FREE NEWSLETTER
DURING MY FINAL NINE years with the Coast Guard, I was involved in decisions regarding search-and-rescue operations. We were almost always working with imperfect information. For three of those nine years, I was responsible for all missions in one section of the Great Lakes and, in my last year, I made the final decision on when to suspend search-and-rescue operations in an even larger area.
To lower risk, we often assumed the worst, and threw copious operational resources at the situation. But paradoxically, this also increased risk: Actions taken to improve a mission’s chances of success also meant greater risk for the air and boat crews involved. Such decisions are best made by people with gray hair who know what it’s like to have skin in the game.
That brings me to my decision on when to take Social Security retirement benefits. This may not have life-and-death consequences. But arguably, it’s one of the most important financial decisions that Americans make—and, like the search-and-rescue missions I helped oversee, it must be made with imperfect information. Even with skin in this game and a lot of gray hair, I wish I had answers to these questions before making my decision:
I can make educated guesses on some of these questions, and I have a solid idea of our cost of living and the financial resources available to us in retirement. Even so, when to claim benefits boils down to a very personal decision, one that’s heavily dependent on each retiree’s circumstances, desires and best guesses. I won’t bore you with all the pros and cons you might ponder. But at almost age 63, I’ll mention the factors that I’m considering, but with one caveat—I reserve the right to be slightly irrational.
My wife and I currently live on my military pension, our interest income, my wife’s Social Security (she’s older than me and claimed benefits early) and my wife’s modest part-time earnings. Our house and cars are paid for, and we live in Alabama, which is a low-tax state. Every month, I’m able to sock away $1,000 to $2,000, depending on how much we travel. Our IRAs remain untapped. Over the years, I’ve made a concerted effort to keep our fixed costs down: no big house, costly cars or keeping up with the Joneses. In short, we can get by without me claiming Social Security benefits early, but the cash sure would be nice.
Here are the pros of taking benefits early:
Meanwhile, here are the cons:
If I claim benefits at full retirement age, rather than now, I figure the breakeven age is around 78, meaning that thereafter I’ll be better off if I waited until 67. As it happens, at 78, my military survivor benefit plan becomes paid up, meaning an increase in my pension because the monthly deduction that’s involved goes away. This is where I choose to be a little irrational. Yes, if I claim now and live to 78 and beyond, I’d be forgoing the difference between the early and full benefit. But the bump up in my pension would take some of the sting out of that—at least in my mind.
As of now, I’m leaning toward taking Social Security at age 63. I have arthritis hitting various points of my body—lower back discs, wrists—and I’ve had one hip replaced, with the other needing replacement eventually. I probably have another 10 years of good physical activity. The extra money would come in handy for travel while I can still get around relatively easily. At the rate I’m going, by my early 70s, I’m going to be a stiff old grump.
I’m aware that conventional wisdom says to forgo early election if you don’t really need the money. Yet friends I’ve spoken to, who claimed early, don’t seem to have any regrets. I take that with a grain of salt, however, because few will ever admit to serious mistakes handling their money, plus these friends haven’t reached their later years, when the consequences of their decision may hit home. I have the Veterans Affairs as a resource later in life if I get into real trouble—many don’t have that.
And so I sit and think, the pros and cons dancing in my head. Some things never change: I must make yet another decision with imperfect information. Maybe, just maybe, if I wait long enough, the future will become clearer and I’ll make the right decision. But unfortunately, the world often doesn’t work that way.
Patrick Brennan is a retired Coast Guard officer and aviator currently residing with his wife of 34 years in Mobile, Alabama. He earned a bachelor’s degree in government studies from the U.S. Coast Guard Academy and an MBA from Spring Hill College. Besides an interest in finance, Pat enjoys traveling to visit family and friends, and especially enjoys visiting our National Parks. His previous article was Why We Get Fooled.
Want to receive our weekly newsletter? Sign up now. How about our daily alert about the site's latest posts? Join the list.
Check out an interesting perspective for taking SS early. Google Daniel Amerman’s article “Making Optimal Social Security Claiming Decisions”. It’s a few years old but good info.
Thanks for this Patrick…my wife and I are working thru the same decision calculus now. We’re both 63, retired, come from long-lived families, and are inclined to delay claiming Social Security. However, another consideration is the cost of Medicare Part B premiums for those of us who use TRICARE. My military pension and investment income will likely push us into a higher Medicare Part B IMRAA bracket…so now I’m thinking one of us will claim at 65 to mitigate those Part B expenses.
Lifetime taxes are another consideration. When I run my numbers, delaying SS results in significantly lower fed taxes. Adding strategic withdraws (max out lower tax brackets) with Roth conversions and post-tax accounts, further reduced taxes.
The comments on taxes from Frank above and David below are very helpful. Frankly, I haven’t considered the effect of taxes virtually at all. There are so many variables to consider.
