Making an early social security claim when you have other assets to spend down

[lannarebirth]

6 minutes ago, Jingthing said:

Can someone definitively confirm or deny that the option to pay back and stop an early claim within one year of starting to stop it has been discontinued or not?

 

Also the option that was mentioned here of being about to temporarily stop a claim between full retirement age and 70. I had never heard of that before. If that option did really exist, does it STILL exist?

 

From the horse's mouth:

 

https://www.ssa.gov/planners/retire/withdrawal.html

[Jingthing]

6 minutes ago, cmarshall said:

Here, let me work duckduckgo for you:

 

If You Change Your Mind

Unexpected changes may occur after you make your decision about when to start your Social Security Retirement benefits.

If you are receiving Social Security Retirement benefits and you change your mind about when they should start, you may be able to withdraw your Social Security claim and re-apply at a future date.

However, if you change your mind 12 months or more after you became entitled to retirement benefits, you cannot withdraw your application.

You are limited to one withdrawal per lifetime.

Withdrawing your application

Before you make your decision, there are some things you need to know about what will happen if you withdraw your application.

• You must repay all the benefits you and your family received based on your retirement application. The repayment must include any:

 

https://www.ssa.gov/planners/retire/withdrawal.html

Thank you.

That seems to be straight from the horse's mouth.

 

Later in that link they refer to the option to suspend benefits later, apparently still in effect --

 

https://www.ssa.gov/planners/retire/suspend.html

[cmarshall]

JT,

 

Taking life expectancy into the decision on whether to delay SS benefits would be foolish, unless you have a terminal illness.  The current belief from statisticians is that longevity is only about 15% heritable.  So, it hardly matters what happened to your parents.  And then, the bet is asymmetrical.  If you guess that you'll die on the soonish side and you are wrong, you end up old and broke.  If you guess you will live to a ripe old age and delay SS to pay for it, but it turns out you die next year, you still achieved your goal of not being poor, because once you are dead you don't need money.

 

If, on the other hand, your goal is to win a bet with the government on the time of your death so that you can be sure of spending the maximum amount of money while alive even at the risk of going broke, then this discussion is hopeless.

 

If, as I gather, you have indeed missed the boat on delaying SS and regret it, there is still the option of buying a single payment immediate annuity from an insurance company.  Not as good as SS for sure, but they will pay and you will not outlive that income stream either.  Go over to https://www.bogleheads.org/ and ask how to proceed for the latest best recommendations.  

[Jingthing]

9 hours ago, cmarshall said:

Jingthing,

 

First of all, no, the situation is not different for everyone.  We are not talking about about a preference for pistachio over cherry vanilla here.  Personal preferences don't matter here.  This is arithmetic. 

 

Leaving aside those with terminal illnesses, those with sufficient assets so that SS benefits are just not important to them, and those who must take benefits at an early age, because they lack the resources to delay, it is definitely better to wait.  The people who reject that analysis are the one who cannot understand the crucial difference between an annuity (SS benefits) and an investment.  Add to this cognitive defect, the known fact that naive investors consistently overestimated their investment skills and you have a recipe for poor decision-making with regard to the most important financial decision in later life: when to take SS benefits.

 

So, yes, Jingthing, you made a mistake in taking benefits early.  The SS annuity is the only financial asset available to most of us that we cannot outlive.  The fact is that for nearly all of us we don't know how long we will live and so we don't know how much money we need to cover our cost of living for the rest of our lives.  The naive folks "solve" this problem by making some simplifying assumption such as, an average life span of say, 74 years.  But if you are 62 your average life expectancy is greater than 74 years and in any case assuming the problem away does not lead to good decision-making.  So, we have to accept the irreducible fact that we don't know how long we will live.  The answer is an annuity, the best of which by far is SS.  Funding the gap between the day you stop working and the day you start your delayed SS benefits, for instance, your 70th birthday, is a challenge, but if you can manage it you are in effect purchasing more of the best annuity in the world.  

