Should I start social security at 62 to invest it?

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climbingFool
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Should I start social security at 62 to invest it?

Post by climbingFool »

I am strongly considering whether to start social security at 62 and invest the money in stocks. My wife and I are both 61. I have been retired for a year and she is retiring in 2 weeks.
We do not need the money to live on. To explain my financial philosophy my whole career I saved a high salary % in multiple ways and invested aggressively. I was always 100 % in stocks with a small to medium cash position (no bonds). I still am 100 % in stocks and bought a lot mid March.

There are many conflicting opinions on social security out there. With covid I don't really want to go to a seminar at this time. We went to a financial planner once 3 years ago and were told we were doing everything right but didn't discuss social security.
Plugging my social security benefit projections for different starting ages into a model - if I live to standard life expectancy it looks like a no-brainer to me. I only have to beat 1 % compound interest to have starting at 62 be the best option. The longer I live starting social security at 62 is less attractive.
It also interacts with taxes. I've been doing large 401k to Roth conversions since the lower taxes. This year I doubled down in mid March on an even bigger conversion with the market low. Perhaps if I am doing the 401k conversions it's less wise to start social security due to tax consequences?

My wife's projected social security benefits are slightly less than mine. If it makes sense for me to start at 62 it probably makes sense for her unless of large tax consequences.

Just trying overall to use social security the most wisely overall and transfer money most efficiently to the kids.

Any thoughts? I am struggling to see why most financial planners say wait until later to start social security.
lakpr
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Re: Should I start social security at 62 to invest it?

Post by lakpr »

Social Security benefit is calculated with respect to your full retirement age. For every year you delay claiming the SS beyond your full retirement age (up to age 70 max), you get a 8% bump. Conversely, for every year early you claim the SS than your full retirement age, you get a 8% decrease. Once you start claiming, the benefit amount is set in stone (almost).

Claiming up to 5 years early means you are stuck with approximately 40% less benefit amount per year for the rest of your life.

Unless you can guarantee yourself that you WILL be able get more than 8% per year by investing the benefit, delaying the SS benefit is better. Of course, if you don't have any other income sources and need SS to eat, it's a different question altogether -- you must do what you need to survive.
02nz
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Re: Should I start social security at 62 to invest it?

Post by 02nz »

Here's a good tool for answering this question: https://opensocialsecurity.com/

Also consider how much you have in tax-deferred assets. Deferring Social Security means you can draw down that balance (or do Roth conversions) at very low tax rates. Less of the SS that you collect later is subject to income tax. This also reduces RMDs and mitigates the risk one of you has to file single later and face higher tax rates with a large tax-deferred balance.

I would not be at 100% stocks or anything near it at your age, but maybe you have such a large portfolio that it doesn't matter.
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Re: Should I start social security at 62 to invest it?

Post by texasdiver »

You can do a simple break-even calculation and determine to what age you will need to live in order for this decision to pencil out. The longer you live, the better it is to wait. Even if you get historic market rate returns of say 10% on your investments from age 62 to 70 that will not eventually outweigh the added benefit of waiting until age 70 if you live long enough.
prd1982
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Re: Should I start social security at 62 to invest it?

Post by prd1982 »

At the minimun, the one with the highest expected SS monthly amount (most likely the highest wage earner) should strongly consider waiting until 70. This way when one of you dies. the other will get the maximum amount going forward. Deciding what to do with the lower wage earner is harder to estimate.
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Re: Should I start social security at 62 to invest it?

Post by arcticpineapplecorp. »

there have been lots of posts on this subject. have you done a search at the search bar. One such search found this (viewtopic.php?f=1&t=301601&hilit=social+security):

Have you seen Jonathan Clements' articles on Social Security? If not read the link below.
What if you plan to invest in stocks, not bonds? That could raise the breakeven age, because the potential return is higher. But the risk is also vastly greater, and that messes up the analysis. You shouldn’t make a straight comparison between a relatively sure bet (the government keeps paying Social Security) and something so uncertain (remember, stocks lost roughly half their value twice in the past two decades) without factoring in the difference in risk.

source: https://humbledollar.com/money-guide/br ... -security/
here's a more comprehensive list of posts to read:

https://www.google.com/search?sitesearc ... vesting+SS

don't forget in addition to the suggestions mentioned thus far in this post, your wife would get a higher benefit as a survivor if you delay claiming.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
MrJedi
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Re: Should I start social security at 62 to invest it?

Post by MrJedi »

The delay credits are a nearly riskless return, while taking the money early and investing the extra income in stocks is a much more risky investment, so it is not an apples to apples comparison.
highercall
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Re: Should I start social security at 62 to invest it?

Post by highercall »

If you tell me how long you and your spouse will live then I could give you a good answer. Seriously, I am struggling with the same dilemma. Wife turns 62 this year I turn 64. I know some who took at 62 and invested and are very satisfied but realize there are no guarantees how long one will live and what returns will be. I am strongly considering having wife take hers at 62. Have not fully decided about mine though.
lakpr
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Re: Should I start social security at 62 to invest it?

Post by lakpr »

highercall wrote: Fri Jul 24, 2020 4:39 pm If you tell me how long you and your spouse will live then I could give you a good answer. Seriously, I am struggling with the same dilemma. Wife turns 62 this year I turn 64. I know some who took at 62 and invested and are very satisfied but realize there are no guarantees how long one will live and what returns will be. I am strongly considering having wife take hers at 62. Have not fully decided about mine though.
Typically it pays for the higher earner in a couple to wait until age 70, and the lower earner to claim the benefit either on his/her own SS record or half-the-spouse's-full-retirement-benefit as early as possible. A phone appointment with SS office specialist can help.
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Re: Should I start social security at 62 to invest it?

Post by Watty »

climbingFool wrote: Fri Jul 24, 2020 3:31 pm I've been doing large 401k to Roth conversions since the lower taxes. This year I doubled down in mid March on an even bigger conversion with the market low. Perhaps if I am doing the 401k conversions it's less wise to start social security due to tax consequences?
Be sure to understand the screwy way that Social Security is taxed. A lot of people are not able to justify doing Roth conversions once they start Social Security.

https://www.bogleheads.org/wiki/Taxatio ... y_benefits
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Re: Should I start social security at 62 to invest it?

Post by grabiner »

Watty wrote: Fri Jul 24, 2020 4:52 pm
climbingFool wrote: Fri Jul 24, 2020 3:31 pm I've been doing large 401k to Roth conversions since the lower taxes. This year I doubled down in mid March on an even bigger conversion with the market low. Perhaps if I am doing the 401k conversions it's less wise to start social security due to tax consequences?
Be sure to understand the screwy way that Social Security is taxed. A lot of people are not able to justify doing Roth conversions once they start Social Security.

https://www.bogleheads.org/wiki/Taxatio ... y_benefits
This creates another incentive to wait to take SS until 70, and do Roth conversions earlier. By reducing your RMDs, you may reduce the fraction of your SS which gets taxed.

