Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Daniel Amerman's commentary makes the case for earlier SS based on several other points, including the "pooling of the cost of Medicare premiums ". How relevant/accurate do you think that point is ?
Additionally , I really liked the use of the word "only "
"You will pay tax on only 85 percent of your Social Security benefits, based on Internal Revenue Service (IRS) rules. If you: file a federal tax return as an "individual" and your combined income* is between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits. more than $34,000, up to 85 percent of your benefits may be taxable. file a joint return, and you and your spouse have a combined income* that is between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits. more than $44,000, up to 85 percent of your benefits may be taxable."
Thats a pretty low threshold of income .$44,000 of income between two people .
@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.
Thanks. Good to know it works. I'm still working (about 30 hrs per work) and spouse is still working as well and we're well over the $$ limits so I think I have to wait for FRA. I'm reading the kitces.com article now that "msf" posted.
I just made the switch from full to part time work. I'm 67. I've debated with myself for the past year (in fact the past few years) what to do, start SS or withdrawal from savings to make up the shortfall until 70. This post has actually helped me think... it doesn't matter much which choice I make. It's a gamble which choice will give me the absolute greatest sum when you die. But why stress over that choice? Whats the + or - going to be, $10k, 20k, 30k maybe? A piddly amount in the scheme of things? Oh, and by the way your dead at the end anyway.
My decision is to take SS starting July 1st at 67 1/2... and don't look back. SS will actually give me more income than needed since I'll still work part time, so the excess will go to tax deferred savings.
"But why stress over that choice? Whats the + or - going to be, $10k, 20k, 30k maybe? A piddly amount in the scheme of things?"
Here's a quick look at the magnitude of the risk, worst case. According to SSA, the average retiree monthly check (as of Dec 2020) is $1,544. That is likely less than what the average PIA (primary insurance amount - amount one would get at normal retirement age) is, because so many people take SS benefits early. For our back-of-the-envelope purposes, $1600 seems like a reasonable amount to use for the typical full retirement monthly benefit.
So we can compare a benefit of $1728/mo for an extra 36 months to a benefit of $2112/mo starting at age 70. Worst case if delaying is 36 x $1728 = $62,208 (dying right before turning 70). If we use 100 years old as an upper bound on living, the "worst" case (living too long) of not delaying is:
lost extra income over 30 years minus gained extra income over first three years = 30 years x 12mo/year x ($2112 - $1728) - $62,208 = $138,240 - $62,208 = $76,032.
That's about 2.5x as big a variation as suggested. But that's not the key point. The key point is that by deferring benefits risk of a lower cash flow in very old age is being reduced, and risk reduction has real value. At least for the risk averse.
(FWIW, one of my grandparents lived to near 100, and while 1 in 4 aren't the best odds, it's enough to offer hope and for me to use age 100 for my own planning purposes.)
In short, the piddly (or not so piddly) variation in possible legacies may pale in comparison to the value of the risk reduction achieved should one have the "bad luck" of living a long life.
lost extra income over 30 years minus gained extra income over first three years = 30 years x 12mo/year x ($2112 - $1728) - $62,208 = $138,240 - $62,208 = $76,032.
@msf, This synopsis is a pretty straight forward, narrow view. But for everyone there are the "what ifs".
What if during the years I wait from 67 to 70, I had to withdraw $20k a year from an IRA to make up the income deficit for cutting back or eliminating work income? $20k x 3 years is $60k potential growth loss. So, that kind of makes your extra $76,032 gain IF I live until 97 more of a pittance in the scheme of things in my opinion. There is a much greater chance of not living until 97 than doing so statistics say. Factor in that $20k from an IRA is fully taxed. SS is partially taxed. And lets factor in the excess SS I will receive at 67 that I don't need to make up my reduced work income. Still using the $20k needed to fill my income deficit, I now have $15k to bank for 3 years = $45k (I should receive ~$35k/year SS now, (35ss - 20 needed income = 15 excess to save).
