When to claim Social Security: two reasons not to wait

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

Post by JoeRetire » Mon May 14, 2018 7:35 pm

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

I would take a good look at the numbers if the lower-earning spouse takes SS at FRA (likely 66 for you two) and higher earner waits until 70. There is no impact on survivor's benefit (survivor's benefit is the higher earner's benefit) and yields 4 years of additional benefits at the rate of the lower-earning spouse.
Thanks. I have looked at the numbers several ways - with my wife starting benefits at 62, 66.4 (her FRA) and 70.

My analysis and http://maximizemysocialsecurity.com both agree that my wife should also delay until 70. It's not a huge difference from her benefit at 66.5, and certainly one that we could change if for some reason we need the cash flow. But right now the plan is still for her to wait until 70.
Last edited by JoeRetire on Mon May 14, 2018 7:42 pm, edited 2 times in total.

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

Post by JoeRetire » Mon May 14, 2018 7:37 pm

FIREchief wrote:
Mon May 14, 2018 7:01 pm
jeffyscott wrote:
Mon May 14, 2018 5:25 pm
David Jay wrote:
Mon May 14, 2018 3:52 pm
JoeRetire wrote:
Sun May 13, 2018 7:52 am
(Full disclosure: I'm 64 and my wife is 63 this year. We are planning to both wait until 70 to start our benefits. We still have 6-7 years to change our minds. No matter what, we intend to be happy.)
Joe:

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

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

Post by delamer » Mon May 14, 2018 8:28 pm

FIREchief wrote:
Mon May 14, 2018 7:01 pm
jeffyscott wrote:
Mon May 14, 2018 5:25 pm
David Jay wrote:
Mon May 14, 2018 3:52 pm
JoeRetire wrote:
Sun May 13, 2018 7:52 am
(Full disclosure: I'm 64 and my wife is 63 this year. We are planning to both wait until 70 to start our benefits. We still have 6-7 years to change our minds. No matter what, we intend to be happy.)
Joe:

I would take a good look at the numbers if the lower-earning spouse takes SS at FRA (likely 66 for you two) and higher earner waits until 70. There is no impact on survivor's benefit (survivor's benefit is the higher earner's benefit) and yields 4 years of additional benefits at the rate of the lower-earning spouse.
That is the case even if lower earning spouse takes it at 62, isn't it?
This is a good question. If a lower earning spouse takes SS at 62 and the (much) higher earning spouse takes at 70. Is the survivor benefit for the lower earning spouse reduced??
No, the survivor benefit is not reduced. A spousal benefit will be reduced if taken before FRA.

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

Post by David Jay » Mon May 14, 2018 8:38 pm

JoeRetire wrote:
Mon May 14, 2018 7:35 pm
My analysis and http://maximizemysocialsecurity.com both agree that my wife should also delay until 70. It's not a huge difference from her benefit at 66.5, and certainly one that we could change if for some reason we need the cash flow. But right now the plan is still for her to wait until 70.
Like you say, you have 6 or 7 years to change your mind. Too many people tend to think the 3 choices are 62, FRA and 70 (benefit is actually calculated month by month).

[edit] My preferred SS calculator shows the difference between claiming 68 versus 70 depends on the NPV that I enter (2% vs 3%).
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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

Post by #Cruncher » Wed May 16, 2018 12:15 pm

JoeRetire wrote:
Mon May 14, 2018 7:35 pm
David Jay wrote:
Mon May 14, 2018 3:52 pm
JoeRetire wrote:
Sun May 13, 2018 7:52 am
(... I'm 64 and my wife is 63 this year. We are planning to both wait until 70 to start our benefits. ...)
... I would take a good look at the numbers ...
Thanks. I have looked at the numbers several ways - with my wife starting benefits at 62, 66.4 (her FRA) and 70. My analysis and http://maximizemysocialsecurity.com both agree that my wife should also delay until 70. It's not a huge difference from her benefit at 66.5, and certainly one that we could change if for some reason we need the cash flow. But right now the plan is still for her to wait until 70.
My analysis reaches a different conclusion, Joe. Whether your wife's Primary Insurance Amount (PIA) is 20%, 50%, or 80% of your PIA, the present value (PV) of her survival-weighted benefit decreases each year she delays claiming beyond age 62. The following table shows the PV of her survival-weighted benefit for each $100 of your annualized PIA when discounted at 2%. For example, if her PIA is 50% of yours, the PV of her survival-weighted benefit will be $572 for each $100 of your annualized PIA if she claims at age 62. But if she waits until age 70 to claim, the PV will be only $409.

