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

[watcharacters]

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

On 7/19/2019 at 1:20 AM, amykat said:

Jingthing,  In the past, I read from credible sources that one could stop taking their SS early, pay back what they had received, and restart later for better benefits, in the case that you regret your decision and have funds to do that.

This option was removed a few years ago.

 

I've never heard of this but it definitely goes against everything I've ever read about SS.

 

I personally took the money ASAP and ran.    No regrets.

 

[Jingthing]

14 minutes ago, watcharacters said:

 

I've never heard of this but it definitely goes against everything I've ever read about SS.

 

I personally took the money ASAP and ran.    No regrets.

 

I think the option is still there but ONLY for the first year. I think you have a year to pay back the money.

[gamb00ler]

The rules that govern how married couples can file and collect SS changed in 2015.  Prior to that there were a couple of strategies that could be used to allow a person to collect on their spouse's SS contributions without claiming payment on the own SS earnings record.

 

There is still one strategy available for married individuals born on or before Jan. 1, 1954 AND have been married for at least 10 years.  If a couple wish to take advantage of this last remaining strategy they would need to get a divorce.  Once they've been divorced for two years they can each file to claim SS payments based SOLELY on their ex-spouse's earning record NOT on their own SS contributions.  In this case the divorced spouses would each be paid 50% of their ex-partner's SS Full Retirement Age (FRA) payment.  The optimal time to get divorced would be at age 64 and then claim the ex-spousal benefit at 66.  The second phase of this strategy is for each of the divorced spouses to wait and claim their own benefit at its maximum at age 70.  NOTE: you can of course still live together as a married couple just be aware that you would need to make wills because your estate(s) would not automatically go to your ex-spouse(s).  Once you reach age 70 you can remarry with no SS penalty.  Using this strategy each spouse gains 4 years of spousal benefits as well as allowing their own SS payments to reach the maximum at age 70.

[Jingthing]

I'll provide another rather personal situation on how to maybe create a situation that might replicate the guaranteed high return by not claiming early. 

 

I like having more savings and limiting my spend down more than the very good return I would have gotten by delaying. 

 

Mainstream advice generally says that is wrong.

 

Well, probably is for most people but different people have different life plans, priorities, and RISK tolerance.

 

So here's my hypothetical example.

 

I've been committed to continuing to be an expat in a lower cost country indefinitely. Thailand or somewhere else. That may or may turn out to be something I stick to. It's hard to predict, the same with life expectancy.

 

So here in Thailand I own a condo and have enjoyed a generous annual return in "free rent" for the cash paid. I may never sell. So that investment if I don't sell would have a similarity to spending down cash for a guaranteed return on S.S. claim delay. This return has been roughly about 9 percent annually factoring ownership expenses. 

 

Suppose I sell the condo and then move to another non U.S. country. I could potentially get the same thing by buying housing there. 

 

Of course no doubt buying real estate anywhere, and especially abroad has significant risks. It's very illiquid. You may never be able to sell at an acceptable price. You have exchange rate risk. Your "return" on "free rent" or actual rental income if you rent it out will vary greatly and will sometimes be crappy. 

 

But that brings up the risk tolerance thing. Claiming early you give up a lot, but you also do get the SOME money right now, and that ain't chopped liver. With something like real estate you might -- emphasis on might -- be able to get a similar return as you would have gotten by delaying. 

 

Giving this example to illustrate my feeling that one size doesn't fit all for this decision. It's much more of a "whole picture" approach. 

[gk10002000]

Things to consider:

 

1:  Delaying SS payouts increases your benefit by about 8% a year

2:  If you are going to take Medicare at 65, you will pay more for medicare B type supplements if you make >~ 84,000.  So one has to consider that if later you start withdrawing money from your Traditional IRA or 401k or if you convert traditional IRA to your ROTH IRA which is a taxable event.

3:  Traditional IRA or 401k require RMDs.  ROTH IRAs do NOT have a RMD

4:  ROTH IRA money withdrawals never count in any MAGI computation which is used for determining VA medical premiums, Obamacare premiums, etc.

5:  Open a ROTH IRA ASAP for many reasons.  5 year rule, ability to convert Traditional IRA to ROTH IRA, etc

 

  I am 62 now.  I am still working so won't start social security this year.  That's a given. 