 

I have been there and done that.  I just passed my 70th birthday and received my first SS benefit payment this month.  Had I started collecting at age 62 my benefit would have been about $1600/month.  My current benefit is $3185/month.  Since my wife is eligible for SS benefits on my earnings record, she will eventually inherit my benefits which will receive Cost of Living Adjustments annually.  I expect SS will be feeding her decades from now, long after I myself have gone up the chimney.

 

By the way, the strategy to avoid suddenly having a big annual tax bill at age 70 from SS benefits and Required Minimum Distributions starting in the same year, is to convert a portion of your Traditional IRA assets to a Roth IRA each year prior to age 70 during which time you are probably in a low tax bracket.  The optimum strategy is to convert enough each year to bring your taxable income up to the top of your bracket so that you are pretty sure that the tax is the lowest you would ever pay.  As of now nearly all of my IRA assets are in the Roth where they will never be taxed and for which there is no RMD.  Eventually, my wife will inherit my Roth IRA as well.

 

Most people's financial planning is hampered by an inability to delay gratification.  The few corporations who still offer defined benefit pension plans, understand this very well.  They routinely offer the option of lump-sum payouts at retirement age instead of the annuity.  When they do so, they always underprice the lump-sum, even after adjusting for the time value of money.  The average employee is eager to grab the pile confident that he can count on a 10% return in the stock market which will never go down.  The decision when to take SS benefits is essentially the same, although the SSA is not taking advantage of us by mispricing either early or late benefits.

 

The option to undo claiming SS benefits by repaying all that you have collected so far is no longer available if you have collected more that 12 payments.  That's too bad, because that was an especially good deal.  If you haven't hit the 12 payment mark, I urge you to suspend and repay.

 

 

Nothing wrong at all with what you wrote there but you made one presumptuous assumption. assuming the taking early benefits are not important to me. Actually they are very important to me. By not taking them I would be majorly trashing the savings that I do have which of course I don't want to do. So I don't agree with you that it's always a black and white decision. Obviously if I had no savings (must take it early) or massive savings (definitely wrong to take it early) it would be. But my situation was more in a grey area. So I took a gamble and really whether that gamble works out or not is linked to my personal life expectancy. You say that isn't a factor, but bottom line, at the end of the day it is. Yes I do understand you can present a number crunch argument that even in a grey area case like mine, I still should have delayed even though it would mean a significant trashing of my savings. That may be logically correct, but there is a comfort level part of this too. I wasn't comfortable with seeing my savings spent down so quickly at a relatively younger age.

Also there are life situation factors as well such as owning your own home or not, living in the U.S (high cost) vs. a lower cost expat destination. 

 

I want to add that I didn't start this discussion to only discuss my own situation and decisions. I started it for it to be a discussion topic for others that may be dealing with similar issues. As I general rule I agree don't take it early and people should be biased in that direction but I still think there are some good and necessary reasons for many to take it early as so many do. 

 

I also agree my "grey area" argument which might be a factor for others is not the strongest reason to take it early. Pointing out depending on your specific situation, this decision can be a very hard one to make. 

[cmarshall]

2 minutes ago, Jingthing said:

Nothing wrong at all with what you wrote there but you made one presumptuous assumption. assuming the taking early benefits are not important to me. Actually they are very important to me. By not taking them I would be majorly trashing the savings that I do have which of course I don't want to do. So I don't agree with you that it's always a black and white decision. Obviously if I had no savings or massive savings it would be. But my situation was more in a grey area. So I took a gamble and really whether that gamble works out or not is linked to my personal life expectancy. You say that isn't a factor, but bottom line, at the end of the day it is. 

The minimum requirement for being is this discussion is that you have discretionary savings enough to "buy" more annuity from the SSA.  If that's not your situation, then you are wasting everyone's time.  But I think it is your situation.  If you did know how long you have to live then the intractable problem would become trivial, but you do not know this.  You might delude yourself into thinking you have more information that you do on the matter, but it would be more fool you were you to believe it.  As I pointed out the risks are asymmetric.

 

So, yes, it is pretty much arithmetic in black and white unless you are determined to believe you know what you don't know.

 

That said, I wouldn't spend my last dollar to buy more annuity.  One still needs an emergency fund, particularly if you expect to pay for health care out of pocket in Thailand.

