Laurence Kotlikoff - Maximize my SS.com

[Independent]

So assuming that this mortality table is realistic (and any of our life actuaries can weigh in on that) ...

I started a "Longevity" thread about various tables. The 2010 SS Period table had the highest mortality and lowest life expectancy of the options I showed.

 

[timo2]

An acquaintance of mine who lives down the road waited until age 70 and he had the means to comfortably defer. While he has had chronic health issues I suspect he deferred for his DW's benefit because he earned a lot more than her and she is younger.

I'm focused on the SS survivor benefit at 70 for DW also. I made a lot more than DW, partly because at times she could not work outside the home because of my job. and it IMO would be unconscionable to purposely leave her with less than the maximum I can. All of the other retirement calculations work backwards from that. period.

 

[Greg V]

Bestwifeever,

Good publication from the Congressional Research Service. It certainly shows that a low percentage of beneficiaries wait until 70 to apply for SS. However, the plethora of articles, forums, software, etc that analyze this decision (when to apply for SS) may be having an effect on whether people opt for early filing. The last paragraph on Page 4 mentions that from 2011 to 2013, the number of Age 62 filers decreased from 50% to 45% and Under Age 65 filers from 68% to 60%...a small, but definite shift. It may be the beginning of a trend or just a blip...need more data.

Waiting until 70 is my plan. I have the good fortune (barring a Black Swan or 2) to be financially able to wait and ensuring the maximum Survivor Benefit for my Spouse is the most important criterion with SS as longevity insurance a distant second. Maximum payout or optimizing total spending is not a big motivator in my case. If the unexpected occurs, I can redo my analysis and file prior to Age 70, so there is a Plan B (or C, D, etc).

This thread shows what we all know; when to file for SS is dependent on your individual financial, health and family circumstances as well as your assessment of different risks...future gov't actions, longevity concerns, etc. It is highly personal and can lead to interesting exchanges between posters. I find the options and discussion presented here thought-provoking and useful. I appreciate everyone sharing their views and analysis.

 

[bmcgonig]

I'm single, definitely plan on deferring purely for longevity reasons. My mom is 97, living alone and very healthy. The fact that I can defer does not mean that I can just do without it. Not by a long shot if I want to reach/maintain a standard of living that I want.

I plan on spending taxable from 62 to 70 then maybe buying a small(ish) SPIA, which along with SS will cover all or most of my necessary expenses. Whatever is left over will be invested or spent on extras.

I have no qualms about payout. The money is a sunk cost, but I just want to optimize the benefits thereof.


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[Bestwifeever]

Bestwifeever,

Good publication from the Congressional Research Service. It certainly shows that a low percentage of beneficiaries wait until 70 to apply for SS. However, the plethora of articles, forums, software, etc that analyze this decision (when to apply for SS) may be having an effect on whether people opt for early filing. The last paragraph on Page 4 mentions that from 2011 to 2013, the number of Age 62 filers decreased from 50% to 45% and Under Age 65 filers from 68% to 60%...a small, but definite shift. It may be the beginning of a trend or just a blip...need more data.

Waiting until 70 is my plan. I have the good fortune (barring a Black Swan or 2) to be financially able to wait and ensuring the maximum Survivor Benefit for my Spouse is the most important criterion with SS as longevity insurance a distant second. Maximum payout or optimizing total spending is not a big motivator in my case. If the unexpected occurs, I can redo my analysis and file prior to Age 70, so there is a Plan B (or C, D, etc).

This thread shows what we all know; when to file for SS is dependent on your individual financial, health and family circumstances as well as your assessment of different risks...future gov't actions, longevity concerns, etc. It is highly personal and can lead to interesting exchanges between posters. I find the options and discussion presented here thought-provoking and useful. I appreciate everyone sharing their views and analysis.

Yes, reading all the discussions about SS and many other financial decisions has been my retirement education in the past ten years! I really am so thankful for these forums as a real life resource. There are so many personal things to consider in making all of these decisions.

Good points about the survivor benefit being a factor for you. DH and I are both filing at FRA for several reasons, one of which is more flexibility waiting til then (he has already filed, I will start spousal benefits next year at FRA because mine would be less than that then but more when I am 70, when God willing I will switch--I don't think this strategy is an option if one files before FRA.). DH is under the impression we will sock away my benefits when I start them--maybe we actually will

 

[samclem]

Are most posters here looking primarily for longevity insurance and spousal benefits?

