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Old 01-01-2011, 03:12 PM   #101
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I tend to accept that 140 years of market data are a decent data set to base that on. Did you use the link to verify, that 8.9% is the 1871-2009 CAGR?
you are not using the market data (as FIRECalc does), you are using an average of the market returns and the practice of using an average market return for retirement funding has proved fallible, hence the move to FIRECalc (as i said before)
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Old 01-01-2011, 03:51 PM   #102
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I keep hoping that someone will come along and present a counter-spreadsheet in support of waiting till 70!
i dont need a spread sheet to show the advantage of waiting till age 70 to take SS. i will give an example using your SS numbers
Quote:
Actuals from SS form:
SS est at 62 = $1568 or $18,816
SS est at 70 = $2745 or $32,940
the assumptions:
1) a single person at the age of 61.75 yoa is deciding whether to take his/her SS at age 62 or age 70. his/her SS numbers are identical to yours.
2) this single person has determined that s/he needs $32,940/yr to live on for the rest of his/her life but would like to spend more than that between the ages of 62 and 70.
3) this single person has a portfolio of $353,100, all in a tax defered account.
4) this single person has access to an account (bank, S&L, CU, MM) that pays interest that keeps up with inflation inside his/her tax defered account.
5) since everything i will talk about is adjusted for inflation i will assume, for ease of computation, inflation = 0%

now for simplicity i will examine 2 cases, starting to take SS at 2 ages:62 and 70.

1) taking SS at age 62:
required income = $32,940
SS income = $18,816
portfolio income per 4% rule = $353,100*4% = $14,124
total income = $18,816 + $14,124 = $32,940

therefore, in this example, this single person has just enough SS income and portfolio size to provide the $32,940 required to live but this person cant spend any more between ages 62 and 70.

2) taking SS at age 70:
this has 2 time periods, before age 70 and after age 70, and i will do then starting with after age 70 first: since s/he is starting SS at age 70 his/her SS income will be $32,940 thus just covering his/her income needs. this allows him/her to totally exhaust his/her portfolio between the ages of 62 and 70.
sooo looking at the years before age 70 s/he can just divide his/her portfolio by the 8 years needing income and s/he can spend:
$353,100/8=$44,137.50/yr.
since the portfolio can (and probably should for this example) be liquidated and put in that account that keeps up with inflation for these 8 years the income will be adjusted for inflation too.

now in this example (taking SS starting at age 70), the single person has enough income to support his/her $32,940 requirement for the rest of his/her life PLUS can spend an additional, inflation adjusted $11,197.50 ($44,137.50 total) per year for each year between the ages 62 and 70.

how's that for a counter example showing an advantage to waiting till age 70 to take SS.
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Old 01-01-2011, 03:59 PM   #103
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this allows him/her to totally exhaust his/her portfolio between the ages of 62 and 70.
Yikes.
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how's that for a counter example showing an advantage to waiting till age 70 to take SS.
A sure-fire way to stay awake at while night spending your entire nest egg and hoping the SS rules won't change before you reach 70?

Edit: I understand this is an extreme example for illustration purposes.
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Old 01-01-2011, 04:15 PM   #104
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Another possibility might be that I have a SO earning a living for the next 8 years!
And this SO is happy supporting you?
Unusual woman, do not let her get away.

Ha
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Old 01-01-2011, 04:22 PM   #105
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Yikes.

A sure-fire way to stay awake at while night spending your entire nest egg and hoping the SS rules won't change before you reach 70?
using this example made the math really easy however my example is scaleable, meaning it works (spend more between ages 62 and 70 when starting SS at age 70) in examples where the portfolio isnt exhausted

try adding $1,000,000 to the portfolio, $40K of additional required income and the appropriate $40K of additional portfolio income and you still get to spend an additional $11,197.50/yr without depleting your portfolio.
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Old 01-01-2011, 04:26 PM   #106
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i dont need a spread sheet to show the advantage of waiting till age 70 to take SS. i will give an example using your SS numbers


