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Old 03-07-2016, 08:38 AM   #41
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Point: Seems like "nobody" models that there is any chance that they'll die before the break-even point (i.e. seems like "nobody" models the bell curve of when they'll expire). Instead, they pick an age to use in their model. One age.
I think the reason we use all the data and modeling up front when we are trying to decide if we can retire is because we don't want to run out at the end of the game. Or rather- we don't want to run out of money before we expire.

With the social security decision- many of us look at the delayed start/ higher annual payment as a way to buy some inflation hedged income until our expiration date. If we expire before that, who cares? We expired. But the fear is outliving the initial stash.

The folks that are taking the big picture approach and trying to leave a legacy- that is where we see the great debate. Take SS early and invest it- minimize withdrawals, etc. These are discussions more complicated, and similar, to the big 'can I retire early' type discussions.
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Old 03-07-2016, 09:14 AM   #42
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I just ran some numbers through FireCalc, and it doesn't look like when I take SS really has a huge impact on the chance of success. In my case though, I plan on retiring long before 62, so SS isn't as big of a factor for my success as it might be for others.

My ideal retirement is age 50 in 2020, but the recent turmoil in the stock market has made that a bit iffy, as I'd prefer to go out with a 95% chance of success, or greater. Anyway, here's what delaying SS does to the success rates, for retiring in 2020, at age 50...

87.9%: take SS at 62 in 2032
90.1%: take SS at 67 in 2037
90.1%: take SS at 70 in 2040

So, it does benefit me a little to wait until 67 versus 62, but there seems to be no benefit of waiting until 70.

If I delay just one year, and retire in 2021 at age 51, I get the following results:

96.7%: take SS at 62
98.9%: take SS at 67
98.9%: take SS at 70

There's still a benefit to delay until 67, but all three scenarios break the 95% success rate.

Now, if I wait just one additional year, retiring in 2022 at age 52, I get the following:

98.9%: take SS at 62
100%: take SS at 67
100%: take SS at 70.

Regardless, in any of these scenarios, it doesn't look like there's a right answer or a wrong answer. While there is a higher chance of failure if I take SS at 62 versus 67/70, it's really a small chance.
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Old 03-07-2016, 09:47 AM   #43
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..... and we appreciate your contribution to the sustainability of SS.
There is not much effect upon Social Security trust funds itself whether an individual takes it at 62 or 70. The largest hits are first of all to survivors if any and secondly to the taxability of other income that occurs for the remainder of your life if you have cash, which effects the annual US government operational deficit more than the Social Security Trust fund.

Example presume your SS at age 62 would be 1500 per month and 3000 per month if you deferred to age 70. Now assume this is a couple with a million dollars in 401/IRA and both do take SS at age 62 , so you have $3,000 per month coming in from SS and 3,300 per month from the portfolio for a 4% withdrawal for total income of $75,600 per year.

Under current law when they file income taxes $17,560 of the Social Security will be taxable and they will owe $4,391.50 dollars in Federal Tax (assuming standard deductions and exemptions) leaving $71,208.50 in spendable money. Were they to defer Social Security and withdraw $75,600 per year from their 401K/IRA to age 70 they would pay $7,232.50 in taxes or $2,841 more in taxes per year leaving $68,367.50.

At age 70 the portfolio, assuming only increase equal to inflation would be drawn down to $396,000 and only support a $16,000 per year withdrawal. However Social Security would now provide $72,000 in income to the couple and after age 70 they would have income of $88,000 $72K from SS and 16K from Portfolio and pay only $710 in income taxes for spendable income of $87,390 or $16,181.50 more after age 70 than taking social security early.

Now there are millions of potential outcomes and future of social security and tax law is very uncertain of course and the odds of one dying of a couple is another issue. But if a healthy couple is determining at age 62 what course of action to take and decides on investing results over social security, you really have to be a lot better than inflation in order to equal what Social Security and present tax law provides
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Old 03-07-2016, 10:37 AM   #44
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Originally Posted by Andre1969 View Post
I just ran some numbers through FireCalc, and it doesn't look like when I take SS really has a huge impact on the chance of success. In my case though, I plan on retiring long before 62, so SS isn't as big of a factor for my success as it might be for others.

My ideal retirement is age 50 in 2020, but the recent turmoil in the stock market has made that a bit iffy, as I'd prefer to go out with a 95% chance of success, or greater. Anyway, here's what delaying SS does to the success rates, for retiring in 2020, at age 50...

