Case for taking SS early (62)?

[Archman]

I thought I'd explore what taking SS at various ages would do to me. I took the results from the SS Benefit Calculator and plugged them into Fido's RIP. After running simulations it gave me the total assets at 'end of plan' , based on taking benefits each year from age 62 to 70. I divided each total by the first years total and plotted a graph:

Thus, if I wait until 70 to collect benefits, RIP calculates that my end of plan assets will be 2.1 times greater than if I collect them at 62.

I guess I'll be waiting!

Interesting. Your graph shows that assets at taking SS @66 are 1.28 times more compared to taking SS @63. Remember, I got 1.26 x using FireCalc

 

[pb4uski]

I'm planning to take at age 70.

But ... if I take my QLP retirement projection and do a what-if comparing 62 vs 70, the crossover point is age 82... after 82 my net worth is higher taking SS at age 70.

If I compare 66 vs 70 then the crossover point is 87 so in each case I'm better off taking SS earlier for ~20 years and then I'm worse off.

While the difference between the lines of 62 vs 70 is pretty significant, the differences between 66 and 70 are not very different. My net worth at age 100 taking SS at age 70 is 160% of what it is taking SS at 62.

 

[Jackanory]

Interesting. Your graph shows that assets at taking SS @66 are 1.28 times more compared to taking SS @63. Remember, I got 1.26 x using FireCalc

Probably has to do with my start and end dates; I'm 62 this year and planning to 92. MMMV

 

[Independent]

I just did a couple of FireCalc scenarios at my current situation and now it shows that my portfolio will be 1.26x at age 100 , if I wait until I'm 66 to collect SS. vs age 63.

As far as using averages, remember FireCalc takes into account the standard deviation of returns.

I have to admit that I'm confused. I read your earlier post to say that you would have more money at the end if you started SS at 63, and less money at the end if you started at 66.

This post seems to say the opposite. I'm probably misreading one of them.

FireCalc runs many possible economic scenarios. When you quoted a single number, I assumed you were looking at some average. But, now you're saying "FireCalc takes into account the standard deviation of returns". I'm not sure what that means. FireCalc can use actual past years for its scenarios, or it can randomly create scenarios, I don't know which option you chose.

 

[ArkTinkerer]

SS payout by itself would be a good candidate for another tool like the FireCalc simulator. Put in your income expectations, life expectancy, etc and have it go thru all the possible start dates and withdrawal schemes (including payback/reset) for singles and couples. Have the tool vary the lifespan(s) and see how likely you are to come out ahead with each scenario. There is just too much to digest for a simple discussion.

 

[Jackanory]

Probably has to do with my start and end dates; I'm 62 this year and planning to 92. MMMV

Just for fun, I plugged in a different 'end' date and went through the same exercise. It appears that if I were to expire at 82, it won't have made the slightest difference when I started taking SS:

Another argument for longevity?

 

[Archman]

I have to admit that I'm confused. I read your earlier post to say that you would have more money at the end if you started SS at 63, and less money at the end if you started at 66.

This post seems to say the opposite. I'm probably misreading one of them.

FireCalc runs many possible economic scenarios. When you quoted a single number, I assumed you were looking at some average. But, now you're saying "FireCalc takes into account the standard deviation of returns". I'm not sure what that means. FireCalc can use actual past years for its scenarios, or it can randomly create scenarios, I don't know which option you chose.

My first post was based on MY calculations. My breakeven point for taking SS at age 66 vs age 63. was at age 97+ years old. At age 100 my portfolio would still be larger ,if I took SS at age 66, same as FireCalc.

I was using an average number from the FireCalc calculations. In my situation, I used a standard deviation of 7.5% (the S&P 500 index has a standard deviation of 15%). I chose the the portfolio with random performance, with a mean total portfolio return of 4%, 3% inflation, std dev of 7.5%

 

[Independent]

My first post was based on MY calculations. My breakeven point for taking SS at age 66 vs age 63. was at age 97+ years old. At age 100 my portfolio would still be larger ,if I took SS at age 66, same as FireCalc.

I was using an average number from the FireCalc calculations. In my situation, I used a standard deviation of 7.5% (the S&P 500 index has a standard deviation of 15%). I chose the the portfolio with random performance, with a mean total portfolio return of 4%, 3% inflation, std dev of 7.5%

Okay. The FireCalc result is what I'd expect. You gave FireCalc an average return of inflation + 1%. Social Security crossover ages for returns in that neighborhood are around 80, so it makes sense that deferring is solidly ahead when you get to age 100.

Your breakeven calculation seems to say something different. I'd think it takes a return of inflation + 6% to get a crossover age of 97.

