Delaying Social Security: What's the goal?

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Leeraar
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Delaying Social Security: What's the goal?

Post by Leeraar »

Thanks to Mike Piper, I found this article:

http://www.caniretireyet.com/comparing- ... lculators/

which started me thinking. What is the real goal?

Most SS claiming discussions seem to center on getting the most money, in total. They then measure one claiming strategy against another. Personally, I do not think that should be the goal, particularly for married couples or anyone with more than one SS entitlement.

When you delay claiming SS (at any age from 62 to 70) you are purchasing a real (inflation-indexed) annuity. This contains an element of insurance, by assuring an income no matter how long you live. If you don't want such insurance, read no further.

For an individual with no further SS earnings after age 62, it does not much matter when you claim SS, if you are concerned about total received. Whether you claim at age 62, 66, or 70, by age 83 (your life expectancy) you will have received roughly the same amount. If you plan to die earlier than your life expectancy, claim earlier. If you plan to die later, claim later, if the total amount received is your goal. But, it's not that simple.

For a couple, it's not an individual decision. The higher entitlement is a real annuity, with joint survivorship. That it means it lasts for the life of the last to die. The lower entitlement is a first to die annuity (it ceases to have any value when the first dies) which is much less valuable. I believe the goal should be to maximize the income of the survivor, and then only the monthly income of the couple while both are still alive.

Such annuities are available on the open market. The discussion should not be about one SS claiming strategy vs. another, but about the value of delaying SS vs. the cost of the same coverage in the commercial market. I believe that the value of delaying the higher entitlement SS is then absolutely compelling.

So, my question for the thread is: If you are delaying SS, what is your rationale, and what objectives are you trying to maximize?

L.
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Re: Delaying Social Security: What's the goal?

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (Social Security).
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Re: Delaying Social Security: What's the goal?

Post by montanagirl »

I am 66 and delaying mine because at present it would be only 1380/mo. If I wait it goes up over 100/mo each year. So at 70 I could get close to 1800, which is more than I ever took home in a paycheck (because I was saving so much). Plus I get spousal now so that helps.

My guess is that as I age it will be easier to manage on on an SS payment and RMD than continue to mess around with my IRA, wondering how much I should take out, convert etc. That I can still do now, whereas later..much, much later...having income all on automatic pilot would be a blessing.
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Re: Delaying Social Security: What's the goal?

Post by TheGreyingDuke »

I am waiting to 70 for the reason you outlined, it is a great annuity purchase.

Of course, this was predicated on my having sufficient funds to get me to 70 (retired at 59.)
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Re: Delaying Social Security: What's the goal?

Post by whaleknives »

65 and delaying until 70, to maximize the benefit for my lower earning wife, who should outlive me. If the creek does rise, our fallback will be to start sooner. I expect you'll be getting a lot of answers like this.
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Re: Delaying Social Security: What's the goal?

Post by neilpilot »

I just missed being able to file/suspend (will be 66 on May 29), but will file a restricted claim and collect spousal benefits until 70.

But to answer the question, in addition to the reasons already stated a delay to age 70 is also favored by the somewhat obsolete mortality table used by SS. The average life expectancy has increased since the SS data was validated, which increases the value of the inflation-adjusted annuity you receive if you wait until 70..

Assuming you will die at the "average" age, which probably isn't a good assumption.
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Re: Delaying Social Security: What's the goal?

Post by Meaty »

I'm a long way from claiming, but I plan to take it as early as possible for the reason you mention - it's actuarily equivalent regardless of when I take it
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Re: Delaying Social Security: What's the goal?

Post by ObliviousInvestor »

Regarding actuarial equivalence:

From the perspective of an individual (as opposed to the perspective of the overall program) actuarial equivalence is a pretty rare situation. In most cases, there is a compelling reason to claim earlier or later (spousal/survivor benefits, shorter or longer than average life expectancy, real interest rates being very low or high, etc.).
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Re: Delaying Social Security: What's the goal?

Post by bobcat2 »

Leeraar wrote: For an individual with no further SS earnings after age 62, it does not much matter when you claim SS, if you are concerned about total received. Whether you claim at age 62, 66, or 70, by age 83 (your life expectancy) you will have received roughly the same amount.
That's not true. If LT interest rates are about 2.9%, which is what SS takes to be the average LT real interest rate, then you will receive roughly the same amount. However, if LT interest rates are significantly above 2.9% it is advantageous for single men to take SS at FRA or earlier - for single women at FRA or slightly later. If LT interest rates are significantly below 2.9%, as they are today, it is advantageous for both to delay SS beyond FRA. For men the advantage of delay is less than women, but if real interest rates are low enough the maximum expected lifetime benefit would be delaying to age 70 for both.

