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I JUST REACHED my full Social Security retirement age of 66 and four months. Funny, I don’t feel a bit older. Still, I am now entitled to 100% of the benefit that I’ve earned since I started working.
Conventional wisdom says to delay filing. Each month that I wait will add 2/3rds of 1% to my eventual benefit. That adds up to a risk-free 8% a year. If I were to wait until I turn 70, I’d get the maximum possible payment under the rules of the game.
Only 3% of Social Security beneficiaries wait until age 70—and I now know why. My wife and I have been savers all our lives. But today, we’re subtracting from our accounts, and it feels unnatural. The bear market hasn’t helped. On top of that, I feel inflation’s drag whenever I wheel a cart around the grocery store or gas up the car.
I didn’t have any trouble waiting from age 62, when I first became eligible to receive benefits, until now. I was working most of that time. But now that I’m largely retired, it feels like there’s a rich chocolate cake waiting for me in the kitchen. It’s been on my mind.
Everyone says you can’t get a risk-free 8% return anywhere else. On the other hand, if I file for benefits now, I stand to enjoy the largest cost-of-living adjustment (COLA) in 40 years. If inflation continues to run hot, it could be more than 10%.
To be sure, that COLA will also boost my eventual monthly check, whenever I choose to claim it. I have a hefty benefit increase coming, whether I file for Social Security right away or delay. In the interest of willpower, I’ve chosen to think of my choice as a layer cake. Each year I wait, I’ll be getting an extra layer equal to 8% plus the rate of inflation.
In other words, if I delay one year, I might get an 18% raise. Two years might deliver—who knows?—perhaps a cumulative gain of more than 30%.
If I can just wait it out.
I am sort of in same boat as you, but not. I, too, hit FRA this month. I am still working though, and so is my husband. It’s a decent job, close to home, work is not too stressful, pay is ok. My dilemma is this: the past six years have been my highest earning years. This will continue as long as I am at this job. There have been at least 8 years in the last 20 when I made $15K or less. It is really hard to continue to wait filing for benefits. I believe I can continue to work even after starting to collect benefits and my monthly benefit will be recalculated. I have been trying to figure out the numbers. It is just so tempting (I love cake!)
My issue is what John D identifies; the probability the federal and state governments will be so desperate for cash — given all the unfunded commitments they are building up (which includes Social Security and Medicare, BTW) — they will cut or eliminate Social Security benefits for those who can live without them. Without that, I’d happily wait until age 70. We have enough cash to live on until then, I am likely to live longer than the break-even date, and I agree with the guaranteed annuity income school of thought. As far as it goes.
But my decision when to claim is very much influenced by when I think the government will directly or indirectly start to take more money away from us to pay the massive bills that will be coming due. Something will change in the next 10, certainly 20, years that will negatively affect retirees who have saved and invested their money the way we are supposed to. Whether higher taxes on retirement distributions or income generally, changes in how Roth accounts are taxed for the so-called wealthy (why do people foolishly keep thinking Congress wouldn’t change those rules too?), reductions in the maximum benefit for SS, increases in Medicare premiums, there are hundreds of ways to hide a reduction in what the government has “promised” to people my age.
What I haven’t seen is an analysis of different scenarios in which benefits would be reduced and eliminated and given that, whether it still makes sense to wait until 70. Or just take the cash now.
I too, was a big saver – 401, 459, IRA, etc. So much so that I stupidly didn’t factor in how all those paycheck deductions which lowered my “take home” pay would affect my retirement income. So I started SS at FRA. Wish I hadn’t because my income w/o SS was more than adequate.
What’s not addressed in most comments is the future viability of the SS system. I strongly suspect that w/i 6-9 years, the pinheads under the capitol dome will formulate some kind of “means test” for collecting SS. Total individual assets will be looked at and those of us who have done without some things/vacations in order to save more will forfeit a portion of our SS in order for those with less foresight haven’t saved. It’s the socialistic solution to Aesop’s Ant and Grasshopper fable. Therefore, I recommend to those about to retire: TAKE IT AT THE FIRST OPPORTUNITY.
