When to start taking out of Social Security?

The Coffee Shop
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Full Disclosure: I’ve done little to no research on this. I’m essentially coming here first.

I’m 52, and unless something catastrophic happens, I should have plenty of money in my 401K when I retire, and no debt.

I understand that I can start collecting as early as 60, but will collect at a lower rate than if I wait until 70. However, every dollar I take out of SSI at 60 is a dollar that I don’t take out of my 401K, which will then sit there and continue to grow (in theory).

It seems that the downside to collecting early is that there seems to be a break even point somewhere in the early 80s where I would have made more if I waited as I would continue to collect SSI at the higher rate on into my 90s, should I live that long.

Thoughts?

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The earliest you can take it is 62, not 60. Max amount is age 70. It goes up annually between 60 and 62, but I would at least wait until full retirement age. FRA is dependent upon when you were born.

When are you planning to stop working? If it’s before age 65, what do you plan to do about healthcare?

There are some online calculators that you can run your numbers, and you will hear pluses and minuses on taking it earlier or later. Personally, since I’m still working and probably will be working until next year when I hit my FRA, that would be the earliest that I would consider taking it.

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Another consideration that is worth waiting on taking benefits as long as possible beyond just break even point is the survivor benefits if you have a spouse. Having a government backed monthly payment that increases with inflation is really nice for a spouse to have if you die first. It requires no investment knowledge to manage which can be a good thing if the remaining spouse is older a not familiar with managing investments.

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Ideally 60, but I won’t really know for certain until I get closer to 60.

Healthcare would be through my company’s retirement plan.

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  1. Your SS benefit increases at approximately 8% per year you delay. Waiting until 70 is going to give you the largest monthly benefit.
  2. SS is intended to be actuarially neutral. Of course, the unknown is life expectancy.
  3. Are you married? If so, does spouse have enough credits to claim on their name or will you have the spousal benefit.
  4. Is your only source of retirement income besides SS the 401k? Do you have a pension?
  5. For your 401k, is it all pre-tax or do you have a Roth component?
  6. When you withdraw from your 401k, what is your expected draw and how will that affect your Medicare premiums?

For full disclosure, I intend to wait until 70 to collect SS. I am a federal employee, and I have a sizeable pre-tax component to my TSP (401k). I see retirement as an exercise in minimizing my overall tax liability, so the time between retirement (expected age 57) and SS (age 70) will be spent withdrawing from the pre-tax side of my TSP or rolling over to my Roth. Collecting at age 62 would reduce the head space I’d have for rollovers. Additionally, by delaying longer I can provide a higher SS benefit to my wife should I go first.

My parents are in the midst of hitting RMD storms. They have done well, but have only pre-tax 401k in addition to their taxable account, SS, and an annuity. They started collecting at 62, which has hurt them from a tax perspective.

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There are a lot of different scenarios where one is better than the other and vice versa. So far you are getting the wait until it maxes out crowd, I will give you the counter point. So just for round numbers sake lets say at 62(not sure where you heard 60) you can collect $3k a month is SSI benefits. Once again for round numbers lets just assume it is stable, although there will be cost of living raises, which of course will also be in effect if you wait too. And lets assume you get 5% on your money a year keeping it in your 401k, and thus your lump sum will be the total plus 5% accruing as you go along.

So that gives you 8 years to collect $36k plus accrued interest. That lump sum is going to be well over $300k. That is your money, to do with what you want, and to bequeath to your spouse and family if need be. Not a small amount a 1/3 of a million dollars.

Now if you wait until 70 you will of course get a much bigger check, but since you didnt touch any of the money and it accrued interest all those years, you will have to live to about 85 to hit the break even point. From that time on, you are in the pink and will be getting the higher payout for the rest of your life, or your spouse if that is how things work out…Not a bad deal if you are going to live into your 90’s, but ask yourself if those extra 1000’s of dollars are going to be changing your life in any meaningful way. Because that is the bet on waiting until it is maxed, and what is it that you actually win??

the other scenario is your turn 70, and then die soon after. At that point you have gotten nothing or near nothing back of what you paid in all those years. Your 1/3 of a million dollars you would have had, never materializes and just goes poof. So nothing to leave to your wife or kids in the form of a nest egg, although the survivor benefit will be lager and the bet of a long life comes back into play for her if she is still around.

I look at is as a sort of life insurance policy that you cash in, have the money up front, and it is a tangible asset. I think for most at 85, getting a little more money every month doesnt do much, as you are likely out of the travel around the world mode and doing small things at home that dont cost much. Of course this is all individual, and peoples lives are different, but if you look around, what are 85 year olds doing where they need more money than they have been living up until then.

