Delaying SS Benefits

[ns3]

Over on another forum I waded into a debate on whether or not it is a good idea to delay Social Security benefits or not. It was a mostly  unpleasant experience and I probably will never post there again (you can imagine what forum I'm talking about). Thought I would try it here and see what happens.

In my own situation, it's a matter of leaving about $72k worth of benefits on the table from age 68 to 70 in order to get a higher lifetime benefit for me and my spouse (who is 17 years younger). The "expert" advice is that it is always best to delay if possible and this was my thinking until I started looking more closely at the numbers. Even with an only 3% return above inflation on the PP I end up with a significantly bigger nest egg at the end of our combined life expectancy (a couple of hundred thousand actually).

I was told by the experts that this was a very foolish way of looking at it because SS is a guaranteed annuity and my 3% return is not. So here is my foolish reasoning and you can tell me what's wrong with it if you like (and I'm confident that the good folks here won't be as rude as they were in that other forum):

1.) It was pointed out that 90% of the experts say it is always better to delay if possible. Interestingly about the same percentage of people ignore that advice and take the money as soon as they can. So is this because they are stupid? I think maybe not. I think if you have attained the status of "expert" this means you probably already have more money than you need for retirement and it becomes a no-brainer, just another way of diversifying your investments. The other 90% of us non-experts have to weigh all the factors, which leads to...

2.) Before leaving $72k on the table to purchase a higher benefit, I would think that a prudent person would want to take a close look at the fine print in the annuity contract. If you do that with SS the first thing that jumps out at you is that there is no binding legal contract. Despite all our contributions over the years the supreme court has already made it clear that the government has no legal obligation to pay a single dime. The next thing to observe is that the program has a well known future funding problem. If nothing is done to solve it, it is estimated that benefits will have to be reduced by 25% and I have seen the projected date for this go from 2041 to 2033 in recent years. If a private annuity salesman told you that if you would forego $72k in payments right now for a higher benefit in two years but we can't guarantee to pay you at all and we currently think we will have to reduce it by 25% at a date we can't predict, would you take that deal? I think not.

I still have a couple of years to decide on this but that is my current thinking on the subject.

[barrett]

ns3, I waded into that same conversation but maybe I left before things got unpleasant. One thought that came to mind is that you have WAY more information about your situation than many of those posting on that thread simply because you are close to actually making the decision. Many of those arguing for or against delaying on that thread were "decades" away from actually having to make the decision. Also, many of the posters were single and not taking a spouse  into account (specifically one who is younger). I will be in a similar situation to you in ten years. My wife is eight years younger than I am and my benefit will be the larger of the two, so I have to factor in what is best for her.

I tend to think like you, meaning that those SS payments are in no way guaranteed. Plus - and I think this is important - you have already delayed taking the payments for several years if I am reading between the lines correctly. You've already shown restraint by waiting this long. Waiting an additional 24-30 months to take payments (at, say, a 16-20% increase in the monthly amount) doesn't sound like it's necessarily the best idea for you. If you take SS at 68, factor in that 72K AND the fact that you will have an extra 2 to 2 & 1/2 years of SS income,.... well I don't know your specific numbers but let's just say that you would have to live a long time to catch up. In fact it sounds like, according to your calculations, you never will.

This all being said, I think it is possible to find an "expert" to help you make the decision. It just seems like finding someone who is both competent and not trying to sell you something (take a look at this annuity) usually requires a few misses before you really connect with someone. Our daughter will start college in two years and it took us four tries to find someone good.

Good luck and I am sure others will weigh in. It sounds to me like you have two choices that are both pretty good.

[WildAboutHarry]

I "enjoyed" the thread on that other forum as well.

I will be 62 in November.  I will likely continue working past that point with a progressively more limited time commitment for a year or two, so I will not be starting SS at 62.  But as soon as I stop having earned income, I will probably start SS.

The primary benefit of delaying SS hinges on making it past the break-even point, and that is certainly not a sure thing (even though actuarially neutral, more or less).  Having those dollars in your hand as soon as possible is a sure thing.  Secondarily, having a larger SS benefit for a spouse is worthy of consideration.

I do agree that future payments are far from certain, although I suspect a payroll tax hike and benefits "adjustment" for those a decade or more from retirement is probably more likely than a benefits cut for current recipients.

I have Exceled this thing to death.  Waiting results in more money received, assuming you (or your spouse) are around to collect it.  But after-the-fact is the only way to really know what the optimum strategy was.

[Mountaineer]

ns3,

I retired from my paid job a while ago.  I went through a lot of mental gymnastics and calculations to determine when to take SS (for both me and my wife who did not contribute the required 40 quarters - her SS benefit is dependent on mine).  At the end of the day, I decided to take SS as soon as I became eligible (62) rather than defer to age 70.  It may not have been the optimum money wise but it has turned out to be "good enough" so far.  My reasoning was similar to the previous posters: a bird in the hand is worth two in the bush, who knew what future SS situation would be, the potential future increased SS amount was not absolutely necessary for our survival, and I thought I would sleep better at night knowing I have my money from my prior SS tax contributions coming in every month.  It was kind of like paying off my mortgage - maybe not the absolute best financial decision but overall, a very good decision for us after considering all the pros and cons.  Best wishes to you for whatever you decide to do.