87.9%: take SS at 62 in 2032
90.1%: take SS at 67 in 2037
90.1%: take SS at 70 in 2040

So, it does benefit me a little to wait until 67 versus 62, but there seems to be no benefit of waiting until 70.

If I delay just one year, and retire in 2021 at age 51, I get the following results:

96.7%: take SS at 62
98.9%: take SS at 67
98.9%: take SS at 70

There's still a benefit to delay until 67, but all three scenarios break the 95% success rate.

Now, if I wait just one additional year, retiring in 2022 at age 52, I get the following:

98.9%: take SS at 62
100%: take SS at 67
100%: take SS at 70.

Regardless, in any of these scenarios, it doesn't look like there's a right answer or a wrong answer. While there is a higher chance of failure if I take SS at 62 versus 67/70, it's really a small chance.
How many years do you plan to spend in retirement?
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Old 03-07-2016, 10:49 AM   #45
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Now there are millions of potential outcomes and future of social security and tax law is very uncertain of course and the odds of one dying of a couple is another issue. But if a healthy couple is determining at age 62 what course of action to take and decides on investing results over social security, you really have to be a lot better than inflation in order to equal what Social Security and present tax law provides
I think the decision comes down to whether you need the extra longevity insurance. If SS is your only "guaranteed" lifetime income source and you feel you need the extra income if you live into your late 80s then deferring might be best. But most people will die before they see any significant benefit from deferring and if they have other lifetime benefits like pensions or annuities deferring becomes less attractive.
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Old 03-07-2016, 10:53 AM   #46
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Example presume your SS at age 62 would be 1500 per month and 3000 per month if you deferred to age 70.
Wouldn't deferring to age 70 give $2760?......as things stand now.
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Old 03-07-2016, 11:08 AM   #47
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How many years do you plan to spend in retirement?

For the numbers above, I plotted out living to 100, which would mean 48-50 years of retirement depending on when I quit working, and either 38, 33, or 30 years of SS, depending on when I took it. I realize that's not totally realistic though, as FireCalc is only drawing from 54-year timeframes, and there could be many shorter timeframes that failed.

I just went back and re-ran a couple numbers, to see how things change. If I retire at 50, and plan out a 40 year timeframe on FireCalc, which would be 4 years of working and 36 years of retirement, and having me dead at 86, I get the following success rates:

86.7%: take SS at 62
90.5%: take SS at 67
90.5%: take SS at 70.

Using a 30 year timeframe which is 4 years of working and only 26 years of retirement, and having me dead at 76, I get the following:

95.7%: take SS at 62
94.8%: take SS at 67
93.9%: take SS at 70

So, even with these shorter timeframes, when I take SS doesn't seem to make a huge difference.
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Old 03-07-2016, 12:15 PM   #48
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For the numbers above, I plotted out living to 100, which would mean 48-50 years of retirement depending on when I quit working, and either 38, 33, or 30 years of SS, depending on when I took it. I realize that's not totally realistic though, as FireCalc is only drawing from 54-year timeframes, and there could be many shorter timeframes that failed.

I just went back and re-ran a couple numbers, to see how things change. If I retire at 50, and plan out a 40 year timeframe on FireCalc, which would be 4 years of working and 36 years of retirement, and having me dead at 86, I get the following success rates:

86.7%: take SS at 62
90.5%: take SS at 67
90.5%: take SS at 70.

Using a 30 year timeframe which is 4 years of working and only 26 years of retirement, and having me dead at 76, I get the following:

95.7%: take SS at 62
94.8%: take SS at 67
93.9%: take SS at 70

So, even with these shorter timeframes, when I take SS doesn't seem to make a huge difference.
That is what I found as well.....so I'm going to take SS as soon as I can. For probable life expectancies it works out better and I don't need the extra longevity insurance of deferring.
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Old 03-07-2016, 12:22 PM   #49
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That is what I found as well.....so I'm going to take SS as soon as I can. For probable life expectancies it works out better and I don't need the extra longevity insurance of deferring.
To be clear, deferring SS does not guarantee maximizing "longevity insurance," although it certainly might. You need to know (or assume) what the investment returns on the money received early were and then compare early SS + bucket of investment return dollars vs. deferred SS. And, if using FireCalc for your testing, you need to believe that future investment returns will be no worse than the worst of history for your chosen AA.

During periods of good market returns, early SS can beat deferred SS at providing longevity insurance.