The life expectancy assumed by SS hasn't been updated in the last 30 years, but life expectancy has continued to lengthen. This is another advantage of delay currently, but this advantage is smaller than the advantage due to the prevailing low LT real interest rates.

From Shoven and Slavov (July 2012).
Social Security benefits may be commenced at any time between ages 62 and 70. As individuals who claim later can, on average, expect to receive benefits for a shorter period, an actuarial adjustment is made to the monthly benefit to reflect the age at which benefits are claimed. In earlier work (Shoven and Slavov, 2012), we investigated the actuarial fairness of this adjustment for individuals with average life expectancy for their cohort. We found that for current real interest rates, delaying is actuarially advantageous for a large subset of people, particularly for primary earners in married couples. In this paper, we quantify the degree of actuarial advantage or disadvantage for individuals whose mortality differs from the average. We find that at real interest rates close to zero, most households – even those with mortality rates that are twice the average – benefit from some delay, at least for the primary earner. At real interest rates closer to their historical average, however, singles with mortality that is substantially greater than average do not benefit from delay; however, primary earners with high mortality can still improve the present value of the household’s benefits through delay. ...

We have shown that for real interest rates close to zero, delaying receipt of Social Security is actuarially advantageous for a large fraction of households, even those with mortality rates that are twice the average. At real interest rates closer to their historical average, delay is not actuarially advantageous for single individuals with mortality that is substantially above average; however, for married couples, primary earners with above-average mortality can gain from delay by passing on a higher survivor benefit to their spouses. The gains from delay have increased dramatically since the early 1960s, when delay first became available. This increase is due to three factors. First, life expectancy has increased since the early 1960s. Second, changes to Social Security’s rules have made delay more advantageous for couples (although slightly less advantageous for singles). Third, real interest rates have fallen to approximately zero. ...

The percent gain figures in Tables 4 and 5 don’t immediately convey how much money is at stake in adopting an NPV-maximizing strategy rather than collecting Social Security as soon as possible. In order to translate these possible percentage gains into actual dollars, one needs to know the expected present value of Social Security for the base case of commencing benefits at 62. Assuming a zero percent real interest rate and average life expectancy, the NPV of Social Security (commenced at age 62) is around 200 times the PIA for singles and around 350 times the PIA of the primary earner for couples. The average PIA is around $1,500. Therefore, the average single can expect to receive around $300,000 from Social Security, while the average couple can expect to receive $525,000. A single person who improves his or her NPV by 10-20 percent through delay stands to gain $30,000-60,000. A couple stands to gain even more – roughly 20-25 percent, which translates into dollar gains of around $100,000-$130,000. Higher earning individuals – who have higher PIAs – and those with above average health and therefore below average mortality obviously stand to gain even more. The largest gain we have encountered is approximately $250,000. We emphasize that the amounts of money involved are substantial. Many of these gains are larger than the average 401(k) balance at the time of retirement.
Shoven, John B., and Slavov, Sita Nataraj, "When Does It Pay to Delay Social Security? The Impact of Mortality, Interest Rates, and Program Rules", NBER WP 18210 National Bureau of Economic Research Working Paper (July 2012). Available at http://http://www.aei.org/files/2012/07/10/-sl ... 253206.pdf

Link to earlier paper - https://www.nber.org/programs/ag/rrc/rr ... Slavov.pdf

Links to these two papers can also be found in the Social Security section of the Bogleheads Wiki.

This is easy enough to see. If a 62 year old takes SS today she will get X dollars per year for life. If instead she waits one year to age 63 she will get Y additional dollars for life. Those X dollars will not come close to purchasing a private real life annuity of Y dollars for her at age 63. At today's low interest rate this would happen for her every age between 62 & 70. If OTOH real LT interest rates were significantly higher than 2.9%, then at some age the X dollars of benefits would buy more then the Y dollars of extra benefits in the private real life annuity market and it would be financially disadvantageous for her to delay an additional year.

BobK

PS - For further understanding of the advantage of delay in increasing SS lifetime benefits see the following summary and slides.

Summary - https://www.nber.org/programs/ag/rrc/rr ... Slavov.pdf

Slides - https://www.nber.org/programs/ag/rrc/rr ... %203.3.pdf

PSS - With the very low interest rates of the last several years the SS system as a whole is not actuarially neutral. If most people take SS at or before FRA at these low rates, then the system as a whole is being financed on their backs to some degree. For the system to be close to actuarially neutral over time either LT rates need to stay near 2.9% or benefits need to be reduced when rates are significantly lower than 2.9%, and benefits would need to be increased when rates are well above 2.9%. Also the SS program would have to adjust for changes in life expectancy for Americans in their 60s at least every few years, instead of every several decades.
Last edited by bobcat2 on Sat Dec 05, 2015 4:58 pm, edited 1 time in total.
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Re: Delaying Social Security: What's the goal?