... Mountaineer

[Stewardship]

In my own situation, it's a matter of leaving about $72k worth of benefits on the table from age 68 to 70 in order to get a higher lifetime benefit for me and my spouse (who is 17 years younger). The "expert" advice is that it is always best to delay if possible and this was my thinking until I started looking more closely at the numbers. Even with an only 3% return above inflation on the PP I end up with a significantly bigger nest egg at the end of our combined life expectancy (a couple of hundred thousand actually).

I was told by the experts that this was a very foolish way of looking at it because SS is a guaranteed annuity and my 3% return is not.

I would expect that the 3% expected real return from PP is a better guarantee than any government "guaranteed annuity."  So if the PP gives you the bigger nest egg, then I say go for it.

Or is there something I'm missing?  I'm 32 but I still find this an interesting discussion.

[WildAboutHarry]

[quote=Mountaineer]It was kind of like paying off my mortgage - maybe not the absolute best financial decision but overall, a very good decision for us after considering all the pros and cons. [/quote]

That is a great analogy for the social security decision. 

Note that a common theme on "that other forum" is "the enemy of a good plan is the search for the perfect plan" or some such.

And as Mattie Ross said, "Enough is as good as a feast."

[clacy]

Only you can really answer this question and I would certainly recommend not letting anyone on the other site cause you to lose sleep or make you feel stupid for taking it early.

There are a lot of factors to consider.

If you decide to take it early, do it and don't look back or second guess yourself.  If you're on this board (or the other) you're smart enough to make the decision (whichever you decide) and have reasoning behind it.

[ns3]

Thanks for the input everyone. Differences of opinion from the other forum are interesting but kind of predictable given the level of government mistrust here. It seems almost verboten to express such things over there.

Also agree that deciding whether or not to pay off the mortgage involves similar reasoning. I could pay mine off but I don't intend to so I would have to say that I'm a "bird in the hand" kind of person (no comments from Mountaineer on that one please). But for a fair comparison with SS I think you would also have to include the possibility that the mortgage company couldn't guarantee that the mortgage would be completely paid off.

Up until a couple of months ago I had never looked at SS any closer than the yearly statement. Now that I have I'm amazed at how complicated the damn thing is. With my wife being so much younger a lot of the file and suspend claiming strategies won't be available for us but there are still a lot of things to consider (and BTW, my wife claiming at 62 as early as possible also looks better to me than delaying).

Also, I don't think you can trust the calculators on the SS site. They don't give the same results as the statement and you can even get different results using different calculators. The only figure I'm confident in is the one they say I can get right NOW. At least I hope that is a correct one.

One good thing about waiting until your full retirement age (66 for me), appears to be that if you decide to delay at that time you have the option of changing your mind and taking a lump sum payment for the money you deferred. I think you used to also be able to change your mind if you filed early but you had to pay back the money. Not sure, but I think they may have closed down that option.

So if I'm still in doubt at 68 and the cash flow situation looks good (I might do some part-time consulting), I might decide to delay after all.

[moda0306]

For spouses, I would usually recommend the higher-benefit spouse deferring while the lower benefit takes early, as long as you have good health and a decent chunk of assets.

The higher check is essentially a "joint annuity" that will pay out until the latter spouse dies, so IMO it is good to defer that one.

[Alanw]

Several years ago I was looking at the same SS situation.  After plugging in the numbers every way possible, I deducted that if you were not earning over the SS minimum and you did not need SS to live on, it would be better to take it early and invest it in the PP or another investment of your choice and get a 5% (estimate) return.  I simply took the monthly SS payout at 62, 66, and 70 and invested each payment at a 5% return. The break even point reached the late 80's in age. I figured if I was lucky enough to live that long, I wouldn't physically be able to spend the money then on the things I enjoy spending it on now so taking it early made sense.  Of course if you are earning more than the SS minimum or have spousal considerations, then you may reach a different conclusion.  All of this is subject to continued SS payouts at current rates and the 5% yield on your investments. We will never know which way is best until after the fact.

[Mountaineer]

I have tremendous respect for the collective wisdom of the people on this forum. However, an intelligent person likes to hear the opinions of as many smart people as possible to take into account ideas that were potentially overlooked. You don't have to agree with any or all of those other opinions, but they still might provide value to the overall thought process.

Because of this, I find it extremely frustrating when posters here refer to a "discussion on another forum" but refuse to provide a direct link to that conversation, regardless of their opinion of the comments there. That should be left to other members here to determine which of those comments are worth reading. I think reading that thread 'over there' would help the 'better' discussion 'over here' as we could all see and understand all of the different points of view. Just my .02

And if someone could provide that link, I would still appreciate it. Thanks.

You make a great point.

You could start here:  http://www.bogleheads.org/wiki/Social_Security  and then look at the various links or search the forum for specifics.