Bottom line in my mind, that straight forward formula you gave can easily be affected by real life factors everyone has. With all those factors and probably more factors we may not be aware of heading down the road, using your wait until 70 formula has huge variability for being accurate. I think some of the articles posted in this string are saying a similar view.
Thanks for your figures. Now I can be more specific to your particular "what if". Since I'm still making estimates, feel free to adjust the calculations as needed.
For the sake of argument, let's assume that your SS benefits are 50% taxable. (It could be as high as 85%.) Let's also assume that you're working part time until age 70 so that we don't have too many different intervals to compute.
Finally, let's assume a fed marginal tax rate of 22% and a state marginal rate of 6% for a combined 28% rate. We have to pick some figure to work with to make this concrete.
I gather from your followup that you need an extra $20K/year (after tax) over and above your part time income for your expenses until you fully retire (assumed age 70). The fact that you'd be drawing from your IRA for this money suggests no money in taxable accounts - since that's what conventional wisdom says to deplete first.
So if you defer benefits, you'll need to draw $27,778/year from the IRA. (72% of this gives $20K post tax).
OTOH, if you take benefits at age 67, you'll get to "bank" $14,028/year, assuming you bank it in that same deductible T-IRA:
$35K pre-tax SS benefits = $20K for expenses + $14,028 to IRA + $972 taxes
[ net taxes = tax on SS benefits - tax savings on deductible IRA contribution $972 = (28% x 1/2 x $35K) - (28% x $14,028) = $4,900 - $3,928]
So from age 67 to age 70, you're either reducing your IRA by $27,778/year or growing it by $14,028. That's a difference of $41,806/year for three years. In pretax dollars. In post-tax dollars (72%), that's $30.1K.
I already explained how to account for the growth of this amount in an earlier post in this thread. So I'll just give the results here:
Expected value of $30.1K (post-tax) difference/year over three years: $104K (portfolio visualizer), $93K in real (inflation adjusted) dollars.
After age 70, if you've deferred SS, you'll be receiving 132%/108% x $35K, roughly $42.8K/year. Compared with the $35K you'd get by starting at age 67, that's a $7.8K/year difference pre-tax, real dollars. Post tax, the difference is $7.8K - (28% x $7.8K x 1/2) = $6.7K/year.
The extra savings and growth ($93K real dollars to age 70) that you get by taking SS at age 67 can on average be expected to cover this $6.7K shortfall through age 87 (portfolio visualizer).
That's a tad under what thenew RMD table1 (single life) gives as the expected lifetime (88.2) for someone now age 67.
The comment "by the way your dead at the end anyway" suggests that you're not giving much weight to the risk of loss once you're dead, since, well, you're dead anyway. OTOH, the risk of having less money while you're alive is going to matter. A risk averse person who values these two risks (dying before "breaking even", and living "too long") differently will tend to make the choice that reduces the more important risk.
In addition, the estimate that by deferring benefits one will begin pulling ahead around age 87 is a result subject to wide variations. Maybe the market will not produce 7%/year (the figure I used as input), maybe it will swoon early in your drawdown period. Maybe you'll do much better, maybe you'll do much worse.
In contrast, SS is a steady (inflation adjusted) income stream. All else being equal, the risk averse person will take the sure thing.
A final note on the numbers. The calculations above incorporate the effect of taxes and account for investment growth. Your potential shortfall by taking benefits at age 67 and living to 100 still comes out to nearly triple magnitude you hypothesized: ""$10k, 20k, 30k maybe?" Or maybe $87K (13 x $6.7K, post tax, in real dollars).
Myth #5 "This borrowing fuels the notion that the government is raiding or even stealing from Social Security and leaving it with nothing but IOUs. But the government has always made full repayment, and the interest increases Social Security's assets, to the tune of more than $80 billion in 2019 alone. Interest payment of$80 BILLION in 2019 alone !! How much are they borrowing ??? Derf
Turn the question around. How much is in the two SS trust funds? They're invested solely in government bonds. So the amount of money the government is borrowing from SS equal to the current trust fund balances.