Post by Greg4boat »

Leeraar: I came to a similar conclusion about SS. My first priority (goal) was to maximize the surviving spouses SS income - this was based upon my PIA. Then, I asked the question, how shall we handle my wife's work record? We could have delayed her SS too, but decided that she will file at age 62 so we have more cash to spend while we are healthy, can travel, visit friends and family, etc. So, our second goal was expendable income to more fully enjoy life (vs. maximizing her SS benefits).

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Re: Delaying Social Security: What's the goal?

Post by Ron »

For me (along with my wife) four reasons:

1. Assuming I die first, my wife will receive a large upward adjustment to her benefit, based upon my current/future SS.

2. We were fortunate to be able to execute the file/suspend and restricted application process early last year, so our combined additional SS (assuming we live long enough) will be an additional amount just over $60K.

3. Since we are "bleeding edge boomers", the vast majority of our retirement investments are in tax-deferred vehicles. As it is, we were in the 25% FIT bracket pre-retirement and we remain there today (both retired, in our late 60's). The delaying of SS by both of us allows us to use our investments to fund our retirement until age 70 and reduce the amount of $$$ subject to excess RMD's (e.g. withdrawals required by law, not necessarily required to fund our retirement) and the possibility of pushing us up to another bracket and possible extra Medicare charges. BTW, we already purchased one SPIA in order to reduce our RMD "exposure" somewhat, in addition to act as a private company pension (of which I don't have).

4. Regardless of when we take SS, 15% will be untaxed under current FIT rules. By delaying our respective SS claims until age 70, that means that a larger amount of income will be truly tax free (we don't pay state/local income tax on SS).

I could get into the physiological reasons why we are delaying, but then again everybody has their own opinion on that subject - regardless if it's early or late claiming.

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Re: Delaying Social Security: What's the goal?

Post by RustyShackleford »

Meaty wrote:... it's actuarily equivalent regardless of when I take it
That was true long ago, when the formulas currently-used were devised and people didn't live as long, but it's most certainly not true with today's longer life expectancies.
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Re: Delaying Social Security: What's the goal?

Post by Beth* »

My husband's SS benefit is slightly higher than mine. His benefits are projected to be about $3,500 a month at 70 and our current expectation is that he will claim then. I'll probably claim the first year we are both retired but at this point we don't have a definite plan. We'll figure that out as we go. We're 58 and 59 so we don't need to make a decision for a while.
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Re: Delaying Social Security: What's the goal?

Post by dpc »

it's actuarily equivalent regardless of when I take it...
I would say that this is only true if you die at exactly the average life expectancy. For an individual, the actuarial analysis is not really that relevant. I will be delaying SS mainly to hedge the risk of outliving my money.

If I stay reasonably healthy, I'll defer to age 70. If my health goes sideways, I'll start sooner. To me, the goal is not necessarily figuring out how to collect the maximum total dollar amount, but rather how to claim SS benefits in a way that gives me the greatest overall benefit.
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Re: Delaying Social Security: What's the goal?

Post by stemikger »

Don't have time to read, but the older I get the more interest I'm in social security threads.

Thanks.
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Re: Delaying Social Security: What's the goal?

Post by Leeraar »

bobcat2 wrote:
Leeraar wrote: For an individual with no further SS earnings after age 62, it does not much matter when you claim SS, if you are concerned about total received. Whether you claim at age 62, 66, or 70, by age 83 (your life expectancy) you will have received roughly the same amount.
That's not true. If LT interest rates are about 2.9%, which is what SS takes to be the average LT real interest rate, then you will receive roughly the same amount.
...
The life expectancy assumed by SS hasn't been updated in the last 30 years, but life expectancy has continued to lengthen. This is another advantage of delay currently, but this advantage is smaller than the advantage due to the prevailing low LT real interest rates.
...
BobK
BobK,

Yes, I agree. Lower interest rates and longer life expectancies than assumed in the SS formulas both tilt towards delaying. But a $30,000 - $60,000 difference to age 83 or your life expectancy is not a big deal: It is one or two years' worth of benefits.

The far bigger deal is to look at it as purchasing an annuity with joint life expectancy. That is my clumsily expressed point.

Also, when other individuals say "actuarially neutral" in this thread (and others), I think they are not intending to be "actuarially accurate". They are speaking to their own notion of some, often simple, break-even criterion.

L.
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Re: Delaying Social Security: What's the goal?

Post by bengal22 »

Seems to me our Social Security is an annuity no matter what age you take it so it really does boil down to which option gives you the most dinero depending of course on how long you are going to live. In our case my wife just started her benefits at 62, I will file and suspend for a spousal when I am 66, and I will file for my own at 69 and my wife will switch to a spousal. I did this based upon the total amount to be received based on certain life expectancy projections.
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Re: Delaying Social Security: What's the goal?

