Post New

... premature claiming of your Social Security Benefits. Financially, pays to wait until age 70 for about 90% of seniors.

{{ To put it bluntly, people are making expensive choices. “The median loss for this age group in the present value of household lifetime discretionary spending is $182,370,” the researchers found. For that amount of money, you could almost buy a Mercedes AMG-S63. Or, alternatively, pay a few medical bills. (The math for delaying benefits isn’t quite as favorable now as it was in 2022, when that “virtually all” study came out, because of a rise in the interest rate that goes into the calculation.)

I’m interested in two things. One is why people make this choice when it is so often a mistake. The other is why our system makes it so easy for them to make this mistake. I feel about premature claiming the same as I feel about state-run lotteries, which prey on the desperate and the dreamers. I don’t claim early and I don’t buy lottery tickets. The mistakes other people make indirectly benefit me by decreasing payments and thus my tax burden, and that seems unfair. }}

free link

https://www.nytimes.com/2024/11/11/opinion/social-...

Of course, some people say, "I can take it at age 62 and invest the money in the stock market", but that's not a guaranteed 8% return. Nobody is more pro stock than I am (my asset allocation has been 90% plus stock since 1997 and it's 96% today at age 68), and even I see the benefit of waiting until 70.

intercst

Why don't you just say "People who make a different decision than me, people who have a different opinion than my opinion, people who decide how to live their lives differently than I think they should run their lives --- all those people are wrong and I am right"?

You never stop and think that maybe other people can have a different opinion than you. That they may have reasons that they see as right for themselves, REGARDLESS of what your reasons for yourself are.

You never want to look at things from their point of view.
You never ask "Why is the highest percentage of people taking SS at age 62? What are they seeing that I don't see?"

We just had an election, youtube & tiktok are chock full of the people who voted for the losing side going absolutely batsh!t crazy because they were in the minority. It's the old trope "everybody is out of step except me".

You are being like that -- except without the histrionics.

The top ages for claiming SS are:
62, 66, 65. Those total 65% of the claiming. The other ages total only 35%.

Only 10% file at 70, yet it's the other 90% that are out of step.???




Of course, some people say, "I can take it at age 62 and invest the money in the stock market", but that's not a guaranteed 8% return.

Nothing is guaranteed in life. My next door neighbor was just killed in a head-on collision 2 weeks ago. (I have no idea of when or if he was getting SS.)

The median 20 year return of the S&P500, 1950-2017 was 10.7% PA.
The *minimum* 20 year return was 6.3% PA.

The 62 vs. 70 breakeven age for a 6.3% return is 101 years old.


even I see the benefit of waiting until 70.
Maybe you need to open your eyes better. Since 90% of people claiming SS see differently.

Of course, some people say, "I can take it at age 62 and invest the money in the stock market",

I agree with your math because I have other income sources.

Some people do not have other income sources when they are 62 (or 63 or 64 or ...)

Maybe you need to open your eyes better. Since 90% of people claiming SS see differently.

Did you read the article?

You never stop and think that maybe other people can have a different opinion than you.

Of course they can have a different opinion, that's what makes the world interesting. BUT, they can't have different mathematics, just like the law of gravity affects all of us equally, the laws of mathematics also affect us all equally.

Only 10% file at 70, yet it's the other 90% that are out of step.?

Not that they're "out of step", just that they're "making bad choices". Heck, if we want to remain "in step", we should all go out and buy vehicles that are way bigger than we really require. And if we want to remain "in step", we should stop saving for retirement and only save a minimal amount, and instead spend almost all of what we earn each month. That is indeed "in step" with the 90% of folks out there.

Nothing is guaranteed in life. My next door neighbor was just killed in a head-on collision 2 weeks ago. (I have no idea of when or if he was getting SS.)

It's true that nothing is guaranteed in life. It's also true that the probability of being killed in a head-on collision shortly after retirement is extremely low. Planning your life around extremely low probabilities is again what we call "making bad choices".

Maybe you need to open your eyes better. Since 90% of people claiming SS see differently.

Is that what all the lemmings said while running the last few meters before the cliff? That the 90% ahead of them "see differently"?

Of course they can have a different opinion, that's what makes the world interesting. BUT, they can't have different mathematics, just like the law of gravity affects all of us equally, the laws of mathematics also affect us all equally.

