Could this be good reason for taking social security sooner than later?

D

Dennis K

New Member
Hypothetically:

You retire at 62 and your retirement income will only be a taxable retirement fund and social security whenever you opt to start it.
Now you have to look at your retirement fund in a different light. Prior to retirement you were adding shares to your account by making monthly contributions.
Now you have to remove shares you cannot replace, other than maybe some interest/dividend rollovers within your funds. When the markets is up you take out less shares to withdrawal the dollar amount you want. On a down market you have to take out more shares to maintain the same cash flow which can hurt a retirement fund if the down turn comes early in retirement and last a long time.

You want to maintain your life style and theoretically you think your fund can survive starting out at $8,000 a month before taxes. And that is the monthly amount you decide on.

Your social security at 62 will be $2,000. The question is, Do you take social security at the same time you start your withdrawals? Now you only need to take out $6,000 per month from your fund each month to start with. On an up market you left more shares in the fund to grow in value. On a down market you are still taking out more shares to maintain $6,000, but not as many had you been taking out $8,000. And a small tax advantage. At that amount of income you will paying taxes on your SS. But you only pay taxes on the first 85 percent of the SS amount vs. paying 100 percent if you took the $2,000 out of the retirement account.

I know there are other options available, but just think about in the terms stated above. Is there merit to this approach verses following the advice of the financial "experts" and holding off taking SS as long as possible. Please feel free to pick this theory apart.
 

If I needed $8,000 a month to make it, I think I should have paid off my house and all my other bills years ago. I set myself up in an environment I love and am doing what I like to do. I don't need to drain my investments. Guess I just can't relate to this kind of spending.
 
Deciding When to take SS is a total guessing game....the outcome to be determined by how long you live. Taking SS early results in reduced payments, but if you live long enough you can recover much more than you ever paid in. If you delay taking the benefits until they are maxed out....and you only live a few years after that, you will probably never get back what you paid in. Much depends upon your individual health and lifestyle, and the "longevity" in your DNA.

Personally, the wife and I signed up for benefits as soon as we were eligible. I know what I paid in over my working lifetime, and we have already received over double what I paid in...the wife was a homemaker. If we live as long as our parents did, we will probably receive 5 or 6 times what I paid in...even with interest. Therein lies the biggest problem with SS....in that many are living far longer than people used to years ago, and receiving benefits far beyond what they paid in.
 
OK, then hypothetically it is $4,000 a month and SS is $1,000 a month. Or it could be $2000 a month and social security is 500 a month.The numbers were examples, not actual values. The amounts have nothing to do with the question.
 
This question has nothing to do with the merits of maxing out your social security over your life time. This question relates to an option that could help decrease the chance of out living your money by increasing the life of your retirement account should the market go south for an extended period of time. And yes there is the option of annuities, but that is not part of equation in this example.
 
the real question is do you want to be more dependent on markets and interest rates for just 8 years if you delay from 62 to 70 or do you want to roll the dice forever .

if we file at 62 we will be pretty dependent on markets forever . but the 69% greater check at 70 plus colas drops our draw rate from 3.50% to 2% .

we really do not even need equity's to meet a 2% draw .

figuring spending down a balanced portfolio while delaying break even can run 22 years . but after that the roi grows quickly .

so much so that if even one of you in a couple makes it to age 90 you can see a real return of 5% . that beats what a balanced fund has averaged after inflation and you got it on what anounts to a guaranteed gov't bond .

you can also spend more day 1 by delaying . the bigger ss check will replace what you spent down the road .

you can spend more because unlike investing on your own which requires lots of dry powder for down years and sequence risk , ss has no sequence risk .

so we are delaying because as a couple we are more comfortable betting on the longevity of one of us vs betting on the outcomes of markets and rates .

ss is also taxed only 85% unlike our withdrawals from our portfolio . the bigger survivor benefit is another issue .

going to one ss check after a spouse dies and having to file taxes as single can suck
 
even having a pension and ss is a nice deal if you do not have to spend down assets .

all the decisions really stem from when you have to live off assets with little other income if you delay .

