There has been an ongoing debate as to
when to start taking Social Security, as early as age 62, as late as age 70 or sometime in between.
Here's an article from
The Retirement Manifesto that details the debate:
https://theretirementmanifesto.com/should-you-take-social-security-at-age-62-or-70/I use the author's SS numbers to create a strategy that take SS at 62, but not for income. The SS benefit is instead invested over the next 8 years (until age 70). I create (4) investment options (investment allocations) that attempts to achieve a 3%, 6%, or 10% or an all cash return.
My strategy takes Social Security at age 62 and letting those payments accumulate for eight years...the time frame between age 62 and 70. This allows eight years of accumulated Social Security payments creating a "SS nest egg" . At age 70, this accumulated "SS nest egg" then can provide a withdrawal strategy that would equal the differential of the higher SS payout. If one were to die early this SS nest egg acts like a life an insurance policy for a spouse or other beneficiary.
The main reason this strategy seems optimal to me is that Social Security has no cash value upon death. By collecting SS at age 62.... as early as possible.... one secures at least those payments while waiting to start SS at age 70. I would rather start accumulating payments while waiting to reach age 70
and invest rather than purely waiting until age 70.
Achieving a average return above 5% would be optimal for this strategy. Here a look at the numbers:
Comments
@bee This sounds uncanny. Pretty damn smart! In my own case, I urgently wanted to stop working. So, I needed the monthlies. Everybody is different. Thanks for letting us know your plan. I'd have never thought of it.
https://ssa.gov/benefits/retirement/planner/wep.html
But for those thinking that waiting until 70 is some how the holy grail of SS strategies this seems at least worth considering.
Below are a couple of links to Portfolio Visualizer; it's easy to tweak the inputs to see how things would go under different assumptions. With my usual qualifications that I'm setting PV up to run a simplistic, normal distribution model that bears only a passing resemblance to reality.
SS adjusts payments for inflation, so the calculations are in real, 2021 dollars. The cited article says that (in 2021 dollars) taking SS at age 62 for this person would pay $2060/mo, while waiting until age 70 would pay $3643/mo.
Thus, if one takes the money starting at age 62 and invests it, then starting at age 70 that nestegg would have to provide (in 2021 dollars) $1583/mo (the difference) until death for the same income. If you run out of nestegg money before death you lose - you draw only $2060 rather than $3643 from that point until death. If there's anything left of the nestegg when you die, you win. What's left over is your bonus.
I've set up the accumulation phase (age 62-70) to contribute $2060/mo, inflation adjusted. I've set inflation at 2%, 0 volatility, and rate of return at 7% with 12% volatility (about that of VWELX). Make sure to check the inflation adjusted box at the bottom of the graph (to get the value in 2021 dollars rather than nominal 2029 dollars). Mouse over the graph to get the age 70 value after 8 years.
You've got a 50/50 chance (50th percentile) of doing better or worse than about $235K.
For the age 70+ phase, you have to withdraw a net $1583 as explained above. Again, I've used 2% inflation, 0% volatility, 7% rate of return, 12% volatility. And I took the $235K from the accumulation phase as the starting portfolio value.
This will show you how long your nestegg might last - will it outlast your life (you win) or will it run out early (you lose)? It depends on the parameters you pick, what you expect your lifetime to be, and what percentile of likely outcomes you choose to look at.
PV Accumulation Phase
PV Age 70+ Phase (up to age 100)
Not so, there is a death benefit but rather quite loooow ! Less than $300. I think it's $255, but wouldn't bet on it.
Second point. what if your ss is banked for 3+ years & market takes a very heavy hit. Recovery takes 3-4 years to recover. Good luck with that plan.
Now for those that can bank their ss, go for it, but remember this isn't a guaranteed plan
As Crash stated, "Everybody is different."
Stay safe, Derf
If the worst three years happen early in the accumulation phase (ages 62-70) you come out better, because you've banked only three years of SS checks. If the worst years are closer to age 70 ("retirement"), you take the worst hit.
