Early Retirement maybe the choice, now for most people?

[JamesS369267]

Looking at the current inability of Congress and the disposition of the incoming administration to actually address the SS trust fund depletion in the next 8 to 10 years, does it not make more sense to start taking benefits at 62 (even though they are reduced) versus waiting until FRA and in all likelihood get the essentially the same amount you would of got at 62?

Back of the napkin math, My FRA amount is $3700/m, @ 62 it's 2700/m  or roughly 30% reduction from FRA.  In those 5 years I will have collected $162,000.  Now if Congress doesn't act swiftly (and let's be honest here, they don't seem to have an desire to), the ability to fix the SS funding will have disappeared without some radical change (again this is Congress we are talking about).  So it probably more likely we will cross into the reduced benefits territory.  Once that happens, Congress will just too bad and move on.

So now those who waited until FRA to collect will see their benefits reduced by (depending upon the source between 19% to 25%).  So let's take 21% cut.  That means my FRA benefit would be $2925/m. My reduced benefit would be $2133/m

Now the question is how long would I need to live to collect before FRA benefit would actually exceed me taking social security early?  

Basic math would be 162000/(2925/m - 2133/m) = 17 years before waiting until FRA benefits would exceed me taking it early or when I am 84. 

Maybe I am totally off here, but seems to me like the old wisdom of waiting to FRA with the current reluctance of the Congress to seriously address SS funding that each year the real possibility of benefits cuts are going to happen.

[roachme]

With the WEP/GPO revoked and talk of no taxes on SS benefits, I suspect the SS Trustee Report will decrease the SS Trust being empty date to 2028-2030.  If the benefit decrease happens at or after your FRA, there is an option to suspend your benefit and let the benefit grow back by collecting Delayed Retirement Credits (DRC) at a rate of 2/3 of 1% per month, or 8% per year, to make back up the percentage SSA lowers our benefit when the Trust runs dry.

Just a thought.

[Tonster521]

@roachme I believe the cost for repealing the GPO is currently underestimated. As you know, working spouses in Non-covered Employment (i.e., school districts including teachers, county workers, municipal workers including police and fire,etc.) were not eligible for Spousal and in some cases Survivor SS Benefits because their Non-covered Employment pensions which included an equivalent benefit in lieu of Social Security was substantially greater than any SS Benefit that they may be entitled to. The GPO was enacted in 1977 to stop overpaying Spouses and Survivors bonus SS Benefits on top of their Non-covered Employment pensions which already included an equivalent benefit in lieu of Social Security. FYI, dual working couples in Covered Employment are reduced or offset 100% of their Worker SS Benefit. That is why many dual working couples in Covered Employment do not receive Spousal SS Benefits and Survivor SS Benefits are reduced or not payable. So, many spouses and survivors in Non-covered Employment may not have filed an application for SS Benefits because they knew their government pensions were substantially greater than any SS Benefit. Why file an application if you know the SS Benefit would be zero in most cases. As an example, I reviewed the most recent data from one of my State's Teacher Retirement System and learned that the median amount of pension is over $61,000 per year for over 106,000 participants. That means over 53,000 receive greater than $61,000 and further review indicates that about 67,000 (includes the above 53,000) participants receive over $50,000. If they are married to someone with Worker SS Benefits, they will now receive unreduced bonus SS Benefits on top of their "gold plated" pensions. So, it pays to work in Non-covered Employment; and moreover, not have to pay one penny in FICA taxes. Obviously,this is not a group that is living near the poverty level like many Workers, Spouses and/or Survivors who worked under the SS Program. What has Congress done for those folks of which many are females? Nothing.

With regard to delaying SS Benefits to receive a greater monthly benefit, it takes 12.5 years to recoup 1 year of SS Benefits (100% loss divided by 8% gain = 12.5 years). If you are older, one may not live long enough to recoup the upfront cost of delaying. I would not focus on a monthly amount, but instead look at the total amount that you may receive during your lifetime. An alternative to investing in the SS system which is approximately $20 to $22 Trillion underfunded based on a 75 year funding plan, one may look at investing in a market weighted and/or equal weighted S & P 500 fund. Of course, you need to be aware of market risk. 

[roachme]

My wife is in the retired federal worker category that kept her non-covered federal CSRS plan for retirement.  She never filed for SS because we knew she wouldn't get anything.  Now as a spouse, without GPO applied, she can apply for spousal.  I find it a moral dilemma whether to apply because I believe WEP/GPO were justified laws.  But if she applies, her spousal is worth as much as the average SS beneficiary receives and twice as much if I die first.  She's paid in a total of $3600 in SS taxes in her lifetime and she'd get it all back within 2 months.  She's more than 6 months past her FRA so the application can be backdated to start benefits as of July 2024 and collect a lumpsum payment over $10,000.

