Poll:Would you let your funds go to zero for SS?

[Running_Man]

For purposes of this assume you are turning 62 next month and will have only $288,000 to your name and a need to spend $3,000 per month. Social Security at age 62 would fund $1,700 per month and at age 70 would be $3,076. Would you have confidence to spend all of your retirement savings or create a blend along the way. The ages and relevant SS and implied portfolio withdrawl rate, assuming the portfolio earned exactly the inflation rate over the 8 years would be:

1) $1,700 and 5.4% withdrawl portfolio 288,000 Age 62
2) $1,819 and 5.6% withdrawl portfolio 252,000 Age 63
3) $1,946 and 5.8% withdrawl portfolio 216,000 Age 64
4) $2,082 and 6.1% withdrawl portfolio 180,000 Age 65
5) $2,261 and 6.2% withdrawl portfolio 144,000 Age 66
6) $2,441 and 6.2% withdrawl portfolio 108,000 Age 67
7) $2,637 and 6.1% withdrawl portfolio 72,000 Age 68
8) $2,848 and 5.1% withdrawl portfolio 36,000 Age 69
9) $3,076 and nothing left to withdraw Age 70

There could be a lot of fine points, such as what one could do in the interim with the portfolio portion not to be consumed shortly, for instance if you took option #5 the $144,000 could be invested far more aggressively. What would you do?

 

[pb4uski]

I think I would focus my efforts on figuring out how to spend less than $3,000 a month.

That said, there are lots of considerations. Current health and family longevity? Single or married? Desire to leave something to heirs? Confidence/view of SS financial stability?

I think I would lean toward delaying and would pull the trigger once my nestegg was down to a couple years of spending (so number 7 in your list).

 

[Bestwifeever]

I'd keep working (eek!).

 

[FIREd]

I would not want to be left with zero liquidity. So if there were no other asset that could be tapped in an emergency, I would start taking SS as soon as my account balance fell below an acceptable threshold (say $50-60K).

 

[samclem]

A lump of cash/investments gives options and freedom that will be gone if you are restricted to just $3K per month. But, waiting to pull the trigger might coincide with a market run-up, which would allow taking SS to be further delayed, thus providing more income for as long a you live. I'd probably split the difference, take SS at about age 66 (sooner if the market tanked).

 

[Walt34]

I would not want to be left with zero liquidity. So if there were no other asset that could be tapped in an emergency, I would start taking SS as soon as my account balance fell below an acceptable threshold (say $50-60K).

+1

Except my threshold would be a lot higher than that. That said, I have DW to think about. If Running_Man is single then he has more latitude to take on risk since he is the only one to bear the consequences.

 

[rbmrtn]

A SPIA might work in this case, if you have to have 3K/month. 240K will get you $1300/month @ 62 +1700SS. That leaves 48K for an emergency fund. I'd find a way to need less than 3k/month.

 

[bmcgonig]

A SPIA might work in this case, if you have to have 3K/month. 240K will get you $1300/month @ 62 +1700SS. That leaves 48K for an emergency fund. I'd find a way to need less than 3k/month.

Unfotrunately That wouldn't be the same thing. I'm assuming that the annuity is not inflation adjusted so that he would be much better off at 70 with the full SS since its cola'd

 

[Animorph]

If you assume 4% SWR from the remainders, you never reach $3k per month until SS at 70. Within the framework of the problem it's either SS at 70 or get lucky. We've noted before that SS is the best annuity, so an SPIA is probably not going to do the trick. Especially with a COLA. As stated in the problem there is no growth in the starting portfolio. It might be possible to gain a little with low risk during the first eight years, though with bonds being questionable these days there may not be that much to gain. FIRECalc probably has a good stock/bond mix that does pretty well over 10 years with added risk.

 

[W2R]

I think I would focus my efforts on figuring out how to spend less than $3,000 a month.

+1

Otherwise, if it is required that only the two options presented were possible, I would not foolishly spend down all my cash and end up broke except for SS.

