Excellent as always. For a lot of us who are still healthy heading into retirement, we may want to begin spending social security funds early even if we don't "need" them, anticipating a less luxurious lifestyle in our 80s compared to our 60s and 70s. Enjoying some extra spending money in early retirement may be more appealing than dying with a larger "legacy" fund.
Retirement is the reward for a life well lived. I retired 2 months after turning 62. Think about the reason you went to work in the first place. For me, I went to work because I needed the money to live on my own as an adult. I worked until I no longer needed the money. It's just simple. This simple truth is that it's not all about the money. Deciding when to take your Social Security would be easy if you knew when you were going to die. Since most people don't have that number, make a best guess. My dad died at age 80, he had a brother who lived until age 87, but he also had a brother and sister who died in their 60's. I did the math between taking the money at 62 and waiting until age 66 which was my full retirement age. My break even point ( the point where my 66 year old money would catch up to the 62 year old money was 78 years 9 months. So I asked myself one question. Would I rather have 4 more years of retirement, or more money when I was almost 80 years old. For me it was a no brainer. I took the time. I'm coming up on 6 years retired and I can tell you with zero regrets that we made the right choice.
What I like is in the calculation, Rob had to go to 32 years of retirement before taking at 70 past FRA. Also, 30 years of retirement at 62 mean you need to live to 92. Even thought the percentages are not 0, they are small enough to warrant the question. Why?
@@sambira I love these videos. Everyone it trying to work all the angles to try and get the most of what they are "entitled" to. The one thing many people just don't seem to get is this, retirement is not about the money", "it's about the time". Time is the one thing money can't buy.
I retired at the age of 59... and I plan on waiting to collect Social Security benefits until age 67... or even later. In the meantime, I have enough in savings that I don't have to deny myself any of life's pleasures. (Vacations, purchases, etc.) I am quite healthy (never drank, never smoked, never overweight) and I probably inherited some good longevity genes. (Both of my grandparents live to be past 90, and this is despite my grandmother being overweight for the last 30 or so years of her life. My mom is still alive and active at the age of 84.) I think the odds are in my favor of living past the break-even age of 78 years and 8 months, the age when looking at the benefits you receive of age 62 vs. age 67. I think it's good I many live far past it. I have NO problems or worries about the possibility of "leaving money on the table" if and when I pass away before then. (When you're dead, it's hard to have any regrets about anything.) I more worry about the thought of living into my 90s and possibly outliving my savings... which is why I plan on collecting as late as I can. If you do live past that break-even age (and the average 62-year-old will. The average lifespan of a 62-year-old male is age 81, according to the Actuarial Life Tables), the additional amount you collect from SS can be substantial.
Good stuff Rob, but I didn't hear you mention one more important complication - Social Security payments are adjusted each year for inflation! To my knowledge, annuities or other income streams do not offer inflation protection. Could be significant it one is fortunate enough to have a long retirement.
Life is not always about how much money you have. But, I did the calculations and started drawing at 62 and kept working part time until 65. Entire check each month was and still is invested in Vanguard Municipal Bond Fund in a Joint taxable account. 12 years later between the tax free dividends (still reinvested) I have far exceeded what I would be drawing if I has waited to full retirement age. Plus I have a 6 figures balance in the fund now.
I'm claiming it as early as possible even though I don't need it. A bird in the hand is better than two in the bush and even though my health is excellent (running a 21-mile trail race in 2-weeks), my break-even point by my personal calculations is when I'm 80-years old. I used a generalized rate of return calculation and my best effort on my personal data for what I'll get (ignoring the fact that our elected officials will have their hands in this) and I'm not that concerned with the slight loss after 80-years old. What I want is to buy the most "life" that I can when I can utilize it best. After 80-years old I'm making an educated guess that the small difference in my income just won't matter. Having some extra income from 62-70 is more important to me than having extra income after I'm 80 and that is ignoring the chance that I won't be alive at that point anyway. But I'm financially at a point where I don't need SS anyway so people who NEED it, may want to work the extra years and take a larger guaranteed payment. And tax situation? That is unknowable too since our elected officials are almost guaranteed to screw it up no matter what you plan. LOL...
IMO (and this is a contrary opinion) having future SSI income available to you is a form of diversification and it's one that is not possible to replicate with other investments. If you pull from it before you need it and invest it the way you normally invest, you end up in a less diversified position.
You're completely right If someone treats social security like any other investment in their portfolio then they'll see it as -a risk profile completely separate from equities (great diversification) -high guaranteed returns for delaying -no fees, no costs -COLA or inflation adjusted -and it's 15% tax free! No other investment vehicle with similar characteristics exists!!
If you are already retired at 62 and living off of your portfolio, I can see taking SS early as a viable option if the market crashes and you are faced with making withdrawals when stocks are down 40-50%. Also if you truly don’t need the money, maybe the SS income becomes your FU money to take cool trips or spoil grandkids.
I think that's a good point, start with an idea that you will live off your retirement investments in the most tax advantaged way possible until there is a market downturn and at that point file for social security so you can keep your retirement in the underperforming market, sort of a buffer, if you were doing the 4% rule and a bear market comes up you can blunt the damage by reducing your withdrawals to whatever you will get in SS, also hopefully have a cash buffer.
Just retired 1\22. 59. Lucky for me I had a simulation calculated by my pension plan rep. Taking SS at FRA. 67. Don't forget that SS has a built in Inflation hedge. Drawing down IRAs w tax considerations in mind. CPA, CFP guidance.
Great video Rob. Holding off on SS to get the Roth conversions in is huge. Please get working on a spreadsheet to figure all this out!! Tomorrow is Super Bowl Sunday great day to start 😀
Another factor is how much you want to be able to leave to your kids. If you consume your savings and then take out SS at a later date, that's less money available for your children as an inheritance when you pass. I also think in terms of planning horizons. I felt taking SS at 70 made my planning horizon shorter. I felt safer knowing I'd get the max later. I had to plan rigorously for the time between now and 70 and have a target of savings I still want available at 70 to go with that SS.
