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We have discussed many times when to start Social Security and pretty much concluded the decision is personal and need based. I don’t have a problem with any of that, but what bugs me is concern over breaking even considering amount received and years of benefits.
It seems to me the monthly benefit, the income when needed most is all that matters. Since I once again find myself in the minority, I asked a neutral party, Gemini AI. Here’s is the answer I received.
“The Social Security breakeven date is important because it helps individuals understand the long-term financial implications of when they choose to start receiving their Social Security retirement benefits.”
“The Social Security breakeven date is a valuable tool for retirement planning. It provides a financial benchmark to help you decide when to start your benefits to potentially maximize your lifetime income from Social Security based on your individual circumstances and life expectancy.”
What long term implications? Valuable for what? What financial benchmark? How could it possibly matter at all? You receive benefits you need and then somewhere along the journey they stop, breakeven or not.
Are you any better off going past breakeven or worse off missing the mark. Not that I can figure.
What do you say?
After reading some of the comments below, I sense that, in some cases, we’re talking past one another.
If you’re married and your spouse’s monthly SS amount is less than yours, it may be prudent to wait until age 70. If you die first, your spouse would benefit from your higher monthly income.
If you are single and have reason to expect a shorter-than-average lifespan, it may be prudent to begin SS earlier.
In neither case does breakeven point appear to be a major concern.
From my perspective, concern over breakeven point is an attempt to avoid regret if you die before your cumulative benefits exceed what you could have received had you started benefits earlier.
But the dead don’t suffer regrets, so why the concern over breakeven point? I assume this is the thrust of Dick’s argument.
Yup
So are you now agreeing that there’s a strong argument for delaying if you believe you’ll get a higher total lifetime benefit, either because you’re in good health or because, if married, either you or your spouse is in good health?
What I agreed to above was “why the concern over breakeven point?” It’s all and only about monthly income when needed most and maximizing that income. That could be an individual, a couple or a survivor.
That income may last a year, ten years or twenty. The accumulated total makes no difference to the person collecting.
But how do you know when you will need it most? We know what our needs and assets are worth today; we can only estimate what they will be in the future. Since I don’t know, I would rather err on the side of maximizing the future payout.
Seems to me that is quite personal and depends on several assumptions. To me we can assume all expenses will go up while the big unknown is health care, mostly in the form of some type of LTC.
Maximizing the future monthly income may well be the best strategy for some people, but at what price covering current expenses affecting investments if that is what is used for current expenses.
There is no generic answer that I know of.
If one has a healthy portfolio, one can afford to delay Social Security.
The importance of the “break even” age depends heavily on a couples’ unique circumstances. For instance, in our case, my spouse (the lower earner) had a benefit on her own record higher than her spousal benefit on mine, but my benefit was significantly higher than hers. She is five years younger than me. We are both in good health. When we ran the projections, her collecting on her own record at age 62 and me waiting until 70 had a very high probability of yielding far more in eventual benefits (possibly hundreds of thousands) for both of us.
As far as “losing” if one dies before the “break even” age, that’s a far less important concern than living quite longer than anticipated and having a permanent low SS benefit.
Isn’t the monthly income generated for both or one that is important. How do eventual benefits help?
What is negative about my comment?
More inflation-adjusted monthly income later in retirement means more protection against inflation, less risk of outliving savings, more Social Security income for a surviving spouse and less risk from financial mistakes caused by cognitive impairment. It also means less money drawn from the portfolio at that juncture, potentially resulting in more money for heirs and charity.
Doesn’t that argue for starting SS later, especially if single?
Yes, indeed. But single individuals should also pay more attention to existing health issues. If someone isn’t in great health, and there’s no spouse to receive his or her higher benefit (assuming it is higher) as a survivor benefit, delaying may not be a wise move.
Can’t argue with that. As i have been trying to say, it’s all about monthly income when you need it most and maximizing for that purpose. What you may collect over a lifetime is far secondary if at all relevant.
One of the most common justifcations for collecting at 62 is that the recipient “needs” the money. Since most folks’ retirment income is a combinatiion of liquidation of assets and SS benefits, if one “needs” to collect at 62, one simply cannot afford to retire at that age. Far preferable to spend assets down early in retirement and delay SS (for a higher, guaranteed, inflation adjusted payment for life) to protect against the chance of a significantly longer life than anticipated.
Doesn’t the percentage of retirement income made up of Social Security factor into that decision? I wouldn’t want to end up at age 70 with all or most of my assets gone.
What is the possibility of future means testing for Social Security benefits vs drawing early benefits today (and possibly investing that for future income)? Congress doesn’t want to touch this political hot button until they have too, possibly when the 2035 funding shortfall arrives. Will the single individual living completely on only their social security check be told to take the same percentage benefit haircut as those who have other financial means? Social Security was not federally taxed for higher income beneficiaries until 1984, and that original rate raised in 1993 for certain beneficiaries. Some say a bird in the hand…..
After doing a lot of research before retiring in 2022, almost all the finical advisors advised to wait until 70 if possible to get that extra 8% increase per year. There were a few that said only do that if you’re married because your wife will get benefits from your account. If single, don’t wait longer than your full benefit age because if you die, your SS money goes right back into the SS money pool.
Since I never married I retired at my full retirement age, 66 and seven months. When I did the math, waiting until 70 wouldn’t have made that much difference anyway. An extra 15 or 20 dollars per month.
Just take it at 62 if you don’t care.
Love reading your articles R. Quinn. Thanks for being a regular contributor. Today I think you’re just stirring up trouble (the good kind). You’re right. It probably doesn’t matter in the long run, but most people are inquisitive and would like to know regardless. It makes them feel better knowing they have gotten all of the money back that they have contributed over the years…assuming they live to see that day. Based on what I’ve read and my own calculations most people break even at or around the seventh year. I’m on year three, so for me personally I will be celebrating once I recoup my “investment”. Everything after that is as they say “gravy on the biscuit”.
About year seven my wife and I had received in benefits all the taxes we and employers had paid since 1959.
But it’s just a tax, like any other, we are not funding our benefits. Worrying about getting it back is like worrying if you received value for all income tax’s paid. It’s a big pool of people in both cases, some winners and losers.
