Menu

Delaying Social Security when retiring early

Home Retirement Accounts Delaying Social Security when retiring early

  • Avatar Ally 
    Participant
    Status: Accountant
    Posts: 3
    Joined: 01/12/2016

    I’ve been trying to research this for my parents and I think I got it.  But would feel better if I got confirmation from this crowd:

    Background:

    • Retiring at age 62 (and will have no wage income once retired)
    • Options – start SS at age 62, waiting till full retirement age of 66, or waiting till 70
    • Only have 15 working years
    • Working till 66 is not an option
    • Assume long life expectancy
    • Have other sources of income, if waiting till 66 or 70

    The main question is:  Does the SS benefit increase if wait to claim benefits until age 66 (and not working at all between 62 and 66)?  

    I think it does, roughly 8% a year.  In which case, given the circumstances above, it makes sense to wait till at least 66 to lock in a ~25% increase in benefits.

    If not, then it doesn’t make sense at all to wait and start claiming at 62.

    Appreciate the feedback!

    #189845 Reply
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 5939
    Joined: 01/12/2016

    Its basically as you describe, the increase is substantial for waiting so if they can they should do it. I’d check Mike Pipers site to be sure as things might have changed but was the thrust of his talk, though I dont pay too much attention to SS since its way off for me.

    #189848 Reply
    Avatar JBME 
    Participant
    Status: Spouse
    Posts: 457
    Joined: 03/26/2018

    I think you’re thinking about this the wrong way. You get 100% of your promised benefit if you retire at full retirement age, which today is 66 years and 2 months. If you take the benefit later you’ll have a permanent increase in benefits, roughly 8% each year you delay up until age 70. On the other hand, if you take it at 62, you’ll be heavily penalized for taking it early. It’s not that you are rewarded for taking the benefit at age 66 vs age 62. It’s that you are penalized if you take it at age 62. Sounds like they have the means and unless there’s a family history of illness or dying relatively early in low or mid 70s they should delay until age 70

    #189853 Reply
    Liked by ENT Doc
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3989
    Joined: 01/08/2016
    Assume long life expectancy

    Click to expand…

    then you come out ahead waiting till 70.

    #189856 Reply
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1793
    Joined: 02/01/2016

    Before FRA your benefit is reduced 5/9 percent/month up to 36 months and then 5/12 percent/month. Your benefit is increased 8/12 percent/month after FRA.

    It is generally a good idea to try to get your average indexed monthly earnings (AIME) from your 35 highest indexed years at least to the second bend point (2019 = $5583). Are those 15 years your only income years or just your high income attending years?

    You need to have >= ~$17.5 years of only SS maximum wage base (MWB) years to reach the second bend point. However, in your case if you have a total of all years prior to attending >= ~$2.5 years of the MWB and 15 years >= the MWB, that is equivalent.

    #189867 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2627
    Joined: 09/18/2018

    The social security has an individual signup site.
    Each parent can setup their own login. Based on their own earnings history and age, the numbers for each are available at the different ages.
    1) Assuming normal life expectancy, delaying every month possible until the month turning 70 will benefit.
    The increases exceed the foregone payment.
    2) With two parents, things like spousal benefits and survivor benefits come into play. That gets complicated based on FRA and whether the other spouse has already filed.

    #189876 Reply
    Liked by Craigy
    Avatar Anne 
    Participant
    Status: Physician
    Posts: 1067
    Joined: 11/07/2017

    Also, you said parents (plural) so if there are two of them they need to consider the spousal benefit.  Unlike the primary recipient, there is no increase in the spousal benefit for delaying past full retirement age (there is a penalty for taking it earlier).  If both parents are eligible for SSI the spousal benefit only makes up the difference between the lower paid spouse’s benefit and 50% of the higher paid spouse’s benefit.

    I think this is confusing but don’t know how to write this more clearly.  My personal experience with this is that my parents don’t like taking advice from me because they like to think there’s no way I could know more than they do about these topics–I think it’s what Dave Ramey calls the powdered butt syndrome.  They did get good guidance from the rep at the social security office who walked them through all their options and they decided to do exactly what I thought they should do.  This may be office location dependent, but the employee at theirs really took the time to explain everything well to them–they didn’t advise them what to do, just explained the facts, which is all they needed to make a good decision.

    #189877 Reply
    Liked by Zaphod, Lordosis
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2627
    Joined: 09/18/2018

    The drawback is the spouse has to file as well. Thus forfeits the increases being earned.
    So for 1/2 of the partner, both take less than desired.

    #189881 Reply
    Faithful Steward Faithful Steward 
    Participant
    Status: Financial Advisor, Small Business Owner
    Posts: 439
    Joined: 06/12/2017
    The main question is:  Does the SS benefit increase if wait to claim benefits until age 66 (and not working at all between 62 and 66)?   I think it does, roughly 8% a year.  In which case, given the circumstances above, it makes sense to wait till at least 66 to lock in a ~25% increase in benefits. If not, then it doesn’t make sense at all to wait and start claiming at 62.

    Click to expand…

    Between 62 and 66 (assuming age 66 is your Social Security full retirement age) does not get you the 8% per year increase for delaying the start of benefits. That only kicks in between your Social Security full retirement age and age 70.

    However, delaying until age 66 (again, assuming age 66 is your Social Security full retirement age) allows you to avoid the reduction in benefits for filing before your full retirement age. At age 62, the reduction of your benefits at age could be as much as 25%.

