Laurence Kotlikoff - Maximize my SS.com

[Chuckanut]

One fact to consider in this discussion is diversification. By that I mean diversification of income sources.

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

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

Diversification. Always a good thing to have.

 

[rayvt]

Because I still need to stay within a budget, and reducing wasted $ means I have more $ to spend on fun stuff. I like spending dollars on me and family over giving it to the utility companies. So I continue to turn off lights that are left on, and grumble about it (though with CFLs/LEDS using 1/6th the energy, it takes more to get me worked up).

Yes, we struggle with these issues, too. We buy things on Amazon to save a couple of bucks and save the sales tax. We buy snacks & spices at Dollar Tree (Everything One Dollar). Buy used books instead of new ones because used are half-price.

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

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

 

[truenorth418]

One other thing, for some of us taking SS at 70 is also a form of LTC insurance. Since the current LTC market is broken, IMHO, we need some way of paying the bill if LTC is needed. The extra SS money would certainly help with that.

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


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[mickeyd]

A much easier way to answer this "when to take" question is to answer these simple Qs.

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

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

3. Continue process until age 70. Take a BIG amount.

 

[pb4uski]

For my own curiosity, I did an analysis of the expected PV of SS retirement benefits at age 62, FRA (66) and 70 using mortality from the SSA Actuarial Life Table (Actuarial Life Table) and assuming a monthly benefit of $1,500 at 62, $2,000 at FRA, and $2,640 at age 70. So each year's cash flow is the benefit for the year based on when benefits begin multiplied by the probability of surviving (based on average beginning and end of year survivorship in relation to 100% at 62) and then present valued using a real discount rate (IOW, no COLA is built into the cash flows)......

I found this article interesting. How Does Income or Education Level Affect Social Security/Retirement Planning?

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

As you might imagine, for those with above-average education/income this is a strong point in favor of waiting to claim Social Security benefits (because doing so works out well in scenarios in which you live a long time).

 

[sengsational]

A much easier way to answer this "when to take" question is to answer these simple Qs.

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

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

3. Continue process until age 70. Take a BIG amount.

But you need to pick one now to put into the calculators

 

[rayvt]

A much easier way to answer this "when to take" question is to answer these simple Qs.

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

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

3. Continue process until age 70. Take a BIG amount.

When I read this, I had an insightful new question.

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

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

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

What would be the crossover point? Surely nobody would advocate waiting to 88 ($2760/mo) or 98 ($3560/mo) -- So there's got to be some age between 62 and 98 where people would agree that you shouldn't defer beyond. What would the math be, such that everybody would settle on that age?

 

[43WorkYears]

Great point. I can elaborate on this, but I'll wait & see what others have to say.


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[Texas Proud]

When I read this, I had an insightful new question.

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

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

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

What would be the crossover point? Surely nobody would advocate waiting to 88 ($2760/mo) or 98 ($3560/mo) -- So there's got to be some age between 62 and 98 where people would agree that you shouldn't defer beyond. What would the math be, such that everybody would settle on that age?

My first thought is why go with a hypothetical that is not, nor probably ever will be available....


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

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


But, if you calculate 62 as your payment point that will not change with your hypo.... so you now have limited it to the people who want to delay... so you still have not settled the argument...

 

[ERD50]

.... if he wanted to maximize SS payments he would never collect them for himself, but once he dies his DW would get a good pension for the rest of her life...

This was my thought. Think of it like a life insurance policy, with the spouse as beneficiary. You pay your premium each year, and then the beneficiary collects when you pass. People do that, so why not delay SS for that purpose?

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

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

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

-ERD50

 

[43WorkYears]

It appears to me the reason people delay until 70 or after FRA and are already retired is to make sure their spouse gets a bigger check if they go.

As I am about to turn 62 and my wife has enough $$$, no reason for waiting to long. Have pensions,stock dividends, 401K's, real estate, etc....