Post by VictoriaF »

When I am 98 years old, I don't want to depend on my wits to resist advanced investment fraud, cyberspace fraud, nanotechnology fraud, biometric fraud, internet-of-things fraud, genomic fraud, and other fraud innovations. I want to have the maximum-possible most-reliable inflation-indexed income that would cover my basic needs.

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Re: Delaying Social Security: What's the goal?

Post by Flobes »

Leeraar wrote:So, my question for the thread is: If you are delaying SS, what is your rationale, and what objectives are you trying to maximize?
To age 65: keep MAGI low to maximize ACA subsidy and cost-sharing benefits.
Age 66-69: keep income low to maximize Roth conversion in low tax bracket.
Age 70+: enjoy maximum Social Security, no RMDs, and low taxes.
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Re: Delaying Social Security: What's the goal?

Post by The Wizard »

I plan to live pretty much forever, so delaying SS till 70 allows me to spend down funds which would increase my RMD as well as get COLAd SS payments for the next few hundred years...
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Re: Delaying Social Security: What's the goal?

Post by dodecahedron »

bengal22 wrote:Seems to me our Social Security is an annuity no matter what age you take it so it really does boil down to which option gives you the most dinero depending of course on how long you are going to live. In our case my wife just started her benefits at 62, I will file and suspend for a spousal when I am 66, ****and I will file for my own at 69 and my wife will switch to a spousal. I did this based upon the total amount to be received based on certain life expectancy projections.
**** What you really want to do is NOT "file and suspend for a spousal" but rather that you will do a restricted filing for spousal only. Filing and suspending at 66 (your FRA) would be a big mistake if what you actually want is to collect your spousal benefits until age 69.
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Re: Delaying Social Security: What's the goal?

Post by dodecahedron »

The Wizard wrote:I plan to live pretty much forever, so delaying SS till 70 allows me to spend down funds which would increase my RMD as well as get COLAd SS payments for the next few hundred years...
Yes, well wizards are a special case what with their magical life expectancies and all that. :D
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Re: Delaying Social Security: What's the goal?

Post by bengal22 »

dodecahedron wrote:
bengal22 wrote:Seems to me our Social Security is an annuity no matter what age you take it so it really does boil down to which option gives you the most dinero depending of course on how long you are going to live. In our case my wife just started her benefits at 62, I will file and suspend for a spousal when I am 66, ****and I will file for my own at 69 and my wife will switch to a spousal. I did this based upon the total amount to be received based on certain life expectancy projections.
**** What you really want to do is NOT "file and suspend for a spousal" but rather that you will do a restricted filing for spousal only. Filing and suspending at 66 (your FRA) would be a big mistake if what you actually want is to collect your spousal benefits until age 69.
you are correct. I misspoke. i will file and restrict. Thanks
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Why?

Post by daveatca »

Delaying because MaximizeMySocialSecurity.com says I should.
I am 9 years older than wife.
My max SS is $5K more per year than hers.
My parents are both alive at 93.
Now 67.1 and still working.
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Re: Delaying Social Security: What's the goal?

Post by heyyou »

I'm delaying SS to age 70:
to maximize the inflation protected annuity
to do Roth conversions during the delay period
didn't need the money so why not wait and let it grow
so far, delayed gratification has paid so well, delaying SS just seems like another wise choice
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Re: Delaying Social Security: What's the goal?

Post by BolderBoy »

To answer the question "Why?", for me...

If I took SS at age 62 (3 years ago), without any other income, it would put me in the 15% marginal bracket immediately with little room up to the top of it. By living on already-taxed savings from 62-70, my marginal tax bracket is zero (less than zero with the personal exemption and standard deduction figured in). That allows me to do Roth conversions of a LARGE portion of my 401k/tIRA up to the top of the 15% bracket so that when age 70 & RMD time arrive and I'm forced into the 25% bracket, I will have maximized my tax savings.

In theory...
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Re: Delaying Social Security: What's the goal?

Post by itstoomuch »

I'm "staying the course" and "sticking to the plan" with whatever navigation corrections to avoid whirlpools, sirens, ogres, sea monsters, muntinous shipmates and disloyal travelers. I'm going to do everything I can to increase and preserve my IRA s and other personal retirement savings. I'm going to use SS before anything else, aka, mine is last but first. MY ips :mrgreen:
SS is a communal pot. My IRA pot is mine alone. :oops:
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Re: Delaying Social Security: What's the goal?

