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Old 12-29-2010, 05:53 PM   #41
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Good point guys, about the spouses. I can see that is a different strategy altogether.

The more I look at the analysis, it appears that a single person might want to consider this strategy now that the "Do-Over" is dead.
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Old 12-29-2010, 06:14 PM   #42
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DW also told me not to cash in the LI policy. (heh)
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Old 12-29-2010, 06:31 PM   #43
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DW also told me not to cash in the LI policy. (heh)
Mine made sure I can't - it's in her name on my life
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Old 12-29-2010, 07:15 PM   #44
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Good point guys, about the spouses. I can see that is a different strategy altogether.

The more I look at the analysis, it appears that a single person might want to consider this strategy now that the "Do-Over" is dead.
Thanks for all the work. Me being single, looks like a pretty good plan.
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Old 12-29-2010, 07:32 PM   #45
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Quote:
Originally Posted by Zero View Post
EDITED: Ha, I made the changes to reflect the SS being taxed. I used provisional income of $30,000 for the SS tax calculation.
I Exceled a scenario of taking SS at 62 vs 70 with a goal of which pays the most. I got a surprising answer and would love to have a double-check.

Actuals from SS form:
SS est at 62 = $1568 or $18,816
SS est at 70 = $2745 or $32,940

Assumptions:
1. SS checks taken at 62 would be saved and privately annuitized at 70.
2. The income after age 70 from the private annuity would not be COLA'd.
3. SS checks taken at 62 would be COLA'd at 3% and also be invested and earn 3%.
4. SS taxed from 62 to 70.


Calculations:
Future Value of SS paid from 62 to 70 = $18,816*((((1+0.03)^8)-1)/0.03) = $167,318
Private $167,318 annuity payouts beginning at 70 for single male (immediateannuities.com) = $1,114 or $13,368
Future Value of SS check begun at 62 when age 70 is reached = $18,816*(1.03^8)=$23,836

Conclusion:
At age 70, the combination of the private annuity of $13,368 and the SS(begun at 62) of $23,836 = $37,204
At age 70, the SS (begun at 70) would be $32,940.

Amazingly, running the number out from 70 till 95 shows both plans are equal in cumulative amount and the yearly checks are higher than the SSat70 checks up until age 84.
Interesting work, Zero. Correct me if I am wrong- you assumed 3% after tax earnings on the saved money?

The only issue I can mention is that you choose a value for the SS cola, and in its present form the SS cola is unbounded, at least on the upside.(Not sure about downside.)

This is an issue that I think should be decided by one's goals, and predicitons for the future. Perhaps because of my age and adult householder experience of the 70s I have never wanted to own nominal interest debt longer than a few years-unless interest rates are very high and it appears that something might happen to change that.

So owning the nominal annuity would not appeal to me. However, the risk of having the government mess with SS may be at least as large as the risk of inflation quite a bit over 3%.

I realize that interst rates would very likely respond to higher inflation also, but having the larger portion with full cola would sooner or later dominate, and thus perhaps make the age 70 option a better longevity insurance policy.

Ha
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Old 12-29-2010, 07:35 PM   #46
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Another point to consider is whether the extra amount of SS at age 70 (~76% more than at age 62) will trigger the Medicare Parts B & D means testing. This is not all that hard to do if you are a single filer (~85K AGI), especially if you are forced to take RMD's from a traditional IRA/401k.
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Old 12-29-2010, 07:48 PM   #47
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Another point to consider is whether the extra amount of SS at age 70 (~76% more than at age 62) will trigger the Medicare Parts B & D means testing. This is not all that hard to do if you are a single filer (~85K AGI), especially if you are forced to take RMD's from a traditional IRA/401k.
Yes, but if this is true Zero's plan would be even more likely to trigger higher part B and D premiums, as his plan produces larger cash flows for a long time, given his parameters.