 

Assuming I punch out next year, which is still TBD, I plan to convert parts of my Traditional Ira to my ROTH IRA at about $60k a year.  Keeping me in a fairly low Federal tax bracket, and I am a Florida resident so no state income tax.  My investments right now give me right about $60K/year, so I will probably have to increase my conversion rate a bit in order to get money out of my traditional IRA into my ROTH IRA.  My traditional IRA balance right now is just below $400k.

 

My regular brokerage account holds mostly tax free investments (Muni bonds and funds which do not count at AGI but do count in MAGI) but I also hold T stock which pays me about $12k a year in dividends.  So my gross taxable income will be about $72 K.  That's basically going to be my reportable income.  I can take some monies out of my ROTH if needed and that will not be counted nor taxed.  In the meantime my social security grows at about 8%.  My current early SS benefit is right at $2,000 a month.  coincidentally about what the Thai Retirement Visa extension income amount requires.   Remember, that once you get on Medicare, I believe those medicare Supplement premiums automatically are deducted from your SS benefit check?  Not sure if that is an option or it is automatic.  I suspect most people do the deduction because they don't have many other income sources so it is easier for them to just let that happen.  So if one is going to use pure SS for income verification, might want to be pay medicare separately if possible. 

 

   So bottom line:

 

If working do not take SS benefits yet.  Why pay taxes on higher income? Better to let the SS benefit grow.

If not working, delay SS benefits a few years.  I don't think taking SS at earliest is best, and I don't think taking SS at latest is best.  The sweet spot is somewhere in the middle and a few years one way or the other is probably good enough and not worth worrying too much about it.

[Jingthing]

Taking it early is a very good idea if you NEED the money. That's the main reason that people take it early. There is no such thing as good idea / bad idea for everyone in these situations. 

[mrwebb8825]

Anyone started SS recently? I have heard there's a long wait before you get your 1st benefit check (payment) but when it comes it's for a larger amount dating back to when you filed.

ETA: Given the current low exchange rates would it be better to open a foreign currency account and have the payments deposited there and wait for a better rate?

[gamb00ler]

7 hours ago, mrwebb8825 said:

Anyone started SS recently? I have heard there's a long wait before you get your 1st benefit check (payment) but when it comes it's for a larger amount dating back to when you filed.

You can file for SS up to 4 months ahead of the time you wish to start payments.  If you file ahead then you will get a check/deposit in the month following the starting month and every month after that.

7 hours ago, mrwebb8825 said:

ETA: Given the current low exchange rates would it be better to open a foreign currency account and have the payments deposited there and wait for a better rate?

My currency prediction crystal ball is out for repair.  We'll all just have to make a choice and hope the rate moves in our favor or split our assets 50-50 and become indifferent.

[Jingthing]

I started mine very close to my birthday and there was no delay whatsoever in the start of my claim based on their starting rules for everyone. I was surprised by that. Of course they backpay claims anyway if there is a delay.

[La Migra]

On 8/15/2019 at 6:31 AM, gk10002000 said:

Things to consider.....

....  So one has to consider that if later you start withdrawing money from your Traditional IRA or 401k or if you convert traditional IRA to your ROTH IRA which is a taxable event....

Great post sir. 

If someone has assets in a Traditional IRA, or 401K - I agree it is better to start doing the conversion to a ROTH and paying the income tax, before starting SS. Since SS is counted as income and may bump you into a higher tax bracket - and those pretax funds will have to come out eventually (RMD).  Plus currently the tax brackets are broad, but due to sunset for individuals. 

So following gk10002000 - I plan to delay SS, do the 401K to ROTH conversion (taking any cash out I need for support). When I have finished drawing out those taxable assets at my modest retirement income rate, I can then claim the higher SS. 

[gk10002000]

8 hours ago, La Migra said:

Great post sir. 

If someone has assets in a Traditional IRA, or 401K - I agree it is better to start doing the conversion to a ROTH and paying the income tax, before starting SS. Since SS is counted as income and may bump you into a higher tax bracket - and those pretax funds will have to come out eventually (RMD).  Plus currently the tax brackets are broad, but due to sunset for individuals. 

So following gk10002000 - I plan to delay SS, do the 401K to ROTH conversion (taking any cash out I need for support). When I have finished drawing out those taxable assets at my modest retirement income rate, I can then claim the higher SS. 

Glad you get the idea.  It is hard to find the sweet spot, i.e. when to do these things, pay the taxes, let SS keep growing, take SS and maybe even re-invest the money etc.    It is your money, you worked hard for it.  Try to protect it. 

[Jingthing]

Not everyone agrees but I think it makes sense to consider self estimates of life expectancy when deciding when to start the claim.

