By Dr. Jim Dahle, WCI FounderAs a general rule, you should take Social Security as late as possible. There are two main exceptions. The first is if you are likely to die soon. The second is if you are married to someone who is expecting a higher Social Security benefit.
Yet I keep running into articles that suggest you should take Social Security early. They're usually full of flawed thinking and outright errors. This one came from Michael Keenan on MSN. To make matters worse, it was one of those clickbaity slide shows designed to increase page views and sell more ads. I'll save you time and summarize Michael's arguments. Then, we'll take them one by one and debunk them as much as possible.
- You're planning your end-of-life care.
- You have a shorter life expectancy.
- You need to pay down debt.
- You can't work anymore.
- You're only working part-time.
- No one else is relying on your benefits.
- You already have your 35 highest-earning years.
- You expect your investments to grow faster than the increased benefit.
- You want to start a business.
- You're concerned Social Security will disappear.
Yes, those are seriously his arguments. Let's debunk them.
#1 You're Planning Your End of Life Care
I mentioned above that if you expect to die soon, you might as well take your Social Security early (assuming you're not married and leaving behind a spouse who could really benefit from you having a higher death benefit). So sure, if you're on hospice, go ahead and take your Social Security.
#2 You Have a Shorter Life Expectancy
Only had nine things on your list, huh, Michael? Sounds like the editor made you repeat one so you could have a more clickbaity list of 10. This is the same as the last one. Yes, if you're going to die soon, you might as well take your Social Security. Not that it really matters for you, though, since by virtue of your early death, you are very unlikely to run out of money. But your heirs may appreciate getting a little extra.
More information here:
8 Things You Must Know About Social Security
The Consequences of Ignoring Social Security
#3 You Need to Pay Down Debt
Wow. Well, I guess it can be true. If you've got a bunch of 29% credit card debt that you plan to pay off, that could be worth giving up the long-term value of having a larger Social Security benefit. But just a little debt, or a 3.5% mortgage? No way. If you have enough debt that it would be a good idea to take Social Security early to pay it, you're probably not going to be paying off the debt anyway. Hopefully, it's unsecured.
#4 You Can't Work Anymore
What? Now, Social Security is like disability insurance or something? Not being able to work or not working by choice is certainly not an excuse to take Social Security early. At that point, the question is: do you live off your savings and delay Social Security, or do you take Social Security and let your savings grow? The right answer here is to delay Social Security. Now, if you have no savings and you cannot work and your alternative is to starve to death before you ever get to age 70, then sure, you'll have to take Social Security early. Like many Americans, you have failed at the retirement savings game, and you are exactly the reason why we have a Social Security program. It's supposed to be a safety net, so folks like you don't have to eat Alpo and sleep in a cardboard box. Go ahead and take it early.
#5 You're Only Working Part-Time
Say what? This is not a reason to take Social Security early. If you're a very low earner, it might mean your Social Security is taxed less than it would be if you are working full-time, but that's not a reason to take it early. Even the author seems to agree with me. He writes:
“If you claim Social Security prior to your full retirement age while still holding down a part-time job, you might have your benefits reduced if your work income exceeds the annual limit. For 2021, if you are under full retirement age, your benefits go down by $1 for every $2 your income exceeds $18,960.”
In 2025, that cap is $23,400. That's a reason NOT to take Social Security early, not a reason TO take it.
#6 No One Else Is Relying on Your Benefits
No. Even if you're single, you should still try to delay Social Security. The only time this one is true is when combined with an actual good reason to delay, like a short life expectancy.
More information here:
What's the Best Age to Take Social Security?
#7 You Already Have Your 35 Highest-Earning Years
What? No. This might be a good reason to stop working, but it has absolutely nothing to do with whether you should take Social Security early. Additional work isn't going to increase your Social Security benefit, but delaying when you take that benefit still works exactly the same.
#8 You Expect Your Investments to Grow Faster Than the Increased Benefit
In some ways, this is not a bad reason to delay Social Security. But the truth is that if you expect your investments to grow faster than the increased benefit, you're 1) probably mistaken and 2) definitely not adjusting for risk.
