Ignore Social Security Breakeven Age
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- čas přidán 28. 06. 2024
- When it comes to deciding when to claim Social Security benefits, many people focus on the breakeven age as an important factor. However, basing your decision solely on breakeven analysis is misguided and can cost you big in the long run.
In this video, I explain why the Social Security breakeven age is a poor way to analyze whether you should take benefits early versus delaying to full retirement age or even age 70. The breakeven approach fails to account for the opportunity cost of the money you must spend from your investment portfolio while delaying Social Security. Those funds can no longer be invested and allowed to grow.
I also demonstrate an alternative way to evaluate your Social Security claiming strategy based on your expected longevity and projected investment returns.
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Good advice. I always tell people "consider your overall health, family life span WITH GOOD HEALTH. What good is an extra $300 -$500 a month in your late seventies or early eighties if your wearing a diaper, homebound, watching tv all day and quality of life sucks. Someone else in your family or a caretaker will be spending that extra money of yours.
One thing to consider in all of this is that retirement is better earlier. Life expectancy is one thing, but what about the quality of life? If you take SS earlier and get to enjoy healthy years, that is more valuable than taking it later, being wealthier, but having more limited opportunities to enjoy it due to diminished physical capabilities. It's not just the opportunity cost of money to consider, it's the opportunity cost of what you might miss out on being able to do. That is hard to measure but just as real in my book.
Excellent response. Go while your healthy take it early and enjoy..
Totally agree!
Couldn’t agree more
What happens when you're 80 or 85 and need an Apt at an assisted living facility at 5000.00/ month.
As for assisted living I have two family members that went in to a place. Each lived less than two years in there. The average is only one-two years people just decline above age 88 in a home.. As for funds sell your home to cover expenses or plan now for long term living expenses.. save etc. if you are just rolling the dice and “hoping” well good luck.
SSA strategy is clearly based on mortality with the unspoken message of “take it late, because you’re likely going to die having taken less overall than if you take it early.” The government-mandated retirement program is NOT intended to meet your needs, it’s simply a major source of revenue to support illicit programs lining the pockets of criminal politicians.
Collected at 62,life is good,glad I did.
We plan to take my SS at 70 not because of breaking even thing. We need the years to do our Roth conversions. Taking SS will push the tax into much higher bracket. From the other view point, we do not need SS to live.
Great idea...good thinking. You won't hear any of that on this channel. Your plan is solid and at 70 you will be benefitting from 54% more than taking at 62 and 30% more than taking at 67.
Will be in the same situation, and wife is11 years younger. So the survivor benefit comes into play in my decision. We are 58-47 very active and healthy. RMD’s will be lower with the time of conversions. Thanks
Totally agree. Over the last five years I interviewed several older people in their 80's. Friends of the family others at large gatherings, random etc. I asked each one when they thought was the best time to take SS. Each and every person I asked said take it early as soon as you can.. and they all said they had no regrets. Great video thanks!
And I've had the exact experience. I've asked all my parents friends...all in their 80s, about half waited and the other half took the 30% less. The early ones naturally regretted having to live off less.
You missed the most important factor: those first sixteen or so years are your best years; unless you're fighting for groceries, early is the way to go. Extra cash in my eighties won't mean much.
Good point. Seniors I know collected SS at 62 and are working part time into their 70’s. I just kept working and waited longer to collect SS and am now enjoying not having to work into my 70’s. Still plenty of energy to do the things I like to do
@@johnurban7333 Sounds like your "Crushing It".
Enjoy your higher tax rate and RMD's.
Pulling SS ASAP was part of my plan to retire early and worked perfectly.
That's kind of how I feel. In my 80's, I'm not even going to want to spend $ on the same things as I do in my early 60's. I don't need the $ and we'll get taxed on it given our income so that's why I'm not sure what I'll do as 62 is around the corner.
Listen NONE of us are guaranteed tomorrow. My spouse took it at 62. She is 66 now. Diagnosed with uterine cancer. Your odds of cancer soar in your 60s, statistical fact. My stepdad worked hard all his life. Retired at 65 with pension and SS. Died from pancreatic cancer a few months later. I took mine at 63.
Been married 38 years. Wifes family history is they live into their 90's. I don't know anyone in my family thats lived past 80. My wife will take her meager SS at 62 but to help protect her after I pass and is down to only one SS check, I'll wait til 70 unless if something dire happens to change that strategy.
In addition to Opportunity Costs, there are other factors that complicate it even more... rate of Social Security COLA, Spousal Benefit considerations, Age Disparity of a Couple, etc. I put all this into a spreadsheet and found it was very complex. For my particular situation, it's best to take it at Age 62 if I live to 76 or less, then Age 63 if I live to exactly 77, then Age 65 if I live to 78-86, and Age 70 if I live to 87 or more.
Thanks for this, pretty sensible. I plan to keep working and take SS retirement as late as I can, because SS is all I have right now. Also, my grandparents lived into their 80s and 90s, and my parents are still on their own, now, in their 80s.
SS was never designed to be your sole income in retirement.
Yes! I thought about this too, if taking social security early means that you dip into your retirement savings to a lesser degree, that's a huge win. Your retirement savings are a non-renewable resource and the main contributer to your standard of living. Preserving as much as you can for as long as you can is critical.
Plan so you can take at 70. Best longevity insurance there is period. Also typically best for spouse. Also gives bigger roll over window.
You are right about the "longevity insurance" point.