Once you start taking SS, if you are in the upper part of the phase-in, your marginal tax rate is 22.2%, and thus Roth conversions are less attractive.
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Re: Should I start social security at 62 to invest it?

Post by marcopolo »

lakpr wrote: Fri Jul 24, 2020 3:49 pm Social Security benefit is calculated with respect to your full retirement age. For every year you delay claiming the SS beyond your full retirement age (up to age 70 max), you get a 8% bump. Conversely, for every year early you claim the SS than your full retirement age, you get a 8% decrease. Once you start claiming, the benefit amount is set in stone (almost).

Claiming up to 5 years early means you are stuck with approximately 40% less benefit amount per year for the rest of your life.

Unless you can guarantee yourself that you WILL be able get more than 8% per year by investing the benefit, delaying the SS benefit is better. Of course, if you don't have any other income sources and need SS to eat, it's a different question altogether -- you must do what you need to survive.
I believe it makes sense for the spouse with larger benefit to wait until 70, but more for longevity insurance than trying to maximize benefits.

I believe you paint a too rosy scenario in favor of delaying.

The delay credit is 8%, but I believe the early start penalty is only ~6%/year.

Also, you do NOT need to get more than 8% a year to break even, because you also need to take into account the years of skipped payments.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: Should I start social security at 62 to invest it?

Post by climbingFool »

Thanks for all the great replies! New to the forum so it didn't jump out to me as to how to search.
I did look at all of the suggestions including the open source social security calculator.
Right now based on the input I'm leaning towards delaying social security a little longer if taxes stay low and continuing to do large 401k conversions. If taxes go up after the election I'll probably stop or diminish the 401k conversions and start social security at 62 and invest all of the money in individual stocks. I will continue to research.
I am not at all concerned with being 100 % in stocks. If one makes decent money, saves a fair amount, and invests in 100 % stocks for many years at some point you accumulate enough that the risk just doesn't matter any more.
That said - I am far from a financial whiz so appreciate any advice.
The model I referred to was a model set up by by son who works in the finance department of a large bank. To me it is not at all clear that delaying social security is automatically the best way if you invest the money. His model does assume constant compounded return though which is never achieved. Based on his model and the governments projections of my social security if I live to standard life expectancy I only have to beat 1 % return to have starting at 62 give the greatest total return. If I live to 85 I need 4 % return to have starting at 62 give the greatest total return. If I live to 90 I need 6 % return to have starting at 62 give the greatest total return. That sounds like pretty good odds to me.

My wife is well set up no matter what happens so no worries there. I subsidized my kids Roth IRA's starting when they first earned money so they are also set up.

The final valid point is that I think for me it has pretty much become a game to see how much I can accumulate. It's a hobby. It's much more fun and keeps the brain active to invest the money and try to beat the market. Most of my money is in index funds but the individual stocks percentage just keeps going up as they beat the funds.
I also do a lot of climbing so maybe risk just doesn't bother me.

Any other thoughts?
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Re: Should I start social security at 62 to invest it?

Post by celia »

climbingFool wrote: Fri Jul 24, 2020 3:31 pm The longer I live starting social security at 62 is less attractive.
It also interacts with taxes. I've been doing large 401k to Roth conversions since the lower taxes. This year I doubled down in mid March on an even bigger conversion with the market low. Perhaps if I am doing the 401k conversions it's less wise to start social security due to tax consequences?
I'm glad to see you started doing Roth conversions, but we have no clue how much tax-deferred you have remaining. One simple way to look at future taxable RMDs is to look at how much growth your tax-deferred accounts had for each of the last 3 or 4 years (after accounting for any contributions or withdrawals made during that time). Have you been converting at least the amount of growth that occurred each year? If not, future account growth (up to at least age 73) will make your account balances grow even while taking future RMDs.

RMDs are calculated using a larger percentage to be withdrawn each year (starting with 3.65% at age 70.5 or age 72--tbd) while the account balance usually continues to grow, until your late 80s. That is due to the annual percentage of growth is often more than the percentage that you have to withdraw until then.
Just trying overall to use social security the most wisely overall and transfer money most efficiently to the kids.
Your kids will have to withdraw all of the tIRA and 401K money within 10 years of your death. Even if they withdraw 1/10 of the beginning balance each year, they will be taxed on every dollar ON TOP OF THEIR OTHER INCOME, which may be during their high income years. Would your kids prefer to have all tIRAs, a mix of tIRAs and Roths, or all Roths? Which would YOU prefer to inherit?
Any thoughts? I am struggling to see why most financial planners say wait until later to start social security.
By waiting to start SS, that leaves more space in the lower tax brackets to do Roth conversions. Once SS starts, the Roth conversions or RMDs will likely make 85% of the SS be also taxed.

One other important consideration for those who are married is what happens when one of you dies. The survivor will still have to take the same total RMDs as when they were married, but they will then have to file as Single. The space in each tax bracket is half as much for Singles as for MFJ, so the survivior will likely be pushed up to a higher tax bracket.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
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Re: Should I start social security at 62 to invest it?

Post by celia »

climbingFool wrote: Sat Jul 25, 2020 12:08 am The model I referred to was a model set up by by son who works in the finance department of a large bank. To me it is not at all clear that delaying social security is automatically the best way if you invest the money. His model does assume constant compounded return though which is never achieved. Based on his model and the governments projections of my social security if I live to standard life expectancy I only have to beat 1 % return to have starting at 62 give the greatest total return. If I live to 85 I need 4 % return to have starting at 62 give the greatest total return. If I live to 90 I need 6 % return to have starting at 62 give the greatest total return. That sounds like pretty good odds to me.
Instead of calculating how much growth your invested SS might give you, your time would be better spent on thinking about how your tax-deferred grows. Even after taxes on SS and one year of saving it, the amount is small, I would assume, compared to how much is already in your 401K. And you need to consider how you will pay the taxes on future Roth conversions. It is best if you DON'T withhold from the Roth conversion, since you will be losing space in your tax-advantaged accounts that you can never recover. So using SS, other income, dividends from taxable, or LTCG would be a better choice for paying the taxes.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
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Re: Should I start social security at 62 to invest it?

Post by Carl53 »

celia wrote: Your kids will have to withdraw all of the tIRA and 401K money within 10 years of your death. Even if they withdraw 1/10 of the beginning balance each year, they will be taxed on every dollar ON TOP OF THEIR OTHER INCOME, which may be during their high income years. Would your kids prefer to have all tIRAs, a mix of tIRAs and Roths, or all Roths? Which would YOU prefer to inherit?
For a number of years I advised my late inlaws to take distributions above their RMDs to fill up their zero tax brackets. They did not want to pay taxes, so extra distributions of perhaps 10k/yr were possible. Doing more would have incurred tax rates of at least 15% (10% plus some of SS being taxed). They also were not up to the complexity of another new account, therefore no Roths. Ultimately the inherited TIRAs were much smaller and tax burden less on the offspring, whose marginal rates probably range from 12 to 24%.
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Re: Should I start social security at 62 to invest it?