At the end of 2019, the trust funds combined had just under $2.9T in assets earning an average weighted interest rate of 2.711%. As a snapshot in time, i.e. assuming balances and rates were constant over 2019, that came to $79B interest for a year. https://www.ssa.gov/oact/progdata/investheld.html
@msf, thank you very much for your analysis. Always appreciated, but living until 100 to gain a$67k advantage in the game of life still doesn't seem significant to me. Yeah, $67k is a lot of money in today's dollars, but what does it mean 30 years from now. 1 extra year of withdrawal potential maybe? That is what makes this decision a toss of a coin or of little significance either way for me. I may very well live to 100. I have pretty good genes, but will I care or even remember this "when-to-take-SS" decision on my death bed? Pretty sure not.
Squeezing the last penny from your potential SS is a game. It can be won or lost by many factors.
This idea that SS increases at 8% per year strikes me as fallacious. In "dollars," sure, but not in purchasing power, which decreases each and every year (unless we hit an extended period of deflation, which I'd have a problem counting on). Moreover, the rate at which SS benefits are adjusted for inflation is only a fraction of the rate of inflation actually experienced by most people, especially seniors. Re-run those numbers with annual benefit increases that account for 4.0 to 4.5% inflation, a number more people are actually likely to face, and the results are very different. In simple terms, the individual "breakeven" point is pushed out quite dramatically.
>> This idea that SS increases at 8% per year strikes me as fallacious. In "dollars," sure, but not in purchasing power ... the rate at which SS benefits are adjusted for inflation is only a fraction of the rate of inflation actually experienced by most people, especially seniors. Rerun those numbers with annual benefit increases that account for 4.0 to 4.5% inflation, a number more people are actually likely to face
>> This idea that SS increases at 8% per year strikes me as fallacious. In "dollars," sure, but not in purchasing power ... the rate at which SS benefits are adjusted for inflation is only a fraction of the rate of inflation actually experienced by most people, especially seniors. Rerun those numbers with annual benefit increases that account for 4.0 to 4.5% inflation, a number more people are actually likely to face
Huh? The 8% figure is for delaying.
Not CoLA.
Absent COLA adjustments, the real value of waiting would be substantially less, and could even be negative. To take an extreme example, suppose prices doubled in a year. Then your 108% of benefits would be worth 54% of what your base benefit was worth a year before. That is, rather than getting an 8% return, one would suffer a 46% loss.
But because the payments would go up not 8% (nominal) but 8% in real terms, you really would get 8% more purchasing power by waiting a year.
CPI of course does not take into account (e.g.) property tax increases, or only very indirectly.
You might as well say that CPI of course does not take into account the cost of buying or financing a home. That's because homes are capital goods, and CPI measures consumables (services are considered consumables). So instead, CPI considers rent equivalent (what you'd have to pay in rent for the shelter you own).
That's the key question, because all we have here is a bald assertion about costs people are likely to face. Spot checking a few numbers ...
Not seasonally adjusted, April Y/Y inflation is 4.2%. Food is up 2.4%, energy is up 25% (with some components like gasoline up 50%). Used cars are up 21%. Car/truck rentals are up 82%.
Drug prices are down 1.5%. Medical care services are up 2.2%. Health insurance is down 3.0%. Shelter's up 2.1%.
While it may seem that inflation is outstripping COLA, it's worth taking a close look at everything, not just the high flying items that are catching your eye.
And the one figure that might matter most here: Financial service costs are down 0.2%.
Haven't read this entire thread so I'm not sure if it's been mentioned yet, but one's personal life expectancy must be factored into this decision. Are you from a family where everyone has lived past 90? Then take Social Security later as you'll need to maximize that payout and you will reap the reward of collecting that higher payout for a long time. Are you from a family plagued by illness or have an illness yourself? Take Social Security as soon as you can because you won't be around for long to collect.
... your annual cost-of-living adjustment (COLA) is based on your benefit. So if you begin claiming Social Security at 62 and start with reduced benefits, your COLA-adjusted benefit will be lower too.