More simpler for me. 1) Doing a quick accumulation of my age 62 benefit vs my age 67 ss benefits at 4% interest, I do not hit the break even point until around age 84. Exactly zero men in my family tree have ever celebrated their 84th birthday. 2) In the state I live in, social security benefits are not subject to state income tax, which is an additional tax advantage. So never mind investing ss proceeds. Every dollar I spend from social security is a dollar I do not have to draw from my assets. "Commence Social Security Benefits At Age 62" will be an easy choice for me.
It actually may not be that simple. The problem with investing Social Security is that you have to have another source of income to live off of. This other income may make your SS taxable and any money your invested SS makes would be taxable as well. Depending on your circumstances it may reduce that break even point well below age 84.
@@sambira no. He said if he invested his Social Security at 4%, it made his break even point age 84. I referred to that by saying it’s not that simple.
@@johnscott2746 "So never mind investing ss proceeds. Every dollar I spend from social security is a dollar I do not have to draw from my assets. " So what is this? It is in his comment.
@@sambira that was just not the part of his comment that I was replying to. We all have different opinions on strategy when it comes to Social Security. Some want to collect early and that may be the best option for them. Others want to wait and spend down their retirement savings first . There is no “one size fits all” strategy. But all I was pointing out was that it is not a good strategy to take your benefit early and try to invest it while living off of your savings.
In addition you need to factor in the growth not shown in your social security projections due to compounding of cpi on a larger dollar amount at 67 and 70 versus 62. Then there is the hold harmless provisions for Medicare, if you draw at 65 versus 67 or 70 if Medicare increases are above your annual cpi raise you aren't charged that extra cost but those increases can be applied fully to anyone not retired yet. So anyone delaying retirement will pay more in Medicare premium costs versus someone who retires at 65. The optimal age often is to take Social Security at 65 when Medicare kicks in, as you no longer are eligible for Obamacare. Then there is the factor of married or unmarried which make it even more complicated. But if you are single man and in average health, take it at 65 and be done with it. But if your health is poor, file first for Social Security disability, then file for retirement at age 62. Chances of winning SSDI are small, but if you do, you will get the higher full retirement age amount even if you retired early and started to collect. Yes very complicated indeed.
Thanks for this video, Rob. Very useful and informational, the IRMAA component is something a lot of seniors take into account even just trying to setup Part B or Original Medicare. It is really complicated.
Rob - really enjoy your videos. As you pointed out, there are a zillion ways to define “financially beneficial” when trying to determine if claiming early makes sense. There are so many variables that need to be considered and I have found the only way to figure it out is to build a sophisticated excel spreadsheet that is fine tailored to the individual making the decision. I find most models online way too simple. I think you have to go deep in answering, among others, 2 key questions: 1) What does getting this incremental money enable you to do? And 2) What does getting this money trigger (think marginal tax rates, Medicare premiums, AGI, etc…). In looking at question 1 if getting this money enables you to fund an HSA which you otherwise would not fund - that needs to be modeled….or a Roth IRA….or it enables you to up your 401K contribution to gain your employees match…or enables you to participate in a “friends and family” IPO…. The list goes on and on and on….and the probability of a financial planner or accountant doing it perfect is zero. My point, which is the same point you so eloquently made, is that to get a precise answer on this is difficult. Ive been modeling this for over 20 years (I’m 61 and newly retired) on the same spreadsheet with new “tweaks” every year….it’s kinda fun for a finance/spreadsheet jockey like me….I be come to one conclusion when people ask me this question….and the answer is: “It Depends”…… Keep making great videos!
61 and non-working spouse is 58. Not retired but getting closer every day. Questions include 1) begin drawing at 62 or 2) delay drawing SS and begin distributions from 401K first. The bigger question is what about medical insurance? How much can I draw from 401K before this raises my premiums on the exchange? Is there a earnings amount or cap which would make you ineligible for lower premiums? Most importantly - who has the answers? Is this a Financial Planner or CPA Tax professional. Too many unknowns for me right now.
Great job breaking down the complexity... and it was complex even without getting to the dual spouse social security delay one for survival purposes consideration!
Investing benefits is for most people paying down debt. Paying off debt is almost always the best investment because the benefit of not paying interest is not taxable in any way. I personally play a good stock market, but if you have debt on credit cards and the like, you could see effectively a 25 percent gain on any money coming in.
That's a great spreadsheet, I copied it. I made a much cruder one just yesterday figuring out the break even age (78). The takeaway I'm getting is that I need to collect at 62. Even with zero interest I'm ahead for 16 years. Add in some interest and I don't think I'll have to pay enough taxes to make it worth the wait, ever. Also rather than invest, I should get to spending some money on travel and enjoying life while I still can. I'll be 59 this year and may start transferring IRA money into my post tax account, especially if stocks are low. I'm hoping for a deep crash where I can pull my IRA money out, and avoid big taxes, and then a rebound where it grows back in the post tax account.
I'm at a similar age with the same perspective. I did my first IRA to Roth conversion in Dec. Like you, I'm hoping for a larger stock drop this year to transfer more shares over for a smaller tax hit. By age 62, I should be able to maximize the ACA subsidies, not pay taxes on my SS payments, and minimize/ avoid having Medicare taxes by only using my SS income and Roth.
So glad you touched on these topics and issues. It is deep. I have been digging into all this for planning our early retirement and it's a minefield. But I am a engineer and love treating it like a flow or logic chart with If, then, else statements. Lol. There is no reason for it to be this convoluted. We run into this very problem with ACA figures if we take our SS earlier than 65. Since we would use medicare at 65 and then the issue is only one of income from investments, IRAs plus SS which puts us in a much lower tax bracket then we are in now. So no worries there. We will always be in the 10 to 12% ( current 2021 brackets ) area for tax purposes until 1 of us dies and then perhaps some years would put the surviving spouse into the next bracket just slightly. But yeah, lots of things to consider and be aware of.
For those wanting to advantage the huge subsidies for ACA premiums, timing of SS is important. You may want to make sure you have after tax funds (savings, Roth conversions) before moving to ACA. Take your Roth conversions to the top of 12% bracket. You can then take SS as your primary income to hit MAGI minimums and supplement spending with post tax dollars. Easily score $16-19K per yr in subsidies between the age of 62-65.
My hope and strategy is to use the 12% tax bracket withdrawal methodology, since I won't need much - debt free - and don't have but 700K in a 403(b). Take the maximum I can from my plan to stay in the 12% bracket and if I don't spend it (45K per year) then invest the rest and do this until 72....it's a plan, I'm a year out from retirement at 62 1/2 and plan to collect SS at 65.
