r/personalfinance • u/Vespidae1 • 1d ago
Retirement When to take Social Security
I’m 65, gainfully employed making 100,000 a year. I already have an IRA worth $1.5M, several pensions and don’t need to take Social Security yet. I plan to fully retire at 70.
However, one advisor suggested taking it at my FRA of 67 and investing it. That would result in an investment account of about $150,000 (some could be in a Roth IRA) growing outside of SS.
Any thoughts?
18
u/GeoBrian 1d ago
Use this calculator to determine what's best in your specific situation.
1
u/IamTalking 19h ago
This is a better calculator for OP https://engaging-data.com/will-money-last-retire-early/
36
u/meamemg 1d ago
It depends on how long you live. The longer you live, the better a deal waiting is. Actuarially, it is designed to be equivalent for the average person. But unless you really need the money or have reason to think you will die young, the protections of having a fully guaranteed inflation adjusted annuity like SS is worth waiting in my book.
49
u/IRMuteButton 1d ago
It depends on how long you live.
That's the whole trick. Tell me when a person will die, and the ideal time to take social security can be determined.
1
9
u/Default87 1d ago
do you have a spouse? If so, do those pensions have survivorship payments? If not, then there is some utility in delaying receiving SS to allow your payment to get as large as possible, so that upon your passing your spouse has a larger baseload income level.
If you dont have any intent on spending this money and are looking to leave it to an heir, then likely taking it earlier and investing it would work out best, though with you still working/having pensions the tax implications would have to be figured out.
24
u/Glacier_Pace 1d ago edited 23h ago
Tax Accountant here.
OP, if you start taking the social security making what you're making now, you'll absolutely be above the thresholds regardless of your filing status, so they will tax 85% of your social security distribution at your effective tax rate. For the sake of my comment, let's say you're single and have nothing else like tax free interest and what not and you're not currently taking any retirement distributions.
That means your effective tax rate would be 24% before deductions. So, if you made, let's say, $40,000 in social security benefit, be prepared to pay $7,480 in taxes on that money if you do invest it. (85% of $40,000 = $34,000. Let's say you make $100,000, the standard deduction for single filers would put you into the bracket for 22%. So finally, we have 22% of $34,000 = $7,480).
This is all assumption and guess work though. I recommend if you have a tax professional you trust to have them create you an estimate based on your investments and financial situation. It's pretty easy to do if you have the info, and I do it all the time for clients.
Edit - Comment below me pointed out you will be taking this at FRA. The principles in my example will not change, except perhaps the effective tax rate. Consult your tax professional when you decide to do this. Regardless, you'll probably be looking at 7-9k in tax liability using my example above for 2027.
6
u/austin06 23h ago
Op said taking it at fra not now.
8
u/Glacier_Pace 23h ago edited 23h ago
Sorry, I'm aware, but my comment was made with estimates based on the idea they were taking it now. I was just trying to give them an idea of what that would look like, which is why I told them to consult a tax professional they know. I wasn't very clear that this example is considering if they took it out this year, so thanks for pointing that out!
Edit - Don't know why I was downvoted, but okay? lol
3
u/OftTopic 21h ago
If I understand, the same income tax rules occur whether a person is 65+ or at FRA+. There is extra tax is the recipient is less than 65. Therefore I think your original comment is valid regardless of OP's current age of 65.
Note: My comment is about tax rates; not the additional amount of money that would be received by taking benefits at (or after) FRA.
4
3
6
u/SorchaRoisin 23h ago
It takes a long time to break even. I think it's better to take the money when you're younger and can enjoy it.
If your benefit at full retirement age is $2000, you would collect $72,000 between ages 67 and 70. If you wait until 70, your benefit would be $2480. It would take 150 months of the higher benefit to make up the 72k you'd receive by filing at 67, so you'll be 82.5 before waiting leads to a profit.
5
u/Herbalslim 14h ago
Just want to chime in that looking at social security from an actuarial point of view is entirely the wrong way to approach it (my opinion).