As for
>> While it may seem that inflation is outstripping COLA, it's worth taking a close look at everything, ...
yup,
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available.
while my cohort, and not only at spring town meetings (for an expensive town), always includes property taxes in any discussion.
This might interest those who want to get deep in the grass and weeds.
Check out this open source SS strategy calculator that take all these various permutations into account: https://opensocialsecurity.com/
I was thinking 65 or 66.... ------------ The strategy that maximizes the total dollars you can be expected to receive over your lifetime is as follows:
You file for your retirement benefit to begin 1/2029, at age 69 and 3 months.
When to take SS.... If you need the money, the choice is a foregone conclusion. Or, as I have said: if you're utterly miserable in the workforce, and it can be worked out, then I'd say, go ahead and TAKE your SS. Better than hating life, every day. Until you reach a certain age, that option is not available. At 62, it suddenly IS available.
The results depend on several assumptions you can't accurately predict and why my wife and I will start taking our SS at age 65. Why 65? 1) It's between 62 and 70. 2) It's convenient for paying Medicare + taxes. 3) If you are retired and needs to take ACA, you can get free or close to it in premiums by delaying SS and use subsidies by controlling your income. That can save you $700-900 per month premiums + very low deductible instead of a very high one. It doesn't matter if your savings are in the millions. It's all legal.
BTW, see this site(link) to help you when to start taking SS for you and your spouse.
Comments
"You will pay tax on only 85 percent of your Social Security benefits, based on Internal Revenue Service (IRS) rules. If you:
file a federal tax return as an "individual" and your combined income* is
between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
more than $34,000, up to 85 percent of your benefits may be taxable.
file a joint return, and you and your spouse have a combined income* that is
between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
more than $44,000, up to 85 percent of your benefits may be taxable."
Thats a pretty low threshold of income .$44,000 of income between two people .
https://www.ssa.gov/benefits/retirement/planner/taxes.html
I'm reading the kitces.com article now that "msf" posted.
My decision is to take SS starting July 1st at 67 1/2... and don't look back. SS will actually give me more income than needed since I'll still work part time, so the excess will go to tax deferred savings.
Great discussion!
Here's a quick look at the magnitude of the risk, worst case. According to SSA, the average retiree monthly check (as of Dec 2020) is $1,544. That is likely less than what the average PIA (primary insurance amount - amount one would get at normal retirement age) is, because so many people take SS benefits early. For our back-of-the-envelope purposes, $1600 seems like a reasonable amount to use for the typical full retirement monthly benefit.
Someone born in 1954 retiring in 2021 (age 67) would receive 108% of PIA if they started benefits at age 67, and 132% of PIA if they waited until age 70.
https://www.ssa.gov/benefits/retirement/planner/1943-delay.html
https://www.ssa.gov/benefits/retirement/planner/delayret.html
So we can compare a benefit of $1728/mo for an extra 36 months to a benefit of $2112/mo starting at age 70. Worst case if delaying is 36 x $1728 = $62,208 (dying right before turning 70). If we use 100 years old as an upper bound on living, the "worst" case (living too long) of not delaying is:
lost extra income over 30 years minus gained extra income over first three years =
30 years x 12mo/year x ($2112 - $1728) - $62,208 = $138,240 - $62,208 = $76,032.
That's about 2.5x as big a variation as suggested. But that's not the key point. The key point is that by deferring benefits risk of a lower cash flow in very old age is being reduced, and risk reduction has real value. At least for the risk averse.
(FWIW, one of my grandparents lived to near 100, and while 1 in 4 aren't the best odds, it's enough to offer hope and for me to use age 100 for my own planning purposes.)
In short, the piddly (or not so piddly) variation in possible legacies may pale in comparison to the value of the risk reduction achieved should one have the "bad luck" of living a long life.