 

[Archman]

Okay. The FireCalc result is what I'd expect. You gave FireCalc an average return of inflation + 1%. Social Security crossover ages for returns in that neighborhood are around 80, so it makes sense that deferring is solidly ahead when you get to age 100.

Your breakeven calculation seems to say something different. I'd think it takes a return of inflation + 6% to get a crossover age of 97.

You bring up a good point. Inflation. Using the random performance with a standard deviation of 7.5%, it was impossible to calculate a breakeven point. You can plug in the same numbers and you get totally different amounts, even showing starting SS at age 63 you had a bigger portfolio than starting at age 66. So, I chose 0% standard deviation, or you can use the consistent annual market growth. You get the same results. The break even point is at age 86.

 

[Independent]

You bring up a good point. Inflation.
1) Using the random performance with a standard deviation of 7.5%, it was impossible to calculate a breakeven point.
2) You can plug in the same numbers and you get totally different amounts, even showing starting SS at age 63 you had a bigger portfolio than starting at age 66.
3) So, I chose 0% standard deviation, or you can use the consistent annual market growth. You get the same results.
4) The break even point is at age 86.

1. Yes. The question "How long do I need to live in order to make deferring better than starting now?" depends on future investment returns. Each scenario has it's own answer.
2. Not sure that I understand this.
3. This makes sense in FireCalc.
4. I think I'm now lost on the input assumptions.

I set up FireCalc with a $16,000 SS benefit starting in 2014 or $20,000 starting in 2017. That seems like starting benefits at age 63 with an 80% benefit, or starting at 66 with a 100% benefit.
I specified "A portfolio with consistent annual market growth of 4%, fixed income returns of 4%, and an inflation rate of 3%".
When I compared the year-by-year detail for the two runs, the first was ahead for the first 15 years.

 

[Archman]

Quote:
Originally Posted by Archman
You bring up a good point. Inflation.
1) Using the random performance with a standard deviation of 7.5%, it was impossible to calculate a breakeven point.
2) You can plug in the same numbers and you get totally different amounts, even showing starting SS at age 63 you had a bigger portfolio than starting at age 66.
3) So, I chose 0% standard deviation, or you can use the consistent annual market growth. You get the same results.
4) The break even point is at age 86.

1. Yes. The question "How long do I need to live in order to make deferring better than starting now?" depends on future investment returns. Each scenario has it's own answer.
2. Not sure that I understand this.
3. This makes sense in FireCalc.
4. I think I'm now lost on the input assumptions.

I set up FireCalc with a $16,000 SS benefit starting in 2014 or $20,000 starting in 2017. That seems like starting benefits at age 63 with an 80% benefit, or starting at 66 with a 100% benefit.
I specified "A portfolio with consistent annual market growth of 4%, fixed income returns of 4%, and an inflation rate of 3%".
When I compared the year-by-year detail for the two runs, the first was ahead for the first 15 years.

Point #2 : Because it is random ,due to the standard deviation, the sequence of returns can either have a positive effect or a negative effect. So even if I have an average of 4% return, due to the standard deviation my average return is 4 +/- 7.5% (-3.75% to 11.5% returns)

As far as your breakeven point at 15years instead of mine of 23 years could attributed by the size of the portfolio and the spend down of that portfolio.

 

[Independent]

Point #2 : Because it is random ,due to the standard deviation, the sequence of returns can either have a positive effect or a negative effect. So even if I have an average of 4% return, due to the standard deviation my average return is 4 +/- 7.5% (-3.75% to 11.5% returns)

As far as your breakeven point at 15years instead of mine of 23 years could attributed by the size of the portfolio and the spend down of that portfolio.

That's true. I didn't get that from the earlier post.

It seems to me that if we use the same fixed real interest rate we ought to get the same crossover year. But, it would take a lot of time comparing detailed runs to figure out if that's true - probably more than it's worth.

 

[amealy]

NJ.



Sent from my iPhone using Early Retirement Forum

 

[beowulf]

NJ what?

 

[youbet]

A number of us here on the FIRE forum have spouses who won't be collecting a spousal or survivor's benefit from our SS due to GPO. Therefore, to best protect the spouse, starting and investing SS at 62 becomes optimum.

I've been doing this for almost nine years. Thanks to fairly favorable market conditions, the nest egg that's built up from the invested SS income will easily cover the difference between the age 62 SS I'm getting and the higher age 70 SS I won't be getting. Of course, you can't count on favorable market conditions and you might start SS early and not wind up with a nest egg sizable enough to more than cover the difference. It's a crap shoot in that regard.

For married folks without the GPO problem, you should still consider the value of foregone earnings on collected early SS benefits in your calculations. It's way too big a number to ignore.

 

[mathjak107]

You would need to have a sourse of income other then ss and your portfolio to be able to just invest the ss and not draw out the same amount.