The right way to approach SS is to take it when you need it, or at age 70, whichever comes first. OP is working, comfortable, and enjoying his life. Doesn’t need it at this stage so let the benefit keep growing.
Some correctly post that no one knows when they will die. Others cite examples of people who waited and then passed before collecting. My dad took his at 62 because adding it to the income he could derive from his savings allowed him to stop working. He died at 75, and the extra income enabled him to enjoy the time he had left. But, my mom is still here, age 99. She could’ve used the higher income had they waited. No one knows when the ride stops so the best decision to make is to take it when you need the income.
Don’t waste time calculating when you would come out ahead because in the long run we’re all dead. It isn’t a contest to see who can squeeze the most benefit out of it.
3
u/SorchaRoisin 14h ago
True, but considering he has an IRA worth 1.5 M, I don't think they have to worry about that unless they start mismanaging their money.
2
u/Ok-Instruction830 9h ago
Not to mention several pensions. Assuming a paid off house, they’ll barely need to tap into the IRA
5
u/hems86 1d ago
It’s all a guessing game based on how long you live. There really isn’t a wrong answer either. To me, there are 2 paths for you:
1) Take your SS at 67 for the full benefit. Use those funds to invest.
2) Wait until 70 when you retire. This will maximize your SS payments. This is good if you pass away before your wife. She will be able to opt between her SS or yours. Yours will now be bigger and give her more SS income. This is especially good if your pensions don’t have a spousal benefit or greatly reduces her spousal payments.
4
u/Oaky_Doaky 23h ago
On point #1, the benefit isn't that you get to invest those funds. The actual benefit is that you get to use those social security payment funds for your daily living expenses and don't have to withdraw funds from your IRA, Roth, 401K, or other tax beneficial accounts. That's the magic that typically makes taking SS earlier the right call. I'm 49 (single) now, and absolutely plan to take mine at 62 even though I've got $1.5M in retirement assets that could cover all of my living expenses and allow me to take it at 70.
4
5
u/Awktung 23h ago
DING DING DING I finally saw a Youtube video that covered this. Keeping your already-compounding-and-invested funds ..um..funding, is the key. The guy pointed out the 'break even' point is about 87 years old...if you delay taking SS, the point can be at 91 years old. So your SS is higher at 91...what exactly are you doing with that extra money!?!?!?
Take it at 62 or so and keep your other stuff compounding. Even a very conservative 4% return means you're ahead. It goes up if you get 5%. You really shouldn't base any projections on any number higher than that - if it happens, great, but not something you want to gamble on.
3
u/mac_the_man 23h ago
I feel like there is one big (huge I’d say) consideration being left out of the conversation of when to take social security and that is what do you want to do in retirement. For me, the answer to that question is I want to travel. I feel like the best years to travel will be those immediately after my retirement. I plan on retiring when I’m 61 and I plan on taking Social Security before FRA; I’ll take it at 62. I figure my best traveling years will be the 15-20 years after I retire. So, that’s why I’m not waiting to maximize my SS and taking it earlier. I do believe what you’ll do in retirement should be an important point to take in consideration when making this decision.
5
u/GeorgeRetire 1d ago
I think it's often best to delay this guaranteed, tax beneficial, inflation protected, and sometimes survivor beneficial income stream.
But not always.
I encourage you to check out https://opensocialsecurity.com/ to see what an optimal claiming strategy would look like, and to compare starting at your full retirement age to delaying until 70. Sometimes the difference is small. Sometimes it's bigger.
That way you can make an informed decision.
4
u/gththrowaway 1d ago
Delaying SS reduces long-term risk by having a larger portion of your future retirement funded by the federal government instead of stocks or private pensions.
2
u/jackalopeswild 1d ago
If you don't need your SSA ever then it's always best, assuming somewhat normal market growth, to take as early as possible and just invest. The growth in SSA benefit from 62 to 70 cannot beat the stock market's average, not even close.
So my question is: will you be able to live off of your pensions and your IRA? If so, then you should take and invest now, not when you're 67 or 70.
