Is the Bear Market Causing Anyone to Consider Taking SS Earlier Than They Planned?

[street]

First I want to thank the FIRE community for all the thoughtful posts. Been retired since July 2015 at age 57 and this first bear market has made me do a bit more analysis. I had relied on FireCalc but based on info from this board I tried the Fidelity retirement tool this afternoon to model collecting SS for my DW and myself at 62, FRA(66.5) and 70. I'm 61 and DW is 60. After running the tool I get 3 different ages that maximize your SS benefits using the metric of "Assets at End" (i.e. how much we leave when we croak at 90).

Age 70 "wins" with $677K in a significantly below average market vs. $280K at 62

FRA "wins" with $1.9M in a below average market vs. $1.6M at 62 and $1.8M at 70

Age 62 "wins" with $5.4M in an average market vs. $5.2M at 70 and $5.3M at 65

I've been leaning towards 62 because my other modeling (which I guess was average returns) tended to agree with Fidelity. So depending on my optimism or pessimism I can talk myself into collecting at 3 different ages...so many choices.

Or like Dirty Harry said "Are you feeling lucky?"

Thanks >> that is very interesting.

 

[RunningBum]

First I want to thank the FIRE community for all the thoughtful posts. Been retired since July 2015 at age 57 and this first bear market has made me do a bit more analysis. I had relied on FireCalc but based on info from this board I tried the Fidelity retirement tool this afternoon to model collecting SS for my DW and myself at 62, FRA(66.5) and 70. I'm 61 and DW is 60. After running the tool I get 3 different ages that maximize your SS benefits using the metric of "Assets at End" (i.e. how much we leave when we croak at 90).

Age 70 "wins" with $677K in a significantly below average market vs. $280K at 62

FRA "wins" with $1.9M in a below average market vs. $1.6M at 62 and $1.8M at 70

Age 62 "wins" with $5.4M in an average market vs. $5.2M at 70 and $5.3M at 65

I've been leaning towards 62 because my other modeling (which I guess was average returns) tended to agree with Fidelity. So depending on my optimism or pessimism I can talk myself into collecting at 3 different ages...so many choices.

Or like Dirty Harry said "Are you feeling lucky?"

When you say "the market", what AA are you using? Usually "the market" means the stock market, so are you using 100% equities? Most people have considerably less than that in retirement.

 

[USGrant1962]

First I want to thank the FIRE community for all the thoughtful posts. Been retired since July 2015 at age 57 and this first bear market has made me do a bit more analysis. I had relied on FireCalc but based on info from this board I tried the Fidelity retirement tool this afternoon to model collecting SS for my DW and myself at 62, FRA(66.5) and 70. I'm 61 and DW is 60. After running the tool I get 3 different ages that maximize your SS benefits using the metric of "Assets at End" (i.e. how much we leave when we croak at 90).

Age 70 "wins" with $677K in a significantly below average market vs. $280K at 62

FRA "wins" with $1.9M in a below average market vs. $1.6M at 62 and $1.8M at 70

Age 62 "wins" with $5.4M in an average market vs. $5.2M at 70 and $5.3M at 65

I've been leaning towards 62 because my other modeling (which I guess was average returns) tended to agree with Fidelity. So depending on my optimism or pessimism I can talk myself into collecting at 3 different ages...so many choices.

Or like Dirty Harry said "Are you feeling lucky?"

One way to look at it is to ask the question: Are you retired, or are you now a professional investor for a living?

If you are retired then you would choose "significantly below average" returns to provide a margin of safety for living off of your portfolio. If you are a professional investor then "average market" might make sense -- until you retire.

 

[bada bing]

You got it backwards.. Welfare is not an 'entitlement'.... You are entitled to Social Security, not so with Welfare..... The Politics are trying to change the meaning of the words.... It seems to be working.

Changing the meaning of words cuts both ways. Social Security has a rather heavy dose of redistribution built into the benefits payout. It is no where near a bought-n-paid for entitlement for all participants. Some folks (high earners and/or log careers) are taxed much heavier relative to benefits they are "entitled to", to pay out greater than market benefits to others (low earners - short careers - spousal benefits).

Is Social Security pure "welfare" ? Of course not, you have to pay in something to qualify. Is it a 100% earned entitlement for all participants ? Of course not, there is a pretty good dose of "welfare" designed into the program. A lot of the people who climb up on soap boxes about "earning" their benefits, in fact, did not "earn" all of their benefits.