Yes. One problem with the break-even calculation is that it is difficult to estimate accurately on your own: it is affected by the interaction of taxes, continued earnings from work, retirement account withdrawal strategies, etc. I don’t know how well the various software packages (free and commercial) take those factors into account.
On U-Tube, Rob Berger, is one of may u-tubers that cover this subject if you are a do-it-your-selfer. One of Berger’s show in particular: How to Retire Before Taking Social Security | Bridge the Social Security Gap. Many packages do take the factors you note into account. Even if you use a FA, consider running some scenarios, to see if if your findings line up with the FAs. Results also generates questions for the FA.
I’d like to throw another unknown onto the pile you’re considering, which is the power and future potential of modern medicine to treat your aches and pains and extend your physically active period of life. At 67, for the last 3 years I have experienced a series of annoying neuromusculoskeletal issues that have sidelined me from my sports activities, but physical therapy and two minor operations have fixed each one so far (physical therapy has been amazingly effective). Joint replacement surgery has become one of the most effective treatments of modern medicine and continues to improve yearly (lower back surgery is not as good, but it too continues to get better). Your “active” years, particularly for travel, might extend 10-15 years past your early 70s, particularly taking into account future medical advances. Anecdotes prove nothing but can be illustrative: my stepfather at age 87 has had both knee joints replaced as well as the shoulder of his dominant arm and he plays tennis several times a week, travels to a different part of the globe yearly, and enjoys gardening in his large, hilly yard.
It is hard to weigh near-term consumption versus far-off consumption given how unknown the far-off future is, but your friends who have been happy with their decision to take SS early aren’t the right ones to consult unless they are already in their far-later years and are possibly experiencing the downside of that decision. I’ve only discussed this with a few much older people, but those who took SS early regret it now (of course, after enjoying its benefits earlier), and the ones who took it later are pleased. But people who took SS early and died early clearly made the right decision. The decision completely depends on individual circumstances and preferences. For myself I view Social Security — an inflation-protected annuity — as longevity insurance that helps insure I won’t outlive my ability to maintain a lifestyle I’m content with even if my savings and investments don’t perform as projected, but since my wife and I will have earned income until 70 we don’t have to reduce our present consumption to delay claiming benefits until then. (I personally am not worried about future benefits cuts: Social Security has long been considered the “third rail” of politics, and in a few years all of the boomers will be on it, making it even more untouchable!)
I have one friend that is 85 whose happy with his decision to take SS early, however, he’s like me with a military retirement until death. So, he has a lifetime stream of income already. My other friends taking it early are worried about their longevity (one has already lost two siblings and a father in his 50s), or just want the money in their hands now to spend–in other words, the utility of the money now. It’s fascinating to me how people handle these decisions so differently.
Patrick, Just my two cents, but I think you have calculated this just right. I am in a similar situation but am waiting but only because my variables are different. If I were in your situation, I would take the earlier pay-out!
Have a great retirement, my friend!
Thanks Dan.
Since you’re used to making decisions based on imperfect information, you would likely agree that if you’re feeling like your chosen course of action is 95% of optimal it was a good choice.
When I run my numbers on opensocial I look at the blue and yellow area graph that allows me to see the effects of choosing different claiming dates for my wife and me. The blue area shows me where the 95% or better outcomes lie.
Based on that, I aimed for the absolute earliest claiming date I could find for me that was still inside the blue and came came up with 64.5, while my eight years younger wife would claim at 70.
What does 95% mean in terms of money left on the table? About $50k in the present value of the total lifetime benefits collected by both of us.
I want to get busy living now, rather than wait until I’m too old to do all the activities we love doing just so I can get the last dime out of SSA. And who knows what might happen in the meantime?
Imperfect information indeed.
Thank you for the great comments. I’m going to play around on open social.
We turned 63 this year, so like you, our full retirement age is 67. I’ve always been reluctant to consider taking SS before that date. But the Open Social Security tool suggests that I take my benefit in July 2025 (one month before I turn 65), which is the age I put in to stop working, while my husband goes to age 70.
My husband thinks we should both wait until 70, but I’m leaning toward claiming mine at 67 so that we take less money from savings until we both get to age 70.
For what it’s worth, I think your arthritis/hip/mobility concerns are a great reason to claim earlier so that you can travel and have fun while you’re still feeling better.
My wife took hers early because she’s older than me and that’s worked out great. Although her spousal benefit would be larger than her own if I claim, it still lowers her benefit for the rest of her life if I claim early. Good luck with your decision.