By the time you get to 70, SS as we know it may be very different. Projecting 80% payout starting in 2034-2035.
Refreshing presentation backed by numbers. So many planners beat the drum of "wait and get more" which is poor advice for many. Constructive tip: be careful not to mumble! People your age tend to do this (some) and remember you're talking to older people. 😊
A couple points. First, good for you for using an actuarial/cohort life expectancy table - most places don't clarify that life expectancy at a given birth year is different than life expectancy with your current age group. Second, most also don't factor in investment returns on the income you get from retiring early, they just say its x # of years - for the break even point. Lastly, don't think your special - the actuarial table is based on real statistics. In other words, we are all more likely than not, to die before we think we will. If your 62 now, you have about 20 years left, so chose how you want to use those younger years of life - i.e., working and stressed for 8 of them so you get the maximum monetary benefit, or, something else that's better for you.
I started it at 63 after Excel showed me that if I applied it to the principle on my mortgage the payoff would go from 13 years to 2.
Two caveats you should have highlighted - besides the fact that 10% average returns would require a relatively risky investment allocation (no problem for younger investors). First caveat is the impact of taxes and second is the impact of reduced benefits for a surviving spouse. My spouse is a few years younger and currently making a good income so 85% of what I draw would be taxed at 22% or more. Also, because I was the higher earner over our careers, I will draw double my spouse if I begin at FRA 67 and more than double if I decide to delay to 70. The probability that at least one of us lives beyond the threshold age is significantly improved thus impacting such a simple analysis.
Thanks for breaking it down so quickly! The factor of more money now gives me better quality of life, better quality food, better quality health, better quality healthcare leads me to believe getting it early will help extend my life. Not sure also if government will cut benefits in the future from budget cuts also as a unknown. Take it now!
I think you missed a hugh issue... if they cut social security in about 6 years. I factored that into my computation. I also figured in the difference in tax rates.
The growth of your investments say at 8-9% per year depends heavily on the fact that the potential retiree actually has retirement investments in the first place. Many people who take SS at 62 have zero retirement investments. From my perspective, those who have zip saved are among the loudest relying on the breakeven point to justify their poor decision to retire at 62. Of course, there is a difference between being retired and simply collecting SS. In my mind, continuing to work and putting off collecting SS, both to age 70, allows far more retirement fun money even if I pass the day after my 70th birthday I want to have as much in the hopper as possible because the actuarial tables indicate that I will last to my mid 80s. Having 2-3 years of expenses saved prior to leaving the workforce is a reasonable amount of money to have on hand to survive a market downturn.
I'm 62 and elected to take social security at 62 because my return age was about 90 per my figures. I have a 3 year old daughter who also receives social security and that changes the data. Investing both my daughter's and my social security at a rate of return well above 10 percent but just been lucky with my stock picks during this bull market.
In a very similar situation, mine was 4 years old when I began collecting at 62, those funds go straight to savings investment, was a no brainer.
We are planning to collect social security benefits the year we both turn 68. We retired early with a medium sized pension and some funds in 401Ks etc. Doing some roth conversions for the last few years and plan to decrease or stop those at age 68. Survivor benefit is larger by delaying and taxes are needing to be taken into account, too, hence the delay.
I might be in a wheelchair and visiting doctors more frequently when I’m in my 80 s, so I will take my money now
I would gladly take Social Security at 62 if they would pay me the $5000/month my employer is paying me. But they only want to pay me $2,100/month. And that gets locked in for life if I take it early.
I remember my Dad took it early at 62. And he ran out of money. I remember he always had money the first 10 days of the month...but he was always broke and waiting for his next check to come the last 2 weeks of the month. and that's the way it was for my Dad all the way until he died at 83.
Sounds like your dad didn't have any savings. SS was never meant to be a sole means of support.
Most people can’t spend all their money in later years. Most peony 80 aren’t traveling unless it’s to a doctors appointment
The other reason to not just look at breakeven is to look at monthly expenses. If you are going to get more lifetime if take it early living only to say, 77, but have little savings, you may not be able to make your monthly expenses on such a small SS check. So won't really matter break even or if you get more in total if can't pay your bills. But don't forget spousal benefits. I'm 4 years older than my wife, I don't want to leave her with the smallest payment when I die.
I got mine at 62 with no regrets.
When you turn 80 you will regret leaving the potentially $100k on the table. Oh well...can't say you weren't warned.
@@heymoe1179 Not at all. I have that covered.
@@heymoe1179 When you're 80, if you're lucky enough to still be alive, will you care if you have some extra money while you are watching TV all day and crapping your pants?
@@markbd9775 If you want to be serious and have an adult conversation...yes, I fully expect to live into my 90s. Both parents are in their late 80's and I've never smoked and I do exercise daily and take no meds. Every life expectancy calculator I've used puts me into my 90s. My lifestyle doesn't include an idiot box (TV). Regardless...yes I will appreciate the extra $800/mo (potentially $100,000 in my lifetime) when I'm 80. Surprise...people still have bills when they are 80. BTW...this past winter I snow skied with a 91 year old dude. But you listen to the Village Idiot Tim...and take 30% less and live in a parking lot.
@@heymoe1179 What are you going to be doing at 80 years old that you will need that measly $100,000? Take it early and enjoy your early retirement years as you can't take your money to the grave.
