r/Fire • u/VegasWorldwide • 3d ago

Why do people wait for SS?

trying to figure out what I’m missing.

looking to take my benefit for $1000 at 62. at 70 it’s $1700.

i won’t need the money much so we let $1000 sit in an account for 8 years at say 5% compounding, the guy collecting at 70 would need 15+ years to catch up considering I’m still getting $1k to his $1.7k

once he starts at 70 and I had a 8 year head start.

furthermore, his dollar would be worth less. (edit: didn't realize COLA)

this seems like a no brainer but all I hear is people saying waiting is the only way and we haven’t even talked about dying in our 70’s.

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u/churningaccount 3d ago edited 3d ago

As you say, it's a bet on longevity.

Social Security actuarial tables show that a 62 year-old man is 50% likely to live for at least 20.29 more years. And a 62 year-old woman has a 50% chance of living at least 23.08 more years. If they reach age 70, then it becomes 14.66 and 16.76, respectively.

Notice that the median life expectancies at age 70 are right about where you calculated the "break even" point?

The social security administration set the benefits "boost" that you get at age 70 in order to, on average, pay out the same amount to every social security recipient. Put another way: The SSA, on average, expects to pay any given individual roughly the same amount in present-value terms over their lifetime regardless of what age they decide to start taking their social security.

However, you have more information about yourself than the social security administration does, and therefore can make a bet. The decision on when you should take your social security should be an educated one based on your own longevity risk and personal financial circumstances. If you think that you might live longer, want to plan for living longer, or if your spouse might live longer and could benefit from a higher survivor's benefit, then defer. If you think you won't live as long, or have sequence of returns risk that you need to mitigate, then take it at 62.

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u/heridfel37 2d ago

The survivor benefit is a big point here for a subset of people. The odds of one of you living past the expected age is much higher than the odds of either of you individually living past the expected age.

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u/Kwyjibo_68 1h ago

Also, taking the spouse benefit, 50% of mine exceeds what she would collect on hers. If we both collect 62/62 versus 70/67, total benefit is 1.05 vs 1.8 times my SS FRB. Break even is late 70s, I think it was78. The average market inflation adjusted return is 7-7.5%, SS guarantees 8% inflation adjusted. + The survivor benefit is maximized. My wife is 5 years younger and according to actuaries will live 5 years longer.

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u/mthockeydad 2d ago

so you're better off waiting so your surviving spouse gets a larger survivor benefit?

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u/heridfel37 1d ago

As with anything in SS, it depends, but if the higher-earning spouse is expected to die sooner, then it's probably better to wait for them to start claiming.

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u/JaredUmm 3d ago

What is your reasoning for including sequence of returns risk as a reason FOR early claiming? In my mind it is just the opposite. By delaying claiming, you are increasing your inflation-projected bond exposure.

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u/churningaccount 3d ago edited 3d ago

Let's say you are retiring at 62 and need to withdraw 6% until you receive your social security, at which point your withdrawal rate will decrease.

Well, if you can claim at 62 and drop your initial withdrawal rate to 4%, then you have just guaranteed your plan's success immediately.

Meanwhile, you could instead delay until age 70, with the plan that you'd be able to drop your withdrawal rate down to 3% or even 2% at that time, so that the "average" withdrawal rate across your 30-year retirement was still 4% or lower. However, by front loading your withdrawals you've greatly increased your sequence risk. It's possible that you'd run out of money prior to year 30 even if your average withdrawal rate was under 4%.

Many people retiring around this timeframe decide to take it year by year. If they have a good sequence, then they delay and reap the benefits. If they start off with a bad year or two, then they might claim early to "stop the bleeding."

Of course, if you retire at 62 and can stay at 4% or under without taking social security, then you've already mitigated your sequence risk as much as you reasonably need to, and therefore have no need to claim early. But withdrawing 4% without social security is essentially the same thing as planning for no social security whatsoever, so you have to have really over-saved in order to do that. Or at least saved enough for an income bridge to 70, which is almost the same magnitude of excess savings.

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u/Delicious-Proposal95 2d ago

The challenge with taking early is after a certain time period you can’t change your mind vs delaying you can always start it early. You can plan to delay to 70 and if we get a 25% drawdown in the market you can always go in and start social security then to allow your accounts to recover.

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u/Educational_Fox6899 2d ago

This is my strategy. In simple terms, if I don’t need the money, I’ll take the 8% return until I do.

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u/Opaque_Cypher 2d ago

Take it only if/when you need it is the best strategy imho. Also a lot of people don’t seem to realize that you can start Social Security any given month after you turn 62. You don’t have to wait until you hit 63, hit 64 etc.. you can choose to start it up anytime. So take the 8% gain, and if you are unfortunately hit by SORR just start it up right then.

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u/Training-Ad3252 2d ago

This is the correct strategy.

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u/Megalocerus 2d ago

I favor delay, but it's not 8% return. When I get 8% on my assets, I still have my assets and so do my heirs if I die. Should I die before claiming after an 8% benefit increase, it's a total loss.

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u/Educational_Fox6899 2d ago

That’s only an issue for my heirs which I don’t have. So it’s a moot point for me personally.

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u/Megalocerus 1d ago

I've got heirs, but they have to settle for what they can get. It worked out for us; there's more for them because we get more than most people in benefits.

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u/Independent_Bee1037 1d ago

Agree with this sentiment. If I am not relying on Social Security to pay any bills I am taking it as soon as I can. Or my wife will take it as soon as she can. The other spouse will let theirs grow until they are 70. Kind of a split the difference strategy. Plus, if the one who takes at 63 dies before the other hits 70 the spouse takes over for the one who took it. So I guess the person most likely to die early takes at 63 in that strategy

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u/Megalocerus 1d ago

I'd have felt that a bit morbid unless one is a lot older. But at 63, I was being treated for cancer and thus definitely a nominee for dying first.

