Laurence Kotlikoff - Maximize my SS.com

[samclem]

What I posted was "A decision tree on when to take SS would take into account the probability of dying at different ages, the expected amounts of total SS benefits to be gained at each age, and possibly other factors."

Because of the interdependence of many of these factors, and the lack of binary yes/no answers to some issues, I think an analysis program (or "app", etc) would ultimately be required, rather than a tree. Which brings us back to the first post of this thread--Kotlikoff's program (or others with similar detail).

 

[misanman]

The following article discusses the predicted social security shortfall and several proposed fixes:


https://www.fidelity.com/viewpoints/retirement/social-security-future

 

[daylatedollarshort]

Because of the interdependence of many of these factors, and the lack of binary yes/no answers to some issues, I think an analysis program (or "app", etc) would ultimately be required, rather than a tree. Which brings us back to the first post of this thread--Kotlikoff's program (or others with similar detail).

A decision tree is the methodology, which could be coded into program. I am not aware of any existing program on the market that would use all the key factors I feel are important considerations, such as income diversification. YMMV.

 

[bmcgonig]

Except that you're completely wrong! .... You actually get to spend more money at age 62, by delaying S.S. to age 70 .... Just do the math.

*******************************************************
Forget trying to calculate how much 'You'll Get'...Focus on How much you get to spend.

Here is a pretty simple calculation for those that wish to spend more money in retirement and do not care about leaving an estate. For those that have a Big enough Portfolio and can afford to wait until 70 to take SS, you'll have more to spend every year of retirement.

Let's Say you retire this year at age 62 with the $1 Million Portfolio and decide to take a 4% SWR. You get Social Security of $19,476 per year at age 62 and delaying to age 70 would get you $34,092 per year. Let's assume no inflation for ease of calculations.

Scenario age 62. Your SWR is $40K per year and Social Security of $19,476 gets you a Spending total of $59,476 for each year of your retirement period.

Scenario age 70. You stash 8 years of $34,092 from your portfolio into a savings account for a total of $272,736. Your portfolio is now down to $727,264. Your 4% SWR is now $29,090 per year and you remove $34,092 from your savings account giving you a total of $63,182 to spend each year for the rest of your 30 year retirement period.

The Delay to age 70 gives you $3,706 more every year starting at age 62 with no more increased risk.

No need for any stupid 'break even analysis'.

If your WR is more conservative, such as a majority of the people here and myself, the results are even more compelling. At a 3% WR plus SS at age 62 scenario is a total of $49,476 and the age 70 scenario is $55,910. The delay of SS to age 70 now increases your annual spending by $6,434.

********************************************************

By the way when I read this post on the iPad app a lot of it is left out, e.g., the entire explanation after "scenario age 70" is missing. It made no sense so I went to the web page to read it. It's perfect there, as it is when I quote it for this post.

Possibly why others didn't "get" it either.



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[Dreaming of Freedom]

First you need to convert him from a fiance to a husband... without that nothing else matters...


Now, after you get married.... it is really a no brainer in your situation... he takes SS the latest allowed... which is currently 70... that will maximize your survivor benefits....

I won't partially retire until after we are married. For me to be able to receive the full survivor benefit, do I have to wait until FRA to take my SS benefit, or can I take SS early at age 62?

 

[Texas Proud]

I won't partially retire until after we are married. For me to be able to receive the full survivor benefit, do I have to wait until FRA to take my SS benefit, or can I take SS early at age 62?

Well, to get survivor benefits you DH to be has to die...

You can get 1/2 spousal benefits but reduced starting at 62... the full half at FRA... but you should start at 62 as it does not affect your survivor benefits...

 

[NoiseBoy]

The rationales for claiming before age 70 that I recall most clearly were:
1) Belief that one would die quite early compared to peers ("get something from SS rather than nothing"). That could happen in individual cases, but 84% of those alive at 62 will be alive at age 70.
2) Belief that SS payout schedule would change in a major way, and that taking payouts earlier than age 70 would somehow mitigate this (They won't cut payments to those already receiving checks")
3) Belief that taking SS earlier will leave more in the estate (since the portfolio won't be spent down as much during the 8 years between 62 and 70 AND one or both recipients won't live to the "break even point")

Are there others you recall that are based on numbers/analysis?

I'll throw out two. First, when I run Fireclalc with my actual numbers in solve for X mode (letting it tell me how much I could spend) it reports a slightly smaller payout for delaying SS. I can spend more if I take it at 62 according to that tool. The difference is not enough to make the decision an obvious one though.

