In US: Social Security 62 or 66?

In My Humble Opinion
1

I am looking for advice. You aren’t my financial advisor etc etc.
But I am still looking for advice… :slight_smile:
I am retiring soon and have to decide whether to take a reduced social security benefit (75%) at age 62 or wait until age 66 and take the full benefit. My personal situation is that I can pick either option.
Whenever I find advice on the subject, it is uniformly in favor of waiting. The argument is that over an entire lifetime, one receives more total $ if one waits. That is how the system is designed.

According to the Social Security Admin, the payments are designed such that the break-even point is around age 77. The exact age depends on the individual circumstances. It follows that the benefit only accrues to someone who lives longer than the break-even age. In my case, there is no spousal benefit (wiped out by the GPO).

My problem is properly accounting for the “opportunity cost” (if that is the correct term) of more in my early years of retirement vs more money in my later years. I simply haven't been able to reconcile the advice of the experts: give up the extra earned from age 62 to 66 so that when I am 15 years older I can collect an extra few thousand a year.

My inflation adjusted living expenses when I am 77 will likely be a) less than age 62 or, due to health b) far higher such that frankly an extra few K won’t make a difference.

So, I don’t understand the advice I read, why would anyone who has a choice wait until age 66 to start collecting SS? Can someone explain the reasoning behind the choice of waiting? Better yet, can someone explain the concept of “opportunity cost” or “present value” which I gather relate to this situation?

I hope I made my question clear. Thanks for any feedback.

2

I am not a financial adviser or any kind of financial expert. My experience with such things is solely based on selecting annuities for disabled personal injury plaintiffs (and the attendant financial considerations).

Most people your age are largely debt-free, so the time value of that money is reduced. If you have a large credit card balance at 13% (or whatever) it makes sense to take early retirement benefits because the amount of principal you’ll pay down with four earlier years of SS benefits more than offsets the larger checks you’ll get by not electing early retirement.

There is also the fact that most people who have the option* don’t need the money - but they might in four years. If you were in that position, it would make sense to wait and ensure you had a larger pot waiting for when you had a use for it. That’s especially true since you might outlive your other sources of retirement income.

Basically, if you are in poor health and have a lot of debt, take the money now. If you don’t, don’t.

*that is, people who are flat broke don’t ask if they should wait until 66. They need to put food on the table and pay the power bill today, not four years from now.

3

Are you definitely retiring? Working until 65 is obviously better financially than taking an early retirement. Retiring and just not taking any SS income for a few years probably does give you a net benefit too (if you live long enough), but it’s not as big a deal as continuing to work a bit longer.

4

A key question is, what’s your personal life expectancy? (Based on family history and your personal health.)

If nobody in your family lives past 80, and there’s no reason to think you’ll be any different, then start taking Social Security at age 62. If your parents are in their 90s and still active, and you’ve got every reason to believe you will be too at their age, then hold off as long as you can.

Up to your 70th birthday, that is, since the monthly payoff increases the longer you wait between 62 and 70, but doesn’t keep increasing if you wait past 70.

5

My business went broke a month before my 62nd birthday so I took the bennies available to me instead of fighting on with earning an income. But I had always said I was going to wait for 66 year old’s benefits.

6

Why delay collecting Social Security benefits? Because doing so results in a fatter check. This article compares the increased amount to a hypothetical annuity used to produce the same amount of income, and concludes that waiting is worth it.

7

Explain to your doctor why you want to know, and then ask him to give you a guess about your life expectancy.

FWIW, my mother’s doctor told me that you inherit your life expectancy from your mother, and these days, a person can expect to outlive their mother by about 5-10 years, assuming natural causes in both cases.

8

I’m waiting. My financial planner says to wait. For those who haven’t read the article (and you should) waiting gives you a return of well over 6%, which is pretty good these days. If you have investments making more than this, it might make sense to keep them and cash in SS first, but few of us do.
If you have a pile of 13% debt it might make sense to pay it off, but it would make more sense to not retire until you could pay it off.

9

I forget how stupid even a major newspaper like the New York Times can be at times. That piece is written as if its target audience is Lazarus Long: its discussion of the advantage of waiting is written as if you’re certain to get the resulting higher payoff - and not just for a handful of years, but indefinitely.

It never once notes that you will only get the higher payoff for a finite and limited number of years. Let alone the possibility that that period might be very short - or that you might not live to 70 at all.

10

According to Social Security, the median life expectancy of a 62 year old man is 19.81 years. A 62 year old woman can expect 22.65 more years.

So suppose you’re that median man.

Say you get $4000/year if you wait until 66. You get $3000/year (75%) if you don’t wait. If you don’t wait, you get 20 years of $3000 = $60,000. If you wait, you get 16 years of $4000 = $64,000.

Either way, you get $3000/year from age 66 to age 82, for $48,000.

If you wait, you get an additional $1000/year from age 66 to 82, but nothing before 66. If you don’t wait, you get $3000 each year between 62 and 66. That’s the real tradeoff right there: do you want $3000 each year over the next 4 years, or do you prefer $1000 each year in years 5-20?

Which is preferable? It’s a tough call. If you choose to start collecting at 62:

You get $3000 when you’re 62, instead of $1000 in each year from age 66-68.
You get another $3000 when you’re 63, instead of $1000 in each year from age 69-71.
You get another $3000 when you’re 64, instead of $1000 in each year from age 72-74.
You get another $3000 when you’re 65, instead of $1000 in each year from age 75-77.
But then you don’t get $1000 each year from age 78-81.

