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Thread: Social Security,now or later?

  1. #1

    Default Social Security,now or later?

    I receive about $1400 a month from civil service retirement. I am FERS. My wife receives about $4000 a month from civil service retirement. She is not eligible for Social Security ( Either for herself or mine as a survivor).

    Most of the experts state that you should wait as long as you can before you start drawing on Social Security. They point out that the fund increases 6% per year up until full retirement age and then increases to 8% per year from that age until age 70. However, my situation is a little different. I don't need any of my Social Security monthly payments to meet monthly expenses. It is all available for immediate investment. The payouts that I can receive are as follows:

    Now at age 62 $1,750 per month
    At age 65 $2,000 per month
    At age 66 and four months (full retirement age) $2,300 per month
    At age 70, $3,000 per month

    So to make the math fairly simple let's start with receiving my retirement funds from Social Security at age 65. Let's compare that to the amount I would receive at age 70. There is $1,000 difference so it appears on the surface to be a no-brainer. Wait until 70 if you can. But, is that true if those funds are available for immediate reinvestment?

    Let's take $2,000 per month and see what the return would be after 60 months (five years in between 65 and 70) and see what our principal amount would be.

    At a 7% annual rate of return the taxable amount would be $135,000 by age 70. So now let's see who receives the blue ribbon in a race between $2,000 a month with $135,000 start and $3000 a month. So my calculation is going to take the $135,000 and figure the return on it over a ten-year period from age 70 to age 80. I'm then going to take the $3,000 a month and invest it over a ten-year period. We will continue to use the 7% return figure.

    In the first scenario $135,000 invested over a ten-year period at 7% interest plus $2,000 a month would yield a return of $530,000.

    In the second scenario we will take $3,000 a month and invest it for 10 years with a 7% rate of return. The return on this is $464,000.

    So clearly if you have the funds to invest, the best method is to draw Social Security earlier rather than later. Also, one major benefit that cannot be overlooked is the amount of available funds for your decedents in the event of your early demise.

    Some may have noticed that I have not taken tax consequences into the above formulas. Since I still have my 2018 income tax return on my computer let's do a final computation involving taxes. In this third scenario I would start drawing $1,750 at age 62.

    This would add a total of $21,000 to my 2018 return and the increase in tax due is $3,000. This equals $250 tax withholding per month. (In my state there is no tax on Social Security benefits for someone in my tax bracket). Therefore the net amount of benefits would be $1,500 per month at age 63. So if I started receiving that in January of next year, I would receive that amount for seven years until age 70. At seven years the balance would be $150,000 at a 7% annual rate of return. So with an initial investment of $150,000 and $1,500 a month invested at a 7% rate of return for 10 years the total would equal $477,000.

    So even utilizing this more stringent calculation, drawing Social Security earlier than later appears to be the better strategy. Any comments?

  3. #2

    Default Re: Social Security,now or later?

    Interesting situation. The usual rule of thumb is take the benefits earlier if you need the money, but your account creates a bell curve on the time scale to income.

    Also, with your spouse not able to receive SS benefits you would want to add the extra money early in case something happens to you earlier than expected.

    And, making your SS benefits check smaller lessens your provisional income so potentially less of your SS benefits will be exposed to federal taxation.

  5. #3

    Join Date
    Oct 2008
    Stinking desert valley of bad air quality, AZ

    Default Re: Social Security,now or later?

    FWIW I believe the maximum percentage of your SS benefit subject to fed income taxes is 85% no matter how much other income you have.


  7. #4

    Default Re: Social Security,now or later?

    Quote Originally Posted by PessOptimist View Post
    FWIW I believe the maximum percentage of your SS benefit subject to fed income taxes is 85% no matter how much other income you have.

    True. And 85% will be the case if you're in a high tax bracket. Otherwise if you're able to manipulate your income in retirement you could minimize the amount of your SS benefit is subject to taxation.

    I don't know all the details of the situation and I don't know how all the numbers will add together, but there is a case for some instances to wait and for a higher SS check. It seems that the more your income is weighted with your SS benefit the less those benefits will be exposed to tax. Something to think about.