[Jingthing]

15 minutes ago, cmarshall said:

The minimum requirement for being is this discussion is that you have discretionary savings enough to "buy" more annuity from the SSA.  If that's not your situation, then you are wasting everyone's time.  But I think it is your situation.  If you did know how long you have to live then the intractable problem would become trivial, but you do not know this.  You might delude yourself into thinking you have more information that you do on the matter, but it would be more fool you were you to believe it.  As I pointed out the risks are asymmetric.

 

So, yes, it is pretty much arithmetic in black and white unless you are determined to believe you know what you don't know.

 

That said, I wouldn't spend my last dollar to buy more annuity.  One still needs an emergency fund, particularly if you expect to pay for health care out of pocket in Thailand.

I get your point. It is a good argument and hopefully it will be useful to others in similar situations.

Again, I was not comfortable doing a massive spend down and that was my reason for choosing the early claim. Yes I understand it may burn me later. I took that risk in full awareness. 

 

No I certainly am not claiming that I know what I don't know. What I know is that I took a gamble as many people do. Moving abroad is a gamble too. Investing in the stock market is a gamble too. You may win, lose, or break even. 

 

Another point I want to bring up is that much of the mainstream media information on retirement planning is directed at high wealth people and assuming most everyone is in that category (when most actually aren't). For most people it's like reading restaurant reviews for five star restaurants when your budget buys burritos if you're lucky. 

[cmarshall]

14 minutes ago, Jingthing said:

I get your point. It is a good argument and hopefully it will be useful to others in similar situations.

Again, I was not comfortable doing a massive spend down and that was my reason for choosing the early claim. Yes I understand it may burn me later. I took that risk in full awareness. 

 

I am sympathetic to your situation even if I am not very patient with your thinking. 

 

There is another insurance product that could be useful for you: longevity insurance.  These products came out a few years ago, but were not very popular, so I don't know how available they are now.  Longevity insurance is like a single payment annuity except that the payout does not begin immediately.  You can delay it for whatever period you like within some range that depends on the company.  So, you could buy the policy now, pay the lump sum immediately for benefits that begin only after ten years, for example.  The advantage is that such an annuity is much, much cheaper that one with an immediate payout, because the insurance company knows that you might die in the meantime.  But from your point of view it might address your risk of longevity at an efficient cost.  After all, you are apparently worried now not about the immediate future, but the somewhat more distant future.

 

I haven't kept up with these products, so I would refer you again to the bogleheads, if you wish to pursue it.

[partington]

8 hours ago, gamb00ler said:

The issue you have overlooked along with the many who view SS as an investment is that at 80 most people will NEED that $1 a lot more than at 62 (for medical expenses).

I'm english, living in the UK, and so have free healthcare, so this is not a consideration for me (and my main reason for deciding not to retire in the US!)

 

(I'm participating here because I worked in the US long enough to get a very handy $1200 per month SS payment which I started to claim the very first month I was eligible.

 

I agree this may not be wise for people in different situations.  I am lucky in that I have two other pensions starting in a few years time, plus enough savings to survive for about 30 more years in the absence of any pensions at all, plus no spouse, so I admit my situation is far from typical.)

[bendejo]

11 hours ago, Jingthing said:

I have noticed (correct me if I'm wrong) that there is a dynamic with life expectancy where it gets older the older you get. 

 

For example someone 20 to 50 may have an average life expectancy at the average national age.

 

But once you get to 60 the expectancy would be higher than that average, and also 70, 80, and 90.

 

Yeah, I've noticed this.  It seems that if someone has something with terminal consequences they'll find it before 70 (provided they get regular exams (see my previous post)) and the show's over by around 75.  Summary: if you make it to 80 you could possibly reach three digits, but whether you want to is another story ;)  *

The current observation is that cancer has a four-year cliff, or so they say, but Jerry Orbach was able to function, and work, for 10 years after his diagnosis.  I'm a fan of Law&Order's "Briscoe years" and can't help noticing his character regularly makes comments about cancer and prostate problems.  If you want an example of what kind of medical care tons of $$$ could possibly do for you check out Paul Allen's wiki page.