Or if you decide to wait, you get the first $12,000 that the early group gets, but you have wait an average of an extra 8 years for it, in order to get the extra $4000 spread over years 17-20.

I don’t think it’s at all obvious which alternative a rational man with median life expectancy should prefer.

Me, I’m planning on waiting because based on family history and personal lifestyle, my life expectancy is well above the median. So it really comes down to: what does the OP see his life expectancy as being?

About.com has a page with several different ways of estimating life expectancy.

11

We retired at 62 for a number of reasons:

  1. Work had become boredom and tedium.
  2. We were debt free.
  3. We wanted to spend more time together.
  4. We had a substantial nest egg in the bank, so a few thousand more over the next 20 years or so was not a factor.
  5. I retired from the military 20 years ago, so had medical coverage to fill the gap between 62 and 65.
  6. We wanted to live life on our terms and have more time to do what we wanted.

Numbers 1, 3, and 6 were the prime movers in all this. Numbers 2, 4, and 5 made it possible.

12

But did you take Social Security. The decision to retire and the decision to start getting benefits are somewhat independent.

13

If you plan to wait until you are 70 but die the day before your 70th birthday, you (and your family) get nothing.

If, at 62 you can afford to live without drawing it, you should at least consider what would happen if you take the money and sock it all into some moderately conservative investment. If you then start supplementing from that pool at 70, it pushes the break point out a little. If you die on the eve of your 70th, your family has the pool.

I’m leaning towards the 62 option because my mom died when she was 68 and I don’t have a healthy lifestyle.

What I am sure of is that anyone who gives you a definite answer without explaining the life expectancy assumptions is not someone you should listen to.

14

What, dad has zero input? That just doesn’t make any sense.

Especially since my mother suffered from a genetic disorder I simply didn’t inherit (autosomal dominant defect - I don’t have the disorder therefore I don’t have that gene).

15

Some traits are linked to one type of chromosome or the other. Y-linked traits can only be inherited from a father. Sounds like woo when discussing life expectancy, though, since so many variables are involved.

16

Yes, we did, because combined with a few other small retirement amounts, we didn’t have to touch what’s in the bank (and still haven’t).

17

Unfortunately, my Google-fu isn’t working today, because I know we’ve had exactly this discussion before.

Being 62 I’ve worked the numbers every different way I could, and anyone who tries to tell you there’s a one-size-fits-all answer is either ignorant or pushing some sort of agenda.

How much is your current income? What other sources of post-retirement income will you have? Would your Social Security payments push you into a higher tax bracket? How long do you expect to continue working? How much is your cushion in case you can’t continue to work? What kind of lifestyle do you expect to lead after you stop working?

In my case it makes far more sense to delay taking SS for as long as possible. In my wife’s case it made more sense for her to take it as early as possible. Of course my aunt just celebrated her 100th birthday and I have centenarians of both sides of my family. I expect to live long enough to bankrupt the entire system.

18

The articles I see on yahoo news are almost always in favor of waiting as long as possible. However I do not know the motives of those articles. Are they motivated by a sense that more money is always better, even if it means less freedom and worse health? It seems to be sometimes. Not everyone wants to work those extra 8 years just to have surplus cash in their 80s, and not everyone is able due to health or unemployment.

The break even point no matter when you take SS is the late 70s thru the early 80s. It varies, but that is roughly the age you break even between different SS claim ages. I’m pretty sure SS is calculated to offer the same amount of money no matter which one you pick and to match regular life expectancy, and I wonder if the formula will be readjusted to account for longer lifespans if/when we start seeing those (will the break even point be moved up to 85, etc). Some people who wait to 70 will die at 75, some will die at 95. I’m guessing the SS actuaries try to calculate things so that overall it doesn’t matter if people pick SS at 62, 66 or 70 it will cost the same to the government overall no matter what. It isn’t like the government is sitting around waiting for an opportunity to throw tens of thousands of dollars in rewards to self disciplined people who delay retirement. Most people will die within a few years of the break even point, and even though about 40-50% of people make it to age 80 only about 10-20% make it to 90. And despite all the medical advances we have, lifespan hasn’t budged much. If you have parents and relatives who lived a long time and are short on cash, I’d wait as long as possible for SS.

Also you have to factor in can you earn any interest on the money you take out earlier if you don’t need it for living expenses? If so, that skews the break even point even further down. In today’s economy investments are crap but in other periods you could get a few % in reasonably safe investments.

19

I’m 68, and I took it at 62. I’ve got health problems that I inherited from both sides of my family, so don’t think I’ll have an extra-long lifespan. And the extra cash has been nice to have. I’m an artist, and my income is extremely irregular. Some months I have no income at all, and that extra income saves the day. Other months add a little to my SS income throughout the future.

Actually, I had doubts I’d live even this long. You know the joke, if I thought I’d live this long, I would have taken better care of myself.

20

I actually tried to do some part-time work after I retired, during the 2010 census effort. After about three weeks, there was ample reminder as to why I quit working, and quit working for the government, in particular. They wanted me to be a supervisor for the final phase in one section of the city, which meant flogging people to get their paperwork in and being tied to many hours per week. I turned them down flat, and haven’t been tempted to work again since.