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Old 09-08-2013, 10:57 AM   #21
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Originally Posted by tmm99 View Post
But if I plug in 92 years old as my end date using Firecalc and Fido RIP both, I get a much better spending power if I claim SS at Age 76 than at Age 62.
Was that a typo? Don't you mean age 70, not 76?
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Old 09-08-2013, 11:34 AM   #22
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Originally Posted by Throwdownmyaceinthehole View Post
I need someone smarter than me to figure this out, as non of these articles looks at SS after tax, along with the RMDs at 70. I'm thinking taking it earlier before RMDs kick in would give me a higher return. Can anyone point me to research on that?
The only research I know of this are the complex calculated projections I have done for DW and my situation. edit/Most research is based on maximizing SS income and does not consider the whole picture. end edit/

Situation: non-COLA pension, 401k, will have one minor child at age 62. DW disabled and drawing SSDI.

Calculation assumptions:
I will have the same future expenses regardless of when I take SS.
All projections are in future dollars using BLS and SS parameters for near future projections.
Future tax estimates are based on current tax rates, deductions, credits and brackets inflated per the rules governing such.
Default inflation assumed to be 2.5% per year.
401k return assumed to be 3.5% after inflation (total 6%)
Expenses are inflated using best estimate of the inflation rate of the particular expense as multiple of base rate of 2.5%. That is to say medical and college expenses escalate at a higher rate than base inflation.

Method:
Four scenarios are projected. 1) take SS at age 62, 2) take SS at age 62 and suspend at FRA of 66 y 2 mo and restart at age 70 (this scenario involves Roth conversions between ages 62 and 66) 3) take SS at FRA of age 66 y 2 mo, 4) take SS at age 70. All income, taxes and expenses are projected for each of the next 30 years.
Comparisons are made at ages 70, 78 and 86. No one in my family has ever lived past age 86. I stopped my projections at that age.

Calculate estimated SS.
Calculate 401k withdrawals to cover projected expenses. This includes 401k balance at the beginning of every year.
Calculate estimated expenses for use in tax calculations.
Calculate taxes. This includes estimated deductions and tax credits.
Calculate net after tax income.
Calculate non-taxable portion of SS income.
Calculate DW survivor income at ages 74 and 86. This includes pension, SS, and RMDs for her.

Results Summary:
1) Sum of net after tax income is always highest for taking SS at 70 and lowest for taking SS at 62.
2) Sum of taxes paid is always highest for taking SS at 70 and lowest for taking SS at 62.
3) Annual SS income at age 70 is highest for taking SS at 70, next highest is the 62-70 scenario. Lowest is taking at age 62. The 66 and 62-70 are nearly the same.
4) 401k balance is always highest for taking at age 62. Next highest balance is for the 62-70 scenario. Taking at age 70 results in smallest 401k balance.
5) the differences among scenarios in the sum of net income plus 401k balance is always highest for taking at age 62 until sometime between age 78 and 86 when the age 62-70 scenario becomes the highest.
6) DW survivor income is always highest for taking at age 62, Next highest is the age 62-70 scenario which is about 97%. Age 66 is 87% Age 70 is 79%
7) at age 70, SS+pension+RMDs will cover all expenses with a surplus of about 5% for the age 62-70 scenario. The other scenarios do this starting at age 71. Surplus at age 71 is highest for age 70 followed by 62-70 then 66 and then age 62 scenarios. This is a function of my specific expense profile.
8) the sum of total SS income at age 86 is highest for the age 70 scenario, 11% lower for the age 62 scenario and 5% lower for the 66 and 62-70 scenario.

Criteria for selecting which scenario to implement:
1) must cover projected expenses with surplus (all meet this)
2) must allow for sizable 401k balance to fund long term care if/when needed (only 62 and 62-70 meet this) and/or other unaccounted for expenses.
3) must allow for high DW survivor benefits at my age 74 and 86. (Edited out error)
4) must strike a balance between reliance on 401k performance and SS income ( 62-70 and 66 meet this)
5) must be able to survive 25% cut in future SS benefits (62 and 62-70 meet this)
6) Firecalc success rate must stay above 95% to age 86 ( 62 and 62-70 meet this)


So based on this fantasy calculation, I have decided to start SS at 62, suspend at FRA and restart at age 70. No real surprises here from the calculations.

