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Old 06-20-2015, 02:46 PM   #141
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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".


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Old 06-20-2015, 05:08 PM   #142
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$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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Old 06-20-2015, 05:30 PM   #143
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/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...
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Old 06-20-2015, 05:39 PM   #144
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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.

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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!)
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Old 06-20-2015, 05:43 PM   #145
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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!
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Old 06-20-2015, 06:55 PM   #146
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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.

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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.

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Old 06-20-2015, 10:07 PM   #147
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Remember the "...longevity insurance and spousal benefit..." part?
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Old 06-20-2015, 10:43 PM   #148
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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
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Old 06-21-2015, 09:06 AM   #149
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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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Old 06-21-2015, 11:49 AM   #150
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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.
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Old 06-21-2015, 11:52 AM   #151
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One fact to consider in this discussion is diversification. By that I mean diversification of income sources.

Ideally, one could lose one source of income and still live on the remaining sources, if they are properly balanced.

So, for some people taking SS early might be a way to beef up the low retirement savings. For others, spending down the retirement savings while delaying SS might be a way to beef up the lower SS benefits. It all depends on what source needs beefing up to get that balance that will help see one through unexpected financial difficulties.

Diversification. Always a good thing to have.
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Old 06-21-2015, 02:49 PM   #152
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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).
Yes, we struggle with these issues, too. We buy things on Amazon to save a couple of bucks and save the sales tax. We buy snacks & spices at Dollar Tree (Everything One Dollar). Buy used books instead of new ones because used are half-price.

But when we took an 80 day Pacific Rim cruise last year, I sprung for a last-minute $22,000 upgrade to a penthouse cabin (half the normal upgrade price). There is no way to save enough money by buying at Amazon and Dollar Tree to offset that expense.

My point here is that while saving a few dollars a month by being frugal is nifty, there is a point in your financial life where those dollars have no effect on your lifestyle. If you can afford to spend an extra $22K on a stupid floating hotel room, you can afford to buy your spices from Whole Foods instead of Dollar Tree. Likewise, shifting your purchases from Whole Foods to Dollar Tree is not by itself going to allow you to upgrade to a luxury suite.
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Old 06-21-2015, 03:10 PM   #153
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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.

That's how I'm looking at SS. As reinforcements. Taking at 70 will mean I rely more on my nest egg, but I'll have a higher SS benefit to fall back on in the event I need a nursing home, LTC facility, or other special end of life care.


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Old 06-21-2015, 03:26 PM   #154
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A much easier way to answer this "when to take" question is to answer these simple Qs.

1. At age 62, do you need the money to live on? If YES , take it.

2. If NO, delay it until age 62 and 1 month and repeat #1.

3. Continue process until age 70. Take a BIG amount.
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Old 06-22-2015, 10:02 AM   #155
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For my own curiosity, I did an analysis of the expected PV of SS retirement benefits at age 62, FRA (66) and 70 using mortality from the SSA Actuarial Life Table (Actuarial Life Table) and assuming a monthly benefit of $1,500 at 62, $2,000 at FRA, and $2,640 at age 70. So each year's cash flow is the benefit for the year based on when benefits begin multiplied by the probability of surviving (based on average beginning and end of year survivorship in relation to 100% at 62) and then present valued using a real discount rate (IOW, no COLA is built into the cash flows)......
I found this article interesting. How Does Income or Education Level Affect Social Security/Retirement Planning?

Quote:
The big takeaway is that if you have a college education or if you have had higher than average income throughout your career, your life expectancy is meaningfully higher than average unless of course you have a known health condition indicating otherwise.

As you might imagine, for those with above-average education/income this is a strong point in favor of waiting to claim Social Security benefits (because doing so works out well in scenarios in which you live a long time).
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Old 06-29-2015, 06:06 PM   #156
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A much easier way to answer this "when to take" question is to answer these simple Qs.

1. At age 62, do you need the money to live on? If YES , take it.

2. If NO, delay it until age 62 and 1 month and repeat #1.

3. Continue process until age 70. Take a BIG amount.
But you need to pick one now to put into the calculators
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Old 06-30-2015, 01:11 PM   #157
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A much easier way to answer this "when to take" question is to answer these simple Qs.

1. At age 62, do you need the money to live on? If YES , take it.

2. If NO, delay it until age 62 and 1 month and repeat #1.

3. Continue process until age 70. Take a BIG amount.
When I read this, I had an insightful new question.

Recalling that anchoring bias is one of the common behavioral fallacies, the question that popped into my head was, "Why do we focus on 70? Other than that's the last age where deferral credit ceases, of course." But what if it didn't stop at 70, what if it kept going at the same rate of 24/36% per month?

If you deferred for another 8 years, you'd get 96% more money, $1960 for each $1000 at FRA. $750 at 62. Waiting 8 years to 70 gets you $570 more, waiting another 8 years gets you $1210 more - an additional $640.

Would people be making the same argument for waiting to 78 that they are now making for waiting to 70?

What would be the crossover point? Surely nobody would advocate waiting to 88 ($2760/mo) or 98 ($3560/mo) -- So there's got to be some age between 62 and 98 where people would agree that you shouldn't defer beyond. What would the math be, such that everybody would settle on that age?
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Old 06-30-2015, 01:16 PM   #158
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Great point. I can elaborate on this, but I'll wait & see what others have to say.


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Old 06-30-2015, 01:17 PM   #159
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When I read this, I had an insightful new question.

Recalling that anchoring bias is one of the common behavioral fallacies, the question that popped into my head was, "Why do we focus on 70? Other than that's the last age where deferral credit ceases, of course." But what if it didn't stop at 70, what if it kept going at the same rate of 24/36% per month?

If you deferred for another 8 years, you'd get 96% more money, $1960 for each $1000 at FRA. $750 at 62. Waiting 8 years to 70 gets you $570 more, waiting another 8 years gets you $1210 more - an additional $640.

Would people be making the same argument for waiting to 78 that they are now making for waiting to 70?

What would be the crossover point? Surely nobody would advocate waiting to 88 ($2760/mo) or 98 ($3560/mo) -- So there's got to be some age between 62 and 98 where people would agree that you shouldn't defer beyond. What would the math be, such that everybody would settle on that age?
My first thought is why go with a hypothetical that is not, nor probably ever will be available....


My second thought is...because that still would not settle the question.... there might be an age that gets a consensus, but you will never get an answer for everybody...

As an example... there is a guy in South America married to someone that I think is 30 or more years younger than him.... if he wanted to maximize SS payments he would never collect them for himself, but once he dies his DW would get a good pension for the rest of her life...


But, if you calculate 62 as your payment point that will not change with your hypo.... so you now have limited it to the people who want to delay... so you still have not settled the argument...
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Old 06-30-2015, 01:28 PM   #160
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.... if he wanted to maximize SS payments he would never collect them for himself, but once he dies his DW would get a good pension for the rest of her life...
This was my thought. Think of it like a life insurance policy, with the spouse as beneficiary. You pay your premium each year, and then the beneficiary collects when you pass. People do that, so why not delay SS for that purpose?

That's just a conceptual look, but it is a hypothetical anyway, so I'm not going to invest time in running numbers that will never come to pass.

But I can imagine, if they offered to extend the deal for a year - if I looked at my situation at age 70, is it conceivable I'd delay another year, or another year? Yes, I think so. If I didn't need the money that year, and still wanted to provide for DW on my passing (after all, she will lose on total SS, and taxes will go up), so I might.

And I also agree - just like today, not everyone will agree on an age or a formula - it is specific to the situation.

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