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Social Security Planning with a Desire to Spend More in Early Retirement

A reader writes in, asking:

I am considering taking Social Security soon. I have a pension and about $200k in mutual funds.

If I take Social Security now at 65, I get $1,400 per month. That would be $16,800 per year. If I wait three years that’s $50,400 I miss out on. I won’t break even until age 80.

But I need more now to live the life I want. I won’t care when I am 80. I won’t be traveling much, I won’t be driving all over the metro area, etc.

If you are not planning to spend an (inflation-adjusted) equal amount each year in retirement, I think the best approach to planning is simply to:

  1. Plot out a desired year-by-year spending level, then
  2. Work to figure out the strategy that is most likely to satisfy that spending plan.

In some cases it will turn out that a plan that includes a greater level of spending in early retirement is still most safely achieved by delaying Social Security, because doing so makes it less risky to spend at a higher rate from existing assets. After all, a high rate of spending is most likely to become a problem in “lived-longer-than-expected” scenarios, and those scenarios are precisely the situations in which delaying Social Security works out best.

On the other hand, there can be cases in which delaying Social Security is not a good match for a given spending plan. For instance, if the amount of safe, lifetime income you would receive by waiting until age 70 to claim Social Security (so, your pension plus 132% of your primary insurance amount) is greater than the amount you desire to spend per year, then there really isn’t a big benefit to holding off on claiming.

For Example…

Let’s make up some numbers for illustration’s sake. Let’s say you want to spend:

  • $50,000 per year from ages 65-69,
  • $45,000 per year from ages 70-74, and
  • $40,000 per year from age 75 onward.

If your Social Security benefit would be $16,800 per year if claimed at age 65, that means it would be:

  • $18,000 per year if claimed at age 66,
  • $19,440 per year if claimed at age 67,
  • $20,880 per year if claimed at age 68,
  • $22,320 per year if claimed at age 69, and
  • $23,760 per year if claimed at age 70.

If your primary goal is simply to ensure the desired standard of living at each stage — as opposed to desiring to a) leave behind a bunch of money or b) preserve the possibility of a much higher standard of living at the risk of ending up with a lower standard of living — then my approach would be to delay Social Security until you have a floor of income that will satisfy the lowest-spending stage of your spending plan (i.e., $40,000 per year in this case).

For example, if the pension is $20,000 per year, and your Social Security at age 70 would be $23,760 per year, that’s a total of $43,760, which is a greater level of ensured lifetime income than you really need.

Instead of waiting until 70, it would probably make sense to claim around age 67.5, at which point your Social Security would be roughly $20,000 per year and your total lifetime-guaranteed income would be roughly $40,000 per year.

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  1. Howdy Mike,
    Thank you for this post. I am going to save it.

    I have at times struggled with this concept as well.

    I am a little beat up from the cowboy lifestyle and from having broke a lot of horses. So I sometimes wonder at what point we should begin taking social security. Hopefully it’ll be while I am still healthy enough to “kick a pig every once in a while”. 🙂

    Of course I understand economics will play a major role in that decision. But like your reader we to would like to be able to enjoy things before we get to age 80 because by that time my means of getting around is likely me being hauled around behind a horse on a travois. 😉

    I sure like your example. We think an annutiy will likely play a role in our retirement and we have no heirs or children to leave money to.

    Mike at what time or year(s) prior to retirement would you recommend that a working married couple speak with a professional/expert to determine the optimum time for them to begin taking social security?

    Happy trails, Mike

  2. Interesting question. I would think roughly age 61 (so that they’ve put some thought into it by the time they reach age 62) or roughly 5 years prior to retirement (so that they have some idea of what to use for their retirement planning figures), whichever comes sooner.

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