not everyone will have that choice . you need the assets to have choices . i don't like to see anyone have to commit more than 25% of assets to delaying .

but delaying does offer lots of advantages . the question should never be what if i die . dying has no issues , the real issue is what if you and your spouse live .

we would like to be as little dependent on the markets eventually as we can so fidelity has a new tool which is in house only, that optimizes your ss . it is not an on line tool .

for us it mapped out maximizing ss for the most spending and potentially greatest balance left .

my wife is 66 but she started collecting at 62 . she will stop her benefit now and let it grow until 70 . when she resumes at 70 i will be 68-10 months at which point i will get 1/2 her's using restricted application as file and suspend is off the table for us .

at 70 i will file for mine and she gets a 4500.00 adder to hers since 1/2 mine is more than her full .

that will maximize both spending and potentially if one of us even lives to 85 a bigger balance left .. we go from the 3.50% draw rate now off our portfolio to 2% once all the ss kicks in . that is a huge break in market depenency .
 
Well they are not HUGE pensions.. but nice... and for life.. Fortunately we both worked at a time when companies were still giving pensions.

We each have an annuity with a lifetime guaranteed monthly amount.. don't know if that's a good thing or not.. but that is for life too... no matter what the market does.. they are locked in.
 
we live in nyc (queens) so our yearly needs are pretty high . we have a 20k small pension coming in but everything else is all on us .

we had substainial real estate holdings in manhattan but sold them off the last 13 years . we don't want to be landlords and ill-liquid in retirement .

the one thing we wanted to keep were some commercial lease rights we held on the 200 central park south building . they were golden spinning off 25k a year for us in income .

but we only held a 10% stake in them and our senior partner wanted to sell . so he did and in one of nyc's biggest lease right sales ever he sold the leases to an investor group right before we retired .

i can't get anything close to that return after the taxes on the sale .

so basically we are looking to reduce our market dependency .

we already have enough invested in the markets so we will likely start laddering spia's to develop an income base .

one thing i want to mention is no one should ever buy an annuity before they max out delaying ss .

for the money you give up delaying you could never buy an inflation adjusted annuity anywhere like it for close to that price that is inflation adjusted ,passes to a spouse and pays out anywhere near the difference you get between taking it at 62 vs 70 . . delaying ss is the best value in annuity's -period .
 
here is a nice chart by michael kitces showing how spending down from a balanced fund and delaying ss compares to taking ss early .

as you see around 22 years in , delaying ss takes on a very powerful edge . by age 90 you can see a real return , that is after inflation , about 5% . that rivals a balanced fund in good times and yet has zero risk .

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mathjak107 said:
we live in nyc (queens) so our yearly needs are pretty high . we have a 20k small pension coming in but everything else is all on us .

we had substainial real estate holdings in manhattan but sold them off the last 13 years . we don't want to be landlords and ill-liquid in retirement .

the one thing we wanted to keep were some commercial lease rights we held on the 200 central park south building . they were golden spinning off 25k a year for us in income .

but we only held a 10% stake in them and our senior partner wanted to sell . so he did and in one of nyc's biggest lease right sales ever he sold the leases to an investor group right before we retired .

i can't get anything close to that return after the taxes on the sale .

so basically we are looking to reduce our market dependency .

we already have enough invested in the markets so we will likely start laddering spia's to develop an income base .

one thing i want to mention is no one should ever buy an annuity before they max out delaying ss .

for the money you give up delaying you could never buy an inflation adjusted annuity anywhere like it for close to that price that is inflation adjusted ,passes to a spouse and pays out anywhere near the difference you get between taking it at 62 vs 70 . . delaying ss is the best value in annuity's -period .
Click to expand...

Thanks for the chart.
 
