might want to take social security early.
User avatar
JoMoney
Posts: 9765
Joined: Tue Jul 23, 2013 5:31 am

Re: Social security. Take it at 62

Post by JoMoney »

Different individuals will be in different situations, especially when it comes to their personal finances, goals, need of the money, perhaps even life expectancy.
If someone is suggesting there is a universal answer to a question like when you should start drawing your social security, or other retirement money, they're wrong. You can't begin to assess what might be "best" without first determining what the priorities are. Some people need income to survive, some people want to die with the biggest estate, some people just want to ensure they have the largest stream of income that's guaranteed to last however long they live, some people might have reason to believe their life will be less then average life expectancy, and they'll all likely have different levels of income, wealth, and spending needs to address.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
tibbitts
Posts: 11875
Joined: Tue Feb 27, 2007 6:50 pm

Re: Social security. Take it at 62

Post by tibbitts »

bog007 wrote: Sun Oct 11, 2020 10:32 am Is it a bad idea to take social security at 62? This article seems to suggest to take it early


https://www.google.com/amp/s/www.fool.c ... hat-n.aspx
It isn't good or bad; it depends on circumstances. For example if you need to do Roth conversions, etc. And maybe have "lumpy" income (like deferred interest on savings bonds that are nearing 30 years since purchase.)

But without other considerations, for a single person without any of the financial engineering issues of married couples with spousal benefits, it's not likely to statistically matter much, and depends on:

1. your investment outlook;
2. your health outlook;
3. what you think may happen to benefits once the trust fund can no longer pay the full promised amount.
User avatar
JoMoney
Posts: 9765
Joined: Tue Jul 23, 2013 5:31 am

Re: Social security. Take it at 62

Post by JoMoney »

tibbitts wrote: Sun Oct 11, 2020 10:44 am...
3. what you think may happen to benefits once the trust fund can no longer pay the full promised amount.
That's an important variable, that is open to a lot of different views on it, which can very much change ones approach on when to collect.
Some people believe social security may not be around at all when they're of age.
Some people believe that in a world filled with government bailouts to groups the government had no promised liability for, that one way or another, it would be untenable for the government to not pay the promised insurance benefit for which individuals paid the premiums for.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Normchad
Posts: 1292
Joined: Thu Mar 03, 2011 7:20 am

Re: Social security. Take it at 62

Post by Normchad »

I’m planning on taking mine at 62. That’s the plan.

Now, if things are going swimmingly when I get to be that age, I might change my mind.

But listen to JoMoney. There is no one size fits every situation answer. Although people make those proclamations.

Taking it as early as possible is probably never a terrible decision. And waiting is probably never a terrible decision.
prairieman
Posts: 336
Joined: Thu Mar 01, 2018 3:17 pm

Re: Social security. Take it at 62

Post by prairieman »

I began at 62 and never bothered with the math. I am trying to average out income from pension, RMDs, and SS over the longest period of time possible to decrease the likelihood of reaching a higher tax bracket when I’m older. Also, the money I get now let’s my investments grow faster.
Last edited by prairieman on Sun Oct 11, 2020 11:05 am, edited 1 time in total.
“As long as the roots are not severed, all is well.” Chauncey Gardner
Big Dog
Posts: 2007
Joined: Mon Sep 07, 2015 4:12 pm

Re: Social security. Take it at 62

Post by Big Dog »

per the article:
But the problem with traditional breakeven analysis is that it doesn't reflect the time value of money. That might not matter so much for the many retirees who need to spend their Social Security as soon as they get it.
Mike Piper's OpenSocialSecurity does in fact take in the time value of money.

And an extremely important fact buried down in the bottom of the article:
If a spouse or children will collect survivor benefits on your work record after your death, then the overall impact can be different.
If married, the calculus is much different that what is shown in the article. OpenSocialSecurity addresses that too.

If no dependents, and assuming that you don't need the money at 62, then to my thinking, your health status is the first criteria for when to take SS
SxSW
Posts: 105
Joined: Sat Mar 23, 2019 9:25 am

Re: Social security. Take it at 62

Post by SxSW »

A couple of questions to ask yourself:

Is it my primary goal in retirement to get as much as I can as quickly as I can from Social Security? Or are there other priorities, such as making sure I have income regardless of how long I live?
randomguy
Posts: 9205
Joined: Wed Sep 17, 2014 9:00 am

Re: Social security. Take it at 62 [Motley Fool article]

Post by randomguy »

bog007 wrote: Sun Oct 11, 2020 10:32 am Is it a bad idea to take social security at 62? This article seems to suggest to take it early


https://www.google.com/amp/s/www.fool.c ... hat-n.aspx
Yes if you are making 7%+ on your money in a low inflation environment, taking SS early will pay off. It is up to you if you think that assumption is right.