Without a pension that covers every thing or other sources of income many of us could never do that. I count on our portfolio while delaying

 

[explanade]

Either that or you don't withdraw as much from your assets and you let them accrue -- as long as the market isn't going like it is these days.

 

[youbet]

You would need to have a sourse of income other then ss and your portfolio to be able to just invest the ss and not draw out the same amount.

Seems pretty obvious mathjak107. If you have to have your SS to survive, then there is no need to make a decision about when to take it. You must start it early. The whole discussion of when to start SS assumes you have the choice. Otherwise, why discuss it?

Without a pension that covers every thing or other sources of income many of us could never do that. I count on our portfolio while delaying

Exactly. You had the choice of either delaying SS and living off other resources or starting SS, living off other resources and investing the income. (Most people who do this simply "invest" the SS income by reducing their WR.)

If you can afford to delay, you can afford to start early and invest the income.

 

[mathjak107]

If we are talking investing the ss then liquidating any of the portfolio negates the same amount coming in from the ss.

In
our case we don't need the ss so we will delay but i do need to eat and pay rent so the portfolio is supporting us by providing 75% of our nut .

So if we filed early we would just spend the ss instead of the portfolio but in any case we need one of them to live

 

[harley]

For married folks without the GPO problem, you should still consider the value of foregone earnings on collected early SS benefits in your calculations. It's way too big a number to ignore.

The difference is that yes, you might be able to invest the early bennies and more than make up the difference, but the payment on waiting is guaranteed. We have all of our current assets in the market now, with market being stocks, bonds, and real estate, and that's a chancy enough number for me. Knowing that when I die DW, who doesn't like to fiddle with financial issues, will have a healthy guaranteed chunk of income is worth more to us than the potential of making a bit more in the market. If the market goes up, we're part of it already. If it goes sideways or down, that COLA'd income stream will be a godsend.

 

[youbet]

Either that or you don't withdraw as much from your assets and you let them accrue -- as long as the market isn't going like it is these days.

Yes. I did it by simply not withdrawing as much as I would have without the early SS. That is, my WR dropped by about $20k and my FIRE portfolio benefited correspondingly.

And, yes, the strategy is like all investing. It is dependent on returns.

I shouldn't speak so soon since I'm only 7 years into an 8 year plan, but so far the results are gratifying. I protected GPO-impacted DW without sacrificing future income.

 

[mathjak107]

I wouldn't get to wrapped up in the aspects of survivor benefits if you are not going to go beyond fra. The survivor is not penalized if you file at 62 . They only get a cut if they file before their own fra .

 

[youbet]

The difference is that yes, you might be able to invest the early bennies and more than make up the difference, but the payment on waiting is guaranteed.

That's very true. Thus, the eternal "annuity" argument. We're comfortable with the amount of future income we'll have sourced from annuities (pensions actually) vs the amount of future income sourced from the FIRE portfolio. And we tried to choose an AA that also reflects our personal circumstances and risk tolerance. You need to do the same for yourself.

We have all of our current assets in the market now, with market being stocks, bonds, and real estate, and that's a chancy enough number for me. Knowing that when I die DW, who doesn't like to fiddle with financial issues, will have a healthy guaranteed chunk of income is worth more to us than the potential of making a bit more in the market.

Remember, the reason I started SS early was to protect my GPO-impacted DW. Having it turn out that I'll actually have slightly increased my ongoing income at 70 yo was just a fortunate outcome of investment conditions while I was investing the early SS dollars.

If the market goes up, we're part of it already. If it goes sideways or down, that COLA'd income stream will be a godsend.

In our case, DW will not get a penny of my COLA'd SS income stream so I acted to protect her. The, so far, happy results were not counted on but are appreciated.

For folks not impacted by GPO or other similar circumstances related to protecting someone who will not collect any of your SS as a spousal, minor child or survivor benefit, it does seem that it would still make sense to consider the most likely investment returns on SS dollars collected early. Dollar cost averaging $20k (pick you number) a year into the S and P 500 (or similar) for 8 years has the potential to be profitable. Or, like all investing, it might not.

 

[youbet]

If we are talking investing the ss then liquidating any of the portfolio negates the same amount coming in from the ss.

In
our case we don't need the ss so we will delay but i do need to eat and pay rent so the portfolio is supporting us by providing 75% of our nut .

So if we filed early we would just spend the ss instead of the portfolio but in any case we need one of them to live

It was no problem for us. We have pretty good self control and the SS checks flowing in did not cause us to spend more. We spent the same amount but withdrew less (the amount of the incoming SS) from the portfolio.

 

[mathjak107]

Our reason for delaying is we want to be less dependent on markets and rates. We can take a hit by delaying a few years and spending from our portfolio and reduce spending from it for up to decades.