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tmeri
Moderator

Joined: 11 Feb 2004
Posts: 250

Posted: Fri Jun 22, 2007 10:41 am Post subject: Re: social security

orion wrote:

They use the 35 highest (inflation-indexed) salary years for the calculation, so if you have 35 years of salary already, additional zeros won't have an effect.

I understand that. But SSA is making assumptions about those 35 years. What assumptions are they making? That's the question that isn't answered clearly by the SSA statement we receive every year. They could be assuming that if I made $0 last year, I'm out of work temporarily rather than permanently, for example. We just don't know what they assume.

orion

Joined: 12 Feb 2007
Posts: 62

Posted: Fri Jun 22, 2007 10:56 am Post subject: Re: social security

Here is a worksheet where you can plug in the assumptions of your choice and see how it all flows.

sgeeeee

Joined: 10 Feb 2004
Posts: 462
Location: Mesa, AZ

Posted: Fri Jun 22, 2007 3:29 pm Post subject: Re: social security

nfs wrote:

SG, since you've studied this, I would like an informed opinion about delaying Social Security payments when it comes to early retirees. . .

This may be a little late since it appears there have already been a number of valuable responses to your question, but I'll add mine anyway.

First, I don't believe in the one-size-fits-all camp when it comes to social security strategies. Some people have significant COLA'd pensions while others have no pensions. Retirement length expectations are very different for people. Some couples have two working spouses who both earned enough for maximum benefits for 35 years while others have contributions from only one worker. Some people have savings only in tax deferred plans while others have significant amounts outside those plans. etc. etc. All these things as well as risk profile will change the optimal solution.

When you get a statement from the social security office, it makes some assumptions that may not apply to you. It assumes things about future contributions you are going to make, for example. If you want to change those assumptions, you can download the benefit calculator from the SS website (www.ssa.gov/planners/calculators.htm), use your most recent SS statement for input data, and run scenarios that make more sense for you. You still won't get the CPI COLA impact on your benefits, but you get a better picture of what to expect.

In general, the benefit is designed so that the cost to the government (value of the benefit to you) will be the same regardless of when you start benefits IF you live the exact length of time that the actuarial tables predict for someone of your age and gender. If you outlive that target death date, you get more by delaying since each day beyond that date you will be receiving a larger benefit than if you took benefits early.

Longevity risk is one of the things retirees need to plan for. If you live a long time, you want to be sure you don't run out of money before you run out of time. The COLA'd benefit of social security automatically increases with inflation for life, so the amount of expenses you have to cover with your investments is your total spending requirements minus what is covered by your initial SS benefit on the day you start benefits. If you die at the targeted date for your age and gender, this is all a wash. But for long livers, the COLA'd benefit reduces the strain of your investment withdrawals. Smile

_________________
-=sgeeeee=-

Cut-Throat

Joined: 21 Jan 2005
Posts: 99

Posted: Fri Jun 22, 2007 6:57 pm Post subject: Re: social security

tmeri wrote:

You can have eat your cake and have it, too, when it comes to SS. Take it early. If you later decide you made the wrong choice, give all the money you've gotten back, and restart at the higher rate.

This makes some sense to me. But I looked at the form for paying it back and it is a 'request' type of form. I wonder if any of these forms are denied? - It almost seems to be an interest free loan. So, if that is the case - why wouldn't you?

intercst
Site Admin

Joined: 09 Feb 2004
Posts: 674

Posted: Fri Jun 22, 2007 9:13 pm Post subject: Re: social security

Cut-Throat wrote:

tmeri wrote:

You can have eat your cake and have it, too, when it comes to SS. Take it early. If you later decide you made the wrong choice, give all the money you've gotten back, and restart at the higher rate.

Cut-Throat,

Could you provide a link to where this was on the SSA.gov website?

