I think you both are right. I believe there was a rule change. Now, spousal benefits (benefits on based on spouse’s earnings record) can only be paid once the person whose earnings record it is on retires. Note I am using spousal distinctly form widow(er)s benefits.
1 Like
0% investment rate @ age 77 (180 months from age 62 start):
age 62: $425,160
age 64: $421,512
age 66: $418,440
age 68: $378,108
age 70: $351,920
3% investment rate @ age 82 (240 months from age 62 start):
age 62: $775,449
age 64: $772,611
age 66: $779,955
age 68: $729.838
age 70: $727,775
6% investment rate @ age 87 (300 months from age 62 start):
age 62: $1,636,852
age 64: $1,600,263
age 66: $1,594,111
age 68: $1,482,952
age 70: $1,486,030
the rule for spouses did change maybe in 2016 or so and the new rule (for someone Klayman’s age) is that spouse can’t claim on his benefit unless he too is collecting. they shut off this among other unintended benefits allowed (being exploited as “loopholes” but within the rules).
And spouse’s 50% bump maxes at benefit of NRA. So if you delay to 68-70, the 50% is capped at the NRA (age 67) amount.
It’s technically that an amount between 0-85% of your Social Security benefit is taxable income. But never can more than 85% of your benefit be taxable income. Whatever income ends up being taxable is taxed as ordinary income. At the federal level.
A lot of states don’t tax Social Security benefits at all, but they DO tax other kinds of income so in those states you’d be better off spending down your investments first and then taking Social Security later as Social Security will make up a larger chunk of your total income.
Unclear to me what this and the later tables are supposed to mean. In any case, it would be helpful to also show what the various benefits would be.
1 Like
If I started receiving my SS benefits at 62 and would them in a checking account, then 180 months later I would have $425,160. If I waited until 64 to get my benefits, the total would be $421,512 at the same point in time.
OK I didn’t factor in cost of living increases. That is an error, as it is going to allow the later payments to have more weight.
If you’re doing a rough cut you can just say that the COLAs are 0% and you’re doing it in constant dollars. But then you need to be working off a real, not a nominal, rate of return.
Yeah it ended up making almost no difference in the 0% scenario assuming 3%/yr inflation increases.
I still think it would help to see the monthly benefits you used, because they aren’t making sense to me.
For age 62, doesn’t 425,160 for 180 months mean 180 payments of 2362? And age 68 is 108 payments of 3501? And 70 is 84 payments of 4189.52? Are those all consistent with the same earnings history, or are you reflecting some additional earnings after 62? You said those are without inflation adjustments.
Or who knows what I’m doing wrong? Lots of possibilities, but I don’t see those differences just based on the early retirement / late retirement factors.
Also why are you using more years when you include interest?
The values I used are the actual values from my SS earning statement, listed in the original post.
The reason I added more years when I increased the interest rate was because the age 62 start was quite dominant. After 180 months @ 6% the age 62 (0% inflation) start yields $686,914; the age 66 start yields $590,643; the age 70 start yields $434,859. I increased the number of months to get closer to a point of indifference.
The age 68 and age 70 values aren’t from post 1, and they are the ones that I was trying to understand, since I was generally advocating retiring late. How did you get those? I thought the increase for late retirement was 8%/year (“simple”, not compounded)
The age 77 0% value of 378,108 is consistent with 108 payments of 3501, so it looks like (right or wrong) you did use 3501. But for age 70, if you use 4240 is I would infer from cell 02, why isn’t the accumulated value 84*4240 = 356160? You used 83 payment of 4240.
You’re right, I copied a cell in the wrong row. But the age 70 numbers are still going to be pretty much at the back of the pack.
Unless you live a long time… then age 70 is going to have everything else beat.
Ignoring the possibility of benefit cuts that go into effect after you’re 62 on 62+ year-olds, I think it’s essentially a matter of: is your life expectancy longer or shorter than average? If longer, wait until you’re 70. If shorter, take it at 62. It would be unusual for any other age to be optimal… maybe right at SSNRA if that impacts your spouse’s benefits.
I would think that absent a significant diagnosis like cancer or heart disease, most actuaries, even male actuaries, would have above-average life expectancies. We have access to above-average healthcare, and probably have above-average diets and an above-average understanding of how to best take care of ourselves. But you know your own personal circumstances better than anyone else. If you’re an HIV+ morbidly obese chain smoker with cancer and diabetes and a habit of drunk driving while not wearing a seatbelt then maybe your life expectancy is below average and you’d be better off starting at 62.
3 Likes
The calculation you are doing is merely an interest rate or rate of return calculation. The Px and Qx is the heart of the problem. Do you think you are healthier than average? Then delay and take bigger checks, and if you live longer you will have ended up with more money. Do people die early in your family? Then take the checks at 62 and be content that you will end up with more of them.
I think that there’s another consideration. If you quit working or switch to part-time between ages 62 and 70 then likely your tax rate and tax status of benefits would change at that point which could make claiming then advantageous.
Possibly if you’re comparing to age 62. It wouldn’t make it more advantageous than 70. But if you think your mortality is only slightly below average then the taxation of benefits could have an impact.
I’m late to the party here, but this angle jumped out. How risk averse do you need to be? Some people can easily maintain the lifestyle they want from investments/pension outside of SS. For them, SS is just money that will be left to the kids.
Others will really depend on SS, especially if they happen to retire in the wrong year. For them, the longevity insurance part is important. I don’t decide whether to buy homeowners’ insurance based on expectation of benefits vs. premiums. I weight the downside of dealing with that one big loss more heavily than the upside of no claims. Similarly, the risks of bad returns coupled with a long life get more weight when deciding on SS.
Back in the day we used the 4% withdrawal rule and that typically said wait. That’s because 4% was a defensive strategy that gave lots of weight to the few bad years.