Those are big concerns of mine, but not the only ones.
- The two factors are related to a degree. DW is a couple years younger than I am, and less involved with the investing, etc. If I leave her on this nest of vipers, helpful FAs, and indexed annuity salesmen, I'll feel a lot better if her SS is higher--to cover a lot more of her basic needs (and those of the cabana boy). For as long as she lives, no matter what inflation does, at a price lower than any commercial annuity.
- Another plus is greater flexibility with the remainder of our stash after 70. We can accept higher volatility or spend it down farther on trips, etc. A SS check that is $800-$1000/mo higher can rightly be considered as functioning like that "liability-matching portfolio" idea that Bernstein and others are pushing. If someone believes in the value of that idea, then it is a >lot< cheaper to do it with SS than to buy TIPS or a commercial annuity.
- Three-legged stool: Just looking at the relative strength of the "legs", I want the SS leg to be a bit more robust than it would otherwise be in our case, decrementing my "private savings" leg a bit. For those on a two-legged stool (no pension), I'd think beefing up their SS check might have even more appeal. Just another way of diversifying. . .

 

[daylatedollarshort]

Those are big concerns of mine, but not the only ones.
- The two factors are related to a degree. DW is a couple years younger than I am, and less involved with the investing, etc. If I leave her on this nest of vipers, helpful FAs, and indexed annuity salesmen, I'll feel a lot better if her SS is higher--to cover a lot more of her basic needs (and those of the cabana boy). For as long as she lives, no matter what inflation does, at a price lower than any commercial annuity.
- Another plus is greater flexibility with the remainder of our stash after 70. We can accept higher volatility or spend it down farther on trips, etc. A SS check that is $1000/mo higher serves as part of that "liability-matching portfolio" idea that Bernstein and others are pushing. If someone believes in the value of that idea, then it is a >lot< cheaper to do it with SS than to buy TIPS or a commercial annuity.
- Three-legged stool: Just looking at the relative strength of the "legs", I want the SS leg to be a bit more robust than it would otherwise be in our case, decrementing my "private savings" leg a bit. For those on a two-legged stool (no pension), I'd think beefing up their SS check might have even more appeal. Just another way of diversifying. . .

Good points. I feel that TIPS interest rates would be less likely to be subject to changes than SS benefits in the future, which already narrowly dodged benefit cuts for current retirees under the more politically palatable term "chained CPI". TIPS rates are also generally are not subject to acts of Congress, like the cuts we've seen lately to multi-employer pension plans, which allowed reduced benefits to retirees already receiving benefits. But who knows. The future of tax rates and SS benefits are always a wild card in retirement planning.

 

[rayvt]

This seems like twisted thinking to me.

Just because I have access to other funds from 62-70 is no reason to not take advantage of the 'longevity insurance' aspect of the delay, and provide a higher benefit to my spouse if I pass earlier (likely).

Let me relate a story. Elsewhere I read an article written by an FA about a (well off) client who wanted to shift some of his money from the well-planned, well diversified investments to some long-shot IPO which stood a chance of doubling very quickly.
The FA shot him down by asking, "If it doubles, will that change your lifestyle or standard of living?" And "Since it won't, why bother to take the risk?"

I routinely get offers of free $1000 (or so) life insurance from my credit unions. We always toss them. Why? Why do we throw away $1000 for my wife when I die?
Because it is de minimis -- so minor as to not merit consideration.

At some level of assets, the longevity insurance aspect of delaying SS is just like the free $1000 life insurance. It is such a small factor in your overall finances that it isn't worth consideration.

Per your 'logic', if you are retired and your finances look good, you stop looking for bargains, and stop looking for ways to cut the utility bill, taxes, etc - "you have enough assets , you don't need the savings at all, at any age".

BINGO!!
If you'd got, say, $1M or $2M in investments, why would you spend any time running around the house flipping off lights that the cleaners left on? Why would you downgrade your internet speed to save $10/mo for the lower tier?

Average life expectancy isn't the issue for most of us - it's the longevity insurance and spousal benefit that we are looking at, not 'payback'.

True enough. I'm not sure that people pay attention, though, to the actual amount of that longevity insurance. It's really not a whole lot, it's only the benefit amount in excess of the age 62 amount. Like new home buyers who get all excited about the tax deduction. The actual net benefit is just the excess over the standard deduction.