For many of those that do not need social security, their social security will be fully taxed (85%) so any increase at 67 or 70 will be only approximately 70 percent of the actual increase. In my case the difference between 62 and 70 is about $1700. After tax the difference is approximately $1200 which changes the break even age even without accounting for possible investment income quite a bit. Investment income might also be taxed at a lower rate assuming it comes from dividends or long term capital gains.
Great video. I am trying t sort this out. Retire at 55 in thee years with a pension and I want to do 401K -Roth IRA conversions before RMD's . This means I want my taxable income as low as possible from 55 to 70ish to pay less to convert. It also mean 85% of my SSA will be taxable which makes me want to wait until my conversions are done.
Another great video! Thanks Rob! To make your quick calculation more accurate, wouldn't the market growth need to be reduced by inflation to account for the SS inflation adjustment? Please also take a look at the comment by Manish; He may have a good idea for a follow-up video - I'd be interested.
This is where I am not sure what to do. I agree, probably seeing a tax advisor when you are 62 is best, to see what all will give you the best options. Honestly, I am not counting on the benefits of SS because it might be "deprecated" at the point of my retirement (19 years from now). So, I am going to heavily rely on my roth ira and my regular employment 401k. Also, not to mention, I will be paying off the house as well. I think SS will be good to offset some expenses like groceries and electric/gas.
If you're taking SS but not living on it presumably you're living off other assets, probably investments. So you would be taking money out of investments to live on and then investing SS money instead of just using SS for expenses? I guess maybe if you have enough Real Estate income to live on the SS could give you extra to invest with. Basically I think it's more a question of taking SS early so you can more easily stay invested. I think SS might best be used for people with high net worths for reducing how much you need to pull out of investments, especially in bad markets. Maybe a good strategy is to hold off on SS until 70 unless you hit a really bad bear market before 70.
Great content. Thank you! I have a pension coming, but no much in my 457(b). I'm thinking of going for the 67 option, though I plan to retire before that and I know that will affect the SS amount.
If you don't need it, then it makes no difference what you do with it. Also, at 62, I am earning 6 figures, so I would never receive ANY of my SS, if I were to take it, now.
Thank you so much for doing these videos. I have learned so much each time I watch. I was wondering if you could do a video soon on understanding the metrics found in portfolio analyzer. Its way more data than I can process, and I was wondering if you could hone in on the most important metrics to look at or pay attention to in a portfolio. All these ratios and regression factors.... is any of it at all useful? It must be to somebody, or else they wouldn't include it! thanks!
No matter how I looked at the age for taking social security, in terms of taking it at 62 vs. investing (or really just not taking it out of the 401k savings, which is what would have to happen), it seemed that there's no clear winner. Even what your calculator shows is there's not really much of a difference, either way. The controlling variable is, of course, lifespan. So while I've planned to live to 92, I realize that's optimistic. So, I took social security at 62, when I retired a few months ago. Of course, now that I'm starting to understand IRMAA and RMD, along with tax implications and the potential of/for Roth conversions, I have no idea if I made the right decision or not. Since, I also found out that the social security decision can be undone and payments returned, within the first year, followed by starting it at some point later, I guess there's more homework to do.
Is delaying SS and the benefits of Cola amounts taking into consideration. Eg. If I take my SS at 67 that amout then gets the benefits of any COLAs from 62 through 67 to get the actual monthly benefit.
Yes. Your current FRA amount, that you see when you log into your SS account, will change each year, with each new COLA increase. Delaying SS benefits will increase a tiny bit for each month you delay, AND the amount will increase each year with each COLA increase.
when someone hits retirement age w/ 1-2 million in their 401k (tax deferred), there appears no reasonable way to avoid all these traps. u can only convert so much each year between retirement and when RMD's kick in, especially considering u likely have distributions already using the lower tax brackets for simple living expenses. all the while SS income is making the conversions even more tax-vulnerable and increasing your healthcare premiums. in an indirect way, ppl get penalized for being avid savers
Rob, have you (or anyone) considered what might happen if the SS trust runs out and that if at some year in the future (say 12 yrs from now), our SS payout is reduced by 33%? Then if we started earlier (at 62) we might have 8 more years at the PRE-Reduced payout that might be applied to all of us in 2034. Or worst yet, what if the higher end SS payouts are reduced more than the lower end payouts (because obviously the "rich" can take a SS hit better than the "poor")? I just am not convinced that holding out is the best strategy for everyone. Plus you didn't talk about (or consider) that if you wait until 70 to start SS, and you've been holding back drawing from your tax-deferred 401k/IRA, that at 72 you will need to start pulling out RMD from your retirement accounts. That coupled to your higher SS payouts could end up putting you into a higher tax bracket. Plus, don't you think you will want to spend more when your are in your younger retirement years and in better health and have better mobility? If you wait until you are 70, sure you might have a greater income in your 80s and 90s, but we know that most of that money will go to IRMAA Medicare surcharges, Medigap premiums and Long Term Care facilities.
Yes!!! I am not hearing enough about the Social Security Fund running out in 2034. That is the reason I am probably going to start Social Security at 62 even if I do not need it. This is the 300-pound gorilla in the room that no one is looking at.
It really boils down to how much you have saved. Assuming you are of average health, there is really no scenario that favors taking SS early other than if you simply have to. But if you have to take it the advice would be to keep working till at least 67. Some feel that taking it early, even if you don't need it, allows you to spend more in your early years, but that isn't true. Plans geared toward splurging always include delaying SS and spending more savings now and relying more on SS later. There are two factors driving the math behind taking SS later. First, the formula they use to calculate your benefits based on 62, 67 or 70 years, was created in the 80's and is a bit outdated with regard to lifespans now. SS at 70 is 77% higher than SS at 62 which is very hard to beat. As the video shows, it would take consistent returns of 8% for more than 20 years to edge past the gain you get by delaying SS. Most retirees don't and can't manage that kind of portfolio or risk. So you can go with a very risk free portfolio at 3% (CDs and whatnot), delay SS till 67 or 70, and live the same as someone aiming for 8%. What is there to choose? Again, it is just really hard to beat that 77% increase in benefits you get when you delay till 70. Most people actually choose 67 as a middle ground because that is optimal for a 6% portfolio. 70 is optimal for a 3% or less portfolio.
