What are your guys' thoughts about taking Social Security at 62 vs. 66, especially for clients retiring before full retirement age?I've generally had the mindset of waiting for as long as possible instead of taking reduced benefits. But I've been talking to more and more people who believe they should take it as early as they can get it, even though they are getting 75% of the benefit. They fear that that there will be reduced benefits at some point regardless, so they should take it anyway. Also, with the market the way it is now, they would rather have the Social Security money come in, than have to withdraw that amount from their accounts. I know it can be case specific, but any general thoughts on this?
[quote=iceco1d]Snags,I know we talked about this on the r.e.g.r.e.p.s site awhile ago, but for those who missed it...depending on discount rate you use (i.e. how much is your money worth you), the break-even point for Social Security @ 66 instead of 62 is in your mid-80's when you account for the time value of money. Here's something I've been doing research on lately...did you know that you can redo your Social Security benefit calculation whenever you want? Basically, you can take your Social Security at age 62...then say at age 66, you want to get the higher benefit. So you request a benefit cancellation form from SS Admin, and get them to suspend your benefits. All you do from there is pay back all of the money you received from age 62 thru 66 (or whenever you do the recalculation)...and you do this INTEREST FREE! Once you pay that money back, you are free to reapply for SS benefits - and they are calculated as if you never took them at age 62! Nothing illegal about it, and no B.S. It doesn't pay us very well, but paying back the benefit and recalculating costs roughly 45% less than buying an annuity with similar payout...it DOES position the advisor as a retirement pro (only 31 people in the whole country completed the recalculation process in 2007!) - and it also lets the client take bit more risk with the rest of their investments. Hope that's helpful. [/quote] I was about to post exactly this. A former boss of mine did just that.
http://www.usatoday.com/money/perfi/columnist/block/2008-01-14-social-security-early-benefits_N.htmThis is a good article above in the USA Today (of all places) about timing of SS payments. There is a very good one in the Journal of FInancial Planning that I have a hard copy of, but it seems you now have to be a paying member to access it. For those that are paying members.....it's in the June 2007 issue ("When Should Women Claim Social Security Benefits?").
[quote=Ferris Bueller][quote=B24]http://www.usatoday.com/money/perfi/columnist/block/2008-01-14-social-security-early-benefits_N.htmThis is a good article above in the USA Today (of all places) about timing of SS payments. There is a very good one in the Journal of FInancial Planning that I have a hard copy of, but it seems you now have to be a paying member to access it. For those that are paying members.....it's in the June 2007 issue ("When Should Women Claim Social Security Benefits?").[/quote] The Journal of Financial Planning? Don't most people use that to house train their puppy?[/quote]
A lot of planners use it to spank the monkey on a picture of Nancy Jones.
On paying back all benefits received, what about up to 85% of it being taxed all those years? I’m in the camp of get it while you can -if you don’t need it, invest it or leverage it with a life policy, if client is insurable. If you die before receiving benefits, all that money paid in over the years is GONE.Stok
I revisited this topic today with a client and thought I’d post some live numbers for you to comment on. Client in Question gets $1,800/month at full retirement (66) and takes a 25% hit on it by taking it early. Please feel free to shoot holes in the breakeven analysis, but here’s how I answered.Using a baseline rate of 5%, and taking the reduced benefit ($1,350/month) for four years, I get a value at age 66 of $71.868.30. Reversing course and paying down that figure at a rate of $450/month takes about 21.75 years, meaning breakeven on that analysis is roughly 83.75 years old. Living beyond that point justifies waiting until age 66 to take retirement. If I change the assumed rate of return to 7% makes the breakeven point go out beyond 62 years, meaning the recipient would have to live to be 124+ to make it work. Feel free to check my math, but based upon this analysis, it would appear that if you assume anything more than a modest rate of return, waiting to age 66 doesn't make sense. I put this out for discussion because conventional wisdom advises people to wait, and for the life of me, I really don't see the benefit, especially when quality of life issues are considered. If the client is working and doesn't mind continuing to work, it's a whole separate discussion, given the benefit limits imposed on working recipients younger than full retirement age. Your thoughts?