Regardless, I certainly agree with your decision to start SS early (as I did) given your personal circumstances and outlook. Others need to consider their own circumstances and the extent to which they value the subjective/emotional factors involved in the decision.
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Old 03-07-2016, 12:51 PM   #50
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I agree. Whether to defer, or not, depends on individual circumstances and the absolute possible amount of benefit should not be the major factor. That's the argument I always make when people scorn the SPIA. Being married makes the assessment of benefit a little more complicated, but for the single person the chances are that you won't see much of an advantage from deferring. So as a rule of thumb I'd advise single people to take SS as soon as they can. The combinations and permutations of market returns, longevity and spending patterns are an enormous space, but for my situation as a single male I value having SS income at 62 over waiting until 70 and expecting to live well passed my mortality age to see the gain. Deferring is a better bet if you are a woman. I won't have quite as much SS if I live into my 90s, but I have a pension and a UK SS check (at 67) so I don't need it. At 66 I expect to get around $20k in SS and assuming 3% annual inflation here are the numbers.

Starting Age Starting Amount ($) Total at 83 ($) Total at 90
62 15k 458k 678k
66 20k 468k 729k
70 26.4k 451k 757k
Seems like self selection of the ages in the chart.
Your chart has a big gap between 83 and 90, I think it would look like a different answer if you picked 84 and 85 as the ages. It seems to me that waiting until 70 would win for total return at 85 and possibly 84.
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Old 03-07-2016, 01:10 PM   #51
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Our decision was based on whether we wanted to leave an inheritance or not. My analysis showed that waiting to take SS at full retirement age would leave at most an inheritance in the low 6 figure or high 5 figure amount. Taking SS at 62 will leave it in the high 6 figure or low 7 figure amount. Based on this, we chose for me to take SS at 62. My wife who will retire this year, will take SS at full retirement age based in my record. She's affected by GPO, so this is the only way to maximize her SS benefit.
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Old 03-07-2016, 01:34 PM   #52
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Wouldn't deferring to age 70 give $2760?......as things stand now.
Yes you are correct! That would mean spendable income at age 70 would be $81,775 after tax of $465 $10,000 per year more of spendable income after age 70 not $87,390
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Old 03-07-2016, 03:04 PM   #53
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The "returns" from SS have the important attribute of being almost entirely uncorrelated with stock returns and only weakly correlated with bond returns.

Nobody puts all their retirement money in the "best performing asset class" (e.g. small cap Cambodian stocks, or whatever), they generally take advantage of diversification to maximize risk-adjusted returns (in accordance with their tolerance for year-to-year portfolio variability). So, emotional factors aside, many investors rationally chose to "buy" more of this SS asset class by deferring the start of their SS payments to age 70. Other investors want to try to increase their allocation to stocks and bonds while decreasing their ultimate "allocation" to SS, they do this by taking SS earlier and thereby spending down their portfolio less.
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Old 03-07-2016, 03:16 PM   #54
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Other investors want to try to increase their allocation to stocks and bonds while decreasing their ultimate "allocation" to SS, they do this by taking SS earlier and thereby spending down their portfolio less.
Nicely put. That sure could be one consideration when making the decision along with all the other factors.........
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Old 03-07-2016, 08:20 PM   #55
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Seems like self selection of the ages in the chart.
Your chart has a big gap between 83 and 90, I think it would look like a different answer if you picked 84 and 85 as the ages. It seems to me that waiting until 70 would win for total return at 85 and possibly 84.
I just took my 50% life expectancy at 62 (ie 83 years) and 90 as an upper limit, theres a 21% chance that I'll live to 90 if I reach 70.
For single males the break even point for taking SS at 62, 66 or 70 is the mid 80s......what a surprise as that's close to the 50% life expectancy.
Here are some other numbers. I am not investing any of the SS taken, it's just the sum of the checks I'd get with 3% annual inflation.

Starting Age Starting Amount ($)Total at 83 ($) Total at 85 Total at 87 Total at 90
62 15k 458k 516k578k 678k
66 20k 468k 537k 610k 729k
70 26.4k 451k 532k 618k 757k
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Old 03-07-2016, 08:27 PM   #56
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To be clear, deferring SS does not guarantee maximizing "longevity insurance," although it certainly might. You need to know (or assume) what the investment returns on the money received early were and then compare early SS + bucket of investment return dollars vs. deferred SS. And, if using FireCalc for your testing, you need to believe that future investment returns will be no worse than the worst of history for your chosen AA.
I was not considering investment returns, just that you'd get a bigger SS check by deferring which some people might like/need in later life.
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