I’m in an enviable position in retirement of not needing my SS for daily expenses and use dividends exclusively to live on. I’m waiting til 70 because I’m very pessimistic about investment returns going forward. What if market returns were like the lost decade? SS guarantees me 8% additional return for each year that I wait. I believe your 7-8% returns may be quite high
Haha, good luck everyone. I’ve been working on modeling this for the last week or so and it’s a mess. If you have a substantial amount in a 401k or ira, probably better to do your Roth conversions and hold off on SS. If not And you can invest it I think it makes sense to take it early. After all, You never know how much time you have.
Well covered the subject, thanks for sharing, Rob. I'm not a US tax payer, I'd like to know if all people get social security entitlement in the US or conditions attached? A brief overview would be of general interest. Thanks
You must contribute to social security (mandatory for any normal employment) for a minimum of ten years to be eligible. I don’t know exactly how the benefit is calculated but basically you will receive a higher payout for more years and higher earned income. The min age to claim is 62 but you will get more per month for waiting each year until 70
Social Security is based on your 35 highest covered years. They add them all together after indexing everything before age 60 to inflation. Then they divide by 420, which is the number of months in 35 years. This yields your AIME or average indexed monthly earnings. Then a formula is applied with what are called bend points to come up with your Full retirement age benefit. The percentages in the formula are set by law but the dollar amounts in the bend points change every year. Once your FRA benefit is determined you have the option of taking it as early as age 62 but you are penalized for doing so. The penalty is figured up on a monthly basis so you can take your benefit at any time.
Cant you model/restate the SS yearly increase that the govt offers (from delaying the claim) as pseudo-interest? I think that simplifies the analysis greatly. At that point you're just comparing the interest earned from delaying your claim against the assumed/hypothetical interest from investing.
Taking it at 62 if it's even an option when I get there and the whole system hasn't collapsed. I will try to just live off of it while my wife still works (several years younger) and since we have no debts and I will be on her insurance, I will leave my money accruing/DRIP to use later.
How about still working (single tax bracket of 22%) for my income and not pulling out any other income - can I at 67 FRA take my SS allowed then, keep working full time for 3 years until 70 and invest all of my SS or most- so that it grows during that 3 year period? would those 3 years of investments grow more than the bigger SS payout funds at 70 and not work (or maybe a bit if I have to) but I am stuck at the FRA lower payment forever?
Hi Rob, Have a question on general investing. Would it be better to own few stocks (assuming it has some dividends) with enough quantity to DRIP and earn about 1 stock each year or more stocks variety of small quantity (like say 5 or 10). Stocks like PG, MMM, VZ, SO, CSCO, KO, RTX etc The idea is, decide on few companies and invest in only those when funds are available Vs Buy Stocks in smaller quantity (with available fund) but diversify.
If I start receiving SS early (before 67) and invest those money but still need to withdraw from IRA to supplement income, is that same thing as if I spend the SS money but stop withdrawals from my IRA? Hope my question makes sense. Thx
My question is, because the tax complexity you mention and allude to, does this start to justify the use of a Fiduciary Fee Only Financial planner that includes these tax planning services? Does $10,000 to $20,000 a year for these guys make it worth it to navigate the best strategy in retirement?
No way! Most of these financial advisors are clueless and just want the easy fee. Hold on to your 💵. No one cares more about your financial well being than you. See an accountant or someone who charges a one time hourly fee. Watch lots of good RUclips’s and read articles online.
Rob, Rob, Rob you are, as usual, totally clueless. Social security is based on the 35 highest income years. So the first thing a person turning 62 needs to address is whether or not they are at their peak earnings. Many of us have gotten laid off (I represent that) and have had to take a COJ paying significantly less than our peak earnings. If that is your case then all of the FICA coming out of your paycheck is not improving your social security benefit ... it's only helping social security pay other people, sorry-to-say. So if this is your case and you can live on SS then don't drink the kool-aid, it's not worth the health-risk of working a COJ 5 more years. The vultures at social security dangle this "increased benefit" for deferring enrollment in the very hopes that people working a COJ drop dead before they ever enroll, thereby forfeiting to the pool all of their and their employers contributions over a lifetime. The other thing you are clueless about is what is called "Hold Harmless" (such an ambiguous confusing lawyerly phrase!) Hold-harmless is a law voted in by congress in 2016 (I think) addressing a problem whereby Medicare Part B increased by a greater amount than the social security COLA (Cost of Living Adjustment) thus reducing social security income for senior citizens. The hold-harmless law says that if you are paying medicare part B from your social security by automatic deductions then your increase to medicare part B is limited to your COLA. The only problem with this law is that it was not funded and medicare part B is only funded by subscribers, not taxes! Thus, the difference is paid by medicare subscribers that are not on social security - a minority of medicare subscribers. So, the minority pay a larger increase in part-B to subsidize the majority and this is a significant penalty to deferring social security beyond 65. So much so, that you will not "break-even" on a late SS enrollment until your mid-80's. This is what social security would rather not have become common knowledge but it is so.
Excellent as always. For a lot of us who are still healthy heading into retirement, we may want to begin spending social security funds early even if we don't "need" them, anticipating a less luxurious lifestyle in our 80s compared to our 60s and 70s.
Enjoying some extra spending money in early retirement may be more appealing than dying with a larger "legacy" fund.
As a tax practitioner, I give this video an A+! Thank you 👏🏽👍🏻
Retirement is the reward for a life well lived. I retired 2 months after turning 62. Think about the reason you went to work in the first place. For me, I went to work because I needed the money to live on my own as an adult. I worked until I no longer needed the money. It's just simple. This simple truth is that it's not all about the money. Deciding when to take your Social Security would be easy if you knew when you were going to die. Since most people don't have that number, make a best guess. My dad died at age 80, he had a brother who lived until age 87, but he also had a brother and sister who died in their 60's. I did the math between taking the money at 62 and waiting until age 66 which was my full retirement age. My break even point ( the point where my 66 year old money would catch up to the 62 year old money was 78 years 9 months. So I asked myself one question. Would I rather have 4 more years of retirement, or more money when I was almost 80 years old. For me it was a no brainer. I took the time. I'm coming up on 6 years retired and I can tell you with zero regrets that we made the right choice.
