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Old 07-10-2019, 10:04 AM   #241
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$254,760 if left in the S&P500 eight years ago (7/10/2011) and instead draw SS would be worth $670,656 today. Today you would be looking at about 81K of annual income.
You little cherry-picker!

You aren't getting the point. In this instance the $254,760 is money that will be spent by Colleen form ages 62-70. Prudence would suggest that that near term money be invested conservatively... like in a CD ladder.

Your scenatio of putting the $254,760 in stocks adds a lot of risk to Coleen's situation.

She could invest it in stocks but there have been 8 year periods where the $254,760 invested in stocks with annual $30,720 withdrawals have not survived... 15% of the time according to FIRECalc (assuming 2% inflation).. the $60,890 spending has similar risk to taking SS at 62.
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Old 07-10-2019, 12:24 PM   #242
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Yes, it can also be illustrated with a WR approach. Let's say that in addition to the above that Colleen has $1 million of retirement savings and is comfortable with a 4% WR.

SS at 62... $17,200 of SS plus 4% of $1 million = $57,200 annual spending

SS at 70... set up side fund of $254,760 to fund $30,720/year for age 62 to 70 when SS starts... remainder of $745,240 at 4% is $30,170 starting at age 62... The $30, 170 of withdrawals + $30,720 of SS from the side fund at ages 62-70 and from SS after age 70 = $60,890 in annual spending.

The $254,760 would be in a CD ladder to help payments keep up with inflation.
There are some assumptions that go in to this analysis that skew the results to favoring taking SS at 70. First is the assumption that Colleen will live to 92, several years longer than normal. Second, it assumes the stock market/ sequence of returns will be at least as bad for Colleen than it has ever been in history.

While it is certainly fine to make such conservative assumptions, they are pessimistic and do not reflect likely outcomes.
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Old 07-10-2019, 12:47 PM   #243
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There are some assumptions that go in to this analysis that skew the results to favoring taking SS at 70. First is the assumption that Colleen will live to 92, several years longer than normal. Second, it assumes the stock market/ sequence of returns will be at least as bad for Colleen than it has ever been in history.

While it is certainly fine to make such conservative assumptions, they are pessimistic and do not reflect likely outcomes.
I try to plan for all reasonable cases. Dying early, I'm not likely to run into money troubles no matter when I take SS. Likewise if the market does well or even average for the rest of my life.

Where I'm likely to run into trouble is if I live long, and the market doesn't do well. While this is unlikely, it's not so unlikely that I shouldn't consider it.

For me, this means waiting to take SS at either a big market downturn (in which I don't want to be taking as much money out of the market at a low for spending), or at 70 if that downturn doesn't happen between 62 and 70.

If one is trying to optimize their money across all cases, you could easily reach a different conclusion. My goal is to ensure against bad cases. I'm not as concerned if I don't get the most out of a bull market.
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Old 07-10-2019, 01:09 PM   #244
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There are some assumptions that go in to this analysis that skew the results to favoring taking SS at 70. First is the assumption that Colleen will live to 92, several years longer than normal. Second, it assumes the stock market/ sequence of returns will be at least as bad for Colleen than it has ever been in history.

While it is certainly fine to make such conservative assumptions, they are pessimistic and do not reflect likely outcomes.
Totally disagree... if Colleen hasn't smoked and is of average health then her chance of living to 92 is about 40%.





You seem to be advocating withdrawals to an expected age (89 for Coleen)... but what if one lives longer?
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Old 07-10-2019, 09:05 PM   #245
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Totally disagree... if Colleen hasn't smoked and is of average health then her chance of living to 92 is about 40%

You seem to be advocating withdrawals to an expected age (89 for Coleen)... but what if one lives longer?
Iím not sure where your data is coming from, but according to the 2016 social security life expectancy tables, the probability of a 62 year old woman living to 92 is less than 25%. However this is not my main issue.

I probably didnít explain my point clearly enough. Your post showed an interesting analysis that seemed to indicate one could spend more money over a 30 year retirement by taking social security at age 70 over age 62. However, if we look at historical returns since 1928 for a 60/40 portfolio, that has only been true about 23% of the time. (I actually did the calculations when I was trying to decide when to take SS). The reason your analysis looked different is because you used a 4% withdrawal rate, which is the historical worst case withdrawal.
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Old 07-10-2019, 09:15 PM   #246
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I try to plan for all reasonable cases. Dying early, I'm not likely to run into money troubles no matter when I take SS. Likewise if the market does well or even average for the rest of my life.

Where I'm likely to run into trouble is if I live long, and the market doesn't do well. While this is unlikely, it's not so unlikely that I shouldn't consider it.

For me, this means waiting to take SS at either a big market downturn (in which I don't want to be taking as much money out of the market at a low for spending), or at 70 if that downturn doesn't happen between 62 and 70.

If one is trying to optimize their money across all cases, you could easily reach a different conclusion. My goal is to ensure against bad cases. I'm not as concerned if I don't get the most out of a bull market.
You make a fair point. If a bad outcome is a real possibility, then taking social security at 70 is a good choice. The downside is that you need a fortitude of steel to watch your savings drop every year for 8 years.
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Old 07-10-2019, 09:44 PM   #247
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Wow, what a discussion!

