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Is it still considered a good strategy for the lower-earner to take their benefits at 62, while the higher earner takes it at 70?

Also, to add a wrinkle, taking it at 62 will affect IRMAA calculations for Medicare. In my case, we will have distributed the inherited IRA from mom by then, but our own IRAs are lurking in the background.

Best strategy is to take it as early as you can. 62 if you are not still working.

Both of us? If I do that, my IRMAA will be affected for sure.

Is it still considered a good strategy for the lower-earner to take their benefits at 62, while the higher earner takes it at 70? - 1pg

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Like many things from the government, the answer is not as simple as seems.

I am single and filed when I was 70. That's a good bet for me since longevity is likely. If I was diabetic or fighting emphysema or had heart problems, I would be more inclined to take it sooner, maybe even early. So health should factor into your decision making in some way.

Deferring SS is only possible if you have other income that will provide the retirement lifestyle you want. The math may say wait until 70, but that may not be practical. So evaluating the retirement nest egg must be done to be certain deferral is an option.

The real complicated part comes in, IMHO, for joint withdrawal strategies for married couples. This is (or was) a provision for when a spouse signs up for SS, they can receive a benefit based on their personal earnings record or that of their spouse while their own benefit continues to grow. That opens up some strategies such as the lower earner taking at 62 based on the higher earners record. When the higher earner themself retires later, the lower earner reverts to a benefit based on their own record.

You may want to DDG "Social Security Claiming Strategies" and do a little reading, It can't hurt. Goodluck!

BTW DDG is DuckDuckGo, I abhor all things google.

Fair point about health considerations. I'm assuming we've got another 20 years or so. Though 1poorlady is a cancer survivor, and I now have a history of dementia in my family (1poormom). Ultimately, we can't really know. No heart problems or similar. Probably the wild card is the cancer: may never come back, or it could.

Good article by Kitces on this topic. As we all know delaying SS mitigates against the Big Three: longevity risk, poor sequence of returns, and inflation risk. But one of the advantages for the lower-benefit spouse to claim early is in the case the higher-benefit spouse dies early. In that event, the lower-benefit spouse can still claim the higher-benefit spouse's survivor benefits. If the lower-benefit spouse dies first, the higher-benefit spouse still gets the higher claim.

There is more to it than that, but there is also some value for one spouse to claim early. Bird in the hand and all of that.

https://www.kitces.com/blog/why-it-rarely-pays-for...

https://www.kitces.com/blog/why-it-rarely-pays-for...

Good article. That was written in 2015 -- are all the laws still the same?

Bird in the hand. Right.
That means to take the sure thing you can have NOW, instead of hoping & planning that you can get more later. (Lord willing and the creek don't rise.)

Spend down your barely adequate retirement account* for 8 years, planning on the headed-for-bankruptcy Social Security will pay you more later on.

Ignore the bit about that the difference in payments is designed to be actuarially neutral.

While you're at it, ignore the time value of money.

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* If it is more than adequate, you have little need for SS checks in the first place. You laugh in the face of "poor sequence of returns risk."
If it is less than adequate, you don't have the option to defer. You NEED the SS checks as soon as you retire.

</soapbox>

Spend down your barely adequate retirement account* for 8 years, planning on the headed-for-bankruptcy Social Security will pay you more later on.

Ignore the bit about that the difference in payments is designed to be actuarially neutral.

While you're at it, ignore the time value of money.

A lot to unpack there. The two central questions of retirement planning are "how much do I need?" and "how much can I spend?" Your advice to just have lots of money works well enough for a few, but simply isn't actionable advice for most people. For most people--including many who don't need SS to retire comfortably--Social Security will provide a non-trivial amount of income in retirement. This reality affects answers to both of the central questions. Therefore, worth examining.

A quick aside: Retiring with more money means in order to avoid a busted retirement means working more years for most people. But if you work longer than you needed to, you still busted your retirement. Only you busted it at the beginning instead of the end.

SS is designed to be actuarily neutral if you live to be age 80.4. Life expectancy for males at age 70 is 83.7. Life expectancy for higher income educated people (which I assume is most of this board) is even higher than that. More important than the life expectancy of the cohort, is family history, of course. But if we're looking at the cohort of people on this board, delaying isn't close to neutral. There is a strong benefit to delaying. Taking early is betting against the odds.