Second, using the earlier numbers, I think something is getting missed in the analysis. The age 62 ($20k) and age 70 ($35k) SS cases both are spending $60k from 62 to 70, right? Okay, so Mr. 62 is getting $40k/year from his portfolio and $20k from the government, while Mrs. 70 is taking out $60k from her stash. Agreed? At the end of 8 years, when they are both 70 Mr. 62's portfolio has $900,406 in it (3% return) while Mrs. 70 has $717,224 left. This must necessarily be so because they both spent the same amount of money for the past 8 years and they both started with a $1M portfolio.

Starting at age 70, Mrs. 70 can begin taking smaller amounts from her portfolio (~$25k), because of her larger SS benefit so that her portfolio shrinks more slowly than Mr. 62. My spreadsheet shows her taking over the lead at age 85. Taxes and inflation could effect these numbers a little, but there's $160,000 ($20k x 8 years) that isn't coming from some mystery box. It's either from the government, and thus not coming out of your portfolio. Or, you're agreeing to spend down your portfolio by at least $160k to maximize your age 70 SS benefit. With a 3% rate of return, you're losing an additional $23k, so you have to make up $183,000 from the future SS payments to "break even."

I think, for singles, it really is an actuarial decision.

 

[samclem]

The age 62 ($20k) and age 70 ($35k) SS cases both are spending $60k from 62 to 70, right?

No. The Mr 62 is spending $59,476 each year during that time. Mrs 70 is spending $63,182.

Taxes and inflation could effect these numbers a little, but there's $160,000 ($20k x 8 years) that isn't coming from some mystery box.

"Mystery box?" I'm not seeing what is wrong with the scenario as set up in post 15. There's no mystery box.

 

[NoiseBoy]

No. The Mr 62 is spending $59,476 each year during that time. Mrs 70 is spending $63,182.

"Mystery box?" I'm not seeing what is wrong with the scenario as set up in post 15. There's no mystery box.

I went back and read the post again. Then I tried to create that in my spreadsheet, but I can't discover how splitting Mrs. 70's $1M portfolio at age 62 into two buckets results in a higher payout. Where does the extra money come from? Can someone explain a year of two of the progression for me?

The Age 70 scenario in post #15 reads like a Free Lunch to me, and I've been taught to be dubious of anyone selling those. If the math ALWAYS results in a higher payout for a single person if they delay taking SS until age 70 wouldn't that be on every financial forum?

 

[Dreaming of Freedom]

Well, to get survivor benefits you DH to be has to die...

You can get 1/2 spousal benefits but reduced starting at 62... the full half at FRA... but you should start at 62 as it does not affect your survivor benefits...

My fiance is almost 18 years older than I, so sadly, I am likely to be widowed for many of my SS years. On the bright side, our large age difference pushed me to start saving aggressively for retirement by the time I was 30.

 

[Katsmeow]

The Age 70 scenario in post #15 reads like a Free Lunch to me, and I've been taught to be dubious of anyone selling those. If the math ALWAYS results in a higher payout for a single person if they delay taking SS until age 70 wouldn't that be on every financial forum?

You are correct. There is no such thing as a free lunch. What post 15 is minimizing is that in the wait until 70 situation, you have drawn down your portfolio from 62 to 70 considerably. It also doesn't address the investment returns you could have earned on your portfolio from 62 to 70 if you weren't spending more from it to cover your spending during those years.

In his first scenario - Person has $1 million portfolio and from 62 to 70 spends $40,000 a year plus $19,476 SS per year. If we assume the portfolio has 0% returns during that 8 years (which, of course, won't happen) there would be $680,000 left when the person turns age 70.

In his Scenario - The person has the same $1 million portfolio and from 62 to 70 spends $63182 a year from the portfolio (since the person isn't drawing SS). When the person turns age 70, the portfolio is now down to $494,544 (almost $200k less than in Scenario 1).

Now, I'm sure the argument would be made that scenario 2 is more desirable. While the portfolio is less at age 70, the person is withdrawing less from it and is getting to spend more.

On the other hand, the entire scenario ignores that could have been earned on the almost $200k left in the portfolio in scenario 1.

Also, there is the issue of how much flexibility is lost by draining the portfolio as much as in Scenario 2. Maybe you feel OK with having a $495k portfolio at age 70 instead of a $680k portfolio.

But, where is that line drawn? What is doing this meant having a $295k portfolio instead of a $480k portfolio? Would you still be comfortable with that?

Or, imagine someone with less. What if doing this meant having a $95k portfolio at 70 instead of a $280k portfolio? Would you be comfortable with that? If the answer is yes, how would feel if you got to age 70 and didn't get $34092 a year but got less due to changes in law?

 

[samclem]

On the other hand, the entire scenario ignores that could have been earned on the almost $200k left in the portfolio in scenario 1.