But, see, it is not simply a mathematics issue.

It is also, and I think much more importantly, an issue of WHEN the money is available. And the utility of the money. When people are in their 80's & 90's they cannot do things they could do in their 60's.

Give up trips to Machu Picchu and the Galápagos Islands at 65 with your spouse in return for a better quality of gruel as you (without spouse) are wheeled into the in the nursing home cafeteria at 90?

It would be so much easier if we knew when we were going to die. ::sigh::




"Only 10% file at 70, yet it's the other 90% that are out of step.?"
Not that they're "out of step", just that they're "making bad choices".

This is what I mean about refusing to consider things from the other person's point of view. The absolute refusal to think that other people could have a different opinion than you.

It is also, and I think much more importantly, an issue of WHEN the money is available. And the utility of the money. When people are in their 80's & 90's they cannot do things they could do in their 60's.

I think we are talking about two different things. If a retiree (or retiree couple) at age 62 (or 63, 65, 67, whatever) don't have enough money to properly enjoy their retirement while they still can (before their bodies deteriorate too much) then of course I say to take the social security money and use it. But that isn't what we are talking about here. We are talking about a person/couple that HAS two (or even three) sources of income in retirement and chooses to take the social security money early because of "I can take it at age 62 and invest the money in the stock market".

The case here is a retiree/couple that HAS some money saved, and the choice being made is to either take social security early for that extra cruise or two, or to spend their own savings on that extra cruise or two (while they are still healthy enough to enjoy it). And the math (actuarial and probability and risk) tells us that for the vast majority of such people, it is better to spend your savings and take the social security later. Basically, it's stating that it is better to take a guaranteed level 8% inflation adjusted tax deferred no-fee return for 8 years (age 62 to 70) than to invest in some variable return, taxable, not necessarily inflation adjusted with fees instrument for those 8 years. That's the math part.

Saying someone should deny themselves gratification now in return for gratification in the future is an entirely different discussion. And the age at which denied gratification should end is also another discussion.

Give up trips to Machu Picchu and the Galápagos Islands at 65 with your spouse in return for a better quality of gruel as you (without spouse) are wheeled into the in the nursing home cafeteria at 90?

That is the entire point. You don't realize it but you are actually arguing against yourself.

For most, obviously not all (which shouldn't have to be said, but just in case), people who are living on or intend to live on their investments in retirement, which is probably everyone here, delaying SS allows you to safely spend more money in the early part of your retirement. Not less. More.

I get it. If you claim early you get the bird in the hand, you eliminate longevity risk, etc. Maybe you need the money. All kinds of reasons to claim early. More power to ya if that's your choice.

But math says most people, especially people in our situation, can safely spend more money in the early years if they delay. It isn't opinion, it is math.

When I was fiddling with FIRECalc a while back, it seemed like taking social security early had a slight advantage over taking it at 65 or 70. As in, the worst case scenarios were a little bit better.
https://firecalc.com/

Ok, so I reran my numbers in Firecalc, using the SSA benefits quick calculator: https://www.ssa.gov/OACT/quickcalc/
For ages 62, 65, and 70 -- Age 65 did best. Age 70 did worst on the worst case scenario.

Yeah, this discussion comes along every once in a while.
Around here, a frequent thread starter is a guy who hit a gold mine in his youth and has no wife & no kids. Just a normal everyday guy. Doesn't understand why everyone isn't in the same position as him.

It's boring.

One side says, "Everybody that disagrees with me is dumb. That 90% of people are out of step."

The other side says, "Notsofastbucco. I have other things that I value more than top grade gruel at 95."

For most, obviously not all (which shouldn't have to be said, but just in case), people who are living on or intend to live on their investments in retirement, which is probably everyone here, delaying SS allows you to safely spend more money in the early part of your retirement. Not less. More.

I get it. If you claim early you get the bird in the hand, you eliminate longevity risk, etc. Maybe you need the money. All kinds of reasons to claim early. More power to ya if that's your choice.

But math says most people, especially people in our situation, can safely spend more money in the early years if they delay. It isn't opinion, it is math.