Code: Select all

Wife PIA
 Pct of    ------------- Age Wife Claims -------------    70
Husb PIA    62   63   64   65   66   67   68   69   70   vs 62
--------   ---  ---  ---  ---  ---  ---  ---  ---  ---   -----
  20%      441  432  422  411  399  385  370  354  319   (122)
  50%      572  549  524  497  467  447  438  425  409   (163)
  80%      759  751  745  739  728  715  700  680  654   (105)
This is based on the following assumptions:
  • Your wife's Normal Retirement Age (NRA) is 66.5 and she will receive less or more than her PIA for each claiming age as shown on this SSA table.
  • You are one year older and will claim your own benefit at age 70, so she will receive at least 50% of your PIA beginning at age 69 -- unless she waits until age 70 to claim.
  • Her benefit will continue (in addition to yours) only while both of you are alive. (Your benefit continues while either of you is alive -- either to you or to her as survivor.)
  • Both your mortality probabilities are given by the SSA 1960 Cohort Life Table.
For those interested, here is how I computed these results.
  • Computed her benefit per $100 of your PIA depending on when she claims. For example, the following table assumes her PIA is 50% of yours. It shows that if she claims at age 62 she'll receive $36.25 through age 68, and then $50 starting at age 69 (spousal benefit of 50% of your PIA). If she waits to claim until age 70, she'll receive $64 every year.

    Code: Select all

          ------------------ Claiming Age and Percent of PIA -------------------
            62      63      64      65      66      67      68      69      70
    Age  72.50%  77.50%  83.33%  90.00%  96.67% 104.00% 112.00% 120.00% 128.00%
    ---  ------  ------  ------  ------  ------ ------- ------- ------- -------
     62   36.25                                                                 
     63   36.25   38.75                                                         
     64   36.25   38.75   41.67                                                 
     65   36.25   38.75   41.67   45.00                                         
     66   36.25   38.75   41.67   45.00   48.33                                 
     67   36.25   38.75   41.67   45.00   48.33   52.00                         
     68   36.25   38.75   41.67   45.00   48.33   52.00   56.00                 
     69   50.00   50.00   50.00   50.00   50.00   52.00   56.00   60.00         
     70   50.00   50.00   50.00   50.00   50.00   52.00   56.00   60.00   64.00 
  • I applied the survival weights for both of you being alive from my longevity estimator for a male age 63 and a female age 62. Here is an example for the weights applied against $60 per year beginning at age 69:

    Code: Select all

                         Col W
                Odds    Survival
        Wife    Both    Weighted
    Row  Age    Alive    Benefit

    Code: Select all

      8   62   100.00%     0.00 
      9   63    97.93%     0.00 
     10   64    95.71%     0.00 
     11   65    93.33%     0.00 
     12   66    90.78%     0.00 
     13   67    88.08%     0.00 
     14   68    85.21%     0.00 
     15   69    82.21%    48.38 [*]
     16   70    79.06%    46.45 
     17   71    75.77%    44.43 
     18   72    72.34%    42.34 
     19   73    68.80%    40.19 
     20   74    65.18%    38.00 
     21   75    61.48%    35.74 
     22   76    57.67%    33.44 
     23   77    53.78%    31.09 
     24   78    49.84%    28.71 
     25   79    45.86%    26.32 
     26   80    41.89%    23.94 
     27   81    37.91%    21.55 
     28   82    33.93%    19.17 
     29   83    29.96%    16.80 
     30   84    26.03%    14.47 
     31   85    22.19%    12.22 
     32   86    18.54%    10.11 
     33   87    15.15%     8.17 
     34   88    12.09%     6.45 
     35   89     9.41%     4.97 
     36   90     7.14%     3.72 
     37   91     5.26%     2.70 
     38   92     3.75%     1.90 
     39   93     2.59%     1.29 
     40   94     1.72%     0.85 
     41   95     1.10%     0.53 
     42   96     0.68%     0.32 
     43   97     0.40%     0.19 
     44   98     0.23%     0.11 
     45   99     0.13%     0.06 
     46  100     0.07%     0.03 
     47  101     0.03%     0.02 
     48  102     0.02%     0.01 
     49  103     0.01%     0.00 
     50  104     0.00%     0.00 
     51  105     0.00%     0.00 
     52  106     0.00%     0.00 
    * Example calculation for age 69:
    48.38 = 60 * (82.21% + 79.06%) / 2
  • Present values calculated with the Excel NPV function. For example:
    425 = NPV(2%, W8:W52) * 1.02 ^ 0.5
    Note: $425 can also be calculated with the longevity estimator using 7 in cell I5 (since first payment delayed from 62 to 69), 0 in cells O1 and O2, 5 in cell O3 (monthly equivalent of $60 / year), and 2% in cell O4 (discount rate).