Remember, delaying Social Security is a GUARANTEED investment. It should be compared to things like bonds, CDs, and high-yield savings accounts. It shouldn't be compared to risky investments like stocks, real estate, and small businesses. This is why you're better off spending the bonds in your portfolio and delaying Social Security. Both have similar risk, and Social Security has a better return.
Maybe it would be helpful to actually quantify the return you get from delaying Social Security. Luckily, one of the world's top Social Security gurus has already done this for us. Mike Piper argues that you should compare the expected return on TIPs to delaying Social Security to determine whether you should take Social Security early and invest or delay it. His argument is that TIPS are backed by the same government as Social Security, and both are indexed to inflation in the same way. Pretty good argument. To take it further, since delaying Social Security provides a better yield than TIPS do, you should delay Social Security.
Mike makes other good points, too. For example, he points out that tax-wise, you are generally better off delaying Social Security for a couple of reasons. First, it gives you more years to do Roth conversions before taking it. Second, you also have a larger amount of income in retirement which benefits from the fact that, at most, only 85% of it is taxable income. Plus, only 13 states tax Social Security benefits, which has a similar effect in making delaying more advantageous.
Mike also points out that the real benefit of Social Security is the insurance function it plays. It is the backstop. The risk is that you live a long time and outlive your money. Social Security defends against that risk. The larger the Social Security benefit, the better your defense. The risk isn't that you die early, because in that scenario, you don't run out of money.
Finally, Mike points out that the rate of return from delaying Social Security is NOT the commonly cited 8%. That's just how much your benefit goes up each year (and even that is actually 7.2%). But in order to get that, you also don't get Social Security benefits for that year. So, you can only really calculate the rate of return on delaying once you know how long you will live. You can work out what it would be for average life expectancies. If you live longer, it's higher. If you live a shorter time period, it's lower.
Let's look at what it would be for your life expectancy. For a male, Mike calculates a return of 1.8% + inflation. For a female, it's 3% + inflation. If inflation is 1%, that's a 2.8%-4% return. If inflation is 3%, that's a 4.8%-6% return. If inflation is 5%, that's a 6.8%-8% return. Remember, this is a risk-free return, and a risk-free 5%-6% IS AWESOME. You should take it. You're not going to out-invest that, at least not without taking on a whole lot more risk (leverage risk or market risk). If you're going to take Social Security early to invest, you had darn well better not have any bonds in your portfolio.
#9 You Want to Start a Business
This one plays a little bit on the last. The idea is that you're going to make so much money from a business that it will be a good investment that will provide a better return to you than the 5%-6% guaranteed that you'll get from delaying Social Security. But the same problem rears its ugly head—risk. It's risky to start a business. Most businesses don't provide an awesome return. In fact, 20% of new businesses fail within two years, and 65% fail within 10 years. And that's for normal, healthy, young, hard-working folks starting businesses, not people starting businesses at age 62. Besides, most businesses don't actually have any value. They're just people creating a job for themselves. Giving up tens of thousands of dollars in future income to invest in a business that will have no actual value when you're done working is a terrible trade-off.
This one is true if you can somehow create a real business that makes lots of money and becomes valuable even without you and can be sold for lots of money. But that is such a small percentage of businesses started by people at age 62 that I think this is a terrible reason to take Social Security early. Again, don't you have any other money you can use to start the business? If not, what makes you think you have the business mind and drive it will take to create a successful business in your 60s?
More information here:
5 Reasons to Not Give Up on Social Security
#10 You're Concerned Social Security Will Disappear
Yes, if Social Security went completely kaput, you would be better off getting whatever you could from it before it does. But let's consider the likelihood of that happening so you can understand why this is a non-concern. If no changes are made to Social Security, the Social Security Trust Fund will run out of money at some point in the next decade or so. What does that mean? Does that mean Social Security benefits go away completely? No. That means they'll be cut to about 77% of what they are supposed to be. Seventy-seven percent of a higher amount is better than 77% of a lower amount. Delaying still works out better.
