In US: Social Security 62 or 66?

In My Humble Opinion
21

All I did was pass along what a doctor told me. Ask your own doctor to explain it to you, or refute it. My doctor didn’t say that every single person would live exactly that long, regardless of any recessive genetic disorders that might come into play, without leaving any wiggle room for someone who might come along with an anecdotal circumstance of their own.

He said your father has significantly less input, not the famous zero that is attributed to everyone who expresses an educated guideline.

22

thanks for all the comments!
It is good to see that I am not the only one wrestling with this.
The major factor is life expectancy, but not the only one.
There is the present value of the money, a dollar now is worth more to me than a dollar 20 years from now.
And also, I have to realize that SS is not an investment. If I pass away before the break-even point, there is nothing left behind, unlike an investment which will be there for others.

The clear goal is to maximize the income from SS. However, a dollar now is worth more than a dollar later. To make this decision, one has to be able to estimate that difference. And it is more than inflation, it is our health as well.

Tough problem and I am glad to see that I am not the only one puzzled by it.
Keep the comments coming-especially about present value of money and how to calculate it. :slight_smile:

23

But that will (sorta) be neutralized by the Cost of Living Escalator. Each year, there will be a (laughable) Cola, raising your monthly benefit by an amount approximately equal to the increase in your cable TV rates. It’s usually around 1-2 percent.

24

Remember that ANYONE could die tomorrow. I’d really like to see the stats on the number of people that die waiting to turn 66. I don’t care how healthy you and your life style are, hidden health problems have a way of arriving out of the blue. Remember Jim Fixx! Besides that bus may have your name on it.

Another thing. Let’s say you wait until 2020 to start collecting SS instead of starting in 2015. Those 2020 dollars are worth somewhat less than 2015 dollars. Even if you believe the CPI (the government published rate of inflation of 1%), your 2020 dollars are worth 5% less than the 2015 dollars. And do you really believe that the inflation rate is around one percent? Why don’t you go do some food shopping and stop for gas on the way home and tell me inflation is one percent.

25

That’s why I never jog. And I’m alive today. :stuck_out_tongue:

As noted you get 6% more each year you wait. Yes, if I had health problems I’d take it as soon as I retired, but I’m almost 63 and have been in the hospital exactly one night since I was born. And my father died at 95. I’ll take that risk.
You can’t judge inflation by gas prices. They’ve fallen 25 cents in the past six weeks or so, but that does not mean we are in a deflationary period.
I was around during times of real inflation, and this isn’t one of them. In 1980 we financed the guy who bought our house at 12.5% interest, and he was happy to get that rate. Just sayin’.

26

thanks. I understand that waiting is its own reward. :slight_smile: I don’t quite understand how to figure the “closed end” nature of SS into the calculation. If I invest a dollar at 6% interest-and then cash out, I at least get a dollar. If I invest in waiting for SS and cash out, we get nothing. Of course I am dead so I guess I don’t care, but still it is a difference between SS and an investment.

I agree with your estimate of inflation. Compared to periods of moderate (say early 90s) and high (late 70s early 80s) inflation, today’s inflation doesn’t compare. And while the COLA exists, it will never exceed inflation and usually will fall behind. I figure it simply reduces the effective inflation. And I have concluded inflation is a very personal thing. Some people who just have to have lots of beef for dinner experience a high inflation rate right now. Commuters are coming out ahead at the moment. So there are as many inflation rates as there are people.

27

It all depends on how long you will live, and how long your SO will live if you take the surviver benefit.

I’m close to making the choice and have been crunching the numbers - it looks like waiting until 66 will give me the most money overall assuming I live beyond 76. If I had reason to believe I would make it to 90, then waiting until 72 to start would best. The differences in monthly checks are huge.

My neighbor plans to work until he is 72, then start SS and take the full surviver benefit. He doesn’t expect to live much beyond 72 but this way, his wife will get the most out of it when he is gone.

28

Here you go.

To save you the trouble of clicking through, here’s the scoop:

Of every 100,000 males born, 80,729 will reach age 65, and 79,444 will reach age 66. So if you’re a guy celebrating his 65th birthday, you’ve got a ~1.4% chance of not celebrating your next one, all things being equal. (1 - (79444/80729).)

Of every 100,000 females born, 88,081 will reach age 65, and 87,182 will reach age 66. So if you’re a woman celebrating her 65th birthday, you’ve got a ~1.0% chance of not celebrating your next one, all things being equal.

Which is really not worth planning your life around. After all, if you’re 65, you’re gonna kick off sometime in the next few decades; there’s always a slight chance it will be tomorrow. It’s your personal odds on being around in 10, 20, 30 years that you need to consider.

29

The other issue is that with the SocSec payments between 62 and 66 they are reduced if you earn too much money.

30

Consider all your other life factors too - do you love or hate work, do you have something to retire to and how much will that cost, are you going to be able to use the money anyway, even if you do live to 90 how healthy and active will you be by then anyway …

There are probably no two people anywhere who have the same situation and would reach the same decision.

31

The increase in benefits from waiting is based on life expectancy figures for the population. We mostly know this better for ourselves - on average. If we suspect we won’t make it to 77 or whatever the age is it makes sense for us to start early. If we think we’ll make it beyond that, it makes sense to start later.

We just did an exercise about how much money we could expect if I retired now or waited until 65. They took it out to age 90, but if I thought I was going to die at 80 I could retire now and live it up with no worries. So any retirement decision depends at least in part how much longer you think you will live.

32

They ran two models for us - if I retired at 63 or at 65. Two years more earnings made a tremendous difference 20 years out. Lots of stuff makes a big difference - my wife still working, an injection of money from selling our house and moving someplace cheaper, and of course market conditions.