Ha
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Old 12-29-2010, 08:12 PM   #48
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Thanks for all the work. Me being single, looks like a pretty good plan.
I am going to hammer on this spreadsheet till it looks nice and smooth and see if this plan holds water. Meanwhile, I think it could lead to more meds for me in the future, and that's a good thing.
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Old 12-29-2010, 08:17 PM   #49
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Yes, but if this is true Zero's plan would be even more likely to trigger higher part B and D premiums, as his plan produces larger cash flows for a long time, given his parameters.
Not obvious. As I understand it, the private annuity in Zero's example would not be qualified (i.e. it would be purchased with after tax $) and therefore only a portion of the annuity payment would be taxable with the rest being considered return of principle (which would not be included in AGI).
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Old 12-29-2010, 08:23 PM   #50
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Another point to consider is whether the extra amount of SS at age 70 (~76% more than at age 62) will trigger the Medicare Parts B & D means testing. This is not all that hard to do if you are a single filer (~85K AGI), especially if you are forced to take RMD's from a traditional IRA/401k.
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Yes, but if this is true Zero's plan would be even more likely to trigger higher part B and D premiums, as his plan produces larger cash flows for a long time, given his parameters.

Ha
Exactly! And I certainly have to consider whether this "annuitizing" of the the 62-70 SS earnings is the best move for tax, Medicare, etc.

But for a simple comparison of a single person's maximization of SS, the approach I'm outlining seems to have some merit to it.

At least on a first pass.
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Old 12-29-2010, 08:44 PM   #51
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Interesting work, Zero. Correct me if I am wrong- you assumed 3% after tax earnings on the saved money?

The only issue I can mention is that you choose a value for the SS cola, and in its present form the SS cola is unbounded, at least on the upside.(Not sure about downside.)

This is an issue that I think should be decided by one's goals, and predicitons for the future. Perhaps because of my age and adult householder experience of the 70s I have never wanted to own nominal interest debt longer than a few years-unless interest rates are very high and it appears that something might happen to change that.

So owning the nominal annuity would not appeal to me. However, the risk of having the government mess with SS may be at least as large as the risk of inflation quite a bit over 3%.

I realize that interst rates would very likely respond to higher inflation also, but having the larger portion with full cola would sooner or later dominate, and thus perhaps make the age 70 option a better longevity insurance policy.

Ha
I did assume 3% earned on the after tax SS money.

As you point out, guessing at a COLA is one of the really difficult issues. We could easily see a few years of deflation, or stagflation or 12% inflation in 5 years.

In the case I ran, the private annuity amounted to about 1/3 and the SS annuity was about 2/3. So it accounts for only 2/3 of the inflation requirements. And as you say, "what plans hath the SS monsters", or something like that, I see pale, gaunt figures with money signs for eyes coming my way. SS zombies.

Not to hijack this thread but the next 10-20 years could be the most interesting times of our lives. Those of us who lived thru the 50's to 2010 have seen monumental changes, the near future may exceed that.
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Old 12-30-2010, 01:18 PM   #52
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Quote:
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Assumptions:
1. SS checks taken at 62 would be saved and privately annuitized at 70.
2. The income after age 70 from the private annuity would not be COLA'd.
3. SS checks taken at 62 would be COLA'd at 3% and also be invested and earn 3%.
4. SS taxed from 62 to 70.
Did you also run it assuming more pessimistic inflation assumptions like 12% or 24% inflation starting after you buy the annuity? Inflation could quickly destroy the real value of a fixed annuity.

Did you run it with a COLA'd private annuity to avoid the apples to oranges comparison problem?

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What did I do wrong?
I don't think you found a free lunch. You just have to decide, do you like apples, or do you like oranges? It looks like you traded part of your COLA'd longevity insurance for an initially higher income stream which unfortunately declines in real terms with inflation. Might be a good trade if you need the money now for cigarettes. Perhaps not such a good trade if you need the money for your Ironman triathlon entry fees, and trips to visit your parents.
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Old 12-30-2010, 04:26 PM   #53
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Here is a snippet from the spreadsheet showing the yearly values of the two choices.
You might find it useful to use constant dollars in your spreadsheet. So instead of increasing SS by the COLA, decrease the annuity by inflation. That way all the lines are comparable, and you can see the "real dollar" trends.
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Old 12-30-2010, 04:40 PM   #54
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Conclusion:
At age 70, the combination of the private annuity of $13,368 and the SS(begun at 62) of $23,836 = $37,204
At age 70, the SS (begun at 70) would be $32,940.