Post by GerryL »

heyyou wrote:I'm delaying SS to age 70:
to maximize the inflation protected annuity
to do Roth conversions during the delay period
didn't need the money so why not wait and let it grow
so far, delayed gratification has paid so well, delaying SS just seems like another wise choice

+1
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Re: Delaying Social Security: What's the goal?

Post by BigJohn »

I'm still a fewer years away from being able to claim at 62 but my current plan would be to delay until age 70 based on a combination of several points made by others

I agree with Leeraar that the choices are close enough to actuarially equal that this is not the deciding factor for me.

I agree with Victoria about the benefits of an inflation adjusted annuity as longevity insurance.

I agree with heyyou that the ability to do Roth conversions for 8 additional years has significant value.
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Re: Delaying Social Security: What's the goal?

Post by Dandy »

For me it is simple. Maximize inflation adjusted income for us but especially for my wife. If I die first my pension will be cut in half for my wife. And she won't have the tax advantages of "married filing jointly". We should have enough assets to fund her expenses but I'd rather make sure her income is the highest it can be. We are currently funding our retirement with less than 2% withdrawal. It is easier for us to wait than most.

I think many have to take SS early since they don't have enough retirement savings and/or would have a very high draw rate. Some also have a point that they want to maximize income in early retirement when they are healthy and can enjoy it more or have health issues. But there is always a group who eschew delayed gratification almost as a habit. It is hard to resist getting some significant money now.

It is a similar issue as to take a lump sum or pension (except SS is "guaranteed") . The lure of more money now is hard to resist. So when making these type of decisions people have to try to look at all factors - short term and long term to get it right for them.
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Re: Delaying Social Security: What's the goal?

Post by vested1 »

I'm currently delaying, as is my wife for a higher income with lower taxes in retirement. I don't give a hoot about cumulative benefits because I don't plan on hording SS income, but rather plan on spending it. To me, income is the only true gauge that matters. That my wife may outlive me, being a year younger makes the larger survivor benefit more appealing, because, wait for it, my delay will result in more income for the rest of her life.

Since I'm still working at 63.5 and my wife is retired at 62.5 with a good pension, we don't need the income. A recent thread asked the question (paraphrased) "If you don't need the income should you delay SS?" I didn't contribute because the answer was blindingly obvious in our situation. If my wife would have started drawing her benefit at 62 our taxes for the year 2015 would have been adversely affected. The fact that our income would have increased would have been small consolation when transferring more of that income to Uncle Sam.

For us it's strictly numbers relating to income. 42k if we both filed at 62, nearly 70k if we delay based on our plan. Spend down 20 to 25% of savings if I retire within a year to fund the delay, while reducing taxes by doing ROTH conversions after our initial filing at 65/66 (her as herself, me restricted). Lower federal taxation with a 15% break if you care to think of it that way, and no State or local taxes on SS is a huge factor. Not insignificant is a record of extreme longevity on both sides of our family. Delaying builds an unshakable base with the promise of COLA protection.
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Re: Delaying Social Security: What's the goal?

Post by VictoriaF »

BigJohn wrote:I'm still a fewer years away from being able to claim at 62 but my current plan would be to delay until age 70 based on a combination of several points made by others
...
I agree with Victoria about the benefits of an inflation adjusted annuity as longevity insurance.
My earlier comment covers more than longevity insurance. It's also an insurance against declined mental ability. Today, I consider myself reasonably sharp to deal with financial and cyber sharks. When I am in my 90s, or 100s, or 120s, I will still know how to freeze my credit and invent my mother's maiden name. But I may have difficulty keeping up with state-of-the-art fraud. Social Security and a Federal pension will be the last men standing even if all others fall.

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Re: Delaying Social Security: What's the goal?

Post by HoopDiddyDiddy »

Flobes wrote: To age 65: keep MAGI low to maximize ACA subsidy and cost-sharing benefits.
Thank you for reminding me of this.
ACA subsidies are likely not a factor for real Bogleheads (as opposed to the less well prepared) but it certainly applies to me and is one factor I had neglected to include in my "Things to consider" checklist :oops:
As the lower earning yet considerably older female spouse, deciding when to file is a continuing conundrum.
The husband is easy- wait until 70.
But mine always felt like six of one and a half a dozen of the other, and this little reminder about my ACA subsidy has helped clear up my decision considerably.

This is why I am here, folks. To learn stuff :thumbsup
Angst
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Re: Delaying Social Security: What's the goal?

Post by Angst »

VictoriaF wrote:When I am 98 years old, I don't want to depend on my wits to resist advanced investment fraud, cyberspace fraud, nanotechnology fraud, biometric fraud, internet-of-things fraud, genomic fraud, and other fraud innovations. I want to have the maximum-possible most-reliable inflation-indexed income that would cover my basic needs.

Victoria
+2, me too, I'll wait 'til 70.
Thank you BobK in particular for your post above.
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Flobes
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Re: Delaying Social Security: What's the goal?

