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Old 07-06-2015, 02:43 PM   #201
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I think you're saying that at 0% real interest, deferring to 70 makes sense if one of them will live past 81. ...
Well, that's about the break-even on the portfolio. I think it can be looked at different ways as to making 'sense' or not. As we've discussed, spousal benefits, desire to leave money to heirs/charity plays into it.


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And, at 0% real interest, $32k withdrawals will exhaust at $900k portfolio in 28 years (age 90).

And, one extra $60k withdrawal will cause the portfolio to run out 2 years sooner.
Yes, and in the delay to 70 case, the portfolio fails at age 108 and 101 (with the extra spend), and you still have $49K in SS coming in.

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I'll guess that rayvt is expecting more than 0%. But, although higher investment returns eventually favor the age 62 start, the cruise is still "affordable" with the age 70 start.
Could be, I just used zero real to keep the SS simple. But if the portfolio grows, it is less of a concern in either case, so go ahead and take the cruise. But since these are unknowns, we generally plan for a bad-case scenario, and zero-return for 8-10 years is in the 'bad-case' area I think.

Like anything, one could play with the numbers until the cows come home. But I think the point you made, and this SS (spreadsheet) reflects, is that it isn't a 'no-brainer' that delaying SS means you can't also spend the money up front.

That's the point that Cut-Throat has made - even though you don't have it, you can spend now based on getting that larger amount in the future. Yes, that assumes there are not big changes to SS payments/taxation for those in/near retirement, but even so, that was a big delta (and we rounded down the age 70 SS to even 000's).

Spending up-front could mean less to heirs/charity if you die early on. But that is a personal decision point.

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Old 07-07-2015, 08:02 AM   #202
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Originally Posted by ERD50 View Post
the portfolio break-even point is age 80 (well below median LE for a 62 YO).
...
Add a one-time $60,000 spend at age 66, and B-E is still age 80 (though numerically improved slightly for delaying).
Funny how math works, huh? No matter how you compute it, it always says the same thing: delaying from 62 to 70 has a 10 year break-even period.

I guess the overall point I was trying to make is that having a large lump of cash liquid assets gives you more options. What I had in mind was the people who have said to spend down your portfolio pre-70 and then SS rides to the rescue at 70 just as your portfolio runs out. I didn't run any spreadsheet -- I didn't care that much about the details.

SS is not a lump sum, it's a monthly payment stream. That was all that I was getting at. You cannot make a large, one-time lump sum purchase from a payment stream, vendors (cruise line, roofer, etc.) want their money up front.
'course, you can do what many young people do, pay for the cruise on a credit card and then pay that off at 18% interest for the next few years.

You have more options if you have liquidity than if you don't.
I think this concept got internalized for me some 20+ years ago from an occurrence in the family. One uncle was retired and owned some land outside of Atlanta that was easily worth $3M. But their income was only SS and pension.

Then one day (in fact, the day before their big 50'th anniversary party), he had chest pains. Rushed to the hospital and he had emergency quintuple heart bypass surgery. Medicare has strong limitations on what it will provide for nursing home-type care. Not to mention that many Medicare & Medicaid facilities are like something out of Charles Dickens.

So you have to pay on your own. Well they had a large net worth -- but little cash and little monthly income. Oddly, banks aren't particularly eager to lend you money (even secured by land) when you are in a hospital bed surrounded my machines and full of tubes. Private nursing care facilities won't let you in unless you can show them that you can pay their bills. Up front, cash/check only, no credit.

The whole extended family had to scramble to cover his immediate cash needs.
All my aunts & uncles, and my Mom, took a fresh look at their own asset allocations, to make sure they couldn't get caught in the same bind. Although most of them didn't have such an extreme case, $3M in land and very little cash.
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Old 07-07-2015, 08:16 AM   #203
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I'll guess that rayvt is expecting more than 0%.
Indeed.

If you can make 5% above inflation, the 62-70 SS break-even age is 91. 0% is 80.
BE age at 3% above inflation is 85.
So I ask myself, how likely is it that I can (long-term) make 3% above inflation? That's a 15 year BE period -- how far out is acceptable? Most businesses won't make an investment with a 15+ year payoff. They want more like 3-5 years.