Post by JoeRetire »

climbingFool wrote: Fri Jul 24, 2020 3:31 pm Any thoughts? I am struggling to see why most financial planners say wait until later to start social security.
Try https://opensocialsecurity.com/ with various age of death settings.

"Social Security, and the decision to delay benefits represents a unique form of “investment” – a return that is contingent not upon interest rates or market performance, but survival and longevity. Of course, it’s worth noting that because the value of the Social Security delay decision is contingent on how long someone lives, it is clearly not beneficial for those who are in poor health or are otherwise not optimistic about living a long time (though be certain to look at joint health and longevity in the case of couples planning for survivor benefits, not to mention other couples-specific strategies like File-and-Suspend that may further impact timing decisions).

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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Re: Should I start social security at 62 to invest it?

Post by JoeRetire »

climbingFool wrote: Sat Jul 25, 2020 12:08 amThe final valid point is that I think for me it has pretty much become a game to see how much I can accumulate. It's a hobby. It's much more fun and keeps the brain active to invest the money and try to beat the market. Most of my money is in index funds but the individual stocks percentage just keeps going up as they beat the funds.
I also do a lot of climbing so maybe risk just doesn't bother me.
I'm sure you'll be happy with your choice no matter what you choose to do - most people are.

If it's fun you are after, then perhaps just take your benefits at 62 and enjoy trying to beat the market with the money. You'll probably have fun. Maybe you'll be lucky.

If you want the (non-fun) optimal solution financially, perhaps you should talk with a fee-only, fiduciary financial advisor. They can often work with you remotely, and run the numbers for you and your wife. That way, you can make an informed decision.
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.
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Re: Should I start social security at 62 to invest it?

Post by invest4 »

I also struggle with this question, and somewhat annoyingly so due to the uncertainty of the next 15 years before age 62.

I calculated my breakeven at 85 and really wondered if it was a 'bird in hand' to take at 62 vs start at 70 (family longevity is mixed).

However:
celia wrote: Sat Jul 25, 2020 12:49 am Instead of calculating how much growth your invested SS might give you, your time would be better spent on thinking about how your tax-deferred grows. Even after taxes on SS and one year of saving it, the amount is small, I would assume, compared to how much is already in your 401K. And you need to consider how you will pay the taxes on future Roth conversions. It is best if you DON'T withhold from the Roth conversion, since you will be losing space in your tax-advantaged accounts that you can never recover. So using SS, other income, dividends from taxable, or LTCG would be a better choice for paying the taxes.
Your kids will have to withdraw all of the tIRA and 401K money within 10 years of your death. Even if they withdraw 1/10 of the beginning balance each year, they will be taxed on every dollar ON TOP OF THEIR OTHER INCOME, which may be during their high income years. Would your kids prefer to have all tIRAs, a mix of tIRAs and Roths, or all Roths? Which would YOU prefer to inherit?
By waiting to start SS, that leaves more space in the lower tax brackets to do Roth conversions. Once SS starts, the Roth conversions or RMDs will likely make 85% of the SS be also taxed.
One other important consideration for those who are married is what happens when one of you dies. The survivor will still have to take the same total RMDs as when they were married, but they will then have to file as Single. The space in each tax bracket is half as much for Singles as for MFJ, so the survivior will likely be pushed up to a higher tax bracket.
Thank you for raising this topic and the super helpful responses such as those above which influences my thinking. As of now, I remain focused on maxing out where possible (401k, Roth, HSA...) as well more recently hitting Mega Backdoor Roth heavily for better tax diversification (effectively drawing down excess cash reserves as the trade-off).

Two things that loom for me are:

* Roth Conversions (~1.3M retirement funds ~85% tax deferred and still accumulating)

* Mortgage Payoff (recently new 30 year at 3.25%...370K)

Curious if there is a suggested time when one should shift focus toward these at some point prior to retirement or simply setup a path to do so now (e.g. consistent payments between now and 62 to land at zero for mortgage for example) Not sure about guidance as far as planning for the Roth conversions. As income is finite, attempting to find the right balance / trade-offs and timing.
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Re: Should I start social security at 62 to invest it?

Post by Tdubs »

You might also want to game it all out on i-orp.com.

https://www.i-orp.com/Inflate/extended.html
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Re: Should I start social security at 62 to invest it?

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We Did
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starting almost 8 years ago
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Re: Should I start social security at 62 to invest it?

Post by tennisplyr »

We took ours at 62, that was about 8 years ago and never looked back. I don't know how long I will live and know that I would have had to make significant withdrawals if we didn't take it. Also if I delayed it, the breakeven would be like in my mid 80s to see any benefit...kinda late for me :happy
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Re: Should I start social security at 62 to invest it?

Post by oldcomputerguy »

lakpr wrote: Fri Jul 24, 2020 4:45 pm Typically it pays for the higher earner in a couple to wait until age 70, and the lower earner to claim the benefit either on his/her own SS record or half-the-spouse's-full-retirement-benefit as early as possible.
I'm not sure that will work here. Given the OP's stated age for him and his wife, I think they will both be subject to the new "deemed filing" rule, which would mean that if she claims a spousal benefit on his record, she will automatically be deemed to have applied for her own benefit as well.
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Re: Should I start social security at 62 to invest it?

Post by Nowizard »

Based on your comment about not needing the money, if your finances support having "Won the game," I suspect you are beginning to raise an issue that has caused substantial discussion in our household. Common recommendations would definitely suggest that unless you have unusual circumstances such as saving for your heirs, that you become more conservative, that you will gain significant increases in eventual SS payments by delaying, etc. However, though we had no need to take additional risk and had sufficient assets and income to sustain us in the future, we still took SS as early as possible to invest the proceeds. It has worked out for us in terms of asset appreciation, but we have realized there was a psychological factor driving that decision. Specifically, we had great difficulty moving from an accumulation to preservation stage. Like you, we had done a good job with saving, researching investment decisions with positive results, etc., but had not looked far enough into the future to adequately incorporate post-retirement financial considerations. The net result is that we did accumulate additional assets by investing SS proceeds, but that also had negatives attached. Now that we are in RMD stages, we have greater income than we had while working and are in a higher tax bracket, plus have significant IRMAA payments. Though that is a first world issue, it reflects that we did not look far enough into the future when planning for retirement and should have made decisions that "cost" money initially but not in the long run. The main one we did not adequately consider was conversion of tax sheltered assets to ROTH-IRA's. Your situation may be different, but these details are presented to add additional consideration to your decision.