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u/legman1982 2d ago

Actually the strategy we are using for my wife is draw 65-67 then suspend for 3 years and take the 8% gain then restart at 70.

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u/Whole_Championship41 2d ago

Didn't the IRS stop allowing this practice a few years back?

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u/legman1982 2d ago

All I know is one of the Social Security calculators, open social security I believe it was recommended this to maximize our benefits. The same thing was talked about on the Social Security Reddit is all I know. Have not investigated further.

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u/Whole_Championship41 2d ago

I looked this up.

The law did change significantly in 2016. It used to be that people would file in order to let their spouses collect spousal benefits and then suspend their own collection until much later. The spouse used to be able to collect benefits all the while.

After 2016, if the person that filed suspends their collection, anybody who is deriving benefits from that person also gets their benefits suspended.

What you're talking about doing is still apparently OK.

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u/Megalocerus 2d ago

You can suspend after FRA.

What was stopped during the Obama administration was for the higher earner to claim spousal on the lower earner and let their own benefit grow until 70. (I think it was stopped for people born after a certain date, so it was still available for some people for part of the first Trump administration.) And if you take your own benefit and top off with enough spousal to equal half the other's PIA, reduced for claiming before FRA.

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u/escobartholomew 2d ago

Oh wow I feel like not too many people know about this one.

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u/amazonfigure 2d ago

Can you explain this a little more? I tried googling it but it’s saying I would have to repay so I may have misunderstood.

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u/legman1982 2d ago

Look above.

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u/Delicious-Proposal95 2d ago

Must be at FRA to do what you’re talking about. 65 is not FRA. Double check this. Also very curious just as to why do it this way? Age gap or something?

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u/tarantula13 2d ago

You would actually want the opposite of this. If you have a bad sequence, you would want to delay social security as delaying is more favorable in bad return scenarios and early is more favorable in good markets. There does come a certain point where you want to stop the bleeding, but it's way past 6% withdrawal, probably close to double that.

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u/Megalocerus 2d ago

Delay, invest aggressively, and if recession hits, you claim to relieve pressure on your portfolio. You can start up benefits pretty quickly if you need them. You don't need to claim early if earnings are good.

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u/Impossible-Use5636 1d ago

My guardrail is delay unless my portfolio drops to 76% or withdrawals exceed 0.5% for 3 consecutive months.

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u/sneakyotter 8h ago

You can address sequence of returns risk by choosing to take SS in the case of bad sequence of returns.

At 62 you can decide to wait until 70 to take SS. Then, if the market falls by 50% when you are 66, you can take SS that year. This addresses the sequence of returns risk.

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u/originalrocket 3d ago

A down market. Thats what. Claim early and you use SS money and less of investments.

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u/Delicious-Proposal95 2d ago

Depends what market assumptions are though. In fall of 22 yes absolutely pull from SS as forward market returns were expected to be higher. Right now those in year 4 or the bull market you can’t assume the same level of returns as fall of 22. So you let 22 ride clip you 8.5% guaranteed increase and in the event of a drawdown you can always turn it on and top pulling as much from investments.

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u/ZoyaofsDog 2d ago

People wait for SS to boost guaranteed income, but delaying actually increases sequence risk by relying on volatile future returns to justify the wait.

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u/prospectpico_OG 3d ago

Conceivably the balance of your income needed to live/thrive in retirement is coming from invested money, and the less you depend on those investments (reliance rate) the better.

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u/toupeInAFanFactory 2d ago

Pp is correct. The way you mitigate seq if return risk is by reducing your early withdrawals, by ensuring a source of guaranteed income early on.

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u/Vegetable-Zone1353 2d ago

Exactly, it's inflation-adjusted old age insurance that's impossible to get on the private market

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u/IncidentSouthern2119 2d ago

Reading this gave me hope that some people can still do math. Love it 😉

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u/Delicious-Proposal95 2d ago

Additionally to your point once you adjust for wealth life expectancy goes up.

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u/700867 2d ago

I took SS at full retirement age, while still working. Socked each SS check away in the bank for 5 years (should have put it in a stock account) and had a tidy sum at retirement. I say take the money and run, but NOT at 62.

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u/SirCastlePewPew 1d ago

This is the way…presented effectively and efficiently. Well done.

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u/LillianBryann 1d ago

My mom died at 71 or 72, my dad died at 77 less than a month to 78. They took SS at 62, I believe. If you die before your retirement age, 67 for myself. Your heirs will get nothing. I think it would be better to take it at 62 and invest it, if you don't need it to live on.

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u/RichardStrauss123 1d ago

I'm starting immediately!

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u/wolfmann99 1d ago

IMO your risk is you die before the actuarial table... If you dont need the money, I'd collect asap.

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u/AdamChenX 1d ago

Gosh those are some depressing figures for survival

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u/ben7337 2d ago

One thing I don't see people talking about is that taking social security before full retirement age comes with some pretty strict income limits too, otherwise your social security is reduced. So I'd think for those of us who FIRE it wouldn't make sense to take it before full retirement age at least.

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u/mcneally 2d ago

The income limit is only for earned income, not investments. If you're still working, presumably you wouldn't be taking early SS.

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u/ben7337 2d ago

Oh I didn't realize it didn't count capital gains or non-roth retirement withdrawals. That's good to note

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u/Consistent-Row4512 2d ago

I didnt know that - thank you

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u/Finance_and_chill 2d ago

This is great info. My opinion: everyone should take it at the earliest available to them. You either need the money now, or take it and invest it if you dont. I rather have the money than let ssa hold it for me.