Sure don’t want to break even on my Medicare taxes or premiums. I want to lose it all, but it’s too late for that.
I agree with you that the cumulative taxes paid during our working years is irrelevant (be they nominal or real dollars) in this discussion.
Just to clarify, “break even point” means how long one must live and collect the delayed but larger monthly payment in order to receive the same, inflation-adjusted cumulative amount, compared with having begun at a younger age.
Like you, I was not influenced by this. (I certainly would have been however, had I received terrible news from my doctor, as our mutual and highly respected friend Jonathan had). I was able to afford waiting until 70, and consider it a form of longevity insurance.
But change the focus to something more worrisome, to me at least. You have posted useful info on fixing the SSA and Medicare funding problems. I worry about Congress punting for as long as they can, then enacting hastily written new laws at the last minute. And I take less solace than I used to from the old saying that politicians will never allow SS or Medicare to fail due to the large number of retirement age voters. It seems like almost anything can happen these days.
I too used to say no politician would let SS cut benefits, but while I still think that is unlikely, these are different times. People running things have a very different view of the role of government. There is a very good chance nothing will happen until after 2028.
If I were running SS projections for a near term future retirement i would take 20% off the real number just to be conservative about future income.
That seems sensible.
If break even was truly an issue, we would see Monte Carlo projections regarding break even. How much of this question is the same one we have with annuities?
I’ve determined it likely will make little difference when we take SS, other than it would be foolish for me to wait beyond my FRA. My wife is only eligible for a spousal benefit and will be 70 when I hit FRA. Still seems the optimum time is when Lisa reaches FRA since her benefit will have maxed out at 50% of my FRA benefit. But if we do get it “wrong”, it’s no big deal.
I’m curious if anyone else has taken into consideration the 2034 Social Security Trust concerns when determining whether to wait until 70 or not?
Though a potential 20% cut in SS in 2034 won’t be devastating for us at that time, it will affect us in a major way, impacting travel and other extras in our lives; and possibly greater impact 20 years from then if not rectified. I think there is a greater than even chance that the 2034 cliff will be fixed, but it’s still an unknown. It wasn’t a major point in deciding to wait until 70 (in 2026) but we thought it was another point to wait til 70 and hedge our bets in this area.
Jonathan, I’m curious on who your readers/subscribers are from a financially secure aspect? Monetary worth? Age groups? I appreciate your websites content and the comment discussion on these issues. I have learned so much though the years, just wish I had started earlier….
Yea I wouldn’t worry (cuz worrying doesn’t fix anything) about the proposed reduction coming in the next ten years. If Congress doesn’t fix it by then (they love waiting for the last minute to do anything except give themselves a raise), then they all should be fired. No tax on Social Security would be nice, but I’m not holding my breath.
All of Social Security should be taxed. That would eliminate the “tax torpedo” and simplify taxes, not to mention helping the trust fund.
From experience, I wanted to determine to wait till 70, or take the SS at 65. At the time, I read all I could about the many possibilities. I did a so called break even point. That helped me determine, OK I will wait until 70 and wait the extra 5 years and take higher SS. I am not at even until about 4 more years, but regardless, I am happy with my decision. There is NO one way to choose, you must consider your situation. Thankfully, my IRA’s help me meet my yearly needs. Also, thankfully it is less than the RMD I have to take. So for my wife and I, Life is Good.
Good for you folks. I’m happy to hear you’ve made a decision that you can live with. Like you I read hundreds of articles convinced that I’d wait until my FRA. I retired early (61), and would have had to draw down on our nest egg for six years before collecting social insecurity. After praying about it and discussing it with my wife and our financial advisor we decided NOW was the best time for us. This way with my pension and both my wife and I drawing social insecurity we can take a much smaller draw on our IRA. It works for us. Honestly the government has you coming and going no matter when a person draws, so it all comes back to “it’s a personal decision based on your unique circumstances. There is no free lunch.
One thing I think I’ve learned is there is no universal “right” decision. Case in point. I learned that a financial advisor friend of mine had decided to take SS at 62. Knowing that I was leaning towards waiting till 70, I called him to make sure I wasn’t missing something. At the end of the discussion, we decided we had both made the right decision after considering the totality of our circumstances and our goals. He agreed that trying to ensure guaranteed annuitized lifetime income for an under-benefitted spouse was probably the best reason to delay for those that choose to delay. He, on the other hand, was taking at 62 because his spouse earned more than he, and had both a larger pension and 401(k) so his SS was basically play money for beer and fancy fishing lures. He was, in effect, taking it because neither he nor his spouse would ever need it. Different circumstances. Different decision tree. It’s all good.
One of the start age decisions often seems to center around a higher survivor benefit if SS is delayed. Of course that’s true, but wondering what other income for a survivor is considered when making that decision? Life insurance, investment dividends and interest, etc.?
Do you factor in age differences?
Have a term policy that takes me to 68. No permanent insurance. No age difference here. I guess I see anticipated investment returns as apples and oranges vs guaranteed annuitized income. Also, my spouse has little interest in investments. Delaying SS plus her portion of my pension will yield cash flow that will make investment decisions and returns virtually a non-issue and not anything she ever needs to worry about. That was the goal.
We’re 65. My benefit is much higher than my spouse’s. It was and remains my plan for me to wait to 70 to preserve the higher COLA protected benefit for the survivor. My spouse took at 63 because it was relatively small and thus would not increase much over time. Also would be lost if either of us were to die early. Gives us extra $$$ in our 60’s and reduces our minimal investment withdrawals. This was pretty much consistent w Piper’s calculator. Truthfully, I didn’t obsess over it. Felt right. Made sense. And the “wait till 70” decision doesn’t have to be permanent. It’s M-T-M and can change. But, for us, we feel better about spending, gifting, etc., knowing there’s a large cash infusion coming down the road that can be turned on at any time.
I’m 63 and eligible to claim SS now, but plan to wait until age 70 to do so. Rick and Michael make my arguments below.
I consider the relative value of income sources. Social Security income is safe, inflation-resistant and arrives monthly with no effort from me once in place. These attributes give it a high value. I’d like as much of it as possible for as long as my wife and I live.
