There is another Social Security thread going on that has got me thinking. I don’t want to hijack so I am taking it here.
My main intent is to sort out the advantages and disadvantages of drawing SS early vs. waiting.
I have read, from several different sources, that is it, in general, financially better to draw earlier than later. I just can’t get my brain to believe that, thus this thread.
(and while the thrust of the discussion is whether it is better to retire earlier or later, for the purposes of this thread I am interested only in the financial aspects of it)
So, in this thread, let’s compare retiring at 62 vs. retiring at 67.
To my simple mind, retiring at 67 makes a ton more financial sense than going at 62, for the simple fact that that you will have an additional 5 years of full time earnings to work with.
In the other thread, **spifflog **posted this:
I quoted spiff’s entire post because I may want to refer back to it at some point, but for now, allow me to focus my simple brain on just this:
See, I don’t view it this way.
Let’s assume in the above example you are earning 100k.
So, to me, in those five years you continued working, you would not have forfeited $129,000. Sure, that is what you would have drawn from SS, but you are ignoring the $500,000 you earned by continuing to work.
In other words, if you had worked until 67 instead of retiring at 62, that would put you $371,000 *ahead *of where you would be had you quit 5 years earlier, and in much better shape to retire (with a larger monthly SS income to boot).
I don’t think it’s very controversial that it’s better for your finances to continue working longer. The question is whether, if you retire early, it’s better to take SS right away or wait until you’re 70, or somewhere in between. As I mentioned in the other thread, the formulas are set up so that it shouldn’t matter if the only choice is between no SS and your own SS and you are an average person. It becomes always a good deal to start early if you can first draw on one SS and then on another at 70, but that’s only possible now if you’re widowed. It’s better to wait if longevity runs in the family, but if you’re not in good health you might consider taking it early while you can get it.
Putting aside the fact you could die at any moment, retiring before reaching full retirement age under Social Security means your monthly check will be permanently lower than if you retired at full Social Security retirement age.
Assuming you are retiring early and can afford to live on savings until you claim S.S. at 70, a reason to wait so long to claim is if you are concerned about outliving your savings. Not only that but, if you are married, your spouse has the option of claiming this increased amount should you die first. If you are married, it may make sense for the lower earner to claim earlier and the higher earner defer until age 70. Beware if you claim S.S. before your full retirement age (67) and continue to work. Your monthly benefit may be reduced or eliminated if you earn too much.
I stopped working at 60 - I took SS at 63y 4m and do not regret it. My FRA was 66, so my ‘break even point’ age 63 vs 70 was at age 80.
However, considering the growth in my retirement account, that point was pushed out until age 85. Perhaps even further if my account grows faster than inflation over the next 15 years (which has been true for the last 30).
I have enjoyed the extra money for the last seven years more than I imagine I would after age 85.
This would be my assumption as well. All the more so the more money you make over what you’d be drawing from SS.
Yeah - working for a living sucks ass and dying wealthy doesn’t earn you extra points ;).
The problem with your scheme is you have to work until 67 - no thank you. Unless you truly love your job( and kudos to those who do ), that’s five years of extra labor in an age cohort where just about anything can quite suddenly lay you low. I work with many, many older workers. The procession of guys I’ve known in the last couple of decades who have died in their 60’s after just a year or three of retirement( or before even getting there )is sobering.
My philosophy is get out as young as you can reasonably afford to. Sometimes that is not young - my mother worked until a little past 69 and waited until 70 to pull SS because it was financially necessary for her. But if you happiness isn’t tied to your job and you can comfortably get by, get out. Being more financially comfortable doesn’t matter much if you’re going to stroke out 6 months after you leave.
I’ll be retired before 62 regardless and have to wait for even minimum SS, so the only thing that concerns me with my not-particularly-long-lived family history is actuarial tables.
An article in USA Today, discussed a new study released June 28 from United Income, a technology wealth management company, that claims that the average household loses $111,000 because they claim Social Security at the wrong time.
I do not know who or what United Income is or whether they should be trusted and I have not read the study. If somehow has the time and motivation to do so, here it is.
The USA Today article concludes:
I do not know if this accurately represents the study.