Besides, I want you to point out to me the 51 US senators who are going to abolish Social Security. Go ahead. Name them. That's what I thought. Maybe you can come up with a handful. But that's it. It's an incredibly popular program. It should be. It always has been. Go back to 1935 when it was created. What was the vote total in the Senate? Sixty of 69 Democrats voted for it, and only one voted against it; 16 of 25 Republicans voted for it, and only five voted against it. Over 90% of representatives in the House voted for it, too. Those are veto-proof majorities.
Even if it were changed for younger people, older people would be grandfathered in. Democrats like it. Republicans like it. Old people like it (and they vote!). Young people like it. Trust me when I say it's political suicide to try to get rid of it. You might not like it, but guess what? You're in a pretty lonely camp.
Unlike Medicare, Social Security's problems are pretty easily fixed. You simply do one or more of the following:
- Increase the wage limit on the tax
- Increase the tax percentage
- Decrease the inflation adjustment
- Delay the age at which you can take Social Security
Voila! The problem is fixed. Not complicated. When Congress has to do it, it'll do it. Social Security isn't going anywhere. If you are taking the money because you're worried it is, you're making a mistake.
Now, there are a fair number of Americans who actually should take Social Security early. There are a lot of people in poor health in their 60s. There are also a lot of people who failed the retirement savings game, and they can no longer work. But among the readers of this blog—who presumably have not failed at the retirement savings game and, by virtue of their health-related knowledge and wealth, are likely in better health—it is a very small percentage who should take Social Security early. You're probably not in it.
If you need extra help with planning for retirement or have questions about the best way to save your money, hire a WCI-vetted professional today.
What do you think are the reasons for taking Social Security early? Do you agree or disagree with my arguments that most in the WCI community should delay taking it? Why or why not?
[This updated post was originally published in 2022.]
Thanks for your article!
As I see it, there are two main advantages of delaying claiming Social Security benefits until age 70.
The first, which you have touched upon, is that it is longevity insurance. Sure. You could die before you get as much money out of Social Security as you would have if you claimed early. But…what if you don’t? What if you live an extra 10 or 20 years after the breakeven point?
The second advantage is that it is inflation insurance. Social Security benefits are Cost-of-Living adjusted. My husband and I both have pensions. Those pensions are, for the most part, not adjusted for inflation. When I finally claim my Social Security benefits later this year at age 70, they will be barely half the amount of my pension. However, with significant inflation over time, they will exceed the annual amount of my pension. It is essential, in an inflationary environment, to have benefits which are Cost-of-Living adjusted.
Keep up the good work!
From SSA.GOV – “You can get Social Security retirement benefits and work at the same time. However, if you are younger than full retirement age and make more than the yearly earnings limit, we will reduce your benefit. Starting with the month you reach full retirement age, we will not reduce your benefits no matter how much you earn. We use the following earnings limits to reduce your benefits: If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2022 that limit is $19,560…Starting with the month you reach full retirement age, you can get your benefits with no limit on your earnings.”
For a retired doctor who can make quite a bit of $$ per hour doing a bit of post-retirement work, the reduction in benefits for working is disincentive. Imagine doing one day a week at a clinic for $80,000 a year (with malpractice provided by the employer) and then having the “gubment” deduct $1 from your benefit for every two dollars you earn above $20K. That’s $60K extra in this example, so you lose…30K… ~ your whole benefit. This assumes no expenses on the income. Let’s factor in $5000 worth of CME/mileage/dues/licenses. That’s still $75,000 less the $19,560 divided by 2 or about $28,000 in lost benefit.
I plan to work a bit in retirement. Why lock in a 25% lower benefit unless you are DND (darn near dead) or never going to work again at all. Who knows that? Things can change in retirement.
My dad took his SS money at age 62. He worked part time and when he saw them docking his benefit…he quit. He then got the (back then 80%) benefit until he died at at 79, having just “broken even” on this “deal”.
Why not just wait until you’re at FRA before taking SS if you’re still working? Seems like an easy solution you aren’t penalized for.
That was my point, mostly.
I will wait until FRA.
Great post! Mike Piper’s book on Social Security is a great source of information.
This is a great post. Mike Piper’s book on Social Security is very informative
There are many permutations with respect to the best time to take Social Security. There are some legitimate arguments to take Social Security later. There are a couple reasons in addition to your #1 & #2 to take benefits earlier.
