# When to take Social Security

There are all sort of opinions on this, and I thought I’d do some quick spreadsheet work. I’m not factoring in Px or Qx here, just assuming I stay alive the whole time and want to get the most \$. I can’t be sure, but I would be concerned that people would be telling you the total dollars received but not accounting for the timing when it is received.

I took my expected monthly SS payments at ages 62-67 (2362/2525/2702/2936/3170/3404) and assumed a constant investment return X% . At month 1 I gave myself the initial payment. Month N+1 was set equal to Month N times 1+X/12 plus another payment. The question was at point did the other payments catch up to the age 62 amount which obviously started earlier.

When X=0%, the age 62 result was better for 184-197 months, or 15.3-16.4 years. But i suspect this is the nominal amount everyone is talking about, and if I’m going to live past 78 it’s suboptimal. And if it’s all you have to live on, working as long as possible and delaying payment makes sense.

But what if you don’t need the money right away? What if you have lots of investments and you want to maximize your wealth and can afford to put that money in 3% Treasuries? Now the age 62 result was better for 233-249 months, or 19.4-20.8 years, and I’d have to be living beyond 82 to start making less.

Now suppose I can generate 6%, I have lots of investments and I can afford to keep them more invested in the stock market. Now the age 62 result was better for 362-462 months, or 30.2-38.5 years. Not likely to lose in this scenario at all.

Just wondering if my math sounds right. I could see myself somewhere in the 3%-6% camp in which case I feel like I have less and less reason to delay my retirement having some assets on the side.

I haven’t checked your math, but a few thoughts.

You can start Social Security at any month from 62 - 70 so in theory your optimal answer could be “age 68 & 7 months”. But it’s certainly not ridiculous to start by checking 1 year intervals.

Note that if your birthday is the 1st or 2nd of the month then your age is what it is your birthday month. If your birthday is the 3rd - 31st of the month then you hit that age starting the next month.

A big advantage of waiting is the longevity insurance aspect.

A big disadvantage of waiting is that when the whole thing runs out of money your benefit might go down. It might be best to get while the getting is good.

Are you taking COLA increases into account in your math? It’s fine if you want to simplify it by assuming they are 0%, but then you should be using inflation-adjusted rates of return for your investments. I don’t know that you’re going to get a guaranteed real rate of return of 6%.

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Should you be taking taxes into account? Is your non-SS income large enough to trigger taxes on benefits?

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I would suggest 4 extra things for you to consider:

1. Are you going to still be working after 62? If so, you should consider that in the calculations? (I’m not positive what difference it makes, but amounts will certainly be higher in the scenario that you don’t collect then, maybe in both, but it may not affect the two calculations exactly the same?
2. I believe you are married. Be sure to consider the effect of your wife on the calculations. If at some point she would take over your social security benefit after your death (applies unless her benefit from her own record is bigger that she would get from yours) the higher payments for waiting extend beyond your death, if she’s still alive.
2a: Again, depending on her earnings relative to yours, it may be best for her to claim on her record before you claim. As I recall, that’s especially true if she can claim on her record but once you retire she’s better off claiming as your spouse.
3. Benefits are indexed to inflation. Inflation varies a lot. So your 3% treasury scenario understates the value of social security.
4. Especially if you don’t need the money evan at 67, there are further increases, which as I recall are bigger than the increases before 67. (Again, spouse considerations should be considered, and as I vaguely recall she may want to start collecting on your record even before you start collecting).
5. Again, if you are still working beyond 62, isn’t there some reduction in your benefit while you work?

I don’t remember how these various things work, but I know (influenced by advice from Bruce Schobel, one-time chief actuary for Social Security, who did know), I waited until my maximum possible age to start collecting, and my spouse started collecting on my record before I did. I was working until 65.

Note that there was something of a loophole here where for a lot of baby boomers & earlier you could have each spouse claim on the other spouse’s record from SSNRA until age 70 and then switch to their own record at age 70.

But they’ve essentially closed that loophole for approximately younger-than-baby-boomers. Might be that younger baby boomers are also affected… I’d have to look up the year of birth when they closed it.

Now once you’re taking benefits you’re taking benefits and you can no longer get the high age-70 benefit.

You also used to be able to go on benefit and then “change your mind” and repay it all (without interest) and reset everything as if you’d never gone on benefit in the first place.

So a strategy used to be to go on at 62, with the idea of probably repaying it all at 70. If you died or got very sick during the 8 years… great, starting at 62 was the optimal choice. But if you’re now 70 and still healthy you pay back the 8 years of benefits you collected and reset.

The SSA caught on and closed that loophole too.

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I think even I (born in 1949) was too late for the claim and repay bonus. At least I never took if. Not sure about what all spouse possibilities were, but she only claimed on my record before I claimed on mine. She also claimed at an age that had some small reduction for benefits due to age, I don’t recall whether it was her age or my age that triggered that reduction. Taking that one was essentially a bet of whether social security benefits would be cut, a bet that she has lost so far. But it was a very small bet for her in any case, claiming only a few months earlier that when her spouse benefits be at their maximum (which was also before I would claim). (Not part of her considerations, but with respect to just social security, an early conversion from spouse status to survivor status would favor early election, and she hasn’t converted to survivor status yet.)

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I’m currently thinking I will claim late, using SS basically as longevity insurance. However, if my health or my wife’s health changes I could alter the plan.

