Laurence Kotlikoff - Maximize my SS.com

[sengsational]

Back to the OP and subject line, I'm not (yet) a fan, $40 or not, because there's no ACA in the calculations. There are other mis-alignments with my situation (no 55 rule forcing me into "borrowing constrained" territory unnecessarily).

Will there be updates to include Health Care subsidies? | ESPlanner Inc.

 

[Golden sunsets]

Many on this post refer to taking SS at 70. Almost no one takes SS at 70. The percentage is between 1%-2%. So pretty much none of us will take SS at 70. We should discuss SS between 62 and FRA, not an age pretty much none of us will wait to collect. Based on the stats, my comments have a 98%+ as being correct. Even though you say you will, you won't. Sent from my iPhone using Early Retirement Forum

Well I plan to be in that 1-2 percent. I'm 67 now, collecting spousal with 3 more years to go to claiming under my own record. Not planning on changing my mind barring Congress acting to change the rules that would adversely affect me.

 

[rayvt]

Many on this post refer to taking SS at 70. Almost no one takes SS at 70. The percentage is between 1%-2%. So pretty much none of us will take SS at 70. We should discuss SS between 62 and FRA

The talk about 70 is for a couple of reason. 1) That's the age at which the increases stop, so there is no benefit to deferring after that. 2) The benefit is the largest value, so people who are impressed by large numbers in isolation are drawn to it.
Deferring to 70 seems to me kinda like optimizing a nullity. People who have enough assets that they can skip the SS benefits for 8 years -- have enough assets they they don't need the SS money at all, at any age. And what's the point of optimizing something that doesn't matter?

I have a table in my SS spreadsheet, of breakeven periods. Delaying from 62 to FRA takes 12.0 years to break even. For either 66 or 67. That takes you to age 78 or 79. Likewise, delaying from 62 to 70 has almost the same BE time for either FRA. It's 10.5 or 10.4 years. That takes you to age 80 1/2.

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.

The correct way to look at it is how much you pay for the extra you get.

For SS between FRA and 70, you get an extra $80/mo for each $1000/mo you give up. The first $1000 you get (at $80/mo at a time) is just a return of the $1000 you gave up. 1000/80 = 12.5.

It's as if you made a loan to the SSA. You loan them $1000 and they start paying you back $80 at a time. Each payment to you is part principal and part interest. It is incorrect to say that each payment is all interest, which is what you are saying if you say you are making 8%.

To figure out the actual rate you are making you can put the numbers into a loan calculator. Here's what I get:
If you live 20 years, the rate you got was 5.1%
If you live 15 years, the rate you got was 2.5%
If you live 12 years, the rate you got was 0.0%
If you live 13 years, the rate you got was 0.6%

If you live 30 years, the rate you got was 7.0%
If you live 40 years, the rate you got was 7.6%

The life expectancy of a 65 year old is 17 years. Add 10 year to that for longevity safety.
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.

 

[pb4uski]

....For SS between FRA and 70, you get an extra $80/mo for each $1000/mo you give up. ..

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

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

 

[ERD50]

...
Deferring to 70 seems to me kinda like optimizing a nullity. People who have enough assets that they can skip the SS benefits for 8 years -- have enough assets they they don't need the SS money at all, at any age. And what's the point of optimizing something that doesn't matter? ...

This seems like twisted thinking to me.

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

It's better to look at it as trading early money for later money, not 'not needing it'. And when it comes to money, who wouldn't try to optimize it? More is better, at the levels most of us are talking about.

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

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'.

-ERD50

 

[pb4uski]

.... - it's the longevity insurance and spousal benefit that we are looking at, not 'payback'.....

+1 joint mortality makes a big difference for us since my benefit is so much higher than DW's since she was a SAHM and we are close to the same age.

 

[RunningBum]

The talk about 70 is for a couple of reason. 1) That's the age at which the increases stop, so there is no benefit to deferring after that. 2) The benefit is the largest value, so people who are impressed by large numbers in isolation are drawn to it.
Deferring to 70 seems to me kinda like optimizing a nullity. People who have enough assets that they can skip the SS benefits for 8 years -- have enough assets they they don't need the SS money at all, at any age. And what's the point of optimizing something that doesn't matter?