I read a few article several years ago which discussed a sort of split strategy. It only applied to married couples. The lower-earner should take benefits at 62, increasing money available to do stuff (like travel) without rocketing up (usually) into a higher tax bracket. It also buffers against market fluctuations if you're living off of your investments. Then the higher earner would take them at 70. When one spouse expires, the surviving spouse can opt to retain the higher benefit payout of the two.

Seemed like a reasonable, conservative strategy to us. 1poorlady is planning on doing it in a few years.

article several years ago ... The lower-earner should take benefits at 62, increasing money available to do stuff (like travel). Then the higher earner would take them at 70.



That worked years ago but not anymore.

"Q: Can I delay my Social Security retirement but collect spousal benefits?"
"A: No. The 2015 Bipartisan Budget Act requires you to file for both of these Social Security benefits at the same time."



When one spouse expires, the surviving spouse can opt to retain the higher benefit payout of the two.

There is no "opt". The SSA will automatically assign the higher benefit to the surviving spouse.

I read a few article several years ago which discussed a sort of split strategy. It only applied to married couples. The lower-earner should take benefits at 62, increasing money available to do stuff (like travel) without rocketing up (usually) into a higher tax bracket. It also buffers against market fluctuations if you're living off of your investments. Then the higher earner would take them at 70. When one spouse expires, the surviving spouse can opt to retain the higher benefit payout of the two.

Seemed like a reasonable, conservative strategy to us. 1poorlady is planning on doing it in a few years.

That's what we intend to do. Article on this topic from Kitces.

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

rayvt analyzes

{{ But, see, it is not simply a mathematics issue.

It is also, and I think much more importantly, an issue of WHEN the money is available. And the utility of the money. When people are in their 80's & 90's they cannot do things they could do in their 60's. }}

You seem to be demonstrating that you haven't read the linked article. (i.e., That the average person who is taking SS at age 62 is leaving $182,000 on the table.) As the author states, that $182,000 could buy you a top of the line Mercedes, or perhaps pay a few medical bills. And there's no need to wait until age 80 or 90 to spend the $182,000. If you know you'll have a larger inflation protected income after age 70, you can spend more of your retirement nest egg today and take that cruise. With a larger SS check at age 70, you'll need a smaller portfolio withdrawal to meet your annual expenses. Again it's just math.

Admittedly you'd probably need to be an engineer or a math major to understand the actuarial science involved (i.e., contingent life probabilities for a portfolio undergoing systematic withdrawals), but that doesn't negate the truth (like gravity) of the calculation.

intercst

That's what we intend to do. Article on this topic from Kitces.

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

(Note: I always print out articles that I think are important to me and put them in a file.. And/or save the PDF on my computer.)

If you are reading that article from a printout you saved, you need to go back and read the Update/Note.
That strategy was closed off in 2015.

This article a few months later explains it:
https://www.kitces.com/blog/congress-ends-file-and...

"Thus, anyone who is eligible for a wife’s or husband’s spousal benefit is deemed to have filed for their old-age retirement benefit as well, and similarly anyone who is eligible for a retirement benefit is deemed to have filed for any spousal benefits to which he/she is entitled."


Apropos of this thread, the title of that first article is "Why It Rarely Pays For Both Spouses To Delay Social Security Benefits" After the 2nd article was published, the first should be retitled "Why It Rarely Pays To Delay Social Security Benefits" since both are deemed to file at the same time.





=======================================================

there's no need to wait until age 80 or 90 to spend the $182,000. If you know you'll have a larger inflation protected income after age 70, you can spend more of your retirement nest egg today and ... Again it's just math.

You have forgotten to account for the returns that the $182K would have gained.

Well, it's not just math.
And you've just switched the argument. Or maybe moved the goalpost.

There is also a risk you have to take into account. This would be spending your own money now and depending on money coming later. Current projection is that SS will run out of money in 2035 and will have to cut benefits to 75% of promised benefits. Will Congress let this happen? Probably not. Possibly yes, or possibly just a smaller reduction.
Congress already screwed SS recipients when they started taxing SS in 1984, so there is real world history of them effectively cutting SS benefits.

Looking at how the Federal government is handling finances, how confident are you that they won't change anything about SS?

So you'd be looking at two alternatives:
1) Spend my own money now and depend on getting other money later.
2) Get other money now and keep my money in my own little hands.

There is another thing to consider if you have heirs. Your SS benefit stops at your death. If you have spent your money, then that's it. If you have taken SS early and kept your money, your money will be there to be passed down.

