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When to claim Social Security retirement benefits is one of the most popular topics on HumbleDollar. It can also be a somewhat controversial topic among retirees. I’ve met many people who are firmly convinced that they made the right decision, despite any facts to the contrary.
I think much of the emotion around the topic comes from the fact that it forces us to contemplate our mortality. The popular concept of “breaking even” is all about getting our money back before we die. I worked with a number of engineers who were single, and the notion of breaking even was important to them.
If you are married, and you care about the financial security of a surviving spouse, the picture is more complex. The surviving spouse gets the higher of their or the deceased spouse’s retirement benefit. Married couples have to consider two lives. Is one spouse much younger, do either have health concerns, or significant longevity in their families?
Social Security benefits need to be considered within a complete retirement income plan. If you have a large pension, or significant retirement assets, the decision is less important. I have a friend – a single, retired engineer – who took his benefits at 62. He was concerned about his many decades of smoking. He’s now nearing 80 and has never spent a dollar of his benefits. He has passed the break even point, so his decision was “wrong”. But he invested the benefits during a period of growth, so maybe he was right.
Social Security’s official title is OASDI, which stands for Old-Age, Survivors, and Disability Insurance. The program was never intended to be an investment. The old-age part is insurance against poverty in our later years. For many retirees it is an essential source of income.
In Adam Grossman’s column today he suggest considering the bonds in your portfolio as insurance agents market volatility. He also mentions Social Security in a similar vein. I agree. Thinking of it as an insurance policy against running out of income in retirement may help make the cling decision a little easier. What do you think?
To me, Social Security is a tax which reduces my standard of living in order to subsidize other people with lower incomes. It’s welfare.
Rather narrow way of looking at it. It provides far more than retirement income. You sound like you will voluntarily decline collecting your benefit.
It’s wealth redistribution, plain and simple. Why would you conclude that I would decline my benefits? That’s a strange jump.
For many years prior to retiring at age 65, I regarded future Social Security retirement benefits as similar to insurance. Those born in 1953 or before had the option of one spouse drawing at FRA, age 66 for us, and the other a spousal benefit. We are about the same age, so I received 50% of my spouse’s benefit for four years, then it was replaced by a larger benefit when I turned 70. I viewed this option as “longevity insurance”. But as the old saying goes, “it takes money to make money”, this option might not be optimal for many others.
Jack,
My wife and I were able to take advantage of this same strategy, as I was grandfathered in when the change disallowing it occurred.
My wife claimed her benefit at 62 and 1 month, which was the month I turned 66, my FRA. For 4 years, she collected her benefit and I collected a spousal benefit on her Social Security Account. At 70, I filed for my benefit and my wife transferred to a spousal benefit, on my Social Security Account.
We basically used the Social Security dollars to allow me to make annual Roth IRAs contributions and Max Out my 403b contributions. I sort of looked at it as the funds given to others in various tax give aways, like in 2006 and one earlier year, that my wife and I did not qualify for and for the COVID Give Aways, which again, we did not qualify for.
OASDI is Definitely Insurance, and not an investment, but the delay from age 66 to age 70 and the corresponding 8% additional benefit dollars sure felt like a good “investment” to me.
Social Security is insurance for several reasons.
Your taxes paid (premiums if you like) are unrelated to the benefits received. Benefits are determined by the law independent of payments in (the policy).
There are losers and winners when it comes to benefiting. A few receive nothing, some received far more than what they paid in premiums. We have received in benefits several times what I and my employers paid in taxes.
RQ,
We haven’t collected all that we contributed yet, but The Lord willing, we will live long enough to do just that, and then some.
Up until 2018, I had a personal philosophy about all the taxes I paid in over the years. Since my father and my step father were both career soldiers, I always considered my taxes as going to THEIR Pay and Allowances, including their Retirements. Later in life, my younger sister contracted cancer and although she survived with chemo and radiation, the cure itself cause her to be come disabled. After reaching Social Security age, her disability income reverted to Social Security and her Medicare was paid by Medicaid.
Although I know, in reality, it was not my specific taxes that paid their benefits, it always made me feel better to think so, and to think that all the money our government wasted was “other people tax dollars, not mine.”