Currently, my paycheck replaces the income I could receive from SS. Later, my investments may supply this replacement income before I reach 70. Once I claim SS at age 70, my wife and I expect to have investment income, but we’ll also have a greater percentage of high value income because we waited to claim SS.
A bigger stream of high-value income means more money for all purposes. Certainly for meeting the monthly bills, but also potentially leaving more for charity and heirs.
I was just watching a YouTube video about starting SS. There was a nice chart that showed a couples “breakeven” age and the accumulated dollar difference including spousal benefits between starting at FRA and age 70. After many years the difference was several hundred thousand dollars.
As I listened and studied the chart I thought, those are big dollars, an amount the couple will never see or affect them because they received them and spent them each month and they represent a life annuity after all.
All this reminds me of the scary number a retiree will (might) spend on health care. It’s several hundred thousand dollars over a retirement. That too is meaningless. Mostly because it is over 20-30 years on mostly a monthly basis, but also is highly variable beyond premium costs.
Could you supply the link?
Sorry, I just opened YouTube and it popped up on the screen. I didn’t mark it.
Thanks – I was confused by this statement and I wondered if the video explained it.
“As I listened and studied the chart I thought, those are big dollars, an amount the couple will never see or affect them because they received them and spent them each month and they represent a life annuity after all.”
If the couple received the additional benefits monthly over their combined life, haven’t they already enjoyed the increased benefits and had their standard of living raised?
Maybe we are talking apples and oranges here. I see optimizing SS as part of a integrated plan for increasing a retiree’s (or retired couple’s) standard of living over their entire retirement, Improving each month’s SS payment improves that month’s standard of living, and repeating that over a lifetime makes their life better. I don’t see it as accumulating a pot of money that is there at death? I’m sincerely confused by your statement. I don’t understand the scenario that applies to the statement.
Sure, they received the amounts in terms of higher monthly benefits assuming they lived long enough, but it was not like a pool of a few hundred thousands dollars was available after they passed their “break even” point.
The chart showed a large number of lost or gained money based on filing ages. Whatever the amount, it was built into their monthly payments. Optimizing as you say is through each month’s payments based on circumstances. It is not based on total accumulated lifetime payments or break even points.
“but it was not like a pool of a few hundred thousands dollars was available after they passed their “break even” point.”
Of course not. Did you expect that? Did the video imply that? I have never heard a single reputable financial person even suggest that.
Lifetime benefits, whether the maximum, median, or minimum, are accumulated month by month. That’s how SS works.
It did not imply a lump sum. It showed what in total would be collected by different ages using different starting ages. I see no point in that analysis. And I see it inaccurately influencing people.
you collect X amount per month for life plus COLA (maybe) or Y per month. That’s what lifestyle is based on.
The value to me in my pension is what I receive each month not how many years I collect it or the total collected. I could have started at 55 or any age thereafter and each amount would be different based on earnings and service and actuarially adjusted for ER . The focus was still on monthly income.
No different for Social Security as I see it.
Great discussion , really enjoying it and it helped me crystalize my plan!!!
If you don’t really need SS, but can use it, it is not a monumental decision right? It is more of a felling in this case.
So I am thinking of it this way, would you be happier that you got more SS $’s past the breakeven date or more disappointed if you die before and feel gipped?
Human nature studies find people care more about losses than wins and I think I am in that same category. Somehow I feel I am an outlier in this group.
I am still 61 but believe I will claim just before or at FRA as I don’t plan to be working then. Even though all the calculators say I should wait till 70.
Somehow I don’t think mulling over my claiming decision at my demise will be a thing.
Exactly. Haha
I don’t think you will feel gipped. You need to ask WHY the calculators say 70 and if the assumptions used apply to you and your situation and your goals.
Late to this discussion. My claiming strategy was in two steps, where I knew I planned to continue full time employment beyond my SS Full Retirement Age:
Turns out that ended up with a delay until my age 67 and 3 months (15 months after my full retirement age), and, when my spouse was at her full retirement age. I wanted to delay commencement not only for the additional monthly income, but also to enable me to continue to max out my contributions to the Health Savings Account (Part A would start whenever I commenced Social Security).
However, unsurprising, rules changed, taxes changed, the GPO offset for my spouse’s pension changed, my earnings from continued employment have varied greatly, etc. And, based on provisions in the “one big beautiful bill”, looks like more change to come.
Best laid plans …
I’ll just add one more reason why in our case I like the idea of waiting until age 70 to claim. As noted before, it increases my monthly SS income, and my spouse’s survivor benefit. Not previously mentioned is that it increases the amount of my monthly cash flow that’s harder for me to mess up with bad decisions or be stolen/defrauded out of. There would seem to be a higher risk of both as we get older and face cognitive decline, so I like the idea of having a larger amount of our income stream that is less subject to these risks.
But what about “messing up” between retirement and age 70? If that happened you could be worse off at older ages.
I believe both (1) the likelihood of us (a) making seriously bad decisions or (b) falling victim to fraud/theft and (2) the potential consequences of either are lower now than they will be when I’m 80.
Also, whenever either should happen, having that larger SS benefit waiting in the wings is a good thing.
My bottom line is simple regarding all this.
As long as your retirement income is sufficient to live as you desire for life and you have protected a surviving spouse, regardless of the sources, you can’t lose and nothing else matters, least of all whether or not you got the most in total benefits you could from SS.
It seems to me the importance of any SS strategy is heavily affected by the percentage of retirement income SS represents and the amount of total usable assets available to offset a delay decision.
I agree that the SS claiming decision should be part of a holistic retirement plan. One of the ways I find useful in understanding complicated topics is to evaluate the “edge” or extreme cases.
1) Consider someone who has enough financial resources – pension, qualified assets, after tax accounts, real estate, whatever – so that they don’t need, or will never need SS benefits. They still have to make a decision on when to claim, but the consequences of their choice is minor. It odens’t really matter when they claim. They could take their benefit and bet it all on the horses, it won’t matter to their standard of living.