Some people may be considering geoarbitrage - moving to less expensive countries or countries with better climate, joining a family living overseas, etc. To get permanent residency in those countries you’d need to prove certain minimum social security/pension income. For some it may be as little as $1,500/month, for others it could be way over $3,000/month (Mexico). Even if you don’t plan on moving right now, it would be advantageous to at least have the option to do so in the future, in which case getting higher social security payouts could be very beneficial.
If you are the sole or primary earner during work years and you suspect you wife may survive you by many years you may want to maximize Social Security, that way she can have the higher benefit when you are gone…
That’s what my dad did.
For men who have younger (and lower earning) wives, there is another factor. The wife can claim 1/2 of your SS payment (without your payments being reduced). By me delaying until 70, my wife will get a solid SS payment when she turns 65. Then we will have a combined retirement of 1.5 times my top rate. If I retire at 62, my payment is seriously diminished. She will only get 1/2 of that diminished rate when she turns 65.
For me, in my circumstances, retiring later makes financial sense. Add to that, I make good income. I am socking away a good amount of money into retirement (due to that high pay). If I stop working, those funds going into my 401k/IRA/Roth IRA, will come to a screeching halt. Thus reducing my income later in life as well.
It is a huge mistake to assume you can get 9 to 10% return on your money consistently. We are living in very very uncertain times where the government is spent is making money like it’s monopoly and inflation is crazy. that could be another huge crash in the stock market in the future. The only thing that is guaranteed is the Social Security and that is 8% a year when holding off, take it later, not sooner to lessen the risk of losing money.
Exactly. But most people don’t do math well, or think they can outperform an inflation adjusted, fundamentally risk-free return. I am not one of those people. People also underestimate how long they will live, or how much LTC can run. I mean if you plan to put yourself out on the ice flow at 80, fine, but most of the people in my Mum’s care home seem to be wanting to hang on. She pays $6500 (Cdn) a month. Memory care would add $1500 a month I’m sure. When my time comes I doubt I could afford that without a beefed-up delayed govt pension.
Unlike those certain times from the past. All future times are uncertain.
Inflation is not crazy. It's basically down to the historical average.
Since at least the 1980s there has been wringing of hands over government spending and yet ...
Be rational. Use actual data.
As someone else pointed out, that 8% is really a deferred benefit rather than an investment return, but there is also the fact that your deferred benefits will be inflation-adjusted.
I’ve been getting that return or better for 30 years. No reason for me to think it will change.
Agreed. count on an average of a 5% return when calculating withdrawals from your 401K or 403B
I’ll take the guaranteed inflation protected return, thanks. Easy to throw around “8%” as a projected return on a stock portfolio but retirement is not the right time to mess around with averages. Many years of down markets can crush a retirement plan. I realize your advice is general, but as a former CFP I would opt for reducing volatile personal portfolios first - again, as a general rule. You can always start SS if the markets are not working in your favour.
If you’re dead your approach doesn’t matter. That’s the problem. Collect what you can for as long as you can, invest but if you lose you only lose the difference between what the market returned up or down while the cash is in your pocket. Paying into the system for so long only to not receive any of that money because you want a better inflation protected return is misguided.
@@nikij.6058 If you're dead, you don't care about the approach.
My goal is to not run out of money. Dying is inevitable. Living in sub-standard conditions in LTC at 90 because I can’t keep up with inflation or my personal investment have underperformed sounds just as bad. Pretty sure my SS (I’m actually in Canada so it’s CPP) will outperform my personal investments on a risk adjusted basis.
@@Sylvan_dB exactly. I never heard anyone say on their deathbed “I wish I had taken SS sooner”
@@johnurban7333Correct, but I have heard surviving spouses say I wish they would have waited. Very personal decision that doesn’t always consider math only.
I see so many people not making it to 62 I’m taking it at 62 this year. I really don’t need it but I’m taking it and investing it in 5% CD’s with credit union. I’m retired and doing well.
You might want to look into T-Bills instead. Currently you can get 5.4% in a 3-6 month T-Bill and then you don't have to worry about FDIC limits, state/local taxes, or early redemption fees.
My husband died very suddenly and unexpectedly at the age of 61. I took SS widow’s benefits at age 60.
I think another consideration has to do with go/go, slow/go, no/go years in one’s life. To wait until 70 to get the maximum SS when most people by 80 years old are in their slow go or no go years may not be as worthwhile as taking Social Security earlier and being able to use that money for your gogo years rather than using your own savings.
Do 80 year olds not have any bills to pay? That extra $800/mo would sure be useful.
Bingo!!! Most people don’t know about the go/go, slow/go, and no/go years. You will definitely not feel like traveling as much in your 70s and 80s. Enjoy life now!!
Thank You! I have been saying for a while that the break-even calculators and most financial advisors do not consider the time value of money. You called it “opportunity cost” but it is basically the same concept.
Yes they are, because you are getting a guaranteed 8% rate of return each year you delay, risk free... you will NOT be getting risk free returns in the markets.
@@_Coffee4Closerssorry, but that is not correct. The 8% is not a “return”, but rather an increase in future payments from deferring initial payment for each subsequent year - that is what determines the break even in the first place. A return is only possible on invested capital, and that is what he is talking about.
Yes, but this makes the big assumption that you have discipline and do not spend more money in total if you take SS early, which many seem to be suggesting the will do when they say they would rather have the money when they are young. If you live larger and spend more by taking SS early, you are still digging into your savings the same as you would have otherwise, and hence no opportunity cost.