Really? Once you have enough, you stop optimizing? Who does that?

Some people who have enough assets that they can skip SS benefits for 8 years may not have enough to make it without SS to the end. There is a large gap between enough for 8 years and enough for 20 or more beyond that 8 years.

And being able to miss SS benefits for 8 years doesn't mean that SS benefits won't add some welcome luxuries to their lives. That luxury might be as simple as being able to turn the heat or A/C to a comfortable temperature rather than just a near-survival level.

 

[Cut-Throat]

I have a table in my SS spreadsheet, of breakeven periods. Delaying from 62 to FRA takes 12.0 years to break even. For either 66 or 67. That takes you to age 78 or 79. Likewise, delaying from 62 to 70 has almost the same BE time for either FRA. It's 10.5 or 10.4 years. That takes you to age 80 1/2.

Again, Your 'reasoning' is how much money you can 'Pile Up', rather than how much you get to spend. Especially in your 60s. What does it matter, if you die with a bigger pile ?

Spend part of that Pile in your 60s, because you know you are getting larger SS Check in your 70s!

 

[Exrook]

Many on this post refer to taking SS at 70. Almost no one takes SS at 70. The percentage is between 1%-2%. So pretty much none of us will take SS at 70. We should discuss SS between 62 and FRA, not an age pretty much none of us will wait to collect. Based on the stats, my comments have a 98%+ as being correct. Even though you say you will, you won't.

ER has about 23000 members. Population of the US is about 320 million. About 14% of that is over 65, leaving a pool of around 45 million in the SS range.

Every single ER member could wait until 70 and not impact the national average.

 

[Running_Man]

Again, Your 'reasoning' is how much money you can 'Pile Up', rather than how much you get to spend. Especially in your 60s. What does it matter, if you die with a bigger pile ?

Spend part of that Pile in your 60s, because you know you are getting larger SS Check in your 70s!

This spending spree is ignoring the very real risk in the next 10-20 years that Social Security payments could become "capped" at a lower level for maximum payouts, equivalent maximum anyone can be paid in Germany is presently $2,800 per month for a almost fully funded plan. In the US the maximum is $3500 per month, a 700 per month reduction would be Twenty percent which is the same percentage that Greece reduced the maximum payout in 2011 for it's pension system. The nearer you are to claiming near the maximum SS the higher your risk on this is going to be in the future, it is a very easy cut to make when the average social security check is $1146

 

[daylatedollarshort]

We found it helpful to put the options in our own spreadsheet to age 100 and get a visual year by year of our total net worth, income, liquid assets, expenses, etc. We looked at the different spreadsheets and year by year numbers and both liked the income smoothing and diversification of SS at age 62 over some of the other alternatives. We plan to still live below our means and save money with SS at 62, using a fairly predictable income stream with matching strategies and will have a house we would rent out or downsize if we live to be 80+, so no particular worries about longevity insurance. YMMV. It depends on your household's priorities.

 

[NoiseBoy]

I had a little extra time today so I pulled up FIRECalc and plugged in my own numbers to see what difference that tool reports for taking SS at 62 vs 70. As it turns out, my memory was actually correct this time! In solve for spending level mode, FIRECalc reports a 4% higher spend level for taking SS at 62 over delaying until 70 using my data.

Note - In addition to my portfolio I have some other pension income and my SS is impacted by WEP. I used a 50/50 portfolio, 35 years (age 90) life expectancy, a 100% success rate, and $300k portfolio minimum. I am single. YMMV

 

[Independent]

I had a little extra time today so I pulled up FIRECalc and plugged in my own numbers to see what difference that tool reports for taking SS at 62 vs 70. As it turns out, my memory was actually correct this time! In solve for spending level mode, FIRECalc reports a 4% higher spend level for taking SS at 62 over delaying until 70 using my data.

Note - In addition to my portfolio I have some other pension income and my SS is impacted by WEP. I used a 50/50 portfolio, 35 years (age 90) life expectancy, a 100% success rate, and $300k portfolio minimum. I am single. YMMV

The bold says you're currently 55.

