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  • Taking Social Security-Different Perspective


    Regarding taking Social Security(SS) at age 70 instead of full retirement age (FRA), I don’t understand the mathematical justification for doing this.

    Let’s make several assumptions: One can assume that readers of this blog do not need SS to live on. If this is correct , then the goal of receiving SS should be the total benefit over a lifetime. This lifetime benefit is a simple math equation: x times y = total lifetime benefit where x = annual SS benefit and y= number of years the benefit is collected.

    If I delay taking SS until age 70 instead of 66 ( my full retirement age, FRA), the annual benefit of an additional 8% compounded annually for 4 years = a benefit of 1.35x per year. Thus, the lifetime benefit starting at age 70 is 1.35x( y-4).

    So let’s start trying to figure out when delaying taking SS becomes better than taking SS at age 66. This is calculated by the equation xy-= 1.35x (y-4). In this case, y=‘15.7 years. So if I start taking my SS at age 66, I will be 81.7 yo at a time that my lifetime SS benefit will be exactly equal; whether starting at 66yo or 70yo. Every year thereafter, I will have done better by waiting until age 70. However, if I take SS money at 66yo and invest the money, I can easily make 3% a year in various investments, and that will delay the break even point to 22 years, at a time i will be 88yo. If I can earn 5% which is also not very difficult, the break even point is 35years, at a time I will be 101 years old.

    Therefore investing the SS proceeds at even a small rate of return (2-5%) seems to make it much more valuable to start taking SS at my full retirement age, as long as one is willing to take the risk that in my late 80's or even my 90's, I may recognize that I could have collected a larger lifetime benefit by starting at age 70 rather than my FRA. But at that point, being a high income saver up to this point in my life, who really cares?.

  • #2
    Originally posted by DR R View Post
    Regarding taking Social Security(SS) at age 70 instead of full retirement age (FRA), I don’t understand the mathematical justification for doing this.

    Let’s make several assumptions: One can assume that readers of this blog do not need SS to live on. If this is correct , then the goal of receiving SS should be the total benefit over a lifetime. This lifetime benefit is a simple math equation: x times y = total lifetime benefit where x = annual SS benefit and y= number of years the benefit is collected.

    If I delay taking SS until age 70 instead of 66 ( my full retirement age, FRA), the annual benefit of an additional 8% compounded annually for 4 years = a benefit of 1.35x per year. Thus, the lifetime benefit starting at age 70 is 1.35x( y-4).

    So let’s start trying to figure out when delaying taking SS becomes better than taking SS at age 66. This is calculated by the equation xy-= 1.35x (y-4). In this case, y=‘15.7 years. So if I start taking my SS at age 66, I will be 81.7 yo at a time that my lifetime SS benefit will be exactly equal; whether starting at 66yo or 70yo. Every year thereafter, I will have done better by waiting until age 70. However, if I take SS money at 66yo and invest the money, I can easily make 3% a year in various investments, and that will delay the break even point to 22 years, at a time i will be 88yo. If I can earn 5% which is also not very difficult, the break even point is 35years, at a time I will be 101 years old.

    Therefore investing the SS proceeds at even a small rate of return (2-5%) seems to make it much more valuable to start taking SS at my full retirement age, as long as one is willing to take the risk that in my late 80's or even my 90's, I may recognize that I could have collected a larger lifetime benefit by starting at age 70 rather than my FRA. But at that point, being a high income saver up to this point in my life, who really cares?.
    Either discount it to PV or compute the costs of your choice. You have taxes there based on the choices. Run your break evens again, use the highest marginal rate. That is what you will pay.

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    • #3
      Thanks for your input however most people will not be able to reduce their post 70yo tax bracket all the way down to zero. So if we presume there is a 10% lower tax bracket when receiving SS at 70yo instead of 66yo, I agree the amount of benefit received in 4 years will be reduced somewhat but the general concept still applies. So investing the money received from SS for the rest of my life starting at age 66 will push the breakeven point way into the future anyway. I am aware of relatively safe 4% investments that will allow me to push my breakeven point into the 90 years old timeframe. At that point, I may be dead or won't care. Furthermore, the likihood of tax brackets being higher in the future is great right now. So there is no assurance that the tax brackets after age 70 will be reduced in the future.

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      • #4
        There is also value in the insurance aspect of social security, both in the guaranteed return and inflation indexing. And you can't be swindled out of it as easily as you can be tricked out of your savings when your faculties decline. How much value you place on that insurance is up to you.

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        • #5
          This is the equation battle with all pensions and SS -- when to take really depends on factors hard to predict 5-20+ years out. - Own health; Inflation rate; tax brackets; stock market situation -- all wide variables.

          Focus improves as we near those ages as we have the same decisions for VA Pensions 57-62 and Kaiser 55-65 before the SS question. All of these really have the breakeven point around 78-82.

          I do wonder what kind of adjustments folk will be making with the ave dipped down the past two years due to Covid; and how that impacts the unexpected life losses and contributions in the 40-60s people range due to immediate covid and income contributions ---

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          • #6
            Thank you all for your responses. Maybe DR. DAHLE could weigh on my thoughts as well..

            Comment


            • #7
              Originally posted by DR R View Post
              Thank you all for your responses. Maybe DR. DAHLE could weigh on my thoughts as well..
              Maybe. There is one significant insurance benefit not comprehended in the equation. The surviving spouse benefit. Once my spouse heard about that, my spreadsheet didn’t matter.
              Family decision was an individual choice, her’s.
              “You don’t need the money, I might want it.”
              I secretly thinks I’d spend it on something. Might be right. The numbers show, she will do better than me.

              Comment


              • #8
                Originally posted by DR R View Post
                Regarding taking Social Security(SS) at age 70 instead of full retirement age (FRA), I don’t understand the mathematical justification for doing this.

                Let’s make several assumptions: One can assume that readers of this blog do not need SS to live on. If this is correct , then the goal of receiving SS should be the total benefit over a lifetime. This lifetime benefit is a simple math equation: x times y = total lifetime benefit where x = annual SS benefit and y= number of years the benefit is collected.

                If I delay taking SS until age 70 instead of 66 ( my full retirement age, FRA), the annual benefit of an additional 8% compounded annually for 4 years = a benefit of 1.35x per year. Thus, the lifetime benefit starting at age 70 is 1.35x( y-4).

                So let’s start trying to figure out when delaying taking SS becomes better than taking SS at age 66. This is calculated by the equation xy-= 1.35x (y-4). In this case, y=‘15.7 years. So if I start taking my SS at age 66, I will be 81.7 yo at a time that my lifetime SS benefit will be exactly equal; whether starting at 66yo or 70yo. Every year thereafter, I will have done better by waiting until age 70. However, if I take SS money at 66yo and invest the money, I can easily make 3% a year in various investments, and that will delay the break even point to 22 years, at a time i will be 88yo. If I can earn 5% which is also not very difficult, the break even point is 35years, at a time I will be 101 years old.

                Therefore investing the SS proceeds at even a small rate of return (2-5%) seems to make it much more valuable to start taking SS at my full retirement age, as long as one is willing to take the risk that in my late 80's or even my 90's, I may recognize that I could have collected a larger lifetime benefit by starting at age 70 rather than my FRA. But at that point, being a high income saver up to this point in my life, who really cares?.
                Here is an entire blog post written by WCI very recently on this very topic. He makes several arguments for waiting.

                https://www.whitecoatinvestor.com/do...ecurity-early/

                Comment


                • #9
                  I did read that recent post but I was hoping Dr. Dahle might comment on my thoughts above because it is a different viewpoint. Thanks very much for the your comments. .

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