@@scooter5940 True but you will not be getting that risk free rate in the stock market. Besides none of these people taking it early are going to "invest" the money they are going to spend it. They are taking the money early because they can not resist the urge for immediate gratification.
@@scooter5940 The 8% may be a deferment rather than a return, but any deferred benefits are also inflation-adjusted. Which may not be exactly competitive with T-bills at the moment, but T-bill rates won't stay this high forever.
Very informative. I’ve never heard of JP Morgan’s break even calculator based on investment returns. That makes so much more sense than the ones just based on cumulative SS payouts.
I'll have to look at that JPM calculator. I agree that you need to look at your entire investment portfolio impact, including portfolio size, estimated growth rate, inflation rate, expenses, and taxes including RMDs. Only then can you get a true picture of whether to take SS early or not, or at what age.
I think in many ways it comes down to do you want more money early on in your retirement when you are most active and want to be traveling and maybe even helping a child with a down payment for a home or do you want to be a wealthy old person who has more money than they can spend .
No children, so I'll opt for "wealthy" old person. I'm sure i won't have more money than I can spend. The last few years messed up my traveling etc. anyway.
Great video. I ran it out using 4 to 5% growth on investment and the break even is between 87 and 90. Claiming anywhere between 65 and full retirement age seems to be the sweet spot but I may still delay for the following reasons:
1. Maximize the survivor benefit for my wife who is likely to outlive me.
2. Minimize income in early retirement to allow me to withdraw from 401k in lower tax brackets to minimize future RMDs.
3. Maximize the COLA adjustments which will be higher on a larger monthly payment. That will also mean more non taxable income, since at least 15% of SS is not taxable and 100% in my State is not taxable.
4. A hedge against living longer. Since I took the lump sum pension, if I live longer than expected the SS will cover me and if I die sooner my heirs get the lump sum pension so either way is covered.
I like the way you're thinking about it here
Awesome video thank you. I have a military pension which covers all my expenses. I am 57 so the decision is several years away but my financial advisor made a blanket statement to collect at 62 but I wasn’t sure why. This makes sense.
He wants to invest your SS...and get a commission. Leaving SS in and waiting until your FRA will get you 5% a year alone. Be careful.
I’m in the same boat as you. Taking at 62 and investing.
@@tonylevine2716 You need to get around 12% return. SS makes 6% just sitting there from 62 to 67, and 8% a year from 67 to 70. And then consider any cap gains tax. 12% with no mkt downfall...good luck.
It's nothing more than a guess and your risk tolerance. The same applies to Medicare.
Great video and well explained, I have mentioned your point on other videos that say wait as long as possible. However, doesn't the spousal benefit effectively extend the years of the higher benefit of starting later, at least for the higher earning spouse? Seems like lower earning spouse should definitely start early, but not necessarily the higher earning?
Generally speaking most people would need to live to 80 to break even. I’m about to turn 60 and have been grappling with this question a bit lately.
I think it boils down to I really don’t need the money, so I’m going to take it early. The measly extra $1k a month to wait the extra eight years is not worth it.
I think I actually heard someone say that before. If you don’t need the money, take it early. If you do need it, then you are better to wait to maximize that income.
If delaying your Social Security would affect your life in basically any way then you should go ahead and collect. But if you have enough resources, it is to your advantage to delay at least to full retirement age.
My full retirement age is 66 and 10 months. I've delayed it this long because I'm still working, but I plan on stopping regular/weekly work at the end of this year or when I turn 65 this coming October. Once I get the updated numbers in the mail from SS probably next month in July, this may determine if I want to go ahead with collecting my SS this October 2024, or wait 22 more months to receive my full retirement amount. The difference of those two monthly income numbers will factor in to my yes or no.
That's exactly my FRA (born 1959)...The difference for me taking SS today and waiting until 66/10 mo is $800 a month. IMO it's worth it for me to wait. By the time I'm 66/10 mo that number will be even larger due to yearly cost of living adjustments.
I've run all the simulators and found for our situation its best for me to take SS at 62 and my wife at 70. She was the slightly bigger money maker. This way, we reduce our draw on our savings and those will hopefully grow for 8 years until she draws hers. She can live on her SS if i go first, or I will draw on hers if she goes first.
I turn 68 this month and will not claim it till 70 because I am still working full time. Would have to pay a higher tax on SS if I chose to get it, so I am waiting. It will also be guaranteed income at the full rate for me 2 years from now.
You don't even touch on tax considerations. If you intend to work past 62 or have Roth conversions to get out of the way, then filing for Social Security at 62 would be a waste.
Also, how does Social Security fit into your plan? I'm using it as longevity insurance. I don't really expect insurance to be an optimal investment, it's intended to handle worst case scenarios.
But I suppose that if filing at 62 is a precondition to retiring at 62, then taxes aren't really going to be an issue for you.
This second chart ignore the dangers of "Sequence of Return risk"... pretending you will get an "average" steady return each years is a HUGE mistake. Also, there is no mention of the RMD's you will be hit with by NOT drawing down your 401K or IRA assets in the earlier years of retirement, and keeping social security as your long longevity hedge against running out of income. Also, you are going to be stuck with a lifetime HIGHER tax rate taking early as your provisional income will be less since it uses 1/2 of your SS income plus any other money you withdraw. What about spousal benefits if the primary wage earner dies first, you are potentially leaving the survivor with low income for life. There is a lot to consider here, and delaying is almost always the better choice.