 

I did this by taking a number of online health surveys that give you a number and the consensus was in line with not expecting to live to 90, without going into more specific personal details.

 

But perhaps there are much better tests? Well, maybe there are.

Do you dare take them? (I won't bother.)

 

Quote

Can a simple test predict how long you’ll live?

 

 

https://cuencahighlife.com/can-these-simple-tests-predict-how-long-youll-live/

[EVENKEEL]

Me I'm doing it at age 62, in a few months. You can crunch numbers all day long or you can do what feels right. Me, I'm doing what feels right. I have an 8 yr old that I'm tired of being away from for 6 mos at a time while working. 

 

I don't much like the "R" word (retirement) I'll just say I've stopped working. 

[Thailand J]

If the reduction will make a big impact on your financial at 80+ you should delay receiving SSA benefits, at least wait until 65.

if not, I see no other reasons to delay, don't be greedy.

 

 

 

 

[Jingthing]

If the reduction will make a big impact on your financial at 80+ you should delay receiving SSA benefits, at least wait until 65.
if not, I see no other reasons to delay, don't be greedy.
 
 
 
 

What about impact of not claiming on your financial situation much earlier?

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[Thailand J]

 

I would think it's better to deal with money problem when you're in your 60's then in your 80's. Not a pretty picture if the reduced SS benefit is not enough to pay the bills when your at that age.

 

 

 

 

 

 

 

 

 

 

 

 

[Jingthing]

 
I would think it's better to deal with money problem when you're in your 60's then in your 80's. Not a pretty picture if the reduced SS benefit is not enough to pay the bills when your at that age.
 
 
 
 
 
 
 
 
 
 
 

Better if realistic. People take it at 62 mostly because they need the money.

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[Thailand J]

I am going to claim it the first month I am eligible, even though I don't really need it. How I came to the decision is that the reduction will not possibly create a problem. The break even point is about the same as average life span so why take a chance.

My neighbor Jerry started his benefit at 62, passed away at 65.

 

[mrwebb8825]

Like I said earlier, my break even point is around 74 and I really don't believe I'll be here to see it. House is paid for so only around 3,000-4,000 in utilities every month plus food. Can always sell the 2nd house we're renting out if need be.

[Jingthing]

Like I said earlier, my break even point is around 74 and I really don't believe I'll be here to see it. House is paid for so only around 3,000-4,000 in utilities every month plus food. Can always sell the 2nd house we're renting out if need be.

I don't see how your break even can possibly be only 74.

 

The minimum for a single person anyway is 77 and this article suggests not to even look at it if you're married.

 

https://www.cnbc.com/2018/08/13/those-social-security-break-even-calculations-can-be-misleading.html

 

 

Social Security ‘break-even’ calculations can be misleading

 

 

 

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[mrwebb8825]

3 minutes ago, Jingthing said:

I don't see how your break even can possibly be only 74.

 

The minimum for a single person anyway is 77 and this article suggests not to even look at it if you're married.

 

https://www.cnbc.com/2018/08/13/those-social-security-break-even-calculations-can-be-misleading.html

 

 

Social Security ‘break-even’ calculations can be misleading

 

 

 

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I get $XX at 62 and $YY at 65 and 10 months according to the SSA office in Manila. Multiply by 12 and add til the 2 numbers match. It ain't rocket science.

[Jingthing]

I get $XX at 62 and $YY at 65 and 10 months according to the SSA office in Manila. Multiply by 12 and add til the 2 numbers match. It ain't rocket science.

I think you're mistaken.

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[mrwebb8825]

1 hour ago, Jingthing said:

I think you're mistaken.

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you get 72% (+/- 1%) at 62 of what you would get if you waited til 65 and 10 months (current FRA) so for simplicity use $100. That's $72 at 62. So 72 x 46 = 3312 head start on waiting. It would take you 33 months (rounding down) at FRA to match that so age 69. During that time you would have already collected another 72 x 33 = 2376. It would take 2 more yrs at FRA so now you're 71 so you need to add another 72 x 24 = 1728. At FRA it would take another 1 1/2 yrs to earn that so now you're 73. During that 18 months (rounding up to keep it even) you would have received 72 x 18 = 1296 putting you between 74 and 75 before the 2 numbers match.

[Jingthing]

I have never read even one source that suggests the breakeven for a single person is ever under 77. Not interested in following your math. Sorry. How is it that your conclusion is different than what you can easily find on scads of credible sources? 