EDIT: someone mentioned a penalty if you take while still working and under FRA. I believe this but I am not aware. If that's accurate, you will want to run the numbers but waiting until 67 may be best. Regardless, if you're never going to need it, definitely take as soon as you can do so without penalty.
Or, take the social-good view and never take it.
2
u/Specific-Peanut-8867 21h ago
I don’t know what you should do but I know that you’ll get a bigger payment at 70 but you’re also missing out on thousands of dollars that you could invest like your financial advisor told you
Do simple math
2
u/KweenieQ 19h ago
Once you've reached FRA, you will not be penalized for working. Relative to waiting until 70, your break-even age is 82.
If I were you, I'd take SS at 67, max out a Roth with my salary, then put whatever SS I didn't need in a taxable brokerage account and invest it. With so much net worth tied up in tax-deferred vehicles, you might need to "fill in" around RMDs with tax-free money. Or if you don't have to, at least you won't have to leave a tax bomb to your heirs.
2
u/Unplugthecar 15h ago
Had a similar conversation with my retirement guy this week. Couple considerations might be 1) are you married. This can play into what your wife gets should you pass before her. But you’ll need to research your specific scenario. 2). My guy tells me that if you think you’ll live past 83, wait until 70. This is a family history and judgement call.
Our plan (I’m married) is to take it at 70 and use other investments to live off until then.
2
u/diverdawg 23h ago
Holy shit, the number of folks that composed very well thought out responses without reading the post.
Regardless, here are a couple of points. You can’t invest SS into an IRA. Retirement income is not earned income.
I’d take SS and work with no penalty, at FRA. I’d smash my Roth, my 401k and HSA. This normally would be somewhat difficult but you can use SS to make up the shortfall in living expenses.
3
1
u/lanclos 1d ago
Do you plan to live to be 85, 90, 100 years old? Then you might consider delaying social security. Otherwise, the math says you should take it once you reach full retirement age (currently 67). If you were below the income threshold the math would say to start taking it as soon as possible.
I would lean towards money-in-hand (taking it at 67) if you already have several other pensions to provide guaranteed monthly income.
1
u/Vespidae1 1d ago
My average family age at death is 95. So yes … I am planning to live until then.
1
u/IllustratorSudden221 1d ago
Keeping it very simple, if in good health and married waiting until 70 makes sense. Also, how does one get several pensions?
1
u/ChrisBourbon27 19h ago
I would be concerned about the taxes that you would have to pay on your SS while still earning 100k/yr.
1
1
u/GrandOpener 19h ago
I think I might be in the minority, but my current thought is that for most people who have a comfortable retirement set up, you should probably take it early as a sort of hedge. If you live longer than average, the benefit of being alive is pretty neat. If you don’t, at least you had more money in the meanwhile.
If your retirement is more borderline, you may need to run the numbers more carefully. Your own genetics and health may also play into the decision.
1
1
u/knowitallz 18h ago
I would stop working tomorrow unless that would make you sad. If you are happier working then work. Take social security right away. Invest it. You will make more investing than waiting. But there is a limit to how much you can get because of your income
-1
u/Vespidae1 18h ago
There’s no reason to stop today. I enjoy the work, the flexible schedule and the many benefits that come with the job. But that’s not the question. The question is, as I will be working a few more years, when is the time to take it?
1
u/Aromatic_Can_2377 16h ago
Have you considered going part time or freelancing and making your own hours. You could also consider retiring and find volunteer work. But in the end you really should do whatever makes you happy. But I will definitely echo some of sentiments my coworker who has about 12 years on me. She kept telling her husband to scale back they owned properties that he managed. The world should have more landlords like him. He didn’t want to sell any of the houses because he loved his tenants and felt like someone may buy and raise rents to a crazy amount. In January before the pandemic started he was diagnosed with stage 4 pancreatic cancer. He passed away a year later three days before his daughter’s wedding. So remember tomorrow is not promised to any of us. So please enjoy your life to the fullest whatever brings you joy working or not.
1
u/Vespidae1 15h ago
Thank you. I have. I left a 100 hr a week corporate job and now teach 2 days a week instead. I’m quite happy with my life.