Personally if I am making 7% off my money, I am probably not going to care a whole lot about what SS does since I will have plenty of money.
chw
Posts: 837
Joined: Thu May 24, 2012 4:22 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by chw »

Generally it's a bad idea to take SS at 62, unless you're single, and have a pre-existing health issue which you believe will shorten your life span. Others may also elect to take at 62 if they are facing job loss (and not able to replace that income), have a shortfall of savings entering retirement years- taking SS at 62 may help close an income gap to avoid drawing down savings too early in retirement.

If married, you will need to consider your spouses expected level of SS. If it is significantly lower than yours, you should delay, as you are able to "buy" longevity insurance for you both you and your spouse, since your spouse will draw SS at your payment level if you die first. Every year you delay SS up to age 70 will result in a higher payout not just for you, but also for your spouse if they outlive you.
Topic Author
bog007
Posts: 104
Joined: Fri Feb 28, 2020 3:27 am

Re: Social security. Take it at 62 [Motley Fool article]

Post by bog007 »

i'm single. no kids. everything's paid off. 1.2 M. only 56years old now.
Last edited by bog007 on Sun Oct 11, 2020 11:39 am, edited 1 time in total.
Carl von Clausewitz, ‘The greatest enemy of a good plan is the dream of a perfect plan.’
afan
Posts: 5205
Joined: Sun Jul 25, 2010 4:01 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by afan »

You not only have to make 7%, or some other optimistic amount, on your Investments. You need to make this with the same risk as the increased SS payments from delaying benefits. That is pretty much impossible.

This is a net present value calculation, so of course it takes into account the time value of money.

Another consideration: if taking before 70 means taking while still working, then the payments will be reduced by the taxes paid. If you will be retired for much of the time post claiming benefits at 70, then these may be taxed at lower rates, based on the lack of earned income.

The NPV has to be calculated with after tax cash flows.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
orlandoman
Posts: 511
Joined: Tue Oct 19, 2010 7:27 am

Re: Social security. Take it at 62 [Motley Fool article]

Post by orlandoman »

Another issue, that may affect a timing decision, for married folks:

- Say for example you would get $20,000 at age 62
- you decide to wait until age 70
- 6 yrs later at age 68 you die
- your you/spouse loses $20,000 a year ($20k x 6 =$120,000)
- in addition, you my have depleted part of your savings by waiting to collect at age 70
"Don't Believe Everything You Think"
Topic Author
bog007
Posts: 104
Joined: Fri Feb 28, 2020 3:27 am

Re: Social security. Take it at 62 [Motley Fool article]

Post by bog007 »

orlandoman wrote: Sun Oct 11, 2020 11:50 am Another issue, that may affect a timing decision, for married folks:

- Say for example you would get $20,000 at age 62
- you decide to wait until age 70
- 6 yrs later at age 68 you die
- your you/spouse loses $20,000 a year ($20k x 6 =$120,000)
- in addition, you my have depleted part of your savings by waiting to collect at age 70
thats the way I see it. what if I die at close to 70.
Carl von Clausewitz, ‘The greatest enemy of a good plan is the dream of a perfect plan.’
User avatar
2pedals
Posts: 1228
Joined: Wed Dec 31, 2014 12:31 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by 2pedals »

bog007 wrote: Sun Oct 11, 2020 11:33 am i'm single. no kids. everything's paid off. 1.2 M. only 56years old now.
Do you have a significant amount of tax deferred than you may want to do partial Roth conversions over several years in early retirement? Early SS income can fill up valuable lower tax buckets that can be used for early Roth conversions and at the same time will also reduce your inflation adjusted longevity insurance.
Seasonal
Posts: 2085
Joined: Sun May 21, 2017 1:49 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by Seasonal »

My analysis: Do you need the money now?

1) Yes - then start now.

2) Not at all - wait.

3) Somewhere in the middle - use a good calculator to try to figure out how to maximize lifetime payout.
User avatar
CardinalRule
Posts: 474
Joined: Sun Jan 15, 2017 11:01 am
Location: United States

Re: Social security. Take it at 62

Post by CardinalRule »

Big Dog wrote: Sun Oct 11, 2020 11:05 am per the article:
But the problem with traditional breakeven analysis is that it doesn't reflect the time value of money. That might not matter so much for the many retirees who need to spend their Social Security as soon as they get it.
Mike Piper's OpenSocialSecurity does in fact take in the time value of money.

And an extremely important fact buried down in the bottom of the article:
If a spouse or children will collect survivor benefits on your work record after your death, then the overall impact can be different.
If married, the calculus is much different that what is shown in the article. OpenSocialSecurity addresses that too.