2) Consider someone who has nothing but SS benefits for retirement. Their claiming decision is crucial to their retirement standard of living. Maximizing the amount of SS benefits they receive can dramatically improve their standard of living. I believe you have mentioned 10 million retirees who depend solely on SS. I would guess that most of them would be financially better off if they delayed receiving their SS benefits to get the maximum. I understand this may be difficult, if not impossible, for some people to achieve, but that doesn’t change the fact that that it would be better financially. I know seniors who went back to work, moved in with children or other family, share housing, or move to lower cost regions.
3) Then there is the rest of we mortals who will need SS, but not necessarily right away. We might have small pension, retirement savings, home equity, and SS benefits. We have to make choices on when to claim SS, when to withdrawal assets, decide where to live, … I think it helps to understand the relative value of each of these assets, and make decisions based on data and knowledge, instead of gut feelings, or anecdotes.
Idk, $1k/month sounds better than $0k/month if those are my two options for present income. More later is completely irrelevant if I can’t survive to the later part.
Regard 2 as you alluded to, delay for them is virtually impossible. Their delay decision when possible probably is their retirement date.
As far as 3 goes I agree with you until you get to the relative value part. SS has no relative value beyond creating an income stream. When to begin that stream considering spouses and survivors is certainly an important decision for most people and requires consideration of all available parts of retirement income.
I suspect the decision to delay SS to increase later income but using some assets to be able to do so is critical.
But I cannot in any way see how the lifetime total SS benefits are a factor in that decision. You need the income while you and perhaps a spouse are alive, that’s it. There is no more value, SS stops.
Wouldn’t “lifetime total SS benefits” be a crucial factor in how much of your savings you spend during retirement, how much you bequeath and how much you can give to charity?
I’m not trying to beat up on you, Dick. But you’re one of the leaders in the HumbleDollar community, so it worries me when you push points of view that have the potential to cause financial harm.
I have to say that I personally am with Dick on this: I care very much about the size of my monthly check, but not at all about how much I might receive in total. However, I am not especially worried about leaving a legacy, and I can see that my concerns could be different if I were (I would still worry about longevity and inflation).
I’m not trying to be obstinate, but since SS cannot be anything other than an income stream for one or two lifetimes, I cannot see how the total aggregate benefits possibly matters.
‘’If my age 70 benefit was $2000 a month I would need income from somewhere else to meet my living expenses before SS. If I started at FRA at say $1500 a month I would likely need income from other sources later in life.
In either case SS will only give me $1500 or $2000 a month plus COLA and stops when I do.
What does it matter to me if the lifetime benefits are $250,000 or $100,000? I still only get a monthly payment as does my survivor.
On the other hand, the value of other investments certainly matters in both cases.
If total lifetime benefits are $250k rather than $100k, and you live to an average life expectancy, that’s $150k extra that you could then spend, bequeath or give to charity.
But I believe Dick’s point is that you cannot know whether it will be 100k or 250k because you don’t know the date on which benefits cease. So you can’t know if you will have the extra 150k in your example.
True. But as with all good financial decision making, you get the facts and understand the odds. What is the breakeven point? What is the average life expectancy for someone of my age? Is my life expectancy likely to vary sharply from that average? Then you have the basis for a sound decision, rather than relying on fear, or gut feeling, or anecdotal evidence. Your decision may still be the wrong one. But that’s also true of so many other financial decisions we make — buying a home, wagering on a particular stock or stock market sector, etc. — and it doesn’t mean you should ignore rigorous analysis.
“As long as your retirement income is sufficient to live as you desire for life and you have protected a surviving spouse, regardless of the sources, you can’t lose and nothing else matters, least of all whether or not you got the most in total benefits you could from SS.”
Again, I find myself scratching my head. If “your retirement income is sufficient to live as you desire for life and you have protected a surviving spouse,” does that mean it’s okay to start carrying a credit-card balance, buy high-cost investments, trade excessively, etc.? As I see it, if your goal is to make smart financial decisions, that should extend to Social Security.
I’m scratching my head too Jonathan.
i used to be a pretty good communicator, but now it appears my ability to convey my positions and ideas is seriously deficient.
I’ve been accused of being self-serving, the thought police, of trying to push my ideas and actions on others and now we have jumped from living a desired lifestyle in retirement which no doubt includes SS income, to running up credit card debt.
If such debt were accumulated I would conclude the person was irresponsible or their income was not sufficient.
I always thought of Social Security as longevity insurance. Having as much insurance as possible made the most sense to me so waiting to 70 was my decision. Other folks that are income troubled or very sick may make a different decision.
Yes – if you can wait, this is how I think about the decision. Then, if I unfortunately die early, I won’t be fretting about the decision six feet under, and my hopefully surviving spouse will also benefit.
Yes, but you also must consider all available income and resources in making that decision.
I think Rick Connor covered the real issues in deciding when to take SS. That made much more sense than leaning into breakeven. Breakeven doesn’t address the underlying issue people face, rather it’s how much do I need that extra COLA adjusted longevity protection.
I think the math may be more complicated than a lot of people want to wrestle.
I also think people get very emotional about longevity and death issues. Which will tend to circumvent logical, mathematical thinking.
That’s my 2 cents. That people lean into ideas like breakeven because it’s a more emotional than logical way of thinking and that people are prone to that around issues that touch on death.
Thanks for the mention Scott.
With regard to the complicated math – Mike Piper’s Open Social Security tool has made the onerous task of comparing and understanding the relative value of various claiming strategies much easier. I think it is especially useful for couples who have to make two complicated decisions.
Rick, this is what I don’t understand. I went to the Open Security site. After entering data. I see this.
The strategy that maximizes the total dollars you can be expected to receive over your lifetime is as follows:
How is that good advice not knowing the full financial picture of the person and, of course, is maximizing lifetime benefits a real goal to help with income during a retirement?
Open Social Security does not give advice, it gives information to aid people on their decision. The highest lifetime total payment is not always the best time to apply. It is a great source for Social Security claiming information.
Dick, I suggest you read the About section on Open Social Security to better understand what the calculator does. It does not claim to be an exhaustive, holistic financial planner, and it provides a few examples of why someone might choose a different strategy.
The calculator runs the math for each possible claiming age (or, if you’re married, each possible combination of claiming ages) and reports back, telling you which strategy is expected to provide the most total spendable dollars over your lifetime.