We are talking about a 30 year retirement, so we need to look at historical 30 year returns.
For 1950 to 2015, the worst 30 year return of a 60/40 portfolio was 9.0%. (median was 10.8%) That was Nov'55 to Nov'85.
Overall annual inflation 1950-2015 was 3.6%.
Annual inflation 1955-1985 was 4.5%.
10.8% - 3.6% = 7.2% (median)
9.0% - 4.5% = 4.5% (worst 30 year period).

At 4.5% above inflation, BE age is 89. (19 years)
At 6.0% above inflation, BE age is 98. (28 years)
At 6.6% above inflation, the BE age is 107.
At 7.2% above inflation, BE age is .. never. My spreadsheet only goes to 108. But at 108, the age 62 lead over age 70 is growing, so there is no break-even, ever.)
(Specifically, for 10.8% return and 3.6% COLA the BE is also never.)
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Old 07-07-2015, 10:22 AM   #204
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... I guess the overall point I was trying to make is that having a large lump of cash liquid assets gives you more options. What I had in mind was the people who have said to spend down your portfolio pre-70 and then SS rides to the rescue at 70 just as your portfolio runs out. ...
Well that is a long way from the general statements you've made supporting taking SS early. Maybe I missed it (or just ignored it as irrelevant to any reasonable discussion), but I don't ever recall anyone saying to 'spend down your portfolio pre-70 and then SS rides to the rescue at 70 just as your portfolio runs out.' Got some links to refresh my memory?

Look back at your posts #188, and Independent's reply in post # 197, and my spreadsheet to illustrate the scenario. Those seem like pretty reasonable starting points, not the condition where you run the portfolio to zero.

At any rate, I (and I think few in support of delaying SS) would recommend delaying SS if it meant drawing the portfolio to near zero.


Quote:
SS is not a lump sum, it's a monthly payment stream. That was all that I was getting at.
Right, and delaying SS provides a larger monthly payment stream in later life, to both you and your spouse (if applicable), when the portfolio could be dwindling.

Quote:
You cannot make a large, one-time lump sum purchase from a payment stream, vendors (cruise line, roofer, etc.) want their money up front.
'course, you can do what many young people do, pay for the cruise on a credit card and then pay that off at 18% interest for the next few years.
Or do as I showed in the spreadsheet - pull money from the portfolio for the cruise, and there is no future issue, because your later years are covered by that larger income stream. The numbers don't lie (unless someone can point out a flaw in my calculations).


Quote:
You have more options if you have liquidity than if you don't.
Yes, but 'enough liquidity' is 'enough'. And in that spreadsheet, they had enough liquidity to pay cash for a cruise w/o current SS, and they did well.


Quote:
I think this concept got internalized for me some 20+ years ago from an occurrence in the family. One uncle was retired and owned some land outside of Atlanta that was easily worth $3M. But their income was only SS and pension.

... Well they had a large net worth -- but little cash and little monthly income. Oddly, banks aren't particularly eager to lend you money (even secured by land) when you are in a hospital bed surrounded my machines and full of tubes. ...

The whole extended family had to scramble to cover his immediate cash needs.
As many of us keep saying, there is no one correct solution, it depends on the circumstances. If you need to take it early, there is no debate, you take it early.

In the example you provide, the problem is the $3M is not liquid - that is the problem. You said they had very little cash, not enough to pay their medical bills even though it sounds like they were taking SS early (or at least at FRA). So this has no bearing on anything, it sounds like they were stuck either way. A few years of early SS would not have added up to a big $ amount, relative to a staggering medical bill.

My approach to this would be to try hard to gain some liquidity, regardless of SS. I think we agree that practically ever retiree (and non-retiree for that matter) benefits from having some liquidity at their disposal.


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Originally Posted by rayvt View Post
Quote:
I'll guess that rayvt is expecting more than 0%.
Indeed.

If you can make 5% above inflation, ...
It seems every time we answer your scenarios, rather than addressing the answer, you throw out a different scenario. It sounds to me you just want validation, not an actual discussion of pros/cons or decision points.

I gave the reason I chose 0% real for the spreadsheet, simplicity, and it makes a 'bad-case' scenario for drawing down the portfolio of the person delaying SS. A rising market would have kept more cushion with the draw down, and they would have had more money for the cruise. So I was trying to make it a tough case for delaying, or I might have been criticized for cherry-picking.