Although the rules may be different here, the principle is the same. I could have retired on a full state pension (plus other pensions) at 65. The scheme at the time (it’s not so good now) meant that if I deferred my pension (I carried on working, but that was not a requirement) I got an enhanced pension later. My calculation at the time was that I needed to live until I was 80 to make a ‘profit’.
I looked at my own family: both parents and three grandparents all lived into their 90s, so barring accidents, it looks as if I should ‘win’. In addition, I have much of the extra money that I earned in those years invested, so that helps too.
The decision is a gamble: if you expect to live to 100, you can decide accordingly; if your parents and grandparents didn’t make it much past retirement age, they take what you can when you can. Averages don’t help much as we all have different genes and circumstances.
You need to talk to someone who has software they can run scenarios through.
There’s probably 10 or fewer questions that could be asked that would get people much closer to optimizing.
The government probably doesn’t want to provide that type of thing on the SS website because they don’t want the responsibility of pushing people one way or the other.
Your current health status is probably one of the most important questions.
Most of these higher/lower earning spouse statements assume relatively the same age. My wife is 7 years younger so she can’t claim until I have hit the max benefit area anyway. Maybe she shouldn’t claim until later as my 401k should be able to fund the first 7-10 years of our retirements.
Everything I’ve every seen that’s based simply on dolllars says to wait as long as you can. But that’s based strictly on dollars- it doesn’t account for the fact that not collecting SS until 70 may mean I have to work until I’m 70. It doesn’t account for the fact that while my pension and deferred comp may be enough to fund my retirement from 55-62, it might not be enough for ages 55-70. It doesn’t account for the fact that many people want more money at the beginning of their retirement than they will need at the end, or that people might want to conserve their savings because that money can be left to or given to their kids while SS stops when they die or that they won’t collect anything if they are hit by a bus at age 69, before they start collecting. It’s the articles that *do *consider those other issues that sometimes recommend not waiting.
Probably. As long as you’re not running a business at a loss or it costs you more to work than you’re getting paid.
Any money you earn is additive to SS up to a point. And any money you earn obviously is additive to the total money you’ve ever had.
Now, if you are taking SS and working, your SS gets taxed at some point. There’s a way to figure out what that point is and adjust for it. So that equation is, do I still net more from working than I lose from my SS being taxed?
The youngest of my grandparents died at 87, and the oldest at 2 weeks short of 97. My mom had a spotty employment history after her mid-50s, and had to use up a lot of her savings, so she decided it would be better for her to take my dad’s Railroad Retirement benefits at 65 (they have been divorced for a million years, but were married long enough that she could do that), and then wait for her own SS benefit until 70. It made a huge difference for her; she is still working part-time at 76, but she wouldn’t have been able to pay her bills otherwise.
Given my family history, I am also hoping not to have to take Social Security until 70. Although it sure would be nice not to have to work until 70! The house should be paid off when I am 63, but who knows what else will happen between now and then? Health care/insurance costs are the big cipher.
Can we call my first point answered? That the longer you work, the better off you will be financially (aside from rare exceptions)?
And this is my second key point (still taking baby steps to untangle the puzzle).
Virtually all the advice I have read on the subject that says it is wiser to retire earlier than later totally ignores all the income you have lost by not working those 5 years. In my example we are talking about half a million dollars, a pretty significant factor to ignore.
I kept working for a few reasons.
Every month that I worked increased the amount in my retirement check. That meant I could not collect SS until I was 66.
I collected SS based on my 66th Birthday because the buy back time was just too long and if inflation was figured in was even longer.
My wife retired at 65 but did not start collecting 1/2 my benefit until she was 66. She can do vacation and sick leave relief jobs which would affect what she was getting.
But every person is different. It will depend on you finances and health. With our retirements and SS right now we are bring about 80% of what we were making when working. And we both can take the relief jobs to give us fun money.
I worked with a man who kept working until 67, planned on retiring when his girlfriend could retire. Sadly the work load of the 89 earthquake did him in and he had a heart attack.
If it is just straight numbers from SS, best to file as soon as possible.
I did not need to work those last few years. But my wife is 5 years younger than me. But by waiting it increased both of our month retirement pay.
