Laurence Kotlikoff - Maximize my SS.com

[samclem]

I seem to recall many intelligent and well thought out reasons articulated here in varying posts over the years here for posters explaining their different age claiming strategies, including age 62 . . .

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?

 

[samclem]

I don't follow where the $3,706 extra comes from in years 62-69? Are you reducing your SWR in years 70+ and applying the difference to these 7?

?? Look at the totals for ages 62-69
Take the SS early: $40K (portfolio withdrawals, 4%) + $19,476 (SS) = $59,467
Take the SS later: $29,090 (from main portfolio, 4%) + $34,092 (Set-aside money) + $0 SS = $63,182

$63,182 - $59,476 = $3,706 (Over $300 per month is a lot of beer and pizza.)

After age 70 (not shown in CutThroat's example, but assumed):
Took SS at age 62: 19,476 (SS) + $40K (portfolio withdrawals, 4%) = $59,467
Took SS at age 70: 34,092 (SS) + 29, 090 (portfolio withdrawals, 4%) = $63,182
(So, same difference as before age 70. Over $300 per month in beer and pizza forever).

Now, if we assume that the portfolio will do a lot better than inflation (even with the AA appropriate for a 70 year old), then the "take the SS early" person might have more in the portfolio (because he didn't set that $272,736 aside at age 62, probably in a safe account just matching inflation), and it would result in greater spending if they used a "% of year-end portfolio" withdrawal model. But the "take the money later" person has an inflation-adjusted guaranteed lifetime annuity that is 75% greater ($35K vs $20K) than the person who took the money early. Realistically, which will be better positioned to take market risk (if desired) and get the reward from that? Or, viewed another way, which person is more likely to feel pressure to take an uncomfortably high level of market risk with their portfolio to make up for a lower SS check?

And, as ERD50 pointed out, the numbers are actually even a tiny bit >more< favorable for the later SS taker.

 

[daylatedollarshort]

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 am not sure the point of your post. You seem to have a summary and then in quotes a rebuttal for each point with your personal opinion. I think there are many intelligent posters here with different reasons for their claiming strategies. I don't think there is one correct answer for every household, especially when the program is designed to be actuarially neutral. I don't understand the need for terms like "easy money". Most people who post here are pretty smart about money and don't have the lottery winner mentality.

 

[samclem]

I am not sure the point of your post. You seem to have a summary and then in quotes a rebuttal for each point with your personal opinion. I think there are many intelligent posters here with different reasons for their claiming strategies. I don't think there is one correct answer for every household, especially when the program is designed to be actuarially neutral. I don't understand the need for terms like "easy money". Most people who post here are pretty smart about money and don't have the lottery winner mentality.

The term was "early money", and it is absolutely accurate. You've misquoted it twice.

The point of my post was, as I wrote in reference to the reasons for taking SS early:

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

If you have made the choice to take SS at 62, that's fine. A pretty solid (IMO) numbers-based case for taking at 70 has been given here. A quantitative case for taking the money at 62 would be interesting, I do not recall seeing it. I got the ball rolling with three arguments for taking SS before 70, but none are capable of being supported numerically in a general way (obviously, if a person knows the date of their death, that would be an exception and subject to if-then analysis.)

Maybe Kotlikoff's program offers cases where it makes sense. It seems to me the most common reason to take the SS money early is that the person needs it--it has such high immediate utility that other factors are insignificant. The person doesn't have the resources to put 8 years of future SS receipts into a safe account. Looking at US savings rates, I can understand how this happens. Most of us have faced situations a home or work where we make non-optimum decisions because "we can't afford to be efficient." I think that doesn't apply to most people on this board.

 

[daylatedollarshort]

Most of us have faced situations a home or work where we make non-optimum decisions because "we can't afford to be efficient." I think that doesn't apply to most people on this board.

Some posters have expressed an interest in keeping retirement income sources diversified, not running down the portfolios and favoring maintaining assets they control vs. SS benefits which can be changed at any time. Others may have enough assets so that when to take SS is inconsequential from a financial security standpoint. Some are concerned over the possibility of future benefit cuts or tax increases. At least one poster is okay with waiting to 70 and relying close to completely on SS for income after that and others want to avoid relying on SS as much as possible. Our kids are not established in careers yet, so I'm more concerned with not depleting the estate while our kids are younger and might need an inheritance than I am in having more money after age 80 for personal use.

Intelligent people don't all need to have the same opinion or strategy about what is most important in claiming strategies or need to agree on what is likely to happen in the future. None of us knows the future of SS and tax rates. We all just take our best guesses and live with the results.

