Retirement Talk - Deciding When to Claim Your Monthly Social Security Benefits

[TommyIV]

Retirement Talk with Tony

Deciding When to Claim Your Monthly Social Security Retirement Benefits

 

[uscfanhawaii]

My ‘advice and recommendation’ flies in the face of ‘conventional wisdom’ on when to take SS benefits.
It’s simple. Start taking SS benefits as soon as you are eligible, and no longer working. Simple.

Why???

Lots of reasons.
1) Your FERS Fed retirement has always been based on the ‘3-legged stool’ approach. Why not follow that plan?
2) If you die before taking SS, you lose it. Yes, there are some death benefits, but mostly they are minimal.
3) It will take you another 12-15 years to just break even from an earlier start to distribution, even though it is ‘less’ per month than a later draw. (see #2). Try it out yourself. Add up the yearly payout in the 2 scenarios, and see how long it takes to break even.
4) Don’t trust Congress! They are continually looking for $$. Either by limiting SS or by reducing the Fed FERS Retirement program.
5) ‘Bird in the hand...’. Even if you don’t really NEED it yet, if you control it, you will have a much better chance of getting a better return on it. (See also #4)
6) If you go back to work, you can suspend payments (or Not). Anyway, the way SS is set up, you will receive the same amount of funds no matter when you start taking it, as long as you live to your mortality table date (approx 85). This affects several of the previous points!
7) Enjoy your $$ while you are still ‘young’. Really, what are you waiting for?

Me and my wife followed our own advice on this. She retired and started taking SS at 62. I retired and started taking SS at 65.

AND, some of the same points guided me in deciding to switch to FERS from CSRS back in 1984. I was told that only 400 people nationwide made that switch. Biggest reason? If the government wants you to do it, it probably favors THEM. So am I happy I switched, looking back? YES!! Sure I would have gotten a larger pension had I stayed in CSRS. But then, I wouldn’t have over $1MM in the bank. So, a lot of the same points do, in fact, apply.

By the way, I am NOT a Financial person. Only a retired Federal Civilian Engineer. Good luck on your decisions! :grouphug:____ :cool2:

 

[nasa1974]

If you start collecting SS before your Full Retirement Age (FRA) and are still working you could be penalized depending on how much you make working full time. So you have to take that into consideration. Also those that retire CSRS do get a reduced SS check because of WEP (Windfall Elimination Provision). Hopefully in the near future Congress will eliminate the provision. They have talked about it for years.

 

[rangerray]

I plan to start taking it as soon as I retire. I was a smoker for most of my life, so...

 

[uscfanhawaii]

My ‘advice and recommendation’ flies in the face of ‘conventional wisdom’ on when to take SS benefits.
It’s simple. Start taking SS benefits as soon as you are eligible, and no longer working. Simple.

Why???

Lots of reasons.
1) Your FERS Fed retirement has always been based on the ‘3-legged stool’ approach. Why not follow that plan?
2) If you die before taking SS, you lose it. Yes, there are some death benefits, but mostly they are minimal.
3) It will take you another 12-15 years to just break even from an earlier start to distribution, even though it is ‘less’ per month than a later draw. (see #2). Try it out yourself. Add up the yearly payout in the 2 scenarios, and see how long it takes to break even.
4) Don’t trust Congress! They are continually looking for $$. Either by limiting SS or by reducing the Fed FERS Retirement program.
5) ‘Bird in the hand...’. Even if you don’t really NEED it yet, if you control it, you will have a much better chance of getting a better return on it. (See also #4)
6) If you go back to work, you can suspend payments (or Not). Anyway, the way SS is set up, you will receive the same amount of funds no matter when you start taking it, as long as you live to your mortality table date (approx 85). This affects several of the previous points!
7) Enjoy your $$ while you are still ‘young’. Really, what are you waiting for?

Me and my wife followed our own advice on this. She retired and started taking SS at 62. I retired and started taking SS at 65.