the assumptions:
1) a single person at the age of 61.75 yoa is deciding whether to take his/her SS at age 62 or age 70. his/her SS numbers are identical to yours.
2) this single person has determined that s/he needs $32,940/yr to live on for the rest of his/her life but would like to spend more than that between the ages of 62 and 70.
3) this single person has a portfolio of $353,100, all in a tax defered account.
4) this single person has access to an account (bank, S&L, CU, MM) that pays interest that keeps up with inflation inside his/her tax defered account.
5) since everything i will talk about is adjusted for inflation i will assume, for ease of computation, inflation = 0%

now for simplicity i will examine 2 cases, starting to take SS at 2 ages:62 and 70.

1) taking SS at age 62:
required income = $32,940
SS income = $18,816
portfolio income per 4% rule = $353,100*4% = $14,124
total income = $18,816 + $14,124 = $32,940

therefore, in this example, this single person has just enough SS income and portfolio size to provide the $32,940 required to live but this person cant spend any more between ages 62 and 70.

2) taking SS at age 70:
this has 2 time periods, before age 70 and after age 70, and i will do then starting with after age 70 first: since s/he is starting SS at age 70 his/her SS income will be $32,940 thus just covering his/her income needs. this allows him/her to totally exhaust his/her portfolio between the ages of 62 and 70.
sooo looking at the years before age 70 s/he can just divide his/her portfolio by the 8 years needing income and s/he can spend:
$353,100/8=$44,137.50/yr.
since the portfolio can (and probably should for this example) be liquidated and put in that account that keeps up with inflation for these 8 years the income will be adjusted for inflation too.

now in this example (taking SS starting at age 70), the single person has enough income to support his/her $32,940 requirement for the rest of his/her life PLUS can spend an additional, inflation adjusted $11,197.50 ($44,137.50 total) per year for each year between the ages 62 and 70.

how's that for a counter example showing an advantage to waiting till age 70 to take SS.
In case I, the person would have a sizeable portfolio left left at age 70 if only withdrawing 4% per year.

In you case 2, the person would have no portfolio at age 70.

But I guess they partied hard in their 60's.
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Old 01-01-2011, 04:28 PM   #107
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And this SO is happy supporting you?
Unusual woman, do not let her get away.

Ha
Think of moving back in with an ex and into her (formerly your) paid-for house.

Nice one. But this is for illustration purposes only.
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Old 01-01-2011, 04:44 PM   #108
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Ok, here is the ultimate question, " What is the best age to take SS (62 or 70) in order to maximize one's financial survivability?" The decision to wait until 70 is not a freebie and entails a significant impact to one's portfolio, so that needs to be addressed.

Analysis from age 62 till 92 assumes:
1. Income required $50,000 at 62 and inflated at 3%.
2. Starting portfolio value at 62 = $500,000.
3. Portfolio pays deficit between SS and income needed, and grows at 4%.

By deferring SS until 70, the portfolio is reduced significantly and the real test will be to run FireCalc on the portfolios of each case at the beginning of year 70 and see which has the highest survivability.

Anyone interested can use Firecalc and determine for themselves which of the cases has the best chance of surviving.
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Old 01-01-2011, 04:55 PM   #109
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So now there is another qualifier: If your Portfolio is large enough to withstand a 4% SWR -- to provide needed lifestyle funds -- (or whatever the actual "safe" amount is) between ages 62 and 70, then waiting until 70 is the way to go. Is that correct?
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Old 01-01-2011, 04:56 PM   #110
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In case I, the person would have a sizeable portfolio left left at age 70 if only withdrawing 4% per year.

In you case 2, the person would have no portfolio at age 70.