And we've already discussed the 'break-even' analysis versus the 'longevity insurance' aspect (especially if spousal benefits apply). I guess you are not listening.

I think I've learned all I'm gonna learn on this, if all you are going to do is divert the responses to something else rather than address them, I'll bow out.

-ERD50
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Old 07-07-2015, 12:04 PM   #205
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A valuable discussion, though, since most every point/counterpoint could play into one's 'when to start' decision.
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Old 07-07-2015, 03:33 PM   #206
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Indeed.

If you can make 5% above inflation, the 62-70 SS break-even age is 91. 0% is 80.
BE age at 3% above inflation is 85.
This is true. But, I don't see the connection to your earlier post:

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... it just struck me that there are other issues than just one's living & lifestyle expenses. Like...you're getting along peachy-keen with your $60,000/yr, and then you decide you'd like to see the world, and something like this Cruise Details comes to your attention. 4 month world cruise, something that you'll only do once, for the two of you costing $60,000 to $80,000.

.... If you've run down your investment portfolio in order to maximize your 70+ SS benefit, then it'll be much harder to come up with this large of a chunk.
I asked you to show me an example where a couple defers SS, and then can't afford a $60,000 cruise because they deferred.

I'm fine with an example that uses 5% real return. Just show me the numbers for a couple that has enough assets/income to retire with a $60k annual spending plan, but then finds it much harder to cover the one time $60k for the cruise, just because they deferred SS.

I'd suggest filling in the blanks here as a start:
Quote:
John and Mary are retired, age 62, and have traditional IRAs totaling $_____
If they start SS today, their combined annual benefit will be $_____
If they wait till 70, their combined annual benefit will $______
They feel they can live "well enough" on $60,000 per year.
At age ___
they see an ad with a great, $60,000 price for a once-in-a-lifetime cruise.
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Old 07-07-2015, 09:06 PM   #207
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::sigh:: Actuarially neutral really means actuarilly neutral. The SSA stated that the pre- and post-FRA adjustments were designed with the goal of making it actuarilly neutral. It's not completely, of course. Just the fact that the benefit is same for male & female but females live longer means that it isn't competely neutral. But it's pretty close.

All that changing the age at which you file does, is change the shape on the benefit stream.

If there was a concrete answer one way or another, these interminable discussions wouldn't take place. There are no debates about whether receiving $500 is better or worse than $1000. These SS debates are essentially arguing if 10 $100 bills is better or worse than 50 $20 bills.

Some people look at the 10-18 year break-even period and says it's too long. Others don't care about the BEP, they just want to have longevity insurance and are okay with the price that it costs. Neither viewpoint is right or wrong, they are just a matter of personal preference.
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Old 07-07-2015, 09:25 PM   #208
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: Actuarially neutral really means actuarilly neutral.
. . . .
Others don't care about the BEP, they just want to have longevity insurance and are okay with the price that it costs.
Well, if they are "actuarilly neutral", then the greater monthly benefit for an unexpectedly long life (longevity insurance) can be had at zero cost. "Zero" is a good price.
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Old 07-07-2015, 10:31 PM   #209
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Well, if they are "actuarilly neutral", then the greater monthly benefit for an unexpectedly long life (longevity insurance) can be had at zero cost. "Zero" is a good price.
If longevity insurance is your primary goal. Some posters here place higher importance on income smoothing and/or keeping the retirement input streams diversified and not running down the portfolio portion. We can't all maximize for every retirement factor. Maximizing income stream diversification may mean not maximizing for longevity insurance.

We're not doing solar panels because the BE period is too long at 15 years and may feel the same about SS when the time comes. When I used to coordinate the annual budgets and project plans at work I don't remember anyone ever advocating in favor of projects with a 15 year or so payback period, and at my house we run our budgets like we would a business. That is the same line of thinking as to we personally aren't in a rush to pay off a low interest mortgage. Businesses borrow when the rates are favorable, why not use the same concepts in running our household.

It is not like when to take SS is a major financial success factor in books like The Millionaire Next Door, compared to other factors like picking the right vocation or LBYMs. I find it odd that taking SS at 62 seems to draw a lot of negative comments here and posts implying financial imprudence, but spending money on cruises, luxury vacations, expensive dinners, vacation homes, RVs, boats, etc. does not draw the same level of finger wagging. As long as one is not in danger of running out of money it comes down to personal choices.