Looks like we're going to start pulling at 62. Right now we are living on an IRA and taxable accounts. We're mainly burning taxable funds and avoiding Roth conversions to chase after the ACA subsidy. The difficulty is that we'll run out of taxable funds before we're both on Medicare.

Early SS will slow the drain of our valuable taxable accounts and also allow us to Blow More Dough while we're still young enough to enjoy. As others have mentioned, my goal is not to get the most money from SS, but rather to enjoy as much as possible over the next 10-15 precious years without living under a bridge at the very end.
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Old 07-11-2019, 05:23 AM   #248
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You make a fair point. If a bad outcome is a real possibility, then taking social security at 70 is a good choice. The downside is that you need a fortitude of steel to watch your savings drop every year for 8 years.
Not really.

For one thing I'll have been retired for 12.5 already at age 62 so I'm used to spending down my savings. Anyone who retires before 62 does this, and for others, even if you start at 62 you're probably cutting into savings as well. Besides, in many years the market does well enough that savings don't actually drop.

I look at my finances logically, so I totally understand that spending from savings a bit more now gets me more SS income later. IMO many people are far too emotional about their finances and if they'd just step back and look at the numbers they'd make sounder decisions. I'm not talking about just SS, I'm also talking about paying off the house, averaging in after a windfall, OMY, and so on.
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Old 07-11-2019, 05:48 AM   #249
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Risk of ruin? She has COLA adjusted $60,890/year for the rest of her life! Nearly 5x the current "poverty level".
It doesn't imply that there is any high risk with either alternative.

Here, "same risk of ruin" could be reworded as "without any increase in risk at all".
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Old 07-11-2019, 06:19 AM   #250
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Not really.

For one thing I'll have been retired for 12.5 already at age 62 so I'm used to spending down my savings. Anyone who retires before 62 does this, and for others, even if you start at 62 you're probably cutting into savings as well. Besides, in many years the market does well enough that savings don't actually drop.

I look at my finances logically, so I totally understand that spending from savings a bit more now gets me more SS income later. IMO many people are far too emotional about their finances and if they'd just step back and look at the numbers they'd make sounder decisions. I'm not talking about just SS, I'm also talking about paying off the house, averaging in after a windfall, OMY, and so on.
Agree.
All good finance decisions needs to leave out the emotions.
We are spending down our taxable accounts to chase the ACA subsidy. At 65 (actually 66 due to lump sum Pension), we will do heavier Roth conversions, while then spending down the TIRA.
Goal is to then take SS at 70.
Who knows, perhaps with a huge market drop, I get emotional, but have lots of faith in historical sequences and the calculators.
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Old 07-11-2019, 06:29 AM   #251
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Agree.
All good finance decisions needs to leave out the emotions.
We are spending down our taxable accounts to chase the ACA subsidy. At 65 (actually 66 due to lump sum Pension), we will do heavier Roth conversions, while then spending down the TIRA.
Goal is to then take SS at 70.
Who knows, perhaps with a huge market drop, I get emotional, but have lots of faith in historical sequences and the calculators.
As far as the SS decision goes, a huge market drop can lead to a calculated decision that future gains will be better during the recovery, which can favor starting SS at that point. This is an insight I learned here on e-r.org by participating in these discussions and being open to learning and changing.
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Old 07-11-2019, 07:07 AM   #252
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As far as the SS decision goes, a huge market drop can lead to a calculated decision that future gains will be better during the recovery, which can favor starting SS at that point. This is an insight I learned here on e-r.org by participating in these discussions and being open to learning and changing.
True,true.
We also have the extra concept that most of our investments are in TIRA, so the Roth conversions and using TIRA vs. taking SS early also comes into play.
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Old 07-11-2019, 07:59 AM   #253
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The downside is that you need a fortitude of steel to watch your savings drop every year for 8 years.
One size does not fit all. As an income oriented investor, I can say with confidence that when my husband decides to retire, our savings will not drop at all. In fact, it will continue to increase. No pension. Even w/o SS. Our investment income (interest/dividends) already exceeds our annual spending by a healthy margin. It's about double right now.
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Old 07-11-2019, 09:25 AM   #254
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One size does not fit all. As an income oriented investor, I can say with confidence that when my husband decides to retire, our savings will not drop at all. In fact, it will continue to increase. No pension. Even w/o SS. Our investment income (interest/dividends) already exceeds our annual spending by a healthy margin. It's about double right now.
in fact, it could drop precipitously. I retired in December, 2007. Savings dropped like a stone for two years in a row. But you really have to be ready for something like that.
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Old 07-11-2019, 10:16 AM   #255
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One size does not fit all. As an income oriented investor, I can say with confidence that when my husband decides to retire, our savings will not drop at all. In fact, it will continue to increase. No pension. Even w/o SS. Our investment income (interest/dividends) already exceeds our annual spending by a healthy margin. It's about double right now.
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in fact, it could drop precipitously. I retired in December, 2007. Savings dropped like a stone for two years in a row. But you really have to be ready for something like that.
In fact, it really depends on what you're invested in. Note that I didn't specify.
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Old 07-11-2019, 10:36 AM   #256
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Hmmm - Hindsight being what it is. Grin

2005 Household of smokers. My old company Wellness Guide had my life expectancy at 77. Took early SS at 62. Katrina, moved inland left portfolio in 60/40 index funds, 20% down on a house. Stayed the course. Lived on early SS and a modest non -cola pension with a 6% one time portfolio hit for down payment/remodeling. Mr Market did it's thing from 2005 till now.

