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Old 06-29-2018, 01:09 PM   #161
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Originally Posted by Independent View Post
If you're saying I was being a little too flippant, I'd agree.

Here's the math:

Run FireCalc twice. In both cases, set the investments to 100% equities.
The first time, input SS of $20,000 starting in 2018.
For the second, input SS of $26,200 starting in 2022.
That is consistent with someone with a NRA of 66 deferring to 70.

Download the year-by-year detail for both runs (two 117 x 30 matrices).
For each projection year, count the number of times that the year end values from the first run exceed the second.
Of course, for the first year it will be 117. And, that has to continue for the next three.

The first projection year where the second run is higher for any of the start years is the 14th. There are 2 where the second wins, corresponding to start years of 1969 and 1970. The 15th year has 10, then 12, then 16, eventually 55 in the 30th year. Calculate the corresponding annual percentages e.g. 115/117=98.3%.

Now find a mortality table. Referring to this thread http://www.early-retirement.org/foru...ity-77386.html , I picked the RP-2014 Male, White Collar. It has the lowest death rates (hence most favorable to deferring) of the tables there.

The death detail is not in the thread, but it says that out of 1,000 males aged 66, about 8 will die in the first year, 9 in the second, 10 in the third, ... with a peak of 45 in the 27th year (age 91), and declining numbers thereafter.

Now, the probability of dying in the first year is 0.8%, and the probability that the "start at 66" will be ahead at that point is 100%, for a compound probability of dying while ahead at 0.8%

The math is equally boring for the next 13 years. Finally, in the 14th year we get a probability of dying of 2.24%, a probability of being ahead of 98.3%, for a compound probability of 2.20%.

Or, in the 27th year, 4.45% times 64.1% = 2.85%.

Summing these probabilities, for the first 30 years only, I get 60.8%. This would be the chance that a man dies in the first 30 years after age 66, and the the start-at-66 value exceeds the start-at-70 value when that man dies.

But, there are still 21% of our beginning group alive at the end of 30 years, and 53% of the start years still favor at-66. I hate to run FireCalc for more than 30 years, but just eyeballing trends, I'd think about a third of those 21% would die soon enough to favor the start-at-66. This gets up to 67% or a 2-1 advantage for start-at-66.

And, yes, I was cutting it too close when I confidently said that starting early would usually win. I thought it would be more like 80+%. (And, a female would be lower than a male.)
I dunno... seems like a lot of work.

Here's another approach using opensocialsecurity.com that computes expected present values (cash flow * probability and then discounted).

Using default assumptions (single male born 4/15/60 with $1,000 PIA), 2015 SS mortality and default discount rate (20 yr TIP rate or 0.84%):

Age 67 $156,038
Age 70 $155,803
Optimal 68y/5m $157,381

And with no discounting (discount rate = 0%)

Age 67 $176,638
Age 70 $179,249
Optimal 69y/1m $179,838

And with a 5% real return

Age 67 $89,584
Age 70 $82,068
Optimal 62y/1m $98,341
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Old 06-29-2018, 08:23 PM   #162
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Originally Posted by pb4uski View Post
I dunno... seems like a lot of work.

Here's another approach using opensocialsecurity.com that computes expected present values (cash flow * probability and then discounted).
Yep, that is an approach that many people have used. Though opensocialsecurity doesn't actually show the math, that was the question.

We know that "historic" investment returns have varied all over. We don't ignore that fact when we think about withdrawal rates, maybe we shouldn't ignore it when we're talking about SS, either. I thought it would be interesting to see what happened if we used FireCalc's data set to ask questions about end of life values.

(I wouldn't use the 2015 SS period table for this question, for reasons I gave in the other thread.)
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Old 06-29-2018, 09:53 PM   #163
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Interesting, but I think 30 years (so 25 or 26 years of collecting delayed SS) is too short a time frame. As many of us have said, the decision to delay SS is not based on a break-even analysis, but as longevity insurance. Individuals cannot count on being 'average' or 'median', but we can insure/prepare in case we live a long time.