I seem to remember an article on this subject 3 or 4 years ago. There must be some kind of "actuarial/time value of money" adjustment to your Social Security benefit when you resume them again at a later date. Otherwise the 'interest free loan' aspect would make this scheme very popular and costly.

intercst

Cut-Throat

Joined: 21 Jan 2005
Posts: 99

Posted: Fri Jun 22, 2007 9:38 pm Post subject: Re: social security

intercst wrote:

Cut-Throat wrote:

tmeri wrote:

You can have eat your cake and have it, too, when it comes to SS. Take it early. If you later decide you made the wrong choice, give all the money you've gotten back, and restart at the higher rate.

Someone posted the form over at Dory's forum this year. It may take me awhile to track it down. But basically it was a request form to pay back your social security (with no interest!) and request to take it at a later date, say age 70. I think the Government still would come out ahead as most folks will probably die before they collect more. So again, they are playing the odds.

Also keep in mind, most folks don't have the money to pay back anyway.

In a sense, the government is selling an annuity.

intercst
Site Admin

Joined: 09 Feb 2004
Posts: 674

Posted: Fri Jun 22, 2007 11:03 pm Post subject: Re: social security

Cut-Throat wrote:

I found it on the Dory's forum.

http://www.ssa.gov/OP_Home/handbook/handbook.15/handbook-1515.html

1515.1 Can you withdraw your application?
Yes. You may withdraw your application if:

You (or a person acting on your behalf) files a written request for withdrawal before we make a decision on your application; and

You are alive at the time the request is filed.

If we approve your request to withdraw an application, the application will be considered as if it was never filed. If we deny your request for withdrawal, the application is treated as if the request for withdrawal was never filed.

Note: There is no right to reconsideration or appeal based on a withdrawn claim. You must file a new application if you later wish to claim benefits.

1515.2 Can you withdraw your application after SSA makes a decision on your claim?
You may withdraw your application after we make a decision on your claim if the conditions in the above section are met and if:

All individuals whose entitlement would be voided by the withdrawal agree, in writing, to the withdrawal; and

The person who requested withdrawal repays any benefits received based upon entitlement on the claim that is voided by the withdrawal.

Even if you withdraw a claim, we keep your application form and all related papers.

</snip>

What I'd like to do is

1) collect SS at age 62, save and invest my benefit checks

2) withdraw my application at age 69 and pay back the 7 yrs of benefits (without interest)

3) then reapply at age 70 and get a 75% higher SS benefit (according to my latest SS statement)

I wonder what the chances are of getting that approved?

Here's another link on the subject from the Andrew Tobias financial column.

http://www.andrewtobias.com/newcolumns/060411.html

intercst

sgeeeee

Joined: 10 Feb 2004
Posts: 462
Location: Mesa, AZ

Posted: Sat Jun 23, 2007 12:09 am Post subject: Re: social security

intercst wrote:

. . . What I'd like to do is

1) collect SS at age 62, save and invest my benefit checks

2) withdraw my application at age 69 and pay back the 7 yrs of benefits (without interest)

3) then reapply at age 70 and get a 75% higher SS benefit (according to my latest SS statement)

. . .

Yes, that sounds like a great idea -- almost too good to be true. I remember seeing the posts about this on Dory's board sometime back.

But why don't I know anyone who has done it? And why haven't I heard more about it from the hundreds of financial columnists who have to come up with a new column 2 or 3 times a week?

I sure would like to learn more about the criteria SS uses to accept or reject your application. Smile

_________________
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intercst
Site Admin

Joined: 09 Feb 2004
Posts: 674

Posted: Sat Jun 23, 2007 12:51 am Post subject: Re: social security

sgeeeee wrote:

intercst wrote:

I've started a new thread. Apparently this is legit, but only works for the wealthy.

http://retireearlyhomepage.com/phpBB2/viewtopic.php?t=2

intercst

tmeri
Moderator

Joined: 11 Feb 2004
Posts: 250

Posted: Sat Jun 23, 2007 3:06 pm Post subject: Re: social security

intercst wrote:

What I'd like to do is

1) collect SS at age 62, save and invest my benefit checks

2) withdraw my application at age 69 and pay back the 7 yrs of benefits (without interest)

3) then reapply at age 70 and get a 75% higher SS benefit (according to my latest SS statement)

I've actually been advocating this option for years in various forums. This is the first time I've ever seen anyone respond with any discussion. I wonder why the sudden interest? Curious.

intercst wrote:

Apparently this is legit, but only works for the wealthy.

intercst

I believe the reason Suze says it only works for the wealthy is that you have to pay back all you've collected. I would think most people capable of early retirement are capable of arranging their funds so that can happen.

Suze doesn't talk in-depth about the tax implications. You may have had to pay taxes on part of the SS you collect on the first round, but you get to take a tax deduction when you repay. As mentioned in the other thread, you pay it back interest-free, so whatever you make on it while you're collecting is your to keep, except for the income tax you pay as you make it. Perhaps a good strategy is to put it in a low-tax scheme (individually held stocks, index funds, etc.), then liquidate it to pay it back. You'll recognize a lot of capital gains on the transaction, but you'll also have a big off-setting deduction. There may be better ways to play the tax game.

intercst
Site Admin

Joined: 09 Feb 2004
Posts: 674

Posted: Sat Jun 23, 2007 3:49 pm Post subject: Re: social security

tmeri wrote:

I've actually been advocating this option for years in various forums. This is the first time I've ever seen anyone respond with any discussion. I wonder why the sudden interest? Curious.

Sometimes it takes a while for good ideas to germinate before others find merit in the plan.

I sent Scott Burns an e-mail with a link to the New Jersey Times article on the "Suze Orman Social Security Scheme". Since Scott advocates delaying Social Security to age 70, I wonder if he sees this as a good alternative.

http://www.nj.com/living/times/community/index.ssf?/base/news-2/1181966903166940.xml&coll=5

intercst

sgeeeee

Joined: 10 Feb 2004
Posts: 462
Location: Mesa, AZ

Posted: Sat Jun 23, 2007 6:26 pm Post subject: Re: social security

I wonder if there is any danger that the government would change the rules between the time that you committed to this strategy at age 62 and the time you capitalized on it at age 66 or 70? :-/ _________________ -=sgeeeee=-

tmeri
Moderator

Joined: 11 Feb 2004
Posts: 250

Posted: Sat Jun 23, 2007 8:32 pm Post subject: Re: social security

sgeeeee wrote:

I wonder if there is any danger that the government would change the rules between the time that you committed to this strategy at age 62 and the time you capitalized on it at age 66 or 70? :-/

There is always that danger. I should think that the legislation could not be enacted so quickly that you couldn't withdraw before it became law, but one never knows. Sometimes things get buried in legislation. Normally, we'd get lots of warnings from people who dig things out. But someone observed that the financial "gurus" don't talk about this particular feature of SS much, so we might not get a warning about this.

There is also the danger that SS will be cut or eliminated. Those that start taking early would be more likely to be grandfathered in, or so the common wisdom goes.

ogrecat

Joined: 06 Feb 2005
Posts: 146
Location: Ohio

Posted: Sat Jun 23, 2007 9:19 pm Post subject: Re: social security

sgeeeee wrote:

I wonder if there is any danger that the government would change the rules between the time that you committed to this strategy at age 62 and the time you capitalized on it at age 66 or 70? :-/

I doubt that all that many people are actually going to start and complete this procedure.

sgeeeee

Joined: 10 Feb 2004
Posts: 462
Location: Mesa, AZ

Posted: Sat Jun 23, 2007 9:47 pm Post subject: Re: social security

ogrecat wrote:

I doubt that all that many people are actually going to start and complete this procedure.

That's a good point. It will probably never be worth the effort for legislators to go after this loop hole -- especially if it remains a relative secret.

Someone should contact Suze and tell her to stop talking about this now that we've figured it out. Smile

_________________
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