To date, I haven't claimed. I have many relatives, friends with assets in the 2-4 million range and they all claimed at 62. Not that there right. The only reason they tell me is now they can fill out a form and collect as well as they don't know how long they will live.




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[Totoro]

What would the math be, such that everybody would settle on that age?

A "simple" case: single, no kids, no inheritance, optimizing for total financial pay-out.

In that case you take total expected remaining months x monthly pay-out. Incidently, that's what the actuaries do so when they calculate SS so that won't give you an answer.

Optimize for certainty: take as soon as possible.
Optimize against bankruptcy: take SS at the latest when SS benefit > expenses.
Optimize for high pay-out in case of longevity: delay as long as possible.
Optimize for income diversity: wait until income stream is significant part vs. other income streams.

And that's a "simple" case. Different people in different situations with different goals ..

 

[samclem]

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

What would be the crossover point? Surely nobody would advocate waiting to 88 ($2760/mo) or 98 ($3560/mo) ?

And if we went the other way? What if people who were no longer working at age 50 were eligible to take their SS at that age? If they were due $2000/mo at FRA, they'd instead get about $600 at age 50. I'm sure some would take it, but it would definitely change the "strength" of that leg of the stool. For as long as they live.

 

[sengsational]

Rayvt, A great thought experiment that I had not considered of before! Thanks for that insight.

 

[Chuckanut]

As confusing and conflicting as the 'When to take SS?" issues are, let's not forget than one great benefit of the system that we all share is the option to make that decision for ourselves and our loved ones. The government has not forced us into a 'one size fits all' system. I am grateful for that.

 

[samclem]

. . . let's not forget than one great benefit of the system that we all share is the option to make that decision for ourselves and our loved ones. The government has not forced us into a 'one size fits all' system. I am grateful for that.

+1. I appreciate the flexibility. I hope the attention on cutting out "loopholes" doesn't turn to "reducing the "age 70 jackpot for those who delayed and so don't really need the money." If anything, since federal, state, and local govt are on the hook for needs-based poverty relief, the more rational argument would be to deny the ability to file until the recipient would have enough monthly income from SS to assure they don't become a liability on those other programs.

 

[rayvt]

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

This can become an infinite regress, similar to the One More Year retirement decision. Each year you decide to defer OMY because you'll get more money. Next year, you see that you'll get more if you wait OMY, etc..... until the day that your clock runs out.
At some point you have to say enough is enough. Otherwise you'll wind up like one of my co-workers, who delayed and delayed retiring --- until one day his widow called and said he wouldn't be coming in ever again.

My plan for providing for DW is to have a couple $mill in various broker accounts, and also some check from SS that just messes up balancing the checkbook.
The current absolute maximum SS benefit is ~$42,182/yr. That's 132% of the maximum FRA benefit of $2,663/mo. Most people won't get that high.

4% SWR on $2M is $80,000. Unless she becomes a cougar, that $80K will more than support her. By comparison, median family income (2014) is $54,000. Whatever she gets from SS will just go the the grandkids and charities. Delaying my SS won't benefit her, it'll just benefit whoever she gives the extra money to.

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FWIW, I just read last night that someone (Obama?) alluded to removing the File-and-Suspend strategy. This is something that would probably be easier for them to do than means testing. Wouldn't have problems about grandfathering, either. Just "no spousal benefit unless you have filed and are receiving benefits. If you have already F&S'ed you just have to un-suspend." The File-and-Suspend is probably an accidental loophole anyway, since the general rule for spousal is "not available until the primary has filed." F&S is just a way to pretend you have filed when, for all practical purposes, you haven't.

 

[pb4uski]

Once I turn 62 I look as SS as more of an option to start cash flow if my portfolio results are suboptimal and my nestegg declines to a point where I am uncomfortable. If I'm still comfortable, then defer and get the longevity insurance because we are both in good health and have good longevity in the family so we might live long.

 

[mickeyd]

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

At one point you die and would get nothing. So there's that.

 

[ERD50]

At one point you die and would get nothing. So there's that.

