For US Citizens: When to take Social Security

[shaggy]

I am helping my ex-husband plan his future (yeah, I'm a really good ex-spouse) and he is wondering if he should follow the conventional wisdom and take Social Security late, or if he should start withdrawing early because his life expectancy is lower than average.

Does anyone know of any calculators that would help estimate the withdrawals over his remaining lifetime? I tried Google but can't find a good one.

Right now he could use a bit of a cash cushion, so I'm advising him to increase the mandatory withdrawls from an inherited IRA until he takes Social Security.

[~bs]

you should try usingg the SSA calculators

http://www.ssa.gov/retire2/agereduction.htm

I dont think there is an easy way to calculate the break even age becuase it will differ for everyone, differ depending upon when you're born, differ depending upon your estimate of inflation and rate of return.

If you don't take these factors into consideration, then you can simply do the math.

If you estimate full retirement age 65, you retire at 62, full benefit is $1000, benefits reduced by $200/month, then the math is (36 months * 800 / 200 = 144 months to break even = 12 years = age 77.

In my personal opinion, I think it's better to take the money now (time value of money) even with the penalty. If you need the money, then you will take it early anyways, and if you don't need it, then you can invest the money. If you generate an 8% return off of the SS payments, I don't have the math, but it will push the break even age way up.

[bUU]

Assuming you live precisely to life expectancy, then you'll pull the same effective amount of money from Social Security regardless of when you start distributions. Theoretically. There are some things that can change that: First, Social Security is stating that they're going to cut benefits to 2/3 of their current effective levels in 2032 (just before I reach retirement age, of course), since they won't have enough money to continue at current effective levels beyond that point. So that's a major reason to start pulling distributions before that time, if you're eligible before that time. Second: There are spousal benefits associated with delaying taking distributions. For example, despite a 9 1/2 year age difference between my spouse and I, I'll still end up with a three year period during which I'll be able to draw half of my spouse's Social Security, thereby letting my own Social Security payments grow larger those extra three years.

[kv968]

Second: There are spousal benefits associated with delaying taking distributions. For example, despite a 9 1/2 year age difference between my spouse and I, I'll still end up with a three year period during which I'll be able to draw half of my spouse's Social Security, thereby letting my own Social Security payments grow larger those extra three years.

But in order for you to get the 50% you'd have to wait until age 67.

Have you run the numbers to see if its worth it to do that in order to gain those extra 3 years or to just start collecting early on your own?

[bUU]

But in order for you to get the 50% you'd have to wait until age 67.

Correct, leaving three years of adding credits while drawing spousal benefits.

Have you run the numbers to see if its worth it to do that in order to gain those extra 3 years or to just start collecting early on your own?

Our financial planner did so. Again, assuming nominal longevity, it will always pay off to do so (since the spousal benefit is not factored into the computation of the benefit amounts, for either your or your spouse).

It is an iffy thing, for us, because my spouse is almost ten years older, but I have the higher average salary through the years. For those closer in age, or with the average salaries the other way, it is even a clearer advantage.

[shaggy]

Correct, leaving three years of adding credits while drawing spousal benefits.

Our financial planner did so. Again, assuming nominal longevity, it will always pay off to do so (since the spousal benefit is not factored into the computation of the benefit amounts, for either your or your spouse).

It is an iffy thing, for us, because my spouse is almost ten years older, but I have the higher average salary through the years. For those closer in age, or with the average salaries the other way, it is even a clearer advantage.

Can you tell me how you are running these calculations?

My Ex is not contributing to SS and never will again (he stopped working when he was 35 and probably never will work again). So he has minimal SS credits under his own name, but can definitely claim from my credits.

[kv968]

Can you tell me how you are running these calculations?

My Ex is not contributing to SS and never will again (he stopped working when he was 35 and probably never will work again). So he has minimal SS credits under his own name, but can definitely claim from my credits.

In order for your ex to collect spousal benefits you had to have been married for at least 10 years and he can't be remarried.

If those criteria are met then he can get 50% of your SS when you start claiming it when he reaches his retirement age. He can start getting it at 62 but it'll only be 32.5% of what you're getting.

One side note, if he does collect spousal benefits in retirement that won't affect the amount you get whatsoever.

If he needs to collect SS due to a disability, that's a different story altogether.

[bUU]

Our financial planner did so.

Can you tell me how you are running these calculations?

See above.

[shaggy]

In order for your ex to collect spousal benefits you had to have been married for at least 10 years and he can't be remarried.

If those criteria are met then he can get 50% of your SS when you start claiming it when he reaches his retirement age. He can start getting it at 62 but it'll only be 32.5% of what you're getting.

One side note, if he does collect spousal benefits in retirement that won't affect the amount you get whatsoever.

OK, so he can't claim SS benefits until I start? That will cut off the discussion quickly as I won't be claiming for at least 12 years (he could claim in 7).

[shaggy]

See above.

Yes, but you said:

For those closer in age, or with the average salaries the other way, it is even a clearer advantage.

which was confusing to me and implied you had some way of knowing the above, independent of your financial planner.

[simpletron]

Can you better define "his life expectancy is lower than average"? Is he sick, cancer, poor health, etc? If he is in really poor health, conventional wisdom is to take SS benefits at 62.

Delaying benefits a year is basically the same as saying I think I'm going to live at least 12 or 13 years more. aka cumulative SS payments(starting at 62) of 62 to 75/76 is equal to cumulative SS payments(starting at 63) of 63 to 75/76. similarly cumulative SS payments(starting at 69) of 69 to 82/83 is equal to cumulative SS payments(starting at 70) of 70 to 82/83. The average 65 year old male and female has a life expectancy of 18 and 20 years, respectively, so the average 65 year old should delay benefits.

Could he be working at 62 or later? Because the additional SS credits and the possibility of income taxes on the early SS benefits due to the additional income of job, greatly shorten the pay back of delaying taking benefits. Aka if he is working, he should probably delay taking benefit until he stops working.

Per the latest SS trustee report, the trust fund will run out in 2033. If congress does nothing, then all payments will be reduced to 75% to 80% of original amount($1000 payment goes to a $750-800 payment). Just something to keep in the back of your mind because run out year changes every report and congress will probably do something at the last minute.

[bUU]

Yes, but you said: which was confusing to me and implied you had some way of knowing the above, independent of your financial planner.

Our own benefit is demonstrated, but limited by the fewer number of years we'll be eligible to capitalize on it, attributable to our greater-than-average age difference.

[kv968]

OK, so he can't claim SS benefits until I start? That will cut off the discussion quickly as I won't be claiming for at least 12 years (he could claim in 7).

Actually I was wrong, he could start collecting a spousal benefit even if you don't start claiming yours as long as you've been divorced for 2 years AND you are eligible to receive your benefit.

However it still wouldn't work in your case since you won't even be eligible before him.

[bjl584]

I'm not counting SS in my retirement planning, so the plan is not to need it or depend on it in any way. That being the case, I'll be taking it early.

[Jerry91]

Taking into consideration the incentives that SSA gives, it will be better to claim social security benefits after your husband crosses the full retirement age. But if his life expectancy is low, then he can go for social security benefits at the age of 62.