I'd suggest running it again, starting at 62, with reasonable estimates of where you might be at 62.

 

[Independent]

Many on this post refer to taking SS at 70. Almost no one takes SS at 70. The percentage is between 1%-2%. So pretty much none of us will take SS at 70.

I'll turn 68 next month. I filed and suspended when my wife turned 66 so she could collect on my work history. For me, it's longevity insurance.

Here's the Bogleheads survey: http://www.bogleheads.org/forum/viewtopic.php?f=2&t=137700

 

[Independent]

Deferring to 70 seems to me kinda like optimizing a nullity. People who have enough assets that they can skip the SS benefits for 8 years -- have enough assets they they don't need the SS money at all, at any age. And what's the point of optimizing something that doesn't matter?

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

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

B provides more annual income with the same chance of exhausting the portfolio.
B has a better safety net if the portfolio does very badly.
A provides more assets to cover long term care costs if he needs it.
A provides more upside potential for spending in later years or for his heirs.

(Of course, there's also a "C" in which he defers SS but only targets $6,000 of withdrawals for a SWR of 2.66%.)

I'm not claiming one of these is better than the other. I'm just saying that he has enough assets to defer SS, yet SS is important enough in his retirement finances that he should at least think about this.

* This assumes he can find a place to put money for 1-8 years where he can get inflation + 0%. In 2015, that might be a challenge

 

[ERD50]

Many on this post refer to taking SS at 70. Almost no one takes SS at 70. The percentage is between 1%-2%. So pretty much none of us will take SS at 70. We should discuss SS between 62 and FRA, not an age pretty much none of us will wait to collect. Based on the stats, my comments have a 98%+ as being correct. Even though you say you will, you won't.

I'll turn 68 next month. I filed and suspended when my wife turned 66 so she could collect on my work history. For me, it's longevity insurance.

Here's the Bogleheads survey: POLL: If Eligible For Social Security ..... - Bogleheads

Thanks for that Independent. Very interesting.

So 43WorkYears, it looks like the 37% who are "Eligible but not collecting yet", and the 14% who are collecting at age 70 means that 37+14= 51% is the same as "almost no one"?

43WorkYears, can you explain how you came to your conclusion, which was stated with so much confidence? I'm curious about how people think.

-ERD50

 

[Dreamer]

The 16 page brief goes over what many people on here have already said, but it is all in one place. It discusses the merits of waiting to file for social security as long as you can. I thought it might be helpful.https://www.nasi.org/WhenToTakeSocialSecurity

 

[Katsmeow]

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

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

B provides more annual income with the same chance of exhausting the portfolio.
B has a better safety net if the portfolio does very badly.
A provides more assets to cover long term care costs if he needs it.
A provides more upside potential for spending in later years or for his heirs.

A also has more flexibility since the portfolio is not drained as much. A also has less dependence on Social Security in the event of changes in the future to SS.

 

[Sunset]

Many on this post refer to taking SS at 70. Almost no one takes SS at 70. The percentage is between 1%-2%. So pretty much none of us will take SS at 70. We should discuss SS between 62 and FRA, not an age pretty much none of us will wait to collect. Based on the stats, my comments have a 98%+ as being correct. Even though you say you will, you won't.

Sent from my iPhone using Early Retirement Forum

We are the 5% (as some of us will take it before 70).

 

[Bestwifeever]

Thanks for that Independent. Very interesting.

So 43WorkYears, it looks like the 37% who are "Eligible but not collecting yet", and the 14% who are collecting at age 70 means that 37+14= 51% is the same as "almost no one"?

43WorkYears, can you explain how you came to your conclusion, which was stated with so much confidence? I'm curious about how people think.

-ERD50

E-r.org people are always extraordinary. I believe this short SS publication shows that in 2013 a small percentage of claimants that year had deferred filing past age 66: https://www.fas.org/sgp/crs/misc/R41962.pdf. Figure 1 on page 5. The bars seem to support 43WorkYears.