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Re: Should I start social security at 62 to invest it?

Post by Point »

Will you live past 82? Do either of you have health issues affecting longevity? Without health issues assume you will live 5 years longer than your parents.

With significant health issues, I would draw down earlier. With parents that lived into their 90’s, early withdrawal is insignificant without health issues.

The break even seems to around age 82.

Of course, there is no law saying they have to pay everyone social security benefits. There is currently no means test either...
The future could change.

Then roll the dice.

What you do with the income and how your investments do
Is up to you.
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Re: Should I start social security at 62 to invest it?

Post by arcticpineapplecorp. »

climbingFool wrote: Sat Jul 25, 2020 12:08 am Thanks for all the great replies! New to the forum so it didn't jump out to me as to how to search.
I did look at all of the suggestions including the open source social security calculator.
Right now based on the input I'm leaning towards delaying social security a little longer if taxes stay low and continuing to do large 401k conversions. If taxes go up after the election I'll probably stop or diminish the 401k conversions and start social security at 62 and invest all of the money in individual stocks. I will continue to research.
I am not at all concerned with being 100 % in stocks. If one makes decent money, saves a fair amount, and invests in 100 % stocks for many years at some point you accumulate enough that the risk just doesn't matter any more.
That said - I am far from a financial whiz so appreciate any advice.
The model I referred to was a model set up by by son who works in the finance department of a large bank. To me it is not at all clear that delaying social security is automatically the best way if you invest the money. His model does assume constant compounded return though which is never achieved. Based on his model and the governments projections of my social security if I live to standard life expectancy I only have to beat 1 % return to have starting at 62 give the greatest total return. If I live to 85 I need 4 % return to have starting at 62 give the greatest total return. If I live to 90 I need 6 % return to have starting at 62 give the greatest total return. That sounds like pretty good odds to me.

My wife is well set up no matter what happens so no worries there. I subsidized my kids Roth IRA's starting when they first earned money so they are also set up.

The final valid point is that I think for me it has pretty much become a game to see how much I can accumulate. It's a hobby. It's much more fun and keeps the brain active to invest the money and try to beat the market. Most of my money is in index funds but the individual stocks percentage just keeps going up as they beat the funds.
I also do a lot of climbing so maybe risk just doesn't bother me.

Any other thoughts?
Investing in individual stocks could sabatoge this entire plan.

If you insist on doing this, please own the entire market instead.

if your individual stocks beat the market, then why are you bothering with an underperforming index fund?

How sure are you that your individual stocks are truly, really, outperforming the market? If you admit your not a "financial whiz" are you 100% sure your individual stocks have beaten the market? How did you determine this?

You say "just keeps going up". You mean to say, "has gone up". You don't know what those individual stocks will do in the future just because of what they've done in the past.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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Re: Should I start social security at 62 to invest it?

Post by climbingFool »

Again - thanks for all the seasoned advice. It is odd - not being on this forum by doing my 401k conversions to Roth it felt like I was on an island. I only knew one other person doing the conversions and no other older person I talked to (even those with money) were considering it.
It seemed a no-brainer to me with the lower taxes and especially this year in mid March with the market down so I even filled my current tax bracket and the next higher one in March. Now many on this web site it appears have similar thinking.

As to the individual stocks - again that's part of the fun but I wouldn't do it unless I was beating the S&P 500 with dividends. I started buying individual stocks in 1996 and have averaged beating that index ever since. I generally just buy and hold - but sometimes sell. I sold a large portion of my CSCO on 4/4/2000 at a price it hasn't hit since, I believe. I keep my stocks in 2 brokerages to not exceed the SIPC insurance by too much. This year I am destroying the S&P but I suspect there will be a big rotation out of many of my stocks as the non-covid stocks recover. It's all a game.

I will keep studying - thanks. I will definitely be watching this forum in general more now to see what I can learn.
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Re: Should I start social security at 62 to invest it?

Post by celia »

climbingFool wrote: Sat Jul 25, 2020 1:42 pm Again - thanks for all the seasoned advice. It is odd - not being on this forum by doing my 401k conversions to Roth it felt like I was on an island. I only knew one other person doing the conversions and no other older person I talked to (even those with money) were considering it.
There are a couple reasons you hadn't run across others who were doing Roth conversions in early retirement. One reason is that financial advisors often don't consider it, since they personally have not yet reached the point where it would benefit themselves personally. They are still working after all, and may not understand the perspective from someone who is now 80 and their RMDs (and taxes) keep rising.

The other reason we talk about it frequently is that we tend to have higher savings rates and working incomes than the typical American. We tend to understand taxes and like to read the IRS documentation. We are aware we are not "average".
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Re: Should I start social security at 62 to invest it?

Post by #Cruncher »

climbingFool wrote: Sat Jul 25, 2020 12:08 amThe model I referred to was a model set up by by son ... Based on his model ... if I live to standard life expectancy I only have to beat 1% return to have starting at 62 give the greatest total return. If I live to 85 I need 4% return to have starting at 62 give the greatest total return. If I live to 90 I need 6% return to have starting at 62 give the greatest total return. That sounds like pretty good odds to me.
Does your son's model evaluate any other claiming ages besides 62 or 70, climbingFool? Often the optimum claiming age will fall in between. Following is a table comparing the results of claiming at nine different ages: 62, 63, ..., 69, and 70 for someone with a Normal Retirement Age (NRA) of 66+10mo. [1] The table shows how much benefits would grow to at three different ages (82, 85, and 90) [2] if invested at seven different growth rates (0%, 1%, ..., 5%, and 6%).

For example if benefits are claimed at age 66 and grow 2% (in real terms) per year until age 82, each $100 of Primary Insurance Amount (PIA) would grow to $21,125 (in constant dollars). This is more than if benefits were claimed at any of the other eight ages. In particular it is 2.2% more than if they were claimed at age 62. [3]

Code: Select all

Row Col A  Col B    Col C  Col D  Col E    Col F  Col G  Col H    Col I  Col J  Col K    Col L Col M
  1  Born   1959
  2   NRA  66.83
  3         0.0%      62     63     64       65     66     67       68     69     70    < Claim age
  4   Die   Grow    70.83  75.83  81.11    87.78  94.44 101.33   109.33 117.33 125.33   < % of PIA
  5   Age   Rate   Incr->   7.1%   7.0%     8.2%   7.6%   7.3%     7.9%   7.3%   6.8%    Most  Claim