What I like is in the calculation, Rob had to go to 32 years of retirement before taking at 70 past FRA. Also, 30 years of retirement at 62 mean you need to live to 92. Even thought the percentages are not 0, they are small enough to warrant the question. Why?
@@sambira I love these videos. Everyone it trying to work all the angles to try and get the most of what they are "entitled" to. The one thing many people just don't seem to get is this, retirement is not about the money", "it's about the time". Time is the one thing money can't buy.
I retired at the age of 59... and I plan on waiting to collect Social Security benefits until age 67... or even later. In the meantime, I have enough in savings that I don't have to deny myself any of life's pleasures. (Vacations, purchases, etc.)
I am quite healthy (never drank, never smoked, never overweight) and I probably inherited some good longevity genes. (Both of my grandparents live to be past 90, and this is despite my grandmother being overweight for the last 30 or so years of her life. My mom is still alive and active at the age of 84.)
I think the odds are in my favor of living past the break-even age of 78 years and 8 months, the age when looking at the benefits you receive of age 62 vs. age 67. I think it's good I many live far past it.
I have NO problems or worries about the possibility of "leaving money on the table" if and when I pass away before then. (When you're dead, it's hard to have any regrets about anything.) I more worry about the thought of living into my 90s and possibly outliving my savings... which is why I plan on collecting as late as I can.
If you do live past that break-even age (and the average 62-year-old will. The average lifespan of a 62-year-old male is age 81, according to the Actuarial Life Tables), the additional amount you collect from SS can be substantial.
This is a great discussion, thanks Rob. I've often wondered about this dilemma and lean toward waiting until 70.
Good stuff Rob, but I didn't hear you mention one more important complication - Social Security payments are adjusted each year for inflation! To my knowledge, annuities or other income streams do not offer inflation protection. Could be significant it one is fortunate enough to have a long retirement.
Life is not always about how much money you have. But, I did the calculations and started drawing at 62 and kept working part time until 65. Entire check each month was and still is invested in Vanguard Municipal Bond Fund in a Joint taxable account. 12 years later between the tax free dividends (still reinvested) I have far exceeded what I would be drawing if I has waited to full retirement age. Plus I have a 6 figures balance in the fund now.
Thanks for posting. It's important to hear from someone who's actually doing it as opposed to debating the abstract theory.
I'm claiming it as early as possible even though I don't need it. A bird in the hand is better than two in the bush and even though my health is excellent (running a 21-mile trail race in 2-weeks), my break-even point by my personal calculations is when I'm 80-years old. I used a generalized rate of return calculation and my best effort on my personal data for what I'll get (ignoring the fact that our elected officials will have their hands in this) and I'm not that concerned with the slight loss after 80-years old. What I want is to buy the most "life" that I can when I can utilize it best. After 80-years old I'm making an educated guess that the small difference in my income just won't matter. Having some extra income from 62-70 is more important to me than having extra income after I'm 80 and that is ignoring the chance that I won't be alive at that point anyway. But I'm financially at a point where I don't need SS anyway so people who NEED it, may want to work the extra years and take a larger guaranteed payment. And tax situation? That is unknowable too since our elected officials are almost guaranteed to screw it up no matter what you plan. LOL...
Staying active with that money will help get you to 80.
IMO (and this is a contrary opinion) having future SSI income available to you is a form of diversification and it's one that is not possible to replicate with other investments. If you pull from it before you need it and invest it the way you normally invest, you end up in a less diversified position.
You're completely right
If someone treats social security like any other investment in their portfolio then they'll see it as
-a risk profile completely separate from equities (great diversification)
-high guaranteed returns for delaying
-no fees, no costs
-COLA or inflation adjusted
-and it's 15% tax free!
No other investment vehicle with similar characteristics exists!!
If you are already retired at 62 and living off of your portfolio, I can see taking SS early as a viable option if the market crashes and you are faced with making withdrawals when stocks are down 40-50%. Also if you truly don’t need the money, maybe the SS income becomes your FU money to take cool trips or spoil grandkids.
I think that's a good point, start with an idea that you will live off your retirement investments in the most tax advantaged way possible until there is a market downturn and at that point file for social security so you can keep your retirement in the underperforming market, sort of a buffer, if you were doing the 4% rule and a bear market comes up you can blunt the damage by reducing your withdrawals to whatever you will get in SS, also hopefully have a cash buffer.
@@supermills03 Exactly, people get too binary with retirement planning.
Just retired 1\22. 59. Lucky for me I had a simulation calculated by my pension plan rep. Taking SS at FRA. 67. Don't forget that SS has a built in Inflation hedge. Drawing down IRAs w tax considerations in mind. CPA, CFP guidance.
Great video Rob. Holding off on SS to get the Roth conversions in is huge. Please get working on a spreadsheet to figure all this out!! Tomorrow is Super Bowl Sunday great day to start 😀
Another factor is how much you want to be able to leave to your kids. If you consume your savings and then take out SS at a later date, that's less money available for your children as an inheritance when you pass. I also think in terms of planning horizons. I felt taking SS at 70 made my planning horizon shorter. I felt safer knowing I'd get the max later. I had to plan rigorously for the time between now and 70 and have a target of savings I still want available at 70 to go with that SS.
More simpler for me.
1) Doing a quick accumulation of my age 62 benefit vs my age 67 ss benefits at 4% interest, I do not hit the break even point until around age 84. Exactly zero men in my family tree have ever celebrated their 84th birthday.
2) In the state I live in, social security benefits are not subject to state income tax, which is an additional tax advantage.
So never mind investing ss proceeds. Every dollar I spend from social security is a dollar I do not have to draw from my assets.
"Commence Social Security Benefits At Age 62" will be an easy choice for me.
It actually may not be that simple. The problem with investing Social Security is that you have to have another source of income to live off of. This other income may make your SS taxable and any money your invested SS makes would be taxable as well. Depending on your circumstances it may reduce that break even point well below age 84.
@@johnscott2746 Um, isn't that what T KC said? He said to not invest SS proceeds but spend it and keep your other assets invested.
@@sambira no. He said if he invested his Social Security at 4%, it made his break even point age 84. I referred to that by saying it’s not that simple.