I think I’d think of it in either of two ways:
1) If you decide to take the money now, it’s not like you’re losing the 8% SS return by waiting — you’re only losing the marginal difference (if any) between that 8%, and the growth in your investment portfolio that you can later annuitize to create another guaranteed income stream. In this regard, you might be splitting hairs, so if you feel safer not drawing down your portfolio, I think it would be fine to take the money now.
2) If you decide to wait, I’d consider creating a sinking fund of cash – separate from your regular savings – for the expenses you’ll need between now and 70 (athough, given the current bear market, I might just create a “1-year of expenses” fund at the moment).
I have found that compartmentalizing “future spends” into a separate sinking fund takes some of the psychological sting out of the withdrawals.
But, mostly, I’d try to relax — you’re going to be fine no matter what choice you make.
It’s all about the “denominator” – how many years does that nest-egg have to last after you stop working?
That’s a number we can’t know for certain, and most HD readers are aware of the excuse many non-savers use, pretending to be certain they won’t live long lives.
But we can plug in a reasonable range estimate of our own likely “denominator” and go from there.
That’s what I tell myself anyway – in six months I stop working and join you in the mode of spending-down while waiting for 70. The numbers work, the “bridge” is in place – now let’s see what the reality feels like. 😉
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An aside: Of course we all have ultimate “denominator” control in one direction: In a heartbeat anyone can make their own number become “zero.” That’s radical and distressing to survivors though, among other things, so I’m planning to adopt the Zeke Emanuel solution described in an Atlantic piece about 10 years ago: Create a document ordering no life-saving or life-extending medical treatments after age X.
(This: https://www.theatlantic.com/magazine/archive/2014/10/why-i-hope-to-die-at-75/379329/ )
Emmanuel’s number was age 75, and everyone I’ve shared this with agrees that’s too low. I’m thinking no more after age 83 for me – in my family, and generally, the game usually isn’t worth the candle starting around then. More important to me than having more years is never letting myself become a “medicalized wretch,” going from one wretched procedure to the next.
Wait till you’re 70. You can do it! You’ll be glad you did.
You wrote: “My wife and I have been savers all our lives. But today, we’re subtracting from our accounts, and it feels unnatural.”
As former savers, my wife and I have been spending from our portfolio for over 10 years. Very “unnatural” at first, but over time as you watch portfolio gains help offset the spending, it becomes natural.
You spent years learning how to save. Now you have to learn how to spend and enjoy it. Good luck.
Good article, I’m coming up on my FRA. One day I’m going to collect it, the next I’m not sure. I have our money in a 401k and take a 4.5 % amount each year. (I was told that I would have to first convert 401k to an IRA and then I could do a Roth conversion from that) We can get by doing this, but it would be nice getting the extra money to do things around the house. Even thought about a part time job to help out. (Really don’t need to work though) So I guess I’m in a good spot and will feel it out as I go.
Also note my Wife is collecting her SSI. We had her collect at 62 for the extra income when I retired 3 years ago.
Regardless of how much I’ve saved, the plan is to spend from retirement accounts until age 70, or until I run out of money, whichever comes first. Longevity has been shown to be the biggest risk in retirement, so priority one is to maximize the only inflation adjusted annuity I can get. Luckily I have enough that I can bucket off enough safe investments at the start of retirement to explicitly spend down. Perhaps you could do something similar; mentally or physically bucket off a portion of savings now, and set up a monthly “simulated SS” transfer to steadily fund your checking account between now and 70.
I hope you can meet your goal. A former neighbor just died today from a car crash a few days ago. Age 73. I don’t know when be began SS, but if it was age 70, he didn’t get it for very long.
Another friend died at age 65 recently and had not taken SS. Each day you wait for SS, you don’t know what tomorrow is going to bring.
I did the math and it wasn’t worth waiting to age 70, but did take it at FRA. I guess I don’t get bragging rights to say I waited to 70 to begin SS nor to say how big that SS pot of gold is from the gov’t.
Don’t feel guilty, it’s your life to live not someone else’s.
Thanks, all, for the words of encouragement. As the Little Engine in the storybook said while climbing the hill, “I think I can, I think I can, I think I can…” And it did.
Greg will you hedge the longevity bet by having your wife file for benefits at FRA? I bought a period certain annuity paying me from my IRA from age 62-70 and hopefully I won’t be tempted to start at FRA. Not only are you paid the 8% but multiplying the COLA on a higher benefit at agee 70 is even more compelling.