1. Social Security Taxation of benefits. Social Security was supposed to be a tax free benefit because your contributions were federally taxed. In the mid 80’s, Congress decided to tax 50% of the Social Security benefits. In the early 90’s, they decided to tax up to 85% of the benefits. When the next crisis hits around 2030, will they increase to amount of benefits subject to taxation to 100%? No one knows for sure; but, it would be easy for Congress to “tax the rich” Social Security benefits at 100% above a certain income level. Taking it earlier ensures that those benefits received before any change are taxed at 85%
2. Lifestyle Issues. Many of us hope to travel and seek adventure in retirement. It may be easier to accomplish that with some extra income from Social Security. As we get older, travel and adventure are physically harder. It may become impossible. Although we may not die, we may become disabled and not be able to enjoy the extra income from the increased Social Security benefit. For some, it would be better to use the benefit earlier when they physically able to enjoy it more.
3. Roth Distribution Requirement. If delaying Social Security requires an individual to take distributions from a Roth account in order to pay expenses, then the calculation of advantage for delaying Social Security benefits changes dramatically. As WCI has pointed out, Roth dollars are worth more than non-Roth dollars and you want to preserve that advantage as long as possible. Once they are distributed, that advantage is lost.
Run Mike Piper’s free calculator to see how to maximize your Soc Security. The results may surprise you. For married couples with different earnings history, the results can be quite interesting. In my case, it made more sense for my lower earning spouse to take benefits early while letting my benefits compound. Then take Spousal benefits at age 70. This resulted in the highest total return while both spouses are still alive. Maximizes Survivor benefit. Soc Security benefits at Federal level preferentially taxed at 85%. No State (usually) or local taxation. Benefits are indexed to inflation whether you are taking them or not. The Earnings test only applies to the spouse taking his/her benefit, not based on the joint tax return.
I view Soc Security as a lifetime inflation-indexed guaranteed bond. Allows higher Stock exposure in my portfolio.
We put our numbers into the SS calculator. In order to maximize lifetime benefits, we were advised to wait until FRA for my lower earning spouse and to wait until age 70 for me as the higher earning spouse. So for now, that is our future plan.
As high income professionals who are supersavers, SS looks like a very small part of our retirement income. Just the same, as we get a bit older, we are realizing that we should continue to pursue a lot of international travel now, before we face any potential future health limitations. It is most likely that our discretionary spending will decline at an advanced age. Yes, our parents are in their 80’s and still going strong, but they are doing less far flung travel.
That’s what the calculator will show most of the time.
I agree with you about traveling now. I look at my parents in their 70s and I don’t see any way that they will ever be able to go on 90% of the trips I want to take.
Thanks Jim for another great post. Your consistent quality is super impressive. Wondering if you or one of your readers can help me out. I have a special needs son (25) on SSI. My understanding is that his benefit shoots up if we (I think an either/or regarding my wife and I?) take social security. So maybe a good exception to take early? BTW…I got my other son (23) reading your material and he doesn’t wear a white coat or make physician income yet but likely will in the future.
Thanks for your kind words.
I’m pretty sure Mike Piper’s book has a good chapter on this. You should buy it. It’s literally only $5.
This handout from the SSA may help:
https://www.ssa.gov/pubs/EN-05-10085.pdf
but I couldn’t find an answer to your question. I would direct it to Mike Piper at The Oblivious Investor if I were you. I’m confident he knows the answer.
Greetings, I did not join WCI until 2023 and I never saw this article and comment until now. I don’t know if it will get to you, but I wanted to respond.
If your child qualifies for SSI then he should automatically qualify for SSDI once you start taking social security. If you were at the upper income limits for social security wage base tax, SSDI will likely be significantly higher than SSI.
For my son it basically doubled.
Another “perk” is that after 2 years on SSDI, your child will qualify for Medicare. Depending on the state, it is debatable whether Medicare or Medicaid is better. In California, it is clearly preferable.
Hope that helps
Having disabled adult children (DAC) is a reason to consider taking social security early depending on their financial needs and health situation. Once a parent takes social security, the DAC can switch from SSI/Medicaid to SSDI/Medicare which means higher income typically, better insurance (most states still allow them to maintain their Medicaid benefits as well which are super important) and maybe most importantly, no more asset limits on their benefit money.