@@johnscott2746 "So never mind investing ss proceeds. Every dollar I spend from social security is a dollar I do not have to draw from my assets. " So what is this? It is in his comment.
@@sambira that was just not the part of his comment that I was replying to. We all have different opinions on strategy when it comes to Social Security. Some want to collect early and that may be the best option for them. Others want to wait and spend down their retirement savings first . There is no “one size fits all” strategy. But all I was pointing out was that it is not a good strategy to take your benefit early and try to invest it while living off of your savings.
Great discussion, thx Rob! Inflation is a factor too; not just needing to earn 7-8% return consistently over decades.
In addition you need to factor in the growth not shown in your social security projections due to compounding of cpi on a larger dollar amount at 67 and 70 versus 62. Then there is the hold harmless provisions for Medicare, if you draw at 65 versus 67 or 70 if Medicare increases are above your annual cpi raise you aren't charged that extra cost but those increases can be applied fully to anyone not retired yet. So anyone delaying retirement will pay more in Medicare premium costs versus someone who retires at 65. The optimal age often is to take Social Security at 65 when Medicare kicks in, as you no longer are eligible for Obamacare. Then there is the factor of married or unmarried which make it even more complicated. But if you are single man and in average health, take it at 65 and be done with it. But if your health is poor, file first for Social Security disability, then file for retirement at age 62. Chances of winning SSDI are small, but if you do, you will get the higher full retirement age amount even if you retired early and started to collect. Yes very complicated indeed.
Great discussion! I’m a decade away from worrying about it, but definitely worth starting to think about.
Thanks for this video, Rob. Very useful and informational, the IRMAA component is something a lot of seniors take into account even just trying to setup Part B or Original Medicare. It is really complicated.
Wow, that was a great breakdown, Rob - glad I'm not the only bogled-mind over it all. 👍🏼
Thankfully I have a few years to find a good CPA!😀
You also need to consider your spouse's circumstances, especially if he or she will be drawing your benefit when you die.
I really like this format of answering viewer questions! Also, I'm listing to your book "retire before mom and dad* and its great so far!
Rob - really enjoy your videos. As you pointed out, there are a zillion ways to define “financially beneficial” when trying to determine if claiming early makes sense. There are so many variables that need to be considered and I have found the only way to figure it out is to build a sophisticated excel spreadsheet that is fine tailored to the individual making the decision. I find most models online way too simple. I think you have to go deep in answering, among others, 2 key questions: 1) What does getting this incremental money enable you to do? And 2) What does getting this money trigger (think marginal tax rates, Medicare premiums, AGI, etc…). In looking at question 1 if getting this money enables you to fund an HSA which you otherwise would not fund - that needs to be modeled….or a Roth IRA….or it enables you to up your 401K contribution to gain your employees match…or enables you to participate in a “friends and family” IPO…. The list goes on and on and on….and the probability of a financial planner or accountant doing it perfect is zero. My point, which is the same point you so eloquently made, is that to get a precise answer on this is difficult. Ive been modeling this for over 20 years (I’m 61 and newly retired) on the same spreadsheet with new “tweaks” every year….it’s kinda fun for a finance/spreadsheet jockey like me….I be come to one conclusion when people ask me this question….and the answer is: “It Depends”…… Keep making great videos!
61 and non-working spouse is 58. Not retired but getting closer every day.
Questions include 1) begin drawing at 62 or 2) delay drawing SS and begin distributions from 401K first. The bigger question is what about medical insurance? How much can I draw from 401K before this raises my premiums on the exchange? Is there a earnings amount or cap which would make you ineligible for lower premiums?
Most importantly - who has the answers? Is this a Financial Planner or CPA Tax professional. Too many unknowns for me right now.
What a great, meticulous breakdown. Really appreciate the detail you went into for this video.
Great Video!
Great job breaking down the complexity... and it was complex even without getting to the dual spouse social security delay one for survival purposes consideration!
Investing benefits is for most people paying down debt. Paying off debt is almost always the best investment because the benefit of not paying interest is not taxable in any way. I personally play a good stock market, but if you have debt on credit cards and the like, you could see effectively a 25 percent gain on any money coming in.
That's a great spreadsheet, I copied it. I made a much cruder one just yesterday figuring out the break even age (78).
The takeaway I'm getting is that I need to collect at 62. Even with zero interest I'm ahead for 16 years.
Add in some interest and I don't think I'll have to pay enough taxes to make it worth the wait, ever.
Also rather than invest, I should get to spending some money on travel and enjoying life while I still can.
I'll be 59 this year and may start transferring IRA money into my post tax account, especially if stocks are low.
I'm hoping for a deep crash where I can pull my IRA money out, and avoid big taxes, and then a rebound where it grows back in the post tax account.
I'm at a similar age with the same perspective. I did my first IRA to Roth conversion in Dec. Like you, I'm hoping for a larger stock drop this year to transfer more shares over for a smaller tax hit. By age 62, I should be able to maximize the ACA subsidies, not pay taxes on my SS payments, and minimize/ avoid having Medicare taxes by only using my SS income and Roth.
So glad you touched on these topics and issues. It is deep. I have been digging into all this for planning our early retirement and it's a minefield. But I am a engineer and love treating it like a flow or logic chart with If, then, else statements. Lol. There is no reason for it to be this convoluted. We run into this very problem with ACA figures if we take our SS earlier than 65. Since we would use medicare at 65 and then the issue is only one of income from investments, IRAs plus SS which puts us in a much lower tax bracket then we are in now. So no worries there. We will always be in the 10 to 12% ( current 2021 brackets ) area for tax purposes until 1 of us dies and then perhaps some years would put the surviving spouse into the next bracket just slightly. But yeah, lots of things to consider and be aware of.
For those wanting to advantage the huge subsidies for ACA premiums, timing of SS is important. You may want to make sure you have after tax funds (savings, Roth conversions) before moving to ACA. Take your Roth conversions to the top of 12% bracket. You can then take SS as your primary income to hit MAGI minimums and supplement spending with post tax dollars. Easily score $16-19K per yr in subsidies between the age of 62-65.
Seems like a good option for withdrawing at 62
Rob - this and all your videos are very helpful! Thanks!
