Retirement, Retirement Journey, Social Security

62 or 67? The $188,000.00 Question.

Social Security Age-1.png

$188,000.00 is the amount of money that we would leave on the proverbial table if we waited until our retirement age of 67 to take Social Security.  By quickly calculating the difference in the amount we would receive, it would take 12 years for us to break even.

Waiting until 67 allows the benefit to ‘grow’ 8% each year, which financial advisors will tell you is a great rate.  (But you all know how I feel about financial advisors However, the 8%  incentive is only good if you live well beyond 74.  The operative word being ‘live’.  All of the social security benefit goes away when you die.  Since we don’t know when we are going to die, it remains the one thing that makes this decision a gamble either way.

I will have to make a similar decision on a pension that I expect to receive in five years.  Based on the numbers at this time, I can either take $600 a month for life, or a lump sum of $137,000.  If I live another 30 years, the monthly payment would be $216,000.00 in total pay outs but would end upon my death, whenever that may be.   However, if I take the lump sum, invest it conservatively (earning 4-5%) while taking $600 a month, after 30 years I would still have $64,000.00.  It can continue to grow and be given to my heirs even after I’m gone.

Screenshot_2019-06-14 How long will my money last with systematic withdrawals Calculators by CalcXML

 

This seems very similar to the decision with Social Security.

If we never spent the monthly checks from social security from 62-67, the $188,000 could be invested (conservatively at 4-5%) until 67.  At 67, we would have

$216,000.00

Now let’s say I started taking the extra $1,200 a month I would have gotten if I waited until 67, from that investment still earning 4-5% a year.  I would be able to pull that money out for another 25 years.  If I die before the 25 years is up, that money can go to my heirs as well.

Screenshot_2019-06-14 How long will my money last with systematic withdrawals Calculators by CalcXML(1)

I’ve accounted for taxes and low investment yields.  It seems like a no brainer to me.  I should take the money the earliest it is offered.

Okay all you math nerds…am I missing something?

 

 

26 thoughts on “62 or 67? The $188,000.00 Question.”

  1. I’m no good at giving advice to others. All I can do is tell you what I did or will do. I took my retirement at 62 and I’m sorry I did. Once they start taking out for Medicare etc, I really had little left. If I had waited a few more years I might not have missed the income so much when they took out for Medicare.
    On the other hand, Nick is waiting till he is 65 instead of 62 and we are regretting that move also. We sure would like the extra income NOW vs later.
    Go figure.
    The actuary tables that Social Security supplies is pretty accurate as to how long people will live. We both have been given to our mid-80’s. Only time will tell. LOL!
    Good luck.

    Liked by 1 person

    1. Cindi, We are very fortunate at this time to have other savings that will likely be the bulk of our retirement. We are happy that we have 5 more years to figure this out and SAVE, SAVE, & SAVE. My husband is tired of the 3 hr. daily commute. We don’t want to wait another year. 🙂 I guess we’ll evaluate it as it gets closer.

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      1. When the person starts complaining about the commute, the tiredness, the rat race….that’s when you know retirement is near! 3 hr commute? OMFG!!
        You’ll figure it out. Downsizing for us made our retirement possible much earlier than planned. Nick only has to work 2 days a month so that we can make ends meet! How cool is that? Of course it would be perfect if he didn’t have to work at all BUT he says he likes his schedule. Keeps him close to the ‘boys’ and fellow co-workers. Nice social life for him. Just enough.
        Sharon, start reading FIRE blogs, especially Mr. Money Mustache, the KING of early retirement. You may get some insights. Can’t hubby work part time and closer to home?
        Keep me posted.

        Liked by 1 person

  2. Check into what happens to your taxes if you take SS at 62 and continue working. I am not sure if you accounted for this?

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  3. Between62-67 you gain 30%. Approximately 6% a year.. 8% comes in between 67 and 70. Are you doing spousal benefits?
    Here is my understanding:
    If your spouse takes early and you do as well, you will get 70% of 50% of his 70%. Ie- He gets 70% of $3000mo. -or $2100. You get 70% of 50% or $735mo
    His 70% is $25,200.. Your spousal would be $8820yr. If he passes first your amount would be the $25,200 a year if you both take early.
    If you both take at full retirement (67) his full would be $36,000. Your spousal full half would be $18,000 yr. At his death you would get $36,000.
    Break even for him is about 77. You, the cross over is 72- but at 90 your payout will be well over $100,000 more.
    Is that the same math you got? I have worked the numbers, read and read…I think this is the formula. So very confusing.
    It doesn’t sound like you will need SS- plenty of saving. Others might be following who do.
    I might need mine. Number crunching to the max!