If no dependents, and assuming that you don't need the money at 62, then to my thinking, your health status is the first criteria for when to take SS
I really like that calculator, OpenSocialSecurity, as a place to start one's analysis (that is after getting PIAs from ssa.gov). I just ran it, and the recommended strategy is for DW to take her SS at age 62, in 2026. I, on the other hand, should wait under the model until age 70, in 2029. The PV is $1.42 million. :moneybag
Last edited by CardinalRule on Sun Oct 11, 2020 12:36 pm, edited 1 time in total.
afan
Posts: 5205
Joined: Sun Jul 25, 2010 4:01 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by afan »

If you die young then you lose by waiting.

If you are in poor health and expect to die at 70, or for that matter, at 80, then you should not delay SS. If you are in average health, and can afford to do so, then it pays to wait.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
vested1
Posts: 2237
Joined: Wed Jan 04, 2012 4:20 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by vested1 »

The article is too focused on breakeven arguments, which are meaningless in my opinion. There are many good reasons for filing early, but breakeven isn't one of them. I've never heard of anyone who with their last dying breath expresses delight or disappointment about whether they broke even on SS or not. No one places their SS benefits in a savings account and refuses to spend it because they want to either prove or disprove that they have passed the break even point and have thus put one over on the government. They soon come to realize that SS benefits are income, pure and simple.

Married couples certainly have an advantage because they have two benefits to draw from and the surviving spouse will receive the higher of the two benefits for the rest of their own life after their partner dies. However, there are still advantages for singles to delay that are guaranteed and need to be considered before making a decision.

In my case the difference is about $2,000 a month comparing age 62 to age 70 filing. Because I delayed while taking a restricted application, our combined benefit will more than cover all expenses, leaving the other two sources of income as a bonus. Actually, all three are a bonus as compared to the other two. We had to decide which source of income was more secure. That was a tough one, with a looming reduction in benefits (which I personally don't think will happen), a private pension that could feasibly disappear, and the portfolio, which varies in value depending on who knows what. We chose to split our risk fairly evenly, and not rely too much on one particular source.

The difference between filing at age 62 and filing at age 70 is 77% more monthly income for the 8 year delay. If the income is not needed then there is very little tangible sacrifice for the delay, and the end result is not a guess, but rather a certainty. Since everyone's situation is different, depending on other sources of income and portfolio balance, the decision to delay necessarily varies. The only wrong decision is to allow emotion to influence it.

There is also the factor of discipline, in that many say they will invest what they receive yet end up spending it. Then there is COLA. For some reason, those who advise you to file early and invest the money (usually investment managers) use the reason that you will beat inflation by investing, ignoring the fact that any gains in investment aren't protected by COLA, other than low yielding TIPS, whereas SS benefits are. That means in order to come out ahead on an investment as compared to the increase in benefits by delaying, that you have to beat the guaranteed increase and inflation.

"But a smaller benefit is still raised by COLA". Yes, but the dollar amount of the COLA raise is smaller when filing early because it is based on a smaller dollar amount. Not even Nostradamus would be able to guarantee that investment gains will beat the increase in benefits for delaying. So do you feel lucky?
runner3081
Posts: 3563
Joined: Mon Aug 22, 2016 3:22 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by runner3081 »

At the end of the day, you are betting on when you die.

You won't know that until... well, you die... And then it won't matter.
smitcat
Posts: 6466
Joined: Mon Nov 07, 2016 10:51 am

Re: Social security. Take it at 62 [Motley Fool article]

Post by smitcat »

orlandoman wrote: Sun Oct 11, 2020 11:50 am Another issue, that may affect a timing decision, for married folks:

- Say for example you would get $20,000 at age 62
- you decide to wait until age 70
- 6 yrs later at age 68 you die
- your you/spouse loses $20,000 a year ($20k x 6 =$120,000)
- in addition, you my have depleted part of your savings by waiting to collect at age 70
Depends on how old your spouse is and how much lower his/her SS will be by not waiting for at least FRA.
afan
Posts: 5205
Joined: Sun Jul 25, 2010 4:01 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by afan »

runner3081 wrote: Sun Oct 11, 2020 12:44 pm At the end of the day, you are betting on when you die.

You won't know that until... well, you die... And then it won't matter.
For those in poor health in their early 60's, it may be easy to project a short remaining survival. The question only gets challenging for those who are in good health at 62 and may well live another 25-30 years.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
sport
Posts: 9528
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: Social security. Take it at 62 [Motley Fool article]

Post by sport »

There are also other situations that can affect this decision. DW has a government pension that would completely offset any SS benefit while I am alive and also offset any survivor benefit. So, even though we are married and she is younger than I, our situation is different from most other married couples. So, I started my SS benefit at 62. I did this because there can be no benefit to her and the actuary calculation used by SS is gender neutral. So, since men have shorter life expectancies than women, there seemed to be a small advantage to taking the benefit early.
JPM
Posts: 145
Joined: Sun Aug 19, 2018 2:29 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by JPM »

A friend of mine is 70 and still working, earning high six figures. He claimed at FRA at 66+ because he had a 3 year old dependent child at the time and the child receives the dependent benefit. Three + years of the dependent child payout overrode the alternative plan of waiting until 70 for the max payout on his own account..
Cruise
Posts: 984
Joined: Mon Nov 21, 2016 7:17 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by Cruise »

A question to this knowledgeable group, just to confirm:

I took my SS at 62 and my wife just took hers at 70 (first check is in the mail!). She was collecting 50% of my full benefits for the past four years. My question is, if she predeceases me, will I be eligible for 100% of her benefits, or some other percentage?

