Should you claim Social Security early to maximize the amount of time you receive benefits? Or should you delay taking it for as long as possible to maximize the amount of money you receive each month?
This is a financial decision that everyone will have to make in their life. It helps to have the numbers to back up all of the different choices.
In this week’s podcast, Tom, Tim and Casey discuss the pro’s and con’s of claiming early vs. delaying until age 70.
Give it a listen to help make your decision easier.
Show Notes
Should You Delay Taking Social Security Benefits – John Rekenthaler – Morningstar
Social Security For Beginners – John Rekenthaler – Morningstar
Better to Take a Lump Sum or Monthly Pension? – Mullooly Asset Podcast
When is the BEST Time to Claim Social Security? – Mullooly Asset Podcast
Casey Mullooly:
Hello and welcome back to the Mullooly Asset Podcast. I’m your host, Casey Mullooly, back with you for episode 456. We’ve got Tom and Tim this week and we’re going to talk about social security. It’s a topic that everyone’s going to have to address at one point or another in their life and we’re going to talk about when the best time to address that and when the air quotes best time to take social security is.
Tom Mullooly:
Here’s the best news In a few weeks, I’m going to be 61. You know what that means One year closer, one year closer, alright. So at age 62, what do you think? Should I do it? Should I pull the trigger? It depends.
Tim Mullooly:
It does. It really does depend. The equation for figuring out when you want to take social security is like a certain percentage personal situation and a certain percentage number crunching, and everyone’s going to be a little bit different on how much they rely on each. Some people are 99% personal opinion or personal beliefs and 1% number crunching and other people are strictly by the numbers. It really does depend for everyone.
Casey Mullooly:
So let’s talk about the numbers, because that is you know, those numbers don’t change. So just to refresh our listeners memory, you are able to claim social security starting at age 62. You’d be claiming it early and you would only receive 70% of your earned benefit. If your monthly benefit is going to be $1,000, you would only get $700.
Tom Mullooly:
Forever, Forever.
Casey Mullooly:
If you wait to claim until 67, which is your full retirement age that’s an important term when we’re talking about social security is full retirement age you would receive 100% of your benefit, so you would receive $1,000 a month forever. If you wait until age 70, you would receive 124% of your full benefit, so you would receive $1,240 per month for the rest of your life.
Tom Mullooly:
So 124% by waiting three years is where people get this 8% compounded number from. If you can just hang out for three more years, you’re going to make 8% on your money without any stock market risk.
Casey Mullooly:
I think if you asked someone if they would take those returns from their investments, they would say yes in a heartbeat. We hear it all the time people that want a smooth 8% a year. Are you kidding me? Of course you’re going to take that. You have the opportunity to do that. Everyone has the opportunity to do that. It just means putting off getting the money until that age 70.
Tom Mullooly:
I don’t think there’s any hiding the fact that if you’re going to be getting, say, $2,000 or $2,500 or $3,000 a month, man, that helps every single month. So it is very appealing at age 61, 62 to be saying, oh man, $2,500 a month, $30,000 a year, that could actually help. I might be able to retire and not work so much because I hate my job. Giving people to hang out for three more years between age 67 and 70, it’s like are you kidding me?
Three more years? Yeah, I don’t want to do this. It doesn’t mean that you have to work from 67 to 70. You could pull from other places. You could pull from savings, you could pull from your retirement accounts, you could do other things to help bridge the gap. But it’s figuring out the best math for you and figuring out where you would pull the money from on a monthly basis until you get to the point that works best for you.
Tim Mullooly:
If you’re doing a retirement projection of where, if you don’t want to work anymore, in that situation where you hate your job and you’ve turned 62, and that money kicking in at 62 from Social Security could really help, you need to look at the short term versus the long term, because you’re locking in that amount for the rest of your life.
If you quit your job at 62 and then just say I’ll just start taking Social Security, it could help your numbers in the short term, but it could end up hurting it in terms of sustainability what we talk about with people with their retirement plans all the time. So, yeah, these first couple of years might look good then, but you’re doing yourself with disservice 10, 15, 20, 25 years down the road. It’s a decision that you might end up regretting if you haven’t thought the numbers all the way through.
Casey Mullooly:
It was a question of when. To claim would be a lot easier if we knew how long we were going to live for, but we don’t have that piece of information.
Tim Mullooly:
I will say, though some people feel like they do have that piece of information.
Tom Mullooly:
This is the Mickey Mantle theory.
Tim Mullooly:
Yeah, and that’s what I was talking about before with, like the personal beliefs about either how long they’re going to live or social security in general. To your point, I feel like some people do feel like they have an idea of how long they’re going to live even though we don’t.
Casey Mullooly:
Yeah, you know, based on family history or underlying conditions going into retirement or personal anecdotes, it always seems to be on the you know I’m going to live for not that long side. Nobody thinks they’re going to live to over 100.