If you are reading that article from a printout you saved, you need to go back and read the Update/Note.
That strategy was closed off in 2015.

False.

Though it does assume there will be no changes to SS (or Medicare). Any changes could affect the calculations. Among possible changes include reducing COLAs, reducing benefits, and privatization. Not intended to be a complete list. I didn't mention elimination simply because I seriously doubt that will happen in my lifetime (the blowback from people over about 50 would be tremendous, and politicians generally aren't that brave to weather such blowback).

Your link talked about "File and Suspend", which isn't what I was talking about. Perhaps I was OT?

The strategy I read about (after 2015...maybe 2020??, so after the rule change you cite) was simply the lower-earner claiming benefits at 62, and the higher-earner waiting until 70. No "suspend" involved.

rayvt,

{{ You have forgotten to account for the returns that the $182K would have gained. }}

No I haven't. That's why it's a "contingent probability". The S&P 500 doesn't deliver 10.7% every year. And even the folks like me who bought DELL at less than 25 cent/share inevitably suffer "regression to the mean".

Chart of S&P 500 variability of returns by length of holding period.

https://global.discourse-cdn.com/motleyfoolfree/op...

intercst

The lower-earner should take benefits at 62, increasing money available to do stuff (like travel) without rocketing up (usually) into a higher tax bracket. It also buffers against market fluctuations if you're living off of your investments. Then the higher earner would take them at 70. When one spouse expires, the surviving spouse can opt to retain the higher benefit payout of the two.

Seemed like a reasonable, conservative strategy to us.

Concur, planning on doing the same.

Replying only because there's one nuance I haven't seen addressed on this thread: the assumption that everyone will meet their actuarial survival.

If you're in the lower/higher earning couples situation above, then survivor waiting until age 70 or when their median survival is less than 9-10 years makes the most sense. No sense in leaving all that on the table.

-- sutton
(retired oncologist, so)

sutton writes,

<< If you're in the lower/higher earning couples situation above, then survivor waiting until age 70 or when their median survival is less than 9-10 years makes the most sense. No sense in leaving all that on the table. >>

The other thing to factor in is that "waiting until age 70 to collect SS" tends to be a privilege reserved for higher income Americans. Those in the top 10% of the income/wealth pyramid tend to live 5 or 6 years longer than the average SS beneficiary. There's a higher probability that you'll "beat the breakeven point".

Life expectancy vs. income
http://www.equality-of-opportunity.org/health/

intercst

The SSA is an insurance company. They have a pretty good idea of what the average age at death is and have set up the payments so that somewhere around age 80 is breakeven. If you live beyond age 80 then you clearly win in total payments by delaying the start. If you aren't sure you'll still be alive at 80, then starting the payments earlier makes sense. As our favorite philosopher once asked, "Do you feel lucky"?

Our conclusion was that the prudent path was for the husband to start taking it when they retire and the wife (on average longer-lived) to wait until 70 to start.

Saying there is only one right answer requires predicting the future, which as another great philosopher once said, is hard.

Rgds,
HH/Sean

The other thing to factor in is that "waiting until age 70 to collect SS" tends to be a privilege reserved for higher income Americans. Those in the top 10% of the income/wealth pyramid tend to live 5 or 6 years longer than the average SS beneficiary. There's a higher probability that you'll "beat the breakeven point".


Agreed.

But those in the top 10% of income/wealth don't particularly need to optimize their SS benefit. They can pat themselves on the back, but the extra money doesn't much matter.

FWIW, a quick google search came up with "May 25, 2024 — The top 10% of all American households had a net worth of at least $1.94 million."

and

"The top 10% of earners in the US have an average net worth of $2.65 million."



The sad thing is, the people who really need the extra money can't afford to wait until 70.
Whereas the people who can afford to wait until 70 don't really need the extra money.

It is very expensive to be poor.



http://www.equality-of-opportunity.org/health/
That shows Life Expectancy at age 40. Better would be LE at age 60 or 62.

Squinting at the chart, 50'th percentile has LE of age 82, and 90'th percentile at age 85. That's only 3 years, but estimating 5 or 6 years (to age 87) longer is reasonable.
The 62-70 break-even age at 0% return is age 80.5. 87 - 80.5 is only 6 1/2 years of receiving the higher SS benefit.

