June 24, 2013
The Checks have Started!
For me, the answer to "when should I start?" was last month. I turned 64 on May 10th, halfway between the earliest birthday at which I could claim benefits and my "full retirement" birthday. To see that first deposit appear in my checking account last week felt very good. Knowing that it will appear every month for the rest of my life was particularly comforting for my satisfying retirement.
The decision to start collecting Social Security when I did was not arrived at without a fair amount of thought and discussion. There are many who will argue I left two years worth of government money on the table by waiting this long. An even larger contingent will say I passed up extra money every month by not waiting until my 66th birthday. Still others will note, quite correctly, that if I waited until I was 70 my monthly check would be substantially higher.
Deciding when to start taking a Social Security check should be based on a combination of factors. In my case, I have been living off a savings and investment account since I retired in 2001. Most of the items in that account were tax free investments so that stream of income has been largely avoiding the tax man for the past 12 years. I had planned for that account to last until May, 2013. In a case of good luck and an on-going adjusting as we went, the account reached a zero balance last month, right on schedule.
Since I started at 29, my IRA has been quietly bubbling along for the past 35 years. Not being a Roth account (not available until the amount in the account made a conversation too expensive), I will start paying deferred taxes on withdrawals. In order to keep the draw-down rate at under 4% (the target is 3%), a monthly Social Security check is required. By holding my income at a certain level I can avoid paying taxes on 85% of Social Security payments, though I will still pay taxes on 50% of those checks.
Waiting until I am 66 would have resulted in a larger check. But, my calculations are that the extra withdrawals from my IRA to make up that difference for two years would require 15 years of larger SS checks before I reach a break even point. To me that was too big a gamble. I do expect to be alive on my 81th birthday. But, how many years after that would I have to make that two year wait pay off? The final decision was to pull the trigger now.
The next big marker is Medicare, starting next May. I have been self-insured for 32 of the last 37 years. As anyone in a similar situation knows, the market for an individual policy has been an expensive and ultimately frustrating place to be. Over the years my rates and deductibles have increased steadily, while what is covered has gone the other way.
I have no doubt whatsoever that my insurance carrier would look for every way possible to deny coverage if I suddenly developed a major illness. The nearly $150,000 in premiums I have paid wouldn't matter at all. They would simply say "No" and wait for me to fight them or give up and pay everything out of pocket. That is how the system works and I am well aware of it.
Regardless of its many flaws, the changes in our health care system will actually come too late to do me much good (or harm) since I am so close to Medicare. For Betty, several years my junior, we are hoping she will have more options than she has now. Her individual coverage stinks but with various pre-existing conditions she is stuck until the law makes that a non factor.
But, I don't want to think of medical insurance and the mess it is in. I want to celebrate the fruits of my 35 years of paying into a system that now begins to pay me back at a time when it will come in handy. Will those monthly checks shrink over time as the deficit becomes too troublesome for even politicians to ignore forever? I don't know. So, again, I'll face whatever the system has in store for me when that time comes.
In the meantime, that number appearing in the checking account looks very nice!