Friday, January 24, 2020
In a Previous Life
We used to go to places like this with some regularity.
Dubrovnik, Croatia - 2007, 13 years ago this week
Thursday, January 23, 2020
Regular Blogging - When to Take Social Security
One of my 2020 New Year "goals" is to blog more often, at least 1x per week. Another goal is to write about stuff (mostly in a journal & every day if possible) - life, politics, finance and basically anything that crosses my mind. Some of what I write may be controversial and most no one will ever see. Occasionally I'll use just one stone here on the blog to meet both goals. And of course, unfortunately the year started off (and the prior year ended) with a nasty cold that morphed into a cough that really limited my sleep for the past few weeks so I'm just now getting started.
For those that don't know, most (but not all) financial advisors and planners suggest people wait as long as possible (up to age 70) before claiming their Social Security. I've never quite understood why they say that, the headline or main point seems to be "you get 8% more a year"...but you forgo all that money in the meantime. Anyway here is my argument as to why you should claim as soon as you can (62 for most people).
Assuming you aren't working and there aren't any mitigating circumstances such as health concerns etc. I still think most people are best taking their Social Security at 62. (Working while collecting adds tax considerations that I've never dived into)
If you desperately need the money to get by, the answer is yes. You may not have much choice. Unfortunately I believe that statistically women tend to fall into this category more often than men.
So this is for the people that "don't need the money". Here is why I think those people are still better off to take at 62. Just like the person who started saving for retirement at 24 has a huge advantage over the person that doesn't start until 32, (every IRA and 401K pitch show some version of such a chart) someone taking SS at 62 has a giant head start on someone that waits until 67 and bigger still over someone starting at 70. This doesn't change just because you are now 62 instead of 22.
Here is my rough math part using monthly benefit numbers for a high wage earner. Claiming at 62 - $2208 per month for 5 years at 2% interest rate will have about $122,000 before they would start to get their "full" benefit of $3154 at 67 and about $198,000 before they would start to collect the max of $3911 at 70. That money is a BIG head start and we've all seen "break even" ages - roughly 76 yrs and almost 86 respectively in my example. Move that 2% up to 5% and the "break even" is even further out, 79 & 100 years ...compounding works. (If you want to run numbers more consistent with your earning: for every $1000 you'd get at "full retirement" age 67, you will get $700 at 62 or $1240 at 70)
But I think the break even point and total life time benefit ideas miss the main advantages of taking SS early.
Life expectancy isn't how long YOU are going to live, it's the median expectancy. (I know, everyone is above average ;) ) A lot of folks are going to die before they hit the expectancy age. At 62, the expectancy is much better for women but still at 62, about 8 in 1000 women (13 men) will die before they even hit 63. The number of people not likely to reach 67, 72 & and 82 yr old are 45F/72M, 111F/169M and 353F/466M respectively. Which leads in part to inheritance. Unlike the money in your IRA & 401k plans (and taxable savings), Social Security essentially dies with you. Use the Social Security to live on while you continue to let savings (IRAs, 401K and even taxable accounts) grow. When you pass away, if you didn't use those all up, your designated heirs get them.
Then there are flexibility and opportunity advantages in taking the money up front. i.e Emergency cash. Lets say you fall and break your hip at 65 or something else and you end up in a wheelchair. That $70k+ you already have from collecting SS will go a long way to paying for the conversions necessary to your home for you to stay there (or pay for a move to more appropriate housing). Also, as many pro-early claim people mention, the things you can enjoy with that money in you mid-60s that might not be so enjoyable or possible even later in life. Like that really cool trip through Europe ending with a Danube river cruise... it may be something you are easily physically be up to and want to do at 64,... but maybe not so much at 74.
By waiting to collect a person is making the "bet" that not only are they going to be one of the people that live beyond their life expectancy, they are going to do so by a long enough time to collect a significantly bigger benefit....I mean why do it just to break even? So the person waiting until 67 I'd guess would have a minimum goal of say 87 (they ~48% chance of "winning" what would be ~$150,000 for their ~$122,000 "bet"). The person waiting to 70 to collect essentially can't "win" as their $200,000 "bet" won't pay off until they are 98, only 4% are likely to "win" so those aren't good odds.