Post by Flobes »

HoopDiddyDiddy wrote:
Flobes wrote: To age 65: keep MAGI low to maximize ACA subsidy and cost-sharing benefits.
Thank you for reminding me of this.
ACA subsidies are likely not a factor for real Bogleheads (as opposed to the less well prepared)... This is why I am here, folks. To learn stuff.
ACA subsidies are indeed a factor for real Bogleheads. And ACA interaction with Social Security, pensions, munis etc is a very important consideration for early retirees.

For excellent individual insurance, my 2016 ACA subsidy is $1033/month. My cost-sharing benefits garner a $0 deductible, with a $600/yr max OOP. That's $12,400 year (subsidy) + $6000/yr (OOP) of untaxed free money. BIG! All would be erased had I started SS at 62.

There's much good "stuff" to learn here. The Bogleheads taught me how to manage a 2-comma portfolio, pay no taxes, evaluate my own circumstance, enjoy great ACA healthcare, delay Social Security, and sleep well at night.
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Re: Delaying Social Security: What's the goal?

Post by Dave C. »

Flobes wrote:
Leeraar wrote:So, my question for the thread is: If you are delaying SS, what is your rationale, and what objectives are you trying to maximize?
To age 65: keep MAGI low to maximize ACA subsidy and cost-sharing benefits.
Age 66-69: keep income low to maximize Roth conversion in low tax bracket.
Age 70+: enjoy maximum Social Security, no RMDs, and low taxes.

EXACTLY! eatly retirees should take note of Flobes's post, as I have. I will use already taxed savings to keep my MAGI low in order to maximize my ACA subsidy, just as stated above. ( my subsidy is nearly $850 monthly).
Age 66-69: If I have enough already tax savings to live on during this age, I will attempt to do as much Roth conversions as possible while in the 15% tax bracket. ( I will yearly convert IRA money to Roth IRA up to the limit of the 15% tax bracket).
Age 70: Opps. Hard to believe that I can say this but, I've got too much IRA money (For this purpose). At this age I'll have yearly roughly $41K in SS, $22K in pension, and about $50K in RMD's.....bye bye 15% bracket, hello 25%. I'll have converted about $200K to Roth, so that will help for some time.......but I get the feeling that my life-long frugal lifestyle and strong saving habits may well help my children's cash-flow more than I intended. Oh well.
Easy does it/Live & Let Live/One day at a time. Thanks Bill.
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Leeraar
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Re: Delaying Social Security: What's the goal?

Post by Leeraar »

Dave C. wrote:
Flobes wrote:
Leeraar wrote:So, my question for the thread is: If you are delaying SS, what is your rationale, and what objectives are you trying to maximize?
To age 65: keep MAGI low to maximize ACA subsidy and cost-sharing benefits.
Age 66-69: keep income low to maximize Roth conversion in low tax bracket.
Age 70+: enjoy maximum Social Security, no RMDs, and low taxes.

EXACTLY! eatly retirees should take note of Flobes's post, as I have. I will use already taxed savings to keep my MAGI low in order to maximize my ACA subsidy, just as stated above. ( my subsidy is nearly $850 monthly).
Age 66-69: If I have enough already tax savings to live on during this age, I will attempt to do as much Roth conversions as possible while in the 15% tax bracket. ( I will yearly convert IRA money to Roth IRA up to the limit of the 15% tax bracket).
Age 70: Opps. Hard to believe that I can say this but, I've got too much IRA money (For this purpose). At this age I'll have yearly roughly $41K in SS, $22K in pension, and about $50K in RMD's.....bye bye 15% bracket, hello 25%. I'll have converted about $200K to Roth, so that will help for some time.......but I get the feeling that my life-long frugal lifestyle and strong saving habits may well help my children's cash-flow more than I intended. Oh well.
Excellent! This is what I was hoping for in starting this thread. It's not just maximizing one SS claiming strategy vs. another to get a bigger total from SS. There are lots of external and additional considerations.

For ACA and MAGI, here is a starting point:

https://www.healthcare.gov/glossary/mod ... come-magi/

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
2015
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Re: Delaying Social Security: What's the goal?

Post by 2015 »

Angst wrote: ...Thank you BobK in particular for your post above.
+1
sawhorse
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Re: Delaying Social Security: What's the goal?

Post by sawhorse »

dpc wrote:I would say that this is only true if you die at exactly the average life expectancy. For an individual, the actuarial analysis is not really that relevant.
Important point. Personal and family medical history should be weighed more than averages when making your decision. My mother took it early because no one in her family had lived beyond their early 70s. She doesn't care about the possibility of living beyond the break even point since each day more is an unexpected gift, not a reason to regret the decision. My father delayed because no one in his family has died before their 90s.