Many thanks.

N.B: We were both high earners during our career, but she had a longer career than me.
runner3081
Posts: 3563
Joined: Mon Aug 22, 2016 3:22 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by runner3081 »

afan wrote: Sun Oct 11, 2020 1:32 pm
runner3081 wrote: Sun Oct 11, 2020 12:44 pm At the end of the day, you are betting on when you die.

You won't know that until... well, you die... And then it won't matter.
For those in poor health in their early 60's, it may be easy to project a short remaining survival. The question only gets challenging for those who are in good health at 62 and may well live another 25-30 years.
Still a complete guess. No day is guaranteed. Though maybe an easier guess.
User avatar
JoeRetire
Posts: 5756
Joined: Tue Jan 16, 2018 2:44 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by JoeRetire »

bog007 wrote: Sun Oct 11, 2020 10:32 am Is it a bad idea to take social security at 62? This article seems to suggest to take it early
Only in very special situations. (like a continuous 7% return on your investments for the rest of your life! :oops: )

As the article states:

"The graphs above might convince you that claiming early is always the way to go. But there are many more factors to take into account, including these:

- The graphs above make the unrealistic assumption that returns will be smooth and consistent. In the real world, markets are often volatile, and an ill-timed bear market can make this analysis look a lot different.

- Taxation of Social Security benefits and forfeiture due to working before reaching full retirement age can reduce what you actually receive if you claim early, bringing that line in the graph down.

- If a spouse or children will collect survivor benefits on your work record after your death, then the overall impact can be different."

Not much of an article. I prefer to check https://opensocialsecurity.com/ which does a much better job. And of course it does indeed take into account the time value of money.
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.
traveler2020
Posts: 2
Joined: Sun Oct 11, 2020 10:12 am

Re: Social security. Take it at 62 [Motley Fool article]

Post by traveler2020 »

afan wrote: Sun Oct 11, 2020 11:34 am You not only have to make 7%, or some other optimistic amount, on your Investments. You need to make this with the same risk as the increased SS payments from delaying benefits. That is pretty much impossible.

This is a net present value calculation, so of course it takes into account the time value of money.

Another consideration: if taking before 70 means taking while still working, then the payments will be reduced by the taxes paid. If you will be retired for much of the time post claiming benefits at 70, then these may be taxed at lower rates, based on the lack of earned income.

The NPV has to be calculated with after tax cash flows.
I agree, I would approach this issue using NPV calculation of the discount cash flow of SS payment, depending on how we value our "personal discount rate", the NPV can be very different. I did similar DCF analysis for my pension: a lower discount rate will push me to delay pension while higher discount rate will push to start taking pension sooner. The reflection point for my pension plan seems to be at 6.5%, so if I expect my taxable portfolio has 7+% after tax return then I should take pension payment as soon as I am qualified, even thought it would be smaller amount.

To put this in simple term, when we delay taking money from SS, we essentially take money from our taxable investment portfolio, and the opportunity cost of the taking THAT money depends on how that investment portfolio is managed. Hence, the "personal discount rate" is critical in making the decision.
illumination
Posts: 860
Joined: Tue Apr 02, 2019 6:13 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by illumination »

If you need the money and/or you have health issues that will effect lifespan, take it early.

Most of the times the consensus here is delay as long as possible, but that's assuming someone has the luxury of not needing an immediate cashflow. And we usually don't know when we are going to die, so it's also with the assumption of a normal lifespan.

You can't really get a product in the marketplace that "risk-free" locks you in with a 7%-8% higher cash flow each year for life with inflation protection. Comparing that to a good run in the stock market is just not apples-to-apples. So for people that can afford it, delaying usually makes a lot of sense to maximize that unique benefit that can't be found elsewhere for longevity insurance in case the rest of the portfolio dwindles away.

I'd love to see some polling on people that took early SS, I bet a not insignificant amount regret it. I know both my parents and in-laws regretted it. The people that delay and say end up dying at a younger age, that's more of a "regret" for the estate and heirs at that missed cashflow.
Big Dog
Posts: 2007
Joined: Mon Sep 07, 2015 4:12 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by Big Dog »

illumination wrote: Sun Oct 11, 2020 3:29 pm I'd love to see some polling on people that took early SS, I bet a not insignificant amount regret it.
The vast majority of peeps take SS at 62 bcos they need it to live on today.
illumination
Posts: 860
Joined: Tue Apr 02, 2019 6:13 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by illumination »

Big Dog wrote: Sun Oct 11, 2020 3:38 pm
illumination wrote: Sun Oct 11, 2020 3:29 pm I'd love to see some polling on people that took early SS, I bet a not insignificant amount regret it.
The vast majority of peeps take SS at 62 bcos they need it to live on today.

