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Social Security Claiming Strategies - Claim Early & Invest

edited November 2021 in Fund Discussions
Your Social Security benefits are a significant retirement asset, worth more than $1 million of lifetime benefits for many readers. The present value of Social Security benefits at retirement, which can total hundreds of thousands or even millions of dollars, joins home equity as the two largest assets available for most American retirees, easily dwarfing the value of their investment portfolios.

For many lower- and middle-income Americans, Social Security may end up providing the vast majority of retirement income. The Center for Retirement Research at Boston College notes an interesting statistic that Social Security provides 70% of the income for 70% of households aged 80 or over.


  • beebee
    edited November 2021
    Why not file at 62 and invest 8 years of benefits.

    What the video misses is the fact that the dollar amount of a 5% withdrawal changes as the invested portfolio continues to be invested (during retirement). An investment needs to maintain its value over time. The best investments maintain their inflation adjusted value over time while also providing an income (withdrawal).

    I fiddled with this scenario...please critique.

    I assumed a 7% return investing after tax SS from age 62 to age 70, netting a portfolio balance close to $200K.

    Now, if I died tomorrow my estate is worth $200K more taking SS early verses if I waited until 70 to take SS. This gets rid of "short-evity" risk (dying early). Also, I continue to work part time between ages 62-70 and add all of my SS funded contributions into a Roth IRA, (Roth 401K), Spousal Roth or through Roth conversions along the 8 year investment window (age 62-70). Since my SS income is $15K less at age 70, I take Roth withdrawals which are tax free. This seems to make good tax sense.

    Using PV, I run three scenarios using different types of investments.

    VWINX=Conservative Allocation
    PRWCX = Moderte Allocation
    PRBLX = Managed All Equity Fund - Aggressive Allocation

    I start the simulation in 2001 to include two nasty downturns (Tech bubble and GFR) early on in the simulation.

    Portfolio value is $200K (what was saved from SS). Year one pay out @ age 70 is $15,200 (the difference between early and late SS filing). This withdrawal will increase 2% a year for inflation going forward (COLA).

    PRBLX & VWINX - Lost portfolio value throughout the 20 year time frame (70-90).
    VWINX - Was ready to bust at age 90.
    PRBLX - Was worth about half its orginal value $106K adjusted for inflation.
    PRWCX - Lost portfolio value briefly during the GFR, but recovered and gained value.
    PRWCX- Fared much better than the conservative allocation (VWINX) and the aggresive allocation (PRBLX).
    PRWCX - At age 90, this portfolio had a inflation adjusted value of $200K...pretty good.


    My PV Link

  • To many assumes for me ! I waited until age 70 to start SS & happy I did.

    Different strokes 4 different folks, Derf
  • @Derf- "a bird in hand..." comes to mind.
  • edited November 2021
    ... if I died tomorrow my estate is worth $200K more taking SS...
    If I died tomorrow... I don't care what decision I made.

    All I would say is such intricate plans are rarely followed over such a long stretch of time. Some might be disciplined enough but probably not me. And if followed, there are so many what-ifs that make this a 50:50 chance of succeeding, at best, (succeeding meaning you beat the system taking ss early) Heck, what if David Giroux retires next month. Does the scenario change?

    I guess I'm in the same camp as what derf said, to many "assumes" for me. If everything has to go right, taking reduced benefits at 62 in order to win the SS game, I wouldn't want any part of it.

    For the record, I plan to start SS on my 68th b-day month in 2022. I think I played a good game in waiting this long. To me the odds re 50:50 if that decision ends up the game winner (over waiting until 70).

  • @MikeM said:
    If I died tomorrow... I don't care what decision I made.
    Well OK, but your kids / Gkids might... your wife might...
  • edited November 2021
    Great share @bee . Glad the video author mentioned one very important problem with the Insurance Annuity - survivor benefits. IMO the Annuity is a terrible idea for many reasons. Spousal (if applicable) benefits is a consideration for either scenario. Did I understand Devin to mean… the SS cola mitigates the inflation problem making waiting to start withdraw SS a better option than withdrawing early and investing on own.
  • @bee
    Thanks for your efforts with this topic. The thinking process with be of benefit to someone here; and/or to pass along to their family or friends.
    Remain curious,
  • The most thorough analysis that I have come across with regard to "claim & invest" strategies appears on the SSA's website. It is exceptionally granular -- and helpful -- when it comes to the issue of discount rate specification.