Michael Kitces’ (www.kitces.com) summary of the SS decision is driving my decision to wait:
Ultimately, the decision to delay Social Security delivers the best results when there is either unexpected inflation, unusually long longevity, or especially bad market returns, which are the exact 3 scenarios that traditional portfolios are the least effective at managing, making the delaying of SS the ultimate anti-fragile “triple hedge”
Great insights Mike–an annuity stream has some serious advantages. Going forward, we probably have to expect inflation higher, longer than its been as well the usual big drop in equities that seems to happen every 7 years or so.
The biggest threat to a standard immediate annuity is inflation, so if expecting that scenario above it would dictate avoiding annuities
If inflation is a reason to avoid immediate fixed annuities, presumably it’s also a reason to avoid all conventional bonds.
That brings me to a pet peeve: There are certain strategies — delaying Social Security and buying income annuities, among them — that some folks simply loathe. But rather than just admitting they’re deeply uncomfortable with these strategies, they keep cooking up reasons to bolster their position. The inflation objection to immediate annuities is a classic example. Yes, inflation is a reason not to buy immediate fixed annuities. But if inflation is such a worry, shouldn’t you also avoid all conventional bonds? Yet, strange to relate, we never hear investors say they won’t buy bonds because of the threat from inflation!
Alas I am not against annuities and took my pension as such with 100% survivorship. As I have mentioned previously my mother in law will be turning 102 on Christmas Day and so far she has not beat their family maximum which was 103.5 (that’s not a misprint), so we will most likely make out like bandits in overall income (378k vs 110k). It’s just I am a realist that those dollars in 40 years will be significantly of less value. Most of my bonds are in short term TIPS so they are protected from inflation.
PS All my bonds are in bond index funds/ETFs for liquidity purposes
I am currently age 73, I worked mostly full time until almost 72 as a CPA and I waited until 70 to claim my earned social security benefit.
I do not have a pension and that was a big factor in my decision to wait until age 70 to claim my SS. I think your choosing to fund the spousal military survivor benefit plan is a great and caring decision. I have wondered if I had served more than my two years (I was in 72-74) in the Army and had gone for a 20 year career if I would have made the same good choice you did. I hope I would have done so.
I do know that for me the period of waiting after reaching SS eligibility age until I did claim was a anxious number of years as I considered my decision to delay claiming because of many of the questions and concerns you raised in your above article. I adopted a month to month approach to deciding when to claim. I am happy with my decision to delay to age 70 to claim SS benefits. When to claim is indeed a personal decision unique to each of us.
If you have not already done so I would encourage you to use the free Open Social Security tool that Mike Piper developed. See
https://opensocialsecurity.com/
I think the tool helps in the financial analysis of when to claim. Mike Piper also spoke at the 2022 Bogleheads conference about the topic of claiming social security and I found the video informative.
https://www.youtube.comwatch?v=atTp3sATI44&ab_channel=Bogleheads
In regard to your health and length of life and health span the book Outlive by Dr. Peter Attia has influenced my thinking and I have changed my eating and exercise to correct what I should have been doing for a long time. I would encourage reading.
Best, Bill
Thanks for the book recommendation. Just downloaded it to my Kindle. I get some of my best reading ideas from Humble Dollar!
I too have found Mike Piper’s Open Social Security to be valuable resource in deciding when to claim. Using different life expectancies (the most important factor in making the correct decision) changes the best claiming dates. Based on this I too have decided to go month to month on the decision of when to have my wife (the lower lifetime earner) claim. I am waiting until I turn 70. I have picked a number for my portfolio to get to a certain value to pull the trigger.
You’ve piqued my interest with your comment’s final sentence. Could you tell us more? Are you referring only to your wife’s benefit or yours, too? And how would hitting a certain portfolio value change the calculus for you?
We retired early and are both 65 and are utilizing RMDs from inherited IRAs, my small pension (just under 10K per annum), and then our IRAs for income. I figure when our portfolio drops to the target amount we will claim my wife’s SS income. That will allow us to take less from our IRAs until I claim at 70.
Wow, thank you Bill. Very helpful. I heard Attia speak on a podcast recently and found him compelling. And, I’ll use those tools and video you mentioned. I’ve been sort of month to month myself and so far haven’t pulled the trigger. I’ll log in to my SSA page and peruse things and then do nothing. Regards!
Nice article Patrick, and good luck with the decision. My default is 70, but I’d say you’re thinking about things that actually matter as you consider claiming earlier. Like Dick Quinn, I wouldn’t give breaking even much weight. That’s a red herring metric imho.
The break even metric has seemed relevant to me because I think it allows one to consider their longevity and then decide to optimize from there. I have a friend who is about 81 now and had an aggressive form of prostate cancer at around 58 or 60. He chose to go at 62 not knowing if his cancer would come back. Fortunately, it did not.
Good point. I was coming from a position of seeing it as longevity insurance. If I had a real reason to expect to not live long, then breakeven would matter more.
