Scott Burns: The Risk of Delaying SS

[REWahoo]

From the same people who brought you the argument for delaying taking SS as we discussed here...( http://early-retirement.org/forums/i...p?topic=5764.0 )...comes the rebuttal regarding the risks for delaying beyond age 62. No surprise, the case against waiting is pretty much the same as what we identified: A dollar at age 62 is worth more than a dollar at 70 or beyond and a lack of trust in our politicians to not reduce future benefits.


Scott Burns

You've heard about credit risk, interest rate risk and manager risk, right?

Well, Donald D., a Houston reader, thinks there's a greater risk. I think he's right.

He calls it "Congress risk."

Writing in response to my recent column about the benefits of taking Social Security benefits later rather than sooner, Donald agreed that a discounted-present-value approach to the benefits decision was the best financial approach.

But he had misgivings. "Congress risk" was one of them.

"I think there are other factors to consider.

"For one, the marginal utility of a dollar for a 62-year-old is probably greater than for an 80-year-old," he wrote.

Marginal utility, in case you have never heard the phrase, is econo-talk for the usefulness of the last dollar, Oreo cookie or margarita compared with those preceding.

Just as we all know that the additional pleasure brought by the seventh pancake is small compared with the first, most of us seem to think that pleasures of any sort at age 60 have a higher value than pleasures at 70 or 80.

Value fades

I'm glad he said it, not me, because he's the one you can call "ageist." That said, you should know that many readers have offered the same thought. No reader has ever suggested it's best to hold off doing anything until we're 91 because we'll appreciate it so much more than at 35.

"There is also the risk that a person will not live long enough for the delayed benefits to pay off," Donald's message continued.

"Using a person's life expectancy may be the best guess about how long that person will live, but statistically, half the people will not live that long. Many people will reasonably conclude that 75 cents starting today is better than a dollar in eight years, if they live that long."

The blunt fact is that while the financial planners can wring their hands over the difference between 5.5 percent and 6.5 percent in a financial calculation, normal human beings use much larger discount rates when we fire up our hedonic calculators to value an experience today vs. one tomorrow.

Politicians may act

"Then there is Congress risk," his message continued.

"Politicians are better at getting their hands on other people's money than at just about anything else.

"We know there is already a shortage of money looming. We know they will soon not be able to meet their obligations. Maybe getting what you can, now, is safer than hoping that Congress keeps its promise for the next 15 or 20 years."

He's got a good point there.

Last year at this time, there was a deluge of proposals to "save" Social Security. The proposals shared only one thing: Today's voters would be spared any inconvenience, while tomorrow's retirees (the young) would get less in benefits.

Seniors get the gold mine; the kids get the shaft.

I call it "The Great Reneging" – somehow, some way, politicians of both ilks are going to complete the unraveling of the Great American Security Blanket, just as American corporate executives are reneging on the benefits and pensions promised to millions of workers as they rake in their stock-option millions. (And, no, I can't tell you how I really feel about this.)

In fact, even without Social Security reform, future workers are going to see their benefits reduced because:

• Medicare premiums are rising faster than Social Security benefits.

• More benefits will be taxed because the taxation-of-benefits formula is not indexed to inflation, just like the hated alternative minimum tax.

Bottom line: Whatever the financial calculation, deferring Social Security benefits very long requires more trust than our politicians have earned.

http://tinyurl.com/rz3a6

[cute fuzzy bunny]

Gosh, all that sounds incredibly familiar.

And didnt I say, perhaps tongue in cheek, that since he wrote an article last year supporting taking it early, this year saying take it late, that he'd shortly moderate both opinions?

And voila...

[azanon]

I'm taking it early myself. I've always been more of a "bird in the hand" > 2 in the bush.

[Andre1969]

That's my attitude. I intend to take it as soon as I can, at age 62. Or what's left of it by the time I turn 62. That's 26 years and a few months away; plenty of time for the politicians and such to get creative with it.

[Eagle43]

I got MINE* , he chortled, unnecessarily!* There was no decision to it. Take it, and if you don't need it, invest it, but always enjoy it.

[Spanky]

I received my SS statement showing that the payment will be $1500 per month at age 62 and $2,000/month at 66. Ummm .. 62 is it.