Other reasons to delay if you are still working.
Once you or spouse start SS you are automatically no longer eligible to contribute to an HSA. Since you get a tax deduction for those contributions, filing early increases your taxes.
If you collect SS during high income years, while still working, for example, you will pay a high tax rate on those payments. You will also reduce the amounts you would have been paid during lower tax years after retirement.
These two effects tilt towards later filing.
Like other effects, one needs to take all these into account to get the right answer. Great as Piper’s program is, it ignores tax effects and thus can give erroneous answers.
If someone drops from 37% to, say, 22% tax bracket, this can be a big difference.
“…lot of people who failed the retirement savings game”
I get the point you’re making here, and I get that this is a blog for high-income folks, but does this ever come off as super condescending toward people who are not as fortunate as us to make healthy incomes. I absolutely agree there are a lot of people with the means who absolutely are failing to save appropriately. But there are also millions of folks who make very low incomes, simply enough (or even at times not enough, that’s why we have assistance programs) to feed and house their families. These are often also people who work very difficult manual labor jobs and their bodies are worn down by the time they reach 60-65. To suggest that these people have ‘failed’ and that’s why they need social security just really…puts a bad taste in my mouth. Feels like a lack of empathy.
# 1 As you said, the target audience for this blog makes $200-500K. If you are one of the 11-12% of docs who get into their 60s and have a net worth (everything, not just retirement savings) under $500K, you HAVE failed the retirement savings game. Heck, if you’re one of the 25% of docs who get into their 60s with a net worth under $1 million you’ve also failed it. A high income is hardly a guarantee of the ability to save and build wealth, even if it does make it easier.
# 2 This blog provides a “safe space” for high earners to talk about their problems. You know, things like how to keep from losing a 7 figure nest egg to a malpractice lawsuit, how to do a Backdoor Roth IRA, how to solve an estate tax problem, and even whether to fly first class or get a NetJets subscription. There are literally thousands of good financial blogs out there aimed at “Everyday Joe”. How many good ones are out there aimed at high earners? I can certainly count them on two hands. Maybe one. So I’m not going to apologize for that approach. It’s the whole point of being here. It’s our mission. If you don’t like what we talk about on this blog, don’t read it. Free country and all that.
# 3 A middle class income is no excuse not to save. If you make $40K, $50K, $60K, $70K etc and get to retirement age with nothing, I’m sorry, you failed the retirement savings game. I got an email from a resident this week. He makes $60K. His wife doesn’t work for pay since she’s home taking care of FIVE kids. But you know what? They somehow managed to max out a 403b and two Roth IRAs every year of residency. It can be done. I’m sorry, it doesn’t sound very “nice” to say someone is living on Social Security because they never developed an interest or ability to save, but a large percentage of the time, it’s true. If you’ve read much of my writing, you know I’m not afraid to tell it like it is.
# 4 I have no problem with assistance programs for the truly poor and destitute. I’m also a huge fan of charity. I give more to charity every year than 95% of doctors earn. If you want to give me a hard time about being heartless, you should be required to post your Schedule A first.
# 5 Now, as far as the truly low earners. If they never made more money because they didn’t care to, were lazy, or didn’t have the discipline to better themselves or hold down a job, well, I’m sorry, they also failed the retirement savings game. They get what they get, and that’s Social Security. Probably at age 62. I recognize that there are a fair number of these people and I’m actually a fan of a national retirement savings solution that is bigger (and more costly) than Social Security but works in a similar way. I think people are just pretty financially illiterate and most are going to stay that way. Of course, there are a certain percentage of people who just had bad things happen to them. Maybe they’re not very smart. Maybe they became disabled. Maybe someone hurt them. I feel badly for them. And that’s why I pay every cent I owe in taxes and give a large amount to charity. Most of them will be on some type of assistance long before age 62.