Tom Mullooly:
There was a video on YouTube this morning of a woman on the parallel bars doing gymnastics tricks and flips and turns 107 years old.
Casey Mullooly:
There’s a new Netflix special about people that have lived to over 100.
Tim Mullooly:
I am going to be one of them. See, I definitely agree that. I would say 95% of the people that have some sort of opinion on how long they’re going to live tell us like well, my mom died at 55 and my dad died at 56 and my uncle died at 57. It reminds me of that scene in my cousin, Vinny. He was like my father was a mechanic, His father was a mechanic. My brother yeah, so it’s like okay, just because everyone in your family or a handful of people you know passed away early doesn’t necessarily mean that that’s going to happen to you as well.
Tom Mullooly:
That’s what I was meaning when I said the Mickey Mantle theory. So he just drunk himself to death, sadly, because he believed that he wasn’t going to make it to 50. Right, sometimes they self-fulfill in profit, Exactly yeah.
Casey Mullooly:
So life expectancies if you’re 62 years old and a male, your median life expectancy is 81 years, that’s median, not average, right. Meaning 50% of people will live past 81 years old. If you’re female, it goes up to 84 years old. So we’re going to be referencing an article that John Reckenthaler did. He writes at Morningstar.
They do great stuff over there. So he broke down how to answer the question of when is the best time to claim social security. He broke it down in two ways. He looked at break-even analysis and present value analysis. So we’re going to talk about break-even analysis first and, Tim, this is kind of what you were getting at before.
He looked at basically, which strategy gives you the most money by that median death date. So he did it for males. So he looked at which strategy of you know. He looked at claiming at 62, 67, and claiming at 70. Which one of those gives you the most amount of money by age 81? And claiming at 62, no surprise, leads until around age 77. And then it’s actually overtaken by claiming at age 67.
Tom Mullooly:
You want to just kind of walk through that, like how that works.
Casey Mullooly:
Yeah, I mean it’s no surprise that claiming at 62, because you have five more years of receiving the monthly income than you do at claiming at 67, and seven more years than you do, or eight more years than you do at claiming at age 70. So it’s no surprise to see that lead until you get into the back half of your 70s. So, tim, like your point, it looks better in your early mid-60s, even in your late 60s, but then the further along you go, the worse claiming at age 62 looks.
Tim Mullooly:
So if you’re thinking about it as like a game, it’s not. But if it’s a game and you claim at 62 and then you die at 76, you won the game compared to if you were to have waited until 67. Yeah, but you got the most amount of money.
But you’re dead, but you’re dead exactly. So yeah, I mean, and if you live past 77, into your 80s, then you’re costing yourself money because you claimed at 62 because there’s more money to be had with the higher amount at waiting until full retirement age. So, again, not a game. But that’s essentially like winning or losing. The game is the break even analysis, if you want to think about it that way.
Tom Mullooly:
I can’t underscore how important understanding what you just said is for our clients. You have done Tim. You have done dozens and dozens and dozens of these scenarios for clients, and math wise, everything works out great, until you find someone who comes in and says I just got aged out of my job and I was planning on taking Social Security at 70.
I’m 61. I might actually need this money, yeah, and so I think working with a planner like yourself is very important to say okay, maybe we pull this lever instead of that lever, instead of making a permanent decision like, okay, I’m going to start Social Security now.
Tim Mullooly:
Yeah, the need for the money kind of in a lot of cases, outweighs some of these more mathematical decisions that we’re discussing here. For some people we’re doing planning work for them and the plan just doesn’t work if they don’t turn Social Security on a little earlier than they were anticipating.
And it’s our job to just give them that information and then it’s ultimately up to them to decide what they want to do. But it’s our job to crunch these numbers and give them the mathematical outcomes or decisions that they have to make.
Casey Mullooly:
I was thinking to myself just now if only there was a way that we could get people to focus less on the short term and more on the long term, because that’s really what this decision is boiling down to, and I think that that’s we found with investing everyone is focused on what’s happened in the last six months. So I think when we’re making retirement plans, if someone gets aged out of a job, they’re going to be probably pissed off. They’re probably pissed off and they’re maybe a little panicky too.
Tim Mullooly:
worried, right worried about where, where next month’s paycheck is going to come from they’re going to wait that far more immediate money to help them out, to bridge a gap or to figure out what’s going on, versus ooh. That decision I made 30 years ago, when I lost my job, is now coming back to bite me.
Tom Mullooly:
Think about the people who are getting aged out. People say ageism and age discrimination doesn’t exist. We see it every day of the week. People are in here telling us how they got phased out of a job, probably because they’re 59, 60, 61 years old. These are people who started working in 1983 and now suddenly in 2023 oh well, we have a nice severance package for you. Wow, that really changes the landscape. They didn’t plan on this happening.