For a $1000 benefit at 66 FRA, the 62 amount is $750, so the longevity insurance is only $250. I suspect that for most people--and certainly for most FIRE people -- $250/mo is not a significant amount of extra money.

Survivor benefit is another matter, quite complex, but I suspect it's the same level of importance. Minor for most FIRE'd folks.

 

[rayvt]

To be clear the increase is $80/month for each year of SS that you give up. So if your FRA is 66 and you wait until 70 then you get $1,320 rather than $1,000. If you only wait one year, until you are 67, then you get $1,080/month.

But since I came out with the same returns I think that is what you did was comparing and additional $320/month in exchange for giving up $1,000 per month for 48 months.

This tripped me up, too, until I looked more closely at the calculations. That's what prompted me to create the "deferral table" tab in my spreadsheet, taking the numbers right from the SSA.

Every month you delay past FRA, the benefit increases by 24/36%. = 0.66667%/mo = 8.00%/yr. However you figure the numbers--by year or by month- it will come out the same, because the factor of 12 is on each side so it cancels out.

Giving up $1000 for one month to get an extra $6.67/mo is the same as giving up $1000/mo for a year to get an extra $80/mo.
12 * $6.6666667 = $80

 

[pb4uski]

.....For a $1000 benefit at 66 FRA, the 62 amount is $750, so the longevity insurance is only $250. I suspect that for most people--and certainly for most FIRE people -- $250/mo is not a significant amount of extra money....

Saving $250/month (or getting $250/month) would get my attention. You'll find loads of threads here where people are thrilled to trim their expenses by much less than that by dropping a land line in favor or Ooma, finding a cheaper cellphone plan, etc.

 

[pb4uski]

This tripped me up, too, until I looked more closely at the calculations. That's what prompted me to create the "deferral table" tab in my spreadsheet, taking the numbers right from the SSA.

Every month you delay past FRA, the benefit increases by 24/36%. = 0.66667%/mo = 8.00%/yr. However you figure the numbers--by year or by month- it will come out the same, because the factor of 12 is on each side so it cancels out.

Giving up $1000 for one month to get an extra $6.67/mo is the same as giving up $1000/mo for a year to get an extra $80/mo.
12 * $6.6666667 = $80

Nothing tripped me up other than the way you described it could have misled someone who doesn't know how it works. From FRA to 70 your benefit increases at 8% annual simple interest.

Not sure where the 24/36% comes from but 8%/12 is 0.66667% so I agree.

 

[ERD50]

Let me relate a story. ...
I routinely get offers of free $1000 (or so) life insurance from my credit unions. We always toss them. Why? Why do we throw away $1000 for my wife when I die?
Because it is de minimis -- so minor as to not merit consideration. ..

There are also catches to all those. It's not really a good comparison, IMO (yes, you can say dying early is the 'catch' in SS delay - but as we have discussed, that isn't a big factor for some people)

If you'd got, say, $1M or $2M in investments, why would you spend any time running around the house flipping off lights that the cleaners left on? Why would you downgrade your internet speed to save $10/mo for the lower tier?

We fit your profile, except the 'cleaners' that leave the lights on is DW

My internet speed is 'good enough' for me, why spend more (actually it's more complicated than that - to go higher speed I need to sign up with the $^#&^%&*^%@%$ monopolistic cable companies, and I will avoid that if I can)?

Because I still need to stay within a budget, and reducing wasted $ means I have more $ to spend on fun stuff. I like spending dollars on me and family over giving it to the utility companies. So I continue to turn off lights that are left on, and grumble about it (though with CFLs/LEDS using 1/6th the energy, it takes more to get me worked up).

For a $1000 benefit at 66 FRA, the 62 amount is $750, so the longevity insurance is only $250.

But comparing 62 to 70 the factor is 132/75, or a $760 increase for each $1000 at 62.

Survivor benefit is another matter, quite complex, but I suspect it's the same level of importance. Minor for most FIRE'd folks.

Roughly $15,000 annual (in today's dollars) extra for DW in my case (if I got all my SS numbers right) - $15,000 annual is minor? And it comes with a COLA! (yes, you need to factor in the lost $ from 'early')

-ERD50

 

[rayvt]

Let's take a single person who has an annual benefit of $16,000 starting at 62, or $28,000 starting at 70. Assume he/she also has a portfolio of $450,000.

$450K is not enough money to FIRE. That's not enough to be considered Financially Independent. I think the minimum threshold is more like $1M -- or more.