 

Some recommended reading regarding the extended longevity experience:

https://www.newyorker.com/magazine/2014/02/17/old-man-3

https://www.nytimes.com/2014/07/27/opinion/sunday/maureen-dowd-angell-in-the-outfield.html

 

*To end on a light note: do you really want to live to be as old as Andrea Mitchell?  She interviewed Moses before the first Passover, back when she was 50.

 

[amykat]

jingthing, it sounds like you could be in that 12 month window?  I also urge you to consider it, maybe you can call and put your benefits on hold while doing some research if you are near the end.  

 

I am also wondering, due to the comments you have just made, if you have been investing too conservatively, therefore even with your 3 to 4 percent withdrawal rate you mentioned, you feel you are going to be circling the drain?  

 

I’m not for any and all kinds of investing, especially if you don’t know what you are doing, but some people can not afford to be too conservative, because inflation is eating up your money, and you did not maybe have enough to start with.  This can lead to thinking that you should take no risk, but I think this means a sure risk of failure in that case.   Sort of what you are doing now, locking in low SS due to fear.  Your main chance of success is going to come only if you die young or something lucky happens to you like some windfall.

 

You could have been getting good stock market returns in index mutual funds like the SP500, or Total Stock Market or some others that might be good for you. I would highly suggest you go to Boglehead forum and start to study that and become a member of Vanguard.  You could have been banking some money each year and taking your 4% ...that is what you are supposed to do, be adding at the same time.

 

 Sorry if you already know this and I misunderstood you.  And don’t read mainstream media for retirement planning, sorting through what is good and what is crap, is most of the battle.  Vanguard can put you on a good path and teach how to educate yourself as well.

 

You can also put your story out there on the forum and get advice from really awesome people if you want.  No attacking, no politics there, no trolls, serious people who know their stuff.

 

[mania]

On 7/18/2019 at 6:14 AM, Jingthing said:

There is no right answer for everyone. 

That is about the size of it.

 

We have been thru this discussion before in this very forum

To the folks that wait till 70....Thank you for your contribution ????

 

I started at 62 with no regrets

 

I had no debt...own my home outright in US & Thailand

Stopped working when I was 55 not because I was rich but because I wanted to.

 

I think I know better what to do with the money I started taking at 62

 

Good luck to you & sorry but none can help you except to say what they did & that is probably

irrelevant to you,

 

 

[EVENKEEL]

I'll be putting in my papers end of 2019 at age 62. I'll have a small Gov pension to boot. Own homes in the US as rentals, paid for 2 homes in Thailand where I live. Tired of being away from home 6 mos at a time working.

 

Turn the page...….

[wwest5829]

Retired at age 64 1/2 in 2011. Reasoning? Working the academic year would mean working until 65 1/2 and another two full semesters. Had 5 by-passes in 2005 and inherited cholesterol issues. Seemed like the timing was right to end my teaching of American and European History, directing our city’s Sister Cities program and acting as International Representative of the BSA Council serving 35 western Kentucky counties. Tradeoff on taking a reduced monthly SS amount. Now at age 72 I am forced to take RMD from non-defined benefit retirement funds. All in, my annual income is about $34,000USD. Comfortable in Thailand but I am thinking it would mean a rusting trailer in the US. US tax liability minimal. I am a resident of Thailand, own no US property and so have no state tax liability. Enjoying the winter of my life in warmth.

[cmarshall]

34 minutes ago, wwest5829 said:

Retired at age 64 1/2 in 2011. Reasoning? Working the academic year would mean working until 65 1/2 and another two full semesters. Had 5 by-passes in 2005 and inherited cholesterol issues. Seemed like the timing was right to end my teaching of American and European History, directing our city’s Sister Cities program and acting as International Representative of the BSA Council serving 35 western Kentucky counties. Tradeoff on taking a reduced monthly SS amount. Now at age 72 I am forced to take RMD from non-defined benefit retirement funds. All in, my annual income is about $34,000USD. Comfortable in Thailand but I am thinking it would mean a rusting trailer in the US. US tax liability minimal. I am a resident of Thailand, own no US property and so have no state tax liability. Enjoying the winter of my life in warmth.