_ pretending you will get an "average" steady return each years is a HUGE mistake_
Absolutely If you run a monte carlo simulation on returns (which is easy with a spreadsheet), you'll see steady 4% returns is actually better than the boom/bust of the market. And I'm not advocating you don't invest in the market, what I'm saying is real returns are a fraction of what most people think they are.
@@teekay_1 But if you run a Monte Carlo with proper 3 Sigma standard deviations you will have plenty of 30% to 50% stock market crashes like in 2008 and 2020. This is your danger, in sequence of return risk. Market drops 40% and takes 2 or 3 years to recover, meanwhile you are withdrawing funds (unless you have a properly funded cash reserve). This could leave a retiree with literally half of the funds they planned on having if this were to happen in the first years of their retirement. This can wreck your retirement plan. That is the entire reason to hold both Stocks & Bonds 60/40 or 70/30, plus a 4 year cash reserve. If the market is way down you can draw from the cash for a few years until the market recovers.
@@_Coffee4Closers We're saying the same thing. A consistent 4-5% is far better than 10% return one year and an 8% loss the next year. You can put this in a spreadsheet pretty quickly and see that consistent returns always beat wide variances in returns. The problem is those don't really exist.
Now truth be told, in my tracking spreadsheet I do use a 4.5% return because (a) Random variations that I project are not based on anything more than speculation (b) A 4.5% is sustainable over time, even considering down years.
You can also hedge things by using a bond ladder strategy to ensure you do get those consistent returns, but that's probably a bit much for a CZcams Video.
My view is SS ins aold age insurance and the last income bonus I am going to get and I sleep better knowing I will get a big pay off at 70. Plus the taxes cut is great switching to SS.
Good video. There’s also RMD you have to take into consideration. If you draw down from 401k and not collect SS your RMD will be much lower and less taxes
ROTH
Correct, also you will have a lower provisional income giving you a higher tax rate for life by taking it early, a lower survivor benefit if your are married, in addition to the RMD's... there is a lot more to consider in this decision. Most all of the people saying "I took it early" did not think this out at all, and have zero idea of the longer term effects of that decision.
Y best friend retired at 70. Every time I talk to him he ask, why didn’t I listen to you about not being able to buy time, I’m getting tired. He’s only 72
My break even age was 79 years old the statistics say I would live to 80 but nobody really knows how long you will live so I took my social security at 62 it made sense in my case but everyone is different
One final point. I have life insurance that I plan on winding down slowly until it is zero in my 80s when it will be too expensive to keep paying the premiums. By delaying SS if I outlive my life insurance, I would have made the right choice by delaying and if I die earlier my wife gets the life insurance.
This discounts survivor benefits. Okay for lower earnings spouse to take early but overall better to take at 70 for higher earners as that is then good income insurance for a lower earning survivor. Hard to beat the 8% annual return.
I think most people DO NOT have a 9-10% investment return in their 60’s….Another thing to consider, if you don’t need the money, is converting traditional IRAs to Roths.. it counts as income, but you may likely be in the 12% tax bracket for marriage filing jointly, vice 22% bracket if you’re taking SS and receiving a pension.
I’m not looking at the break even age…I’m looking at how much more can I possibly collect over a very long lifespan. That’s why my plan is to delay. By delaying to 70, I’ll collect at least an additional $300,000 +. Plus, if I prematurely die, my wife will have a greater survival benefit. I could change my mind, but that’s the plan for now. Curious if you are familiar with the premise of delaying that is laid out in the book Get What’s Yours. I’m only about half way through and so far seems to be confirming my idea of delaying. To each is own in the end.
You won't collect the $300k if you're dead at 75. Sh&t happens.
As you say everyone is different and many things to consider. Who can I go to with my particular situation to get qualified advice? I hear all of your information, but it is still unclear what I should do. I have decent investments in an IRA that I can access in December and a pension. My money manager handling my IRA just does not give me confidence with his answer.
Yeah sounds like you don't have a great advisor if you don't have confidence in his reply. I'd be happy to have a discussion with you if you want to check out my website or calendly link. Otherwise you might want to try and find someone else you think is qualified. I'm biased and think people with CPAs and CFA charters make the ideal advisors! But I think you might also find a lot of CFP's that do solid planning work and may help.
It's all about the risk of living a lot longer than you expect and planning for that. If your FRA benefit is $2,000 a month, take it at 62 you get $1,400, at 70 you get $2,600, a difference of $1,200 a month, or $14,400 a year. How much would you have to pay for a lifetime annuity that will pay you $14,400 a year and adjust the benefit upwards every year for COLA? The chance of you living past 100 is slim, but doesn't mean you shouldn't plan. Similar to younger people buying life insurance, when the probability of dying is low. You buy life insurance not because it is profitable on a spreadsheet, but for managing risk you have no control over.
A consistent 9% return on investment capital is ridiculously optimistic.
I definitely would not advocate someone in retirement using a figure that high! However, 9% is slightly below the long-term historical average of the US stock market.
Yup. 9 is spot on loooooong run. It’s just as you age we no longer have a loooong time left. 60’s run. 70’s walk 80’s crawl. So when do u want extra cash. If. If. It will be extra.