This person could
A) Start at 62, take a 4% SWR form the portfolio for $18,000 and have $34,000 of spending money.
B) Carve $225,000 out of his portfolio to provide 8 years of withdrawals at $28,000 each year*. Take a 4% SWR from the remaining portfolio of $225,000, or $9,000 per year.

If they chose B, they need to spend some time with a good book on asset allocation. Instead of a 60/40 portfolio, they have a 30/20/50 (50% cash). That's just a fancy way of implementing a "spend all my own money now and depend on SS to save my bacon when I turn 70."

NTTAWWT. Everybody gets to make their own decision.
Personally, I prefer the Financially Independent aspect of FIRE. And if you are depending on SS, then be definition you are not F.I.
Arguably, if you are depending on a pension or annuity you are not FI, either. But the difference is that a pension or annuity is a contractual obligation. Social Security is not; the government can change SS at will, and you have no recourse.

As Darth Vader said, "I am altering the deal. Pray I don't alter it any further."

When we retired we moved into a community of mostly retirees.
A couple of years after we moved in my wife went to a neighborhood women's coffee, about 12-15 ladies. During the chatting, one lady mentioned that if either she or Jim died, and their SS stopped, the other would have to sell the house and move in with the kids, because the loss of that SS would not leave the survivor with enough income.

DW said what happened next was interesting. There was a group of wifes who nodded and said, Yes, us too. There was another group who looked at each other, gave a little shrug, did not nod, and remained silent.

If you retire on the cusp of being FI, you have to plan carefully so that you don't wind up in that first group.
If you are soundly FI, then you will be in that second group, and you don't have to bother trying to optimize what you get from SS. If worse comes to worse, you just shrug and wait an extra year before trading in the BMW for a new one.

 

[ERD50]

$450K is not enough money to FIRE. That's not enough to be considered Financially Independent. I think the minimum threshold is more like $1M -- or more. ...

Wow, that's a broad brush.

How about people with pensions? I happen to know a retired couple, their pensions are each in the $60-$80K territory (no SS). Other than keeping a minimum balance in their checking account, I hardy see that they would need any portfolio at all.

That's an extreme case, but couples with a significant pension, and significant SS, and modest spending are not rare. Sure SS may see some cuts, but to disregard it entirely is extreme (unless you can afford to do w/o, and just disregard it for rough estimates). Planning on 75% of SS might be prudent, and still probably extreme for some age 60 or more.

-ERD50

 

[Independent]

$450K is not enough money to FIRE. That's not enough to be considered Financially Independent. I think the minimum threshold is more like $1M -- or more.

If they chose B, they need to spend some time with a good book on asset allocation. Instead of a 60/40 portfolio, they have a 30/20/50 (50% cash).

We must hang out with different crowds. I think average, single people, ages 60-79 spend something below $35,000 annually. I picked the numbers for this example because they produced about that income.

If ordinary workers all waited till they had $1 million before they retired, most of them would never retire.

Yes, I think in option B my person should have half his/her money is something very safe. Please note the asterisk.

But, again, I'm not trying to convince you that you should do one thing or another. I'm simply giving an example of someone with enough assets to make deferring SS a possibility, and showing that SS is still an important part of his/her retirement plan.

 

[haha]

Many of us seem to think that we know exactly what is true and what is false, what will be and what won't.


While I do believe that there are usually generally effective ways to approach a question, the best answers will often be "maybes".


Ha

 

[bmcgonig]

$450K is not enough money to FIRE. That's not enough to be considered Financially Independent. I think the minimum threshold is more like $1M -- or more.


If they chose B, they need to spend some time with a good book on asset allocation. Instead of a 60/40 portfolio, they have a 30/20/50 (50% cash). That's just a fancy way of implementing a "spend all my own money now and depend on SS to save my bacon when I turn 70."

NTTAWWT. Everybody gets to make their own decision.
Personally, I prefer the Financially Independent aspect of FIRE. And if you are depending on SS, then be definition you are not F.I.
Arguably, if you are depending on a pension or annuity you are not FI, either. But the difference is that a pension or annuity is a contractual obligation. Social Security is not; the government can change SS at will, and you have no recourse.

As Darth Vader said, "I am altering the deal. Pray I don't alter it any further."

When we retired we moved into a community of mostly retirees.
A couple of years after we moved in my wife went to a neighborhood women's coffee, about 12-15 ladies. During the chatting, one lady mentioned that if either she or Jim died, and their SS stopped, the other would have to sell the house and move in with the kids, because the loss of that SS would not leave the survivor with enough income.