To see what happens if the worst three years are just after you "retire" at age 70 (age 70-73), try out the PV Age 70+ simulation above, and set "Sequence of Returns Risk" to "worst 3 years first". You're virtually guaranteed of losing if you live to age 83, and a 50/50 chance of losing if you just live to age 80.
Of course note for all comparison calcs that in many situations SS is taxfree.
I foresee that 85% of my SS Income will be taxable.
I don't know. For me these "when to take SS" scenarios have way to many unknown factors; do you continue to work, inflation, nest egg return rate, market crashes at the worst time, ect... Plus, do you have the the fortitude to playout this plan. Things change in life. In contrast, waiting to collect SS is pretty straight forward. Your value increases 7-8% a year, period.
I agree with what David said above. Take as late as possible. If your health and family longevity are good, wait as long as you can. Especially if you are married.
I couldn't agree more. Everything is uniquely situational, but a person who is waiting until age 70 (to collect SS) will more than likely continue working (through their 60's). That is why running your own numbers is so important.
Thanks @msf for your data sets.. your links and use of PV for this exercise is very helpful.
Some additional considerations:
If, at 62, this "worker" takes early SS, continues to work and they earmark that portion of their SS income (what SS pays each month) into a workplace or individual retirement account it would eliminate the tax implications (so long as these retirement vehicles were tax deferred) right up through age 70 and beyond. At age 70, the early SS recipient they will have a smaller SS benefit plus a "tax deferred SS nest egg".
In the spreadsheet above, the cash strategy pays out the same number of dollars as a person who waits to start collecting their SS at age 70 right out through age 86. What I feel is important to remember is that the early SS payouts (which I'll call the differential) sits in the pocket of the individual as early as age 62. The individual has the choice of using it as income at anytime. If it was previously invested into a tax sheltered account it remains their until it's withdrawn for income. A person waiting until age 70 has no choice but to count every SS dollar as income.
@davidmoran @kings53man,
These SS dollars are not guaranteed to you while you wait to reach FRA or age 70. A person who sits around waiting to turn 70 to collect SS collects nothing (SS benefit) if they predecease their 70th birthday and collects less (total accumulated SS benefit) if they die before age 86.
I haven't explored QLACs but they might be just the thing missing to address longevity risk:
what-is-qualified-longevity-annuity-contract-qlac/
>> a person who is waiting until age 70 will more than likely continue working.
?
There are reasons why American above age 62 may not be able to work. The reality for many older Americans... they have to work to make ends meet...that means collecting SS @ age 62 and working a job.
The fastest labor growth rate comes from those 65 and older:
don't understand how your response addresses or explains my query
a person who is waiting until age 70 (to collect SS) will more than likely continue working (through their 60's).
...above chart illustrates that growth.
...did that help?
had not understood you meant "waiting till 70 will more than likely have continued
working"
(meaning till then)
as written your phrasing said to me working past 70
A couple I found:
danielamerman.com/va/BenefitAge.html
danielamerman.com/va/rfe/PerMath.html
As Kings53 said - 15% of your SS will be tax free, so it pays to make that as big as possible. For some, that tax free portion will be higher.
As one data point, my FIL waited until 70 to collect - he’s 97 now. His checks haven’t kept up with his personal inflation but we are certainly glad they are not 30% less.
Just beginning to skim this Kitces column. Because of these quirks (children's benefit amounts not dependent on when you start drawing SS; spousal benefits available before age 62), it may work out better for you to start your own SS now. Or maybe not. My suggestion is to study up now and not tary.
https://www.kitces.com/blog/why-social-security-dependent-benefits-for-a-child-can-make-it-a-good-deal-to-start-early-and-not-delay/
(Note: Kitces column mentions file-and-suspend, which is no longer an option.)
Aren’t there penalties / additional taxes on your Social Security if you also earn wages? I received SS when in HS and worked but I was always concerned that I was working for half pay as SS would demand some of their money back. I’m don’t remember what those limits were and if I ever exceeded them.
EDIT - I just looked it up, there is no clawback if you are above FRA, but there is for your dependents.