I am missing the part about the academic defined-benefit pension.  My brother who retired from a state uni is getting 80% of his average salary for the final three years.  In Kentucky they just throw you to the wolves?

[dontoearth]

On 7/18/2019 at 12:12 PM, MeePeeMai said:

Another consideration for some (and not known to many) is the WEP and GPO otherwise known as the Windfall Elimination Provision and the Government Pension Offset.  These are a big deal for me because I lose 50% of my Social Security benefit when I take it (I'm only 58 now).

 

The reason I get penalized is because I have a government pension for the rest of my life even though I paid into social security for more than 30 years, I still get penalized for having another pension.  It's not fair but it's just the way it is.  Therefore, I plan to wait as long as I can to claim my SS benefits so as to maximize my monthly take and minimize my losses so to speak.

  U need to get some more advice.  At 30 years of pay-in to social security the WEP penalty is removed.  It is phased out between years 20-30.  You may have a pleasant surprise awaiting you.

[dontoearth]

Can I just say you can collect your social security or other pension and just bank the money if you don't need it.  It seems everyone believes you have to spend it.  

[Kurtf]

To me there is only one reason to not start taking your SS at age 62. And that one reason is because you absolutely KNOW without ANY doubt that you are going to live a long life into your 70’s and 80’s. To me that is a no brainer. Tomorrow is never guaranteed.

[Jingthing]

6 minutes ago, Kurtf said:

To me there is only one reason to not start taking your SS at age 62. And that one reason is because you absolutely KNOW without ANY doubt that you are going to live a long life into your 70’s and 80’s. To me that is a no brainer. Tomorrow is never guaranteed.

Nobody can know that without any doubt. All you could know on that subject is your family history and the CURRENT state of your own life. 

The standard best/good no grey area reasons to start early are being in very poor health with an objectively determined short life span or needing the money right now because of no other income or insufficient income for necessities (as opposed to wanting the money for a fancier car). 

 

[Jingthing]

31 minutes ago, dontoearth said:

Can I just say you can collect your social security or other pension and just bank the money if you don't need it.  It seems everyone believes you have to spend it.  

You can do anything you want with the money but that would be a bad reason to take it early, just to bank it.

Many people in recent years are doing something similar. They are talking it early without needing it and putting that money in the stock market. They feel they can beat the stock market compared to the built in increases by delaying starting the claim.

Well by recent stock market history they can, but longer term, they can't. 

[Searat7]

On 7/19/2019 at 4:48 AM, cmarshall said:

This option was removed a few years ago.

I had a friend who stopped his benefit a year ago and paid back what he had received (via credit card ugh) only to restart the benefit again this year. I took my benefit at 62 because I have concerns about the future of the program. 

[cmarshall]

14 minutes ago, Searat7 said:

 I took my benefit at 62 because I have concerns about the future of the program. 

Have you read the summary of the 2019 Trustee's Report for Social Security and Medicare?

https://www.ssa.gov/OACT/TRSUM/index.html

 

The good news is that the OASI Trust Fund, which was established in 1983 by the Greenspan Commission, is now projected to last one year longer than it was last year.  The subsequent reduced benefits payable if the fund is indeed exhausted has now been raised to 77% of projected (not current) benefits from last year's projection of 75%.

 

These projections are based on the assumption that Congress does nothing to correct the funding deficit such as applying the payroll tax to 100% of salary without a cap, applying the payroll tax to capital gains, investment income, 401k contributions, stock options and other forms of income currently typical of high earners currently excluded, and other possible measures.

 

The Social Security 2100 Act, passed by the Democrats in the House in Feb, 2019, addresses the funding deficit and goes further to increase SS benefits beyond the COLAs.  If the Dems were to gain control of the Congress and the White House, that measure would become law.

[newnative]

   You are right in that every person's case is different and there is no one size fits all correct answer.  In my case, I retired at age 52 in 2005 after 30 years working at a state college.  I knew full well that I would have a bigger pension if I worked full-time longer but I was just burned out and wanted to do some different things.  How do you price time and experiences?

    At the time, the state had a program that would pay you a larger monthly pension until you reached age 62 and then it would reduce when SS kicked in. I worked an additional 5 years part-time and then moved to Thailand in 2010 with my Thai partner.