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Klayman - don’t see your work that off. On the nominal/no interest of any kind, the cross over of total funds received is around age 75 or 76? So some investment return pushes it into the 80’s? Sure. As others note, there are some considerations.

Your wife can’t collect on your earnings record unless you are also collecting.

In current year, if you collect early (62-66) you get benefit withheld (and paid back later) for work earnings above ~\$21K. I don’t know if your delayed compensation plan (you have mentioned elsewhere) will be issued as earnings subject to SS (and maybe somehow affecting this) or not - make sure you understand that well.

Based on the ages of relatives who were explaining this to me, I think they changed the rule during the 8 years you would have been between 62 & 70. So you would have started taking it at 62 and then had a problem paying it back at 70 had you gone that route.

Hi everyone thanks for your comments so far. This is in no way intended to accurately calculate my own personal SS effective income. It is meant to answer the question when should I start receiving SS subject to the assumption that my payments will receive my portfolio’s rate of return.

It is very simplified. Taxes? That might be 15-20% but it should hit all payments uniformly. Assume I expect to live on 60k or 70k every year. Then decreasing all the numbers by 15-20% doesn’t change the answer. Likewise if my wife increases my benefit my 50% she does so for all payments. Or at least I am willing to assume that. That is why I left that out.

I’m walking in the lonely Des Moines skywalks this morning and I overheard some ladies talking about how paying an extra \$100 every month on the mortgage every month would save a ton of interest. True, no doubt, but what about the potential loss of not investing it?

That’s what I’m getting at. I think that anyone explaining when to take SS on YouTube is just adding up those payment dollars but not factoring in the potential investment returns from receiving those dollars earlier.

Yes I am also assuming an unrealistic constant 3% or 6% annual investment returns. The timing of actual returns would make a big difference, anyone who retired in Dec2021 started off with a nice drop. Interest rate and investment risk is a big piece of the puzzle to which I am turning a blind eye for simplicity’s sake.

Also the SS reduction for income over \$20k is irrelevant. I’m hoping to go part time around 55 and retire by 58. I may tutor in math afterwards (or teach a college class), but I wouldn’t expect to make more than the threshold.

This is extremely false.

Go on… If I engineer things so I always have \$50k of taxable income and \$20k if tax-free for \$70k my total taxes would stay constant.

I suppose another uncertainty I can’t control is the taxation rate, but again I’m trying to keep this simple but relevant

Where is your other money parked?

Roth IRA/401K taxed at 0%

Traditional IRA/401K taxed as ordinary income

Interest & non-qualified dividends taxed as ordinary income

Qualified dividends taxed at reduced rates

Municipal bond interest - taxed at 0%

Social Security - sliding scale based on the non-SS portion of your AGI, taxed at anywhere from 0-85% of your ordinary income rate, but never at your full ordinary income rate no matter how high your income is.

If you can use Roth withdrawals & Munis to keep your MAGI down then you might be able to get your Social Security tax-free.

Then there’s the added layer of state taxes.

And how your Medicare premium is calculated. Sounds like you will stay under the income level where you’re paying punitive Medicare premiums, but it’s a consideration. I think that cutoff is \$97,000 MAGI for individuals or \$194,000 for Married Filing Jointly.

Ok I was unaware of the “up to 85%” taxation of SS, I shall have to look that up when I get home. In my case, I would never expect to cross the 12% federal tax bracket. But if only \$3,000 of my \$3,500/mo benefit will be taxable that is great news. I learned something new today.

But in the case of my scenario, it is probably safe to assume that will be steady as well.

I question whether that assumption is true. That I don’t remember for sure, but I think it did not remain true if I retired after normal retirement age, as I was expecting to do.

I can see that if an actuary had a much bigger nest egg than \$1.5M they would probably do well to delay SS and spend down their nest egg first. No doubt some/several of you will be in the 22% bracket in retirement and have different considerations

Regardless of nest egg size, as long as you don’t need to take social security at 65, you should at least consider waiting beyond NRA, as long as you don’t have do spend down your nest egg to an level you consider unacceptable. A major reason for needing a nest egg is potentially living a long time, and social security (if benefits aren’t cut) is good protection against that. If you think of specifically the extra size of your nest egg at 72 because you collected ss earlier, compared to the extra ss you’ll receive later, for the longevity risk delaying is best. Nest egg is also necessary for unexpected big costs, so you won’t be comfortable letting it drop too low.

I don’t know about your IRA/401K situation. Now that I’m forced to take RMDs each year (and collecting SS), I can’t avoid the 22% bracket. I sure with I had done more Roth conversions before 72. (Tax rates have varied between when I was 65 and when I had to start taking RMDs, but beyond any doubt I would have been better doing more conversions in those years. Most years I did none.)

[OK, some change of being under 22% in some years, but those will be few and far between. It’s only a marginal 22% rate, so it’s much better than paying 22% on all income. But RMDs will tend to increase every year, so tendency will be more at 22%, with some offset for brackets increasing with inflation.]

Maybe, but my wife started collecting on my record at least one full year before I started collecting. My guess would be at least 2 years before. Perhaps the rule has changed, or perhaps she was eligible on my record once I reached NRA.

This was one of my thoughts . . . along with the possibility that benefits could be changed for those who are not actively receiving them.

But my plan is basically to view SS money to offset/cover Medicare costs and whatever is left as “fun” money.

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