33

This.

If you still work and file for SS before full retirement age you get docked. For 2014 they’ll take $1 from your benefits for every $2 you earn above $15,480.
If you wait until full retirement age you’ll get full benefits and it doesn’t matter what you earn.

34

It is going to vary by income, race, educational status, gender, lifestyle, genetics, etc but here is a survival curve

http://www.cdc.gov/ophss/csels/dsepd/SS1978/Lesson4/images/Figure4.17.jpg

About 90% of people survive to age 60. About 80% make it to 70. About 50% make it to 80. About 20% make it to 90. About 5% make it to 95.

So if 80 is about the break even point, then roughly 40% of people who are old enough to qualify for SS (meaning they hit 62) will die before the break even point at 80. Another 50% will live past the break even point, but over half will die within 10 years.

I believe 2/3 of people in their 80s are women. About 3/4 of people in their 90s are women. So if you are a man and all your relatives died in their 70s and 80s (like mine did), its probably best to take it at 62 and enjoy your freedom.

At the same time, life expectancy gaps between college educated people vs. high school or less keeps growing. So more education implies a longer life.

To me though, I don’t know if it matters. Even in a best case scenario you may get an extra 10-15 years where you come out ahead financially by waiting until 66-70, most people will more or less break even within a 10 year window of age 80.

This all assumes no advances in cell biology that drastically increase lifespan over the next 50 years. If we get those, the entire retirement system has to be rethought.

35

“So if 80 is about the break even point, then roughly 40% of people who are old enough to qualify for SS (meaning they hit 62) will die before the break even point at 80. Another 50% will live past the break even point, but over half will die within 10 years.”

"This.

If you still work and file for SS before full retirement age you get docked. For 2014 they’ll take $1 from your benefits for every $2 you earn above $15,480.
If you wait until full retirement age you’ll get full benefits and it doesn’t matter what you earn."

It seems these are the two key points.
Certainly it makes no sense to take SS if one is still working. I assume, but do not know, if the spouse is working and we file jointly, that is the same as if I worked.

According to Wesley Clark’s link, there is a 40% chance that I will not live to 80.

I think these are the key variables.

36

Let’s put some numbers to this. I’ll use $15,000 at age 62 and $20,000 at age 66. To keep it simple, I’ll assume one lump sum at the end of the year.

First let’s do the break-even point for money received. If you start collecting $15k per year at 62, in 16 years, at age 78, you will have collected $240,000. If you get $20k annually at 66, in 12 years, at age 78, you will have received $240,000. So, the break-even point is 78 years old (which is really age 79 if you consider the payments a lump sum at the end of each year).

Let’s do it another way (which is why I love math, you can do problems multiple ways and get the same result). Collecting $15k at age 62 will give you $60,000 by the time you hit age 66. Subtracting $5,000 from that per year will make it last 12 more years, until age 78.

Opportunity Cost

Idle money can make money by putting it in investments. I’m not sure what interest rates you can find at the moment, but I know I’m paying 4% on a car loan and I know people that are paying less. So, unless you put your money into risky investments, you won’t get that rate.

Let’s say you can get a 2% annual return.

Starting to collect at age 62, you’ll have $60,000 at age 66, plus the interest you’ve collected on the money. That’s 2% on $15k for 4 years, another 2% on $15k for 3 years, etc., plus interest on the interest. So after 4 years, with interest you’ll have $63,060 ($3060 is interest).

Now, to equal the $20k you would have gotten if you waited until age 66, take $5,000 out of your bank every year, and add the interest to the remainder. So, ($63,060 – $5000) *1.02 = $59,221 left in the bank at age 67. I’m sure there is some calculusy way to figure this out using integrals and limits and other such nonsense, but you can also brute force it (which is the method I used). It comes out by age 80, you have $1,740 left in your bank.

So, investing your money at 2% interest will push the break-even point out another 2 and a third years, to 80⅓.

COLA

A few posters mentioned COLA, which I assume stands for Cost of Living Adjustment. So I will throw that into the mix.

If you start collecting early, you’ll get the COLA on the $15,000, but not on the extra $5,000 that would get the COLA if you started collecting at age 66. So, to add that into the equation, instead of withdrawing $5,000 each year after age 66, withdraw the COLA adjusted amount. For example, if the COLA rate were 1%, subtract $5,203 from the first year (4 years of COLA), $5,255 the second year, etc.

I didn’t do the calculations, but it should make the break-even point land somewhere between 78 and 80.

Other posters have listed all the other advantages and disadvantages that I can think of. If you want to be on the safe side, wait to start collecting if you have the choice. If you kick off early, you won’t have to live with the mistake you made.

37

Forget the math. This is it. Unless you desperately need the money before 66 (in which case the investment calculations are irrelevant) the psychological costs of dying before 78 and thus losing out are 0, while the costs of living beyond 78 and recognizing you made the wrong decision are > 0. Plus the costs of worrying that you are going to lose out even before you hit 78.

38

Good point. :slight_smile:

39

I disagree. You’re assuming a step function in the psychological utility of getting the money early, where the utility drops from way up there if you desperately need it, to zero if you could really use it but can squeak by without it.

But if that extra $60,000 over four years early on makes the difference between squeaking by, watching every penny, to having a little breathing room to actually enjoy life rather than merely surviving, then the utility of the early money is pretty great.

I can’t say what the slope of the utility curve looks like as your need for the money diminishes, but it’s not vertical.

40

The post I responded to mentioned “if you had a choice.” I agree that watching every penny without it isn’t much of a choice. And I’ve already said that if you have good reason to believe you won’t make it to the break even point take the money as early as possible.
The only utility cliff I was assuming was when you were dead.