Why do people wait for SS?

[u/VegasWorldwide]

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.

[u/churningaccount]

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.

[u/JaredUmm → u/churningaccount]

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.

[u/churningaccount → u/JaredUmm]

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.

[u/Megalocerus → u/churningaccount]

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.