Jimmei1
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Re: When to claim Social Security: two reasons not to wait

Post by Jimmei1 » Wed May 16, 2018 12:40 pm

I turn 55 next month, switched to part time work this month, and plan to take SS at age 62, for my own two reasons:

1. When I use cfiresim or firecalc, I get the same income (within 2%) whether I use age 62, 67, or 70 to start SS. This is for covering my wife and me until we're 110/105, so just about indefinitely (I get similar results for shorter periods too). At these lifespans, taking SS at 70 at yields more SS income, but I think what's happening is the earlier SS helps mitigate unfavorable sequences of return in my other retirement savings.

2. Since I'll be 71 in 2034 when current projections say SS taxes won't be able to cover 100% of SS payouts, by taking at 62, I could have up to 9 years of payments under current law, in contrast to at most 1 year if I start at 70.

Together, this makes starting SS at 62 better for me than at 70.

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

Post by JoeRetire » Wed May 16, 2018 4:05 pm

#Cruncher wrote:
Wed May 16, 2018 12:15 pm
My analysis reaches a different conclusion, Joe.
Okay, Then we can agree to disagree.

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

Post by jalbert » Wed May 16, 2018 5:02 pm

I'm not very knowledgeable of the fine points of different SS options, but was under the impression that, under the new rules, if someone delays SS and their spouse will receive a spousal benefit under a primary recipient's benefit, then once the spouse reaches FRA, the spousal regular benefit and spousal survivor benefit no longer increase from further delays by the primary to receive benefits. If this is correct, then there is a diminished benefit of the primary recipient delaying past their spouse's FRA.
Index fund investor since 1987.

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

Post by delamer » Wed May 16, 2018 5:18 pm

jalbert wrote:
Wed May 16, 2018 5:02 pm
I'm not very knowledgeable of the fine points of different SS options, but was under the impression that, under the new rules, if someone delays SS and their spouse will receive a spousal benefit under a primary recipient's benefit, then once the spouse reaches FRA, the spousal regular benefit and spousal survivor benefit no longer increase from further delays by the primary to receive benefits. If this is correct, then there is a diminished benefit of the primary recipient delaying past their spouse's FRA.
The survivor benefit is the higher of the two SS benefits being paid, regardless of when the spouse or survivor claimed his/her benefit.

The maximum spousal benefit is half of the husband’s/wife’s benefit at the the husband’s/wife’s FRA. This will be reduced if the spouse claims it prior to his/her own FRA.

JD58
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Re: When to claim Social Security: two reasons not to wait

Post by JD58 » Wed May 16, 2018 5:39 pm

delamer wrote:
Wed May 16, 2018 5:18 pm

The survivor benefit is the higher of the two SS benefits being paid, regardless of when the spouse or survivor claimed his/her benefit.

The maximum spousal benefit is half of the husband’s/wife’s benefit at the the husband’s/wife’s FRA. This will be reduced if the spouse claims it prior to his/her own FRA.
I want to confirm I understand this point as it will impact my wife and I. She is 3 years older and not enough quarters for PIA. So what you are saying is the her spousal benfits are "frosen" at 50% of my FRA benefits (age 66y8m). So in our case even though she will be 70 when I turn 66.8 there is really no spousal benefit growth for her if I wait to 70?

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

Post by JoeRetire » Wed May 16, 2018 5:43 pm

JD58 wrote:
Wed May 16, 2018 5:39 pm
delamer wrote:
Wed May 16, 2018 5:18 pm

The survivor benefit is the higher of the two SS benefits being paid, regardless of when the spouse or survivor claimed his/her benefit.

The maximum spousal benefit is half of the husband’s/wife’s benefit at the the husband’s/wife’s FRA. This will be reduced if the spouse claims it prior to his/her own FRA.
I want to confirm I understand this point as it will impact my wife and I. She is 3 years older and not enough quarters for PIA. So what you are saying is the her spousal benfits are "frosen" at 50% of my FRA benefits (age 66y8m). So in our case even though she will be 70 when I turn 66.8 there is really no spousal benefit growth for her if I wait to 70?
That's correct. There's no spousal benefit growth if you wait to 70.
Of course your own benefit will increase if you wait until 70, for the rest of your life. And if your wife outlives you, her survivor benefit is increased as well, for the rest of her life.

JD58
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Re: When to claim Social Security: two reasons not to wait

Post by JD58 » Wed May 16, 2018 5:46 pm

Thanks, that was the clarity I was after.