  • msf
    edited November 2021
    One can use Portfolio Visualizer (PV) to see how he arrived at the age 70 investment portfolio values. PV shows slightly lower values. That is possibly because when one asks PV for a 6% rate of return, it doesn't use 6%/12 (0.5 basis points) for the monthly return, but 0.487 basis points (compounds to 6% annually). Just a guess.

    Here's the PV setup for 6%. Mouse over the graph for the 8 year (age 62-age 70) result.

    On the withdrawal side (after age 70), the video makes two simplifying assumptions:
    • You will die at age 90. 5% withdrawal x 20 years = 100%. That leaves longevity risk.
    • The real rate of return of the portfolio is zero. This addresses @bee's point that the portfolio grows over time. The video's portfolio does grow in nominal returns at precisely the rate of inflation.
    bee does a nice job with PV in showing how one might have invested in the past. Kudos for incorporating a couple of bear stock markets in the mix. That said, there are two implicit, and IMHO fairly aggressive, assumptions made:
    • The funds selected (or any fund of one's choosing) will continue to outperform the market. I've added a 60/40 S&P 500/bond market mix (rebalanced annually). This didn't survive 15 years. PV link.
    • The markets going forward will produce real returns similar to those of the past 20 years. Schwab is projecting average real returns over the next decade of around 4.5% in the stock market and negative bond returns. And that's before considering higher inflation - the projection was from last May, before inflation took off.
    Source page:

    With respect to sheltering the portfolio from taxes via a Roth IRA: this assumes that the part time worker is not already putting that money into an IRA (and maxing out), else contributing more to an IRA might not be an option. In any case, one could not contribute even half the age 62 benefits to SS. $1400 x 12 mo = $16,800. Including the $1K catch up amount, the max that one can contribute to an IRA is $7K.

    Looking at the Roth conversion option: let's assume one is in the 12% tax bracket, no state taxes. If one converted $140K and somehow managed to remain in the 12% bracket, then that would use up the $16.8K in SS, thus effectively adding that amount to the Roth IRA. In reality, that would move one into the 22% or 24% bracket; hardly a good strategy. Not to mention that this would make more of the SS benefits taxable. Further, in order to execute this plan for eight years, one would need to have $1.12M in a traditional IRA available for conversion.

    This has a better chance of being feasible if one is in a higher tax bracket (that would reduce the amount of the conversion necessary to incur $16.8K in taxes). However, given the correlation between income and longevity, the higher income person is also more subject to longevity risk and thus would likely benefit more from the lifetime income guaranteed by SS.

    Regarding the annuity option: we don't know where the cost figure comes from, or what type of annuity it is. Though I agree with what I think is @JonGaltIII's assumption - life only, no inflation adjustments. One can buy joint and survivor annuities, but they cost more. I don't believe there are any inflation adjusted fixed immediate annuities left on the market, but there should still be some that provide for annual increases of a fixed amount (say, 2%). Of course those also cost more.

    If there is the possibility of a surviving spouse, that just makes SS look even better. With SS, if the spouse with the larger benefits dies first, the surviving spouse gets those benefits instead of one's own. Unless one expects both spouses to live past the break even point (~82 give or take), the optimal strategy is often for the lower benefit spouse to take SS early (62) and the higher benefit spouse to defer to age 70.

  • edited November 2021
    I have seen several posters thru the years providing detailed spread sheets comparing taking at 62 and investing vs wait and collect the benefit at a later date. Most "take it now" analysis forgets to reduce the investment portfolio by the tax owed on the SS benefit since most retirees collect other sources of income. They also fail to factor in the tax owed from the SS income + cap gains from the investment each year. If one waits to receive benefits, the base benefit will increase risk free.... this year at a 8% + 5.9% COLA with zero taxes owed obviously. The higher the base, the higher the COLA increase for the rest of your life. Possibility exists for significant COLA next few years. The other side of the coin is longevity... which IMO trumps everything. Most of my good friends died suddenly.
  • edited November 2021
    I took it early.

    My wife was lucky enough to get a job in her field in another city. But two of my three careers would not have easily translated to the environment in our new town. Not to mention that the job market was rougher then.

    I decided I would rather have the time to myself than work a crappy job that would pay me little more that my SS check, just because.