In fairness, the setup did explain that inflation and earnings would be ignored for simplicity. But let's understand how limited that growth will be. Fundamentally, portfolio growth is determined, over time, by the amount of volatility ("risk") that is taken, as we see every day. Yes, there's very little "free lunch"). Let's say that the ultimate age 70 SS deferred benefit ($34,092 per year) represents "must have" money for both Mr 63 and Mr 70. Mr 63 takes his SS at 63 and so his SS for the year only amounts to $19,476, so he needs to get the remaining $14,616 from his portfolio every year to meet his basic needs. Will he be taking a lot of risk with that money if he absolutely needs to use it (gains and principal) to meet his needs in the short term? Probably not. He won't be making a bet on startup companies. So, with that low risk, how much gain will there be? Probably little. In practice, both Mr 63 and Mr 70 will likely have their "got to have" money in a CD ladder. Mr 63 needs to start with $116,928 [$14,616 x 8], Mr 70 needs to start with $272,736 [$34,092 x 8]). CD's have historically returned about 2% above inflation. In fact, because CDs have historically produced a little bit of real return, Mr 70 will get more extra growth to spend because he'll have more in these CDs than Mr 63 does. If CD's don't match inflation, they seldom lag it by more than 1-2% for long, so it won't be a major risk for either case.

Also, there is the issue of how much flexibility is lost by draining the portfolio as much as in Scenario 2. Maybe you feel OK with having a $495k portfolio at age 70 instead of a $680k portfolio.

I do see and agree with this concern. Mr 63 will have more of a "pot" at first, and more flexibility to accelerate spending if needed.
At age 70, both Mr 70 and Mr 63 have exhausted their CD ladders. The difference in their portfolio values is $155,808 (the difference in the amount they contributed to their CD ladders) plus any growth on that money--let's say it is now $250K. Mr 70's SS check has started coming, it meets his basic spending needs. Mr 63 gets $14,616 less from SS, and has to make up the money using the retained portfolio amount. How much flexibility does he really have with that money? Especially as he is now "short" $14,616 in real needed spending every year for as long as he lives, which on average will be 14 years (16 years for females). That's the average, he probably needs to plan for longer. Without any real growth (again, how much risk can he take with this "must have" money), his $250K stash will last 17 years. So, he doesn't have a lot of spending flexibility with this money. To the degree that Mr 70 has his basic spending "set" for life (due to the higher SS check), a case can be made that Mr 70 has more flexibility with any savings he does have left in his portfolio. This is the case for most people reading this board--they have money beyond the minimum they need to survive. The higher guaranteed lifetime SS payment gives them more flexibility with their remaining stash (to spend it or invest with greater risk/reward). And MR 70 has had the flexibility for years before age 70, because he knew he'd have his basic needs covered from there on out, as long as he lives. Mr 63 doesn't.

At age 63-70, both Mr 70 and Mr 63 would be dependent on SS for a large portion of their basic needs, but more-so for Mr 70. To my way of thinking that's the most significant objection to delaying SS.

 

[Ed_The_Gypsy]

Our situation is very simple. We are virtually the same age. I was the higher earner. We have adequate assets. Maybe.

At my Full Retirement Age, I filed-and-suspended. DW applied for spousal benefit at that time, which was more than her SS benefit.

We first exhausted our after-tax savings left over from my overseas job. Now we are living off my meager pension, her SS and monthly withdrawals (per my pre-estimated limits) from my tIRA. We can get along without my SS until I reach 70. I am also getting a little work, which helps, of course.

At 70, I will take SS. I don't know where I could get a guaranteed 8% anywhere else.

On the surface of it, if I were in Dreaming of Freedom's shoes, this is what I would do.

In our situation, there is a further twist. By 70, I will have converted the tIRA to Roth.

All this dancing
1) gives the max survivor benefits,
2) minimizes our taxes (zero income tax forever after 70), dodging the Tax Torpedo (at the expense of higher taxes in the meantime).

I bought Kotlikoff's program but found it confusing and over - complicated for our situation.

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[Cut-Throat]

On the other hand, the entire scenario ignores that could have been earned on the almost $200k left in the portfolio in scenario 1.

And it also ignores the amount that could have been LOST on the $200K left in the portfolio. That is the Point of a inflation adjusted SWR. You don't know whether you are going to lose or gain with your invested portfolio. Why would you always assume GROWTH?

Even if your portfolio does have growth, if you follow the rules of SWR, your SWR does not have Growth. When you take a SWR at the beginning of retirement, that amount stays put for the remainder of retirement. It is only adjusted upward by the amount of inflation.

Again, you are fixating on the Amount you can Amass, rather than the Amount you can spend ! The 'Free Lunch' is gained by the value of the sure 8% growth you are getting by delaying S.S...... While your SWR cannot be increased, if you buy into that sort of thing!

Yes, you may very well die with more, by taking S.S. at age 62, But this exercise was focused on those that were interested in SPENDING MORE !!