 

[Bestwifeever]

I have explored several of the options regarding when to claim SS for me and my DW. Has anyone used the program from Maximizemysocialsecurity.com? The program does not take into account the tax ramification of RMDs, but it may help clarify some alternatives for us.

Thanks to all for your input - or suggestions.

DH and I already decided our SS claiming strategy, but reading all the differing POVs on this thread makes ME want to use maximizemysocialsecurity.com! I think it would be a valuable way to spend $40 even if it just reinforces the way you are already leaning.

 

[pb4uski]

Another pay-for site is socialsecuritysolutions.com. I believe that Kiplinger's bought it a couple years ago. $20 and up for more services.

 

[Texas Proud]

Yah, it's easy to "prove" that what you want to do is the best of all possible alternatives --- if you ignore the alternatives that show the opposite.

Here's a couple he didn't list:
5) Take SS at 62, use the money for your dream vacation hiking Machu Picchu.
6) Take SS at 70, watch Machu Picchu programs on Discovery cable channel, wishing there was a way to lug your oxygen tank and wheel-chair to the Peru highlands.


The sole value of money is what it buys you. Otherwise it's nothing more than Monopoly Dollars. A million $ is worthless to a man on a desert island.

I do not understand.... why can you not take your dream vacation with the money from your portfolio


People keep talking about taking SS and saving it for later and coming up with what is best.... OR... they say take SS and spend it on things you want to do (which means you cannot save it).... but few talk about spending MORE of your savings earlier knowing you will have a bigger SS check when you hit 70....

 

[Katsmeow]

but few talk about spending MORE of your savings earlier knowing you will have a bigger SS check when you hit 70....

This can work out with people with a large portfolio. If you have a large enough portfolio then it probably really doesn't imagine what I do. The things that concern me about spending more from the portfolio because I'll get the bigger SS check later:

1. Draining (or significantly reducing the portfolio) banking on the higher SS check. Worst case -- entire portfolio is drained to do this. Lesser bad case -- Some portfolio is left, but flexibility is reduced due to the amount the portfolio has been reduced. Basically, the concern I have is that having to draw more from the portfolio from 62 to 70 makes SS in the future a more critical part of my retirement security than I would want it to be. It makes me more dependent on SS versus the portfolio.

2. Even worse -- you spend more from the portfolio banking on the higher future SS and then when you finally collect cuts/changes have been made so you don't get what you had planned for.

I think that waiting is fine if you don't have to materially reduce your portfolio to do it. How much people want to do that will vary from person to person and the individual situation and the economic conditions at the time will also be a factor.


http://www.early-retirement.org//www.pinterest.com/pin/create/extension/

 

[Texas Proud]

This can work out with people with a large portfolio. If you have a large enough portfolio then it probably really doesn't imagine what I do. The things that concern me about spending more from the portfolio because I'll get the bigger SS check later:

1. Draining (or significantly reducing the portfolio) banking on the higher SS check. Worst case -- entire portfolio is drained to do this. Lesser bad case -- Some portfolio is left, but flexibility is reduced due to the amount the portfolio has been reduced. Basically, the concern I have is that having to draw more from the portfolio from 62 to 70 makes SS in the future a more critical part of my retirement security than I would want it to be. It makes me more dependent on SS versus the portfolio.

2. Even worse -- you spend more from the portfolio banking on the higher future SS and then when you finally collect cuts/changes have been made so you don't get what you had planned for.

I think that waiting is fine if you don't have to materially reduce your portfolio to do it. How much people want to do that will vary from person to person and the individual situation and the economic conditions at the time will also be a factor.

I can see that argument.... I just do not like it when someone throws out a straw man on taking SS early and do things that you would not do anyhow... if you are taking SS early to protect your portfolio, then you would not be taking that dream vacation since your portfolio still has a chance or going down... if you save the SS, (which is technically not possible since money is fungible and you are spending money to live... it really does not matter if it is SS or money from your portfolio... it still is spending money).... you are still not going on that vacation...

As to your second argument.... I do not see them reducing payout to anybody that is close to 62.... the only means test I have heard about is for people making over $200K.... if you are making that much you do not need SS at 62 or 70.... they might tax SS at 100% instead of 85%, but that will not make that much difference... SS will be reduced to the young... not you or me...

Now, there is something that might happen to SS even if you are taking it... they could adjust the inflation increases.... but unless inflation starts to go up it does not make much difference... IIRC, my mom got a $4 increase... if she did not get it no big deal... now, in 20 or 30 years it really adds up.... but I do not see them cutting it to zero...