... Mountaineer

[Libertarian666]

I have the same issue but possibly with more urgency (in some ways). I'm currently planning to start collecting next year, the year in which I reach full retirement age. The argument for delay is the effective joint & survivor benefit, which would benefit my wife if I predecease her (as the actuarial tables indicate is likely). The arguments against delay include those already mentioned, e.g., lack of guarantees as to future payment levels. I also don't consider it prudent to assume that the current policy of paying SS benefits without regard to net worth will continue.

[WildAboutHarry]

[quote=ns3]Also, I don't think you can trust the calculators on the SS site. They don't give the same results as the statement and you can even get different results using different calculators. The only figure I'm confident in is the one they say I can get right NOW. At least I hope that is a correct one.[/quote]

You can get all the parts needed to do your own calculation on the SS website - earnings history, yearly inflation adjustments, bend points, etc.  If you really want to know how the sausage is made, it is a worthwhile exercise to see how the system calculates benefits.

Basically you average your 35 highest earnings years (capped at the annual SS maximum) adjusted for inflation and determine your average monthly earnings.  Then your full retirement age monthly benefit is calculated based on application of given percentages using "bend points".

Currently, the first bend point is $816.  Your monthly SS benefit is 90% of your average monthly, up to the first bend point. 

If your average monthly income exceeds $816 but is less than $4917 (the second bend point), your monthly benefit is increased by 32% of the amount between $816 and $4917.

Finally,  your monthly benefit increases by 15% of the average monthly income that exceeds $4917.

If you like spreadsheets, it is a fairly simple exercise to calculate.

Seeing the formula up close and personal also gives one an appreciation for why tacking on a few more high-earnings years has relatively little impact on the social security monthly benefit.

[ns3]

Seeing the formula up close and personal also gives one an appreciation for why tacking on a few more high-earnings years has relatively little impact on the social security monthly benefit.

Yes, this is something that I became aware of looking at the figures. There is a substantial increase for delaying benefits after your full retirement age but very little for actually continuing to work. This is one reason I decided I might as well go ahead and retire.

As for doing your own calculations, I downloaded the program they offer on the website, input all my yearly figures from the statement, and it comes up with different benefit amounts than what the statement shows. Likewise using the online calculators - different numbers again.

[moda0306]

Seeing the formula up close and personal also gives one an appreciation for why tacking on a few more high-earnings years has relatively little impact on the social security monthly benefit.

Yes, this is something that I became aware of looking at the figures. There is a substantial increase for delaying benefits after your full retirement age but very little for actually continuing to work. This is one reason I decided I might as well go ahead and retire.

As for doing your own calculations, I downloaded the program they offer on the website, input all my yearly figures from the statement, and it comes up with different benefit amounts than what the statement shows. Likewise using the online calculators - different numbers again.

I have been barely paying attention to the details here or at bogleheads, but I was speaking very specifically about deferring and taking income from assets rather than continuing to work. That is a whole different debate.... However, perhaps this is how the debate is being waged. Personally, I think if someone is healthy at retirement, having a part time job or some economic ventures is healthy as well.

[WildAboutHarry]

[quote=moda0306]Personally, I think if someone is healthy at retirement, having a part time job or some economic ventures is healthy as well.[/quote]

Agree, except you might be penalized for 1) taking SS prior to full-retirement age and 2) working.  And wasn't Social Security intended to remove oldsters from the workforce?

[MachineGhost]

Also, I don't think you can trust the calculators on the SS site. They don't give the same results as the statement and you can even get different results using different calculators. The only figure I'm confident in is the one they say I can get right NOW. At least I hope that is a correct one.

Yeah, they're junky.  You need to download the SSA Benefit Calculator software to your desktop and use that for accuracy.  It's a bit obtuse to understand at first with spouse or family members, but once you do, it's dead on accurate.

Also, this is one of the best free financial planners: http://www.flexibleretirementplanner.co ... unch-page/
It may or may not have the SS deferral issue built in.

[ns3]

Also, this is one of the best free financial planners: http://www.flexibleretirementplanner.co ... unch-page/
It may or may not have the SS deferral issue built in.

I think I've tried all the free retirement calculators including that one. Not satisfied with any of them I've been writing my own.

The problem with the one in your link is that, unless I'm missing it somewhere, it seems to be designed for a single person.

[MachineGhost]

I think I've tried all the free retirement calculators including that one. Not satisfied with any of them I've been writing my own.

The problem with the one in your link is that, unless I'm missing it somewhere, it seems to be designed for a single person.

What problem are you having with the desktop calculator?  I've used it several times to verify three different people, separately and including all together, and it all matched up with actual amounts received, so long as you enter the covered earnings data accurately and correctly.

As for the planner, you can probably put your wife in the Additional Inputs button?

[ns3]

What problem are you having with the desktop calculator?  I've used it several times to verify three different people, separately and including all together, and it all matched up with actual amounts received, so long as you enter the covered earnings data accurately and correctly.

As for the planner, you can probably put your wife in the Additional Inputs button?

Took another look at the PIA program figures and it DOES match up exactly with the statement for what it says I can collect today. Must have been looking at the wrong thing. Amount at age 70 isn't exactly the same but close enough.