Each person will have to do their own assessment of whether it's worth it or not.

(If you get 6% return, the BE age is 97.6)

{insert emoji of beating a dead horse}

The SSA is an insurance company. They have a pretty good idea of what the average age at death is and have set up the payments so that somewhere around age 80 is breakeven. If you live beyond age 80 then you clearly win in total payments by delaying the start. If you aren't sure you'll still be alive at 80, then starting the payments earlier makes sense. As our favorite philosopher once asked, "Do you feel lucky"?

Some deaths in 2024
Quincy Jones Age 91
Teri Garr Age 79
Kris Kristofferson Age 88
James Earl Jones Age 93
Richard Simmons Age 76
Martin Mull Age 80 -- OH NO! I didn't know he died. *sob*
Donald Sutherland Age 88
Eric Carmen Age 74
Melanie (last name Safka) Age 76

When the people you watched their movies and played their records start dying at around your own age, it starts to hit you.

OTOH, still kicking:
Dick Van Dyke: 98
Jimmy Carter: 100
Warren Buffett: 94
Clint Eastwood: 94

Martin Mull Age 80 -- OH NO! I didn't know he died. *sob*

My favorite quote: "I didn't quit drinking, I finished early".

Rgds,
HH/Sean

<<The SSA is an insurance company. They have a pretty good idea of what the average age at death is and have set up the payments so that somewhere around age 80 is breakeven. >>

That's correct. The SSA has an excellent idea of the average longevity of SS beneficiaries, sick and healthy. But SSA makes no adjustment in the rate if one of the healthy ones decides to "buy" a larger annuity by waiting until age 70

Commercial insurance companies factor in "adverse selection" into the premiums they charge for life annuities. SSA does not. That's one of the reasons waiting until age 70 effectively allows you to "buy" a life annuity at a big discount to what a commercial insurer would charge for the same increase in monthly benefits.

intercst

rayvt,

<< The sad thing is, the people who really need the extra money can't afford to wait until 70. >>

They don't have to wait all the way to age 70. Any delay in taking SS by spending down some of your nest egg helps to increase your lifetime income. The sad thing is the 40 years of blanket advice that "SS is going broke, and you'd be smart to take it at age 62". That's what helping to keep senior citizens poor.

intercst

"SS is going broke, and you'd be smart to take it at age 62".

Nobody says that.


That's what helping to keep senior citizens poor.
Nope.
The people who can afford to defer until age 70 are not poor.


The 62 decision is made because:
a) They need the money as soon as they retire. or
b) They decide that the utility of the SS money has a higher value now than years later. or
c) They decide that the break-even period of 10-11 years is too long. Not worth it.

rayvt,

<< They decide that the utility of the SS money has a higher value now than years later. >>

Again, that's the piece of the math that you're missing. Unless you have literally no savings, or a medical diagnosis that provides a pretty firm expiration date for you in the near term, it's always going to increase the amount of money you can spend over your lifetime, by spending down some of your nest egg to delay the start of SS.

Taking SS at age 62 actually reduces the amount of money you can spend today, if you're still planning to live after age 70.

intercst

It is great to see you are happy with your decision.

As it turns out I made a different choice and I am very happy with my decision because my portfolio has gained more by starting early than it would have by waiting. So be content with your decision but don't presume to insist that your decision works for everyone. Your presumption that I can't do better than the inflation-adjusted 8% that the SSA offers is incorrect. Insisting that I'm wrong doesn't change the outcome.

Rgds,
HH/Sean

“Your presumption that I can't do better than the inflation-adjusted 8% that the SSA offers is incorrect.”

I don’t think you do better than a more or less risk-free real 8%.

<<If you are reading that article from a printout you saved, you need to go back and read the Update/Note.
That strategy was closed off in 2015.>>

“False.”

So what is the latest on the one spouse taking early/one delaying strategy?

I have over 25 years of max SS contributions. Spouse has about 10. She’s a few years younger. Taking hers at 62 and mine at max age seemed a good idea…

Not that we need it.

These discussions sound a lot like the mortgage pay off discussions. For the retiree they often come down to asset allocation.

So what is the latest on the one spouse taking early/one delaying strategy?