The amounts I've seen used in articles as to how much this is going to cost must be low because they mostly talk about the number of people who were receiving diminished SS because of WEP/GPO.  They don't seem to mention the number of people who have never collected.  How could they possibly estimate the number of people, like my wife, who are now entitled but never applied?  There were 1.5 million federal CSRS retired and survivor annuitants in 2022, plus another 11,000 still working in 2024.  If this change gets them $10,000 a year average extra in SS, that is $15 Billion a year, or $150 Billiion over the next 10 years.  And this doesn't include all of the county and state workers that will be eligible.  The estimates in the papers only tout roughly $200 Billion over 10 years.  WEP/GPO needed some tweaks, not a repeal.

[GailL1]

Yea, I think our government has royally screwed up here with the elimination of the GPO - The WEP / GPO did in fact need a tweak NOT a REPEAL.

Get this one - A deceased man was earning a wonderful benefit under the SS system.  He was married to (2) wives during his lifetime - one for 19 years and the other for over 20 years - Neither ever remarried and they were both public school teachers; never worked under the SS system.  Like your wife, and millions of other spouses who saw no need to file for Spousal or Survivors benefits since they were affected by the GPO - neither of these ladies had ever filed for Spousal or Survivors benefits because of the effect of the GPO on any benefit 

BUT NOW THEY CAN - BOTH OF THEM - 

You know I do not know who or what was the source of this WEP/GPO repeal but if we ever figure out the source - especially the REPEAL of the GPO - then “tar and feather” comes to my mind. 

[roachme]

I did a review of a hypothetical situation similar a few weeks ago of a max earner for SS taxes.  The guy married women 10 years younger than himself and divorced each one after 10-11 years all the way until his 60's.  He started his SS at 70 and died at 72.  The original case had 4 ex-survivor wives but I added a 5th current wife at death.  Only 1 wife could collect any spousal before he died and for only 1 year.  The others turned 62 within a year after he died.  All five started survivor benefits at age 60-63 at the same time.  Between their starting date and death at 84, the 5 women collected $4-$6 Million in survivor benefits combined on this one earnings record and using a 2.4% annual SS COLA.  The max SS taxes he and his employers could have paid was in the $450,000 range over 50 years of working at the max income.  Talk about making out like a bandit!

[sgm55]

I never gave it a second thought: I started collecting my SS at 62. Putting pencil to paper, it was a very easy decision to make. It's so obvious that the government is gambling on you dying before you ever collect what you have coming to you. I invested my payments, and turned them into more than I'd gain by waiting to collect at my FRA. I encourage everyone to do the same, but you have to do you. What you're most comfortable with, is the way you should go. An irony, to be sure: For my wise investing, I now get hit paying taxes on about 85% of what I collect in SS. Yeah, I know, that certainly changes the picture a bit, but I've been very happy working with the company I started, when I want to, and doing other things when I want to. No regrets. Growing old is crap, but it beats the alternative, for now. 

[Tonster521]

@JamesS369267 Your approach makes sense if you have stopped working or continue working with earnings below the current threshold ($23,400) as Gail1 indicated. Many folks just look at the monthly SS Benefit and do not consider life expectancy and total or accumulated SS Benefits paid over a life expectancy. The SSA advises that the monthly amounts of SS Benefit are actuarially the same (or close to) based on Average Life Expectancy and a discount rate of approximately 3%. So, it does not matter when you begin SS Benefits as long as you have 35 years of Covered Earnings and meet age requirements. Disability requirements are separate. Average Life Expectancy based on gender neutral statistics is between ages 83 and 84. I am providing a link to the SSA 's Actuarial Life Table which may be a tool for helping you elect an appropriate date for your situation. https://www.ssa.gov/oact/STATS/table4c6.html Looking at the data for males indicates that approx. 50% of males are deceased by age 78, approx. 65% by age 83, approx. 68% by age 84, and approx. 85% by age 90. Females who have longer life expectancy increase the gender neutral stats to the 83 to 84 age . That is a paper statistic and does not mean males will live longer. So, if health is an issue, delaying SS Benefits may not be a good decision.

I agree with your simple math accounting for the $162,000. Based on a $1,000 per month difference between age 62 and age 67, it would take you 162 months at an additional $1,000 per month to recoup $162,000 at a 0% discount rate. That is 13.5 years or age 80.5. I used 0% to illustrate simply putting $2,700 per month (the SS Benefit money) in a no interest checking account or the proverbial "stuff the money in a mattress"..If you save or invest that money for the 5 year period, there will be a greater amount to recoup. At any rate, when you compare the present value of FRA Benefit (age 67) $44,400 at 3% for 17 years or $584,575 versus the reduced Benefit $32,400 for 17 years or $426,581, it is clear that  the FRA has a greater present value for 17 years to age 84. However, you need to add the $162,000 or, at least its present value ($148,382) to the present value of the reduced Benefit ($426,581) and you have $588,581 or $574,963 which is close to equivalent benefits. If you believe you will live longer than age 84, there is an advantage to start SS Benefits at FRA. I believe any reduction (17% to 20% or more) that may occur around 2033 will affect everyone above the poverty level equally. I think that will be called linear. Lastly, I believe a short term solution will be developed when it becomes "mission critical". That is what happened in 1983. 

