Best Time To Start Collecting Social Security

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There has really been some good information in this thread.
Sounds like it's best to take it as soon as you can as long as they don't just take it back in penalty.
 
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There has really been some good information in this thread.
Sounds like it's best to take it as soon as you can as long as they don't just take it back in penalty.
It is not even that easy. If you are going to die young, take it as early as you can. If you are going to live to be old- exact age depends on your numbers but call it 85+, you will do better long term postponing it as long as you can. This all assumes it is actually still here in 20years.
I took mine as early as I could without penalty as I continue to work part time. My choice, but not right for everyone.
Gary
 
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Sounds like it's best to take it as soon as you can as long as they don't just take it back in penalty.
Some financial considerations that I don't remember being discussed:

It has been explained that each year that you defer the benefit, the amount of the benefit increases 8%. (I have no reason not to believe that but I haven't verified it myself.) If the reason to take the benefit as soon as possible is to be able to invest it in the stock market, consider that on average the market has gone up about 9% including re-invested dividends per year over many decades. As an individual investor, it is certainly possible to do better or worse than the market in any given year. It's also possible, of course, that over the shorter period of time that you take the benefit early that the market does better or worse than the average over decades.

The questions that makes sense to ask then become: Would you rather have a guaranteed 8% increase by deferring the benefit or would you rather take the benefit and hope that you can invest it for a higher return? What is the likelihood that the 8% annual increase by deferring the benefit will change and, if so, will it become less or more?

There is also the issue of income tax. If you defer taking the benefit, will you be in a lower or higher tax bracket by the time you take it? If you defer benefits, will a lower or higher percentage of the benefit be subject to income tax? What is the likelihood that tax law changes and, if so, will income tax pertaining to the benefit increase or decrease?

Naturally, all of the other factors pertaining to an individual's personal situation also need to be taken into account.
 
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The questions that makes sense to ask then become: Would you rather have a guaranteed 8% increase by deferring the benefit or would you rather take the benefit and hope that you can invest it for a higher return?
But that's not a guaranteed 8% gain on a sum of money. If you defer the benefit you don't have the money to invest.
 
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Some financial considerations that I don't remember being discussed:

It has been explained that each year that you defer the benefit, the amount of the benefit increases 8%. (I have no reason not to believe that but I haven't verified it myself.) If the reason to take the benefit as soon as possible is to be able to invest it in the stock market, consider that on average the market has gone up about 9% including re-invested dividends per year over many decades. As an individual investor, it is certainly possible to do better or worse than the market in any given year. It's also possible, of course, that over the shorter period of time that you take the benefit early that the market does better or worse than the average over decades.

The questions that makes sense to ask then become: Would you rather have a guaranteed 8% increase by deferring the benefit or would you rather take the benefit and hope that you can invest it for a higher return? What is the likelihood that the 8% annual increase by deferring the benefit will change and, if so, will it become less or more?

There is also the issue of income tax. If you defer taking the benefit, will you be in a lower or higher tax bracket by the time you take it? If you defer benefits, will a lower or higher percentage of the benefit be subject to income tax? What is the likelihood that tax law changes and, if so, will income tax pertaining to the benefit increase or decrease?

Naturally, all of the other factors pertaining to an individual's personal situation also need to be taken into account.
For every year you defer you gain 8%.
But you also have to consider the amount of money that you never receive because you defer.
It can take several years of 8% to make that up.
If your benefit is $1000 per month that's $12000 per year.
That's a lot to make up at 8% or $960 per year.
 
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For every year you defer you gain 8%.
But you also have to consider the amount of money that you never receive because you defer.
It can take several years of 8% to make that up.
If your benefit is $1000 per month that's $12000 per year.
That's a lot to make up at 8% or $960 per year.
Correct.

But the 8% increase every year is guaranteed unless the regulation changes. Depending on how successfully the benefit is invested, the invested benefit could incur losses. If one loses 20% one year, a 25% gain the next year is required to get back to even.
 
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If your SS benefit is $1500/mo and you collect for 10 years, investing with a 5%/yr gain, in 10 years you will have accumulated $226,402. That assumes no COLA increase in your SS benefit.

If you defer receiving SS for 10 years you will have nothing, but your monthly benefit will be $3238. If you invest that $3238 at 5% for another 10 years you would have $488,727. But by that time the $226,402 accumulated above would have grown to $595,187.

So you're still $107,000 better off by collecting when first eligible.
 
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If your SS benefit is $1500/mo and you collect for 10 years, investing with a 5%/yr gain, in 10 years you will have accumulated $226,402. That assumes no COLA increase in your SS benefit.

If you defer receiving SS for 10 years you will have nothing, but your monthly benefit will be $3238. If you invest that $3238 at 5% for another 10 years you would have $488,727. But by that time the $226,402 accumulated above would have grown to $595,187.

So you're still $107,000 better off by collecting when first eligible.
Agreed but if you still work from 62 to FRA they take back $1 for every $2 over $18240.
If you make a decent salary you can end up giving them back everything.
Once you hit FRA there's no penalty just income tax.
 
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Why does it matter whether you pay for it out of your SS or otherwise? Or is it that it can only be paid out of SS?
I think Steve's point is that you wouldn't be able to invest your entire SS benefit.

Many people consider a mix of investment types and income streams when planning for the future. Deferring a lifetime annuity such as SS can be part of that plan. It is a low risk investment mixed in with higher risk ones.
I guess what you're saying is that folks can't be trusted to be disciplined and invest the entire SS benefit.
 
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I suppose you might be able to pay it another way, but since I was on SS it automatically was taken out of my payment each month. We do invest the remainder, but we also use it for paying off some of our bills.
 
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If your SS benefit is $1500/mo and you collect for 10 years, investing with a 5%/yr gain, in 10 years you will have accumulated $226,402. That assumes no COLA increase in your SS benefit.

If you defer receiving SS for 10 years you will have nothing, but your monthly benefit will be $3238. If you invest that $3238 at 5% for another 10 years you would have $488,727. But by that time the $226,402 accumulated above would have grown to $595,187.

So you're still $107,000 better off by collecting when first eligible.
Naturally, we can only invest after-tax money. Your analysis assumes the tax impact on the SS benefit will be the same all 10 years. Depending on an individual's situation, that may not be true. Two big reasons for deferring SS benefits with regard to taxes are:
  • Deferred payments may occur when the person's tax bracket is lower; and/or
  • Deferred payments may occur when less of the SS benefit is taxed.
 
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Yep, that's a separate consideration which didn't affect me.
My FRA is June 2021.
I'm pretty sure I'm going to start in Jan 2021.
That $18k penalty becomes $48k in your FRA year.
They will penalize me a little for 6 months but it will let my wife start collecting a spousal benefit from my account rather than hers. She is 3 years older than me and has been been collecting from her account since she was 62. She doesn't get much as she did not work that much being a stay at home Mom.
 

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