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Old 06-16-2015, 12:41 PM   #41
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...

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
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Old 06-16-2015, 12:47 PM   #42
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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.
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Old 06-16-2015, 12:52 PM   #43
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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
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Old 06-16-2015, 12:53 PM   #44
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.. 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.

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Old 06-16-2015, 12:57 PM   #45
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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.
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Old 06-16-2015, 01:00 PM   #46
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then, from a purely financial perspective, technically we would all be better off if we worked until the day we die


no thanks
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Old 06-16-2015, 01:04 PM   #47
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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.
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Old 06-16-2015, 01:10 PM   #48
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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'...
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Old 06-16-2015, 01:24 PM   #49
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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
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Old 06-16-2015, 01:40 PM   #50
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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.
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Old 06-16-2015, 01:46 PM   #51
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....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?.....
Here's the math for taking SS at 70 vs 62. Let's say that your FRA is 67 and your FRA benefit is $1,000/month. If you claim at age 62, your benefit will be about 30% lower, or $700/month. If you claim at 70 your benefit would be 24% higher, or $1,240/month.

If you forego SS at 62 and delay to 70 then you will have forgone $700/month for 8 years, or $67,200 and you gain a $540 COLAed benefit for the rest of your life. An argument could be made that you give up more than $67,200 because of COLA, ok... so if you bake in a 2.75% annual COLA, the $67,200 becomes $74,036.

According to immediateannuities.com, $74,036 of premium at age 70 (male) would buy a $467/month non-COLA lifetime benefit, so by delaying SS you get an extra $73 per month plus COLA on the whole $540/month.

So now the question becomes whether you would be willing to pay $74k for a $540 COLAed monthly annuity benefit. IMO if your health is good that's a good deal.
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Old 06-16-2015, 01:54 PM   #52
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^ don't you need to adjust those figures for the interim colas?
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Old 06-16-2015, 02:01 PM   #53
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Here's the math for taking SS at 70 vs 62. Let's say that your FRA is 67 and your FRA benefit is $1,000/month. If you claim at age 62, your benefit will be about 30% lower, or $700/month. If you claim at 70 your benefit would be 24% higher, or $1,240/month.

If you forego SS at 62 and delay to 70 then you will have forgone $700/month for 8 years, or $67,200 and you gain a $540 COLAed benefit for the rest of your life. An argument could be made that you give up more than $67,200 because of COLA, ok... so if you bake in a 2.75% annual COLA, the $67,200 becomes $74,036.

According to immediateannuities.com, $74,036 of premium at age 70 (male) would buy a $467/month non-COLA lifetime benefit, so by delaying SS you get an extra $73 per month plus COLA on the whole $540/month.

So now the question becomes whether you would be willing to pay $74k for a $540 COLAed monthly annuity benefit. IMO if your health is good that's a good deal.
Does this factor in if you die early your estate gets zero?
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Old 06-16-2015, 02:04 PM   #54
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^ don't you need to adjust those figures for the interim colas?
I think you're right... I adjusted the "premium" (the SS foregone from 62 to 70 for COLAs, but did not adjust the benefit). If I did the benefit would be $540 * (1 + 2.75%)^(70-62), or $671.

So at age 70 would one be willing to pay $74k for a $671 COLAed lifetime monthly benefit (or a payout rate of 10.9% vs 7.6% for an at-market fixed annuity). Talk about a no brainer (assuming you can afford the $74k premium).
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Old 06-16-2015, 02:07 PM   #55
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Does this factor in if you die early your estate gets zero?
No, the point is that is is a very good deal for a COLAed annuity IF 1) you want to buy a bargain priced COLAed annuity and 2) if you can afford to pay the premium (forgo SS from 62 to 70).

Obviously, like any SPIA without guaranteed payments, if you die the next day you made a bad choice and if you live long you made a good choice.
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Old 06-16-2015, 02:15 PM   #56
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Does this factor in if you die early your estate gets zero?
If you are asking if the private annuity gives nothing to the survivors (like SS), the answer is yes. $74,036 gets a male 70 YO just $467 per month--without any COLA, nothing goes to survivors, no "period certain" etc. Just like SS. Well, except that SS pays a lot more for the same "premium" starting on month one, it has a COLA (a pretty big deal), and for a woman it's even a better bargain, relatively, than this private annuity (the private annuity for a woman, same premium, would yield just $435 per month (fixed), compared to $540 COLAd for SS).

I think "actuarilly neutral" misleads a lot of people.
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Old 06-16-2015, 02:25 PM   #57
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All of these calculators tend to fail on the corner cases. They promote file and suspend for spouses - which only works if spouses are relatively close in age and/or the higher earner is older. They don't include filing early so that minor children can get a benefit.

The case laid out by cutthroat also doesn't consider the COLA for the interim years between 62 and 70...

That said - I think we all have our own spreadsheets, have our own biases, know if there's longevity, or early death, in our family history, etc. If I had a terminal disease - I'd definitely file sooner than later. If my grandparents and parents all lived past 90, I'd definitely file later.

There's no "NO BRAINER" answer that fits everyone.
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Old 06-16-2015, 03:29 PM   #58
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All of these calculators tend to fail on the corner cases. They promote file and suspend for spouses - which only works if spouses are relatively close in age and/or the higher earner is older. They don't include filing early so that minor children can get a benefit.
Rodi, have you used Kotlikoff's analysis program? I haven't, but I have read that these types of details are among the things it handles well.

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The case laid out by cutthroat also doesn't consider the COLA for the interim years between 62 and 70...
True. Historically, real CD rates have generally been positive, that would favor putting the lump sum in a CD ladder at 62 and taking SS at 70. (since the 62-70 SS check would increase at just the inflation rate, the available pro-rated amount from the money in CDs would grow slightly higher--historically, in general).

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There's no "NO BRAINER" answer that fits everyone.
Yes, discussions here illuminating the factors pro/con (esp with numbers, if applicable) help each person get beyond the generalities. Sometimes the differences between courses of action are significant.
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Old 06-16-2015, 04:28 PM   #59
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A decision tree on when to take SS would take into account the probability of dying at different ages, the expected amounts of total SS benefits to be gained at each age, and possibly other factors - probability of benefit cuts or gain, increased / decreased taxes, etc. To have a complete analysis, a tree would show a non-zero probability of dying at the ages prior to cross over. Dying before 70 would result in zero benefits for ages 62 - 70. The probability of dying might be different for each of us based on unique factors - male or female, family history, prior history of disease, FoxO gene or not, risky hobbies, where we live, etc.

This doesn't rule out age 70 as the optimal age for many to claim, but it makes it far from a no brainer when all the possible years of zero benefits are added into the decision, as well as all the other years at 70+ prior to the cross over period.
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Old 06-16-2015, 04:37 PM   #60
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^ agreed


a combination of deferred (to 70) and straight life (from 62) annuity factors would take into account the first sentence (sans taxes)
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