Hesitate to run the numbers but I remarried in 2013 and along with wife came her pension/s, portfolio, farm and of course romance.

Got hosed 25% selling my house kept hers. At age 70 my pals at the IRS jumped me a couple of tax brackets.

heh heh heh - the point. It's not just the numbers. Ala the late Yogi Berra -'predictions is hard. Especially the future.'

P.S. I also finally quit smoking at 62.
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Old 07-12-2019, 08:49 AM   #257
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Hmmm - Hindsight being what it is. Grin

2005 Household of smokers. My old company Wellness Guide had my life expectancy at 77. Took early SS at 62. Katrina, moved inland left portfolio in 60/40 index funds, 20% down on a house. Stayed the course. Lived on early SS and a modest non -cola pension with a 6% one time portfolio hit for down payment/remodeling. Mr Market did it's thing from 2005 till now.

Hesitate to run the numbers but I remarried in 2013 and along with wife came her pension/s, portfolio, farm and of course romance.

Got hosed 25% selling my house kept hers. At age 70 my pals at the IRS jumped me a couple of tax brackets.

heh heh heh - the point. It's not just the numbers. Ala the late Yogi Berra -'predictions is hard. Especially the future.'

P.S. I also finally quit smoking at 62.
Spousal consideration aside, anyone who thinks they are a short timer should probably start early in many cases.


Interestingly, I do taxes for a lot of retirees. Many started SS at 62 but continued to work. When I ask them why they started early, usually the answer is "I got a letter from Social Security telling me I was eligible."
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Old 07-12-2019, 10:30 AM   #258
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Spousal consideration aside, anyone who thinks they are a short timer should probably start early in many cases.
It's important to know family history, going beyond just parents. My divorced parents died relatively early. Mother at 48 from cancer. Father at 67 from complications mainly related to alcoholism and Hep C. I don't feel I'm necessarily destined to not make it to 80 or 90 because of their lack of longevity.

Mother had problems with cysts at age 16 and began abusing prescription medications in early adulthood. Father started drinking heavily by mid-life. Both were smokers.

Going back further, overall, far more relatives of mine made it to their 80s/90s than didn't. Most who didn't, usually smoked heavily, and/or drank heavily (full-blown alcoholism), and even a couple of them made it to 79. I'm not counting on anything, but I feel I have a good chance of making it to mid-80s to mid-90s.

My husband's mother died of cancer at 47. His father is still alive at 86, and most of his other relatives made it to their 80s/90s. I'm hopeful for similar longevity for him also.

Of course, all hopes are based on still being mentally/physically fit enough to enjoy it.
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Old 07-12-2019, 10:43 AM   #259
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As far as the SS decision goes, a huge market drop can lead to a calculated decision that future gains will be better during the recovery, which can favor starting SS at that point. This is an insight I learned here on e-r.org by participating in these discussions and being open to learning and changing.
A good point.

I looked at historical returns for a 30 year retirement and a 60/40 portfolio. If the market is priced high ( as it is today), it was 50/50 as to whether taking SS was better at 62 or 70. If the market ever falls below a P/E10 of 18, taking SS at 62 was strongly favored. This is for a single person. For married couples, the situation is much more complicated.
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Old 07-12-2019, 10:54 AM   #260
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I’m not sure where your data is coming from, but according to the 2016 social security life expectancy tables, the probability of a 62 year old woman living to 92 is less than 25%. However this is not my main issue.

I probably didn’t explain my point clearly enough. Your post showed an interesting analysis that seemed to indicate one could spend more money over a 30 year retirement by taking social security at age 70 over age 62. However, if we look at historical returns since 1928 for a 60/40 portfolio, that has only been true about 23% of the time. (I actually did the calculations when I was trying to decide when to take SS). The reason your analysis looked different is because you used a 4% withdrawal rate, which is the historical worst case withdrawal.
The data is coming from http://www.longevityillustrator.org/Profile?m=1 which was mentioned in another thread for a 62 yo female, non-smoker, average health born on 6/30/1957.

I don't about understand your comment about only been true 23% of the time. 4% isn't necessarily worst case but is a bad case, but if you're 62 and don't want to run out of money that is what you would use... if you base your decision on most expected case then you add more sequence of returns risk in the event it ends up that you retired at the "wrong' time.

That said, even if you use a less conservative 5% WR then deferring still provides a small benefit... at higher WR then taking at 62 wins but IMO even selecting 5% WR would be foolish for a 62 yo.
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