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

Post by jalbert » Wed May 16, 2018 5:49 pm

The survivor benefit is the higher of the two SS benefits being paid, regardless of when the spouse or survivor claimed his/her benefit.

The maximum spousal benefit is half of the husband’s/wife’s benefit at the the husband’s/wife’s FRA. This will be reduced if the spouse claims it prior to his/her own FRA
The second statement is ambiguous. I believe the maximum spousal benefit is half the primary's benefit when the non-prinary spouse reaches FRA. Is that what you meant?

So a survivor benefit grows beyond the survivor's FRA had the prinary continued to delay past that FRA, but the regular spousal benefit does not continue to grow past spousal FRA even if the primary delays past that point.
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vested1
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Re: When to claim Social Security: two reasons not to wait

Post by vested1 » Wed May 16, 2018 5:58 pm

jalbert wrote:
Wed May 16, 2018 5:49 pm
The survivor benefit is the higher of the two SS benefits being paid, regardless of when the spouse or survivor claimed his/her benefit.

The maximum spousal benefit is half of the husband’s/wife’s benefit at the the husband’s/wife’s FRA. This will be reduced if the spouse claims it prior to his/her own FRA
The second statement is ambiguous. I believe the maximum spousal benefit is half the primary's benefit when the non-prinary spouse reaches FRA. Is that what you meant?

So a survivor benefit grows beyond the survivor's FRA had the prinary continued to delay past that FRA, but the regular spousal benefit does not continue to grow past spousal FRA even if the primary delays past that point.
The confusion comes from using the wrong terms. PIA should be used to avoid confusion. PIA is the amount of benefits at FRA. Spousal can be no more than 1/2 of the spouse's PIA who has claimed their own benefit, reduced if the one claiming spousal does so before their own FRA.

Survivor benefits are the larger of the two benefits at the time of death, which continue to grow with COLA only. If survivor benefits are taken before the survivor's FRA the amount is also reduced.

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

Post by jalbert » Wed May 16, 2018 7:18 pm

Thanks, but it is still ambiguous as both spouses have a FRA but the usage is not clarified.

Suppose spouse P, who will file for a primary benefit, is 1 year older than spouse S, who will claim a spousal benefit based on P’s PIA. Suppose both reach FRA at age 67.

If P delays past age 67, both benefits increase the first year. Would it be true that S’s benefit will stop increasing once S reaches FRA at 67 even if P continues to delay benefits past that point (eg 2 more years to age 70)? That would be my understanding.

Per above, S’s survivor benefit does continue to increase for any delay P does leading to an increase in P’s benefit even if S is past S’s FRA.
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Re: When to claim Social Security: two reasons not to wait

Post by boglegirl » Thu May 17, 2018 7:55 am

jalbert wrote:
Wed May 16, 2018 7:18 pm
Thanks, but it is still ambiguous as both spouses have a FRA but the usage is not clarified.

Suppose spouse P, who will file for a primary benefit, is 1 year older than spouse S, who will claim a spousal benefit based on P’s PIA. Suppose both reach FRA at age 67.

If P delays past age 67, both benefits increase the first year. Would it be true that S’s benefit will stop increasing once S reaches FRA at 67 even if P continues to delay benefits past that point (eg 2 more years to age 70)? That would be my understanding.
...
Yes. The PIA will be not change after P reaches 67, but S's percentage of it would be reduced if s/he doesn't wait until 67 to claim. Then it won't increase any more after age 67. But keep in mind that S can't claim spousal benefits until P claims benefits.

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

Post by Chip » Thu May 17, 2018 2:57 pm

vested1 wrote:
Wed May 16, 2018 5:58 pm
If survivor benefits are taken before the survivor's FRA the amount is also reduced.
A minor addition/clarification: FRA for survivors is based on a slightly different age table than for retirees. For example, FRA for regular benefit purposes is 66 yrs 4 months for someone born in 1956. For survivor benefits, those born in 1956 have an FRA of 66 yrs 0 months. Effectively the FRA age/DOB table is shifted 2 years for survivors, in their favor.