# 6 While we’re at it, let’s talk about the rest of the planet. The average per capita income on this planet is about $10K. The average retired Social Security recipient gets $20K. Imagine how talking about how hard it is to live on Social Security sounds to that half of the planet? “But they live in the US, it costs more here.” Newsflash, you can still get Social Security while living in East Asia, Latin America, Africa etc. You’ll have more income than a large swath of the population there. So even the stuff talked about on “regular financial blogs” is just as tone deaf and condescending as what we talk about on this site to most of the planet’s inhabitants.
# 7 I deliberately use “shocking” phrases like “failed the retirement savings game” to jolt all these high earners reading my blog out of their comfortable lives and into one where they take their finances a little more seriously. Mr. Money Mustache does something similar using profanity. It’s part of the game of trying to be entertaining enough that people actually read what you write. Try not to be offended by it. As Brigham Young said, “He who takes offense when no offense is intended is a fool, he who takes offense when offense IS intended is a greater fool.” Take what you find useful on the site and leave the rest.
If you have an young eligible dependent, they will qualify for Half your social security until they graduate high school.
I like the Brigham Young quote. Here is another good quote by Elder David A. Bednar: “Being offended is a choice we make; it is not a condition inflicted or imposed upon us by someone or something else.”
Not to advertise for the competition, but does anyone know of another website that serves the WCI demographic? I have never encountered one.
I would be somewhat less judgmental about those who get to retirement age without enough money. Even docs can have bad things happen to them beyond their control. Most people are not good enough at school to ever get on the path to a medical education. Scholarships notwithstanding, many people are great students but cannot afford med school. Some have obligations that require them to enter the workforce out of high school or out of college.
Combine limited opportunities to get a high paying job and bad luck and many responsible people can end up in bad shape at retirement.
For those who make doctor incomes it takes a lot of bad luck to end up living on SS without screwing up their planning.
If you have an young eligible dependent, they will qualify for Half your social security until they graduate high school.
A few items of discussion. Life expectancy is now averaging 74-76 years, and that’s not always quality years at the end and sudden death! Most people would like to have several years when their physical condition allows travel, hobbies, grandchildren visits and the like, or that bucket list.
Social Security is constructed that you receive in benefits, over 12 years, what you and your employers have contributed to Social Security, without any dividends, interest, or capital gains. So if you want to get all your money back in benefits, many people need to start at age 62-64. If you live longer that age 76, then you have beaten the actuaries. Live less, and that’s money that stays in the US Treasury.
I’m not sure your life expectancy figure is correct. A 62 year old male has an average life expectancy of 20 years, so age 82. A 62 year old female has a life expectancy of 23 years, so age 85.
https://www.annuityadvantage.com/resources/life-expectancy-tables/
I’m also not sure your 12 year rule is actually accurate. Obviously, the later you take it the more you receive. So if it takes you 12 years to “get your money back” starting at 62, it’ll take less time if you start at 70.
Hi: I am a 60 year-old MD who plans to work for at least 10 more years, and so won’t take social security until 70. My wife is 57 and just retired. Her salary while working maxed out at ~ $90k, which is significantly less than my salary. Could you elaborate on the following comment from the top of this post “The second is if you are married to someone who is expecting a higher Social Security benefit.” What are the specific circumstances under which my wife may want to start taking social security payments sooner rather than later? Thx!
Hi: I am a 60 year-old MD who plans to work for at least 10 more years, and so won’t take social security until 70. My wife is 57 and just retired. Her salary while working maxed out at ~ $90k, which is significantly less than my salary. Could you elaborate on the following comment from the top of this post “The second is if you are married to someone who is expecting a higher Social Security benefit.” What are the specific circumstances under which my wife may want to start taking social security payments sooner rather than later? Thx!
Imagine her benefit is less than half of yours. She could start taking her benefit early and then switch to 1/2 of your benefit later after you file. It’s pretty common for two spouses to start taking benefits at different times, highest earner last.
Some clarification to the last statement. It is my understanding that if the younger spouse with a lower lifetime income starts taking her own SS benefits before her FRA, then the amount she receives will be subtracted from the 1/2 of your benefit when she switches over when you file for benefits at or after your FRA. That is, she will not get her full 1/2 when she qualifies if she filed before her FRA. It is very complicated and not very clear from the gov publications.