If Household A takes SS at 62 and the retirement calculators show having a net worth of $5M at age 100 and household B takes SS at 70 and goes for 90% success in Firecalc (using historical returns that may be higher than what the financial pundits are predicting for the future) resulting in a $0 portfolio balance at 90, which household is being more cautious? Which one has more longevity insurance?
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Old 07-07-2015, 10:40 PM   #210
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It is not like when to take SS is a major financial success factor in books like The Millionaire Next Door, compared to other factors like picking the right vocation and LBYMs.
It could be a lot more significant than changing the light bulb in foyer to an LED.. Hey, this is what we do here.

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I find it odd that taking SS at 62 seems to draw a lot of negative comments here and posts implying financial imprudence, but not spending money on cruises, luxury vacations, expensive dinners, vacation homes, RVs, boats, etc. As long as one is LBYM why criticize any of the personal financial choices.
Well, I'm not criticizing anybody's choice. I'm trying to understand why they do the things they do, maybe I'll want to do the same thing. I understand why someone would want an expensive dinner. I do not understand why someone would say something is "actuarily neutral, then say it really isn't, then say that one particular option has a "cost".
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Old 07-07-2015, 10:56 PM   #211
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It could be a lot more significant than changing the light bulb in foyer to an LED.. Hey, this is what we do here.
But if a household has 1,000 little cost saving items like the light bulb that average $10 a year savings without lowering the overall standard of living, $10 X 1,000 X 40 years = $400K.
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Old 07-07-2015, 11:00 PM   #212
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One problem I see is that people want to define actuarially neutral at the individual level... it is not... it is based on a group of people....


Just like life insurance... some die early, some die later... nobody is good at guessing which person is going to die first and which one will die last... but they are pretty good at guessing what the average age that the group will die... (or median if that is the better word)....

So all the talk about it being neutral is just talk... it really means nothing... it is kinda like Schrodinger's cat... it is either dead or alive... it can only be both in an equation... just like taking at 62 or 70.... it is either a good move or a bad move, but you will only know when you die....
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Old 07-08-2015, 12:50 AM   #213
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When I run FIRECalc for 30 years with SS at 62 or 70, I see little difference in the spending level for 100% success. I am leaning towards my wife drawing at 62 and myself at 70, but that could change depending on the economic condition between now and when I turn 70.

A poster mentioned earlier that most people draw SS at 62, even if they can afford to delay it. Perhaps they are thinking "a bird in hand..."
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Old 07-08-2015, 01:57 AM   #214
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One problem I see is that people want to define actuarially neutral at the individual level... it is not... it is based on a group of people....


Just like life insurance... some die early, some die later... nobody is good at guessing which person is going to die first and which one will die last... but they are pretty good at guessing what the average age that the group will die... (or median if that is the better word)....

So all the talk about it being neutral is just talk... it really means nothing... it is kinda like Schrodinger's cat... it is either dead or alive... it can only be both in an equation... just like taking at 62 or 70.... it is either a good move or a bad move, but you will only know when you die....
I think the point of mentioning the program is actuarially neutral is that various factors like being female may add a few years to life expectancy beyond the likely cross over point, but higher SS benefits for a few years is more of a thoughtful consideration than a lottery winning kind of windfall some of the FA articles imply:

"The average life expectancy for a person who was 65 years old in 2012 is 19.3 years – 20.5 years for women and 17.9 years for men."

Life expectancy in the USA hits a record high

The FAs want to collect their fees and hang on to our 401K money as long as possible and the super wealthy do not want taxes raised to cover SS shortfalls. They both have a vested interest in keeping the masses working until 70 as much as possible. I think this is why we see all the $1M is not enough to retire and we all need work until 70 and delay SS until then kind of articles.