I agree that breakeven calculations are extremely relevant — but I also recognize that they’re a luxury. If you have to take Social Security right away to pay the bills, no further discussion is needed. But if you don’t, then it’s worth pondering when it makes most sense to claim — and, as a rule, later is better than earlier.
For us … when to take SS was based almost entirely on one factor. Our children can inherit our investments. They cannot inherit our Social Security or pensions.
Obviously YMMV
If you claim Social Security later, you’ll obviously draw more heavily on savings early in retirement — but over a retirement of reasonable length, meaning living to at least age 80 or so, you may end up dying with greater wealth.
Dick Quinn’s observations are especially pertinent, I think. For me, I think you are quite right to draw an analogy from your Coast Guard service. Now, as then, you are faced with making a Bayesian analysis of the situation. If you have all contingencies covered, and those arrangements let you sleep at night, however you choose will be the best choice you can make. Best wishes and many thanks.
Thanks Mr. T.
I’m 68 next month, and I’ll take my SS benefit at age 69, maybe a few months sooner. and my wife will begin benefits at age 67 (Jan 2024)
I’ve been a practicing CFP for over twenty years, and taking SS benefits 62-64 was sub-optimal for people who live into their 80s.
In addition to pretty women, my wife’s family has a history of longevity. I ran some maximization exercises, and here’s what I found.
If I live to 83 and she lives to 86, she should have taken her benefit at age 65 and me next month,
But if she lives to 90 and me to 85, she should have started at 66 with me delaying to age 70.
Of course, if we both live until our 90s, waiting until age 70 maximizes benefits.
Delaying SS allowed our benefits to grow, and we were able to do Roth conversions while in a lower bracket.
Discount what friends say about taking SS early. Unless you can’t work or you need the money for living expenses, I get it, but if you live long enough you leave money on the table.
Thanks Buz, that’s some sage advice. My father lived until he was 95 and only passed because of sepsis from an operation. My mother died young from the effects of heavy cigarette smoking so I have no idea what her longevity could have been. I think my father’s keys to longevity involved never worrying about things he couldn’t control and lots of sleep–and maybe he slept so well because he wasn’t worrying about much.
I recall when Mike Piper published his first paper back. IIRC his promotion was 5, for 5, one signed.
He has numerous books out now, but I still suspect his first books tightly focused on retirement considerations. Here’s a link to that first book, in addition to thoughts in this thread it might help.
https://www.abebooks.com/9780981454252/Retire-Money-Need-Manage-Retirement-0981454259/plp
Thanks Evan.
Most of us are a little irrational but very reasonable when we think through complex personal financial decisions for a solution which works for us and those we love. Years ago I paid off our mortgage early which was irrational under the circumstances but worked for us (even more so after last year’s RIF).
Two questions I’m wondering: How is your spouse’s health and longevity outlook? Does your military pension have survivor benefits?
Spouse is doing great, thank you. And yes, my military pension has a nice survivor benefit, 55% of my benefit. You pay for the survivor benefit for 30 years, and then it’s paid up. It’s taken out before taxes.
As long as she can happily live to a ripe old age on the survivor benefit plus SS and your other income sources, it seems reasonable to me.
Being able to save more money in retirement is a benefit that is often overlooked. I took SS at 65 instead of 70, and over the past five years I’ve saved lots of additional money. My lower SS payout is actually not that much lower, and is pretty high because I hit the limit most of my 35 years of working.
I also suspect that high-income retirees will be subject to higher taxes, or even reductions of benefits, when the SS trust fund starts to run out in ten years. However, once you have received the money and paid the tax, it’s yours.
I think that depends on what you mean by “not that much lower.” According to the SSA, if you were born between 1943 and 1954 your retirement benefit would have been 32% higher at age 70 than if you had claimed benefits at your Full Retirement Age of 66. Note that the 32% is on top of the yearly SS inflation adjustments, which have totaled about 20% over the past 5 years. And since you claimed your benefit a year before your FRA, your retirement benefit at 70 would have been even more than 32% (plus inflation) above what you received by claiming at 65. With your savings over those 5 years you’ll certainly be ahead for a long time, but hopefully at some point you’ll reach a “break-even” point and be behind after that. (I’m not a pro so please correct this info if it is wrong!)
To me there are only a few concerns, breaking even not being one of them.
Do you need the SS benefit to live as you desire? Will the added survivor benefit be critical for your wife?
If you don’t need the money, but might enjoy it, take it early and invest what you don’t actual spend – could provide survivor benefits too.
Evaluate if survivor benefits are actually covered with a pension survivor annuity and insurance or investments.
Should I predecease my spouse, she would have the military’s survivor benefit (55% of my retirement pay) and my SS benefit. I think she’d be fine.
Good luck with your decision, Patrick. And thanks for your service to our country. That last year before retirement must have had some difficult moments when you had to make the call to pack up and end the search.
Thanks for the kind words Linda.