AND, some of the same points guided me in deciding to switch to FERS from CSRS back in 1984. I was told that only 400 people nationwide made that switch. Biggest reason? If the government wants you to do it, it probably favors THEM. So am I happy I switched, looking back? YES!! Sure I would have gotten a larger pension had I stayed in CSRS. But then, I wouldn’t have over $1MM in the bank. So, a lot of the same points do, in fact, apply.

By the way, I am NOT a Financial person. Only a retired Federal Civilian Engineer. Good luck on your decisions! :grouphug:____ :cool2:

I’m surprised that this topic has not received a lot of posts. I thought it was pretty controversial. But out of 318 views, only 3 replies??

Oh well, for what it’s worth.....Additional info on my point #3:
If you take into account the time value of money, it makes an even stronger case for ‘take it when retired and eligible’. Even if you are only considering the yearly adjustment to SS from COLA. If you consider your own investment, you can do even better. At least 6%, and probably more.
So let’s hear from those out there who are still going to wait to 70. Why would you do that? (Except if you are following TSP recommendations!)

By the way, those who have been following me over the years...I recently did what I had predicted that I would do. I moved all but about $100K OUT of TSP and into a separate IRA fund. Also what TSP is recommending AGAINST! :bad:uttahere:

 

[mcash]

My plan is to wait for my FRA at 67 and my situation is as follows: Age 60, retired FERS at 57 with 33 years of service, TSP balance is robust and I am not yet drawing a check from it. My FERS annuity including the Supplement is sufficiently funding my retirement budget. My bride of 37 years is 61 and just recently stopped teaching pre-school due to the COVID issue. My SS will be substantially larger than hers due to 15 years away from the workplace raising our 3 boys. Together we have 3 parents still living at 89 years of age, my grandmother made 100+. I plan to replace (+$) the supplement portion of my current monthly income by drawing from the TSP between 62 and 67. In this way, my wife will have a larger SS check in the event I kick-the-bucket early. I should probably also mention that I'm a "intermittent" employee of a major commercial civil engineer firm which allows me to earn up to the SS income limit (~18K) annually working something like 30 hours a month. Life is good and waiting for 67 before claiming SS just seems to make sense given my unique situation.

 

[nasa1974]

Retired at 62 (CSRS) in 2012, 38 years at NASA and 4 years Air Force. Failed retirement and went back to work full time in 2014. Since I was paying into SS/Medicare I figured I would wait to collect SS because of WEP. During NASA employment I also worked some part time jobs that paid into SS/Medicare so I have accrued all my points for SS and Medicare. Anyway I finally sat down and did the math and this past weekend I went online and signed up my wife (67) and myself for SS.

 

[rangerray]

Correct me if I'm wrong, please, but if you are retired and currently drawing your FERS pension and are taking the supplement, then you are already taking your Social Security. It has been my understanding that if you plan to delay taking Social Security until you reach full retirement age, then you MUST forego the supplement.

 

[mcash]

Respectfully, I believe you are incorrect, I have made no promise to Uncle Sam as to when I will claim SS. The supplement is no way attached to SS, it is purely a FERS thing. It is automagically included in your FERS annuity if you have 30 years of service and have reached your minimum retirement age, it stops automagically when you reach age 62.

edit: I should note however that the supplement portion of the annuity is subject to the SS income limits and will be reduced if your earning exceed ~$18K per year.

 

[rangerray]

Correct me if I'm wrong, please, but if you are retired and currently drawing your FERS pension and are taking the supplement, then you are already taking your Social Security. It has been my understanding that if you plan to delay taking Social Security until you reach full retirement age, then you MUST forego the supplement.

Apparently I've been confused on this. Now, I'm reading that the supplement stops at age 62 (which I've always known) and you can still choose to delay your SS benefit until your full retirement age. For me, that would be a 5-year gap if I chose to delay.

 

[Bullitt]

So let’s hear from those out there who are still going to wait to 70. Why would you do that?

Many people in your generation have decided to work longer into their late 60's.