Probably, but those sort of guesses shouldn't really be a part of the discussion. Sort of like if someone asks if they should contribute to their 401(k) and the focus becomes "what if they can't afford to save for retirement"?

If not taking social security early will be a hurdle someone can't overcome for their living expenses, it's sort of a silly discussion to talk about the strategy and benefits of delaying it.

But there are a huge amount of people that take early SS for irrational reasons that have nothing to do with "needing" that money to live off of.
Last edited by illumination on Sun Oct 11, 2020 3:49 pm, edited 1 time in total.
User avatar
JoeRetire
Posts: 5756
Joined: Tue Jan 16, 2018 2:44 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by JoeRetire »

Big Dog wrote: Sun Oct 11, 2020 3:38 pm
illumination wrote: Sun Oct 11, 2020 3:29 pm I'd love to see some polling on people that took early SS, I bet a not insignificant amount regret it.
The vast majority of peeps take SS at 62 bcos they need it to live on today.
More folks start their benefits at 62 than at any other age. While some do, I'm not sure if the vast majority actually need it to live on. Many folks I know indicate that they just wanted to "get theirs" as soon as possible. I've heard folks talk about "bird in the hand", and others talk about "get it while there is still some left". A few mentioned "so I can stop working now".
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: 5756
Joined: Tue Jan 16, 2018 2:44 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by JoeRetire »

illumination wrote: Sun Oct 11, 2020 3:29 pm I'd love to see some polling on people that took early SS, I bet a not insignificant amount regret it.
I bet that most people are happy with their decision, without regard to when they actually start their benefits.
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.
illumination
Posts: 860
Joined: Tue Apr 02, 2019 6:13 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by illumination »

JoeRetire wrote: Sun Oct 11, 2020 3:50 pm
illumination wrote: Sun Oct 11, 2020 3:29 pm I'd love to see some polling on people that took early SS, I bet a not insignificant amount regret it.
I bet that most people are happy with their decision, without regard to when they actually start their benefits.

Getting an automatic check every month until the day you die is something a lot of people have a hard time not signing up for immediately and also loving it.

But I have seen real world examples of people that regret it, most of the time it was lack of education on really understanding the decision when they made it. Also, people like financial planners push it because it's a cash flow they can then take their AUM cut on. There's also a large amount of people that think "it's not going to be here down the road" and so want to cash in early.

So much of this information wasn't so freely available just a few years ago and usually the people dispensing the info were doing for self-serving reasons and had an agenda.
User avatar
#Cruncher
Posts: 3053
Joined: Fri May 14, 2010 2:33 am
Location: New York City
Contact:

Re: Social security. Take it at 62 [Motley Fool article]

Post by #Cruncher »

bog007 wrote: Sun Oct 11, 2020 10:32 am Is it a bad idea to take social security at 62? This article seems to suggest to take it early
https://www.google.com/amp/s/www.fool.c ... hat-n.aspx
The title of the article is The 1 Reason to Claim Social Security at 62 That No One Ever Talks About. Later it explains the "1 Reason":
the problem with traditional breakeven analysis is that it doesn't reflect the time value of money. ... For those who can invest their benefit checks, however, the time value of money makes a huge difference, because investing early benefit checks provides a longer time horizon for investment growth.
I'm not sure what the author means here by "traditional", but a breakeven analysis can indeed "reflect the time value of money". [*] At least on this forum this definitely is not something "No One Ever Talks About". There have been many threads on this subject. Unfortunately, the article repeats the error that almost all of these threads make. But it also makes a simple error that few on this forum would make.
Even modest return assumptions can make a marked difference in your analysis of when to claim Social Security. Say, for instance, that you were ultraconservative and wanted to put your money in bank CDs. Right now, you could get long-term CDs paying around 2% in annual interest. ... As you can see, the breakeven dates move out a little bit, with the earliest coming at around age 81 and the latest coming around 84.
Ignoring the fact that 2% is more than CDs are paying today (the article is dated November 2019), the author is using a nominal rate of return instead of a real rate of return. He should be using the latter since SS benefits are indexed to inflation.

But then he goes on to repeat the error often made in similar threads on this forum: assuming a high growth rate that can only be achieved from an equity heavy portfolio. (The article calculates breakevens with a 7% growth rate, which is a real rate of return no fixed income investment could provide -- even in 2019.) As ObliviousInvestor has pointed out several times, the proper rate to assume is the real rate on the bond portion of one's portfolio. This post of his presents the argument particularly well, using the analogy of deciding whether to add a new bond fund to one's portfolio.