 

[rayvt]

delaying is pretty much a 'No-Brainer' for people with assets.

However, if you need the money to keep living, taking S.S. early is probably your only choice.

Actually, it's a "brainer", not a no-brainer.
I simply do not understand what part of "actuarially neutral" people don't understand.

And, as you say, only people with significant assets can afford to delay SS until 70. But then, it you have significant assets, you don't much need the SS money anyway.

For those who want to look at a spreadsheet (quite comprehensive, with some incomplete spousal & survivor information) https://www.dropbox.com/s/gebanzrbr3g33qf/My SS breakeven calc.xls?dl=0

 

[Big_Hitter]

I simply do not understand what part of "actuarially neutral" people don't understand.

well in all fairness making a determination requires an interest rate and mortality assumption

have you compared the reduction from SSNRA to an actuarially equivalent basis?


oh, I agree it's definitely a "brainer", actually a "brain damager"

 

[rayvt]

I do not understand.... why can you not take your dream vacation with the money from your portfolio


People keep talking about taking SS and saving it for later and coming up with what is best.... OR... they say take SS and spend it on things you want to do (which means you cannot save it).... but few talk about spending MORE of your savings earlier knowing you will have a bigger SS check when you hit 70....

Money is fungible. The dollars you spend don't know if they came from SS or from your 401k. People keep acting as if money from SS is somehow different and more special than your other money. It isn't.

Forget the emotional connotations of SS and think of the 62-to-70 deferral as a deferred annuity with no death benefit, for 96 monthly payments beginning at age 62. It takes 10.5 years for that annuity to pay for itself -- age 80 1/2. Is that a deal you would take if it didn't have the name "Social Security" attached to it? Would you take that deal if GEICO offered it?

but few talk about spending MORE of your savings earlier knowing you will have a bigger SS check when you hit 70....

Problem is, they don't know that. They assume that.

The fact that SS is under financial stress is well known, nobody knows for sure how -- or when -- or if -- these issues will be resolved. There are (unmentioned, lest this post be deleted for political commentary) additional changes on the immediate horizon which will put SS financials under even more stress. The Supreme Court has ruled that SS benefits can be changed at the will of the Federal Government, and SS beneficiaries have no legal recourse if benefits are changed or reduced.

Nobody knows how this will all shake out, so it seems madness to voluntarily depend on nothing changing. If nothing else, adding means testing to SS will mean that rich people (like us!) will not get that increased benefit at 70 that we are counting on. And means testing is one of the simplest and most obvious things that could change.

 

[rayvt]

.... the only means test I have heard about is for people making over $200K.... if you are making that much you do not need SS at 62 or 70....

Um, if you are retired you don't have any income, so you are not "making" anything. So that is unlikely to be what they base means testing on.

And it's "means" testing, not "income" testing. Somebody who has, say, $5,000,000 in investments is going to be considered rich and a candidate for having their SS benefit cut out. Somebody who has $5M of investments does not need SS at all -- you could write those political speeches in your sleep. One that is established, it's only a question of where they decide to draw the line.

 

[haha]

well in all fairness making a determination requires an interest rate and mortality assumption

have you compared the reduction from SSNRA to an actuarially equivalent basis?


oh, I agree it's definitely a "brainer", actually a "brain damager"

I have posted this several times. Anyone who understands finance knows that an annuity can not be given an all -seasons value, that will hold over a wide range of interest rates.

But sometimes those who understand least are most strident in their proclamations. Obviously the SS annuity does not vary with prevalent interest rates, nor does it vary with gender. Therefore it cannot be "actuarially neutral". It will occasionally be actuarially neutral.

But there are quite a few similar errors that are part of the accepted reality on this and many other boards. One biggie is that the "safe" withdrawal rate is invariant. How could it be, when prevalent interest rates as well as any valid equity valuation vary widely at the times when the so-called SWR is chosen. People ignore this, and if pressed say, well you adjust. OK, fine, but in this case why indulge in the false idea of a safe withdrawal rate?

Ha

 

[ERD50]

...

But there are quite a few similar errors that are part of the accepted reality on this and many other boards. One biggie is that the "safe" withdrawal rate is invariant. How could it be, when prevalent interest rates as well as any valid equity valuation vary widely at the times when the so-called SWR is chosen. People ignore this, and if pressed say, well you adjust. OK, fine, but in this case why indulge in the false idea of a safe withdrawal rate?

Ha

Off topic from this thread, but I'm sorry haha, your statement here seems to reflect a misunderstanding of what an SWR is.