The calculator does what it says it will do, does it consistently, and does it extremely well. It also allows you to model various scenarios, including different mortality tables and the impact of future work. This is one important part of a retiree’s financial plan.
You and I are a strong proponents of SS, and understand its importance to many retirees. It’s unique in that it is guaranteed by law, provides a COLA, and spousal and survivor benefits. Nothing else in my retirement portfolio has those characteristics. Given that, why wouldn’t someone want to maximize the “best” retirement asset they have?
I understand that there are scenarios where retirees can claim earlier, invest the proceeds, and make out better. But you are trading a virtually risk-free asset for a riskier asset. Taking more risk should provide more benefit.
To your last question -“is maximizing lifetime benefits a real goal” – I say absolutely. This is especially true for someone concerned about longevity risk and outliving their assets. For a couple with longevity risk concerns, this is doubly true. I’ve seen this play out with a great number of seniors doing tax returns.
I read the about section and it says:
Please note that this calculator should not be the only analysis you do, as there are various factors that it does not consider, such as:
I think the site can be very misleading for people who don’t understand all the implications. It does not consider all possible assets or other sources of income. How can SS benefits be analyzed in isolation?
I just can’t get past the fact that to me the amount that can generate regular income for life as needed is the only thing important.
How can he even say “strategy that maximizes expected total spending,” Total spending is based only on SS?
You seem to have a mental block on this one, Dick, and I struggle to understand why. Mike Piper’s brilliant calculator — yes, brilliant — allows folks to figure out the Social Security claiming strategy that delivers maximum benefits over their expected lifetime. Who wouldn’t want that information, regardless of what the rest of their financial life looks like? Should the calculator instead tell users the strategy that’ll give you maximum income right now, while royally screwing you over if you live past age 80 or that could potentially leave your widowed spouse eating cat food? I think you need to better articulate your objections.
I also see the Open Social Security calculator as brilliant in design and a generous gift to the financial community.
I would also note that the calculator projections has a default 2.43% discount rate which the user is free to modify. My point being is the unmodified calculator output, as I understand it, is not total payments but rather is present value of those cash flows. If you are only interested in total payments you should set the discount rate at zero percent.
Another topic when planning your SS claiming is not just the final taxability of your SS benefit but also the impact of your other income sources in determining that SS taxability based on current tax law or what you expect future tax laws will be for the remainder of your life(s). My crystal ball has been broken for decades.
Maybe we should ask Dr. Alicia Munnell who founded the Center for Retirement Research at Boston College (CRR) in 1998 for yet another research paper on the factors to consider in our own decision of the best time to claim social security. My hope is we will help the readers of Humble Dollar to have the best available information so the reader may make an informed decision.
Bill, thanks for adding to conversation. My understanding of the calculation is the same as yours – it is the PV of the future cash flows. I’ve enjoyed Dr. Munnell’s and her team’s research and it has shaped much of my thinking. I would definitely welcome any research she would offer.
I would also like to say that I share your motivation for engaging in HumbleDollar, and add that I find your writing some of the clearest and most useful information on the site.
Jonathan it only calculates the largest total SS payout. That’s not always the most important thing to some people. That’s only one part of the evaluation. There are plenty of valid reasons far claiming with a different strategy. Waiting to claim can limit flexibility for some people. I can’t take say $200k from SS and give it to my heirs if they wanted to buy a home. SS comes in drips and drops…this is just a rough example of why I dont care as much about getting the largest check. A bigger check at aged 70 , while my retirement assets gets depleted is not what I want. Ideally I’d like both, but maybe I’m just being obtuse, I want the greatest flexibility and to me that means having the largest possible retirement account balance. This is from an immigrant who really never had to depend on the government for anything. Maybe that skews my perspective.
As long as I’m working, I will delay claiming SS, that I know for sure.
“it only calculates the largest total SS payout”. Mike that’s what the calculator’s purpose is. It doesn’t claim to do anything other than that. But it does it extremely well, evaluating a variety of variables, and for free.
Rick, you and I both have pensions, did you think of your pension, retirement date, in terms of the largest total lifetime payout?
I thought of the monthly lifetime income stream we could count on plus survivor benefits.
Why would SS be thought of differently?
Fair question. I approach most things from an analytical direction, so running numbers to understand all my options is 2nd nature. I can’t imagine not considering as many sides of a problem as I can manage.
My pension is a special case due to a number of events. Late in my career our employer sold our division, and within a few years the new owner froze our DB plan, switched us to a cash balance plan, and added a lump sum option. Since the lump sum option was new to most of us, there was a tremendous amount of angst and confusion on how the lump sum was calculated. As a senior manager at the time, it was assumed by the employees that management understood all this. Part of the challenge was that most of the leadership team did not come from our heritage employer, especially HR, and they were not part of the pension plan, They did not have the experience or interest in understanding the plan’s nuances. So I dug in and became as knowledgeable about all aspects of the pension as I could. There were some complicating provisions, such as an early retirement subsidy, that only benefited the monthly benefit choice, and not the lump sum. So there were lots of employees trying to figure out the relative value of the monthly benefit vs. the lump sum, and which would provide the largest benefit. Had you been our HR VP at the time you would have been overjoyed to find a regular line of engineers and scientists at your door asking you to explain IRS 417e discount rates.
I had a related thought recently – did you consider the file and suspend strategy for SS? Seems like you and
Connie would have been good candidates,
I totally get that. But the largest payout calculated in the context of only that income stream. I think the tool is great and I spent hours running various simulations. No issue with the tool whatsoever, and it’s really useful.
My take is on whether waiting to claim is the best strategy assuming you don’t need the funds to live off… My brain doesn’t wrap well around that premise because if I can leave my retirement assets to grow by a modest 6% per year, I think I’m better off maybe because I’m looking at such a big number for retirement savings and that’s clouding my view. Maybe I should figure out apples to apples in dollar amount and see it’s worth letting the SS dollars grow by the 8%. That’s a bit clearer of a calculation. The other issue is struggle with is that if I need to write a large check, say for $100k, I can do that from a large retirement account balance while the SS dollars albeit larger are only paid monthly. This is assuming i depleted the retirement account in the years waiting to collect SS for the largest check.
