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One more question about SS early or late.
Old 08-05-2016, 10:05 AM   #1
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One more question about SS early or late.

HI All

My head may not be working properly today (or most days ) , so Im wondering if someone can please explain this to me?

I read this scenario somewhere on Bogleheads a long while back about taking SS early versus late.

Lets say I’m 62 and have a portfolio valued 1.4M and Im trying to decide whether to take SS now or at 70. Ive used AnyPia to determine that at 62 I would get 23500/yr and 40464/yr at 70.

Heres the example that gets me:

Scenario 1:

I take 8 years of 40464 (what I get at 70) and place it in a separate account, paying 1-2%. (and I know that money is fungible etc.) I used this account to pay myself 40464 a year until SS starts at 70. So about 300k would cover it, maybe a little more. My new portfolio value would be 1.1M.

Then I take 3% (or any number) of the remaining portfolio every year. Thus I get 40464 + 33000 = 73464/year.

Scenario 2:

If, instead I take it at 62, then I get 23500 + 42000 (3% of 1.4M) = 65500.



What accounts for this large difference? Could my SS number from AnyPia be incorrect? Or is it just the 6-8% increase in SS every year, or is there some funny assumptions or math here that is tricking me?

Thanks guys!
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Old 08-05-2016, 11:06 AM   #2
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One possibility is that 3% is just your starting withdrawal rate. Most withdrawal plans have you increasing that by inflation. $1.4M is a better base than $1.1M so as you increase your withdrawal with inflation, the scenario 2 gap should close. On the other hand, SS payments are also supposed to increase with inflation.
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Old 08-05-2016, 12:50 PM   #3
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OP: If you assume your portfolio returns are 3% real (i.e matches your withdrawal rate), you will have $1.1M remaining in your portfolio in scenario 1 at age 70 and $1.4 M in scenario 2 at age 70.

Obviously, the real results heavily depend on portfolio return rates, inflation (and whether the 1-2% guaranteed returns match or exceed inflation).
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Old 08-05-2016, 12:59 PM   #4
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Quote:
Originally Posted by fosterscik View Post
OP: If you assume your portfolio returns are 3% real (i.e matches your withdrawal rate), you will have $1.1M remaining in your portfolio in scenario 1 at age 70 and $1.4 M in scenario 2 at age 70.

Obviously, the real results heavily depend on portfolio return rates, inflation (and whether the 1-2% guaranteed returns match or exceed inflation).

True. The implication being that I could take more than 3% in the case of taking it at 62 and still have the same amount at 70. But then at 70 I will be taking out 16k more/yr if I started at 62 versus 70.


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