Re: Time value of money. I'll defer to Kitces again. Delaying pushes the break even point out to about 84 (assuming a 6% real rate of return from a balanced portfolio). After that, the benefits of delaying crushes take early. The key though, is there is no market or inflation risk to delaying.

So again, if you don't think you'll live to 84, then probably shouldn't delay. Otherwise, delaying is strongly financially beneficial.

https://www.kitces.com/blog/how-delaying-social-se...

And finally, what if the creek rise? There is no Congressman alive who would dare cut benefits for anyone currently receiving SS or will receive benefits in the next decade or so. Old people vote. Those who aren't receiving SS have parents or grandparents who do. No way will benefits be cut any time soon.

And the notion that SS will run out money to pay full benefits is a scare tactic created by corrupt politicians in order to advance a narrow political agenda. Congress has plenty of time to act, and if they don't there is nothing that says Social Security can't be paid out of general revenues. Again, they aren't going to cut anyone's payments or they would be wiped out in the next election.

But if you work longer than you needed to, you still busted your retirement. Only you busted it at the beginning instead of the end.

This is something that I have started to ponder recently. I am approaching age 50 and become eligible to make “catch up contributions” into my 401k. But if it looks like I will have more than enough to fund my retirement needs, is it in my best interest to try to avoid the tax man or to accelerate my retirement date? It seems foolish to wait until you’re 59.5 to open the floodgates and start spending significantly more. But it’s not like $7500/yr is all that significant so I’m probably over analyzing the situation.

There is the option of Substantially Equal Payments between age 55-59.5 should the need arise to access retirement accounts, but being locked in for five years could be frustrating. It would not be the ideal way to access retirement funds but if you ran out of taxable assets it’s at least an option.

I think it just comes down to looking at all after tax spendable income you are generating yearly (both working and investment). We have rarely drawn any cash out of our taxable accounts to fund any spending in our yearly lifestyle needs so it’s hard to think in that manner, as funny as it may sound. I never thought I would have difficulty shifting from an accumulation to a drawdown mindset with all of the spreadsheets I’ve maintained over the years but I probably need to prepare for it more intentionally in the next few years.


Jeff

I am approaching age 50 and become eligible to make “catch up contributions” into my 401k. But if it looks like I will have more than enough to fund my retirement needs, is it in my best interest to try to avoid the tax man or to accelerate my retirement date?

There is a magic formula.
Income in retirement = pension + Social Security + 4% of your portfolio.
When that is more than your income needs, you are all set to retire.

No need to overthink it.


FWIW, when we recognized that possible retirement was coming soon, we totally maxed out our 401K & IRA contributions. To the extent that our takehome pay took a nosedive for a year.
Well worth it.

I was able to snag the best way to retire. I smelled a layoff coming and told my boss that it it happened, I wanted to volunteer. So I retired with a handsome layoff bonus amounting to 1 year salary. AND could get the pre-65 post-retirement health insurance package.

We planned to file for SS at 62, because we know how to do math, and knew the bit about bird in hand. But we had a few years before 62. A payback period of 11 years is a bad deal. The utility of extra money is much more beneficial in the early years before your body starts to run down.

I initially delayed taking the company pension because, like SS, each month of delay bumps up the monthly benefit.
But then I ran the math, and saw how long it would take to breakeven with the small monthly increase vs. the ~$2500 foregone monthly. So I filed for that in a couple of months.

There are a bunch of calculators out there. My two favorites were the Fido one (my 401K was with them while I was working), and FIRECALC.com. You input your details (assets, projected SS payouts -which are available at ssa.gov-, projected expenses, etc), and they pretty much tell you if you can retire now. I even ran the calcs assuming that SS was killed, just to be hyper-conservative. Our numbers still came out favorably, so we retired.

I agree that you shouldn't wait to open the "floodgates". But that's me. Everyone has to decide for themselves. We wanted to enjoy retirement while we could, because eventually we wouldn't be able to any longer. Your health will be fine until it isn't, and then it's too late. For us, we didn't want to wait until "someday". 1poormom waited until "someday", and then her best friend died, and she descended into dementia (of which we had no family history). Her retirement wasn't what she had wanted; she did basically nothing. I turned 61 this year. We've done a good amount of traveling the last two years, and will continue to do so until we aren't able anymore. Wish I had retired sooner.

Courtesy of our investments, we're actually worth more now than two years ago. At some point in your investing life, that likely will happen. You're drawing down 4% (for example), but maybe getting returns of 10%. As another poster likes to say, the worst approach is earning a W2 income. The system advantages investors over earners. He retired at 38. If you can retire at 50, I'm envious. I would have done it.