Basically, those are the reasons I think most people are better off if they take SS as early as they can.
For more information see the Social Security web site at https://www.ssa.gov/ & also take the time to figure out what is best for YOU!.
For those that don't know, most (but not all) financial advisors and planners suggest people wait as long as possible (up to age 70) before claiming their Social Security. I've never quite understood why they say that, the headline or main point seems to be "you get 8% more a year"...but you forgo all that money in the meantime. Anyway here is my argument as to why you should claim as soon as you can (62 for most people).
Assuming you aren't working and there aren't any mitigating circumstances such as health concerns etc. I still think most people are best taking their Social Security at 62. (Working while collecting adds tax considerations that I've never dived into)
If you desperately need the money to get by, the answer is yes. You may not have much choice. Unfortunately I believe that statistically women tend to fall into this category more often than men.
So this is for the people that "don't need the money". Here is why I think those people are still better off to take at 62. Just like the person who started saving for retirement at 24 has a huge advantage over the person that doesn't start until 32, (every IRA and 401K pitch show some version of such a chart) someone taking SS at 62 has a giant head start on someone that waits until 67 and bigger still over someone starting at 70. This doesn't change just because you are now 62 instead of 22.
Here is my rough math part using monthly benefit numbers for a high wage earner. Claiming at 62 - $2208 per month for 5 years at 2% interest rate will have about $122,000 before they would start to get their "full" benefit of $3154 at 67 and about $198,000 before they would start to collect the max of $3911 at 70. That money is a BIG head start and we've all seen "break even" ages - roughly 76 yrs and almost 86 respectively in my example. Move that 2% up to 5% and the "break even" is even further out, 79 & 100 years ...compounding works. (If you want to run numbers more consistent with your earning: for every $1000 you'd get at "full retirement" age 67, you will get $700 at 62 or $1240 at 70)
But I think the break even point and total life time benefit ideas miss the main advantages of taking SS early.
Life expectancy isn't how long YOU are going to live, it's the median expectancy. (I know, everyone is above average ;) ) A lot of folks are going to die before they hit the expectancy age. At 62, the expectancy is much better for women but still at 62, about 8 in 1000 women (13 men) will die before they even hit 63. The number of people not likely to reach 67, 72 & and 82 yr old are 45F/72M, 111F/169M and 353F/466M respectively. Which leads in part to inheritance. Unlike the money in your IRA & 401k plans (and taxable savings), Social Security essentially dies with you. Use the Social Security to live on while you continue to let savings (IRAs, 401K and even taxable accounts) grow. When you pass away, if you didn't use those all up, your designated heirs get them.
Then there are flexibility and opportunity advantages in taking the money up front. i.e Emergency cash. Lets say you fall and break your hip at 65 or something else and you end up in a wheelchair. That $70k+ you already have from collecting SS will go a long way to paying for the conversions necessary to your home for you to stay there (or pay for a move to more appropriate housing). Also, as many pro-early claim people mention, the things you can enjoy with that money in you mid-60s that might not be so enjoyable or possible even later in life. Like that really cool trip through Europe ending with a Danube river cruise... it may be something you are easily physically be up to and want to do at 64,... but maybe not so much at 74.
By waiting to collect a person is making the "bet" that not only are they going to be one of the people that live beyond their life expectancy, they are going to do so by a long enough time to collect a significantly bigger benefit....I mean why do it just to break even? So the person waiting until 67 I'd guess would have a minimum goal of say 87 (they ~48% chance of "winning" what would be ~$150,000 for their ~$122,000 "bet"). The person waiting to 70 to collect essentially can't "win" as their $200,000 "bet" won't pay off until they are 98, only 4% are likely to "win" so those aren't good odds.
Basically, those are the reasons I think most people are better off if they take SS as early as they can.
For more information see the Social Security web site at https://www.ssa.gov/ & also take the time to figure out what is best for YOU!.
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