This is a revision of post #15 on Social Security (SS) from early May last year. So much has changed since then which impacts the financial world: Russia invading Ukraine, inflation at levels we haven’t seen in 40 years, interest rates being pushed up to address this inflation, price of oil peaking at > $120/barrel before drawing back below $100. And those are just the headlines.
If you’re in your sixties, you’ve probably spent time thinking about when to tap into SS, whether to start as soon as you’re age eligible (62), or when you reach “full retirement age”, or wait until you can maximize that monthly SS paycheck at 70. Or maybe consider somewhere else between 62 and 70. There are valid arguments for any of those options, depending on you and your spouse’s situation. And you have more options if your spouse has SS eligibility. Would love to hear your opinions. If you’ve read this blog’s comments, you’ve heard at least one family’s decision- having the extra $$$ earlier means being able to do some of the things (such as travel) at a younger age, when you’re able to better enjoy those experiences.
If you haven’t read up on SS options:
- “Full Retirement Age” is somewhere between 65 – 67 for those of us born in the 1950’s, or later.
- If you decide to activate SS monetary benefits at the earliest age (62), the monthly total will be around 20% less than Full Retirement Age benefits.
- If you don’t activate SS benefits at age 62, the monetary value per month goes up approximately 8% per year. That means if you wait until age 70, the value goes up about 20% above what would be received at Full Retirement Age (does not go up further beyond 70).
- There are other factors involved, like if you decide to collect SS while still working. For more information on SS benefits, check out their government website: https://www.ssa.gov/
Five years ago I was in a DoD course with about 60 attendees, and I was clearly the oldest person present. During one of the open discussions, an attendee made an interesting comment: “It doesn’t really matter (what happens to SS)….because we’re not going to see any of those Social Security contributions we’re making anyway.” I had to comment (knowing full well most of the audience probably didn’t care). I told the audience I remember several of my peers- myself included- saying the exact same thing when we were much younger, and yet here I am having just turned 67, eligible for full SS benefits, and the checks are going to start coming pretty soon. At least it made me feel better saying that to the crowd.
So I’m thinking most of you have done the retirement cash flow computations while considering multiple SS execution options, and some of you have tried to figure out how old you had to be before the “70 year old” option caught up- in terms of total SS money received- with the “62 year old” or “full retirement age” options. Think my crossover age where the 70-year-old option caught up to the 62-year-old option was 78 (just coincidence to my USNA classmates!). If I lived past 78, I would accumulate more from SS by waiting for the 70-year-old option, FWIW. That’s just one consideration.
One argument for choosing the earliest option is to give oneself the best cash flow earlier in the retirement years when you’re able to enjoy it most. Tough to argue that point. What’s our health going to allow us (self and spouse) to do as we pass 70 and head towards 80? And beyond? There’s also the tax factor as we consider other inputs to our retirement cash flow.
Another argument for choosing a “later” option is that for many, activating SS is the only way to afford retiring- and they don’t want to wait until reaching 70 in order to retire.
So what’s going to happen to SS benefits for the next 10-30 years? If you google that question you’ll get a full spread of answers, including at least one article that says SS benefits will run out before 2030. That’s simply not true. Pick your resource carefully- when you read that the SS Trust Fund “runs out in 20XX”, that does not mean SS goes away. Also, any reference that states, “Seniors who are on a fixed income (when that income includes SS)….” is simply misleading. SS has a cost-of-living factor considered each year which was quite generous in 2021 and will be even more generous in 2022 (though not likely to fully cover current inflation rates). One reference that looks into several future population factors and is worth reading is this:
So what is this household doing? My going-into-retirement position was to hold off on starting our SS benefits until I reached 70. We are now reviewing that position given the negative cash flow this first year of retirement.
An additional note, unrelated to Social Security. Netflix recently put out a documentary titled “Get Smart With Money”. It covers financial challenges for singles and families of younger generations. While the fundamentals of successful financial management haven’t changed from older generations (Spend less money than you make), this document provides great insight into those generations (your children and grandchildren) and their approach to financial management. It also references the “Financial Independence, Retire Early” (FIRE) Movement going on within these generations. See Post #45.