I understand that this is a fantasy calculation based on many variables and assumptions that will change. I did this as an exercise to attempt to quantify many of aspects of consequences of taking SS at various ages along with tax consequences and ability to maintain some flexibility and to compare DW survivor benefits under various circumstances.


This is all generated by spreadsheet except for the Firecalc calculations. I can model different inflation rates, 401k return rates. I can update periodically with actual returns, inflation, changes in projected spending, etc.

The selected scenario will likely change in the future as I approach 62. If the 401k performs well I may delay taking SS. That is a job for Futureman.


I hope this is intelligible and can provide some insight into your evaluation of your plan.



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Old 09-08-2013, 12:03 PM   #23
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Originally Posted by Katsmeow View Post
Was that a typo? Don't you mean age 70, not 76?
Hi Katsmeow,

Thank you for catching it. Yes that was a typo. I to the numbers transposed. I meant to say age 67, not age 76. Correction in italic below.
Quote:
But if I plug in 92 years old as my end date using Firecalc and Fido RIP both, I get a much better spending power if I claim SS at Age 67 than if I cliam it at Age 62.
So basically, what I was trying to say was that despite that people were saying delaying SS doesn't matter, by doing so, I am getting a better spending power by delaying it even from Age 60 when I plan to retire. It means I am not sacrificing anything. Am I misunderstanding something here? (Like I said, I am not finance or SS savvy, so maybe I am missing something huge...)

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Originally Posted by retiredunder50 View Post
One topic that is never discussed in most articles promoting us to take it later is the yearly incremental advantage that follows the break-even year. Will we really miss the several hundred to maybe a few thousand dollars per year when we are over 80 versus the use of it earlier? I like the philosophy I read about of breaking down retirement into 3 phases - go-go, slow-go, and no-go. I think I will be spending less, except for some medical, in the no-go years.
Like I said in the previous paragraph, it's not that I get more money when I am older. I get more money in the go-go years also, at least by Firecalc and Fido RIP. The only thing I changed in both tools was my SS starting year and the estimated amount of SS payout.

Am I missing something here? Of course, the total withdrawal of SS may be lower if I start late and die early, but if my spending power is higher by doing it from Age 60, why would I want to take less early? If I spend the same amount regardless of which options I choose (start SS or delay until 67), I will have extra 400K left in the bank if I die at Age 92 (according to Fido RIP).

Am I missing something HUGE here? Everything points me to want to delay SS...?
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Old 09-08-2013, 02:31 PM   #24
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Who knew Mike was here!

For me I started at 62 for lots of reasons. Breakeven for a male is what 78 years? So if I die sooner I made the right call and if I die later then maybe I should have waited. So complicated but for me I think I made the right call. Time will tell.
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Old 09-08-2013, 07:17 PM   #25
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Since one can start collecting 1/2 spouse's FRA benefit when you reach your FRA, the increase in delaying beyond your FRA is greater than 8% annually till 70 by: (your FRA benefit/(your FRA benefit less 1/2 spouse's FRA benefit)) since you're account is growing fully while you collect something in the interim. Sweet.
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Old 09-08-2013, 11:32 PM   #26
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Since one can start collecting 1/2 spouse's FRA benefit when you reach your FRA, the increase in delaying beyond your FRA is greater than 8% annually till 70 by: (your FRA benefit/(your FRA benefit less 1/2 spouse's FRA benefit)) since you're account is growing fully while you collect something in the interim. Sweet.
Correct.

However, just remember that your spouse will have to file before you can get the 50% spousal FRA benefit.

It's a good option for a lot of folks, but there are rules that must be followed.
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Old 09-09-2013, 07:40 AM   #27
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I took SS at 62 and a rough calculation of the break even point for me is about 75. Sure it's nice to have extra money, but what if you don't live that long? The average man may not live past 74. How many people die before 62, plenty I know of.
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Old 09-09-2013, 10:30 AM   #28
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........ The average man may not live past 74. How many people die before 62, plenty I know of.
This is a really great point. I'd imagine that one could actually make a detailed study of this and create something like an actuarial life table.