Tim Mullooly:
I will also say that we we’ve seen that and we’ve also seen people that come to us and say I didn’t like my job so I just left, and then we plan after the fact. You know and the looking through their numbers, it’s like the the best conclusion would have been don’t quit your job.
So there’s both sides of that too, but it’s just, yeah, the the short term panic sometimes sets in for people when they’re making these decisions and sometimes, like, based on what kind of assets they have, like that actually might be the best decision, like to make it the next handful of years.
They, some people, don’t have another choice to make other than taking social security early, and you just have to sacrifice the long term ramifications of getting less just to just to make it work.
Tom Mullooly:
I think we should link to the last podcast that we did, where we talked about taking an annuity versus taking a lump sum, because this ties in perfectly with gee. Should I turn on that income stream and with an annuity, with a pension? That’s a permanent decision and it’s. It’s not something you can go back and and change your mind six months later.
Casey Mullooly:
Yeah, I mean, I’m just thinking of what some of the those ramifications are. You said so I just have to. If they do have to turn on social security and receive less than they planned on, I guess the one ramification that jumps out to me is spend less in retirement. Yeah, you know, if you’re on a, on a fixed income and you don’t want to go back to work, you really you don’t leave yourself with a lot of choices there.
Tim Mullooly:
Yeah, it’s, and, as you know, as retirement goes on for people, the natural progression sometimes is their expenses shrink, but sometimes that’s not the case either. They just get replaced with different expenses but, yeah, that’s sometimes you, just you got to do what you got to do, yeah all right, that was breakeven analysis.
Casey Mullooly:
Let’s talk about present value analysis brought me back to my HP 12 days studying for the CFP exam.
Tim Mullooly:
PTSD.
Tom Mullooly:
By the way, just a little commercial there for the HP 12C. I got my first HP 12C in 1986 a great machine. It is the exact same machine. A little handheld computer is basically. It looks like a calculator but it is basically the same machine all these years later and great for number crunching, yeah, I joke about it.
Casey Mullooly:
But like I loved the thing during the CFP, like I enjoyed using it and I became very familiar with it and it still has that familiar touch that brings me back to studying and working hard to to pass the CFP exam.
Tom Mullooly:
Incidentally, there is now an HP 12C app. That’s pretty cool. It actually is pretty cool so you can do this you can do when you’re sitting down with a client, like in a meeting. You can whip out your phone and do the same calculations that you would without the.
Tim Mullooly:
I was going to say I don’t know if we specified the HP 12C, is it? We’re talking about a calculator? Yes, that’s a financial calculator. Thanks, that’s a good one. I’m not a calculator.
Casey Mullooly:
Anyway, we’re nerds. You use that calculator calculator to solve time value of money equations. The time value of money says that dollars today are worth more than dollars received later in life. To account for that you use what’s called a discount rate.
Basically, the discount rate says in the social security example that John Reckenthaler walked through in his article, he chose a 2% discount rate because that’s what the 30 year tips are paying. This is kind of where that personal personal choice or personal preference kind of comes into the picture, because you could debate well what is the right discount rate For this example.
Like I said, john chose 2%. So essentially saying the money you receive today is worth 2% more than the same amount you would receive next year and the year after and the year after. So he walked through several different examples. I’m just going to walk us through here and you guys chime in when you have some thoughts.
The Social Security decision he looked at someone living to age 100. They’re age 62 right now. They stand to receive $30,000 a year in benefits and he’s using that 2% discount rate. If you were to claim at 62 years old, you would receive about $564,000 total between age 62 and 100 right Mm-hmm if you were to claim at 67, it would go up to 665 thousand dollars per year.
Tom Mullooly:
So you pick up about a hundred grand.
Casey Mullooly:
Not nothing. And if you were to wait until age 70 to claim Social Security, you would receive $720,000. So that is $163,000 more than you would receive if you claimed at 62 years old. So again, that’s living to 100, and those are the different choices of when to claim. So that’s, that’s the price to pay for Claiming early.
Tim Mullooly:
Right is your leave in that it puts real dollars, I guess, to the, to the decision of what you’re leaving on the table potentially.
Tom Mullooly:
I can’t. Social Security administration Just give us a lump sum. That’s a joke, but yeah, you know. Hey, just give me this 700 grand, I’ll figure it out.
Casey Mullooly:
I’d be bankrupt in like five years, I was gonna say, if we could trust everybody to responsibly make that last over their entire lifetime.
Tom Mullooly:
People wouldn’t people probably wouldn’t need us.
Tim Mullooly:
Cadillac, cadillac, el Dorado, yeah yeah, the Making it last there would. What is the issue?
