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When to take Social Security

edited April 2021 in Other Investing
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:

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:



  • "...My strategy..."
    @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.
  • beebee
    edited April 2021
    @Crash, Thanks, but actually I can't collect SS. Even with a SS record I am impacted by WEP:

    But for those thinking that waiting until 70 is some how the holy grail of SS strategies this seems at least worth considering.
  • @bee - your "image" doesn't include a link to an image.

    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)
  • @bee : "The main reason this strategy seems optimal to me is that Social Security has no cash value upon death."
    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
  • "Second point. what if your ss is banked for 3+ years & market takes a very heavy hit. Recovery takes 3-4 years to recover"

    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.
  • edited April 2021
    My plan is to take Social Security @FRA and use it to pay taxes when converting Regular IRA to Roth since 100% of my retirement (no pension) investment is in tax differed IRA+401K. SS will pay my home maker spouse after I clock out.
  • A: As late as you possibly can unless bad health extant or likely.

    Of course note for all comparison calcs that in many situations SS is taxfree.
  • edited April 2021
    FRA - Full Retirement age.
    I foresee that 85% of my SS Income will be taxable.
  • .....And, as we have all said or heard from someone else: "I'll never retire. I'd be so bored! I don't want to EVER stop working." .... On the other hand, surely I'm not the ONLY one who was truly miserable in the workforce. Glad I retired early. SO glad. And I'm never bored. Looking, watching, reading, listening, researching. Enjoying, trying new stuff. I have LOTS of time for all that, these days. "What do you have to do tomorrow?" I smiled and turned to him, and said: "NOTHING!" It just feels great.
  • edited April 2021
    One more factor I didn't see in this is if you are still working at 62 and beyond until "full" retirement age, you will be limited to around $18,000 per year in SS payments plus some formula to reduce further payment over that. So, you aren't banking the full $24,720 SS at 62+ (if you are still working).

    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.
  • beebee
    edited April 2021
    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:
    Why Choose a QLAC?

    A QLAC has several advantages for retirees:

    - Long-term income security. If you’re worried that your retirement savings might not last for the long haul, a QLAC can offer some peace of mind. QLACs provide guaranteed income later in retirement and can act as hedges against long-term care costs later in life.
    - RMD deferral. If you’re looking to minimize how much money you’re required to draw from your retirement accounts, a QLAC allows you to delay distributions on a portion of your savings up until you turn 85.
    - Principal protection. A QLAC locks in future payments, protecting your retirement money from market dips later in life. But unless you purchase an inflation rider, which will lower the initial amounts you receive from an annuity, your monthly payment may lose value over time.
    - Income for your spouse. If you set up a QLAC as a joint annuity, it will continue paying income as long as you or your spouse is still living. That said, joint annuities tend to offer lower payments due to this benefit.
  • @bee
    >> a person who is waiting until age 70 will more than likely continue working.

  • beebee
    edited April 2021
    There are reasons why American above age 62 may not be able to work.
    A lot of people can't afford to wait to sign up for Social Security. Consider that most Americans have not saved enough for retirement.

    "The biggest challenge for most people is they under-save for retirement," Houston says. Many people can improve their financial situation by working in retirement, but you could also end up retiring earlier than you planned to. "They can work in retirement, but unfortunately 50% of Americans end up retiring before they had planned for three reasons: The first reason is their health, the second reason is their spouse's health and the third reason is that their services are no longer necessary – they were terminated," Houston says. So, planning to continue to work during retirement is not always an option.
    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:
  • did you leave out a not from your original thought?

    don't understand how your response addresses or explains my query
  • @bee
    >> a person who is waiting until age 70 will more than likely continue working.


    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?
  • You meant having to work up till taking SS --- well, sure.

    had not understood you meant "waiting till 70 will more than likely have continued

    (meaning till then)

    as written your phrasing said to me working past 70
  • Consider reading Daniel Amerman's commentary on taking SS early. It's pretty compelling. I know that my personal rate of inflation is about 5% annually which is just one reason why waiting makes less sense.
  • beebee
    edited April 2021
    sfnative said:

    Consider reading Daniel Amerman's commentary on taking SS early. It's pretty compelling. I know that my personal rate of inflation is about 5% annually which is just one reason why waiting makes less sense.

    Gotta link?

    A couple I found:

  • good read...thanks @sfnative
  • Retired @53 and took it @63. I didn't need it but took it because tomorrow is not guaranteed. A bird in the hand yada yada yada... Unfortunately I know someone who only benefited 2 years. I'm glad they took it asap.
  • edited April 2021
    My current thinking is to wait until age 70. That gives me 5 years (age 65 to age 70) to convert tIRA money to a Roth without having SS push me into a higher tax bracket. (Before age 65, my conversions are limited because I am on ACA).

    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.
  • My situation is a little unusual. Normally I'd wait as long as possible to take SS especially since my wife is ten years younger than me. However, we have many children and the youngest two are still teenagers (13 and 16). I'll start taking SS at full retirement age (66 + 2 months for me) because I can collect some money on their behalf until they hit 18 or graduate high school. Has anyone else actually done this? I've only read about the option. Later this year I'll get serious about researching it. I plan to sign up this winter.
  • You don't have to wait until FRA to maximize minor children's benefits. They are based on your PIA (primary insurance amount) even if you start drawing early. Another wrinkle is that your spouse, though under age 62, can collect spousal benefits until your youngest turns 16. (This would be a restricted filing as spouse caring for child so it wouldn't count against your spouse as an early "real" filing.)

    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.

    (Note: Kitces column mentions file-and-suspend, which is no longer an option.)
  • @billr: I did just what you contemplate. When I turned 66 and first filed for SS, we had two kids at home, one 15, the other 7. The benefits for each continued until their graduation from HS. In the case of the younger one, contributions to the Michigan Education Savings Program (TIAA managed) and invested in Global Equities amounted to a nice pile of dough for tuition, etc. I did not explore taking SS earlier than 66, but as @msf points out, it might have worked for us. FWIIW, I continued to work until 70.
  • edited May 2021
    BenWP said:

    @billr: I did just what you contemplate. When I turned 66 and first filed for SS, ……. FWIIW, I continued to work until 70.

    Hey Ben!
    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.
  • @Rbrt: I doubt that I have my tax records for those years (2008-2012) as I jettison them after five years.
  • Check out this open source SS strategy calculator that take all these various permutations into account:
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