Rob, excellent information. Thank You
My hope and strategy is to use the 12% tax bracket withdrawal methodology, since I won't need much - debt free - and don't have but 700K in a 403(b). Take the maximum I can from my plan to stay in the 12% bracket and if I don't spend it (45K per year) then invest the rest and do this until 72....it's a plan, I'm a year out from retirement at 62 1/2 and plan to collect SS at 65.
For many of those that do not need social security, their social security will be fully taxed (85%) so any increase at 67 or 70 will be only approximately 70 percent of the actual increase. In my case the difference between 62 and 70 is about $1700. After tax the difference is approximately $1200 which changes the break even age even without accounting for possible investment income quite a bit. Investment income might also be taxed at a lower rate assuming it comes from dividends or long term capital gains.
Great video. I am trying t sort this out. Retire at 55 in thee years with a pension and I want to do 401K -Roth IRA conversions before RMD's . This means I want my taxable income as low as possible from 55 to 70ish to pay less to convert. It also mean 85% of my SSA will be taxable which makes me want to wait until my conversions are done.
Another great video! Thanks Rob! To make your quick calculation more accurate, wouldn't the market growth need to be reduced by inflation to account for the SS inflation adjustment?
Please also take a look at the comment by Manish; He may have a good idea for a follow-up video - I'd be interested.
This is where I am not sure what to do. I agree, probably seeing a tax advisor when you are 62 is best, to see what all will give you the best options. Honestly, I am not counting on the benefits of SS because it might be "deprecated" at the point of my retirement (19 years from now). So, I am going to heavily rely on my roth ira and my regular employment 401k. Also, not to mention, I will be paying off the house as well. I think SS will be good to offset some expenses like groceries and electric/gas.
If you're taking SS but not living on it presumably you're living off other assets, probably investments. So you would be taking money out of investments to live on and then investing SS money instead of just using SS for expenses? I guess maybe if you have enough Real Estate income to live on the SS could give you extra to invest with.
Basically I think it's more a question of taking SS early so you can more easily stay invested.
I think SS might best be used for people with high net worths for reducing how much you need to pull out of investments, especially in bad markets. Maybe a good strategy is to hold off on SS until 70 unless you hit a really bad bear market before 70.
Great content. Thank you! I have a pension coming, but no much in my 457(b). I'm thinking of going for the 67 option, though I plan to retire before that and I know that will affect the SS amount.
If you don't need it, then it makes no difference what you do with it. Also, at 62, I am earning 6 figures, so I would never receive ANY of my SS, if I were to take it, now.
Is the assumed rate of return after inflation? If not, how does inflation affect the decision? Another great video
Thank you so much for doing these videos. I have learned so much each time I watch. I was wondering if you could do a video soon on understanding the metrics found in portfolio analyzer. Its way more data than I can process, and I was wondering if you could hone in on the most important metrics to look at or pay attention to in a portfolio. All these ratios and regression factors.... is any of it at all useful? It must be to somebody, or else they wouldn't include it! thanks!
No matter how I looked at the age for taking social security, in terms of taking it at 62 vs. investing (or really just not taking it out of the 401k savings, which is what would have to happen), it seemed that there's no clear winner. Even what your calculator shows is there's not really much of a difference, either way. The controlling variable is, of course, lifespan. So while I've planned to live to 92, I realize that's optimistic. So, I took social security at 62, when I retired a few months ago. Of course, now that I'm starting to understand IRMAA and RMD, along with tax implications and the potential of/for Roth conversions, I have no idea if I made the right decision or not. Since, I also found out that the social security decision can be undone and payments returned, within the first year, followed by starting it at some point later, I guess there's more homework to do.
Is delaying SS and the benefits of Cola amounts taking into consideration. Eg. If I take my SS at 67 that amout then gets the benefits of any COLAs from 62 through 67 to get the actual monthly benefit.
Yes. Your current FRA amount, that you see when you log into your SS account, will change each year, with each new COLA increase.
Delaying SS benefits will increase a tiny bit for each month you delay, AND the amount will increase each year with each COLA increase.
when someone hits retirement age w/ 1-2 million in their 401k (tax deferred), there appears no reasonable way to avoid all these traps. u can only convert so much each year between retirement and when RMD's kick in, especially considering u likely have distributions already using the lower tax brackets for simple living expenses. all the while SS income is making the conversions even more tax-vulnerable and increasing your healthcare premiums. in an indirect way, ppl get penalized for being avid savers
Rob, have you (or anyone) considered what might happen if the SS trust runs out and that if at some year in the future (say 12 yrs from now), our SS payout is reduced by 33%? Then if we started earlier (at 62) we might have 8 more years at the PRE-Reduced payout that might be applied to all of us in 2034. Or worst yet, what if the higher end SS payouts are reduced more than the lower end payouts (because obviously the "rich" can take a SS hit better than the "poor")? I just am not convinced that holding out is the best strategy for everyone. Plus you didn't talk about (or consider) that if you wait until 70 to start SS, and you've been holding back drawing from your tax-deferred 401k/IRA, that at 72 you will need to start pulling out RMD from your retirement accounts. That coupled to your higher SS payouts could end up putting you into a higher tax bracket. Plus, don't you think you will want to spend more when your are in your younger retirement years and in better health and have better mobility? If you wait until you are 70, sure you might have a greater income in your 80s and 90s, but we know that most of that money will go to IRMAA Medicare surcharges, Medigap premiums and Long Term Care facilities.
Yes!!! I am not hearing enough about the Social Security Fund running out in 2034. That is the reason I am probably going to start Social Security at 62 even if I do not need it. This is the 300-pound gorilla in the room that no one is looking at.
It really boils down to how much you have saved. Assuming you are of average health, there is really no scenario that favors taking SS early other than if you simply have to. But if you have to take it the advice would be to keep working till at least 67. Some feel that taking it early, even if you don't need it, allows you to spend more in your early years, but that isn't true. Plans geared toward splurging always include delaying SS and spending more savings now and relying more on SS later. There are two factors driving the math behind taking SS later. First, the formula they use to calculate your benefits based on 62, 67 or 70 years, was created in the 80's and is a bit outdated with regard to lifespans now. SS at 70 is 77% higher than SS at 62 which is very hard to beat. As the video shows, it would take consistent returns of 8% for more than 20 years to edge past the gain you get by delaying SS. Most retirees don't and can't manage that kind of portfolio or risk. So you can go with a very risk free portfolio at 3% (CDs and whatnot), delay SS till 67 or 70, and live the same as someone aiming for 8%. What is there to choose? Again, it is just really hard to beat that 77% increase in benefits you get when you delay till 70. Most people actually choose 67 as a middle ground because that is optimal for a 6% portfolio. 70 is optimal for a 3% or less portfolio.