What did I do wrong?
The SS at 70 of $32,940 is in "age 62" (whatever calendar year that is for you) dollars. I believe you would have to find a way to adjust this.
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Old 12-30-2010, 04:50 PM   #55
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The SS at 70 of $32,940 is in "age 62" (whatever calendar year that is for you) dollars. I believe you would have to find a way to adjust this.
Yeah, I have some adjustments to make but for the life of me any assumptions I make as to inflation or returns seem like I'm just plotting to make my preferred scenario work.

Any suggestion on what you would use at age 70?

I'll try to update the spreadsheet based on a couple of good suggestions and re-post. I think the outcome depends heavily on assumptions that I don't have any gut feel for which way things might go.

Re-work in progress.
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Old 12-30-2010, 05:34 PM   #56
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Any suggestion on what you would use at age 70?

No, not right now......

But I do appreciate the methodology you're working up and it's as good a guess as any regarding the true difference between taking SS at 62 and taking it at 70 for singles or single equivalents.

In my case, DW cannot collect on my SS due to GPO. And her own SS is less than $1k/year due to working at jobs not covered by SS. My decision regarding starting SS was based on wanting to protect DW as much as possible but with the complication that she cannot collect SS based on my earnings either while I'm alive or as a survivor.

I started my SS at 62 and am saving and investing that money. I don't literally take the SS checks to the bank. I reduce my withdrawals from my FIRE portfolio by my SS amount. This way, should I predecease DW, our FIRE portfolio will be larger by the amount of SS I collected from 62 through date of death + earnings.

I believe this method provides the highest level of protection for DW in the event that I predecease her and won't result in significantly less total SS collected if it turns out I live to a ripe old age, depending on the investment success (or not) I have with the SS dollars collected between 62 and 70.
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Old 12-30-2010, 06:27 PM   #57
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No, not right now......

But I do appreciate the methodology you're working up and it's as good a guess as any regarding the true difference between taking SS at 62 and taking it at 70 for singles or single equivalents.

In my case, DW cannot collect on my SS due to GPO. And her own SS is less than $1k/year due to working at jobs not covered by SS. My decision regarding starting SS was based on wanting to protect DW as much as possible but with the complication that she cannot collect SS based on my earnings either while I'm alive or as a survivor.

I started my SS at 62 and am saving and investing that money. I don't literally take the SS checks to the bank. I reduce my withdrawals from my FIRE portfolio by my SS amount. This way, should I predecease DW, our FIRE portfolio will be larger by the amount of SS I collected from 62 through date of death + earnings.


I believe this method provides the highest level of protection for DW in the event that I predecease her and won't result in significantly less total SS collected if it turns out I live to a ripe old age, depending on the investment success (or not) I have with the SS dollars collected between 62 and 70.
Thanks for responding, I was beginning to think I was the only person on Earth that was thinking that way. I like the idea of the "surer" years of 62-70 as a means of collecting a nest egg, sort of "bird in hand".

"...and won't result in significantly less total SS collected if it turns out I live to a ripe old age...", EXACTLY my objective in this scenario. I'm trying to show that there is not sufficient benefit to me for waiting until 70 and risking getting nothing should I die at 70. Just like portfolio risk analysis, there has to be some risk factor accounted for in waiting 8 years.

I can see the thinking of the couples who want to provide larger payments for a spouse by waiting until 70. But without the spousal issue in the picture, I am thinking that this strategy might reduce the overall risk in case the gov't tinkers with our SS and starts means testing at some point.

I'm refining the spreadsheet with some better assumptions and will repost soon.
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Old 12-31-2010, 09:45 AM   #58
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Any suggestion on what you would use at age 70?
When I do these types of calcualtions, I use age-62 dollars, and try to compare everything in real terms. IOW, I assume 0% inflation. For the annuity purchased at age 70, I would use a COLA'd one like the type Vanguard sells. This way everything is affected in a similar way by changes in the CPI.
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Old 12-31-2010, 04:41 PM   #59
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Quote:
Originally Posted by Zero View Post
EDITED: Ha, I made the changes to reflect the SS being taxed. I used provisional income of $30,000 for the SS tax calculation.
I Exceled a scenario of taking SS at 62 vs 70 with a goal of which pays the most. I got a surprising answer and would love to have a double-check.

Actuals from SS form:
SS est at 62 = $1568 or $18,816
SS est at 70 = $2745 or $32,940

Assumptions:
1. SS checks taken at 62 would be saved and privately annuitized at 70.
2. The income after age 70 from the private annuity would not be COLA'd.
3. SS checks taken at 62 would be COLA'd at 3% and also be invested and earn 3%.
4. SS taxed from 62 to 70.