I heard a guy say he wanted to take SS at 62, because if he died early he would never see any of it. I am sure if you think about it, you can see the flaw in that type of reasoning. And I like the thinking of not looking at when you will die, but how long you will live. There is a difference between the two. As long as your spouse is taken care of, if you have one, not much will matter after you die, so focus on living. As they say, the only certain things in life are death and taxes, and that starts becoming more relevant, the longer we live. Sad thing is, even after death, the government will be collecting taxes off of you.
 
those who do things based on what if i die generally find out they really should have planned around what if i live .

what if i live has the most ramifications if you are wrong .

you see folks buying the wrong products for the wrong reasons too . they buy whole life as a product for what if i live . that is product bought for dying . annuity's are a product based on what if i live .

so many times you see them buy whole life policy's for the cash value . that is the wrong thing to do .
 
Take SS early because the government will cancel or greatly reduce it, so you'll want to get yours now and be grand-fathered in to the higher benefits.

Does anybody believe the above?
 
ss is such an in grained part of american culture there is no doubt it will be fully funded when the time comes . as far as changes , yep there will always be some nudging along the way but usually you are grand fathered and given a time frame to do what it is you have to do . we saw that with the recent changes . if you were of age you could file and get what you wanted to get .

delaying is not an all or nothing . play it by ear , each year that goes by is another year of increases . if change is looming just file
 
I agree with the idea that this needs to be discussed with a financial planner that you trust. Until you talk to a person well-versed in the field who knows your specifics, this is entirely a guessing game. What the government is going to do with SS is also a guessing game. They spend our SS money to finance wars and other programs. Then they complain that we are running out of SS money. In a pig's eye. Everyone knows that the SS money they take from us should not be touched. But the government does what it wants, and the people who make those decisions, never have to deal with the consequences in their own personal lives.
 
the problem is there are few planners really versed in the 2nd half of the game -retirement . most planners know the first half okay , the accumulation stage but they are not up to date on current study's and thinking of modern day research .

most planners i know are old school and run on old myths and teachings .

it is really hard to find someone who really knows the decumulation stage .

i know i couldn't and i live in nyc . i learned on my own who the best academics in this field were and i learned all i could from them and their research papers .

nothing beats learning who the smart people are and learning on your own so at least you can identify whether or not a planner is well schooled in the 2nd half of the game .

as i learned more and more from the "smart people " my own views changed so much on a lot of things .

today i have very different views on planning with products like whole life , spia's , rising glide paths , and tax planning than i did just a few years ago
 
My husband and I have an excellent one. He is not old school. He's about forty. He made money for us even when the market went to crud. He's in Portland, Oregon. Contrary to the myth, NYC is not always better.
 
the 2nd half generally isn't primarily about making money . it is about laying the blocks in place early on for taking advantage of all the perks and avoiding all the pitfalls in retirement planning because so much is linked to taxable income in retirement .

had i known years ago what i know now my tax structure would be very different . i would certainly have done far more contributions to roths , over funded life policy's and planned better for aca subsidy's ,zero tax capital gains brackets , rmd's and would have avoided possibly getting our ss taxed by manipulating tax free sources of income . we got a 300% medicare premium increase because of poor timing selling an asset years earlier . quite a few planners were not even aware of the fact medicare goes back two years tax wise and even though you were not retired or on medicare you can get slammed if you time a sale wrong .

there is way way more involved in the 2nd half of the game then making money . the like's of an ed slott is quite rare . most planners can set you up in a portfolio , tell you about college planning and give you some info on retirement account types but most are not really well versed enough themselves .

it isn't their fault . they have been following the boomers all these years so the accumulation stage is what they know . but now that boomers are retiring this is all new territory to most of them . they only know what they were taught many years ago . a lot of which has been found not to be the best way .

the added problem is most americans are pretty financially ignorant themselves so they have no clue how good their planner is in these other areas until it is to late to correct what they did .

it is like we used to tease my friend about marrying a virgin . we told him he had the easiest job in the world because she never knew if he was good or bad ha ha ha
 
My point is that the investment guy we use knows about the kinds of things you are addressing and knows how to advise us. He uses a holistic approach. We didn't find this guy until eight years ago. Prior to that we followed bad advice. He's made a huge difference in how we approach things and how we have handled our retirement.

As for virgins, there's an old aeronautical acronym that to remember its substance, one recites, "True virgins make dull company, add whiskey." Grin.
 

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