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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 retir