 

 

Quote

 

The SSA has several handy calculators you can use to estimate your own benefits. For example, if you’re a top wage earner turning 62 this year, then your break-even ages are as follows:

 

 

 

https://www.schwab.com/resource-center/insights/content/when-should-you-take-social-security

[mrwebb8825]

1 hour ago, Jingthing said:

I have never read even one source that suggests the breakeven for a single person is ever under 77. Not interested in following your math. Sorry. How is it that your conclusion is different than what you can easily find on scads of credible sources? 

 

 

 

https://www.schwab.com/resource-center/insights/content/when-should-you-take-social-security

OK, you got me. The obvious answer to why my calculations are off is I was thinking FRA at 65 and 10 months when it's actually 66 and 10 months. Glad I caught it before you did so at least I can make myself feel besot. ???? 

Now it's even more clear that I should start on my 62nd birthday. ???? 

[Jingthing]

6 minutes ago, mrwebb8825 said:

OK, you got me. The obvious answer to why my calculations are off is I was thinking FRA at 65 and 10 months when it's actually 66 and 10 months. Glad I caught it before you did so at least I can make myself feel besot. ???? 

Now it's even more clear that I should start on my 62nd birthday. ???? 

No worries. The higher number should be good news for earlier claimers. What you were saying before didn't sound right because the program is designed to be actuarily neutral and a break even as early as 74 wouldn't be. 

[JimGant]

6 hours ago, Jingthing said:

I get $XX at 62 and $YY at 65 and 10 months according to the SSA office in Manila. Multiply by 12 and add til the 2 numbers match. It ain't rocket science.

Well, the SSA's break-even age factors in 'time value of money,' meaning, the $72/mo you're receiving for nearly four years is worth more than the present value $3312 you indicate, like a future value of $4025, or so, with a discount rate (savings rate) of 5% per anum. Thus, the break-even point shifts out. And since the title of this thread suggests taking SS when you don't need to, presumably we can do the numbers assuming no SS payments are needed/used -- and are not put in a mattress -- but instead invested.

 

In my case, I turned 62 in 2007, put the unneeded SS payments into stocks, and, except for 2008, have done very nicely. My break-even age is up in the 80's. Nice if you have money you don't need, nor never will -- and can 'gamble' it on some risky investments (albeit, my stocks are in index funds).

 

If I were an Aussie, they'd look at my net worth, not just income, and as such, I'd get nothing in an Aussie SS equivalent. So, for now, nice being a Yank. But, means testing can only be around the corner....  

 

 

[Jingthing]

13 minutes ago, JimGant said:

Well, the SSA's break-even age factors in 'time value of money,' meaning, the $72/mo you're receiving for nearly four years is worth more than the present value $3312 you indicate, like a future value of $4025, or so, with a discount rate (savings rate) of 5% per anum. Thus, the break-even point shifts out. And since the title of this thread suggests taking SS when you don't need to, presumably we can do the numbers assuming no SS payments are needed/used -- and are not put in a mattress -- but instead invested.

 

In my case, I turned 62 in 2007, put the unneeded SS payments into stocks, and, except for 2008, have done very nicely. My break-even age is up in the 80's. Nice if you have money you don't need, nor never will -- and can 'gamble' it on some risky investments (albeit, my stocks are in index funds).

 

If I were an Aussie, they'd look at my net worth, not just income, and as such, I'd get nothing in an Aussie SS equivalent. So, for now, nice being a Yank. But, means testing can only be around the corner....  

 

 

Thanks Jim for explaining the SS formula but the post you were replying to wasn't mine.

As far as mean's testing well anything could happen but I seriously doubt very many currently older people will ever be subject to that and even then it would only be very wealthy people. 

I do think cuts are inevitable though but likely more towards younger people as far as rising retirement ages. 

[mrwebb8825]

12 hours ago, Jingthing said:

I do think cuts are inevitable though but likely more towards younger people as far as rising retirement ages. 

Yes it would really be nice if those damned politicians would keep their greedy mitts off of our money. The only reason I can see to keep raising the FRA limit is it gives them more time to steal it and us a better chance of dying before complaining. Another pro for claiming early.

[meechai]

The whole SS system is built like a carrot hanging from the stick in front of the donkey

 

It is also similar to a Casino Black Jack dealer meaning the Government/Casinos biggest

advantage in this system is they go last like a dealer giving you every chance to bust first before collecting any winnings ????

I took the money & ran @ 62