But if your spouse is eligible, they get the increased amount for life. So there's that.

Anticipating your next comment - At one point they die and would get nothing. So there's that. So if you care, a break-even analysis might apply to your heirs - but w/o a predetermined date-of-death, that's a crap-shoot.

Personally, I'm much more inclined to want to avoid needing any $ assistance from our kids, than I am in leaving them anything.

-ERD50

 

[youbet]

Personally, I'm much more inclined to want to avoid needing any $ assistance from our kids, than I am in leaving them anything.

-ERD50

Agreed. And it does seem like eliminating the questionable "file and suspend" strategies would go a long way towards this. Why have our kids likely paying higher FICA or having later FRA ages, etc., when we can trim SS expenses with the simple change of eliminating the "suspend" from "file and suspend?" I think the kids have enough of a burden financing their own retirements without picking up the tab for F and S type of schemes likely never intended by Congress.

 

[ERD50]

Agreed. And it does seem like eliminating the questionable "file and suspend" strategies would go a long way towards this. Why have our kids likely paying higher FICA or having later FRA ages, etc., when we can trim SS expenses with the simple change of eliminating the "suspend" from "file and suspend?" I think the kids have enough of a burden financing their own retirements without picking up the tab for F and S type of schemes likely never intended by Congress.

Right, to the extent that these 'strategies' draw more from SS, that is pushing more on the younger generation.

I have not run through the hypotheticals of a rule change, or what seems 'fair' and what is a stretch, right now I'm just trying to understand how to apply them for my case (that's hard enough!). And since we don't know our dates of demise, no way to say whether any plan I chose will be a good deal for future SS (our kids) or not.

But offhand, the F&S so spouse can switch back and forth between claiming their benefit or their 'share' of their spouse's benefit (if I said that right?) does strike me as a bit of a stretch from what was intended (but then, they should write what they intended - it's their job). If they disallow it in the future for those reasons, fine, I think it still makes sense for me to delay, and DW can collect on her record alone (while I'm alive). It would likely be less SS for us over our lifetime, but that longevity insurance is what I'm really looking at (my delayed SS becoming her lifetime benefit), so if they make the F&S change, so be it.

If things work out along the lines of what I am planning for, I will not update this thread, as I won't be around to report on it!

-ERD50

 

[youbet]

And since we don't know our dates of demise, no way to say whether any plan I chose will be a good deal for future SS (our kids) or not.

Very true. And you also have to include the variability of investment returns in the equation. As mentioned earlier, I started SS at 62 because of our situation here (wife is impacted by GPO) and got lucky. For the 6 years I've been collecting, I've been investing the monthly electronic check into a market where the S and P 500 has almost tripled! Likely, I have the difference between collecting at 62 and collecting at 70 covered (by the private sector) assuming some level of positive returns, moderate inflation going forward and a typical life span.

But, as you say, who knows? You pay your money, you take your chance. How long you'll live and the investment returns on the money you'll collect early and inflation are all unknowns when you make the SS decision.

I guess my bottom line is that I hope SS survives to do its job to minimize the extent that kids have to directly help to support parents but at the same time SS does not become excessively burdensome to the kids as they struggle to prepare for their own retirement.

In a decade or so when demographics start to change (Boomers start croaking in greater numbers and therefore cast fewer votes), it'll be interesting to see what the politicians do with SS.

 

[Chuckanut]

At one point you die and would get nothing. So there's that.

Why not used that as an excuse to save nothing at all, and go into debt the maximum that foolish lenders will allow you to?

After all when you're dead, what can they do about it?

 

[NW-Bound]

... I guess my bottom line is that I hope SS survives to do its job to minimize the extent that kids have to directly help to support parents but at the same time SS does not become excessively burdensome to the kids as they struggle to prepare for their own retirement.

My parochial attitude is that I hope to save some of our money, which will include some claimed SS benefits, for my children, who will not get the same SS deal ourselves and our predecessors get. Hopefully, they will not need it, and will not spend it all but to pass it on to their offsprings.