More Thoughts on When to Take Social Security

Since I wrote When Should You Take Your Social Security Retirement? I found an interesting article from Financial Planning that gives some thoughts on how financial planners should help their clients make a decision on Social Security. The bottom line is that it's a confusing process -- and the Social Security help line is no help. They claim that different people give different answers to the same question. Ha! Sounds like the same people running the IRS help line are now manning the phones for the Social Security Administration.

But there were a few "rules" to follow as well as nuggets of information in the piece that I thought were worth posting on it. These include the following:

• For anyone who's still working, it makes no sense whatsoever to collect benefits before full retirement age.

• Likewise, there is unanimous agreement that no one should wait beyond age 70 to collect benefits, since there is no added bump up in benefits.

• Financial advisors...tend to argue for taking the benefit as soon as it's available, even if that means locking in a reduced amount. One reason: For many seniors, claiming benefits early means they'll likely collect a larger total amount over their lifetimes.

• According to Bill Reichenstein, finance professor at Baylor University in Waco, Texas, waiting is a wash for people with average life expectancies; they'll reap the same amount of money, more or less, by taking the benefit early as they will by waiting for higher benefits. But for those who are likely to live beyond the average (the affluent often fall in that group) it's worth the wait.

• "If you can wait, then wait," says Rande Spiegelman, vice president of financial planning with the Schwab Center for Investment Research.

• "Think about it this way," Fahlund says. "The amount of additional income that you can get by waiting is the equivalent of saving an additional half-million in your nest egg. That's pretty cool."

Ok, so maybe it's as clear as mud still. But what is certain is the fact that the system will change (probably becoming more complex) -- maybe even several times -- before I need to make this decision in 20-25 years.

Comments

[EMF]

Coincidentally, I wrote a post yesterday on my blog expanding on an article by Scott Burns.

Scott's point was that in his case the benefits lost by waiting a year past Normal Retirement Age were less than the cost of buying an immediate annuity that would pay the amount of increased benefits. Scott is married. Being single, I ran my own numbers and found that for certain stretches between age 62 and 70 it was true for me as well. Since the annuity cost/benefit payment varies depending on your sex and whether you have a dependent, the advantage may be there for some but not others. I've provided some numbers in the post on my blog (click on "EMF" below).

My general advice is: (1) Don't retire before you can afford to and (2) Don't take Social Security until you have retired (unless you're already age 70). After you've retired, you can look at your own situation and the rules to decide whether it's to your advantage to delay benefits. And the rules are complicated.

[Lord]

I agree with most of this, but waiting after you are sure you are retired (many find they have to work, and many others get bored in retirement and return to work), is for the select few, primarily those with long life expectancies. Otherwise you are better off taking it sooner because it reduces your portfolio withdrawal rate, increasing its survivability. Sooner is better then.

[EMF]

@Lord:
If you follow the 4% rule-of-thumb for withdrawing retirement savings, then your initial monthly withdrawal is 0.333% of principal and you adjust it for inflation. My calculations shown on my blog are that the increased Social Security benefit is 0.5% or higher initially and adjusted for inflation after that. Numbers are in favor of waiting to draw Social Security.

These are my numbers. What are yours suggesting "take it sooner".

Your point about people becoming bored and returning to work is an argument for waiting to draw Social Security. If you are below your normal retirement age and earn too much money then they start taking back Social Security. Better to live on other retirement savings awhile until you're sure you'll want to stay retired. If you can't afford to live on other retirement savings for awhile without drawing Social Security, then you really couldn't afford to retire in the first place.

[Deborah]

"Think about it this way," Fahlund says. "The amount of additional income that you can get by waiting is the equivalent of saving an additional half-million in your nest egg. That's pretty cool."

Lol, this one is based on unsustainable assumptions.

Take the money asap as the system will break under the strain of an aging population.

Best plan is to plan for your future independent of government aid.

Government already fails to pay for existing commitments. I fail to understand why people continue to believe these fallacies.

[Lord]

My calculations are based on http://firecalc.com/ . I agree no one should take it if continuing to work, only after ceasing work. Once you stop working, the 8% you quote no longer applies, as it only applies if you continue to work and contribute to SS. In this case, you are trading your retirement for work. If not working, the relevant discount rates are a real 4% for early retirement and a real 2% for late retirement. (The detailed SS calculation must be used then.)

A 4% safe rate is quite safe, but if SS is providing, say, 1%, you could reduce this to 3% and cover most of that with dividends alone. This enhances the safety by reducing the need to sell during a downturn.

[zelskid]

I recently read an article on early retirement. I believe it discussed an individual who earned 40K. He drew early Social security at 62. He continued working and earning 40K. His excess income canceled most but not all of his Soc Sec income. But at full retirement age, his payment increased to an amt in excess of what he would have collected if he hadn't retired early. Thus he was ahead of the game. Am I wrong?
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