DW said what happened next was interesting. There was a group of wifes who nodded and said, Yes, us too. There was another group who looked at each other, gave a little shrug, did not nod, and remained silent.

If you retire on the cusp of being FI, you have to plan carefully so that you don't wind up in that first group.
If you are soundly FI, then you will be in that second group, and you don't have to bother trying to optimize what you get from SS. If worse comes to worse, you just shrug and wait an extra year before trading in the BMW for a new one.

I'm in the situation where I depend on SS. I'm also in the 7 figure net worth area. I'm also probably FI. But it depends on how that is determined. If I wanted to live on $40k a year, I certainly could move from the Bay Area to somewhere cheaper and absolutely consider myself FI. Without a doubt. However with the COL of where I want to continue living then I chose to optimize things like SS to do that. So I think your blanket statement is just off the mark. Your ability to be FI depends a lot on how much you want to spend. What kind of retirement you wish to have. You seem to look at this as entirely black or white while there's a Grand Canyon of grey between that.

And yes, I'm also one of those people with 7 figures that turn off all the lights in the house when not in use. I also have no problem spending $50-100 on a bottle of wine, sometimes. Priorities




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[Texas Proud]

/snip/

BINGO!!
If you'd got, say, $1M or $2M in investments, why would you spend any time running around the house flipping off lights that the cleaners left on? Why would you downgrade your internet speed to save $10/mo for the lower tier?

/snip

Why would anybody want to waste money Even if I had 10X as much as I do now, I would not want to waste it...

Yes, I flip off lights... I really do not care how much I am saving... they do not need to be on... I comparison shop at the store... I look at the cost per ounce (or whatever unit used).... I then think is it better to buy the bigger one or not... when a sale occurs on something that I need, I buy extra an store them...

I know which CC has the better cash back for what I buy... I know to wait a few weeks or a month to buy something if the quarter 5% cash back for that is coming up...

All of this adds up... and I would say to a few thousand per year (if not more)...

And even in your example... that is $10 per month or $120 per year.... yep, I make decisions on yearly costs... so if I do not need the extra speed I will save that money also...

 

[Ed_The_Gypsy]

Quote:
At 70, I will take SS. I don't know where I could get a guaranteed 8% anywhere else.
This is the same error that people often make when looking at annuity payouts. You are not getting 8%. A portion of that payment is return of capital, which is not a gain.

Fair enough, rayvt. I will take your word for it. I still don't know of anything that is 8% more next year than this year, though.

If you live 27 years, the rate you got was 6.7%

If you live 17 years -- right at the life expectancy -- the rate you got was 3.8%. Nothing wrong with getting 3.8%, but it's a far cry from the 8% that you erroneously thought you were getting.

I am 67. My dad lived to 92, and I am taking a lot better care of myself than he did. That is 25 years, so maybe, what? 6%? (Damn! is that all I have left I need to get busy having fun!)

 

[Ed_The_Gypsy]

average life expectancy isn't the issue for most of us - it's the longevity insurance and spousal benefit that we are looking at, not 'payback'.

+1, erd50!

 

[ERD50]

Fair enough, rayvt. I will take your word for it. I still don't know of anything that is 8% more next year than this year, though. ...

But you are taking too simple a view. Yes, the payout increases by 8%, but you also gave up the payment for that previous year. So it takes time for the 8% increases to exceed the amounts you didn't get.

I need to get busy having fun!

You mean calculating hypothetical optimum SS payouts isn't 'fun'?

Hmmm, you are right - I need to go do something fun.

-ERD50

 

[Ed_The_Gypsy]

Remember the "...longevity insurance and spousal benefit..." part?

 

[Running_Man]

It is easy in the most recent past to see where taking Social Security at age 62 would have been the thing to do, that was March of 2009, anything that kept you invested in a market that would rise 300% over the next 6 years would far exceed the 8 percent social security was offering. I think as Ha said, this is a much harder answer than it appears and there is not one true answer ever

 

[Ed_The_Gypsy]

R_R, apart from the spousal benefit aspect, considering my track record since Nov, I will be quite happy with even a steady 6% return for a while.

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[Chuckanut]

One other thing, for some of us taking SS at 70 is also a form of LTC insurance. Since the current LTC market is broken, IMHO, we need some way of paying the bill if LTC is needed. The extra SS money would certainly help with that.