There are reasonable points of discussion, a lot of which depends on a person's individual circumstance. I personally am a corner case - 44 years paid in, 35 at the cap, single and no dependents. I cringe a little when I hear people speak about "earning" their benefits. Common logic dictates that if we all "earned" our benefits, the program wouldn't be in fiscal trouble. Yet it is, in spite of their being people (like me) who were forced to grossly overpay for what they eventually qualify for. The math isn't that hard, but seems so widely ignored or misunderstood. People take offense when it is pointed out that social security is not free of "welfare", as though that is an insult or challenge. But it is easily seen with a quick look at the benefit formula.

 

[Cut-Throat]

I cringe a little when I hear people speak about "earning" their benefits. Common logic dictates that if we all "earned" our benefits, the program wouldn't be in fiscal trouble.

It's a Contract with Workers from the U.S. Government.... The formula is set, and you are free to earn less money, to 'cash in' on the 'benefits' that the less fortunate are getting. Personally I cringe when I see the pay packages of Executives of Large Corporations that are paying the workers (That really do all the work) Slave wages.


The program is not in 'fiscal trouble', as it has over a $2.5 Trillion Dollar Surplus! .... It is Projected to be in the Red down the road 15 years or so. In fact it is probably the ONLY Federal Program that is NOT in fiscal trouble. So, your 'Common Logic', is Commonly wrong.

 

[arch57]

When you say "the market", what AA are you using? Usually "the market" means the stock market, so are you using 100% equities? Most people have considerably less than that in retirement.

I am about 70/30 favoring stocks as we also have company pensions which pay like annuities. AA seems to be working, I'm only down -0.9% this year vs. the "market" (S&P -6.2%) but after 3 years 2015-17 getting 6.2, 9.0 & 14.5% we were feeling a bit cocky in our spending. Plan this year is to curb any large capital projects (postpone a bathroom remodel) and we should be fine.

 

[RunningBum]

I am about 70/30 favoring stocks as we also have company pensions which pay like annuities. AA seems to be working, I'm only down -0.9% this year vs. the "market" (S&P -6.2%) but after 3 years 2015-17 getting 6.2, 9.0 & 14.5% we were feeling a bit cocky in our spending. Plan this year is to curb any large capital projects (postpone a bathroom remodel) and we should be fine.

So what % return are you using for your average return that favors 62? And is it based on your 70/30 AA, or is it the equity market return?

 

[arch57]

So what % return are you using for your average return that favors 62? And is it based on your 70/30 AA, or is it the equity market return?

I used a 70/30 split in the Fidelity tool with whatever their model then uses for the 3 scenarios as returns for that type of portfolio. Again it only "favors" 62 way out at the near 90 mark for the average market. If conditions are less favorable FRA and 70 do better.

The analysis in our situation with spend of $10k/mo and Pension of $5k/mo adding SS at 62 of $3.6K combined reduces withdraws for 8 years allowing them to build. I'm turning 62 in November so will have plenty more time to mull this over.

 

[RunningBum]

I used a 70/30 split in the Fidelity tool with whatever their model then uses for the 3 scenarios as returns for that type of portfolio. Again it only "favors" 62 way out at the near 90 mark for the average market. If conditions are less favorable FRA and 70 do better.

The analysis in our situation with spend of $10k/mo and Pension of $5k/mo adding SS at 62 of $3.6K combined reduces withdraws for 8 years allowing them to build. I'm turning 62 in November so will have plenty more time to mull this over.

OK, thanks. I'm surprised by this. I use 5% for a return, which seems reasonable for an AA around 60/40 to 50/50 that I'll have then. My spreadsheet shows 62 to be worse than 67 starting at age 81. 87 if I include a 25% SS cut at age 70 (worst timing). Maybe my average return is too conservative. If I change it to 7.5%, 62 is even with 67 and age 90.

Hmm, Vanguard says 50/50 returns 8.4% on average, and 60/40 8.8%. https://www.vanguard.com/us/insights/saving-investing/model-portfolio-allocations . If I use 8.4%, 62 remains better even at 100 if those cutbacks come at age 70.

So now I need to think about whether I want to base my SS on average returns, or a worse result. And whether we are even likely to keep up with past averages in the future. If I have average or better returns, my investments will carry me anyway, and SS is less important. What I want to protect against is a situation where my investments don't do as well, and SS will help protect me. But 5% may be too far below average.