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    1. Hi Janette, you are close except for my social security. I don’t need to take his half, mine is more than half of his. You are right. It looks like we don’t ‘need’ it. I am aware of the ‘loss’ by taking at 62. Because we don’t ‘need’ it, why not take early and invest it? That is my question. 🙂 Thanks so much for working through the numbers! 🙂

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  4. I retired at 64, a little earlier than I had planned, and started drawing Social Security about 6 months ago. I don’t regret it. Of course I left a lot of money on the table, but on the upside, drawing SS helps conserve my savings and my “bet” is that I won’t be one of those who live an extraordinarily long life. Because of that, I wanted to be sure I got some SS after paying into it for so long. Also, the Social Sec Administration will have to start drawing down its assets in … I’m not sure, ten years or so? It’s a fixable problem, but there has to be the political will to fix it. If not, tomorrow’s retirees will get less. So there’s that to consider, although not for you, especially if you draw early.

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  5. I have a blog post coming on the topic of something like: I took social security the first day I could and 9 years later I still think it was the best decison I made. Because I’ve seen this topic on like two different blogs. Do remember that you can put that SS aside if you want to (in theory I suppose you could still invest some of it and probably make more than six percent if you were still working). it enabled me to make some so called investment purchases that will last me along time, and do some serious traveling while I was still up to say, climbing to steps of a pyramid, lol.

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  6. Darn. My comment (with all of the math) seems to be lost.
    The one thing that is important is—if one of you take the benefit off the other’s schedule (spousal benefit), that person really gets MUCH less in the long run. The first person gets 70% of their SS at 62. The second person gets 70% (at 62) of the 50% (half of the spouse’s 70%). Complicated- but the second person could loose over $100,000 if they live until 90 (good possibility for me).
    It sounds like you have a sound savings, so it won’t hurt for you like it would for me. 🙂
    This is what happens when you live in a house of Math!

    Liked by 1 person

  7. Hi Sharon, I became a young widow at 53 and took my widow pension at 60 because the math and tax savings were tremendous and it was totally better then hoping I lived long enough to recoup the difference in Social Security. My goals in the six years which would have been my full retirement age was :
    1. First goal was through savings and investing increase my accounts to make up the difference at 66 with interest and dividends. This was an amazing stock market between 2013 and 2019 and surpassed this in five years.
    2. The Reality of the math for me was: The first check became My Tax and Insurance Freedom day because till I am 88 all my taxes and insurances can be paid if inflation runs 3% or less from these monthly checks. So far my personal inflation rate is less then 2%. Amazingly, So far this check and pension cover all my expenses except I had to tap my emergency fund for tornado damage last year and major septic and well repairs. I knew my forty year old home would need these eventually so I had plan for this.
    4. Addressing the major Tax Torpedo that will occur when I take RMD at 70 , I had been filling the 15% tax bracket up to keeping my SS tax free and below any state income tax. Doing Roth Conversions. Since the lower tax brackets I am filling some of the 22%. This I highly recommend to start right away because since so much more can be converted cheaply as a couple then single. See the SS worksheet. If you have a lot of your money in tax deferred 401k and IRA converting to Roth allow an income stream that doesn’t get figured in SS taxability and will lower RMD at 70 1/2
    This Roth stream is very important to maintain lower taxes through out retirement but also when it gets large enough can become your emergency fund that doesn’t impact your taxation when you have an emergency.
    5. Capital gains from Taxable brokerage accounts also need to be plan to maintain 0% in the lower tax brackets and they figure into
    SS taxability.
    I can’t emphasize enough how much can be saved from taxation by planning when and how you tap your funds and where you save your money to create multiple buckets in these last five years.
    When a couple has saved as much as you have there are loads of advisors eager to help to profit from you, but make sure they are a fiduciary . That means they are looking after your best interests. I wouldn’t even waste my time sitting down for a chat otherwise.
    Have you run your numbers with you collecting and hubby waiting till 67 through 70? Have you run scenarios of SS taxation with Roth conversions and your budget figures. Personally my federal and state income taxation can be from $700 to $9300! Yep an $8600 difference! Sincerely, Lara
    I had posted this in a reply and doesn’t seem like it was accepted. Sorry if this duplicate d

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    1. Lara,
      Thank you for your comment! You seem to have some great knowledge about taxes and converting. Are you an accountant? 😉
      I would love to take our largest investment ($1M) and start to convert to Roth once we retire, because we won’t have to tap into it until we are 72 (new law). Instead of a financial advisor, we will probably look for a tax accountant who can direct us into how we can maximize our investments without losing our shirts on taxes. Do you have a lot in savings that you can use your SS for insurance and taxes? We understand what we would be ‘giving up’ at 67, and 70, which is my whole point — can we leave $188,000 on the table? We are just starting to explore the options. We guestimate between retirement accounts and cash holdings, we should have $2.3M by the time we retire. *fingers crossed*. I’m assuming that is plenty to live on in retirement.