One of the most important retirement planning processes for me was to arrange a number of different small income streams from different sources, so that if any one of them failed I could still survive. When I say "a number", I don't mean 1 or 2.

We often talk about diversity in our investments, but I also think that diversity in sources of income is something to consider. (edited to add: I meant diversification, not diversity! Good morning... )

 

[timo2]

+1



One of the most important retirement planning processes for me was to arrange a number of different small income streams from different sources, so that if any one of them failed I could still survive. When I say "a number", I don't mean 1 or 2.

We often talk about diversity in our investments, but I also think that diversity in sources of income is something to consider.

+2

 

[Running_Man]

The reason I brought this up is my father unfortunately, very recently and suddenly passed at age 87, he was very active to the end, stubborn and not accepting any financial help. He retired at age 65 with the option of 1800 per month pension or 200K and chose the 200K as social security and the pension did not provide the 50K per year they were used to, within 5 years my mother had died of lung cancer and my parents had spent the entire 200K and my dad was 10K+ in debt. He lived thereafter on social security which was about 1350 per month in 1997 and was 1600 per month this year. He died having paid off all his debt and having 5K in the bank, severely cutting back his spending.
In talking to my sister she is planning to retire this fall at age 62 with just about 300K. Her circumstance is different in that she is in a very long term relationship and only spends about 3K per month on her own expenses, and would most likely be able to fall back on her boyfriend if needed, but it brought this question to my mind, how would I manage this best for 3K per month. Interesting to see the responses, I myself would go to age 66 and then pray for good luck and cut spending as many have suggested.

 

[Cooked]

This is a very good question. My rules for SS are simple: 1) If we do not require the income before FRA, then wait for FRA. and 2) only delay taking SS after FRA if a really good reason presents itself. So I chose wait for FRA (66 and 10 months). Would I have the courage to follow through on these?

OTOH between 62 and 67 we would not want to be just surviving. 3k per month for one partner in a relationship sounds like more than surviving. So put together a few lean years and a few years with extra ($$) experiences.

Very thought provoking. Thanks RM.

 

[NW-Bound]

Very nice thread! The OP posed a very practical problem that no doubt many retirees face. How does one balance WR from her own stash against delaying SS?

Initially, I thought I would go for SS at 66, as it is a compromise. Many posters have chosen that too. But for risk aversion, is it a good choice?

If you decide to delay SS, your initial WR would be 36K/288K = 12.5%. I played a bit with FIRECalc, and in the worst case the portfolio runs out after about 5 years.

I tried different portfolio compositions, but it appears that at such high WR, the worst case is stuck at about 5 years. On the average, meaning 1/2 the time, one can get to 8 years to allow SS at 70. So, do you feel lucky?

What does one do, other than trying to cut expenses below 36K? I still have not voted yet.

PS. On the other hand, if you take SS at 62, then the initial WR is 5.4%. I tried that with FIRECalc, and in the worst case one runs out in about 12 years to 16 years. Different portfolio compositions may vary the worst case by a couple of years, but that is about it. Tough problem!

 

[ERD50]

Would not spend to zero by choice. What if a paperwork snafu delayed SS for a while? Other 'emergency fund' need?

"Denied!"

Also, look at FIRECALC. For an 8 year portfolio the historical optimal AA ranges will be weighted far more towards fixed than a 30 year portfolio.

-ERD50

 

[Independent]

Good poll. Many of us on this board have belt-and-suspenders plans so we've got more cushion than this. But we're unusual, I assume more Americans are cutting it closer.

I'd go with the "defer for a while, but start SS before my financial assets fall below $X"

The exact location of X depends on whether I've got a paid for house or I'm renting, as the house itself is a cushion.

I don't have a calculation that "proves" that's the right approach, it's just what makes my gut feel right.

I'm currently deferring SS and spending down assets. Theoretically, it's the "right" decision. In practice, it's hard to see that balance go down every quarter.