Others may trust the averages and not be so worried about the double whammy of living long and having lower investment returns. This favors taking earlier.

One thing about those averages, even 100% bonds do 5.4%. Since 2003 VG Total Bond index has only done that 5 years. Returns may be somewhat inflated from years where interest rates stayed much higher. Future projections are not so rosy: https://www.morningstar.com/articles/842900/experts-forecast-longterm-stock-and-bond-returns-2.html
Projections for the next 10 years
Bogle: 4% stock, 3% bonds
Morningstar: 1.8% stock, 2.5% bonds
Schwab: 6.7% stock, 3.1% bonds
Some other groups go even lower.

Well, something more to think about.

 

[jimandthom]

While the drop didn't make me consider filing early, turns out my AA was really heavy in equities(from earlier gains) and the drop brought me back to my 55%+/- goal.

One thing that might take me over the edge and file a bit earlier than 66 is the medicare hold harmless clause. If I wait until my first check to be for Dec 2019, the SS is 97.22% of FRA scheduled to be 5/2020. I've done a modest search here and elsewhere, but my search skills may be suspect.

Does a 12/2019 SS start date check that is paid in 1/2020 fall into the hold harmless provision? Or, does the SS start and the 1st check receipt have to be in 2019? I realize the dollars will probably not be huge, but it is the last(maybe) little piece of the SS filing puzzle to figure out.

Sorry for the slight deviation----thanks.

 

[pb4uski]

Changing the meaning of words cuts both ways. Social Security has a rather heavy dose of redistribution built into the benefits payout. It is no where near a bought-n-paid for entitlement for all participants. Some folks (high earners and/or log careers) are taxed much heavier relative to benefits they are "entitled to", to pay out greater than market benefits to others (low earners - short careers - spousal benefits).

Is Social Security pure "welfare" ? Of course not, you have to pay in something to qualify. Is it a 100% earned entitlement for all participants ? Of course not, there is a pretty good dose of "welfare" designed into the program. A lot of the people who climb up on soap boxes about "earning" their benefits, in fact, did not "earn" all of their benefits. .....

I view this aspect of SS as having an element of "success insurance"... as an example, if we looked at my peers with the same degree from my alma mater... in theory we all had similar career opportunities... some graduates did very well and others less so and the tilt of SS essentially pays higher benefits than earned to tose who were less financially successful and lower benefits than earned to those who were more financially successful. I'm ok with that as whether I knew it or not it was part of the deal from the get go.

 

[YoungSaver]

What bear market?

 

[kgtest]

I view this aspect of SS as having an element of "success insurance"... as an example, if we looked at my peers with the same degree from my alma mater... in theory we all had similar career opportunities... some graduates did very well and others less so and the tilt of SS essentially pays higher benefits than earned to tose who were less financially successful and lower benefits than earned to those who were more financially successful. I'm ok with that as whether I knew it or not it was part of the deal from the get go.

Had you known it as part of the deal, perhaps you would have succumb to 'mediocrity' syndrome.

 

[pb4uski]

I doubt it.... I'm still better off.

 

[Ian S]

What bear market?

The one we're currently in. We slipped into it late last year and have not come out of it yet. Right now we may be in a bear market rally but the indices are still well below the highs set last year.

 

[Nick12]

The one we're currently in. We slipped into it late last year and have not come out of it yet. Right now we may be in a bear market rally but the indices are still well below the highs set last year.

If the investor is in it for the long term and buys regularly instead of on the dip and tries to time the market, bear markets that the media and analysts likes to play up can make investors nervous and or run for the hills. Some like me started with nothing, kept the buy and hold discipline over the long term, bear markets are just a bump in the road for some...

 

[RunningBum]

If the investor is in it for the long term and buys regularly instead of on the dip and tries to time the market, bear markets that the media and analysts likes to play up can make investors nervous and or run for the hills. Some like me started with nothing, kept the buy and hold discipline over the long term, bear markets are just a bump in the road for some...

Maybe the thread drifted, but the original question wasn't about buying stock on a dip, but rather to start taking SS to avoid selling stock at a relative low. It's a small form of market timing, for a decision (when to take SS) that is otherwise basically neutral for the average person. If the decision otherwise looks like a coin toss to you, why not use a bit of market timing?