The SWR is the historical worst case WR (and I always like to use a 100% historical SWR for these discussions, "HSWR" - it's more straightforward than the 95% success rate WR). You would not have had to vary it (historically) because a 100% HSWR always succeeded, regardless of when you retired. The cushion is built in. As valuations, inflation, interest rates etc varied, you could have pulled more from your portfolio, but never needed to adjust downward. So historically, never a reason to adjust. That is a historical fact, not an indulgence in false ideas.

But it's history, a data point. Of course, if the future is worse than the worst of the past, adjustments will need to be made. That's true of any 'plan' that isn't over-funded to the level of "who cares".

I don't think most people here are ignoring it. They realize what it means and that the future could be different (yes, there are a few who don't, but that's true of anything). It's a bit of a straw man to say most people think this, so you can point out that they are wrong.

Another way to say this is - HSWR is definitely variant - but only to the up-side.

-ERD50

 

[daylatedollarshort]

I have posted this several times. Anyone who understands finance knows that an annuity can not be given an all -seasons value, that will hold over a wide range of interest rates.

But sometimes those who understand least are most strident in their proclamations. Obviously the SS annuity does not vary with prevalent interest rates, nor does it vary with gender. Therefore it cannot be "actuarially neutral". It will occasionally be actuarially neutral.

But there are quite a few similar errors that are part of the accepted reality on this and many other boards. One biggie is that the "safe" withdrawal rate is invariant. How could it be, when prevalent interest rates as well as any valid equity valuation vary widely at the times when the so-called SWR is chosen. People ignore this, and if pressed say, well you adjust. OK, fine, but in this case why indulge in the false idea of a safe withdrawal rate?

Ha

I agree there are tweaks we can all make that might give us statistical advantages, like being a single woman with longevity in the family there may be a higher probability of more income with delaying. But I am not getting the emphasis in some posts on as being a no-brainer and you are "screwed" if you don't delay until 70.

SS is one of many sources of retirement income for us, so a change when we claim SS either way isn't going to determine whether or not we are eating cat food in retirement.

For me, the biggest factors to a financially secure retirement are diversified income sources, a continued LBYM lifestyle and matching strategies, and of course thermal cookers and LED bulbs. (Just kidding about the last two, but they are part of our LBYMs lifestyle. ) We've run the spreadsheets - when to take SS is a relatively minor tweak at best.

 

[Big_Hitter]

But I am not getting the emphasis in some posts on as being a no-brainer and you are "screwed" if you don't delay until 70.

it may be because almost every FA (and every financial web site) spits that out rote


also, most don't get the concept of expected values or utility - most FAs project to a "fixed" life expectancy, when in fact a little piece of you dies each day

 

[ERD50]

.. But I am not getting the emphasis in some posts on as being a no-brainer ... .

Agreed, that is carrying it way too far. Personal circumstances come into play - desire to pass an estate along, spousal benefits (or not), unusual life expectancy considerations, market returns on the early payments, etc.

I think with reasonable assumptions for the typical cases, it makes sense to delay. Calling it a no-brainer is going too far, and is counter-productive to the case, IMO.

-ERD50

 

[Katsmeow]

it may be because almost every FA (and every financial web site) spits that out rote

The thing is that many of them are comparing:

1. Retiring at 62 and taking SS at 62, and

2. Working until later (perhaps even 70) and taking SS at 70.

So, they aren't considering the situation of an early retiree who retires and must draw from the portfolio while waiting to 70. It is absolutely clear that from a purely financial standpoint, we would do better working until 70 and then taking SS rather than retiring earlier and drawing from the portfolio until 70. But, most of us here don't want to work until 70.

 

[Big_Hitter]

then, from a purely financial perspective, technically we would all be better off if we worked until the day we die


no thanks

 

[daylatedollarshort]

The thing is that many of them are comparing:

1. Retiring at 62 and taking SS at 62, and

2. Working until later (perhaps even 70) and taking SS at 70.

So, they aren't considering the situation of an early retiree who retires and must draw from the portfolio while waiting to 70. It is absolutely clear that from a purely financial standpoint, we would do better working until 70 and then taking SS rather than retiring earlier and drawing from the portfolio until 70. But, most of us here don't want to work until 70.

I think that hits the nail on the head, plus I would add an element of self interest to the FAs party line. By keeping people working until 70, the FAs hang on to more 401K money to manage and collect fees on for longer time frames. I think that is also why we see so many "Why $1M and SS aren't nearly enough to retire" articles.