    I took SS at age 62 and I absolutely have no regrets.  Also no regrets at all about taking early retirement.  However, I don't rely solely on SS and I also have the US state pension, as well.  Had SS been my only pension, I likely would have worked longer and not taken SS early.

    It's true that if you wait your monthly benefit will be more but it's important to remember that once you start SS your monthly benefit is likely to rise each year with cost of living adjustments (COLAs).  

    I remember when I came to Thailand in 2010, my state pension barely got over the 65,000 baht a month retirement requirement--I think it was something like 66,500 baht.  In 2014, SS kicked in and my state pension reduced some but I still ended up with a bigger monthly income with both of them. 

   With the COLAs I have received on both pensions, my monthly income now is around $1900 for the state pension, almost what it was before the reduction, and around $1400 for SS, about 100,000 baht combined.  The COLAs do help to keep pace with costs and I am very grateful both pensions have them.

    

[exppenang]

Probably the most worthwhile thread I have read in a while. Thanks everyone for contributing. I got a little bit from everyone and it is very interesting to get everyone's viewpoint.

Like a lot of us here, I am at that age where I will soon need to decide whether or not to delay applying for benefits.

Of particular interest to me is the GPO (Government Pension Offset). I paid SS contributions from age 16 until 38, then changed civil service status from civilian to public safety officer. At that time I also stopped paying SS contributions and am now retired on a defined benefit package.

I just researched the GPO. As I read it, the reduction in benefits from the GPO applies only to spouse benefits. As I understood it, the GPO does not reduce SS benefits for the individual.

Am I getting that right?

[sirineou]

3 hours ago, Kurtf said:

To me there is only one reason to not start taking your SS at age 62. And that one reason is because you absolutely KNOW without ANY doubt that you are going to live a long life into your 70’s and 80’s. To me that is a no brainer. Tomorrow is never guaranteed.

Actually the opposite ,

if you know you are going to live a long life, you are better off as a function of total amount collectd, to wait until full  retirement age. 

 lets say you retire at 62 and collect $1000 a month 

1000x12=12000x23=$276,000 by age 85

if you retire at 65  you get about 14,000

1400 x 12= 16,800x20=$33600 by age 85

If I did my math right by age 85 you have collected   $60,000 more

But thats quantity  collected not quality. IMO early years spending are of better quality.

 

   

 

[cmarshall]

1 hour ago, newnative said:

 

    It's true that if you wait your monthly benefit will be more but it's important to remember that once you start SS your monthly benefit is likely to rise each year with cost of living adjustments (COLAs).  

    

 

If I remember correctly, the SSA makes separate determinations to adjust the COLA for benefits recipients and those still in the labor force accruing future benefits.  COLA for current recipients is derived from specific Bureau of Labor Statistics inflation calculations based on the change in the price of a basket of goods during the 12 months ending in Sept. each year.  This number is published and gets a lot of attention each year.  The other COLA gets no attention that I can find.  It is based not on BLS inflation estimates which are based on the cost of a standard basket of goods, but on increases in pay rates received by current workers, i.e. not SS benefits recipients.  Its effect is real, but entirely invisible since no one sees it, unlike the adjustment to actual benefits which all recipients see.  Generally, in the post-war period the increase in wages has exceeded the increase in the cost of goods, which must be true if the standard of living is increasing.  Since for the last 30 years or so, the standard of living for the bottom half of the labor force has not been rising, it's hard to estimate how much increase there has been on future benefits on this basis.  Historically, the adjustment based on wages has been more than the adjustment based on the basket of goods.  This factor is one of the reasons that the annual estimate of future benefits that we used to get annually in the mail was not exact, but always just an estimate since the labor rate adjustment could not be known in advance.

 

So, although the details are apparently not available, the implication in your statement that those who delay receiving SS benefits miss out on the COLA adjustments is not true.  It is probably that in addition to earning Delayed Retirement Credits, those who delay also get a slightly higher COLA for each year they delay.