Calculations:
Future Value of SS paid from 62 to 70 = $18,816*((((1+0.03)^8)-1)/0.03) = $167,318

...


What did I do wrong?
well 1st, you didnt take any taxes out of the SS payments between 62 and 70 nor did you take any taxes out of the earning on that money. both of these would reduce the "future value of SS paid between 62 and 70" you show above.

Quote:
Originally Posted by Zero View Post
EDITED: Ha, I made the changes to reflect the SS being taxed. I used provisional income of $30,000 for the SS tax calculation.
I Exceled a scenario of taking SS at 62 vs 70 with a goal of which pays the most. I got a surprising answer and would love to have a double-check.

Actuals from SS form:
SS est at 62 = $1568 or $18,816
SS est at 70 = $2745 or $32,940

Assumptions:
1. SS checks taken at 62 would be saved and privately annuitized at 70.
2. The income after age 70 from the private annuity would not be COLA'd.
3. SS checks taken at 62 would be COLA'd at 3% and also be invested and earn 3%.
4. SS taxed from 62 to 70.


Calculations:
Future Value of SS paid from 62 to 70 = $18,816*((((1+0.03)^8)-1)/0.03) = $167,318
Private $167,318 annuity payouts beginning at 70 for single male (immediateannuities.com) = $1,114 or $13,368
Future Value of SS check begun at 62 when age 70 is reached = $18,816*(1.03^8)=$23,836

Conclusion:
At age 70, the combination of the private annuity of $13,368 and the SS(begun at 62) of $23,836 = $37,204
At age 70, the SS (begun at 70) would be $32,940.

...

What did I do wrong?
and 2nd, you didnt inflate the amount of SS that would be paid at 70 if you wait to start taking it then. that payment receives a CPI adjustment also even though you arent receiving it yet. based on your numbers the amount you will receive at age 70 would be $41,727, not $32,940.

here is a quote from the SS website
Quote:
You are eligible for cost-of-living benefit increases starting with the year you become age 62. This is true even if you do not get benefits until your full retirement age or even age 70. Cost-of-living increases are added to your benefit beginning with the year you reach 62 up to the year you start getting benefits.


Quote:
Originally Posted by Zero View Post
EDITED: Ha, I made the changes to reflect the SS being taxed. I used provisional income of $30,000 for the SS tax calculation.
I Exceled a scenario of taking SS at 62 vs 70 with a goal of which pays the most. I got a surprising answer and would love to have a double-check.

Actuals from SS form:
SS est at 62 = $1568 or $18,816
SS est at 70 = $2745 or $32,940

Assumptions:
1. SS checks taken at 62 would be saved and privately annuitized at 70.
2. The income after age 70 from the private annuity would not be COLA'd.
3. SS checks taken at 62 would be COLA'd at 3% and also be invested and earn 3%.
4. SS taxed from 62 to 70.


Calculations:
Future Value of SS paid from 62 to 70 = $18,816*((((1+0.03)^8)-1)/0.03) = $167,318
Private $167,318 annuity payouts beginning at 70 for single male (immediateannuities.com) = $1,114 or $13,368
Future Value of SS check begun at 62 when age 70 is reached = $18,816*(1.03^8)=$23,836

Conclusion:
At age 70, the combination of the private annuity of $13,368 and the SS(begun at 62) of $23,836 = $37,204
At age 70, the SS (begun at 70) would be $32,940.

Amazingly, running the number out from 70 till 95 shows both plans are equal in cumulative amount and the yearly checks are higher than the SSat70 checks up until age 84.



What did I do wrong?
and 3rd, therefore your conclusion is incorrect. actually SS taken at age 70 is greater than what you would get (under your assumptions) if you started taking it at age 62, saved all of it and bought an annuity with that saved amount at age 70. it has been pointed out on this board many times that it generally pays to put off taking SS till age 70 if all you are planning on doing with the checks is stuff them in a bank. one exception is if you die young.
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Old 12-31-2010, 07:13 PM   #60
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Yes, the effort is a project in work and I was asking for some suggestions, thanks for yours.

I had not seen a thread where the actual approach, methods and numbers were present, thought I might take a crack at it.
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