In 2018, 29% of Boomers ages 65 to 72 were working or looking for work, outpacing the labor market engagement of the Silent Generation (21%) and the Greatest Generation (19%) when they were the same age, according to a new Pew Research Center analysis of official labor force data.

https://www.pewresearch.org/fact-tank/2019/07/24/baby-boomers-us-labor-force/

Much of this is because there is a demand for older, experienced workers with skill sets that take years to learn. Some are working in the private sector and are applying their well-mastered skills for a decent wage. I think this is especially true today when employers can have someone start working today and won't waste years training only to lose that person early due to greener pastures.

I can tell you first hand, I am much more confident dealing with a project manager in their 60's than 20's.

 

[uscfanhawaii]

Apparently I've been confused on this. Now, I'm reading that the supplement stops at age 62 (which I've always known) and you can still choose to delay your SS benefit until your full retirement age. For me, that would be a 5-year gap if I chose to delay.

Exactly.
So why not take the SS at 62?
I believe it will be a bump up from the supplement, because the supplement is loosely based on 80% of expected SS at age 62.

 

[uscfanhawaii]

Thanks TommyIV for your ‘like’. You moved me up to 4,000 reputation points!!

 

[evilanne]

I just started getting the FERS supplement...it was more than I expected. It is more than 5 years away until I have think about it but I still believe I will wait until FRA or 70 to draw SS...I'm optimistic that waiting will pay off over the long term and if I kick the bucket sooner, there will be more left for the rest of you.

 

[nasa1974]

I just started getting the FERS supplement...it was more than I expected. It is more than 5 years away until I have think about it but I still believe I will wait until FRA or 70 to draw SS...I'm optimistic that waiting will pay off over the long term and if I kick the bucket sooner, there will be more left for the rest of you.

Evilanne,

For social security you want to do the math. The difference between FRA and 70 to collect or even when you become eligible say at 62/63. Here is an example, but it doesn't include Medicare Part B payments;
Monthly check at FRA = $1200
Monthly check at 70 = $1600
If you start collecting SS at FRA (I'm using 65) that's $14,400/year or $72,000 for 5 years. The difference between FRA and 70.
If you started collecting SS at 70 that would be $19,200/year. That is a nice difference compared to FRA.
Now the question is by not collecting SS at FRA how long would it take you to see that lost income you could have had previous to age 70? About 15 years, $72,000 divided by $4,800/year. Of course at age 85 you would be making more money.
Think of collecting SS at FRA as an investment opportunity and how much more you might have at age 70 to offset that $400 difference per month.

Something else to think about. If you decide to collect SS before FRA and you are still working your monthly SS check will be smaller because there is a penalty involved.

For those that are CSRS (and are eligible to collect SS) don't forget you will get a smaller SS check because of WEP, unless Congress changes the law.
For me that was about a 42% reduction.

Good luck.

 

[uscfanhawaii]

Evilanne,

For social security you want to do the math. The difference between FRA and 70 to collect or even when you become eligible say at 62/63. Here is an example, but it doesn't include Medicare Part B payments;
Monthly check at FRA = $1200
Monthly check at 70 = $1600
If you start collecting SS at FRA (I'm using 65) that's $14,400/year or $72,000 for 5 years. The difference between FRA and 70.
If you started collecting SS at 70 that would be $19,200/year. That is a nice difference compared to FRA.
Now the question is by not collecting SS at FRA how long would it take you to see that lost income you could have had previous to age 70? About 15 years, $72,000 divided by $4,800/year. Of course at age 85 you would be making more money.
Think of collecting SS at FRA as an investment opportunity and how much more you might have at age 70 to offset that $400 difference per month.

Something else to think about. If you decide to collect SS before FRA and you are still working your monthly SS check will be smaller because there is a penalty involved.

For those that are CSRS (and are eligible to collect SS) don't forget you will get a smaller SS check because of WEP, unless Congress changes the law.
For me that was about a 42% reduction.

Good luck.

Yeah, what he said!
Plus, that math does not take into account that the SS $$ in hand will grow, if you don’t need it right away and can invest it!
Nor does it take into account that SS is in a death spiral. Unless something is done soon, payments will HAVE to reduce, not increase.
I am still in the corner of taking SS as soon as you retire.

This is the way!