Casey Mullooly:
Yeah, so again, this was that was living to age a hundred. I think that you know clearly the best answer there is Waiting until age 70, you know, the numbers really do a good job of driving that point home. But let’s say you’re in the crowd of Believing that you’re not gonna live to age 100. What about 85? Well, john looked at that and which is close to the median right, a couple years right.
So let’s do the same example. You’re gonna, besides, same example, except you live to 85 instead of $100. $30,000 a year in benefit, 2% discount rate. You’re age 62 right now and you’re going to live to 85. What is the best choice? If you claim at age 62, you’re going to receive $397,000, at age 67. It goes up to $426,000, and at age 70, it goes up a little bit more to $433,000. So still, the best choice is waiting to age 70, even if you only live to 85.
Tim Mullooly:
Right, I think you can you could kind of use both of these to piece your decision together the breakeven and present value and kind of like hedge. If you don’t think you’re going to live that long but you want to maximize how much you’re going to get total, there’s that breakeven point and both of them.
If you use them together, kind of say that 62 in the short term you’d get more money, but eventually you’re leaving more money on the table versus you know the total amount is higher if you wait. So it feels like the Goldilocks in air quotes is, you know, trying your best to wait until at least just 67, maybe not on one end of the spectrum, or the other 62 versus 70, that middle ground of 66, 67.
Casey Mullooly:
That is your full retirement age. Yeah, that’s the age that you’re technically supposed to retire, according to Social Security Administration.
Tom Mullooly:
So I think it’s important. It doesn’t come up in every meeting, but it does come up now, and then you can claim at 63 and 64, 65, 66. You can claim at some point between 62 and your full retirement age.
But, Casey, just looking at the numbers that you shared with us in this example, if I’m going to live to 85, the difference between claiming at full retirement age 67, that’s 426 grand versus waiting three years and collecting 433,000, that’s a difference of seven grand.
Yeah, it’s not much, it’s not really all that much. So I think, to underscore, Tim, what you just said, you really ought to do everything you can to make it to your full retirement age. Great if you can hang out a little longer to age 70, more money in your pocket. But if you can do everything possible to defer until your normal retirement age, it really seems to be the best course, the better course.
Tim Mullooly:
Because, if you think about it, the break even there if you claim it’s 70, the way to get the most total dollars at 70 is to live really long. So in the examples that you just said, from 85 to 100, where you see those extra thousands of dollars coming in versus the other choices, are in those years from 85 to 100, you’re not getting the extra amount. Above and beyond, from age 70 to 85, you’re essentially getting almost the same amount until you hit that break even point.
Casey Mullooly:
To be fair, john, in his article did look at every age and the dollar amounts that you would receive. I just simplified it because I didn’t want to be reading it.
Tom Mullooly:
And the more numbers the more confusing it gets. Interesting, I think that you know, along with saying, hey, we’re going to give you the government, is going to give you a check, but you can’t eat cocoa puffs anymore Like you have to do things to help improve your lifespan.
I also think and I this is going to like set people on fire when I say this, but I don’t know why they have this option of claiming early at 62. You want to help improve or work towards fixing social security? Get rid of this 62 nonsense. Just it starts at 67. That’s it.
Casey Mullooly:
Isn’t that where, like, the full retirement age came in? Because didn’t they push it back to like make the social security fund not have this huge deficit?
Tom Mullooly:
My, I don’t know about that. My understanding was, when social security was created in 1933, the retirement age was 65. And it started at 65. That’s when your checks began Now. In 1933, the average life expectancy for a guy was 66.
Casey Mullooly:
So, yeah, maybe that has something to do with it. Their life expectancies are going up and maybe they’re pushing it back because of that. But I agree, I think you know people should do everything they can to get to that age 67, because it does strike the balance of getting your money as soon as possible and also making the best decision from a numbers perspective.
Tim Mullooly:
Yeah, just from a dollars and cents standpoint, it seems to make the most sense. Ultimately, I guess it comes more. So comes down to what your plan is and what makes your plan work and what makes it doesn’t work, and going through those different decisions and figuring out what works for you. The mindset of like, well, I’m 62, I’m just going to claim it because it’s mine and I want it. Sure, you could do that. I wouldn’t recommend it.
Tom Mullooly:
But we’ve heard that.
Tim Mullooly:
Oh yeah, a bunch. Ultimately, what I said in the beginning some people just have stronger beliefs about what they want to do and as long as you have been given or found the information beforehand, you can ultimately make whatever, whatever decision you want.
Casey Mullooly:
It’s true. All right, I think that is going to do it for episode 456 of the Mullooly Asset Podcast. Thanks, as always, for listening. We’ll be back with you next week.
Tim Mullooly:
Tom Mullooly is an investment advisor representative with Mullooly Asset Management. All opinions expressed by Tom and his podcast guests are solely their own opinions and do not necessarily reflect the opinions of Mullooly Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Mullooly Asset Management may maintain positions and securities discussed in this podcast.