    My back isn't what it used to be. I get cluster headaches at certain times of some years. I wouldn't hire me.

    I'll be out in the garden. I think we had about twelve different species of butterflies this year. And then there are the native bees and wasps. I might start a photo log for next year.

    I guess you could say that there is something like a strategy. I take some of the dividends from some of the funds in my taxable account. And I leave my IRA account alone. Haven't had to worry about tapping my wife's accounts.
  • @WABAC- Way to go. We only get to do this once- make the best of it.
  • edited November 2021
    Old_Joe said:

    @WABAC- Way to go. We only get to do this once- make the best of it.

    Thanks Joe.

    We never borrowed money for anything but the house. And never took out anything but enough equity for a new roof. Simple stuff. But not easy.
  • edited November 2021
    @WABAC, you are enjoying life and that is most important after retirement. The ability to start at 62 takes planning ahead. Many of my friends took their at their full retirement age; few took them at 62 due to health reason. My family longevity history goes quite long and my health is doing ok with all that outdoor activities. So I am not sure which path to takes.
    msf said: Schwab is projecting average real returns over the next decade of around 4.5% in the stock market and negative bond returns.
    Would you please provide a link to Schwab? Thanks
  • msf
    edited November 2021
    Sven said:

    msf said: Schwab is projecting average real returns over the next decade of around 4.5% in the stock market and negative bond returns.
    Would you please provide a link to Schwab? Thanks
    I read the figures straight off the graph; forecasted real returns: 4.5% for US large cap, 5.0% for US small cap, 4.4% for int'l large cap, -0.4% for US IG bonds.

    When I post a graph, I usually try to give the page from which it comes:
    Source page:

    But I did forget to give the source page for the life expectancy vs. income chart. That is:

    After I posted that chart, similar data (different source) was presented in an economics class I'm taking.
  • Thank you again. Similar forecast on future return have been posted but Schwab provided detail analysis that others lack. What can income investors do with negative returns in coming years?

    By the way, I congratulate you to find time to take more college class? Your knowledge on these financial matter really shows that contributed to the depth of discussion on this board. Thank you.
  • For sure, msf is our main go-to guy. His contributions over the years have been enormous. My thanks also!
  • msf How difficult is your econ class? I thought about majoring in economics, but my background in calculus was weak. Majored in Accounting instead so I could get a job after graduation.
  • carew388 said:

    msf How difficult is your econ class? I thought about majoring in economics, but my background in calculus was weak. Majored in Accounting instead so I could get a job after graduation.

    Hard question to answer - I find the econ classes very straightforward. ISTM that the the calculus needed, if any, is pretty basic - ability to understand and perhaps calculate derivatives. A good sense of numeric and statistical concepts seems more important.

    Since I've had to deal with these concepts at work I take them in stride. But by watching and listening to classmates I can see how assimilating them entails a fair amount of thinking and analysis. Just like any new idea.

    I imagine that in courses like econometrics one does actually have to do all the statistical calculations that are presented only conceptually in other classes. Still, that's statistics, not calculus.

    I'd say that if one is able to get a good handle on what alpha, beta, correlation, and confidence intervals are, one is already ahead of the game. Numeric ability, more than math subject matter knowledge, strikes me as what is most helpful.

    As far as this particular class is concerned, a lot of the material comes from Prof. Chetty at Harvard. See here:

    To play with some of the data, see:
  • "Claim early and invest." Certainly. If you can be disciplined enough to do it. By all means.
  • +1 @Crash. The "Best-laid plans" phrase comes to mind when I hear an idea that has to extend for many years of due diligence to be successful. I know I don't have that mental stamina.
  • @WABAC said-
    "We never borrowed money for anything but the house. And never took out anything but enough equity for a new roof. Simple stuff. But not easy."
    Yes sir... exactly the same on this end. If we wanted something, we waited until we had saved enough to pay cash. We learned that from our parents who lived through the Great One.

    Regards- OJ

  • @WABAC. and @Old_Joe Can you guys come here and talk to my wife? "Take my wife, please..."
  • @Crash : Let me know how that works out ? I'm sure she would agree .....!!! LOL
    We've been staying next to the Coastal Bend , TX. waters. Fishing when I get the urge & fish cooperating.
    Sea Trout for supper, Derf
  • @Derf. Sounds like a great time. Best of luck to you!
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