 

[nasa1974]

Yeah, what he said!
Plus, that math does not take into account that the SS $$ in hand will grow, if you don’t need it right away and can invest it!
Nor does it take into account that SS is in a death spiral. Unless something is done soon, payments will HAVE to reduce, not increase.
I am still in the corner of taking SS as soon as you retire.

This is the way!

You do get a yearly cost of living increase with SS, but if you invest some of the money you can definitely do better than the COL.

Like your tag line. Love the Mandalorian.

 

[Scottydog007]

I have to respectfully disagree with Tony on this one. While I agree that many of us can assume to live into the 80s, he doesn't mention what can be done with the funds at 62...etc. I still have a ways until that age but I did create an account with "My Social Security" (I think that is what it is - through the SSA). It's pretty interesting stuff like all the social security earnings from all the jobs you've had since you were born. It also lays out the amounts you would receive at various ages - 62, 67 and 70. I'm a budget analyst by profession so I wanted to calculate the breakeven points between the 3 ages and payout amounts. Keep in mind - I didn't factor in any COLAs...etc. It was just what the monthly payouts would be and when they would "break even" - 62 vs 67 and 62 vs 70. What I found out was that if you take the payouts at eligibility (62), it doesn't breakeven with taking the payouts at 67 until I'm 78 years and 3 months old. If I'm comparing 62 vs 70, the breakeven point would be 79 years and 11 months old.

Now based strictly on that, one might assume that you wait because you'll get more paid out the longer you live past 80 (basically) but it doesn't factor in what you've done with that money since collecting at 62. It could be extra leisure, charity donations, spoiling your grandkids, investing it...etc. There are quantifiable reasons as well as qualitative (better enjoyment in retirement) factors that were not part of the article and that is a shame. I hear many financial advisors recommend to delay until 70 because the checks are larger. Regardless of how long you live, even if you lived to the age of 90 or 95....by getting payouts for 8 years before the age of 70, I have a handful of options of what I can do with that money vs waiting for a larger check. Of course all of these options/decisions are one's own but if people are worried about getting bigger checks and needing bigger checks, then maybe they should work longer and have more savings/investments built up.

I for one, will start at 62 - regardless of health, financial....etc. because I want to be able to choose what I do with that money and know that I'll have it for whatever I decide. I don't really factor in SS income into my retirement calculations anyhow so the monthly checks will be icing on the cake.

 

[FAAM]

S-dog007: Thx for sharing your thoughts & assessment on this question/subject!
I came up with about similar/same conclusion(s) when I analyzed this for myself a couple years ago... nothing has changed. I recall I did it both-- factoring "none-" & again with a very-modest COLA and very-modest investment gain for SS received by claiming sooner than later, which made the "break-even" point a little later in age than what you came up with -- in favor of claiming SS at 62-63. Another factor in my thoughts to claim SS earlier... the good chance at this point (unless or even IF congress changes SS computations/ payouts at account for it) is the fund failing to fully cover the payouts annually... that, at present state, could well happen somewhere between 2026-ish to 2035-ish if I recall (a moving estimate). Since I'm nearing that early-claim age now, I figure taking the funds soon is better -- since waiting could meant getting perhaps 10% to 25% LESS than estimated prior to cuts when I hit age 70 or so (get as much of current "full value" for more years before a cut is possible).
Then, good reasons for early claiming are the other ones you mentioned; mostly for me, being able with SS income to do more than I might on a tighter budget while I'm still healthier & alive (knocking on wood).

 

[NatInPW]

I've always heard, and the SS website seems to confirm it, that the estimates they provide for ages 62, FRA and 70 all assume that you continue working, at your current salary, until you reach those ages. I don't think they provide an estimate for delaying your payment past 62 when you are not still working.

I've had several friends say they delayed SS for a few years after retirement, living off their pensions/IRA, and when they actually started claiming SS, the difference was only a few dollars a month than it would have been if they started claiming at 62.

The SS website says this about their estimates: "You have earned enough credits to qualify for benefits. At your current earnings rate, if you continue working until..."

How do you calculate the effects of the SS decision if you plan on retiring and delaying SS when the estimates assume you'll continue working (?)