I think I’m rambling here but maybe we split the baby like Piper’s tool recommends, my spouse claims early and I wait.
The graph that the tool includes let’s people see exactly what the likely result of their choices would be. If you want early cash flow it lets you think that thru as an informed person as well.
The chart he provides (which you can update for your personal strategy) will tell you what a surviving spouse will have as a remainder. Again, the tool excels at informing.
So even if someone is of RDQs mindset, wanting income now, no matter what, the tool will work for them and they’ll be able to make their decision fully informed.
I really don’t see a downside to the tool.
Not sure I understand what you mean by “tell you what a surviving spouse will have as a remainder.”
Then you haven’t successfully interacted with the tool, it’s there, black and white, in a table. It tells you likely spousal benefit (because who knows what congress will do), it lets you know survivor benefit.
It let’s you choose a date of death, it let’s you pick what you think is an appropriate mortality table (like if you’re a smoker) it lets you reduce benefits to reflect Congress failing to act. It’s not a enter a little get one answer calculator.
None of your stated concerns about this tool are based on anything concrete. Just because it’s designed to give you a maximum present value, doesn’t mean you can’t use it to find out what other scenarios present.
I guess I do. I understand maximizing monthly income by delaying to age 70 or any age over FRA. I see many reasons why maximum income in later years is important to people, including higher survivor benefits.
I do not see why maximizing “expected total spending” is relevant.
As you know, my uneducated strategy was to take both our SS at FRA while I was still working part time, collecting a pension and invest it. I started that 17 years ago and invested SS monthly until we needed it several years later.
It is all invested in Muni bond funds. Today those three different duration funds generate $1,600 monthly tax free income – still reinvested. The three bond funds together have a value of $586,000.
As long as I lived until we stopped investing, could we be worse off? Our taxable equivalent income from SS and the interest is very close to that we would have had from a delay. But we also have the cash value that’s available to Connie or as a legacy.
I will sincerely appreciate your comments on what I did, but of course, if I screwed up, it’s too late to worry about it. 😎
Why was this a better decision at full retirement age than at 62?
Only because of the higher benefit. I don’t like the idea of a reduction, i didn’t want the working income offset, but mostly I wasn’t even thinking about retirement at age 62.
Dick,
I understand exactly what you did and when you say ‘ I have the cash value’, that’s the point I’m trying to make; you have flexibility. SS pays put in drabs. You could write a.check to help a grandchild buy a home….it’s more difficult with SS trickling in monthly
Instead of “expected total spending,” read “expected total income.” Make sense now?
In your case, claiming at full retirement age likely made sense, because that allowed Connie to start spousal benefits. As it is, she’d already missed out on four years of spousal benefits because she’s four years older.
But as a rule, claiming at full retirement age, rather than 70, and investing the proceeds in bonds would be a losing strategy if you live past 80 or so.
You’re welcome
I use that tool. I especially like the color coded graph where you can stay in the green looking for the right compromise of payout and timing.
I think the complication is when people wrestle with what they want versus what they might need later. Then trying to put it to the numbers.
Beginning at age 62 I did run some numbers. They included taking social security at varying ages, working part time, paying the taxes and investing the remainder.
I downloaded the social security calculator which allowed me to play with the numbers, save them and update them periodically: work longer, earn less/more each year, look at various retirement years, changes in benefits, etc.
I wanted my spouse to retire early, and she did at age 57. To make the finances work I was planning a gradual, phased retirement and so I had some options to consider. That included working and saving more while taking SS. There would be taxes to consider. There would also be funds for travel, etc.
I decided to take SS at full retirement age (I used 67) but continued to substantially work part time until the age of 71. I reduced my work at that point, but continued to get work related income until the age of 76. Combined with travel, etc. the period from 67 to 76 seems to have literally flown by.
From age 67 onward I took a significant part of my income, including SS and saved and invested in my retirement accounts. My decision to do this at age 67 has increased my net worth by 41.4% as of 5/15. Favorable and perhaps unusual market returns certainly helped. Those returns were the real unknown in my plan, as was my longevity. I did invest somewhat aggressively in a 70/30 portfolio with a significant growth stock component. [Changed to 50/50 in 2021].
As I’ve posted before, I waited until 70 because I wanted the largest possible base for future COLAs. However, I’m single, which simplifies matters. Even so, break-even was never part of my decision. I don’t actually know what that year is for me, and if I die before it I really won’t care. I was fortunate in that I didn’t need the money earlier. If you need it at 62 I can’t see that break-even would be a factor in that decision, either.
Unfortunately, this post has a kind of “thought police” quality within. Just my belief that people should think about whatever they want to including when they might breakeven on collecting SS. Especially when considering finances, I would advocate thinking over a very broad range of subjects; the wider the better. If I was asked for advice about when someone should take SS, it would be to wait as long as possible. But, that term possible will always be seen from that questioner’s frame of reference.
When discussing with my children about how to relate to others I always brought up the “Sin of Projection”. Given that everyone grows up with different life experiences, mistakenly thinking that other people should always see the world the same way that we do is fundamentally wrong.
Shouldn’t the answer be based on the situation of the person asking the question rather than the person asked frame of reference? My personal frame of reference would apply to very close to no one else.
“What bugs me is concern”…..concern = thought….you expressed concern about what someone thinks…..why should you be bugged about what someone else thinks….???
You’re right I was expressing concern not so much what other people think, but the concept related to break even.
However, I have a lot of concern about what others think that could end up driving policy in a bad direction. No property tax for 65 and older, no tax on SS benefits greatly concern me as I expressed in my consequences post.
I desperately wanted to retire in 2010 at age 65, because I no longer enjoyed my profession of 40+ years. Although I didn’t calculate the break-even date, I knew from a SS point of view it made since to wait until age 70 to withdraw because I was in good health and, genetically, I could expect a long life (parents and grandparents lived into their 90s).
However, I also understood the magic of compounding in our personal investments and knew I would miss out on some of that by withdrawing from those and not taking SS until age 70.
Not sure if my gamble paid off, but between age 65 and age 70 our investments grew by 32%, but from age 70 to 80 they grew over 150%. The math is too complicated for me, but my gut tells me I’d be worse off today had I drawn down those investments between age 65 and 70. BTW, we’re still not withdrawing from our investments other than capital gains and dividends.