 

[Lsbcal]

I did not answer because if I were making this decision it would take me a lot of time investigating all the possibilities. Couldn't just say off hand but my first thought would be take it at 62.

 

[Chuckanut]

One of the most important retirement planning processes for me was to arrange a number of different small income streams from different sources, so that if any one of them failed I could still survive. When I say "a number", I don't mean 1 or 2.

We often talk about diversity in our investments, but I also think that diversity in sources of income is something to consider. (edited to add: I meant diversification, not diversity! Good morning... )

+1 W2R is very wise.

Thank you for replacing diversity with diversification. For a minute I thought I would really have to invest in Venezuelan Beaver Cheese futures!

 

[NW-Bound]

One of the most important retirement planning processes for me was to arrange a number of different small income streams from different sources, so that if any one of them failed I could still survive. When I say "a number", I don't mean 1 or 2.

Uh Oh! As we have no pension but only IRA's/401k's and SS, that means we have only 2 sources of income.

The IRA/401k is spread out on more than a dozen accounts, but they are really the same thing: tax-deferred investments. And then, we have after-tax accounts, but other than the tax obligation being different, money is money.

If SS fails, we can still survive with our stash, as we are currently spending only 3.5%. But if our stash failed, our lifestyle would be crimped with just SS, which I have not looked into yet to see what it will be because we are a few years from 62.

It's too late for us to go back to work to pick up a pension. Who even offers that anymore? And then I would have to work till 80 to get that pension vested. We are doomed! I guess I need to check into a Walmart job for that 3rd potential income.

...
If you decide to delay SS, your initial WR would be 36K/288K = 12.5%. I played a bit with FIRECalc, and in the worst case the portfolio runs out after about 5 years.

I tried different portfolio compositions, but it appears that at such high WR, the worst case is stuck at about 5 years. On the average, meaning 1/2 the time, one can get to 8 years to allow SS at 70. So, do you feel lucky?

I got the results wrong. The success rate after 8 years is as high as 80%, not 50% as I wrote.

 

[Midpack]

I think I would focus my efforts on figuring out how to spend less than $3,000 a month.

I'd keep working (eek!).

+1. I simply wouldn't let myself be in that situation. I'd keep working, find a job if retired, reduce spending, etc. YMMV

 

[calmloki]

No fine planning here - no faith that things will remain as they are, no faith in history predicting the future. We both took SS at 62 - having my heart stop makes me glad to have done so, as it tickles me to get some allowance back from the government. Lacking in faith that SS payout rates or dates are any kind of thing you can count on. In our modest way we keep piling the stash up and playing the game. I think these two guys may just have the right ideas:

Full Service Station (Texas Country Reporter) - YouTube

Chuck Feeney: The Billionaire Who Is Trying To Go Broke - Forbes

For some reason I think they would get along real well.

 

[jimnjana]

We are leaning towards spending down and putting off SS until at least 67 for DW and then bring it up for an annual decision after that. Spend down for us means selling off one vacation rental and farm land. Using the proceeds to pay down mortgage debt and increase our travel budget. DW TSP account will become our cash reserve and we will convert it to an IRA for easier withdrawals at some point in the next few years. Maybe its primarily more of a portfolio rebalance away from real property.

 

[calmloki]

We are leaning towards spending down and putting off SS until at least 67 for DW and then bring it up for an annual decision after that. Spend down for us means selling off one vacation rental and farm land. Using the proceeds to pay down mortgage debt and increase our travel budget. DW TSP account will become our cash reserve and we will convert it to an IRA for easier withdrawals at some point in the next few years. Maybe its primarily more of a portfolio rebalance away from real property.

Yeah, our initial plan called for selling a place per year starting in, oh, 2008. That didn't really work out so well. So we kept renting them. Uncle Mick says: Agile, Mobile, and Hostile. Not too hostile here, but a master at flexi-planning.

 

[tryan]

Get used to saying "Welcome to Walmart!"

 

[youbet]

I wouldn't assume my investments would perform at exactly the rate of inflation. That's a wild assumption that has never happened for me.