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  8. Hi Sharon, Not an accountant, but was one of my minors in college I was a researcher who has applied my professional honed skills to improve my personal life.
    I followed your earlier blog and was happy when you got your debt paid off, and discussed your medical crisis, and your kids through college . You also turn me on to Todd Tresidder book and blog.
    I was not aware that Congress had passed RMD changes to age 72 I thought the house passed it over to the Senate and was first read and passed into committee.?
    My taxes and insurances total roughly 35 % of my SS and pension now and currently I still save at least 10 % of it like contributing to a 401k off the top. Having a paid off home all my expenses are also covered as well. Old habits die hard. I chose to take a huge tax increase to do Roth Conversions now because I don’t think taxes will continue to be this low at My RMD start date. The Roth now throws off gains greater then my taxes – tax free! And doesn’t impact SS Taxability if and when I start tapping it.
    After 21 years of retirement I still am in the accumulation stage of retirement with my yearly passive income gains. We originally set up a 72t distribution from our IRA to have the equivalent to our take home pay. But I didn’t continue it when hubby died 13 years ago.
    I chose to increase my health insurance costs to regular Medicare, AARP United health care plan F, dental insurance, and vision increasing my insurance cost from my DH company high deductibles plan. I get reimbursement from my HSA accounts for these which are not figured in SS taxability. Sincerely, Lara

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    1. Lara! Yes, I enjoyed the other blog, but have a slightly different focus now. Thank you for still reading! 🙂 I thought they already passed the Age 72 law, but I could be wrong. You never know with our Congress….
      I’m not sure we can swing switching everything to Roth. We’ll need the money. You were smart to do so. I’m also sorry for the loss of your husband. It sounds like he died WAY too young.

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  9. Hi Sharon, A few suggestions you might consider doing the next five years that will greatly help in paying less taxes later.
    1 Besides the DH Roth 401k maximize Individual Roth IRA if you qualify and start earning tax free. I have mine filled with preferred stocks 11% paid monthly, high dividend paying stocks , bonds,6.75 to 8.75% paid quarterly and REITs.(10 to 14% Paid monthly and quarterly. I do Capital gain .harvesting on all of my holdings because they trade in a range sell high and buy low. 😀
    2. Stop using the HSA funds and accumulate for your retirement after you start SS tap for reimbursement for health cost including Medicare payments. HSA reimbursement doesn’t apply in determining SS taxability. It also adds another tax free income stream..
    3. I would probably tap your SS at 62 and with the correct tapping of other income streams it could be tax free and cover the taxes on Roth conversions or withdrawing from Tax deferred traditional IRA. You will be giving back the government the money they give you and not decreasing your assets or-net worth! Keep your showable taxable income at a level that you Tap Capital Gains At 0% in your taxable accounts. The blog Go Curry Cracker shows how he does this, one of the FIRE blogs I love.
    4 It probably will be better for hubby to hold on collecting SS till at least 67 to maximize when one of you passes. I would evaluate this at the time because to long away and to many things could change.
    4. There has been in the last eighteen months a huge increase in the cost of over 55 plus developments here and the towns they are in have reaccess for higher taxes and the condominium fees have risen 50%. If you are in love with a particular development you should keep a close watch on this and may want to sooner rather then later purchase. I am glad I didn’t make the move. My home is located in a town where taxes are more stable and I find lawn services and snow plowing doesn’t cost that much compared to condominium fees. I could have maid service and delivery of groceries and restaurant meals delivered and still not match the fees. All of my neighbors are aging in place. I found out downsizing by 1000 sq ft. was more expensive $20000 annually ! To get a little closer to my kids! Who are super busy and can’t guarantee we will see each other any more.
    Sincerely Lara

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    1. This is great information. We are no longer using our HSA accounts and funding with max amount. I’ll have to really study the whole tax thing with taking money out. Thanks for all the information. It sounds like you like this stuff. 😉

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      1. Yea I am a math nerd and I enjoy learning new ways through the mousetrap. I will not have all my money in a Roth at 70 or 72 because I keep my total 1040 taxable income below $85,000 as a single filer, so I do not have to pay higher premiums for Medicare. As a married couple it’s $170000. I do do a larger Roth Conversion then my RMD will be so if taxes stay low I will take my RMD and above that convert some more to a Roth. Quite honestly , I will never get all of my traditional IRA converted because it gains every year now Just about what I convert! The good news is the Roth Conversion gains too tax free! So it is an amazing loop.😉 You will see this yourself soon enough. I am curious what savings rate and the rate of return on your investments you are doing to mushroom your retirement funds to 2.3 million? Are you including the sale of your current residence? I lived the first seven years of widowhood with a small pension and tapping interest and dividends but still growing my net worth till I receive my full widow benefits .

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      2. We used 5% as our way to $2.3M. We won’t go as low as 4% because we think that is ridiculous. We’ve averaged 8% through the down markets. I just did paycheckcity (a payroll program) and put in how much we want to take out each month. Then I plugged the amount withdrawn (with a 2% inflation rate) into the ‘how long will our savings last’ program. We come out to 30+ years, with $100,000 left over. Honestly, based on my parents’ age now, we know spending will slow down tremendously when and if we reach our 80’s. Time is the most important thing to us now, and the sooner I get my husband home to enjoy it, the better.

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  10. Seems to be reasonable assumptions. . I do a yearly recalculation and Using similar assumptions . I used Fidelity’s planners because I could add in when other streams of income were added, I did three scenarios age 60, 66 and age 70.
    I agree: Time to enjoy the fruits of our labor is the most important aspect of our life’s. Lara

    Liked by 1 person

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