* The article presents the breakeven points with graphs. It's also possible to compute them directly. The following table shows them for the article's three cases (0%, 2%, and 7%) for three delay options: 62 to 66.5, 62 to 70, and 66.5 to 70. It also shows the breakeven ages for a -0.52% rate which is currently the default used by the Open Social Security calculator (created by ObliviousInvestor.)

Code: Select all

Row         col A     Col B     Col C     Col D
  1          Born      1957
  2           NRA    66.500
  3     Early age    62.000    62.000    66.500
  4      Late age    66.500    70.000    70.000
  5  Early amount    72.500    72.500   100.000
  6   Late amount   100.000   128.000   128.000
      Growth Rate   ------ Breakeven Age ------
  7       (0.520%)     77.9      80.0      82.0
  8        0.000%      78.4      80.5      82.5
  9        2.000%      80.7      82.8      85.0
 10        7.000%     107.7     111.1     115.6
 11    Never rate    7.408%    7.364%    7.308%
Here are the key formulas. Note: "Never rate" is the growth rate at which starting SS at the later age will never break even with starting it at the earlier age.

Code: Select all

 B2   66.5 =MIN(67,66+MAX(0,B1-1954)/6)
 B5   72.5 =100*IF(B3<$B$2,1-(5/900)*MIN(36,($B$2-B3)*12)-(5/1200)*MAX(0,($B$2-B3)*12-36),1+(8/1200)*(B3-$B$2)*12)
 B7   77.9 =IF($A7=0,B$4+B$5*(B$4-B$3)/(B$6-B$5),B$3-LN((B$6*(1+$A7)^(B$3-B$4)-B$5)/(B$6-B$5))/LN(1+$A7))
B11 7.408% =(B6/B5)^(1/(B4-B3))-1
User avatar
nisiprius
Advisory Board
Posts: 41957
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Social security. Take it at 62 [Motley Fool article]

Post by nisiprius »

The main takeaway is that despite the barrels of ink spilled over Social Security claiming strategies, the analyses are sufficiently fragile that they can be tipped either way by changes in assumptions and projections.

It's not terribly interesting to me to know what would be the optimum claiming strategy if you knew accurately what bond interest rates, stock market returns, inflation, differences between CPI-U and CPI-W, personal life expectancy, tax brackets, solvency of Social Security and possible changes in the PIA, FRA, ARF, and FOO.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Wannaretireearly
Posts: 1095
Joined: Wed Mar 31, 2010 4:39 pm

Re: Social security. Take it at 62

Post by Wannaretireearly »

Normchad wrote: Sun Oct 11, 2020 10:56 am I’m planning on taking mine at 62. That’s the plan.

Now, if things are going swimmingly when I get to be that age, I might change my mind.

But listen to JoMoney. There is no one size fits every situation answer. Although people make those proclamations.

Taking it as early as possible is probably never a terrible decision. And waiting is probably never a terrible decision.
This. Bird in the hand...plus the marginal utility will be higher the earlier I take the money. Imo...
Buy Low, Sell High
JackoC
Posts: 1719
Joined: Sun Aug 12, 2018 11:14 am

Re: Social security. Take it at 62

Post by JackoC »

Big Dog wrote: Sun Oct 11, 2020 11:05 am per the article:
But the problem with traditional breakeven analysis is that it doesn't reflect the time value of money. That might not matter so much for the many retirees who need to spend their Social Security as soon as they get it.
Mike Piper's OpenSocialSecurity does in fact take in the time value of money.
If married, the calculus is much different that what is shown in the article. OpenSocialSecurity addresses that too.
If no dependents, and assuming that you don't need the money at 62, then to my thinking, your health status is the first criteria for when to take SS
On present value, since SS is a real (inflation adjusted) stream of payments and the 'riskless' discount rate is actually negative if measured as long TIPS yield, but just saying it's zero is probably close enough, there isn't really much effect from time value of money on apples/apples basis in comparing one SS stream (say from age 62) to another (say from 70), you can just sum up the actuarially likely payments. Which is the way to do it, probability you're alive in each year times payment, not 'breakeven year'.

The part about investing at 7% is pretty unrealistic if it's 7% real, which it should be in comparing to a real SS stream. And anyway that's risk of ending up with return below zero, even assuming a more realistic expected return (for stocks I'd say more than 3% real). Anyway I really doubt anyone would benefit focusing the analysis on money they could make investing early SS payments they don't need to live.

In the real world as several have said, people take SS at 62 most of all because they must to meet basic expenses as unemployed/unemployable at that age, often due to heath problems which as you said are the major reason to take it assuming you don't need it. If you're in poor health at 62 but don't actually need it, you still may be better off claiming it.