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

Post by #Cruncher » Fri May 18, 2018 9:01 am

Jimmei1 wrote:
Wed May 16, 2018 12:40 pm
1. When I use cfiresim or firecalc, I get the same income (within 2%) whether I use age 62, 67, or 70 to start SS. This is for covering my wife and me until we're 110/105, ... I think what's happening is the earlier SS helps mitigate unfavorable sequences of return in my other retirement savings.
Given current SS benefit levels, I can't construct a reasonable scenario where, if when starting SS at age 62 one still has a positive portfolio balance at age 110, one wouldn't have significantly more when starting at age 70. (I suspect your results are because cFIREsim and FIRECalc are assuming SS benefits fall in the future.) To illustrate I ran a simple simulation where:

Code: Select all

Period:                              48 years from age 62 to 110
Annual real spending:               $49,000
Real SS if start at age 62:         $21,000 ( 70% of $30,000 PIA) [1]
Real SS if start at age 70:         $37,200 (124% of $30,000 PIA) [1]
Initial portfolio balance:         $700,000 (25X $28,000)
Average real growth over 48 years:  4%
I modeled "sequence of returns" risk by assuming various growth rates the first year after age 62 followed by a constant growth rate the next 47 years such that the average over 48 years was 4%. Here are key points for four different assumptions of first year growth:

Code: Select all

Growth first year             4.000%  (19.000%)  (31.500%)  (38.000%)
Growth subsequent years       4.000%    4.555%     4.928%     5.151%
                              ------    ------     ------     ------
Age 110 balance - start 62       700        0       (395)      (550)  (in 000's)
                - start 70     1,310      585          2       (232)  (in 000's)
Age fail        - start 62       n/a      n/a         96         91
                - start 70       n/a      n/a        n/a         91
Age better when start at 70       87       89         90         91
Taking SS at age 62 would succeed unless the first year growth rate was worse than -19%. Taking SS at age 70 would succeed unless the first year growth was worse than -31.5%. If it was worse than -38%, then taking SS at age 70 would fail at an earlier age than taking SS at age 62. Here is the detail for the case of -31.5% "growth" in year one:

Code: Select all

      -------- Savings Balance --------
Age   SS at 62    SS at 70     70 vs 62

Code: Select all

 62    700,000     700,000            0 
 63    451,500     430,500      (21,000) [2]
 64    445,750     402,715      (43,035)
 65    439,717     373,561      (66,156)
 66    433,387     342,971      (90,416)
 67    426,744     310,873     (115,872)
 68    419,775     277,193     (142,582)
 69    412,461     241,853     (170,608)
 70    404,788     204,772     (200,016)
 71    396,736     203,063     (193,673) [3]
 72    388,287     201,270     (187,017)
 73    379,423     199,389     (180,034)
 74    370,121     197,415     (172,706)
 75    360,361     195,344     (165,017)
 76    350,119     193,170     (156,949)
 77    339,374     190,890     (148,484)
 78    328,098     188,497     (139,601)
 79    316,267     185,986     (130,281)
 80    303,853     183,352     (120,501)
 81    290,827     180,588     (110,240)
 82    277,159     177,687      (99,472)
 83    262,818     174,644      (88,174)
 84    247,770     171,450      (76,320)
 85    231,980     168,099      (63,881)
 86    215,412     164,583      (50,829)
 87    198,028     160,894      (37,134)
 88    179,787     157,023      (22,764)
 89    160,647     152,961       (7,685)
 90    140,564     148,699        8,136 <-- starting at 70 better
 91    119,491     144,227       24,737 
 92     97,379     139,535       42,156 
 93     74,178     134,611       60,433 
 94     49,834     129,445       79,612
 95     24,289     124,024       99,735 
 96     (2,514)    118,336      120,850 <-- starting at 62 fails
 97    (30,514)    112,368      142,882 
 98    (58,514)    106,106      164,619 
 99    (86,514)     99,535      186,048 
100   (114,514)     92,640      207,153 
101   (142,514)     85,405      227,919 
102   (170,514)     77,814      248,327 
103   (198,514)     69,849      268,362 
104   (226,514)     61,491      288,004 
105   (254,514)     52,721      307,235 
106   (282,514)     43,519      326,033 
107   (310,514)     33,864      344,377 
108   (338,514)     23,733      362,246 
109   (366,514)     13,102      379,616 
110   (394,514)      1,948      396,461
  1. 70% and 124% are from this SSA table for Normal Retirement Age of 67.
  2. Example calculation for balance at age 63:

    Code: Select all

    Start at 62: 451,500 = 700000 * 0.685 - 49000 + 21000
    Start at 70: 430,500 = 700000 * 0.685 - 49000 +     0
  3. Example calculation for balance at age 71:

    Code: Select all

    Start at 62: 396,736 = 404788 * 1.04928 - 49000 + 21000
    Start at 70: 203,063 = 204772 * 1.04928 - 49000 + 37200

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dm200
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Re: When to claim Social Security: two reasons not to wait

Post by dm200 » Fri May 18, 2018 11:18 am

One factor I would consider is "asset protection". if you claim early with the plan of accumulating the funds for spending later (or much later), such assets might be at some degree of risk. On the other hand, a larger stream of SS retirement income starting later is at (much) less risk.

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