If a retiree would otherwise run out of money if he lived to age 100 or so, then I would say delaying until 70 is financially prudent. But many posters here will leave an estate at age 100 or later so when to claim becomes a personal choice. Claiming earlier might mean having $200K less or whatever in net worth in old age, depending on household SS benefit amounts and life span, but then buying a a yacht or going on luxury vacations might have the same $200K decrease in NW. Some retiree households might choose the bird in the hand security with claiming at 62 more than spending the money on vacations or dying with a $200k larger estate.
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Old 07-08-2015, 08:39 AM   #215
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I assume that the SSA is correct that they design the discount/premium to be actuarially neutral for a single person on a unisex basis. An EPV analysis suggests that it is indeed acturially neutral for a single person.

However, that creates opportunity for some. Those who have good family longevity, are in good health, or have higher than average wealth tend to live longer than average so they will collect longer. Also, where a spouses PIA based on their work records are significantly different then joint mortality become a factor.

The "game" is to optimize benefits for one's personal situation. For a single person of average family longevity, health and wealth, then theoretically it shouldn't matter if you take at 62, FRA or 70 (or anywhere in between). For a single person in poor health or with chronic health issues, then 62 would generally be preferable. For a married person in poor health or with chronic health issues but with a healthy spouse with a low PIA, then later would generally be preferable.

And of course, all of the claiming strategies assume that one has financial resources to live on while you wait. If you don't have financial resources, then your choice is to continue to work or start drawing SS to put food on the table.
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Old 07-08-2015, 09:13 AM   #216
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One problem I see is that people want to define actuarially neutral at the individual level... it is not... it is based on a group of people....
I think the point of mentioning the program is actuarially neutral is that various factors like being female may add a few years to life expectancy beyond the likely cross over point, ...
Agreed - the 'actuarially neutral' factor is just a reference point for individuals. It helps us understand how it works - we need to make a decision based on our best guesses on our future situation and needs.

Quote:
If a retiree would otherwise run out of money if he lived to age 100 or so, then I would say delaying until 70 is financially prudent. But many posters here will leave an estate at age 100 or later so when to claim becomes a personal choice.
Except that most of don't know that they will leave an estate or not (though I agree it is likely, based on history). As samclem has pointed out, for some of us, increasing the SS leg of the stool can smooth out our sources of income.


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When I run FIRECalc for 30 years with SS at 62 or 70, I see little difference in the spending level for 100% success. ...
You expected that, didn't you? A run like that in FIRECalc is basically going to be a break-even analysis. If you ran it for a longer period, as a 'what-if' to model the 'longevity insurance' benefits (which like most insurance, we never know if we will need it or not), I think you'll see an advantage to the delay. Maybe even more so if you model the more typical case of the larger SS spouse dying first, and the lower SS spouse loses their benefit and gets only the higher SS benefit. If the larger SS spouse took it at 62, it would be closer to the lower SS amount, and the surviving spouse would have significantly less to live on.

-ERD50
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Old 07-08-2015, 09:47 AM   #217
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If you can make 5% above inflation, the 62-70 SS break-even age is 91. 0% is 80.
BE age at 3% above inflation is 85.
So I ask myself, how likely is it that I can (long-term) make 3% above inflation? That's a 15 year BE period -- how far out is acceptable? Most businesses won't make an investment with a 15+ year payoff. They want more like 3-5 years.


We are talking about a 30 year retirement, so we need to look at historical 30 year returns.
For 1950 to 2015, the worst 30 year return of a 60/40 portfolio was 9.0%. (median was 10.8%) That was Nov'55 to Nov'85.
Overall annual inflation 1950-2015 was 3.6%.
Annual inflation 1955-1985 was 4.5%.
10.8% - 3.6% = 7.2% (median)
9.0% - 4.5% = 4.5% (worst 30 year period).

At 4.5% above inflation, BE age is 89. (19 years)
At 6.0% above inflation, BE age is 98. (28 years)
At 6.6% above inflation, the BE age is 107.
At 7.2% above inflation, BE age is .. never. My spreadsheet only goes to 108. But at 108, the age 62 lead over age 70 is growing, so there is no break-even, ever.)
(Specifically, for 10.8% return and 3.6% COLA the BE is also never.)
Sequence of returns is a factor too. I can find many starting years where it would have been better to defer.