    Michael Peterson, CFP® | Faithful Steward Wealth Advisors
    https://ProsperousPhysician.com | (717) 496-0900

    #189891 Reply
    Avatar G 
    Participant
    Status: Physician, Small Business Owner
    Posts: 1662
    Joined: 01/08/2016
    Splash Refinancing Bonus

    1) I forget that retiring “early” means significantly different things to different people.

    2) As others have suggested, Mike Piper has a great calculator.

    3) If long life expectancy, delaying is going to offer the most financial benefit.

    #189928 Reply
    IntensiveCareBear IntensiveCareBear 
    Participant
    Status: Physician
    Posts: 221
    Joined: 12/22/2018

    Try the calculator… and guess how long you plan to live. It is like the most macabre carnival game ever! Bwahahaha.

    The other side of the coin is how good you are at investing. Remember, the calculator assumes no growth on the money. Six years of payments with compounded interest really adds up fast for the early taker versus the delayed taker getting six years of nothing but higher annual payments later. You guys know how this stuff works. Besides, we are not talking about a 25 year old versus a 29 year old here, neither of whom is going to have a MI or CVA or broken hip. lol. If you can get even 5% compounded on the SS money (plust 3% inflation), it makes better sense to take SS payments asap based on that reason alone than to shudder at the 8% bonus/penalty for early/late takers.

    Personally, despite being at my ideal weight with no risk factors and great family health and longevity, I’m taking social security payments ASAP and investing it… or just enjoying it if I have plenty of passive investment income already. I have no crystal ball saying how many good years I have, and I can say with relative certainty, based on what I do every day and from watching my elderly family members, that QOL, mobility, and expenses will decrease exponentially after around age 70-85 (depending on how someone takes care of themself). Even if I can travel until 90, walk well until 95, and live until 99, I, or my heirs, will most likely come out ahead taking payments early.

    …. If long life expectancy, delaying is going to offer the most financial benefit…

    Click to expand…

    Um, yes. I would think that would be obvious carrot on the stick they are aiming for.

    "Hmm, that sounds risky." - motto of the middle class

    #189944 Reply
    Avatar StateOfMyHead 
    Participant
    Status: Advanced Practice Provider
    Posts: 96
    Joined: 01/01/2019

    Try the calculator… and guess how long you plan to live. It is like the most macabre carnival game ever! Bwahahaha.

    The other side of the coin is how good you are at investing. Remember, the calculator assumes no growth on the money. Six years of payments with compounded interest really adds up fast for the early taker versus the delayed taker getting six years of nothing but higher annual payments later. You guys know how this stuff works. Besides, we are not talking about a 25 year old versus a 29 year old here, neither of whom is going to have a MI or CVA or broken hip. lol. If you can get even 5% compounded on the SS money (plust 3% inflation), it makes better sense to take SS payments asap based on that reason alone than to shudder at the 8% bonus/penalty for early/late takers.

    Personally, despite being at my ideal weight with no risk factors and great family health and longevity, I’m taking social security payments ASAP and investing it… or just enjoying it if I have plenty of passive investment income already. I have no crystal ball saying how many good years I have, and I can say with relative certainty, based on what I do every day and from watching my elderly family members, that QOL, mobility, and expenses will decrease exponentially after around age 70-85 (depending on how someone takes care of themself). Even if I can travel until 90, walk well until 95, and live until 99, I, or my heirs, will most likely come out ahead taking payments early.

     

    Click to expand…

    This is my strategy as well. On the most rudimentary level if a group of highly educated someones in the government have crunched the numbers of all possible scenarios and they are offering what appears to be a bonus for waiting I’m skeptical that most will live long enough to make that the winning choice. I have no plans to get anything more than palliative care and regardless of how long I live if I am healthy what I can count on is my world getting exponentially smaller particularly if I live into my 80s. I’d like to spend the majority of my money on experiences prior to that and with no heirs to consider except my spouse and favorite charities I’m comfortable with that strategy.

    #196916 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2627
    Joined: 09/18/2018

    @stateofmyhead,
    Actuarial science used for the mortality tables is actually purely a computation. The data and formula are not secrets. Actually, some risk organizations update more frequently. The increases are set and haven’t changed. The only variables are your earnings history and your age. It is not like “underwriting”, it’s math.
    Benefit formulas haven’t changed. But I digress.

    The concern is not “highly educated someone’s crunching numbers.” According to Twitter (highly reliably), a group seems to favor spending a lot of government money (yours) for “worthy causes”. Math and facts don’t matter and since the world is going to end in 12 years it won’t matter.

    Math is fine, it’s Congress that doesn’t compute.

    #197226 Reply
    Liked by StateOfMyHead
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3989
    Joined: 01/08/2016

    definitely use Mike Pipers calc:

    http://opensocialsecurity.com/

     

    the point isnt to pick the most perfect scenario. its to avoid the really bad ones.

    #197286 Reply
    Avatar StateOfMyHead 
    Participant
    Status: Advanced Practice Provider
    Posts: 96
    Joined: 01/01/2019

     

    definitely use Mike Pipers calc:

    http://opensocialsecurity.com/

     

    the point isnt to pick the most perfect scenario. its to avoid the really bad ones.

    Click to expand…

    I like it. Is the book any good?

    #197360 Reply
    Liked by Vagabond MD

Reply To: Delaying Social Security when retiring early

In case of a glitch or error, please save your text elsewhere, clear browser cache, close browser, open browser and refresh the page.

Notifications Mark all as read  |  Clear