Code: Select all

  6    82   0.0%     7.4%   5.9%   4.6%     2.5%   1.3%   0.7%            0.3%   1.7%   18,368    68
  7    82   1.0%     4.6%   3.4%   2.6%     1.0%   0.3%   0.2%            0.9%   2.7%   19,611    68
  8    82   2.0%     2.2%   1.6%   1.3%     0.2%          0.5%     0.8%   2.2%   4.5%   21,125    66 [3]
  9    82   3.0%     0.4%   0.3%   0.6%            0.3%   1.3%     2.2%   4.1%   6.9%   22,922    65
 10    82   4.0%            0.5%   1.4%     1.4%   2.3%   3.8%     5.2%   7.5%  10.7%   25,311    62
 11    82   5.0%            1.1%   2.6%     3.2%   4.6%   6.6%     8.5%  11.3%  14.8%   28,106    62
 12    82   6.0%            1.7%   3.8%     5.0%   6.9%   9.5%    11.8%  15.0%  18.9%   31,268    62

 13    85   0.0%    13.3%  11.3%   9.4%     6.6%   4.6%   3.0%     1.1%   0.1%          22,560    70
 14    85   1.0%    10.0%   8.4%   6.9%     4.6%   2.9%   1.8%     0.5%          0.4%   24,299    69
 15    85   2.0%     6.6%   5.4%   4.4%     2.5%   1.4%   0.8%            0.0%   0.9%   26,256    68
 16    85   3.0%     3.4%   2.7%   2.2%     0.9%   0.3%   0.3%            0.6%   2.0%   28,551    68
 17    85   4.0%     0.8%   0.6%   0.8%            0.0%   0.6%     0.9%   2.0%   4.0%   31,366    65
 18    85   5.0%            0.5%   1.3%     1.1%   1.7%   2.9%     3.7%   5.4%   7.8%   35,216    62
 19    85   6.0%            1.2%   2.6%     3.0%   4.2%   5.9%     7.3%   9.5%  12.4%   39,946    62

 20    90   0.0%    20.9%  18.3%  15.9%    12.5%   9.6%   7.0%     4.0%   1.7%          30,080    70
 21    90   1.0%    17.5%  15.3%  13.2%    10.2%   7.7%   5.6%     3.0%   1.2%          33,117    70
 22    90   2.0%    13.8%  12.0%  10.3%     7.7%   5.7%   4.0%     2.0%   0.7%          36,543    70
 23    90   3.0%     9.7%   8.3%   7.1%     5.0%   3.5%   2.4%     0.9%   0.1%          40,413    70
 24    90   4.0%     5.6%   4.8%   4.2%     2.5%   1.6%   1.1%     0.2%          0.5%   45,013    69
 25    90   5.0%     1.7%   1.5%   1.5%     0.5%   0.2%   0.3%            0.4%   1.6%   50,519    68
 26    90   6.0%            0.5%   1.2%     0.8%   1.1%   1.9%     2.3%   3.3%   5.0%   58,249    62
  1. 66+10 mo is the NRA for someone born in 1959. Benefits for each claiming age are based on this SSA webpage.
  2. According to the SSA 2017 Period Life Table, the life expectancies of a 62 year old man and woman are approximately 82 (62 + 20.08) and 85 (62 + 22.90) respectively. The joint life expectancy of a man / woman couple each age 62 is approximately 89 (62 + 26.91). (This is calculated in cell I8 on the Alive sheet of my Longevity Estimator Excel workbook.) The joint life expectancy is the relevant age for the spouse with the larger benefit since that benefit will continue while either spouse is alive.
  3. Calculation for benefits running to age 82 if claimed at age 66 and 62 using the Excel FV function:

    Code: Select all

    21,125 = FV(2%, 82 - 66, -12 * (94 + 4/9), 0, 0) : claim at 66
    20,653 = FV(2%, 82 - 62, -12 * (70 + 5/6), 0, 0) : claim at 62
    ------
       472 or 2.2% less
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Re: Should I start social security at 62 to invest it?

Post by TheDDC »

climbingFool wrote: Sat Jul 25, 2020 1:42 pm Again - thanks for all the seasoned advice. It is odd - not being on this forum by doing my 401k conversions to Roth it felt like I was on an island. I only knew one other person doing the conversions and no other older person I talked to (even those with money) were considering it.
It seemed a no-brainer to me with the lower taxes and especially this year in mid March with the market down so I even filled my current tax bracket and the next higher one in March. Now many on this web site it appears have similar thinking.

As to the individual stocks - again that's part of the fun but I wouldn't do it unless I was beating the S&P 500 with dividends. I started buying individual stocks in 1996 and have averaged beating that index ever since. I generally just buy and hold - but sometimes sell. I sold a large portion of my CSCO on 4/4/2000 at a price it hasn't hit since, I believe. I keep my stocks in 2 brokerages to not exceed the SIPC insurance by too much. This year I am destroying the S&P but I suspect there will be a big rotation out of many of my stocks as the non-covid stocks recover. It's all a game.

I will keep studying - thanks. I will definitely be watching this forum in general more now to see what I can learn.
Individual stocks is a fool's errand. Stick to index funds. VTSAX w/large growth tilt has outperformed the S&P, as has VTSAX by itself. No big deal, but plenty of stocks/funds don't do it.

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Rules to wealth building: 90-100% VTSAX piled high and deep, 0-10% VIGAX tilt, 0% given away to banks, minimize amount given to medical-industrial complex
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Re: Should I start social security at 62 to invest it?

Post by Ben Mathew »

You seem unusually risk tolerant with a 100% stock portfolio at age 61/60. It is hard to use the usual rules of thumb in your case. Usually, people have a lot in bonds in retirement and social security is a great alternative to the bond portion of the portfolio since it offers a good nearly risk free return and is an annuity (the only inflation-adjusted annuity available to us). But since you don't have a bond portion, you're sacrificing stock to buy social security. Whether it makes sense to do so depends on your risk tolerance, and only you know that. If it is high enough, it might make sense for you to take it and invest it in stocks. But note that you are giving up a very attractive opportunity to own inflation-adjusted annuity to do so. Also note that' delaying SS is a tax advantaged investment similar to a traditional account investment--you don't pay taxes on the foregone SS benefits today, but will pay taxes at withdrawal after age 70. By contrast, if you take the SS benefits today and invest it in a taxable account, you have no tax advantage. All told, delaying SS is very compelling for almost everyone with normal life expectancies. Be sure to know what you are giving up before you take the plunge.

I also second others' advice about individual stocks. You probably just got lucky with them so far.
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Re: Should I start social security at 62 to invest it?

Post by Ben Mathew »

climbingFool wrote: Sat Jul 25, 2020 1:42 pm Again - thanks for all the seasoned advice. It is odd - not being on this forum by doing my 401k conversions to Roth it felt like I was on an island. I only knew one other person doing the conversions and no other older person I talked to (even those with money) were considering it.
It seemed a no-brainer to me with the lower taxes and especially this year in mid March with the market down so I even filled my current tax bracket and the next higher one in March. Now many on this web site it appears have similar thinking.
There is no benefit to filling up higher brackets when the market is down. Whether the market is up or down, you'll want to fill up only to your target bracket (or target marginal tax rate). If you enter a higher bracket, you're just paying a higher marginal tax rate than what is available to you in future years.