  9. #5

    Default Re: Social Security,now or later?

    I too am FERS - Retired at 56 and 37 (took early military retirement and bought my time) - the supplement is nice, but not as much as SS and will also stop at age 62. Your calculations are great and very interesting - I did not even put investing into my calcuations when I retired (I turn 60 in Oct, so will still have to wait two years) - but if I recall, I graphed both taking at 62 and waiting until monly payout was maxed out and the two lines would intersect in my mid 80's -- to me it was a no brainer, take the money now.... Now, I assumed I would not be working and thus the earnings test would not come into play

  11. #6

    Default Re: Social Security,now or later?

    Nice analysis 29! When I looked at this I didn't really have a choice since I had CSRS Offset. Seemed pretty easy decision though -How long will it take you to recover the money you give up by taking the Soc. Sec. at aged 66 (or full retirement) or 70 instead of aged 62. For me it would take about 14 years before I would have broken even without the investment piece of the analysis. I would have been 80 or more before I broke even.

  13. #7

    Join Date
    Apr 2008
    Cleveland, Ohio

    Default Re: Social Security,now or later?

    What I found is it depends on how much of a difference there is between collecting at FAR (full age requirement) vs. 701/2.
    Using your numbers without interest, collecting at FAR and collecting for 5 years would be $138,000 ($2300 X 60 months). At 70 you would receive $3000/month. The difference being $700/month. If you started collecting at 70 instead of your FAR it would take a little over 16 years to make up the difference by not collecting at FAR ($138,000 divided by $700/month = 197.143 months). I'm pretty sure I did the math correctly.
    There is a difference if you are CSRS and get hit with the penalty. I decided to wait until 701/2 because the penalty is less and the recovery time for the difference collecting at FAR was much shorter.
    May the force be with us.

  15. #8

    Default Re: Social Security,now or later?

    Life span has to be taken into consideration in the above comments.

    With current projections pointing toward longer lifespans, there's at least a reasonable chance that one could live past age 90.

    If that's in the cards for you, given family history and such, then then it may more sense to wait to take SS at age 70, or at least as long as possible, which would maximize the total payout vs. taking SS as early as possible.

  17. #9

    Default Re: Social Security,now or later?

    My most recent Social Security statement states that by 2035 only about 80% of your benefit can be paid. So that would be another factor to take it earlier rather than later.

  19. #10

    Default Re: Social Security,now or later?

    I'll add my .02.

    I made up my mind without any of the impressive math I see in this thread. Here is my theory:

    I will never be as young and healthy as I am now. Give me the money while I can enjoy it; tomorrow is not promised. I'll use what I need, and invest the rest.

    Oh, another thing; in my case, I'm law enforcement and lose my FERS supplement when I turn 62 - so I'm taking the hint

  21. #11

    Default Re: Social Security,now or later?

    I'm going to draw at 62. I did the math between taking it at 62 and 67. If I waited till 67 to take it, I would be 77 before I broke even on the money I drew for the 5 years between 62 and 67. I'm not willing to gamble that I'll live to be 77.

    Sent from my moto z3 using TSP Talk Forums mobile app

  23. #12

    Join Date
    Apr 2013
    Central Texas

    Default Re: Social Security,now or later?

    Hi vintage! Thank you for analysis and your thoughts on taking SS early or waiting. I have been thinking the same thing. Also, had a doctor tell me recently that he heard 1/3rd of folks do not make it to age 65. Seems rather grim/sad. I need to look into that a little more....

    In any case, I am so very sure-footed, I must do quite a bit more analysis-wise to closely how much disposable income I will have left and get a very sober understanding of the expenses I will incur after retirement. I also need to get mentally ready. Not there yet. Eventually, I will have to take the plunge and retire. Goal is to retire in two years....
    CURRENT: 3-11-20=100G //Prior: 3-10-20=50G-50F // 3-3-20 =100%F // 3-2-2020= S70, C30 // 2-25-20 = 60G-40F // Chart Links=Page 215, #2575 & 2576

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