@@sophoswealthmanagement The "long-term historical average return of the US stock market" is quite irrelevant to an individual. Are you going to put 100% in the stock market? If not, you are not going to get stock market returns. Also the market frequently experiences 10 year periods when returns are negative. An individual will likely experience that at least once and the odds are they will experience that more than once during a 30 year retirement. In the "long-term" we are all dead.
@@Sylvan_dB Yeah, I'm actually very worried about the US stock market at its current valuation level. I addressed how people should potentially plan for this in another video: I've argued in another video: czcams.com/video/s4DroupfG4E/video.html
So true.
Simplest answer is to take social security when you retire from work or when you really need the money.
I agree I wont take social security till full age because once full age you can work and get your retirement with 0 penalty I pretty sure I still be working when I hit 67 lol but at 62 i would have to quit work not point taking social security early as you cant work without losing most of it anyway
just work part time after 62...stay under the cap.
Maybe zero penalty, but you will still have tax considerations even after FRA. It's probably worth going through the worksheet to see how much of your benefit will be taxable while working.
I treat it like insurance. I won’t take it unless I need it. I’d delay it beyond 70 if they would continue to increase the amount after that.
This video doesn't address survivors benefits and couples strategy.
The CDC says the life expectancy of a male in the US is 74.8. Taking mine at 62.
CDC says life expectancy for a 65 y.o. male is 17 years.
But the life expectancy of a 62 year old is about 83!
That statistic leaves out anyone that dies before 65. So, the life expectancy for a male in the United States is 74.8 years.
Life expectancy depends on your current age. You're using the life expectancy of a male at birth.
@@teekay_1 These are the CDCs words, not mine. "For males, life expectancy increased 1.3 years from 73.5 in 2021".
Consider a surviving spouse, other income, and income tax, and the scenarios get really complex. Just take the money and run! 😀
I love wealth managers. Your motto is always we don't get fired if we can a 5 or 6% return just don't lose money. I don't know any wealth managers that get a 9+ percent return unless it's because the market just happens to be great. The 9% return also isn't indicative of future returns. So to delay SS because you currently hit 9% plus is silly.
The S&P 500 has averaged 10% return for 100 years
@@darylfoster7944 LOL and no wealth managers get their clients 10% a year even for 10 years.
Need to add in COLA estimates into your conclusions. I made a spread sheet where I can add in COLA estimates and what I think I might make on investments.
It's important to keep in mind the IRR calculation I show is a real (after inflation/COLA) return. I prefer looking at the real IRR and then taking COLA/inflation into account after you have that number. So let's say your expected longevity is 85 and you're comparing age 70 to age 67. The real IRR on delaying is 2.7%. That means you would need to generate a real (after inflation) return of 2.7% or more for taking social security at 67 to be the better option. Using this analysis you can easily add your COLA number. Expect inflation to be 3%? The return you need to generate to take social security early is 5.7% or more. Expect it to be 2%? The return is 4.7%.
I plan on working until age 70, since I'm at peak earning at my desk job, and my family has longevity (Dad died at 86, Mom at 90, Dad's Mom at 102). Want to max out my Roth 401K and SS benefit.
To each their own, but working till 70 is not good to me. Seen so many people work into their 70s, decide to retire, and drop dead a few months later. Life is short so enjoy it!
@@tonylevine2716 Would rather die shortly after retirement than run out of money in my 80s or 90s (my biggest fear).
The S&P 500 total return averages around 10 percent per year. But you can't assume you will invest every social security dollar because of insurance and taxes. That probably lowers your effective return to around 7 percent and potentially less depending on circumstances. Bear that in mind when reading the chart. Also social security has an insurance-like component because it never runs out. It's difficult to put a value on that, but it's greater than zero.
Social Security is currently due to get reduced by around 20% in 2035. Take it as soon as possible.
SS also stops paying at death. Your 401k, 403b, 457, all ROTH accounts, etc. can be used by your spouse or beneficiaries after your death. Convert $$ to ROTH and take your SS early. It will reduce RMDs later in life and enjoy life while you are young. Just my thoughts but I have been wrong once or twice in my life. 😁
@@breehartley1627 RMDs are rarely a problem. The withdraw rate starts at about 1/28 of your balance and is approximately the same dollar figure every year. If you have a million dollar IRA that's about $36,000. That plus social security will barely put a few dollars in the 22% bracket.
It makes no sense since you can't predict your life span to begin with. There are other far more important aspects to consider. I've known quite a few people who seemed healthy enough and passed at an early age. I also know quite a few people who have been in really poor health for a long time and are in their 80s. Don't spend your whole life chasing money.
Too many side factors to consider. Taxes are a big factor. Continued work income plus taxes matter. I continued to work until 70. My wife took her social security and government pension at 66. I got spousal social security at 66. My taking social security early would have simply gone to taxes and higher Medicare costs.
Say you’re 63 and retired on a pension and get survivor benefits. The survivor benefit is about $700 less than your benefit.
How long should you wait to take your benefit? Family history of passing is mid to late 80s.
I need a crystal ball.
Haha I'm not sure I have a crystal ball but the majority of the time you're best off delaying your benefit in this situation. By taking the survivor benefit early you get some $$$ today while also allowing your personal benefit grow to it's maximum and delay to age 70. Basically you get the best of both worlds. It used to be a common spousal strategy to claim spousal benefits early and then let your personal benefit grow but that loophole was closed and is no longer a valid strategy.
@@sophoswealthmanagement I have thought about this a lot 65 ,67 or wait longer.