I look at it this way. If you aren't going to drain your other accounts while waiting, you have an 8 year window in which you decide whether to take SS or not.
  • If the market has dropped, it makes sense that you wouldn't want to sell stocks off at a lower point, so take SS then, whether you are 62 or 69. It could be the next year will be down, but it's likely that soon enough the market will recover, and you will come out ahead using SS and keeping your investments in the market. After the tech bubble burst of the early 2000s or the big fall in 2008 would be such times.
  • If the market has been rising, it's hard to call when the top is but it seems good to be selling off a little more and holding off taking SS. It's true that you may be losing out on some gains if the market continues to rise, but if things are rising, my plan is probably safe. If you look at Firecalc failure scenarios, I doubt you'll find too many failures if the years between age 62-70 are good. If there is a failure, it's likely because there is a big drop to follow, and in that case I'd start taking SS after the drop and enjoy larger SS payments.

It's not a fool proof strategy. I'm only starting to work through the scenarios, but I imagine there are ones where it doesn't work as well, such as a steady rise between 62-70 and beyond where I'd be best off as fully invested as possible--meaning take SS early. I probably will do some backtesting to see if the odds favor my strategy, and to quantify the decision point on when the market has dropped or flattened enough. At age 54 I'm not in a big hurry, but I throw this out here to see if others can verify or shoot holes in it.
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Old 07-08-2015, 09:47 AM   #218
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The "game" is to optimize benefits for one's personal situation. For a single person of average family longevity, health and wealth, then theoretically it shouldn't matter if you take at 62, FRA or 70 (or anywhere in between).
I think your wording may not be precise enough. In my view, the objective of the exercise is to optimize the expected utility of the SS benefits within the context of one's situation (assets/income and liabilities). That's not at all the same as just maximizing the expected average number of dollars from SS. We keep going down the oversimplified rabbit hole of "BE analysis", which totally misses the hard-to-quantify but very real value of an increased inflation-adjusted monthly check that lasts as long as a person lives. How much extra portfolio size is required to make up for the forfeited $900 per month for maybe 30 years? Let's throw in that we might be at a point of high stock valuations (like today) and/or low bond yields (like we are today).
There are a lot of answers to the question, and everybody has a unique situation. Maybe that extra $900/mo (forever) has very low expected utility for some people, and has high expected utility for other people --based on their expected and worst-case situations. But for DW and I, based on what I see now, it has high expected utility.
If each person was just the average of the expected mortality of 10,000 people, the BE analysis would be more useful. But each of us is a potential "fat tail", with all that comes with that.
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Old 07-08-2015, 09:58 AM   #219
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Originally Posted by daylatedollarshort View Post
It is not like when to take SS is a major financial success factor in books like The Millionaire Next Door, compared to other factors like picking the right vocation or LBYMs. I find it odd that taking SS at 62 seems to draw a lot of negative comments here and posts implying financial imprudence, but spending money on cruises, luxury vacations, expensive dinners, vacation homes, RVs, boats, etc. does not draw the same level of finger wagging. As long as one is not in danger of running out of money it comes down to personal choices.
DLDS, almost everything does indeed come down to personal choice. Including whether to take a drunken moonlight swim with a hungry gator. That does not means that some choices are not better then others.

All the consumption expenditures that you mention at least get people something that they think that they want. When to take SS boils down to tactics. If one of the choices also feels better to somebody apart from tactics, then she should do that, because at least she gains what she thinks she wants.

I ran a tree. Do I need the income now? If not, then is some fixed income important to me? If so, would I like some of that to be annuities? If so, do I trust that I will likely get my SS paid more or less in full? If so, is this additional SS annuity either better, or more secure, or better priced than commercial possibilities? If so, wait. It is obviously better priced, and better (full COLA). If I could get the same cheap full COLA annuity from a large mutual insurance company I would likely take it in preference to waiting for higher SS, but I can't so I waited. I know there are other important special situations, but these are not personally important to me and I do not understand them in any detail so for this discussion they are not taken into account.

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Old 07-08-2015, 10:18 AM   #220
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I probably will do some backtesting to see if the odds favor my strategy, and to quantify the decision point on when the market has dropped or flattened enough. At age 54 I'm not in a big hurry, but I throw this out here to see if others can verify or shoot holes in it.
The "is the market rising or falling" trigger is probably less useful than a trigger based on "is the market overvalued or undervalued by historic measures." The recent thread on PE10s utility in setting AA may be of interest, and the latency of that metric (it can be "wrong" for years) is not a bad fit for the SS claiming decision/duration.
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