I’m not saying you’re wrong, but I’ve never heard of that happening. You know who would know the answer though? Mike Piper. He probably covers it in his book, which if I were in my 60s, I’d read before making this decision.
That is my understanding as well
If the lower earning spouse collects SS prior to FRA and switches to spousal benefits later, his/her spousal benefits will be permanently reduced. will request Mike Piper to comment
Thanks for the advice!
One factor that blows up the calculation but is rarely considered is “means testing”.
Means testing, as far as I know, does not apply to Social Security Retirement benefits. It does apply to SSI benefits.
I think John is referring to a commonly suggested Social Security funding solution of using means testing to limit eligibility for higher net worth individuals. The basic argument is that by reducing or eliminating benefits for those further from the SS safety net, you can increase benefits for lower income individuals closer to it while lowering outflows.
SS is already means tested. It is somewhat progressive in how the benefits are calculated and how they are taxed. It could become MORE means tested of course.
Nice article. I do wonder whether in a few years AI will displace a lot of workers and thus reduce their SS contributions. That would deplete the SS Trust fund faster, but there will be enough people affected that even a dysfunctional political system will try and find a solution.
I suspect most of those displaced, at least over time, will work in different fields and still pay into the SS trust fund. I don’t think this is a huge factor, but who knows? I guess time will tell.
As always, thank you for your clear, authoritative, and readable deep-dives into topics like this! And I hope you are on the mend and getting stronger each day!
As half of a two-physician couple entering retirement, with similar earnings histories and with ample (mostly tax-deferred) assets and with decent state and federal defined-benefit plans, I always assumed that we would defer social security as long as possible. However, when I used the calculators (e.g., Open Social Security) and model even conservative future investment returns, I am impressed by two things: 1) the model suggests that I start at 62 and that my spouse (who is female and a few years older) start at 70; and 2) my “universe” of all outcomes, irrespective of when I take social security, are within 1-2% of each other, in terms of present value of the lifetime benefit. This fits with Kitces’ assessment (7/8/2015) that delaying for both spouses is only beneficial if both live to age > 90 — and, actuarially, the odds of that for a pair of early/mid-60-somethings is only ~ 10%. Spouse and I are fit non-smokers but don’t have family histories of impressive longevity.
I don’t really *want* to take social security at 62 and I want to maximize my Roth-conversion space in early retirement (a benefit that’s admittedly hard to quantify) — but the impact there is modest relative to the (large) total dollar amount we plan to Roth-convert. So I feel kind of silly but I’m inclined to take mine at 62 and have my spouse delay until 70, like the models suggest.
Mostly, I’m impressed that the SSA program seems designed to be un-game-able — you always get the actuarially-appropriate pay-out.
Good for you for running the numbers. It can get a little weird for two earners.
Don’t forget the benefit of the guarantees though. If you die at 80, no big deal because you’re dead. If you die at 98, having that additional inflation adjusted annuity is really valuable.
If you reading this post and when you take social security is materially relevant to your finances you really screwed up.
At my current life stage, what car I buy is not materially relevant to my finances — yet I always try to get a good deal. A few thousand saved is a few thousand I can (mentally) commit to travel, dining out, donations, etc. Technically, it is not moving the needle. Just as how I could have it all managed by an advisor for six figures a year and never miss it. It still seems dumb to waste the money — that’s just how I was raised. I view trying to optimize the timing of social security as another example of that. YMMV.
It’s a fair point that for many WCIers SS is almost immaterial, especially if you retire prior to 55. But for many docs, that $40-75K a year is a substantial part of their retirement income. For 40% of American retirees, it’s the only income.
The question is when to take social security. Whatever delta that decision has on you finances is far smaller than the total SS payment.
I agree that delta is much lower. But if the whole thing isn’t that much percentage wise for pentamillionaires then the delta certainly isn’t.
Numbers 1-9 are all accurate and reasonable. As far as #10, it seems like we are living in a completely different reality. I think there is more than a 50% chance that SS is greatly reduced or disappears completely in the next few years, due to some form of Congressional action (I can name you 53 Senators who would vote to eliminate SS tomorrow if told to do so), legal action (I can easily see the current Supreme Court declaring the whole program unconstitutional), executive order, or just system failure due to budget cuts, incompetence of leadership, or some kind of poorly implemented AI.