The real fact is you do more and enjoy that money more when ur young enough to enjoy it. Travel and adventure. Not so much at 70+.
It’s not a simple thing. Many personal factors. Do I need it? No. I have no debt. But no million in the bank either.
To make this video without talking about impact on survivor benefits for a married couple leaves me scratching my head.
For sure an important part of the overall analysis for your claiming strategy. This wasn't really meant to be a comprehensive planning video on when to claim but it's definitely something people should analyze when working on a plan.
Ours is nearly identical so survivor benefit involved
Everybody’s situation is different.
54 Work/ +21 Vacation/ 107 Calendar Days until Retirement with a 70% CalPers Pension at just past 62. I also have Coordinated Social Security coverage. With all my current Contributions & Deductions, my CalPers payments will be just slightly more than my current paychecks. My plan is to let Social Security grow until I NEED it. I'll take 403b Distributions while my Taxable Income is low, Roth Distributions when it is high as needed. I'm looking at taking Social Security at 65 when I file for Medicare. But, if I go back to work... I'll delay... If Inflation outstrips my COLAs, I'll file earlier. I have a Written plan with "trigger points".
Sounds like you'll be in a good spot! Super helpful to have a plan that also gives you some flexibility for those future unknowns.
@@sophoswealthmanagement Thank you. It helps that I'm my Bargaining Unit's CalPers Guru...
It I would have taken it at 62, I would not have been able to collect anything due to the income limit amt.
The decision of when to start taking SS is definitely not straightforward for most middle income Americans when tax impacts and Affordable Care Act subsidies are included. I’m 15 months from 62, and my current plan is to delay until 65 (Medicare eligibility) unless I am forced to sell my stock funds into a down market. (Down by >10% from market highs) It’s not a perfect plan, and I will reevaluate annually when I look at my tax situation for the coming year.
inflation should be factored in also, CPI is manipulated
These breakeven analysts were never taught how to discount future cash flows to the present.
If you have high balance on your 401k and others income like pension, rental, dividend, take it early and start spending your money.
I would rather see more discussion about how much of someone's retirement income is Social Security. If SSA benefits will be more than 50% of your income in retirement, it would probably be better to put off taking the benefits to increase the monthly amount. If you can't meet your monthly expenses, it won't matter where your "break even" point is.
If you are relying on SS to solely sustain you in retirement, you’ve already messed up your retirement plan (it also says this on the SSA website).
Most people should take it early and invest it as it will give more $$ long term. Why give up 8-9 yrs of payments for an extra $1-2K? Now you are in your 70s, the slow-go years, and not as active as in your early 60s.
Having a lot of $$ is good, but don’t let it be the deciding factor. Time is your most precious resource and something you will never get back. Enjoy life while you can! I retired this past Oct at 55 and plan to take SS at 62 and invest it. I have bridge accounts to take me to 59.5 and 62. Good luck everyone!
It’s not the smartest thing to do to take SS early for some people if they keep working after the age of 62. It all depends on the individual’s combined income.
@@KMarik Yes, if they keep working. This is why we need to educate our kids and young people now to save/invest early so that they won’t be in the same dire financial situation as millions of other Americans who have to work till they die.
My point was rather that you need to consider your combined income before you start receiving your SS benefit. I am 65, and I still want to work.
Does it really matter if you wait until 70 and die at 72?
Not really, but if you live until 92, having that additional income will make every year better.
When you're drawing assets down in retirement you shouldn't have a portfolio that can return 10 percent unless you are rich enough that retirement planning isn't a thing. The focus for most retirees should be risk and taxes for securing the income you need.
Did you also look at when SS will go insolvent in 2033?
12 years older than my wife, and I have a much larger SSI. We don’t need the money right now and I want the larger survivor benefits for my wife. I know, first world problems.
I believe there is an error in your table at 1:20. The first line 62 has age 77 for 63 and then age 76 for 64. Also this table is very confusing, a graph might be a better way to represent this data.
You're right I think 76 should be for age 63 and 77 for age 64. I'm not a big fan of the table but mostly because I don't think breakeven age is where your primary focus should be.
These types of videos need a disclaimer up front that says, "this advice is only for people who have a significant nest egg saved." I see so many people taking SS at 62 and working part time simply because they don't want to work full time. Problem is SS + their savings doesn't give them enough to make ends meet. Then what happens is if they don't die before they can't work anymore it gets ugly fast.
You didn't take into account survivor benefits. When one spouse makes much more than the other, the surviving spouse will be much better off if one passes away if you delay.
Investment return is not guaranteed. Social Security is as close to a guarantee as you can get.
Social Security can be thought of as longevity insurance - you (and your spouse) are insured against running out of money if either of you live a long time, and the way you buy more insurance is by delaying your claim on that insurance up to age 70.
If you delay, you can choose to claim at any time. Once you claim, it is hard or impossible to choose to delay.
I think considering the breakeven analysis is completely the wrong approach to making the decision to claim or delay SS unless you are single or sick. Obviously if you need the money then you won't be considering the breakeven because delay is not even an option.
You can only base this on today's dollars as there is no way to effectively see how COLAs will affect the payouts in the future. Yet, they hold a key to something important. If you have many health-related issues and wait then taking SS at 70 may increase the payout but there are no guarantees as to how long it would take to overcome losing all that money for 8 years. Not everyone is going to live until they are 90. According to the insurance mortality tables, we see that our life spans are on a decline. So, we have to determine whether we will need the increase in money or not based on the individual and not make blanket statements. I have no regrets about taking my SS at 62. I have been socking it away and investing and getting some great returns in low-risk investments. The fallacy that we can forecast this isn't true as you have to make assumptions based on "WHAT IF" instead of reality.