James, yes, my wife did file at her full retirement age. I hadn’t thought to buy an annuity to mind the gap.
Greg you can do it! Dial back the grocery store trips to twice a month, fill the gas tank every two months, and relax more puttering about the homestead compound. There is always a tinkering project to be had- removing ivy from the trees, reducing the clutter in the garage, and walking to the library for a rainy day book. We are just 12 months behind you, and would be disappointed if you gave up on the 8%! So go ahead, put another notch in your belt tightening and please keep us all posted on your progress.
My husband currently receives survivor benefits and is holding off on taking his own SS until he turns 70 (in about 1.5 years). Since his benefit will be much higher than mine, I’ll likely take my own at 62.
You can do it.
My wife and I both waited until 70 to claim and currently have a combined SS income of $88,500. Regardless of how long we live the peace of mind from having waited was well worth the wait.
Presumably you earned the taxable maximum wage. Have you calculate the money you would have if you started at FRA received COLAs on the payments and invested each months checks and earned say 6% a year? I’m thinking you would have at least a couple of hundred thousand dollars plus the FRA steady income.
We briefly thought about it but decided that we preferred the added “security” of 32% more in SS (my FRA is 66). I’m 18 months older than my wife and we were also able to take advantage of the file-and-suspend provision just before it was eliminated.
Thanks Greg.
I enjoyed your article and also the below thoughtful comments. I am one of the 3% who waited until age 70 to claim the social security benefit on my own earnings record.
For me, delaying claiming during the period from my full retirement age to age 70 was emotional challenging as it appears to be for you as reflected in your closing comments – If I can just wait it out.
I am happy with my decision and for me the factor that drove my decision was the longevity issue. I think it is likely that my four year younger spouse will likely outlive me and if that becomes our life outcome I expect the decision to delay claiming to be the best financial decision for her.
I also think it is easy to fall into a trap to defend the claiming decision we make as the best or the only decision to make. My opinion is the decision when to claim is unique to each of us and if we become knowledgeable of the opportunities and pitfalls and apply that information then our choice should be a good decision for us and if we are lucky the decision may even be optimum.
I think whatever you decide will be a great decision. Everyone makes a decision based on their own circumstances.
Another reason to wait: more time for Roth conversions and the more Roth conversions the better.
In addition, based on my guess about your birthday month, if you can push taking SS until January of the year after you turn 70, you get to squeeze in a bit more Roth conversion. The SSA will nicely pay you the retroactive amount due as a lump sum in January or February and fire up your regular SS payments thereafter.
You are sharing good self-reflection, Greg. It is so interesting to me that my head can know what should be the better course to take, but my heart is feeling a pull toward a different path. I like to think I’ll be coldly logical, until it’s my turn to decide and emotions heat me up. So many money decisions are like that. The other comments are thoughtful. It’s good that you have choices.
The way I think about Social Security:
I’m thinking most people don’t wait to collect because they need the money to live on and they don’t have much in the way of account balances to draw from.
There are so many ways to look at this issue, so many opinions. I started my SS at FRA while still working. Show me the cash as they say. Experts would say he’s nuts, but I took the money – before Medicare was deducted as I had employer coverage- and invested it for several years in municipal bond mutual funds and have reinvested the tax free interest for thirteen years. If someone pulled out a spreadsheet, did I make a good decision? I don’t know and now it doesn’t matter.
Money I probably would have spent now is a nice pile of cash spinning off monthly tax-free interest equivalent to my net SS check – but still being reinvested. I sure haven’t gotten an 8% return, but I like the feeling of the cash and the additional income if I need it or my wife does. I kind of have my cake and can eat it too.
What you wrote:
“I’m thinking most people don’t wait to collect because they need the money to live on and they don’t have much in the way of account balances to draw from.” Is EXACTLY right.
People that don’t have much of an account balance aren’t really choosing to take SS early, they must take it early. But even those people would, in almost every case, be better off spending their minimal account balance to zero before claiming SS. Studies have shown the biggest actual risk in retirement is longevity, so maximizing the only inflation linked annuity we get is even more important for those with little else to rely on.