There was a weird trick that ended in 2015 and doesn't need to be discussed here. What is still true is to have one spouse take SS early(ish) and the other wait until age 70. Because of survivorship benefit the decision should be based on who has more contributions rather than expected age at death. Your SS benefit will be more than hers, so delaying yours makes sense. When it makes sense to start taking your wife's benefit just depends on whether it makes a difference in your budget.

As to whether you can do better than a "guaranteed 8%", I'm not sure we would agree on the definition of guaranteed. Berkshire has returned something over 10%/year for quite a long time now. Is it guaranteed? No. Is it as safe as the guaranty provided by the SSA? I'm comfortable that the levels of risk are similar and the Berkshire will continue to return more than 8%/year.

YMMV.

Rgds,
HH/Sean

I don’t think you do better than a more or less risk-free real 8%.

It is not a 8% return.
It is 8% higher benefit.

Yeah...we had some health scares in 2019/2020. So we aren't making that assumption. I had a benign tumor, 1poorlady had breast cancer. Within six months of each other. We both had major surgery (they couldn't do a biopsy on mine without major surgery, and they said once they were in there they may as well take it out...cancer or not (it wasn't)).

We retired two years ago. The accumulation of wealth is pointless if you can't enjoy it. For some people, they enjoy their work. They can't imagine not doing it. For us, we mostly liked our jobs, but we could imagine not doing them. We have enough to do what we want, as long as we don't go crazy and start buying boats and fancy cars. I expect we'll both live to 65, at least. Barring accidents, or another health complication, probably 70. After that, who knows. Supposedly, being born when I was, I should live to see -I think- 74. American women should be about 76, but 1poorlady was born and raised in the Philippines, so I don't know how that affects that number.

Regardless, we are retired, 1poorlady is a few years from SS (lower-earner), and I'm several more years from SS (higher-earner). We have a home, we won't starve, and we have some disposable income for things like travel while we're still able to. Good enough.

The 62 decision is made because:
a) They need the money as soon as they retire. or
b) They decide that the utility of the SS money has a higher value now than years later. or
c) They decide that the break-even period of 10-11 years is too long. Not worth it.

I think you’re overestimating the analytical ability or desire of most people. I’d guess that:

d) It’s available so why not take it (or, it’s free money so why not take it).

is the most common reason.

Brian

So what is the latest on the one spouse taking early/one delaying strategy?

The Kitces article I linked to above explains it (I linked it below as well). But essentially, the issue is longevity risk. In a nutshell, the strategy is for the higher-earning spouse to delay, but to for the lower-earning spouse to claim early. If the higher income spouse dies first, the lower income spouse can claim the higher survivor's benefit, which likely erases the benefits of lower spouse delaying. So the early/delay strategy makes sense for that reason.

If the lower income spouse dies and claimed early, the higher income spouse already has the higher benefit, plus got the utility of the money from lower income spouse early claim. So the early/delay strategy makes sense for that reason too.

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

There is some nuance to it of course. Some good discussion in recent thread on Bogleheads about some of the considerations (such as taking into account Roth conversions). The OP asked how many people were doing the early/delaying strategy and most people responded that they either did or intended to.

https://www.bogleheads.org/forum/viewtopic.php?t=4...

The Kitces article I linked to above explains it...

Thanks. The Bogleheads thread was interesting too.

I realized immediately that it might not work for us if the ACA subsidies are still in place. We wouldn't want the extra income until Medicare kicks in.

If subsidies go away maybe we can pay our premiums out of our SS. Hope it's enough...gulp!

If subsidies go away maybe we can pay our premiums out of our SS.

At 65 you go on Medicare, like it or not. Then pay the premiums out of your SS, automatically.

If you are not on SS you have to pay the Medicare premiums on your own. But then you are not protected by the "hold harmless" that will keep your net SS benefit from going down. Which happened a time or two in recent years.

<< As it turns out I made a different choice and I am very happy with my decision because my portfolio has gained more by starting early than it would have by waiting. So be content with your decision but don't presume to insist that your decision works for everyone. Your presumption that I can't do better than the inflation-adjusted 8% that the SSA offers is incorrect. Insisting that I'm wrong doesn't change the outcome. >>

Whether you're happy or not about a decision doesn't change the math. There's a handful of people who funded their retirement with a Powerball ticket -- doesn't mean that's a good strategy for the rest of us.

