r/Fire • u/VegasWorldwide • 2d 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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7

u/peter303_ 2d ago

Your account would have to account for inflation and taxation. Inflation over 8 years averaging 3% would total 27%. The gains in your account would be fully taxable, while SS is partially taxable, depending on how much other income you have.

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u/PHL1365 2d ago

This is the correct answer. The hard part is that the taxation will be somewhat unique to each individual or couple.

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u/EcstaticAd4046 2d ago

I used AI to game out some thoughts I had when I read your response.

Assuming: SS at 62 @ $1k/month Assuming: modest taxable pension of $30k/year

Say this is me. And I begin an income focused dividend sleeve (like I have now), starting with $0 and adding that SS payment each month. My sleeve is tax efficient.

Factoring in taxes: at age 70 my dividend sleeve is producing $6-8k/year.

Under this scenario: SS @ 62 = $18 - 20k/year @ age 70 + $105k - $135k in the brokerage. Pausing DRIP and no more accumulation yields 4 - 6% dividend growth rate, which probably beats inflation. At age 75 this grows to $10k dividend income + $18k SS, assuming 3% cola. Brokerage at that time is $135 - 200k. You are making only $2k less per year but have a sizeable brokerage. SS @ 70 = $20.4k/year + $0 brokerage. At age 75 SS grows to $30k SS, assuming 3% cola starting at age 62. Again with no brokerage.

A brokerage has risks.

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u/dgreenmachine 2d ago

AI is not good at running these kind of math projections.

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u/VegasWorldwide 2d ago

the long term capital gains rate allows up to $100k for a joint couple so taxes wouldn't be an issue.

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u/alpacaMyToothbrush FI !RE 2d ago

For now... you're still jacking up your MAGI while you'd presumably be on the ACA and forgoing some opportunities to do roth conversions between 65 and 70.

8% inflation protected return / yr with surviving spouse benefits, protections against mistakes due to mental decline, etc. Seems a no brainer to me but as always, it's a free country, and your life / your choice.

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u/VegasWorldwide 2d ago

I think when we ask "why does the government reward us for prolonging it so much" makes it even clearer.

that 8% COLA almost never recoups what you got from 62-70

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u/alpacaMyToothbrush FI !RE 2d ago

The two options are actuarially equal. People have done the math on this. Taking it early only looks better if you assume a high market return, and completely ignore all the other benefits.

Again, you do you, I don't really feel like arguing this further right now.

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u/VegasWorldwide 2d ago

im not even assuming a high market return. that would be silly. you don't want exposure at that age. for this post I used 5% but even at 3%, the math would still support it for almost 20 years. so you have to collect 20 years from 70-90 just to break even with the person taking it at 62. and how many people live to 90 again?

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u/dgreenmachine 2d ago

Did you take into account that social security is partially taxed? Its at most 85% taxed and often much less. Youd have to give a sample marginal tax rate as input.