 

[Katsmeow]

Samclem

I think that fundamentally I don't agree that everyone who defers to 70 (in the scenario given) must have the greater age 70 SS to make it. To put it another way, if someone basic expenses were $34,092 a year and he had a $1,000,000 portfolio I see now reason why that person couldn't feel pretty confident to meet that with taking SS at age 62 and then withdrawing 4% (assuming the person is happy with a 4% withdrawal rate) from the portfolio and investing the portfolio at, say, an allocation that was 50/50 equities and bonds.

If that person was instead deferring to 70 to get extra SS at age 70, I can see that person while withdrawing more from 70 investing the portfolio at 50/50.

In neither case, do I see any reason for the person in the first scenario to have a separate CD ladder. That is I don't see the person in the first scenario having a reason to have a more conservative allocation.

So, I think the difference in portfolio between the two shouldn't compare a CD ladder to a CD ladder but should compare something more like a 50/50 allocation to a 50/50 allocation.

 

[daylatedollarshort]

If a retiree has something like a $1M portfolio and $20K annual expenses, then I would think when to take SS is matter of personal choice. I see LBYMs in retirement as having a greater degree of safety and longevity insurance in the scheme of things compared to when to take SS.

 

[REWahoo]

If a retiree has something like a $1M portfolio and $20K annual expenses, then ...

...they may have crossed over the threshold from "frugal" to "miserly".

But to your point about timing of SS, I agree.

 

[daylatedollarshort]

...they may have crossed over the threshold from "frugal" to "miserly".

But to your point about timing of SS, I agree.

Okay, then I can change the example to $200K income and $100K expenses instead, and plans to leave the rest to charity. Or $100K income and $60K expenses. I think a wide margin of safety on the spending front makes the SS claiming age a matter of personal choice.

 

[samclem]

I think a wide margin of safety on the spending front makes the SS claiming age a matter of personal choice.

If a retiree has something like a $1M portfolio and $20K annual expenses, then I would think when to take SS is matter of personal choice.

Unless the government forces people to take SS at a certain age, it is of course a matter of personal choice (I hope it stays that way). But the options are not equivalent, there are significant differences that recipients should understand well before making a choice. IMO, modeling these things out in each situation is the best way to illustrate and understand the differences. Hand waives such as "they are actuarially equal" or looking for a break-even date are no substitute for punching in some numbers and mentally putting oneself into the scenario at each significant future point. ("Okay, now I'm 70, DW is 67. Would I rather have X, or Y?")

 

[43WorkYears]

Many on this post refer to taking SS at 70. Almost no one takes SS at 70. The percentage is between 1%-2%. So pretty much none of us will take SS at 70. We should discuss SS between 62 and FRA, not an age pretty much none of us will wait to collect. Based on the stats, my comments have a 98%+ as being correct. Even though you say you will, you won't.


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[samclem]

Based on the stats, my comments have a 98%+ as being correct.

Because the financial profiles/savings rate/demographics of the people reading this board are the same as the general American population, I guess.

 

[daylatedollarshort]

Unless the government forces people to take SS at a certain age, it is of course a matter of personal choice (I hope it stays that way). But the options are not equivalent, there are significant differences that recipients should understand well before making a choice. IMO, modeling these things out in each situation is the best way to illustrate and understand the differences. Hand waives such as "they are actuarially equal" or looking for a break-even date are no substitute for punching in some numbers and mentally putting oneself into the scenario at each significant future point. ("Okay, now I'm 70, DW is 67. Would I rather have X, or Y?")

Right, like making a decision tree with all possible outcomes, customized personal factors like sex and medical history and considering factors like income diversification and potential future program / tax changes for a complete analysis. I agree that a thorough analysis is best.

 

[haha]

Many on this post refer to taking SS at 70. Almost no one takes SS at 70. The percentage is between 1%-2%. So pretty much none of us will take SS at 70. We should discuss SS between 62 and FRA, not an age pretty much none of us will wait to collect. Based on the stats, my comments have a 98%+ as being correct. Even though you say you will, you won't.


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I'm glad you are so smart. And now, farewell!

 

[pb4uski]

I'm glad you are so smart. And now, farewell!

Ha, give him/her a break. How smart do you expect someone to be after 30 posts?

43WorkYears, the thing you are failing to consider is that a large majority of people who take SS before they are 70 do so because the have no choice... they do not have the means to defer to 70. We're referring more to the subset of the population who have the means to take it anytime they want to and are making a conscious decision to take it at 62 or FRA or 70.

 

[Ed_The_Gypsy]

Many on this post refer to taking SS at 70. Almost no one takes SS at 70. The percentage is between 1%-2%. So pretty much none of us will take SS at 70. We should discuss SS between 62 and FRA, not an age pretty much none of us will wait to collect. Based on the stats, my comments have a 98%+ as being correct. Even though you say you will, you won't.


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