You just happened to start SS at age 62 during a rising stock market. If you retired in 2008, you would have had a very different result.

There's a Stanford Physics PhD who retired at age 33 about the same time I did back in 1994. He believes the safe withdrawal rate from a retirement portfolio is North of 9% per year. That's Dave Ramsey territory. {{ LOL }}

https://retireearlyhomepage.com/quantumphysics.htm...

intercst

<< d) It’s available so why not take it (or, it’s free money so why not take it).

is the most common reason.>>

Exactly!

That's the analysis that's costing the average age 62 Social Security beneficiary $182,000 over their lifetime.

intercst

rayvt analyzes,

<< At 65 you go on Medicare, like it or not. Then pay the premiums out of your SS, automatically.

If you are not on SS you have to pay the Medicare premiums on your own. But then you are not protected by the "hold harmless" that will keep your net SS benefit from going down. Which happened a time or two in recent years.

</snip>

I actually considered that, but was able to quickly discern that the $10/month the hold harmless provision would possibly save on my Medicare Part B premium from age 62 to 70, was a lot less than the $182,000 I got for waiting until age 70.

Thank God I went to engineering school and was able to do the math.

intercst

<<If subsidies go away maybe we can pay our premiums out of our SS.>>

At 65 you go on Medicare, like it or not. Then pay the premiums out of your SS, automatically.

Oh, we'd like that. I'm talking about paying our ACA or whatever replaces it premiums out of SS for the 62-66 years.

We just renewed our Bronze ACA plan, $18,400 max out of pocket, full-price premiums $34,616.16/year, family of 5.

These discussions sound a lot like the mortgage pay off discussions.

Yes, they do indeed. That's another financially dubious thing that has become so popular among people who are not fully educated about their finances. And that one (making early mortgage payments) also adds a substantial amount of risk to one's financial life. It's been discussed ad nauseam, so no need to repeat it all here, but basically if you have a mortgage payment of $2000/mo, and you have an extra $500/mo to make extra principal payments, it it NOT a good idea to do so. It is better to save that extra $500 and invest it, then, once you have enough to pay off the entire mortgage it may or may not be a good idea to do so (that depends on interest rates and your expectations for the future). But paying $500 as an extra principal payment is terribly risky, let's say you've done that for 5 years, so 5 x 12 x $500 = $30,000 extra principal paid to the bank (and surely that'll reduce your mortgage length from 30 years to perhaps 25 years or whatever). Suddenly after those 5 years, bad times come along, you are laid off, there's no new jobs, unemployment is increasing, and then the problems really come, your wife is pregnant with your 3rd kid and suddenly she is also laid off. You spend down your emergency fund (a prudent 6 months) and come the next month, you don't have $2000 to pay the mortgage!!!! Now what? But you prepaid $30,000 of principal, maybe the bank will give you a break ... NO THEY WON'T. You owe them $2000 a month, and if you miss the payment, after a few months they will foreclose. Now if you went the other way, and didn't make those $500 extra principal payments each month for 5 years, you would have $30,000 plus interest or gains in that "house payoff" account. That $30,000, maybe even $50,000 by now could cover those mortgage payments for a heck of a long time, 25 months! As you can easily see, it is extremely risky to make additional principal payments. That's because the bank gives you nothing of current value in return, while you are reducing their risk and increasing your own risk.

Whether you're happy or not about a decision doesn't change the math.

You keep talking about the math. Did you actually read the NBER paper? If you did you would have found a table that discusses the increase in discretionary spending vs age at death. That very precise $182370 increase in spending assumes that you are currently between age 45 and 62 and that you live to be 100. Was that in your original post? I don't think so.

If you look at the "All Households" line of that table (Table 29 for those of you who have a copy of the study), you would see that if your maximum age of life is 80, your total increase in discretionary spending is $4535. That's it. Less than $5k. If you live to 85, the increase is ~$25k. Living to 90? $57k. 95? $85k. Even were you to live to 100 in the "All Households" category you would see $116k increase.

So until you are willing to accept that the foolishly precise $182370 is for an extremely optimistic living to 100 scenario then yammering on about "the math" is just noise.

Rgds,
HH/Sean

p.s. Jim has on several occasions discussed how to deal with longevity risk, including tontines and deferred annuities. That is a worthy discussion but should be separate from this one.