If anything, the force is in the opposite direction. A large investment loss should prompt you to lower your target marginal tax bracket because you have less wealth now and so are less likely to be in a high marginal tax bracket in the future.
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Re: Should I start social security at 62 to invest it?

Post by wander »

My rules of thumb are:
- If I retire and I don't need the money at 62, I will delay it.
- If I am ill at 62, I will start collecting SS payments since I will have something to leave behind for heirs.
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Re: Should I start social security at 62 to invest it?

Post by Allan »

I have 6 months until I reach 70 and Social Security. Waiting has not been easy, I'm close to max on benefits, but I'm glad I did delay. I might drop dead before I reach that point but if I live deep into my 80's or even if die before and my wife receives my benefits, it will have been a good move. I will also add that receiving 1/2 of my wife's benefits during the 4 year period 66-70, made it a bit easier to wait.
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Re: Should I start social security at 62 to invest it?

Post by tibbitts »

climbingFool wrote: Sat Jul 25, 2020 12:08 am Any other thoughts?
You should claim at 62 and not look back, just because of your risk profile. The only downside for some people would be the lack of ability to do more aggressive Roth conversions between retirement and claiming age... or of course if someone is still employed that can be a consideration too.
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Re: Should I start social security at 62 to invest it?

Post by whereskyle »

climbingFool wrote: Fri Jul 24, 2020 3:31 pm I am strongly considering whether to start social security at 62 and invest the money in stocks. My wife and I are both 61. I have been retired for a year and she is retiring in 2 weeks.
We do not need the money to live on. To explain my financial philosophy my whole career I saved a high salary % in multiple ways and invested aggressively. I was always 100 % in stocks with a small to medium cash position (no bonds). I still am 100 % in stocks and bought a lot mid March.

There are many conflicting opinions on social security out there. With covid I don't really want to go to a seminar at this time. We went to a financial planner once 3 years ago and were told we were doing everything right but didn't discuss social security.
Plugging my social security benefit projections for different starting ages into a model - if I live to standard life expectancy it looks like a no-brainer to me. I only have to beat 1 % compound interest to have starting at 62 be the best option. The longer I live starting social security at 62 is less attractive.
It also interacts with taxes. I've been doing large 401k to Roth conversions since the lower taxes. This year I doubled down in mid March on an even bigger conversion with the market low. Perhaps if I am doing the 401k conversions it's less wise to start social security due to tax consequences?

My wife's projected social security benefits are slightly less than mine. If it makes sense for me to start at 62 it probably makes sense for her unless of large tax consequences.

Just trying overall to use social security the most wisely overall and transfer money most efficiently to the kids.

Any thoughts? I am struggling to see why most financial planners say wait until later to start social security.
IIRC, Bill Bernstein is a fan of waiting until 70. Taking it out now and investing it still leaves you with the one thing you need to watch out for with a stock-heavy portfolio: a crushing bear market that sets in right at the beginning of your retirement. Social security is probably the asset most resilient to such a scenario. Why increase the risk that you won't have enough when you are retired by taking social security early?
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Re: Should I start social security at 62 to invest it?

Post by grobertj »

climbingFool wrote: Fri Jul 24, 2020 3:31 pm I am strongly considering whether to start social security at 62 and invest the money in stocks. My wife and I are both 61. I have been retired for a year and she is retiring in 2 weeks.
We do not need the money to live on. To explain my financial philosophy my whole career I saved a high salary % in multiple ways and invested aggressively. I was always 100 % in stocks with a small to medium cash position (no bonds). I still am 100 % in stocks and bought a lot mid March.

There are many conflicting opinions on social security out there. With covid I don't really want to go to a seminar at this time. We went to a financial planner once 3 years ago and were told we were doing everything right but didn't discuss social security.
Plugging my social security benefit projections for different starting ages into a model - if I live to standard life expectancy it looks like a no-brainer to me. I only have to beat 1 % compound interest to have starting at 62 be the best option. The longer I live starting social security at 62 is less attractive.
It also interacts with taxes. I've been doing large 401k to Roth conversions since the lower taxes. This year I doubled down in mid March on an even bigger conversion with the market low. Perhaps if I am doing the 401k conversions it's less wise to start social security due to tax consequences?

My wife's projected social security benefits are slightly less than mine. If it makes sense for me to start at 62 it probably makes sense for her unless of large tax consequences.

Just trying overall to use social security the most wisely overall and transfer money most efficiently to the kids.

Any thoughts? I am struggling to see why most financial planners say wait until later to start social security.
That's exactly what I did and I'm not looking back. My calculations were that the breakeven point was 82. If I die before then, I'll be ahead. If I die later, lucky me :D One factor that for me is I retired at 59 1/2. So I was gonna be withdrawing from my IRA. If you plan to work longer, you might consider waiting until you do.
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Re: Should I start social security at 62 to invest it?

Post by tibbitts »

whereskyle wrote: Sun Jul 26, 2020 5:51 pm
climbingFool wrote: Fri Jul 24, 2020 3:31 pm I am strongly considering whether to start social security at 62 and invest the money in stocks. My wife and I are both 61. I have been retired for a year and she is retiring in 2 weeks.
We do not need the money to live on. To explain my financial philosophy my whole career I saved a high salary % in multiple ways and invested aggressively. I was always 100 % in stocks with a small to medium cash position (no bonds). I still am 100 % in stocks and bought a lot mid March.

There are many conflicting opinions on social security out there. With covid I don't really want to go to a seminar at this time. We went to a financial planner once 3 years ago and were told we were doing everything right but didn't discuss social security.
Plugging my social security benefit projections for different starting ages into a model - if I live to standard life expectancy it looks like a no-brainer to me. I only have to beat 1 % compound interest to have starting at 62 be the best option. The longer I live starting social security at 62 is less attractive.
It also interacts with taxes. I've been doing large 401k to Roth conversions since the lower taxes. This year I doubled down in mid March on an even bigger conversion with the market low. Perhaps if I am doing the 401k conversions it's less wise to start social security due to tax consequences?

My wife's projected social security benefits are slightly less than mine. If it makes sense for me to start at 62 it probably makes sense for her unless of large tax consequences.

Just trying overall to use social security the most wisely overall and transfer money most efficiently to the kids.

Any thoughts? I am struggling to see why most financial planners say wait until later to start social security.
IIRC, Bill Bernstein is a fan of waiting until 70. Taking it out now and investing it still leaves you with the one thing you need to watch out for with a stock-heavy portfolio: a crushing bear market that sets in right at the beginning of your retirement. Social security is probably the asset most resilient to such a scenario. Why increase the risk that you won't have enough when you are retired by taking social security early?
Are you sure Bernstein would say that given that the OP already has his retirement fully funded from other sources? You aren't "taking money out" like a lump sum; you're dripping it into the market over years and years, so arguably the "crushing bear market" would work to the OP's advantage, assuming an eventual recovery. The OP has stated there is no risk of having an underfunded retirement.
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Re: Should I start social security at 62 to invest it?