[Andre1969]

I got my statement but forgot what it said. But anyway, using the quickie estimator on the internet, I find that if I retire at 62, I get $1164 per month. At 65 it comes out to $1451. At 67, it's $1681. And if I hold out until I'm 70, a whopping $2078 per month.

I'm being pessimistic about Social Security, and just pretending that it's not even going to be there when I retire. I know that's probably a bit apocolyptic on my part, but the way I look at it, if there's anything left of it by the time I retire, it'll be a pleasant surprise, and money I hadn't expected!

[SteveR]

SS is a very small part of our ER plan. We don't need it to make or break our plan but it adds some frosting to the cake. Once we actually get to 62 we will have a better idea of what we will do about taking it or not. For now, we plan on taking it at 62 just because we want to get something back before congress puts a means limit on it. I want to at least get something back for the tens of thousands of $ I have put into the system over the past 35 years of work.

[cute fuzzy bunny]

Lobster and champagne money for us. Maybe we'll hire a maid and a gardener or use it to send gabe to college.

[Jay_Gatsby]

Wouldn't it make sense to take it at 62 and invest it, rather than let the government invest it for you and take it at 67 or 70?

[cute fuzzy bunny]

That was the contention in an earlier thread. It takes until you're in your 80's before waiting to take it beats investing it. Plus according to firecalc, the sudden introduction of an income stream at 62 allows you to spend more for your entire early retirement. Not a lot more, just a little over a thousand bucks for me, but a thousand bucks a year doesnt suck!

On the other hand, some people look at it as a CPI indexed annuity that pays a high rate if you keep your hands off of it. I get that. If I can do better than the rate, and I can, I dont see why that matters. I suppose if you want GUARANTEED return. But I'm going to go 40-50 years without any guarantees on my returns...

This column finally comes down to the bigger question: is a little extra money in your early 60's of higher usability/value than some extra money in your 80's?

[JPatrick]

Originally Posted by (Cute Fuzzy Bunny)

Lobster and champagne money for us.* Maybe we'll hire a maid and a gardener or use it to send gabe to college.

I like your priorities*
1. Lobster
2. Champagne
3. hire maid
4. hire gardner
5. send gabe to college

[Andre1969]

Hell, in my case I figure I can make it on $2000-2500 per month, so the $1164 per month I'll get at 62 would cover about half of it.

[Jay_Gatsby]

Originally Posted by (Cute Fuzzy Bunny)

That was the contention in an earlier thread.* It takes until you're in your 80's before waiting to take it beats investing it.* Plus according to firecalc, the sudden introduction of an income stream at 62 allows you to spend more for your entire early retirement.* Not a lot more, just a little over a thousand bucks for me, but a thousand bucks a year doesnt suck!

That's what I thought. Even if I don't need the money at 62, I can always invest it and get a decent return. At 62 I still think I'd be willing to ride out the markets.

This column finally comes down to the bigger question: is a little extra money in your early 60's of higher usability/value than some extra money in your 80's?

I think that question answers itself. I'll take the money at 62, thank you very much.

[cute fuzzy bunny]

Originally Posted by JPatrick

I like your priorities
1. Lobster
2. Champagne
3. hire maid
4. hire gardner
5. send gabe to college

Eh, he's a smart kid. He'll get scholarships and probably have started a business by the time he's 18. Plus I've already got his basic four year college money planned out. When we're 62 he'll be about 19 and in his second year...we can start slotting that extra SS money towards funding any masters or Piled Higher and Deeper programs, med school, law school, etc he might be interested in.

Besides, lobster and champagne are important!

[JPatrick]

Originally Posted by (Cute Fuzzy Bunny)

Besides, lobster and champagne are important!

I like lobster, but it gets old after awhile.
What you need is a contact in Alaska who will air freight a cooler full of really fresh salmon and halibut* 8)
That is what I am consuming tonight*

[cute fuzzy bunny]

At risk of sounding like forrest gump, there is boiled lobster, baked stuffed lobster, lobster newburg, 350 different lobster caseroles, lobster sautes, lobster scampi...........

[JPatrick]

Originally Posted by (Cute Fuzzy Bunny)

At risk of sounding like forrest gump, there is boiled lobster, baked stuffed lobster, lobster newburg, 350 different lobster caseroles, lobster sautes, lobster scampi...........

Reminds me of a box of chocolate*

[HFWR]

And the occasional filet and chardonnay...