I'm glad you mentioned that. Assuming the ACA is not destroyed during the next four years, it would be unwise of 1poorlady to take SS early as it will increase our income, and therefore our premiums. IRMAA shouldn't affect us, but that would. Again, assuming the convict doesn't take another swipe at the ACA. McCain is dead, but I think the program is popular enough now that they couldn't get enough support to kill it.

If you look at the "All Households" line of that table (Table 29 for those of you who have a copy of the study), you would see that if your maximum age of life is 80, your total increase in discretionary spending is $4535. That's it. Less than $5k. If you live to 85, the increase is ~$25k. Living to 90? $57k. 95? $85k. Even were you to live to 100 in the "All Households" category you would see $116k increase.

Sounds like you are saying that for pretty much anyone, taking social security at age 70 instead of at age 65-67 will give them an overall increase in spending money in retirement. And furthermore, for people like us (that discuss this stuff on message boards) who tilt toward affluence, we will live even longer on average and benefit even more. It really sounds like that is what this [math] is saying!

Sounds like you are saying that for pretty much anyone, taking social security at age 70 instead of at age 65-67 will give them an overall increase in spending money in retirement.

Hmmm. As I mentioned up thread, somewhere around age 79-80 is breakeven for everyone. If you die before 80 you would have received more of your SS by starting early. If you plan on living past 80, then waiting will get you more, but the difference is pretty small until you get to, say, age 95. For instance, even at age 85 you will have gotten essentially ~$1250 more per year by waiting until 70 vs starting at 65.

Even these numbers presume a certain income during your employment years. If you've been working at a minimum wage job your entire life (as unlikely as that seems) the difference is even smaller. So I am not denying that if you fit all the assumptions outlined in the paper, the most important of which is living to 100, then you'll have made the right choice by waiting until 70. But it is not cut and dried. Taking into account family history, lifestyle choices, current medical conditions, all have a bearing on the decision. Simply asserting that "the math" leads to one conclusion is misreading the results of the paper.

Lastly, rich folks die before age 80. Being affluent doesn't guarantee living longer. It certainly helps, but as rayvt pointed out up thread, lots of famous (and much richer than I am) folks have died this year before reaching 80.

Rgds,
HH/Sean

<<
You keep talking about the math. Did you actually read the NBER paper? >>

Yes! And I also understand the effect of withdrawing money for 30 years from an investment portfolio with variable returns vs. providing retirement income with an inflation adjusted, guaranteed annuity. The more of your income you get with the annuity, the less you need to withdraw from the investment portfolio.

If Uncle Sam is willing to sell me an inflation-adjusted life annuity at a big discount to what a commercial insurer would charge, and I haven't been diagnosed with a disease that's highly likely to shorten my life expectancy, I'm a buyer.

Would I buy a life annuity at commercial insurer prices? Absolutely not.

Note: That $182370 increase in spending is for a married couple collecting on the higher earning spouse's record. It's only $100,000 or so for us single folks. Still, that's not the kind of money I'm willing to leave on the table, if I know better. Math is hard. {{ LOL }}

<< Jim has on several occasions discussed how to deal with longevity risk, including tontines and deferred annuities. }}

The cheapest annuity you can "buy" is delaying SS from age 62 to 70.

intercst

<< Hmmm. As I mentioned up thread, somewhere around age 79-80 is breakeven for everyone. If you die before 80 you would have received more of your SS by starting early. If you plan on living past 80, then waiting will get you more, but the difference is pretty small until you get to, say, age 95. For instance, even at age 85 you will have gotten essentially ~$1250 more per year by waiting until 70 vs starting at 65.>>

If delaying SS to age 70 reduces my portfolio withdrawals by $100,000 through age 95. I can elect to spend the discounted value of the extra $100,000 today, I don't need to wait until age 95. But I'm only willing to make that bet If I have a larger inflation-adjusted guaranteed income stream (versus an investment portfolio with variable returns.)

That's the math that people miss. You don't have to wait until age 95 to spend the extra money. As long as you have a larger inflation-adjusted income stream in the future, you can safely elect to spend more money today.

intercst

Post New

Retirement Investing FAQ

---

Contact Shrewd'm
Contact the developer of these message boards.