But I guess they partied hard in their 60's.
that "sizeable portfolio" is still required to provide some of this persons income for another 22 years, it is not like it is excess. there is no downside (incomewise) to delaying taking SS to 70, only upside. another way to look at delaying SS is that you are just buying an inexpensive cola'd SPIA at age 70 that is backed by the US government (also see my response to REWahoo.)
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Old 01-01-2011, 05:01 PM   #111
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So now there is another qualifier: If your Portfolio is large enough to withstand a 4% SWR -- to provide needed lifestyle funds -- (or whatever the actual "safe" amount is) between ages 62 and 70, then waiting until 70 is the way to go. Is that correct?
size of portfolio really has nothing to do with whether a "4% SWR" is safe. if a 4% WR is safe for a $10M portfolio then it is safe for a $100k portfolio over the same time frame.
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Old 01-01-2011, 05:07 PM   #112
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So now there is another qualifier: If your Portfolio is large enough to withstand a 4% SWR -- to provide needed lifestyle funds -- (or whatever the actual "safe" amount is) between ages 62 and 70, then waiting until 70 is the way to go. Is that correct?
It would certainly give you a more comfortable feeling to have the 4% SWR covered but the market dropped 50% just 2 years ago, so the 4% would have climbed to 8%.

You'd have the choice of cutting back spending by 50% or taking SS to supplement and certainly appears some took that route.
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Old 01-01-2011, 05:16 PM   #113
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Okay. Let me rephrase that to say: If your Portfolio is large enough to support your lifestyle between 62 and 70 -- whether as a supplement to other income or not -- without being diminished (significantly), then...
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Old 01-01-2011, 05:20 PM   #114
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Ok, here is the ultimate question, " What is the best age to take SS (62 or 70) in order to maximize one's financial survivability?" The decision to wait until 70 is not a freebie and entails a significant impact to one's portfolio, so that needs to be addressed.

Analysis from age 62 till 92 assumes:
1. Income required $50,000 at 62 and inflated at 3%.
2. Starting portfolio value at 62 = $500,000.
3. Portfolio pays deficit between SS and income needed, and grows at 4%.

By deferring SS until 70, the portfolio is reduced significantly and the real test will be to run FireCalc on the portfolios of each case at the beginning of year 70 and see which has the highest survivability.

Anyone interested can use Firecalc and determine for themselves which of the cases has the best chance of surviving.
how do you gurantee the portfolio grows at 4% per year?
BTW, FIRECalc says if you start taking SS at age 62 with your above assumptions, your sucess rate will be only 43.6%, to get to 95.5% success rate you would need to drop your spending to $38,691
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Old 01-01-2011, 05:23 PM   #115
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that "sizeable portfolio" is still required to provide some of this persons income for another 22 years, it is not like it is excess. there is no downside (incomewise) to delaying taking SS to 70, only upside. another way to look at delaying SS is that you are just buying an inexpensive cola'd SPIA at age 70 that is backed by the US government (also see my response to REWahoo.)
I agree from an incomewise analysis of SS only. But a person still has to provide their income to get from 62 to 70. So isn't it a trade of which source of income will be most advantageous to tap?

For instance if I only need $18,816 in year 62 to live on, I have two choices, take SS or take some % from my portfolio. If my portfolio was $470,000 that's a manageable 4% withdrawal, if my portfolio was $188,160 the 10% withdrawal would exhaust the portfolio in the 8 year period till age 70.
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Old 01-01-2011, 05:26 PM   #116
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It would certainly give you a more comfortable feeling to have the 4% SWR covered but the market dropped 50% just 2 years ago, so the 4% would have climbed to 8%.

You'd have the choice of cutting back spending by 50% or taking SS to supplement and certainly appears some took that route.
That is not the design parameter of Firecalc. Supposedly, 4% at retirement, 4% inflation adjusted forever after.

Of course if we just keep moving the goal posts, eventually we will get the winner we want.

So just a take it at 62 like you want to, and forget all this rationalization, justification, hair splitting, goal post moving and agonizing.

Ha
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Old 01-01-2011, 05:26 PM   #117
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So now there is another qualifier: If your Portfolio is large enough to withstand a 4% SWR -- to provide needed lifestyle funds -- (or whatever the actual "safe" amount is) between ages 62 and 70, then waiting until 70 is the way to go. Is that correct?
Correct, it reduces the longevity risk. Spend like a drunken sailor until your 70, worst case, you run low of money but have a pension with a COLA backed by US govt. Of course if the SS@70 is not enough for you to live on, then try spending like a sober sailor. Of course that may depend on the stability of SS at the time you're 62.
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Old 01-01-2011, 05:30 PM   #118
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Okay. Let me rephrase that to say: If your Portfolio is large enough to support your lifestyle between 62 and 70 -- whether as a supplement to other income or not -- without being diminished (significantly), then...
Then the most important factor in my mind is something that is not predictable by most people.