Assuming you don't need SS to subsist and are not in bad health at 62, or FRA, the reason to deal to FRA or 70 is *risk management*: of the risk you live much longer than expected. That's obscured by 'breakeven year' which treats it like a game. The serious issue is addressing the risk your other assets run down and/or non-inflation adjusted income streams melt away if you last a very long time. A federal govt risk CPI adjusted annuity is a rare asset for the very long run.

I agree it's more complicated if you take into account each person's spouse/dependent situation, but for a given person I think the main good decision reasons as the same: need it, health, longevity risk management. I don't think SS's finances are a plausible reason to take it earlier for people already in their 60's or even near that. I don't see a realistic possibility of benefits being cut for people already that old, at least those for whom the benefits are any significant part of their assets/income streams.
Last edited by JackoC on Sun Oct 11, 2020 4:46 pm, edited 1 time in total.
User avatar
Ben Mathew
Posts: 1203
Joined: Tue Mar 13, 2018 11:41 am
Location: Seattle
Contact:

Re: Social security. Take it at 62

Post by Ben Mathew »

Wannaretireearly wrote: Sun Oct 11, 2020 4:35 pm
Normchad wrote: Sun Oct 11, 2020 10:56 am I’m planning on taking mine at 62. That’s the plan.

Now, if things are going swimmingly when I get to be that age, I might change my mind.

But listen to JoMoney. There is no one size fits every situation answer. Although people make those proclamations.

Taking it as early as possible is probably never a terrible decision. And waiting is probably never a terrible decision.
This. Bird in the hand...plus the marginal utility will be higher the earlier I take the money. Imo...
Delaying social security does not require delaying consumption. You can fund the pre-SS years with portfolio withdrawals. If the net return to waiting to collect is positive (which it often is), then you should be able to obtain a higher consumption across all your retirement years--both before and after starting SS.
User avatar
JoeRetire
Posts: 5756
Joined: Tue Jan 16, 2018 2:44 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by JoeRetire »

illumination wrote: Sun Oct 11, 2020 4:01 pm
JoeRetire wrote: Sun Oct 11, 2020 3:50 pm
illumination wrote: Sun Oct 11, 2020 3:29 pm I'd love to see some polling on people that took early SS, I bet a not insignificant amount regret it.
I bet that most people are happy with their decision, without regard to when they actually start their benefits.

Getting an automatic check every month until the day you die is something a lot of people have a hard time not signing up for immediately and also loving it.
Yup.
But I have seen real world examples of people that regret it, most of the time it was lack of education on really understanding the decision when they made it.
I've heard of it. I've read about it. But I have never personally met anyone who admitted that they had any regrets about their choice.
Last edited by JoeRetire on Sun Oct 11, 2020 5:07 pm, edited 1 time in total.
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: 5756
Joined: Tue Jan 16, 2018 2:44 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by JoeRetire »

nisiprius wrote: Sun Oct 11, 2020 4:29 pmthe analyses are sufficiently fragile that they can be tipped either way by changes in assumptions and projections.
I don't know of any analysis of anything that cannot be tripped either way by changes to the assumptions and projections. I can't see how that implies any fragility of the analysis. It's just the way an analysis works.
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.
Mr.BB
Posts: 1383
Joined: Sun May 08, 2016 10:10 am

Re: Social security. Take it at 62 [Motley Fool article]

Post by Mr.BB »

Right off the bat they say "The graphs above make the unrealistic assumption that returns will be smooth and consistent."
Social Security pays out a 8% increase per year vs the 7% they are projecting in their investments. All the final numbers still comes down to when you die.

I recently went on to the SS site. They have made some nice upgrades (graphs) to show you your benefits at various ages.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."
Big Dog
Posts: 2007
Joined: Mon Sep 07, 2015 4:12 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by Big Dog »

Mr.BB wrote: Sun Oct 11, 2020 5:10 pm Right off the bat they say "The graphs above make the unrealistic assumption that returns will be smooth and consistent."
Social Security pays out a 8% increase per year vs the 7% they are projecting in their investments. All the final numbers still comes down to when you die.
And, if married, when your spouse dies. (SS's website does not account for survivor benefits.)
User avatar
vitaflo
Posts: 1375
Joined: Sat Sep 03, 2011 3:02 pm

Re: Social security. Take it at 62

Post by vitaflo »

Ben Mathew wrote: Sun Oct 11, 2020 4:45 pm
Wannaretireearly wrote: Sun Oct 11, 2020 4:35 pm
Normchad wrote: Sun Oct 11, 2020 10:56 am I’m planning on taking mine at 62. That’s the plan.

Now, if things are going swimmingly when I get to be that age, I might change my mind.

But listen to JoMoney. There is no one size fits every situation answer. Although people make those proclamations.