Post by smitcat »

tibbitts wrote: Sun Jul 26, 2020 6:23 pm
whereskyle wrote: Sun Jul 26, 2020 5:51 pm
climbingFool wrote: Fri Jul 24, 2020 3:31 pm I am strongly considering whether to start social security at 62 and invest the money in stocks. My wife and I are both 61. I have been retired for a year and she is retiring in 2 weeks.
We do not need the money to live on. To explain my financial philosophy my whole career I saved a high salary % in multiple ways and invested aggressively. I was always 100 % in stocks with a small to medium cash position (no bonds). I still am 100 % in stocks and bought a lot mid March.

There are many conflicting opinions on social security out there. With covid I don't really want to go to a seminar at this time. We went to a financial planner once 3 years ago and were told we were doing everything right but didn't discuss social security.
Plugging my social security benefit projections for different starting ages into a model - if I live to standard life expectancy it looks like a no-brainer to me. I only have to beat 1 % compound interest to have starting at 62 be the best option. The longer I live starting social security at 62 is less attractive.
It also interacts with taxes. I've been doing large 401k to Roth conversions since the lower taxes. This year I doubled down in mid March on an even bigger conversion with the market low. Perhaps if I am doing the 401k conversions it's less wise to start social security due to tax consequences?

My wife's projected social security benefits are slightly less than mine. If it makes sense for me to start at 62 it probably makes sense for her unless of large tax consequences.

Just trying overall to use social security the most wisely overall and transfer money most efficiently to the kids.

Any thoughts? I am struggling to see why most financial planners say wait until later to start social security.
IIRC, Bill Bernstein is a fan of waiting until 70. Taking it out now and investing it still leaves you with the one thing you need to watch out for with a stock-heavy portfolio: a crushing bear market that sets in right at the beginning of your retirement. Social security is probably the asset most resilient to such a scenario. Why increase the risk that you won't have enough when you are retired by taking social security early?
Are you sure Bernstein would say that given that the OP already has his retirement fully funded from other sources? You aren't "taking money out" like a lump sum; you're dripping it into the market over years and years, so arguably the "crushing bear market" would work to the OP's advantage, assuming an eventual recovery. The OP has stated there is no risk of having an underfunded retirement.
"The OP has stated there is no risk of having an underfunded retirement."
No the concerns now are:
- surviving spouse
- after tax spendable dollars
- potential Roth conversions
- placement of funds for heirs
I have no idea how it works out for the OP but for us all of these favor delaying SS.
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Re: Should I start social security at 62 to invest it?

Post by whereskyle »

tibbitts wrote: Sun Jul 26, 2020 6:23 pm
whereskyle wrote: Sun Jul 26, 2020 5:51 pm
climbingFool wrote: Fri Jul 24, 2020 3:31 pm I am strongly considering whether to start social security at 62 and invest the money in stocks. My wife and I are both 61. I have been retired for a year and she is retiring in 2 weeks.
We do not need the money to live on. To explain my financial philosophy my whole career I saved a high salary % in multiple ways and invested aggressively. I was always 100 % in stocks with a small to medium cash position (no bonds). I still am 100 % in stocks and bought a lot mid March.

There are many conflicting opinions on social security out there. With covid I don't really want to go to a seminar at this time. We went to a financial planner once 3 years ago and were told we were doing everything right but didn't discuss social security.
Plugging my social security benefit projections for different starting ages into a model - if I live to standard life expectancy it looks like a no-brainer to me. I only have to beat 1 % compound interest to have starting at 62 be the best option. The longer I live starting social security at 62 is less attractive.
It also interacts with taxes. I've been doing large 401k to Roth conversions since the lower taxes. This year I doubled down in mid March on an even bigger conversion with the market low. Perhaps if I am doing the 401k conversions it's less wise to start social security due to tax consequences?

My wife's projected social security benefits are slightly less than mine. If it makes sense for me to start at 62 it probably makes sense for her unless of large tax consequences.

Just trying overall to use social security the most wisely overall and transfer money most efficiently to the kids.

Any thoughts? I am struggling to see why most financial planners say wait until later to start social security.
IIRC, Bill Bernstein is a fan of waiting until 70. Taking it out now and investing it still leaves you with the one thing you need to watch out for with a stock-heavy portfolio: a crushing bear market that sets in right at the beginning of your retirement. Social security is probably the asset most resilient to such a scenario. Why increase the risk that you won't have enough when you are retired by taking social security early?
Are you sure Bernstein would say that given that the OP already has his retirement fully funded from other sources? You aren't "taking money out" like a lump sum; you're dripping it into the market over years and years, so arguably the "crushing bear market" would work to the OP's advantage, assuming an eventual recovery. The OP has stated there is no risk of having an underfunded retirement.
I'm not 100% sure but I'm extremely confident he would. Just no good reason to take the risk.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Re: Should I start social security at 62 to invest it?

Post by ObliviousInvestor »

climbingFool wrote: Fri Jul 24, 2020 3:31 pm Plugging my social security benefit projections for different starting ages into a model - if I live to standard life expectancy it looks like a no-brainer to me. I only have to beat 1 % compound interest to have starting at 62 be the best option. The longer I live starting social security at 62 is less attractive.
It also interacts with taxes. I've been doing large 401k to Roth conversions since the lower taxes. This year I doubled down in mid March on an even bigger conversion with the market low. Perhaps if I am doing the 401k conversions it's less wise to start social security due to tax consequences?

My wife's projected social security benefits are slightly less than mine. If it makes sense for me to start at 62 it probably makes sense for her unless of large tax consequences.

Just trying overall to use social security the most wisely overall and transfer money most efficiently to the kids.

Any thoughts? I am struggling to see why most financial planners say wait until later to start social security.
If you are the higher earner in a married couple and you found that a 1% rate of return made 62 the best option, your model probably has a math error (most likely guess would be that it doesn't account for survivor benefits).
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Re: Should I start social security at 62 to invest it?

Post by JoeRetire »

grobertj wrote: Sun Jul 26, 2020 6:10 pmIf I die before then, I'll be ahead.
But you'll be dead.
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Re: Should I start social security at 62 to invest it?

Post by CyclingDuo »

climbingFool wrote: Fri Jul 24, 2020 3:31 pm I am strongly considering whether to start social security at 62 and invest the money in stocks. My wife and I are both 61. I have been retired for a year and she is retiring in 2 weeks.
We do not need the money to live on. To explain my financial philosophy my whole career I saved a high salary % in multiple ways and invested aggressively. I was always 100 % in stocks with a small to medium cash position (no bonds). I still am 100 % in stocks and bought a lot mid March.