With any insurance, you shouldn't expect to 'gain' - you are paying to offset risk. Few people do a break even analysis on the home or car insurance, they look for the best value, because they know they need to protect against risk, and plan to pay for it, in the long run.

Though I can't explain why the advantage dwindled when you looked at 50% success. Probably just different market/inflation conditions shift things. Regardless, all those people who delayed (especially if they have a spouse eligible for SS survivor benefits), gained the longevity insurance. Maybe they never needed it, but that's how insurance works.

-ERD50
I agree with your first two paragraphs. That's why I deferred to 70.

I think the question came from a poster who didn't want/need longevity insurance. He was simply looking to maximize end of life values. I used the word "expectation" in my first reply, intending it to mean the mathematical definition. So, that's kind of what I tried to design my calculation to use.

I can explain why the advantage dwindled when I went to the 50% probability - the middle scenarios controlled the result, and they have higher investment returns than the extremely low scenarios that control for 95%.

I just expected the "early" SS option to show a clear advantage in those scenarios.
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Old 06-30-2018, 07:01 AM   #164
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...
I can explain why the advantage dwindled when I went to the 50% probability - the middle scenarios controlled the result, and they have higher investment returns than the extremely low scenarios that control for 95%. ....
Ahhh, that makes sense, thanks. -ERD50
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Old 06-30-2018, 07:25 AM   #165
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I have not read through this whole thread, but the other consideration regarding breakeven will be the impact of the year SS is no longer able to pay full benefits. Just another variable to think about.
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Old 06-30-2018, 08:00 AM   #166
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I have not read through this whole thread, but the other consideration regarding breakeven will be the impact of the year SS is no longer able to pay full benefits. Just another variable to think about.
My mindset is they will not reduce benefits if one is past a certain age or already collecting benefits. We shall see.
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Old 06-30-2018, 08:02 AM   #167
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My mindset is they will not reduce benefits if one is past a certain age or already collecting benefits. We shall see.
That would mean an even bigger haircut for younger folks. I'm counting on an across the board cut.
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Old 06-30-2018, 08:06 AM   #168
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That would mean an even bigger haircut for younger folks. I'm counting on an across the board cut.
Maybe yes, maybe no. My thoughts are they can clearly raise the contribution limits to unlimited instead of ~ 130k, plus raise the W/H% somewhat.
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Old 06-30-2018, 08:21 AM   #169
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I'm counting on an across the board cut.
Based on the history of how our government (mal)functions, our elected officials will wait until the very last minute - or maybe beyond - to solve the SS funding issue. Only when faced with job termination at the ballot box by a very unhappy bunch of seniors will they at last find the courage to do so. The survival instinct is a powerful force.
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Old 06-30-2018, 08:52 AM   #170
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It might also be another opportunity for means testing. You place your bets and take your chances.
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Old 06-30-2018, 09:01 AM   #171
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It might also be another opportunity for means testing. You place your bets and take your chances.
I think it's more likely that those above a certain income level (IOW, many people here) will simply pay more income tax on the SS benefits they get.

IIRC, the current number over which SS is taxable was chosen decades ago and is not adjusted for inflation, so this process is already in effect.
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Old 06-30-2018, 09:10 AM   #172
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I think it's more likely that those above a certain income level (IOW, many people here) will simply pay more income tax on the SS benefits they get.
Sure that is just another way to implement means testing.
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Old 06-30-2018, 09:25 AM   #173
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"I think it's more likely that those above a certain income level (IOW, many people here) will simply pay more income tax on the SS benefits they get."

We can only pay more income tax on 15% of our SS - for those of us who are already paying the top marginal rate on 85% of our SS. Unless a new, separate tax rate is enacted for SS benefits, which I doubt. In addition, unless I am mistaken, taxes on SS do not go to SS, they go to the general fund, which does not help the coming SS negative balance.
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Old 06-30-2018, 10:08 AM   #174
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"I think it's more likely that those above a certain income level (IOW, many people here) will simply pay more income tax on the SS benefits they get."