Taking it as early as possible is probably never a terrible decision. And waiting is probably never a terrible decision.
This. Bird in the hand...plus the marginal utility will be higher the earlier I take the money. Imo...
Delaying social security does not require delaying consumption. You can fund the pre-SS years with portfolio withdrawals. If the net return to waiting to collect is positive (which it often is), then you should be able to obtain a higher consumption across all your retirement years--both before and after starting SS.
This recalls a great old post by Cut-Throat on this issue: viewtopic.php?t=102609

I keep it bookmarked for a reason.
Johm221122
Posts: 5145
Joined: Fri May 13, 2011 6:27 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by Johm221122 »

JoeRetire wrote: Sun Oct 11, 2020 5:03 pm
illumination wrote: Sun Oct 11, 2020 4:01 pm
JoeRetire wrote: Sun Oct 11, 2020 3:50 pm
illumination wrote: Sun Oct 11, 2020 3:29 pm I'd love to see some polling on people that took early SS, I bet a not insignificant amount regret it.
I bet that most people are happy with their decision, without regard to when they actually start their benefits.

Getting an automatic check every month until the day you die is something a lot of people have a hard time not signing up for immediately and also loving it.
Yup.
But I have seen real world examples of people that regret it, most of the time it was lack of education on really understanding the decision when they made it.
I've heard of it. I've read about it. But I have never personally met anyone who admitted that they had any regrets about their choice.
I have and my neighbor is pretty screwed because of it
CurlyDave
Posts: 1970
Joined: Thu Jul 28, 2016 11:37 am

Re: Social security. Take it at 62 [Motley Fool article]

Post by CurlyDave »

bog007 wrote: Sun Oct 11, 2020 10:32 am Is it a bad idea to take social security at 62? This article seems to suggest to take it early


https://www.google.com/amp/s/www.fool.c ... hat-n.aspx
Everyone who said something without reading the article should go read it first before saying anything.

The analysis is exactly the same as the one I did for myself in 2007, when I claimed at 62. I spent the government's money, kept mine invested and have made much more than an 8% CAGR on my investments since 2007. So I have come out far, far ahead.

There is a knee-jerk reaction to anything but "wait until the last minute" to take SS around here. There can be very good reasons to take it early. If you can get 8% CAGR on your investments there is NO break even date. You could live to 1000 and you would be better off taking SS at 62.

The one valid point I saw in the comments was about spousal benefits, which can be higher if your spouse was a low earner or did not have much time in SS. But, it doesn't take much work time or salary for a spouse's own benefit to be higher than spousal benefits which changes the optimum right back to early claiming. And, there is nothing quite like a nice plump portfolio to ease the burden of a potential slightly lower SS spousal benefit.

In my case my spouse had more quarters of work history than I do and is actually getting a higher benefit than I am. She also claimed at 62.
Johm221122
Posts: 5145
Joined: Fri May 13, 2011 6:27 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by Johm221122 »

CurlyDave wrote: Sun Oct 11, 2020 5:54 pm
bog007 wrote: Sun Oct 11, 2020 10:32 am Is it a bad idea to take social security at 62? This article seems to suggest to take it early


https://www.google.com/amp/s/www.fool.c ... hat-n.aspx
Everyone who said something without reading the article should go read it first before saying anything.

The analysis is exactly the same as the one I did for myself in 2007, when I claimed at 62. I spent the government's money, kept mine invested and have made much more than an 8% CAGR on my investments since 2007. So I have come out far, far ahead.

There is a knee-jerk reaction to anything but "wait until the last minute" to take SS around here. There can be very good reasons to take it early. If you can get 8% CAGR on your investments there is NO break even date. You could live to 1000 and you would be better off taking SS at 62.

The one valid point I saw in the comments was about spousal benefits, which can be higher if your spouse was a low earner or did not have much time in SS. But, it doesn't take much work time or salary for a spouse's own benefit to be higher than spousal benefits which changes the optimum right back to early claiming. And, there is nothing quite like a nice plump portfolio to ease the burden of a potential slightly lower SS spousal benefit.

In my case my spouse had more quarters of work history than I do and is actually getting a higher benefit than I am. She also claimed at 62.
Just because you made 8% or more doesn't mean will have the same luck. We had the longest bull market in history
User avatar
vineviz
Posts: 7810
Joined: Tue May 15, 2018 1:55 pm

Re: Social security. Take it at 62 [Motley Fool article]

Post by vineviz »

bog007 wrote: Sun Oct 11, 2020 11:58 am
orlandoman wrote: Sun Oct 11, 2020 11:50 am Another issue, that may affect a timing decision, for married folks:

- Say for example you would get $20,000 at age 62
- you decide to wait until age 70
- 6 yrs later at age 68 you die
- your you/spouse loses $20,000 a year ($20k x 6 =$120,000)
- in addition, you my have depleted part of your savings by waiting to collect at age 70
thats the way I see it. what if I die at close to 70.
You probably will have other things to worry about in that scenario.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Locked