Life is too short, and you don't really know how long you have. Enjoy it while you can.

There is a magic formula.
Income in retirement = pension + Social Security + 4% of your portfolio.

Yep that’s my formula. It’s the years prior to access to my small pension at 55 or 59.5 and then SS at 62 that I’m beginning to consider. Unfortunately I missed the healthcare bridge to age 65 by a few years but that’s ok, just need a few more assets to fund it until Medicare kicks in. I will take the pension at 55 if I’m still employed at my current employer because, as you said, it makes no sense to delay when the inflation adjusted break even is somewhere around age 70. Freedom is highly valuable in my opinion. Even taking our current spending and inflation adjusting it forward to age 55, the magic formula says we can cover that plus another ~30% before SS kicks in so covering healthcare shouldn’t be an issue.

I was able to snag the best way to retire. I smelled a layoff coming and told my boss that it it happened, I wanted to volunteer.

Ironically, I could be facing a similar situation soon but unfortunately a few years short of making it work to my full advantage like that. But it has triggered my deeper look into the possibilities. Ultimately I feel pretty comfortable we could make it work just fine without too much strain if retirement were to be forced upon us today but ideally I would like to make it to 50-55 for total peace of mind and maximum flexibility.

I really appreciate all the feedback. Shrewdm along with the Fool before and even the yahoo boards of old have been a great contributor along my journey.


Jeff

{{ SS is designed to be actuarily neutral if you live to be age 80.4. }}

Don't forget that wealthier people tend to live a lot longer than the average Social Security beneficiary. Those in the Top 10% of the income and wealth pyramid live 5 or 6 years longer than average.

http://www.equality-of-opportunity.org/health/

If you don't have a medical diagnoses that portends a shorter life expectancy, I'd be using the life expectancy based on my wealth/income.

intercst

Don't forget that wealthier people tend to live a lot longer than the average Social Security beneficiary. Those in the Top 10% of the income and wealth pyramid live 5 or 6 years longer than average.

http://www.equality-of-opportunity.org/health/

Great example of how to lie with statistics, that web site.

The first chart "Life Expectancy vs. Income in the United States" shows ALL life expectancy, whereas the appropriate data would be LE of people who are 62 or 65 years old. Because THAT is what we care about.

Nonetheless, I don't disagree with the overall thesis that rich people on average live longer than non-rich people.

However, another question that keeps getting ignored is utility of money and quality of life. Some of my direct ancestors lived their last few years drooling in a nursing home.
I know for a fact that things like travel, etc. are much easier at 62 than at 80. Not many 80 year old Machu Picchu hikers.


If you don't have a medical diagnoses that portends a shorter life expectancy, I'd be using the life expectancy based on my wealth/income.

I also know for a fact that a person can go from "no medical problems" to "get your affairs in order before the weekend" in an eyeblink.

Personally, I estimate my LE as the figure from the SS LE table plus 5 years.
My kids have been directed -- with a wink and a nudge -- that if I ever get to the drooling-in-my-mush state that they should find a high cliff for me to slip off of. An option that is only available to people with kids & family.

I also know for a fact that a person can go from "no medical problems" to "get your affairs in order before the weekend" in an eyeblink.

We all have stories I’m sure of close friends/relatives experiencing medical problems in the early tail of the actuarial tables. Statistics are a cold consolation if it happens to you. Get busy living I say.

Jeff

{{ Don't forget that wealthier people tend to live a lot longer than the average Social Security beneficiary. Those in the Top 10% of the income and wealth pyramid live 5 or 6 years longer than average.

http://www.equality-of-opportunity.org/health/

Great example of how to lie with statistics, that web site.

The first chart "Life Expectancy vs. Income in the United States" shows ALL life expectancy, whereas the appropriate data would be LE of people who are 62 or 65 years old. Because THAT is what we care about.

{{ snip }}

Same result if you look at 65-yr-olds.

The Growing Gap in Life Expectancy by Income: Recent Evidence and Implications for the Social Security Retirement Age -- Congressional Research Service.
https://sgp.fas.org/crs/misc/R44846.pdf

I've found that making decisions based on arithmetic rather than political dogma or centuries old advice from the Holy Scriptures has greatly increased my wealth and happiness, as well as removing the need for employment over the past 30 years. I highly recommend it.

intercst

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