Laurence Kotlikoff - Maximize my SS.com

[ERD50]

Quote:

Originally Posted by Cut-Throat .... 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. ...

Thanks! I know you've discussed this before, but that is a great, concise and effective summary.

Detail, I got slightly different numbers (yours seem to understate the age 70 income a bit).

$19,476 62
0.75
$25,968 FRA
1.32
$34,278 70

versus your $19,476 going to $34,092.

I've copied this, added my own formulas in a spreadsheet, and will forward it to a friend. He was having this exact discussion with me, and I talked about how you can spend more at 62 since you can count on the higher amounts later, but didn't have the numbers hit him with.

I'll need to dig in more detail, but I'm not sure there's a tax issue for me - I still need to run the numbers, but I think the marginal income at 70 versus 62 is ALL in the 25% bracket anyhow. But that is something everyone needs to review for their own situation.

edit/add - and while taxes are a consideration, there is still the uncounted benefit of the longevity insurance past the 30 year period, and spousal benefit if that applies.

-ERD50

[jpjr]

Thanks to all for your input. I certainly will look into some of the suggestions for "calculating" our options. I do want to add a bit of background - not that it will change the thought process much, but to provide some food for thought. We retired with 900k in IRAs etc., no debt, and this year started a modest 11k pension. I had always thought we would wait for SS in order to make sure my DW would get the biggest benefit upon my demise. Last year, she was stricken with a life-threatening illness, so we went ahead and she filed for her reduced benefits (age 63). We now are looking at a full recovery so I am contemplating paying back the SS she collected. Next year, when she is 64 1/2 and I am 66 I thought she could again file for SS and I could then file for spousal benefits. This would allow my DW to collect the maximum of survivor benefits once I kick the bucket. In the mean time, we could do both a draw-down of our assets as well as convert some IRAs to Roth IRAs.

Again thanks to all for your input....this is one of the reasons I like FIRE.

[Cut-Throat]

Quote:

Originally Posted by ERD50 Thanks! I know you've discussed this before, but that is a great, concise and effective summary. Detail, I got slightly different numbers (yours seem to understate the age 70 income a bit). $19,476 62 0.75 $25,968 FRA 1.32 $34,278 70 versus your $19,476 going to $34,092. -ERD50

Yes, your numbers are probably right as I did this a few years ago and the numbers probably have increased since then.

I know a lot of folks cannot resist the 'early money' and somehow believe that they will get to spend more in their 60's. But the facts are that money 'Gets left on the Table' when we die anyway. Whether it is from Uncle Sam or our own Portfolios, it still goes unspent.

So, if you start focusing on what you can actually spend in your 60s and as a Bonus get 'Old Age Insurance' and Spousal Benefits and Roth IRA Conversions and Better Tax advantage (SS is taxed less than ordinary income), 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.

[daylatedollarshort]

Quote:

Originally Posted by Cut-Throat Yes, your numbers are probably right as I did this a few years ago and the numbers probably have increased since then. I know a lot of folks cannot resist the 'early money' and somehow believe that they will get to spend more in their 60's. But the facts are that money 'Gets left on the Table' when we die anyway. Whether it is from Uncle Sam or our own Portfolios, it still goes unspent. So, if you start focusing on what you can actually spend in your 60s and as a Bonus get 'Old Age Insurance' and Spousal Benefits and Roth IRA Conversions and Better Tax advantage (SS is taxed less than ordinary income), 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.

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 62, other than the inability to resist "easy money".

[Rothman]

Quote:

Originally Posted by Cut-Throat 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. ************************************************** ******

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?


Sent from my iPad using Early Retirement Forum

[samclem]

Quote:

Originally Posted by daylatedollarshort 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]

Quote:

Originally Posted by Rothman 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]

Quote:

Originally Posted by samclem 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]

Quote:

Originally Posted by daylatedollarshort 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:

Quote:

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]

Quote:

Originally Posted by samclem 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]

Quote:

Originally Posted by jpjr 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]

Quote:

Originally Posted by rayvt 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]

Quote:

Originally Posted by Texas Proud 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.

[Texas Proud]

Quote:

Originally Posted by Katsmeow 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]

Quote:

Originally Posted by Cut-Throat 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/gebanzrbr3...0calc.xls?dl=0

[Big_Hitter]

Quote:

Originally Posted by rayvt 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]

Quote:

Originally Posted by Texas Proud 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?

Quote:

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]

Quote:

.... 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]

Quote:

Originally Posted by Big_Hitter 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