 

[BTempleman]

A bird in the hand is worth two in the bush. Taking the lesser sum earlier is my best option since there is no guarantee that I will be in any position to use the increased amount. You can only enjoy a good quality of life if you're alive. When I grow too old and feeble to travel, having money in the bank will be of little cheer to me when I think of the things that it couldn't buy.  

[Jingthing]

A bird in the hand is worth two in the bush. Taking the lesser sum earlier is my best option since there is no guarantee that I will be in any position to use the increased amount. You can only enjoy a good quality of life if you're alive. When I grow too old and feeble to travel, having money in the bank will be of little cheer to me when I think of the things that it couldn't buy.  

Well that's not really a good reason if you have ample income and/or liquid assets. Why? Because the guaranteed return you get every year by delaying is really generous. But I totally see your point obviously if you have no other income etc. or if delaying is going to mean a harsh existence that could be avoided by starting the early claim.

 

Yes if you live "too long" then the harsh times will be later and probably even more harsh but how foolish it would be to voluntarily suffer if you live a more normal life span.

 

That gets down to the gambling concept I've mentioned. The purist number crunching POV is correct as far as it goes but we're not machines. There are human factors as well in making these decisions.

 

Sent from my Lenovo A7020a48 using Thailand Forum - Thaivisa mobile app

 

 

 

[newnative]

On 7/19/2019 at 5:29 AM, cmarshall said:

Jingthing,

 

First of all, no, the situation is not different for everyone.  We are not talking about about a preference for pistachio over cherry vanilla here.  Personal preferences don't matter here.  This is arithmetic. 

 

Leaving aside those with terminal illnesses, those with sufficient assets so that SS benefits are just not important to them, and those who must take benefits at an early age, because they lack the resources to delay, it is definitely better to wait.  The people who reject that analysis are the one who cannot understand the crucial difference between an annuity (SS benefits) and an investment.  Add to this cognitive defect, the known fact that naive investors consistently overestimated their investment skills and you have a recipe for poor decision-making with regard to the most important financial decision in later life: when to take SS benefits.

 

So, yes, Jingthing, you made a mistake in taking benefits early.  The SS annuity is the only financial asset available to most of us that we cannot outlive.  The fact is that for nearly all of us we don't know how long we will live and so we don't know how much money we need to cover our cost of living for the rest of our lives.  The naive folks "solve" this problem by making some simplifying assumption such as, an average life span of say, 74 years.  But if you are 62 your average life expectancy is greater than 74 years and in any case assuming the problem away does not lead to good decision-making.  So, we have to accept the irreducible fact that we don't know how long we will live.  The answer is an annuity, the best of which by far is SS.  Funding the gap between the day you stop working and the day you start your delayed SS benefits, for instance, your 70th birthday, is a challenge, but if you can manage it you are in effect purchasing more of the best annuity in the world.  

 

I have been there and done that.  I just passed my 70th birthday and received my first SS benefit payment this month.  Had I started collecting at age 62 my benefit would have been about $1600/month.  My current benefit is $3185/month.  Since my wife is eligible for SS benefits on my earnings record, she will eventually inherit my benefits which will receive Cost of Living Adjustments annually.  I expect SS will be feeding her decades from now, long after I myself have gone up the chimney.

 

By the way, the strategy to avoid suddenly having a big annual tax bill at age 70 from SS benefits and Required Minimum Distributions starting in the same year, is to convert a portion of your Traditional IRA assets to a Roth IRA each year prior to age 70 during which time you are probably in a low tax bracket.  The optimum strategy is to convert enough each year to bring your taxable income up to the top of your bracket so that you are pretty sure that the tax is the lowest you would ever pay.  As of now nearly all of my IRA assets are in the Roth where they will never be taxed and for which there is no RMD.  Eventually, my wife will inherit my Roth IRA as well.

 

Most people's financial planning is hampered by an inability to delay gratification.  The few corporations who still offer defined benefit pension plans, understand this very well.  They routinely offer the option of lump-sum payouts at retirement age instead of the annuity.  When they do so, they always underprice the lump-sum, even after adjusting for the time value of money.  The average employee is eager to grab the pile confident that he can count on a 10% return in the stock market which will never go down.  The decision when to take SS benefits is essentially the same, although the SSA is not taking advantage of us by mispricing either early or late benefits.