Actuarial Life Table
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Old 09-09-2013, 12:01 PM   #29
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The average man may not live past 74. How many people die before 62, plenty I know of.
Not true. At age 60, the life expectancy for all USA males - the average - is 81. At 62, it's even higher.
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Old 09-09-2013, 12:05 PM   #30
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WSJ article on the subject today:

How to Maximize Your Social Security Benefits - WSJ.com
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Old 09-09-2013, 12:09 PM   #31
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Interestingly, I ran FireCalc with SS at both 66 and 70. The outcomes are less than 2% apart based upon my assumptions. Given the uncertainties of my assumptions, I figure that is within the margin of error.
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Old 09-10-2013, 07:02 AM   #32
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Not true. At age 60, the life expectancy for all USA males - the average - is 81. At 62, it's even higher.
That may be so, but 30% die before the age of 65. Next point is what physical and mental condition is this person in? Bad heart, knees, hips and so on. My point is the younger you retire the more fun stuff you still can do, until you start to slow down. Lets face it after 70 we start to age in dog years.
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Old 09-10-2013, 07:56 AM   #33
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....Next point is what physical and mental condition is this person in? Bad heart, knees, hips and so on. My point is the younger you retire the more fun stuff you still can do, until you start to slow down. Lets face it after 70 we start to age in dog years.
Not everyone here would assume that retirement and initiation of SS would be at the same time.
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Old 09-10-2013, 08:55 AM   #34
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That may be so, but 30% die before the age of 65.
Source? This 2004 publication by the CDC, says in Table 1 that 17.4% of the general U.S. population, and in other tables says that 20.1% of the white male U.S. population, or 21.4% of the general male U.S. population, die before the age of 65.
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Old 09-10-2013, 08:59 AM   #35
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Source? This 2004 publication by the CDC, says in Table 1 that 17.4% of the general U.S. population die before the age of 65.
Nine year old data and everyone knows inflation is a killer. Really.
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Old 09-10-2013, 09:00 AM   #36
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That may be so, but 30% die before the age of 65. ...
How do you get that number from the tables travelover linked?

Remember, it's not a 'life expectancy' number that counts, it's the life expectancy at a certain age (because you already reached that age, the earlier deaths do not apply to you). Look at the column with number of lives remaining out of 100,000 - I think that's easier to understand.

At age 62, there are 83,724 males alive out of the original 100,000. If 30% of those die, we are left with 58,607 (83724 * 0.7= 58606.8). That number is ~ age 76-77. The 50% point is out around age 82-83.

For most of us who are considering delaying SS, it isn't about optimizing the number for an average, it's about having some insurance that we have enough money if we (or our spouse) make it to old age. And with the security of that amount in old age, it might allow us to spend more in our early years (run the numbers for your situation). And spousal benefits can be a very big deal for some.

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Old 09-10-2013, 09:01 AM   #37
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Nine year old data and everyone knows inflation is a killer. Really.
I just KNEW there was a good explanation for the discrepancy.
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Old 09-10-2013, 09:01 AM   #38
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For a person making the claim-now-or-later decision, the only life expectancy that is relevant is their life expectancy at that point in time (and, if married, their spouse's life expectancy at that point in time).

In other words, life expectancy at birth is meaningless to somebody who has already reached age 62.

Edit: Looks like ERD50 beat me to it.
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Old 09-10-2013, 09:09 AM   #39
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Interestingly, I ran FireCalc with SS at both 66 and 70. The outcomes are less than 2% apart based upon my assumptions. Given the uncertainties of my assumptions, I figure that is within the margin of error.
How long of a profile did you use? I wouldn't expect to see a big difference until you went out past 30 years, and the success rate will start to increase again if you go over 46 years or so (once 1966, a bad year, drops out of the test, so keep the profile length below that point). As I mentioned, this is really longevity insurance you are buying, so the advantage will only be there if that longevity comes to be.

Another consideration is, if the portfolio does OK between ages 62 and 70, delaying is not 'painful', and probably not harmful to the portfolio success. Several posters here did take SS earlier than planned when the recent dip hit us. The full draw down during that dip might affect success rates. That makes sense for their situation, and might make those general runs in FIRECalc, where the same rules apply to all time periods, a little 'off'.

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Old 09-10-2013, 09:09 AM   #40
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However, just remember that your spouse will have to file before you can get the 50% spousal FRA benefit.

It's a good option for a lot of folks, but there are rules that must be followed.
So how does it work if the higher earner is younger? Or doesn't it?
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