Lets say you are 62 and the SSA tells you that at your full retirement age of 67 you will get 2000 per month. COLA is unknown for the future. Lets say COLA we estimate at 2 percent per year.If you take now at 62 you maybe work a little less or invest more with added income from taking SS now. so your check will be 1400 per month now and at age 70 it will be 1640. Lets say instead you decide to delay til 70 you may need to work full time and or have less money to invest over the next 8 years. However at age 70 when you begin taking SS your check will be 2905 per month. So if at age 70 in 8 years you need say 2640 per month to live well then you will be very happy getting 2905. However if you are only getting 1640 you are short 1000 per month so you better hope your investments can make that 1000 per month to make up for that tiny SS check.
I think of SS as old age insurance and not as an investment, in that regard break even is irrelevant. I would rather spend down an IRA to delay SS to at least FRA or better yet age 70. Especially if married so the spouse can receive the highest survivor benefit. Having the biggest possible guaranteed inflation adjusted income for life seems like a better bet than relying on the market. Plus it has tremendous tax advatages. I would rather receive 60k a year in SS and pay 0 taxes, than the same amount from an IRA. If SS is your largest source of income you can stack other money on top such as dividends, Roth, cash savings and even some IRA withdrawals and have over 100K per year income and pay 0 federal taxes. There is always an opportunity cost or trade off, you might have more money when you die by taking SS early and keeping more invested. If the majority of that money is IRAs you will have increasing RMDs each year + you are passing on a tax burden. Just my thoughts.
I like your thinking. In my state, SS is not taxable so for me, even paying fed tax on 85% of SS would save me 10% in combined fed and state tax (20% vs 30%) therefore I want the SS to be as high as possible including getting the largest COLA. I do believe at $100k of income it would be tough to get to zero tax unless all your non SS income are dividends and long term cap gains, thus you don’t have any deferred IRA income, pension or taxable interest from bonds or CDs. As an example if your married and combined SS is $60k, my understanding is half of that goes toward provisional income which would be $30k not leaving room under the standard deduction for other ordinary income which may be difficult for many to manage.
Yeah, many advisors recommend focusing on longevity protection, which is the exact framing you are using. Definitely a valid approach! The added tax benefit of delaying is that it might allow you to realize capital gains and do Roth conversions without paying taxes in the years after retirement but before you take social security. Of course, it depends on your other sources of income in those years but there are some planning opportunities either way.
What most people forget is that at 62, you're likely in good health, and that's when you want to travel, and go out to dinner etc.
When you're 80, you're probably in much worse health, may not be mobile enough to travel, and will not spend as much money.
Took my SS benefits at 62 question is I want to work again two years later at 64. Is there a way to lower your gross income to avoid the 1 dollar for every 2 dollars earned penalty after the 23,000 limit? Like get a IRA or contribute to a Health Savings Account?
Ask ChatGPT. Maybe it can tell you.
Why don’t these kinds of “financial advisor” videos address other factors like: health insurance, taxes, inflation, possible mortgage balance, etc? There has to be a SS benefit payment where taking retirement early would not work. How many times do we hear a huge percentage of Americans don’t have $400 back up but yet come age 62 it makes more sense to retire early? How many people age 62 are renting? What has recent events done to their choices for retirement? Seems much more complicated to me.
If you delay taking social security and keep working then you continue to pay into social security. A win-win for the government.
It depends.
What good is that money going to do when you’re 85-90 + ? At that age you aren’t traveling or throwing huge parties and probably most of your friends are gone anyway. As far as life expectancy, NOBODY knows how long they have.Cancer is a huge factor and it doesn’t matter your family history. Take the money spend it and enjoy it while you can. Our days are numbered.
There’s no good reason to delay taking your SS
The mistake most of you financial planners make is making the comparison for age 62
And then you say reasons for doing so because so many people take Social Security at age 62
Even though that might be true, those who take it at 62 are the ones that are much lower income or have some health problems or later with no prospects of working again
So, that comparison, at age 62 is rather water down
What would be most helpful if you would do the same analysis to show us the comparison of retiring at age 65 versus our full retirement age of 66 and so many months how long with waiting until age 70
That would be the better comparison
Think about it those of us who are even watching a show like yours are people who are trying to plan and compare
Those who are taking retirement, age 62 won’t be watching a show such as yours
Anyway, that’s my thoughts for the day
Now your number crunching was great. It just wasn’t for the right ages of the people who are watching your show.
Thank you
I appreciate you sharing your perspective. I should have done a better job highlighting the difference between pulling at 65 vs Full Retirement Age or age 70. Sometimes it can be easier to highlight the difference between age 62 and the max age of 70. Whether you're comparing 65 with 66 or 62 with 70 the main analysis comes down to expected investment return and expected longevity. The JP Morgan Chart shows a slim band where full retirement age is best but most of the chart shows either 62 or 70 being optimal. Of course that analysis ignores some tax planning opporutnities you can take advantage of when you are able to delay. Here's another video where I look at the decision on whether to take early vs delay: czcams.com/video/aUOQftJvHsI/video.html
Hope that helps!
Most people need SS to spend, not to invest. This kind of math only works if you never spend any money.