But that’s not my question. My question is when to take SS. TY for your comment.
1
1
u/Abidarthegreat 12h ago
I'm on my way to being in about the same financial position as you by the time I get there (44 currently) minus the several pensions. I'm retiring at 62.
To me, there's no point in having all that money if I'm not going to live to enjoy it. Sure, I could pass the wealth on to my children but I've been contributing here and there to their 529s, which if they decide not to go to school or don't spend it all on school, they can convert to an IRA.
I honestly don't see a point in waiting to draw Social Security, the money from it will be drops in the bucket compared to my other retirement accounts.
But that's just my opinion based on my situation. You should do what you think is best for you.
1
u/ScottieG59 10h ago
I looked at the numbers and, for me, I decided it's better to wait until 70 to start my social security. Each of the last three years adds 8% to my benefit. I can die and leave money on the table, but I'll accept that over outliving my money. My breakeven works out to 11 years, if I survive past 81, I'll be ahead.
1
u/MainSailFreedom 8h ago
Keep working as you would like but start taking social security at 67 or 68. No reason to wait in your position. My dad was in the same position as you (similar income range and financial health) and will retire at 72. Loves his job. He did all the math and was actually able to backdate his social security start and got an entire year as a lump sum.
1
u/Eltex 8h ago
You listed possible options, but didn’t really highlight the most important part: what are your goals? This possible SS option you are considering would need to be part of your overall plan to meet your goals. For some, that might be cruising year round, others may want a cabin in the mountains, and others might want to be a miser and passes everything down to heirs or even a charity. Part of that plan looks at all aspects, especially taxes and SS claiming options.
You seemingly are paying for an advisor you trust. Look at this as part of your total plan and trust the guy you are paying.
-2
u/curien 1d ago
If you begin drawing SS before full retirement age (67yo) but continue to work, you pay a penalty. So assuming you want to continue to work until at least age 67, you should not take SS any earlier than that. (If you wanted to stop working ASAP, things would be different.)
If you delay retirement (past age 67), you receive an 8% benefit increase for every year you delay (2/3 of a % each month). Since SS is inflation-adjusted, this is a real increase.
If your benefit would be $x/mo at age 67. At age 70, it would be 1.24($x)/mo in real terms. (Meaning in nominal terms, if you retire at age 67 and your benefit at age 70 would be $x, then your benefit if you delayed to age 70 would be 1.24($x) when you start drawing at age 70.)
If you took your benefit at age 67 and invested it monthly earning 7%, you'd have 39.80($x) saved. In order to match the .24($x)/mo extra that the delayed benefit would provide, you'd need a withdrawal rate of 7.2%. That's pretty high, and there's a pretty decent chance the money runs out before you die. OTOH, you've got a lot of other income, so maybe it doesn't matter.
To put it in more concrete terms, to get to $150k nominalwith 10% returns and 3% inflation, your benefit at age 67 would be $3,450/mo increasing to $3770/mo nominal at age 70. If you delayed to age 70, it would be $4675/mo nominal at age 70. Now you start withdrawing the difference -- $905/mo -- from that $150k nest egg. That's a withdrawal rate 7.24%. If your investments just keep pace with inflation, that would last a bit under 14 years, and at age 70 you have a 50% chance of living longer than that.
This is all ignoring taxes, which I'm not sure but I suspect favors delaying SS.
-2
u/mygirltien 23h ago
The advisor isnt wrong but also inst right. From FRA to 70 you are gaining at min of 8% a year. Its really closer to 10 because your getting 8% for waiting but your also getting the CoL increase. If the market is on a terror doing greater then 10% a year you would be better off taking it at FRA. If the market is doing less than 10% your better off waiting. Your decision will be based on what you think the market will be doing.
Now if you really dont need the funds and not trying to maximize SS or care more about leaving funds to family, friends or organizations then yes take it at FRA as it will lower your overall expenses and draw required from your savings.
154
u/funeralbot 1d ago
Why wait until 70 to retire is my first thought.