I don't know anyone in real life who waited past 62 to collect SS, from people who need it to survive to those who could easily have deferred until never, so I took 43WorkYears' comment at face value. I should ask my friends why they went the 62 route.

 

[daylatedollarshort]

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'.

-ERD50

There are many household situations represented here. Are most posters here looking primarily for longevity insurance and spousal benefits? We are not. We're used to running our household finances similar to the ways we evaluated projects at work. Payback is an important consideration for us. The Boglehead surveys seem to have a distribution of ages for SS claiming - not all waited until 70.

 

[ERD50]

E-r.org people are always extraordinary. I believe this short SS publication shows that in 2013 a small percentage of claimants that year had deferred filing past age 66: https://www.fas.org/sgp/crs/misc/R41962.pdf. Figure 1 on page 5. The bars seem to support 43WorkYears.

I don't know anyone in real life who waited past 62 to collect SS, from people who need it to survive to those who could easily have deferred until never, so I took 43WorkYears' comment at face value. I should ask my friends why they went the 62 route.

I never doubted that the comment was true in general. What 'got me' is the the way he is telling us (this group discussing taking SS at 70) that we won't take it early because of the general stats.

By that thinking, we would not have retired early, would not have paid our credit cards each month, would not have maxed out our 401/IRA, etc, either. It was a crazy statement to make - it does not consider the audience. And it was said as a fact, no 'ifs, ands, buts'.

It would be like going to a convention of antique single cylinder farm tractor engine collectors, and claiming that 'no one' will buy one because so few of the general public own one.

-ERD50

 

[pb4uski]

More of an expected present value analysis which would take the cash flows associated with each alternative (say 62, FRA or 70) multiply the cash flows by the probability of survival and then present value the expected cash flows. Including taxes would be fairly easy with a couple assumptions.

The probabilities would be applied to all years, not just to prior to the cross over years. Discount rate is a key assumption, as it the COLA rate.

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).

The results are below.

	Men			Women
	62	FRA=66	70	52	FRA=66	70
Monthly benefit	1,500	2,000	2,640	1,500	2,000	2,640
In relation to FRA benefit	75%	100%	132%	75%	100%	132%
Expected present value	266,904	267,934	255,364	297,050	307,254	303,876
In relation to FRA	100%	100%	95%	97%	100%	99%
Discount rate	2.5%
Expected PV Sensitivity
0.0%	93%	100%	102%	91%	100%	105%
1.0%	96%	100%	99%	93%	100%	103%
2.0%	98%	100%	97%	95%	100%	100%
3.0%	101%	100%	94%	98%	100%	98%
4.0%	104%	100%	91%	101%	100%	95%
5.0%	107%	100%	89%	104%	100%	92%
6.0%	110%	100%	86%	107%	100%	90%

The results seem to hang together in that at low discount rates deferring is preferable and at high discount rates it is better to take early. So assuming that this mortality table is realistic (and any of our life actuaries can weigh in on that) it takes the "live until age x" out of the analysis because the various probabilities of survivorship are built into the cash flows.

While the above is most relevant to singles, it doesn't help in my decision because DW is about my age and was a SAHM so my benefit is much higher than hers.

 

[ERD50]

There are many household situations represented here. Are most posters here looking primarily for longevity insurance and spousal benefits? We are not. We're used to running our household finances similar to the ways we ran projects at work. Payback is an important consideration for us.

I do think that 'most' of the people posting in these threads looking to delay are looking primarily for longevity insurance and spousal benefits, though that is just the impression I get. Can't prove it, and I don't trust any polls here for this as they are self selected, so I do mean I 'think', I could be very wrong ...

If that does not apply to you or some others, that's fine, this isn't 'one-size fits all'. I'm not in any way saying that other views are not appropriate for those people, they probably are. What I'm pushing back at is it seems to me that some people are claiming that 'payback' is the only way to look at it, and if that fails (by their definition), then it is 'wrong' to delay.

-ERD50

 

[pb4uski]

...I don't know anyone in real life who waited past 62 to collect SS, from people who need it to survive to those who could easily have deferred until never...

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