As to the income that we would have lost. In that time frame we were able to buy and pay for a new car and pay for a few things that other wise would have been put off. We are in a better position today 5 years later than we would be if I had retired 5 years earlier.
And there is another non finical factor. A lot of people who retire early are not really ready. They are not done. How many times have you heard of someone who went back to work after retiring/ It is my belief they were not done. I realized my on Wednesday of my first week of retirement that I was done. I could get up in the morning when I wanted, now normally between 7 &8, and I did not have to rush around showering, getting dressed, get my things together, and drive to work. If I had retired at 63 (an original plan) I would have been looking for a new job.
I like to the relief jobs one or two weeks at a time. And by the half way point through the job I am counting the days until it is over. Still love my profession, just going to work is the problem. There have been a few times when I have done a sick relief job for 2 or 3 long months. Those are hard. But why do I do them. Easy extra unbudgeted money. We just have fun with this money with out looking at the right side of the column while doing fun stuff.
Everything said so far presumes that if you take your SS early, you’ll spend it. That’s not necessarily true.
To simplify, let’s assume that you retire at age 62 so that you no longer have wages affecting the calculations. Let’s also assume you can live comfortably off your savings and any other income stream you may have, such as a pension.
What happens if you take your SS but invest it rather than spend it? Obviously you’ll have to make assumptions on how well your investments do. But still, you could have a decent handle on how big your “SS investment account” will be when you hit 70, the point at which your SS income would be maximized. If at age 70, you withdraw from that account enough to bring your SS up to what you would have earned by waiting to age 70 to collect, how long will the account last?
My guess is that unless you don’t live to a ripe old age, eventually you’ll deplete your “SS investment account” so that you’d be better off just waiting to age 70 to collect. BUT you’d have a nice, pretty substantial account for those intervening years which can come in handy if disaster befalls you or a family member and which will be part of your estate if you die earlier than you expect. Both of those are significant advantages.
The short answer is yes. The longer you work, the higher your your AIME is and the higher your SS check will be. But keep in mind that SS is still a very, very progressive benefit. But this I mean that you get a lot more back on the lower portion of your total income over the course of your life than you do on the higher portion of your income. For example once SS determine your AIME (lets call that adjusted average monthly amount for simplicity sake) you’ll get 90% of that for the first $926, but only 32% for the amount above that, and only 15% for the amount over $5,583. Your return by percentage is less as you earn more.
That is another issue that I have with many of these “click bait” articles on SS. They say that one way for you to make more in SS is to work longer. That’s true but you frequently won’t get much. If my wife decided to work one year longer, she’d make a whopping $200 a year more at her full retirement age. Your figures may vary of course.
So yes you make more, but is that $200 a year in her case really worth it by going to a job that she really didn’t like?
Yes, I’d agree with that. If you are making $100,000 a year, and that’s something you want to do, or feel you need to do, then it make sense in relation to SS. Virtually noting you do in SS is going to overcome earning an additionally $500,000 over five years. And if I missed this point of yours in the other thread, I apologize.
Yes, if your choice is to either stop working is to take SS at 62, or to keep working at a six figure income job and then take SS at say 67, then it makes since to wait from a purely mathematical sense.
What I was trying to illustrate, is that when people talk about waiting for SS, they almost always focus on the monthly amount being larger, and that’s correct. But they almost always leave out a very important considerations:
By delaying taking SS to get a higher amount, you are also forfeiting SS you could have been receiving for years earlier. And in my case, that difference from 62 to 70 is $210,000. ***By the time I receive my first check at age 70, I left $210,000 on the table. *** That’s a lot of money to make up, and I don’t break even until I’m 79. This assumes that I wasn’t otherwise working in those 8 years of course
When do you need the money? My parents would have had a lot of fun with that money in their early 60s. But by the time their mid to late 70s rolled around and they were actually making more, they weren’t flying around, or as active as they were, so in many ways, the money’s benefits were lost to them.
No, but the $500,000 income she is forfeiting by not working 5 more years probably is.
What about the $500,000 you left on the table by not continuing to work?
I am really not trying to be argumentative, I am really trying to understand.
But your examples are proving my point: most of the advice given totally ignores the income you would have gained ($500,000, in my hypothetical) had you worked 5 years longer.
mmm