We can only pay more income tax on 15% of our SS - for those of us who are already paying the top marginal rate on 85% of our SS. Unless a new, separate tax rate is enacted for SS benefits, which I doubt. In addition, unless I am mistaken, taxes on SS do not go to SS, they go to the general fund, which does not help the coming SS negative balance.
Good point on where these taxes go. I wonder how much tax is actually collected from benefit recipients on their SS benefit? And how many years would that add to SS's remaining intact if directed back to the program instead of the general fund?
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Old 06-30-2018, 10:15 AM   #175
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That would mean an even bigger haircut for younger folks. I'm counting on an across the board cut.
+1 Everything that I have read suggests cuts will be across-the-board so even then current recipients will get benefits cut.... I read something recently that suggested that across-the-board is mandated somehow but I have never been able to find a cite for it.

I think that grandfathering would be unfair and cause such political turmoil that there is no chance of it happening.... also, unless they announce it after the
fact, it would cause a huge amount of people who would be impacted to sign up that day.
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Old 06-30-2018, 10:21 AM   #176
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It might also be another opportunity for means testing. You place your bets and take your chances.
Agree. With means testing, the folks facing SS reductions (or larger relative SS reductions) will be the minority who have the significant "means." Therefore means testing will be the "voter safe" way to proceed. The masses will vote to effectively tax the minority keeping the incumbent politicians in office. (It's always best for politicians when they piss off the minority instead of the majority or everyone!)

The system is already in place for Medicare where folks of more significant means pay higher (much higher) Part B and Part D premiums than folks of lesser means. So, no problem with implementation as the system is already there and debugged.

In any case, my hope is that whatever solution evolves, it doesn't disproportionately impact younger folks. We seniors can hitch up our trousers and pay our own way without relying on tomorrow's working families to help us buy our next BMW........
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Old 06-30-2018, 11:01 AM   #177
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If we truly think there will be a cut, would that change the thought process of when to take SS, or would the proportional cuts end up in the same financial place?
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Old 06-30-2018, 11:03 AM   #178
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Good point on where these taxes go. I wonder how much tax is actually collected from benefit recipients on their SS benefit? And how many years would that add to SS's remaining intact if directed back to the program instead of the general fund?
Taxation of SS benefits is returned to the Social Security Administration (the Trust Fund). It does not go to the general fund. It was $37.9B last year. See page 7 https://www.ssa.gov/OACT/TR/2018/tr2018.pdf


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+1 Everything that I have read suggests cuts will be across-the-board so even then current recipients will get benefits cut.... I read something recently that suggested that across-the-board is mandated somehow but I have never been able to find a cite for it.

I think that grandfathering would be unfair and cause such political turmoil that there is no chance of it happening.... also, unless they announce it after the
fact, it would cause a huge amount of people who would be impacted to sign up that day.
If there is not a change in law, the Social Security Administration can only pay out 79% of benefits in 2034. They have no authority to do anything else, and cannot pay more than their revenues.
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Old 06-30-2018, 11:08 AM   #179
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Agree. With means testing, the folks facing SS reductions (or larger relative SS reductions) will be the minority who have the significant "means." Therefore means testing will be the "voter safe" way to proceed. The masses will vote to effectively tax the minority keeping the incumbent politicians in office. (It's always best for politicians when they piss off the minority instead of the majority or everyone!)

The system is already in place for Medicare where folks of more significant means pay higher (much higher) Part B and Part D premiums than folks of lesser means. So, no problem with implementation as the system is already there and debugged.

In any case, my hope is that whatever solution evolves, it doesn't disproportionately impact younger folks. We seniors can hitch up our trousers and pay our own way without relying on tomorrow's working families to help us buy our next BMW........
I assume you are referring to means tested for income vs. assets...if so it brings us back to the value of having non taxable income producing assets.
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Old 06-30-2018, 11:16 AM   #180
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If we truly think there will be a cut, would that change the thought process of when to take SS, or would the proportional cuts end up in the same financial place?
I was going to wait until 70, but took mine earlier this year at 68.5 just to give me a "little" head start should SS cuts come, taxes increase or I meet my demise in the next several years.
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