So for me it is basically that bet, and if you take it early it takes a long time to lose on it, and those winnings are not as important at 85 as they are at 62. If you die in your early 70;s, then you really crapped out, much worse than what you lose after 85 on onwards…

Just another look, good luck with whatever you choose…

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I guess the other issue is how long will it be funded, or partially funded? What are the actuarial risks? Isn’t it funded out of general revenue? For us the break even point is about 80 years considering a 5% return on the money (60 early, 65 years at 100%)

I do agree with your point of money having more value early. Also, at 52 and seeing those older around me continuing to work out of boredom and not need.

Maurice

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I have to tell you that working out of boredom is just plan stupid, and I loved my job. Once you are freed from work, there are so many much better ways to spend your time.

I retired and took my pension at 61 because my hips failed. I took my SS at 62. My wife stopped working at 58 and took SS at 62. If you are not going to keep working, there is no reason not to take SS as soon as you retire

It’s said that you go through three phases of retirement; go go, slow go, and no go. In my opinion it’s best to front load your retirement and have extra money for the ‘‘go go’’ years. A higher paycheck isn’t going to do you any good in the ‘‘no go’’ phase, and it’s not going to do you any good at all if you end up in a nursing home.

Also, I think it’s at 72 that you have to start taking RMD’s, lf you waited until 70 for SS and then take RMD’s at 72, you’ll have all this money coming in just when you’re slowing down.

Also, one more thing, you don’t want to end up old and broke, but if you’ve planned right while you were working, retirement is not the time to ‘‘save for a rainy day’’. It’s time to live a little and have some fun. You’ve worked your whole life for this, go live a little!

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Payments are based on actuarial tables so, on average, and assuming you don’t take your current or projected health into account, it doesn’t matter when you start.

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Barry, at 52 years old you’re not going to have to worry about this. Elon, his partner and the other R’s have decided that SS is a waste of money. When you retire they plan on giving you one payment and telling you you’re on your own.

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The right answer is person-specific. Some factors to consider.

  1. Your marginal tax rate. If you take SS early and are still working, your marginal tax rate on that income could be much higher than if you only take SS after you’re retired.

  2. Your life expectancy. Of course, if you expect to live into your 90s, that factor favors waiting before taking SS.

  3. Politics. We will need to do something about SS. My guess is that any cuts won’t be retroactive. So, that argues for taking benefits early, to get as many pre-cut years of benefits.

  4. Your investment results. If deferring SS means taking money out of your 401k then you need to compare your expected rate of return on your 401k vs the increase in SS if you wait.

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I’m a bit confused. How do you have extra money? I assume you either have no retirement other than SSI (unlikely, right) or you have a pension instead of a 401K.

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I rounded up the 59 1/2. I was thinking of the age when you can start drawing from your 401K. I got the two numbers confused.

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It is easy to get confused.
One can certainly take IRA or 401k money whenever they want (it’s your money). But of course, uncle sam (the IRS) will give a spanking. And, their are (desperate, or high risk) situations that make the spanking worth it, albeit rarely.

Of the thoughtful arguments above, I side with Monty. I’ll be 63 in a dozen weeks, but, will likely wait 'till 65. Money in the go go time is “worth” much more to me

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I plan on retiring in the next 5 years and am starting to run the analysis on when to take CPP (Canada’s version of SS). I am leaning towards Monty’s thinking and putting the $ to good use when my wife and I are more mobile/active.

Also, in my sphere of friends only a few have parents that have lived into their late 80s and 90s. And those that have lived longer, they generally are not spending as much in their later years.

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Extra money in your late 60s might mean more fun, travel, eating out, etc. Extra money in your 90s might mean living in a better senior facility (or being able to afford home care). The former might seem more important now, but the latter could be very important if/when the time comes. Senior care is expensive.

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I’m still confused. Do you guys have pensions?

How do you get “more money,” by drawing on SSI early?

Lets say I have $1 Million in my 401K, and I want to spend $100K in one year of retirement. I either (using hypothetical numbers).

a) Take $100K out of my 401K and leave $900K in it.

or

b) Take $75K out of my 401K and leave $925K in it, and then take $25K from SSI.

Yes, I’ll have 25K more in my 401K, but effectively will end up with less to draw from SSI. Like, you don’t just ADD $25K a year to your budget. You’re just choosing to draw from one source versus another.

The only way you have more money in your 60s by drawing on SSI is if you plan to deplete your 401K early.

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Look at it a bit differently: would you rather have $150,000 at 60 and $75,000 at 70, or $100,000 at 60 and $150,000 at 70?

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It’s this simple: it is actuarially based on life expectancy. You have a decent idea if you’ll win or lose that game ( unforeseen issues aside). If there is a decent chance you outlive the mean, defer until 70.

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Our Canada Pension Plan is similar to SS. You can take before 65 (as early as 60) with a 7.2% penalty per year, or take as late as 70 with an 8.4% bonus per year.

And by “more money”, I was referring to the benefit of the additional income when we will likely spend more during our active years.

But you’re right, in the long run, if you take CPP/SS early it could result in less money overall.