I’m in an enviable position in retirement of not needing my SS for daily expenses and use dividends exclusively to live on. I’m waiting til 70 because I’m very pessimistic about investment returns going forward. What if market returns were like the lost decade? SS guarantees me 8% additional return for each year that I wait. I believe your 7-8% returns may be quite high
The guarantee in taking SS early is that you get your money. Delaying taking SS till 70 does not guarantee you live till the breakeven point.
@@GoKU-xx2vg survivor benefits- my wife gets the greater of our two benefits
@@GoKU-xx2vg If you don't live until your breakeven point, why do you care? You're dead, right?
Haha, good luck everyone. I’ve been working on modeling this for the last week or so and it’s a mess. If you have a substantial amount in a 401k or ira, probably better to do your Roth conversions and hold off on SS. If not And you can invest it I think it makes sense to take it early. After all, You never know how much time you have.
Well covered the subject, thanks for sharing, Rob. I'm not a US tax payer, I'd like to know if all people get social security entitlement in the US or conditions attached? A brief overview would be of general interest. Thanks
You must contribute to social security (mandatory for any normal employment) for a minimum of ten years to be eligible. I don’t know exactly how the benefit is calculated but basically you will receive a higher payout for more years and higher earned income. The min age to claim is 62 but you will get more per month for waiting each year until 70
@@nicolasbullaro4093 Cheers Nick. You ticked most of the boxes! 👍
Social Security is based on your 35 highest covered years. They add them all together after indexing everything before age 60 to inflation. Then they divide by 420, which is the number of months in 35 years. This yields your AIME or average indexed monthly earnings. Then a formula is applied with what are called bend points to come up with your Full retirement age benefit. The percentages in the formula are set by law but the dollar amounts in the bend points change every year. Once your FRA benefit is determined you have the option of taking it as early as age 62 but you are penalized for doing so. The penalty is figured up on a monthly basis so you can take your benefit at any time.
@@johnscott2746 I appreciate this complete picture of the US retirement pension. Good to have a solid understanding. Thank you John😊👍
Good info...
Cant you model/restate the SS yearly increase that the govt offers (from delaying the claim) as pseudo-interest?
I think that simplifies the analysis greatly. At that point you're just comparing the interest earned from delaying your claim against the assumed/hypothetical interest from investing.
Taking it at 62 if it's even an option when I get there and the whole system hasn't collapsed. I will try to just live off of it while my wife still works (several years younger) and since we have no debts and I will be on her insurance, I will leave my money accruing/DRIP to use later.
How about still working (single tax bracket of 22%) for my income and not pulling out any other income - can I at 67 FRA take my SS allowed then, keep working full time for 3 years until 70 and invest all of my SS or most- so that it grows during that 3 year period? would those 3 years of investments grow more than the bigger SS payout funds at 70 and not work (or maybe a bit if I have to) but I am stuck at the FRA lower payment forever?
Hi Rob, Have a question on general investing. Would it be better to own few stocks (assuming it has some dividends) with enough quantity to DRIP and earn about 1 stock each year or more stocks variety of small quantity (like say 5 or 10). Stocks like PG, MMM, VZ, SO, CSCO, KO, RTX etc
The idea is, decide on few companies and invest in only those when funds are available Vs Buy Stocks in smaller quantity (with available fund) but diversify.
If I start receiving SS early (before 67) and invest those money but still need to withdraw from IRA to supplement income, is that same thing as if I spend the SS money but stop withdrawals from my IRA? Hope my question makes sense. Thx
What happens to my Disability if I do cl retirement into 62
My question is, because the tax complexity you mention and allude to, does this start to justify the use of a Fiduciary Fee Only Financial planner that includes these tax planning services? Does $10,000 to $20,000 a year for these guys make it worth it to navigate the best strategy in retirement?
Absolutely not, in my opinion. Why pay 1% of your wealth every year when you can get this advice for a few hundred dollars from a tax accountant?
Thanks Rob. Enjoy your show and value and appreciate your opinions.
No way! Most of these financial advisors are clueless and just want the easy fee. Hold on to your 💵. No one cares more about your financial well being than you. See an accountant or someone who charges a one time hourly fee. Watch lots of good RUclips’s and read articles online.
Rob, Rob, Rob you are, as usual, totally clueless. Social security is based on the 35 highest income years. So the first thing a person turning 62 needs to address is whether or not they are at their peak earnings. Many of us have gotten laid off (I represent that) and have had to take a COJ paying significantly less than our peak earnings. If that is your case then all of the FICA coming out of your paycheck is not improving your social security benefit ... it's only helping social security pay other people, sorry-to-say. So if this is your case and you can live on SS then don't drink the kool-aid, it's not worth the health-risk of working a COJ 5 more years. The vultures at social security dangle this "increased benefit" for deferring enrollment in the very hopes that people working a COJ drop dead before they ever enroll, thereby forfeiting to the pool all of their and their employers contributions over a lifetime.
The other thing you are clueless about is what is called "Hold Harmless" (such an ambiguous confusing lawyerly phrase!) Hold-harmless is a law voted in by congress in 2016 (I think) addressing a problem whereby Medicare Part B increased by a greater amount than the social security COLA (Cost of Living Adjustment) thus reducing social security income for senior citizens. The hold-harmless law says that if you are paying medicare part B from your social security by automatic deductions then your increase to medicare part B is limited to your COLA. The only problem with this law is that it was not funded and medicare part B is only funded by subscribers, not taxes! Thus, the difference is paid by medicare subscribers that are not on social security - a minority of medicare subscribers. So, the minority pay a larger increase in part-B to subsidize the majority and this is a significant penalty to deferring social security beyond 65. So much so, that you will not "break-even" on a late SS enrollment until your mid-80's. This is what social security would rather not have become common knowledge but it is so.
I’m really enjoying your videos. Great job and thank you.
Great video!