Opposite of what population averages would recommend. If they had gone by averages and not family history, they would have made illogical choices.
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burt
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Re: Delaying Social Security: What's the goal?

Post by burt »

Meaty wrote:I'm a long way from claiming, but I plan to take it as early as possible for the reason you mention - it's actuarily equivalent regardless of when I take it
I'm taking SS as soon as possible.
My job hurts me a lot, and I am not immortal.

burt
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Leeraar
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Re: Delaying Social Security: What's the goal?

Post by Leeraar »

Of course, if you know your own longevity (and that of your spouse) you could make a much better decision. I found this:
Discussion
There has been only minor improvement in understanding of life expectancy since the
2005 survey. Encouraging retirees to consider longevity and its variability as they plan
their finances continues to be a major challenge. Most notable has been the increase
among pre-retirees from 15 percent in 2005 to 28 percent in 2011 expecting they will
live to 90 or beyond. At age 65, American men can, on average, expect about 17 more
years of life and women almost 20 years, which is reasonably in line with the estimates
of the typical respondent. And although this means that half of the population age 65
can expect to live beyond these averages, with almost one man in five and one woman
in three expected to reach age 90, there is little evidence that more than a few are prepared
for the financial consequences of such longevity.
https://www.soa.org/files/research/proj ... gevity.pdf

If you and your spouse are both alive at age 65, there is a 45% chance one of you will live to age 90.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
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Meaty
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Re: Delaying Social Security: What's the goal?

Post by Meaty »

Leeraar wrote:Of course, if you know your own longevity (and that of your spouse) you could make a much better decision. I found this:
Discussion
There has been only minor improvement in understanding of life expectancy since the
2005 survey. Encouraging retirees to consider longevity and its variability as they plan
their finances continues to be a major challenge. Most notable has been the increase
among pre-retirees from 15 percent in 2005 to 28 percent in 2011 expecting they will
live to 90 or beyond. At age 65, American men can, on average, expect about 17 more
years of life and women almost 20 years, which is reasonably in line with the estimates
of the typical respondent. And although this means that half of the population age 65
can expect to live beyond these averages, with almost one man in five and one woman
in three expected to reach age 90, there is little evidence that more than a few are prepared
for the financial consequences of such longevity.
https://www.soa.org/files/research/proj ... gevity.pdf

If you and your spouse are both alive at age 65, there is a 45% chance one of you will live to age 90.

L.
I realize longevity is one of the major pitfalls to a retirement plan (or more accurately, inadequate planning for it) I'm just not following how delaying SS helps avoid that risk. Here's how I'm thinking about it; perhaps incorrectly.

If I take SS at age 62 and receive 1500/month I'll deplete my portfolio at a slower rate than if I take it at 70 (for 2200/month). Since 1500 at 62 is actuarily equivalent to 2200 at 70, there seems to be no real reduction in benefit. Further it helps me avoid sequence of return risk b/c my drawdown of portfolio is lower.

How is my thinking flawed?

***i made up the 1500/month and 2200/month for the example
"Discipline equals Freedom" - Jocko Willink
vested1
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Re: Delaying Social Security: What's the goal?

Post by vested1 »

Meaty wrote:
I realize longevity is one of the major pitfalls to a retirement plan (or more accurately, inadequate planning for it) I'm just not following how delaying SS helps avoid that risk. Here's how I'm thinking about it; perhaps incorrectly.

If I take SS at age 62 and receive 1500/month I'll deplete my portfolio at a slower rate than if I take it at 70 (for 2200/month). Since 1500 at 62 is actuarily equivalent to 2200 at 70, there seems to be no real reduction in benefit. Further it helps me avoid sequence of return risk b/c my drawdown of portfolio is lower.

How is my thinking flawed?

***i made up the 1500/month and 2200/month for the example
1. If your age 62 benefit is $1,500 your age 70 benefit is $2,640, not $2,200.
2. Current low interest rates can't match the increase realized by delaying.
3. SS benefits are guaranteed to increase while delaying, not so with an untouched portfolio.
4. SS benefits are COLA protected (in theory), not so with an untouched portfolio unless guaranteed yields are low.
5. Building a larger base of guaranteed income that is protected with COLA covers a larger percentage of expenses with lower tax liability than regular income.
6. Using a portion if your portfolio to fund your delay (if needed) reduces RMD exposure.

#5 answers your question.

A question for you:
What if a negative sequence of returns lasts for a prolonged period of time and your expenses continue to rise, while your SS base is 76% lower because you chose to file at age 62 rather than at age 70?

The theme of this particular thread is a question about personal goals for delaying SS. If your goal is to stockpile savings rather than to maximize income in retirement then filing early may be a better idea. Then again, needing to draw less from your portfolio after age 70 for potentially 20+ years may accomplish both goals. YMMV.
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Re: Delaying Social Security: What's the goal?