This is called survivor bias
Boom! My calculator and this thing called a ‘feeling’ tells me this is the way to go. I could still change my mind, but leaning this way for sure.
It’s a fair question. I think the behavioral economists would agree with you that it shouldn’t matter.
But, it turns out we humans are a tricky and often irrational bunch. I would feeI cheated if I didn’t breakeven. But my feelings should not necessarily be relevant to the decision.
Cheated, gipped, lost, I would feel worse the less I received considering how much I have paid in. Getting to break even means I lived a long time and that in itself is a victory.
This psychology stuff of us humans is so interesting
I’m sure we could construct many situations where people feel cheated about SS one way or the other, including people getting more than them based only on family situations. Let’s say two people with the same earnings record. Both retire at FRA. One is single, the other married and divorced. The second person gets his benefit, his spouses benefit plus the ex spouse gets a benefit. Given they paid the same in taxes, the second guy collected far more.
Breaking even shouldn’t be a goal unto itself. Figuring out when you would break even is a means to the end. The end being: how do I time taking SS so that it serves as the most valuable possible asset, over time, that it can be? I say ‘over time’ because ‘need’ evolves in ways we sometimes can’t predict. I can think I need it at 62, only to find out at 72 that for whatever reason, my ‘need’ has exploded well beyond what it was at 62.
There’s a difference between an having an attitude of “I’m going to do whatever I need to do to ‘get mine’ vs. sorting through the evolving financial needs – and available revenue sources to meet them – in retirement. Break-even is a tool to help one sort through this multi-variable challenge. I used break-even as one data point in planning my retirement income stream. And that of my wife, in the event I die before her.
What matters.most is when you need the income. For me it will be earlier.
I want it early and will delay pulling from my retirement accounts. Running out of money is not a huge concern for us and DW should be OK. I’d rather leave a larger inheritance to my kids.
I realize the flip side is I can probably accomplish close to that by delaying social security, collect the bigger check and in my later years, have less of a draw on the retirement accounts. This could allow them to grow plenty to leave the inheritance. Maybe that’s the way i should do the analysis to determine if it even matters. I still like the bird in hand vs what’s in the bush, but I’m not hunter, so your mileage may vary.
If you need more income early in retirement, why does that mean you should start Social Security? Why not pull more from savings?
Part of decision making is emotional. We have a choice to make, I feel letting my portfolio grow larger while I take this money that is available is what feels right for our situation. We have no mortgage and our base living expenses are low enough where social security for both of us will suffice. If the market behaves like it should over a 20 year time.frame, the chances of running out of cash is low based on reasonable expenses. I won’t take it at 62 because we don’t expect to need it then as we have savings set aside to take us to 64ish. Roth conversions will be a priority at that time. Then I plan on claiiming social security to avoid tapping the portfolio. I feel comfortable trading the guaranteed increase in SS for the added flexibility that a larger portfolio can provide. It’s a trade off that may fail, but if we have enough of a nest egg anyways, I’m ok with the risk. I reserve the right to get smarter and change that plan. I’m still just a young 54. What do I know?
Because for some of us pulling from savings has a strongly negative connotation, based on emotion and life experiences and the words that still echo in our memories from fathers and grandfathers and books we’ve read. In my personal ethos it’s something you do only when there’s no other choice.
I know in my heart that if I hadn’t taken Social Security when I did three years ago (I was 65.5, just less than a year shy of full retirement), I would be feeling financial stress now each time I withdrew from my savings to pay the mortgage. I have always hated that feeling. So I chose to not experience it again.
You could but I believe deciding when to start taking SSI is more nuanced. I am not saying either is “the optimal choice” but rather there are multiple scenarios to consider. Usually…pulling from investments makes sense….but as always, there are exceptions and varing levels of different risks for folks.
If you are married…the odds that one spouse will pass are much higher, so it makes sense for the lower earner to take earlier. Most people on this forum are keen to this and if you are part of a couple….almost always makes sense for one spouse to start a 62 unless both spouses are still working and earnings would reducing your SS payment.
Next is the market. And yes, I am going to put in a little piece about “market timing”. IF your portfolio went down or pulled back significantly before when it comes time to decide to take SS or not / stop working…it could make more sense to take SSI and let your portfolio bounce back more. Drawing down your nest egg early in retirement increases SORR risk….so if you take SS earlier because of an early pull back…your making the bet (or market timing) that the next decade or few decades will have a higher inflation adjusted return AT your current risk level based on your CURRENT asset mix than 6-8% the SS increases by annually. In my opinion….its an aggressive bet if things only went down say 20%….but if they dropped 40% or more….its a bet I may personally make.
For example, the 10 years AFTER 2008 when the market dropped about 37% in 1 year, (2009-2018) had the following inflation-adjusted compound annual growth rates:
100% US stock market: 4.07%
75% US stock market/25% 10-year TBills: 8.67%
65% US stock market / 35% 10-year Tbills: 7.65%
Inflation-adjusted CAGR of your monthly payment at age 70 versus 62 and 1 month is 7.412%
If we took another time cohort and longer post-bear market time frame…we could see it work the other way. 20 Years after 2000 (2001-2019) had the following inflation-adjusted CAGR:
100% US stock market: 4.07%
75% US stock market/25% 10-year TBills: 4.41%
65% US stock market / 35% 10-year Tbills: 4.41%
Inflation-adjusted CAGR of your monthly payment at age 70 versus 62 and 1 month is 7.412%
So while an AGGRESSIVE bet…I don’t think it is a completely illogical bet. The likelihood of 2 large bear markets in the same decade is on the lower side. I’m not sure I WOULD PERSONALLY make that bet, but I get those taht do.
Also…mentally…I can’t imagine retiring in early 2009 after seeing such a large dip. Taking SS then could help you make that decision. Of course, some people could opt to work an extra year or two….but not everyone physically has that option. Especially if you expect to have a below-average lifespan.
Last…if you have reason to believe you’ll have a below-average lifespan AND want to leave as much as possible to your estate. If you are mediocre to poor health now, have a family history of early deaths or are in sub sections of the population with lower life spans (obese, smoker, drinker and so on). Of course you have to be careful and manage risk. If your barely covering expenses the longevity risk could be very high. If your biggest risk is a reduction in discretionary spending if you end up having an above average lifespan…you can consider this.