What if during the years I wait from 67 to 70, I had to withdraw $20k a year
from an IRA to make up the income deficit for cutting back or eliminating work income? $20k x 3 years is $60k potential growth loss. So, that kind of makes your extra $76,032 gain IF I live until 97 more of a pittance in the scheme of things in my opinion. There is a much greater chance of not living until 97 than doing so statistics say. Factor in that $20k from an IRA is fully taxed. SS is partially taxed. And lets factor in the excess SS I will receive at 67 that I don't need to make up my reduced work income. Still using the $20k needed to fill my income deficit, I now have $15k to bank for 3 years = $45k (I should receive ~$35k/year SS now, (35ss - 20 needed income = 15 excess to save).
Bottom line in my mind, that straight forward formula you gave can easily be affected by real life factors everyone has. With all those factors and probably more factors we may not be aware of heading down the road, using your wait until 70 formula has huge variability for being accurate. I think some of the articles posted in this string are saying a similar view.
For the sake of argument, let's assume that your SS benefits are 50% taxable. (It could be as high as 85%.) Let's also assume that you're working part time until age 70 so that we don't have too many different intervals to compute.
Finally, let's assume a fed marginal tax rate of 22% and a state marginal rate of 6% for a combined 28% rate. We have to pick some figure to work with to make this concrete.
I gather from your followup that you need an extra $20K/year (after tax) over and above your part time income for your expenses until you fully retire (assumed age 70). The fact that you'd be drawing from your IRA for this money suggests no money in taxable accounts - since that's what conventional wisdom says to deplete first.
So if you defer benefits, you'll need to draw $27,778/year from the IRA. (72% of this gives $20K post tax).
OTOH, if you take benefits at age 67, you'll get to "bank" $14,028/year, assuming you bank it in that same deductible T-IRA:
$35K pre-tax SS benefits = $20K for expenses + $14,028 to IRA + $972 taxes
[ net taxes = tax on SS benefits - tax savings on deductible IRA contribution
$972 = (28% x 1/2 x $35K) - (28% x $14,028) = $4,900 - $3,928]
So from age 67 to age 70, you're either reducing your IRA by $27,778/year or growing it by $14,028. That's a difference of $41,806/year for three years. In pretax dollars. In post-tax dollars (72%), that's $30.1K.
I already explained how to account for the growth of this amount in an earlier post in this thread. So I'll just give the results here:
Expected value of $30.1K (post-tax) difference/year over three years: $104K (portfolio visualizer), $93K in real (inflation adjusted) dollars.
After age 70, if you've deferred SS, you'll be receiving 132%/108% x $35K, roughly $42.8K/year.
Compared with the $35K you'd get by starting at age 67, that's a $7.8K/year difference pre-tax, real dollars. Post tax, the difference is $7.8K - (28% x $7.8K x 1/2) = $6.7K/year.
The extra savings and growth ($93K real dollars to age 70) that you get by taking SS at age 67 can on average be expected to cover this $6.7K shortfall through age 87 (portfolio visualizer).
That's a tad under what the new RMD table1 (single life) gives as the expected lifetime (88.2) for someone now age 67.
The comment "by the way your dead at the end anyway" suggests that you're not giving much weight to the risk of loss once you're dead, since, well, you're dead anyway. OTOH, the risk of having less money while you're alive is going to matter. A risk averse person who values these two risks (dying before "breaking even", and living "too long") differently will tend to make the choice that reduces the more important risk.
In addition, the estimate that by deferring benefits one will begin pulling ahead around age 87 is a result subject to wide variations. Maybe the market will not produce 7%/year (the figure I used as input), maybe it will swoon early in your drawdown period. Maybe you'll do much better, maybe you'll do much worse.
In contrast, SS is a steady (inflation adjusted) income stream. All else being equal, the risk averse person will take the sure thing.
A final note on the numbers. The calculations above incorporate the effect of taxes and account for investment growth. Your potential shortfall by taking benefits at age 67 and living to 100 still comes out to nearly triple magnitude you hypothesized: ""$10k, 20k, 30k maybe?" Or maybe $87K (13 x $6.7K, post tax, in real dollars).