Post by Bill M »

If the goal is to maximize Social Security benefits received, you get one optimal strategy. (This is usually the only answer given by the various online calculators).

If the goal is maximize the estate (net worth at end of life) you get a different answer.

If the goal is to minimize income taxes paid, you get yet another different answer.

I did a rather complete projection calculation for year-by-year income, expenses, and taxes. And I found that the "optimal" strategy depended on exactly the definition of the goal. And I also found that the optimal decision also depended on (1) the strategy of Roth conversions, (2) the starting date for (non-COLA) pension, and (3) starting date and purchase date and amount for deferred income annuities (QLACs). And, of course, the optimal decision was often different with different longevity assumptions.

So you have to decide which is the most important goal for you. For me, I looked at the strategies and resulting numbers at age 105. Though that age is highly unlikely, the optimal strategies were similar enough, and the merged strategy was not optimal but looked OK at the earlier ages.

Now if SSA gave DRCs past 70, the decision would be even more complex. And I never considered the interaction between ACA subsidies and Roth conversions in the calculation, which would be another added complexity.
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Re: Delaying Social Security: What's the goal?

Post by Dandy »

My decision was easy. Taking it early wouldn't change our standard of living vs using our savings. For others part of the decision is how much do you need SS early vs want it early. If you don't have enough retirement savings to keep your withdrawal rate reasonable you probably need to take it early.

If you can fund the wait it kind of boils down to the trade off of will more money now change your standard of living enough during the wait time to collect. e.g. 8 years from 62 to 70? It is that vs having significantly more from age 70 to whoever lives the longest. If you don't have plans for the money that will increase your standard of living enough - the beauty is you can wait until you have those plans and then collect.
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Re: Delaying Social Security: What's the goal?

Post by SGM »

I am delaying collecting SS until 70.
1. I converted tIRAs to Roth accounts before taking SS and while retired or working part time.
2. DW would receive a larger inflation adjusted annuity from SS in the likely case that she will outlive me.
3. I like COLAs on a larger basis 32% more than taking SS at 66.
4. Multiple annuities later in life offer some protection if nest egg is lost through an inability to manage it due to advanced age, fraud, or law suit. This is similar to the concerns Victoria expressed.
5. I have sufficient income to delay and we are both in good health.
6. Over the long term nest egg should be enhanced by drawing down less secondary to increased SS payout over a combined long life expectancy.
7. We are combining my file and suspend until 70 with a spousal benefit. We have filled out the paper work online and have a meeting with SS next month.
8. I compared delaying SS to earnings from safe investments much as Bobcat2 has described and recommended.
9. I have reviewed recommendations at multiple SS claiming strategy calculators.

I have enjoyed discussions concerning this issue on line, among friends, at the national meeting in Phillie, at our local BH meetings and at the social security research symposium over the last few years.
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Leeraar
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Re: Delaying Social Security: What's the goal?

Post by Leeraar »

Meaty wrote:I realize longevity is one of the major pitfalls to a retirement plan (or more accurately, inadequate planning for it) I'm just not following how delaying SS helps avoid that risk. Here's how I'm thinking about it; perhaps incorrectly.

If I take SS at age 62 and receive 1500/month I'll deplete my portfolio at a slower rate than if I take it at 70 (for 2200/month). Since 1500 at 62 is actuarily equivalent to 2200 at 70, there seems to be no real reduction in benefit. Further it helps me avoid sequence of return risk b/c my drawdown of portfolio is lower.

How is my thinking flawed?

***i made up the 1500/month and 2200/month for the example
The way I see it (and I appreciate these are made up numbers): If you look at the cost (on the open market) of buying the incremental ($700) a month at age 70, it is far more that the amount of money you have given up by delaying SS. To put it another way, what would it cost you to buy $1500 a month beginning at age 62, vs. what would it cost to buy $2200 a month beginning at age 70?

Here's how I see it. My thinking may well be flawed.

Things have been very good since I "retired" at age 58 in 2008. My early retirement deal included a supplement to age 62 that was the value of SS claimed at age 62. When that supplement ended, I decided to delay SS and tap some of my IRA to live on in the meantime.

I see this as reaping the good times and taking "at risk" money off the table. Each dollar I spend delaying SS is converted to a sure thing, at a very good price. That dollar will not be subject to future RMDs, etc.

Sure, if the market takes a dramatic dive or I learn something bad about my health, I may change my mind. But, that's another low risk aspect: You can stop deferring SS at any time.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
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Re: Delaying Social Security: What's the goal?

Post by itstoomuch »

^^ We took the other path. Looks like either choice has worked. :annoyed
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