I’m going to push back on this — and push back hard.
We make all kinds of financial decisions by weighing the tradeoffs involved. Shouldn’t that also be the case with Social Security? Should we really scorn all financial analysis when making what’s arguably the most important financial decision that most retirees make?
“Well, hon, I read on HumbleDollar that nobody should care about breaking even on Social Security, so I went ahead and claimed at 62. Isn’t it great to have that extra money right now? This is when we need it most — for all those trips we’ve planned. Now, of course, that means a smaller benefit for the rest of our life and a smaller survivor benefit for you. But hey, apparently we shouldn’t care about the long term.”
My advice: Run the damn numbers. Find out the break even. Think about the survivor benefit. And, for goodness sake, don’t claim benefits just because you think you need the money now.
I agree with this….the breakeven numbers don’t matter for the person themselves…but for the surviving spouse and/or estate.
That said…you shouldn’t put yourself at financial risk for your estate but many poeple have very good reasons to believe that overwhelmingly, they may not be here in 10 years.
So yes, “run the damn numbers” lol. Breakeven on SS is not a worthless analysis.
Jonathan, your example proves my point. Trading the cash now at 62 and putting the future at risk as you show may not be wise and yes, they should care abiut the future, but that concern has nothing to do with breaking even regarding the total amount collected over a lifetime from Social Security.
As I read your advice it’s spot on, but I still can’t see the relevance of breaking even. Run the numbers, think about survivor benefits for sure and consider all sources of survivor income.
As far as “don’t claim benefits just because you think you need the money now” goes, I’m not sure.
If you don’t need the benefit that makes sense for many people, but if they do need the income at retirement are we saying they are financially unprepared to retire and should delay? Maybe so.
The key seems to be the difference between “think you need” and actually needing the income upon retirement regardless of the age. That’s back to run the numbers isn’t it?
If you don’t do a breakeven analysis, how do you know what you’re potentially losing by claiming early? Should we encourage folks to make decisions without knowing all the facts?
Surely you only “lose” according to a breakeven analysis by claiming early if you die late. That is, in many cases, unpredictable. Equally, if you die early you will lose by claiming late. I am much less concerned about how much I receive in total, and much more about the size of the monthly check.
Just to clarify I am not advocating starting benefits early or at any particular age. I am absolutely not advocating doing what I did.
I don’t see receiving SS as gaining or losing aggregate benefits. I see it only as an income stream, sometimes single, sometimes dual and sometimes survivor income.
I see the goal as generating the maximum income when needed under an individual’s situation. No matter what a person does there is a risk of things not going as planned. Any analysis uses assumptions that may or may not be met.
If a person claims at 62 and enjoys retirement for a few years, but then struggles financially at age 70 because of inadequate income, I say they lost.
But if they go merrily along financially while receiving a lower lifetime benefit, I think that’s irrelevant.
Actually, I see focusing on breaking even and maximizing total benefits instead of income needs throughout retirement as potentially harmful for the individual when making their starting decision.
Jonathan, I never did a break-even analysis because I knew I would wait until age 70. I agree those considering a younger age should crunch the numbers. Having said that, every time someone mentioned a break-even age to me, they were using it as justification for claiming early as opposed to comprehensive analysis on the best age to claim. I know there are tools available for analysis, I’ve just never known anyone who took the time to use them. (One exception being those folks who employ a competent advisor).
Why care about Break even? I agree with Jack H…it’s going to vary with each family based on finances and health! Started my DW this year just before 68. Will decide on when to start mine soon as I turn 68 this year.
There are a number of suboptimal considerations used by folks in SS claiming and breakeven analysis is just one of them. The decision needs to include both spouses (if there are two) and the entire household situation. My wife and I will be claiming next year at 70/67 and I am looking forward to having the increased COLA base and more overall income at lower starting taxation rate (85%).
I didn’t consider break even for even a second. I waited until 70 to
Plan to the same thing for the same reasons. We don’t know our breakeven dates and don’t care.
When reaching an age when one can begin taking retirement benefits, they might welcome that additional monthly benefit, but how do they know whether they will have a greater need for income 20 years from now than today? I think deferring to receive the maximum benefit, assuming they can afford it, and assuming they are in good health and have no reason to expect a shortened remaining life expectancy makes sense. The right age to begin will likely vary considerably based on each person’s individual finances, health and attitudes toward risk management. Nothing to do with the break even point.
The bigger analysis should be of your personal health. I would go as far to overcomplicate it significantly…..but just make the call…do you have above average health, average, or below average?
I forget where I pulled this from, but the standard deviation on US SSA life expectancy is about 8 years. Let’s say you adjust 1/2 a standard deviation for below average or above average health, so 4 years.
At 62, average female life expectancy is 84, male is 81. Run the numbers with an adjustment.
Men in poor health, when is the ideal break-even point if you die at 77? Women, in poor health, 80. Above average health …men…85, women 89.
It will likely work out, that you should wait until 70 for the higher earner.
And never forget the odds of 1 of 2 people dying are far higher than the odds of 1 person dying. Meaning for couples, the lower earner should consider taking it at 62 unless both spouses are in very above average health and/or still working and earning over the exempted amount (22.1k I believe).
I appreciate your comments, Will. I think you are looking at lifetime SSA benefits collected, and how different strategies may be preferable for some, based on their own likely remaining life spans.
In my case I was guided by the lesson of Pascal’s Wager. Not only are probabilities important, so are the consequences. I am also a fan of having a “margin of safety” built into my plan. Simply put, the financial risk of one or both of us living to 100 would seriously stress our portfolio. Hence, we opted for a maximum benefit from SSA, as a sort of longevity insurance. Since we were both born in 1953, we took advantage of the now phased out provision, where my wife began drawing benefits when she reached full retirement age, and I drew a spousal benefit against her earnings. Four years later, I turned 70, dropped that benefit and began taking my now enhanced larger monthly benefit based on my own earnings. We did this to bolster our position should at least one of us live well beyond the average remaining life expectancy numbers.
Exactly