[JamesS369267]

@Tonster521,

1983 was a different time and bipartisanship was at least possible.  Even then that compromise was very difficult for Tip O'Neill to get done.  Bipartisanship died in 2010, Congress has had 20 plus years to fix this issue.  I think most rational individuals understand we have reach a point that if this is not fix in the next year or two, it's will be too late to fix it without some serious changes to either benefits, retirement age or privatization. 

I think we all know what needs to be done, the question is 'Do our political leaders have the will do make the tough decisions.' 

[Tonster521]

@JamesS369267 As you may not know, the SS Trust was estimated to be depleted by August 1983. That means zero ($0.00) which would have ended the SS Program. You may not recall that the 1981-1982 Recession was devastating with double digit unemployment. That reduced FICA revenue significantly which was declining from the 1970's.In December 1981 President Reagan established a bipartisan National Commission on Social Security Reform (aka Greenspan Commission). The National Commission consulted with actuaries, economists, and other experts to develop recommendations to save the SS Program. I am providing a link for that history  https://www.ssa.gov/history/reports/gspan.html The recommendations became the basis for the 1983 Amendments to the SS Program. Although the mission was to create a 75 year Plan, it was estimated that about 66.7% of the 75 year funding was complete. The remaining 33.3% was to be addressed by implementing additional benefit cuts and raising the FICA tax rate (OASDI) from 6.2% to approximately 6.7% for both employee and employer beginning in 2010. As you know that increase did not happen Raising FICA taxes is the proverbial "third rail" that many politician fear. .

[GailL1]

@JamesS369267 

IMO, I think you are forgetting a couple of big factors in your math.

1.  The benefit that is shown at your FRA is an estimate that includes the earnings that you would continue to make between age 62 or earliest date that you can take the Retirement benefit and your FRA.

2.  With that in mind, there is a penalty assessed if you take early retirement or retire at 62 or any age that is less than FRA - what I am talking about here is the earning limit.  Like in 2025, if you are less than FRA and are getting your Retirement benefit, if you earn more than $ 23,400, your retirement benefit is reduced.

So you really have to put the choice of receiving retirement benefits in the context of whether or not you are going to continue to work or you may end up on the wrong end of a short stick.

SSA.gov Receiving Benefits While Working  

IOW, it is not a clear either / or situation.  

As to any fix to the system that our legislators may get to - right now they are doing more damage to the program than anything else - they are adding back benefits that are going to cost the system even more.  And it seems many in the public think that everybody else can pay in even more than themselves.

[JamesS369267]

Gail,

I kept is simple. But looking at the facts on the ground, it's highly likely that Congress will not fix the SS funding problem.  There is simply no desire to compromise on how to fix it.  So either I take SS early getting my full reduced benefits or take the chance and wait to FRA, with the high chance of getting a haircut on those benefits so that are within just a few hundred dollars of what my reduced benefits were from age 62 to 67.

[GailL1]

@JamesS369267   Of course, that choice is yours to make.  Will there be a fix to the system????  I believe there will be but  probably at the very last minute.  

Proposals continue to be made, although many of them are adding benefits before any proposal to add more income in various ways.

Here they are - decide which ones you might like.

SSA.gov - Proposals to Change Social Security

[JamesS369267]

@GailL1,

Wish I had your optimism.  I honestly don't see how it gets fixed. Congress is distracted by every new shiny tweet from the incoming administration.  At some point it will not be fixable.  Some of the proposed changes floated by the majority party are going to make the idea of waiting until FRA economically suicide. 

[GailL1]

Any change has to be passed by legislation and there is still enough in the (2) sides to make this difficult and we still elect them as the method of their employment.  

Everybody just looks after themselves when it comes to Medicare and Social Security - so do what you think is necessary.

You could always retire and keep the 1st year of benefits in an account so that if you change your mind at close to the end of this period, you can pull your application, pay it all back and be none the worse.

This is called a Social Security WITHDRAWAL.  Benefits do not start again until the ones you got are paid back and I think, it has to be done all of once, not in installments.

You only get ONE Withdrawal.  And 12 months is the limit.

SSA.gov - Withdrawing Your Social Security Retirement Application 

Many beneficiaries already file early for their Retirement benefits - maybe this is a  thought out plan - get more people to retire early - that and in of itself will save the Trust Fund money - by about 30% - the difference in filing early and at FRA.