 

The option to undo claiming SS benefits by repaying all that you have collected so far is no longer available if you have collected more that 12 payments.  That's too bad, because that was an especially good deal.  If you haven't hit the 12 payment mark, I urge you to suspend and repay.

 

 

     I respectfully disagree.  The situation IS different for everyone.  You seem to be basing everything strictly on maximizing how much money you will get monthly.  Yes, everyone knows that if you wait you will get a larger monthly payment.  But, taking an early payment is not necessarily a 'mistake'.  You have to take into consideration other things, such as what a person might do when they take an early payment or retire early.  it's not all just about the 'arithmetic'.  There are human factors.  And, factors like a second pension in addition to SS also need to be taken into consideration.

    In my case, I retired early and took a reduced US state pension payment.  But, I used my extra free time, in addition to working part-time for 5 more years, to do something I wanted to try--condo flips.  With one flip I did in America I made a $70,000 profit.  The highest salary I ever made was $35,000 so that one flip earned me 2 years salary.  Not all my flips were that profitable but they made enough that my yearly income was more than when I worked full-time at my old job.

      You waited until 70 to collect SS and now get $3185 a month.  I retired at 52, took a reduced state pension, and started collecting a reduced SS at age 62.  I now receive, at age 67, $1917 in state pension and $1420 in SS for a monthly total of $3337.  Your plan looks great for your situation and mine has been great for mine.  Everybody's situation is different and there is no one right answer.

[newnative]

59 minutes ago, cmarshall said:

 

If I remember correctly, the SSA makes separate determinations to adjust the COLA for benefits recipients and those still in the labor force accruing future benefits.  COLA for current recipients is derived from specific Bureau of Labor Statistics inflation calculations based on the change in the price of a basket of goods during the 12 months ending in Sept. each year.  This number is published and gets a lot of attention each year.  The other COLA gets no attention that I can find.  It is based not on BLS inflation estimates which are based on the cost of a standard basket of goods, but on increases in pay rates received by current workers, i.e. not SS benefits recipients.  Its effect is real, but entirely invisible since no one sees it, unlike the adjustment to actual benefits which all recipients see.  Generally, in the post-war period the increase in wages has exceeded the increase in the cost of goods, which must be true if the standard of living is increasing.  Since for the last 30 years or so, the standard of living for the bottom half of the labor force has not been rising, it's hard to estimate how much increase there has been on future benefits on this basis.  Historically, the adjustment based on wages has been more than the adjustment based on the basket of goods.  This factor is one of the reasons that the annual estimate of future benefits that we used to get annually in the mail was not exact, but always just an estimate since the labor rate adjustment could not be known in advance.

 

So, although the details are apparently not available, the implication in your statement that those who delay receiving SS benefits miss out on the COLA adjustments is not true.  It is probably that in addition to earning Delayed Retirement Credits, those who delay also get a slightly higher COLA for each year they delay.

 

I never said anything about anyone missing out on benefits.  All I stated was once you start receiving SS benefits you are likely to receive annual cost of living raises (COLAs). The only implication you can take from that statement is that your benefit should rise with the COLAs to help keep pace with inflation. 

[MeePeeMai]

5 hours ago, dontoearth said:

  U need to get some more advice.  At 30 years of pay-in to social security the WEP penalty is removed.  It is phased out between years 20-30.  You may have a pleasant surprise awaiting you.

I already looked into it and went to the SS office in Hilo Hawaii.  They said I fall under the GPO (government Pension Offset) since I retired from the County of Hawaii and have a government pension from the State of Hawaii Employees Retirement System for life.  I also signed up online with the Social Security website and they gave me my benefit amount at various ages etc after plugging in everything.

 

They have a formula and go by the monthly amount of your pension vs how many quarters you have contributed to Social Security.  Unfortunately, I lost 50 percent of my future benefits (although there is a large movement calling for the repeal of the WEP and GPO which up until now has not been successful but they are continuing the fight and hopefully by the time I am ready to file for my benefit, I will be able to get closer to 100 percent).

 

I paid in for 30 calendar years but do not quite have 120 quarters (since for example some years I only worked a contributing job for 6 months).