 

[Texas Proud]

Um, if you are retired you don't have any income, so you are not "making" anything. So that is unlikely to be what they base means testing on.

And it's "means" testing, not "income" testing. Somebody who has, say, $5,000,000 in investments is going to be considered rich and a candidate for having their SS benefit cut out. Somebody who has $5M of investments does not need SS at all -- you could write those political speeches in your sleep. One that is established, it's only a question of where they decide to draw the line.

Well, there are many people on this board who are retired and who have significant 'income'.... I did not say salary....

If you have a pension... income... RMD, income... dividends, interest, etc. etc... so you can have an 'income' test to determine if someone gets SS.... and it is much easier to verify than assets... I can hide assets very easily... income is much harder to 'hide'...

 

[haha]

Off topic from this thread, but I'm sorry haha, your statement here seems to reflect a misunderstanding of what an SWR is.

The SWR is the historical worst case WR (and I always like to use a 100% historical SWR for these discussions, "HSWR" - it's more straightforward than the 95% success rate WR). You would not have had to vary it (historically) because a 100% HSWR always succeeded, regardless of when you retired. The cushion is built in. As valuations, inflation, interest rates etc varied, you could have pulled more from your portfolio, but never needed to adjust downward. So historically, never a reason to adjust. That is a historical fact, not an indulgence in false ideas.

But it's history, a data point. Of course, if the future is worse than the worst of the past, adjustments will need to be made. That's true of any 'plan' that isn't over-funded to the level of "who cares".

I don't think most people here are ignoring it. They realize what it means and that the future could be different (yes, there are a few who don't, but that's true of anything). It's a bit of a straw man to say most people think this, so you can point out that they are wrong.

Another way to say this is - HSWR is definitely variant - but only to the up-side.

-ERD50

ERD50, I appreciate your careful and polite statement. I understand what you are saying, and I understand that the SWR, as defined for example by Firecalc, is an historical (USA) worst case, for the span chosen. My issue is actually with the term, "Safe Withdrawal Rate". IMO it should be "SafeWithdrawalRate as defined by Firecalc", or whatever other thing is being used. The difficulty is that the normal English words, "safe withdrawal rate" imply that it is functionally safe. It may be, but Firecalc or any other historical calculator cannot establish this. I am not into SWR enough to be sure, but has there ever been a time within the years used by Firecalc when the going in PE10, or Tobin's Q, or US treasury rates have been as unfavorable as today? Has there ever been peacetime with today's level of level of government debt? This is just one example of how the US retiree is wading into a river that has not been waded before, at least not within the Firecalc database

This is one more of the things where people just take their choices, but IMO the flat % of prior year ending portfolio quoted value is in most respects closer to the common meaning of safe, meaning not likely to lead to harm. The uncomfortable truth is that events as they unfold really control what is safe and what isn't. And even with % withdrawal, if you don't have sufficient pension, or SS, or other non portfolio income, it may in difficult times be hard or impossible to stay within bounds.

Ha

 

[daylatedollarshort]

ERD50, I appreciate your careful and polite statement. I understand what you are saying, and I understand that the SWR, as defined for example by Firecalc, is an historical ) USA) worst case, for the span chosen. My issue is actually with the term, "Safe Withdrawal Rate". IMO it should be "SafeWithdrawalRate as defined by Firecalc", or whatever other thing is being used. The difficulty is that the normal English words, "safe withdrawal rate" imply that it is functionally safe. It may be, but Firecalc or any other historical calculator cannot establish this. I am not into SWR enough to be sure, but has there ever been a time within the years used by Firecalc when the going in PE10, or Tobin's Q, or US treasury rates have been as unfavorable as today? Has there ever been peacetime with today's level of level of government debt?

This is one more of the things where people just take their choices, but IMO the flat % of prior year ending portfolio quoted value is in most respects closer to the common meaning of safe, meaning not likely to lead to harm. The uncomfortable truth is that events as they unfold really control what is safe and what isn't. And even with % withdrawal, if you don't have sufficient pension, or SS, or other non portfolio income, it may in difficult times be hard or impossible to stay within bounds.

Ha

Excellent points, Ha. If we had a wiki this post should go in it. I was using the Fido RIP last night on the lowest risk setting (all short term) and realized that their programmed in short term results were not in sync with today's low rates. The RIP asset balance after a few years was much higher than my % of prior years type calculations in a spreadsheet were showing. Too bad. I liked their higher results better. But I can't earn historical results on my portfolio going forward - only what is realistic today at current interest rates and stock valuations. If rates improve, great. But I am not planning on spending that money until then.