Any thoughts? I am struggling to see why most financial planners say wait until later to start social security.
Almost sounds like you are in search of a source for more "gambling" money. :shock:
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Re: Should I start social security at 62 to invest it?

Post by grabiner »

ObliviousInvestor wrote: Mon Jul 27, 2020 6:22 am
climbingFool wrote: Fri Jul 24, 2020 3:31 pm Plugging my social security benefit projections for different starting ages into a model - if I live to standard life expectancy it looks like a no-brainer to me. I only have to beat 1 % compound interest to have starting at 62 be the best option. The longer I live starting social security at 62 is less attractive.
It also interacts with taxes. I've been doing large 401k to Roth conversions since the lower taxes. This year I doubled down in mid March on an even bigger conversion with the market low. Perhaps if I am doing the 401k conversions it's less wise to start social security due to tax consequences?

My wife's projected social security benefits are slightly less than mine. If it makes sense for me to start at 62 it probably makes sense for her unless of large tax consequences.

Just trying overall to use social security the most wisely overall and transfer money most efficiently to the kids.

Any thoughts? I am struggling to see why most financial planners say wait until later to start social security.
If you are the higher earner in a married couple and you found that a 1% rate of return made 62 the best option, your model probably has a math error (most likely guess would be that it doesn't account for survivor benefits).
At a 1% rate of return above inflation, the optimal age for a single male without a survivor to claim benefits is 68.

Using the CDC United States Life Tables for 2017, the life expectancy of a 68-year-old is 16 years. If your SS benefit at age 68 is $23,200, then your benefit at age 67 is $21,600 and at age 69 is $24,800. If you claim SS at age 67 and invest the $21,600 at 1% above inflation, you can take $1600 per year for 15 years starting at age 68, so you expect to come out slightly ahead by waiting one more year. Similarly, if you claim at 68 and invest $23,200 at 1% above inflation, you can take $1600 per year for 16 years starting at age 69, so you expect to come out slightly ahead by taking at 68. (With current TIPS yields near zero, the optimal age is 69.)

If 85% of SS is taxed, and your investments earn 1% above inflation after tax (if they are in an IRA, the pre-tax and after-tax returns are equal), this doesn't change the break-even.

The other problem with the math is the assumption of average life expectancy. Life expectancies for older people include a lot of people with cancer or heart disease, who know that their life expectancies are below average. If you are 68 and in good health, you will come out ahead by waiting until 69, and to 70 if you are still in good health at 69.
Wiki David Grabiner
BGeste
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Re: Should I start social security at 62 to invest it?

Post by BGeste »

Point wrote: Sat Jul 25, 2020 8:03 am Will you live past 82? Do either of you have health issues affecting longevity? Without health issues assume you will live 5 years longer than your parents.

With significant health issues, I would draw down earlier. With parents that lived into their 90’s, early withdrawal is insignificant without health issues.

The break even seems to around age 82.

Of course, there is no law saying they have to pay everyone social security benefits. There is currently no means test either...
The future could change.

Then roll the dice.

What you do with the income and how your investments do
Is up to you.
The quote below from the post above is the primary reason I am considering taking my SS benefits when I turn 62.

[b]"Of course, there is no law saying they have to pay everyone social security benefits. There is currently no means test either...
The future could change."
[/b]
Tracker968
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Re: Should I start social security at 62 to invest it?

Post by Tracker968 »

I just read that SS benefits will be cut to 75% starting in 2035 unless something changes. I'll have to model that and see if that affects the breakeven age.
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grobertj
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Re: Should I start social security at 62 to invest it?

Post by grobertj »

Tracker968 wrote: Mon Jul 27, 2020 4:59 pm I just read that SS benefits will be cut to 75% starting in 2035 unless something changes. I'll have to model that and see if that affects the breakeven age.
In my opinion the chance of reducing SS benefits is 0%. People over 62, vote in droves. NO chance...NO way!!! :!:
The only constant is CHANGE!!
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Re: Should I start social security at 62 to invest it?

Post by randomguy »

lakpr wrote: Fri Jul 24, 2020 3:49 pm Social Security benefit is calculated with respect to your full retirement age. For every year you delay claiming the SS beyond your full retirement age (up to age 70 max), you get a 8% bump. Conversely, for every year early you claim the SS than your full retirement age, you get a 8% decrease. Once you start claiming, the benefit amount is set in stone (almost).

Claiming up to 5 years early means you are stuck with approximately 40% less benefit amount per year for the rest of your life.

Unless you can guarantee yourself that you WILL be able get more than 8% per year by investing the benefit, delaying the SS benefit is better. Of course, if you don't have any other income sources and need SS to eat, it's a different question altogether -- you must do what you need to survive.

You don't need 8%/year to beat SS. Something like 3% will make you do better for most reasonable assumptions (i.e. you don't live to 105 or inflation goes to 6%). An 8% benefit increase is not a 8% return. And similarly while your benefit is 40% less by taking it early, you also get paid out for an additional 5 years. On average it about balances out plus or minus a couple years.

But you aren't average. People on this board are not recommending delaying SS because on average it is better than claiming early cause you end with more money. People do it for risk reduction when you live an above average live span.
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Re: Should I start social security at 62 to invest it?

Post by lakpr »

grobertj wrote: Mon Jul 27, 2020 6:27 pm
Tracker968 wrote: Mon Jul 27, 2020 4:59 pm I just read that SS benefits will be cut to 75% starting in 2035 unless something changes. I'll have to model that and see if that affects the breakeven age.
In my opinion the chance of reducing SS benefits is 0%. People over 62, vote in droves. NO chance...NO way!!! :!:
Politicians are very much aware of this. If there is a reduction of SS benefits on the table, it will be drafted in such a way that it affects only those who are younger than 50 (carve out). << I will stop here, since speculation about future legislation is verboten according to forum rules. Please don't reply either >>
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Re: Should I start social security at 62 to invest it?

Post by BGeste »

lakpr wrote: Mon Jul 27, 2020 7:09 pm
grobertj wrote: Mon Jul 27, 2020 6:27 pm
Tracker968 wrote: Mon Jul 27, 2020 4:59 pm I just read that SS benefits will be cut to 75% starting in 2035 unless something changes. I'll have to model that and see if that affects the breakeven age.
In my opinion the chance of reducing SS benefits is 0%. People over 62, vote in droves. NO chance...NO way!!! :!:
Politicians are very much aware of this. If there is a reduction of SS benefits on the table, it will be drafted in such a way that it affects only those who are younger than 50 (carve out). << I will stop here, since speculation about future legislation is verboten according to forum rules. Please don't reply either >>
It may also be drafted to adversely impact wealthy people.
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