Derf
to repeat myself (and others),
As late as you possibly can unless bad health extant or likely.
maybe 'possibly' shd be 'feasibly'.
Derf
Interest payment of$80 BILLION in 2019 alone !! How much are they borrowing ???
Derf
At the end of 2019, the trust funds combined had just under $2.9T in assets earning an average weighted interest rate of 2.711%. As a snapshot in time, i.e. assuming balances and rates were constant over 2019, that came to $79B interest for a year.
https://www.ssa.gov/oact/progdata/investheld.html
If your question is how much the government is borrowing in general, it's easy enough to look up the government debt.
https://fred.stlouisfed.org/series/GFDEBTN
Derf
Squeezing the last penny from your potential SS is a game. It can be won or lost by many factors.
I agree, it is somewhat of a game. No harm in trying to play it well, though as you point out, in the global scheme it's a low stakes game.
Huh? The 8% figure is for delaying.
Not CoLA.
But you must know that.
As for the rest,
https://www.usinflationcalculator.com/inflation/consumer-price-index-and-annual-percent-changes-from-1913-to-2008/
CPI of course does not take into account (e.g.) property tax increases, or only very indirectly.
And there is core inflation, which does not take into account food and energy (a big 'not').
https://www.usinflationcalculator.com/inflation/united-states-core-inflation-rates/
But on what bases do you state what you state?
But because the payments would go up not 8% (nominal) but 8% in real terms, you really would get 8% more purchasing power by waiting a year. You might as well say that CPI of course does not take into account the cost of buying or financing a home. That's because homes are capital goods, and CPI measures consumables (services are considered consumables). So instead, CPI considers rent equivalent (what you'd have to pay in rent for the shelter you own).
The cost of rent incorporates all the landlord's costs that get past through, including property taxes. Just one step of indirection, not so tenuous.
https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.pdf That's the key question, because all we have here is a bald assertion about costs people are likely to face. Spot checking a few numbers ...
Not seasonally adjusted, April Y/Y inflation is 4.2%. Food is up 2.4%, energy is up 25% (with some components like gasoline up 50%). Used cars are up 21%. Car/truck rentals are up 82%.
Drug prices are down 1.5%. Medical care services are up 2.2%. Health insurance is down 3.0%. Shelter's up 2.1%.
While it may seem that inflation is outstripping COLA, it's worth taking a close look at everything, not just the high flying items that are catching your eye.
And the one figure that might matter most here: Financial service costs are down 0.2%.
All numbers above are from Table 2 in the latest BLS CPI news release.
https://www.bls.gov/news.release/archives/cpi_05122021.htm#cpipress2
?
8% annually has appeal in an absolute sense, inflation and CoLA aside, most suggest.
Is there literature on claiming early because of inflation calculations?
(CoLA history is here: https://www.ssa.gov/oact/cola/colaseries.html)
Fido lays out the usual scenarios:
https://www.fidelity.com/viewpoints/retirement/social-security-at-62
including (obviously)
... your annual cost-of-living adjustment (COLA) is based on your benefit. So if you begin claiming Social Security at 62 and start with reduced benefits, your COLA-adjusted benefit will be lower too.
As for
>> While it may seem that inflation is outstripping COLA, it's worth taking a close look at everything, ...
yup,
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available.
while my cohort, and not only at spring town meetings (for an expensive town), always includes property taxes in any discussion.
This might interest those who want to get deep in the grass and weeds.
http://www.thebillionpricesproject.com/
I was thinking 65 or 66....
------------
The strategy that maximizes the total dollars you can be expected to receive over your lifetime is as follows:
You file for your retirement benefit to begin 1/2029, at age 69 and 3 months.
1) It's between 62 and 70.
2) It's convenient for paying Medicare + taxes.
3) If you are retired and needs to take ACA, you can get free or close to it in premiums by delaying SS and use subsidies by controlling your income. That can save you $700-900 per month premiums + very low deductible instead of a very high one. It doesn't matter if your savings are in the millions. It's all legal.
BTW, see this site(link) to help you when to start taking SS for you and your spouse.