Also confiscation is historically a real concern for many of us.
I have stopped using SS in any of my retirement calculations and will consider any benefits to be a bonus, which is probably a smart thing to do anyway if you are not depending on it.
There are not 53 senators who will vote to eliminate SS. Give me a break. Here’s my (Republican) senator:
https://www.curtis.senate.gov/press-releases/curtis-talks-fiscal-responsibility-doge-with-jake-tapper-on-cnn/#:~:text=The%20Senator%20notably%20called%20for,term%20sustainability%20for%20future%20generations.
The Senator notably called for a national conversation on mandatory spending programs like Social Security and Medicare, emphasizing the need for responsible reforms that safeguard benefits for current recipients while ensuring the programs’ long-term sustainability for future generations.
So that’s one Republican vote against totally killing SS. So which Democrat do you see voting for it?
I disagree it’s a smart thing to do but if you want to work 7 years longer than you have to, it’s your life.
#10, another option being discussed is means testing. Eliminating SS benefits for high income retirees is a real possibility.
It’s already means tested/progressive. It could become MORE means tested of course. But bear in mind changes need to go through Congress. It got through Congress originally because it looked more like a retirement plan for everyone than a tax.
Eliminating SS payouts for people with high AGI’s has been promoted by congressman in both political parties.
Anything is possible.
If you took everything that came out of a congressman’s mouth as likely you would be living an interesting life.
I mean anything can happen, but IMHO, if you act as if you’ll never get anything from SS you’re likely to end up underspending what you could have and/or oversaving/working longer than you wish. There are consequences to things like “I’m just assuming there won’t be any SS for me.”
I’ll be 62 soon and I will have children still in grade school. Can they receive social security benefits when I start claiming SS at 62?
No, I don’t think so. Those are survivor benefits, meaning you’ve got to die not just retire.
https://www.ssa.gov/survivor/eligibility
You might not want to claim at 62, most shouldn’t.
I’m not well versed on this topic but it seems taking SS at 70 requires a larger starting portfolio. Say I retire for 40yrs starting age 55 with a portfolio of $2M and $100k/yr expenses. My current SS estimate at 62yo is $30k/yr. Per Firecalc taking SS at 62yo I’d have 90% success rate and avg ending portfolio of $5.2M. Meanwhile SS at 70yo would be $53k/yr, but give me 84% success and $5.4M portfolio average ending. Thoughts?
Every calculator has a garbage in/garbage out problem. The smaller the portfolio, the more getting the when to take SS decision right becomes. So long as you have enough assets to cover you until 70, most of the time that’s going to be the right move. The guarantee has value. But I have no idea what assumptions went into your calculation. And taking it at 70 mostly won anyway.
I was gratified to see that Mike Piper’s calculator confirmed my own calculations.
My older non-working spouse does not qualify for SS based on their own work history.
Maximum lifetime benefit occurs if we both start taking SS when they reach their FRA (when they are
67).
The spousal benefit doesn’t increase beyond that and they can’t start taking their benefit until I take mine.
Alternatively, even if we take SS at the earliest opportunity (when I am 62) we would still be at 97.5% of maximum lifetime benefit.
Yes, for all the optimizing done around this point, the results aren’t that different if you don’t optimize.
My wife and I both waited to take SS until 70 years of age. I had a back fusion which ended my career at age 68 . Although my wife was a part time nurse, her benefit is not much less than mine, because of the nature of the tax. I am currently 78 and my wife is 76. I am exceptionally happy we waited to get the maximum., as together we get almost 100K/ year now, It was good to have SS when the stock marlkets struggled, and when inflation increased costs 20%. (SS indexed for inflation. ) We both have traveled and I finally gave up senior softball this year. Unless you think you won’t live past 82 (the aprox, break even point), or need the money for an urgent reason, I would advise to wait as long as you can for maximum benefit. And now there’s talk of not taxing SS. Most people underestimate how long they will live; the government calculates I have 18 more years! Unlike my retirement account, I know we will always have a SS check every month. Pay off all debt before retiring and wait ,if you can, to take your SS.