If you feel you have a life expiration waiting for you before 80. It's a toss up.

If 99 is your number then obviously waiting until 70 is the best case.

If 80 were my own guess, I would definitely take it at 62 because I like the bird-in-hand feeling. I don't trust the gov't to keep hands off and what would we as ordinary folks do if in 2020 we get told that SS is nearing collapse and a means test is going to be applied. Well, I at least have 8 years in the bank, instead of being give a "Sorry to inform you" letter.
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Old 01-01-2011, 05:41 PM   #119
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That is not the design parameter of Firecalc. Supposedly, 4% at retirement, 4% inflation adjusted forever after.

Of course if we just keep moving the goal posts, eventually we will get the winner we want.

So just a take it at 62 like you want to, and forget all this rationalization, justification, hair splitting, goal post moving and agonizing.

Ha
Ha, I read the paper by Dr. Smith and how 70 was the end all be all. But looking at his assumptions I never saw a convincing argument. He cherry picked at case (not that I'm above that kinda thing).

I would enjoy seeing analysis that supported the decision process but I am definitely already convinced that 62 is my choice, just wanted to see if someone had suggestions as to a nice method to compare by spreadsheet.
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Old 01-01-2011, 06:31 PM   #120
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I agree from an incomewise analysis of SS only. But a person still has to provide their income to get from 62 to 70. So isn't it a trade of which source of income will be most advantageous to tap?

For instance if I only need $18,816 in year 62 to live on, I have two choices, take SS or take some % from my portfolio. If my portfolio was $470,000 that's a manageable 4% withdrawal, if my portfolio was $188,160 the 10% withdrawal would exhaust the portfolio in the 8 year period till age 70.
OK, since more than 1 person on here cant seem to see the scalibility of this concept let me use a different example. i will give an example using your SS numbers

Quote:
Actuals from SS form:
SS est at 62 = $1568 or $18,816
SS est at 70 = $2745 or $32,940
the assumptions:
1) a single person at the age of 61.75 yoa is deciding whether to take his/her SS at age 62 or age 70. his/her SS numbers are identical to yours.
2) this single person has determined that s/he needs $52,940/yr to live on for the rest of his/her life but would like to spend more than that between the ages of 62 and 70.
3) this single person has a portfolio of $853,100, all in a tax defered account.
4) this single person has access to an account (bank, S&L, CU, MM) that pays interest that keeps up with inflation inside his/her tax defered account.
5) since everything i will talk about is adjusted for inflation i will assume, for ease of computation, inflation = 0%

now for simplicity i will examine 2 cases, starting to take SS at 2 ages:62 and 70.

1) taking SS at age 62:
required income = $52,940
SS income = $18,816
portfolio income per 4% rule = $853,100*4% = $34,124
total income = $18,816 + $34,124 = $52,940

therefore, in this example, this single person has just enough SS income and portfolio size to provide the $52,940 required to live but this person cant spend any more between ages 62 and 70.

2) taking SS at age 70:
this has 2 time periods, before age 70 and after age 70, and i will do them starting with after age 70 first: since s/he is starting SS at age 70 his/her SS income will be $32,940 thus s/he needs another $20,000 to cover his/her income needs. $500K of his/her portfolio will be needed to provide this $20,000 starting at age 62, going for 30 yrs. this leaves $353,100 to be used to fill that income gap between age 62 and 70
sooo looking at the years before age 70 s/he can just divide his/her the $353,100 by the 8 years needing income and s/he can spend:
$353,100/8 + $20,000=$64,137.50/yr.
since the $353,100 part of the portfolio can (and probably should for this example) be liquidated and put in that account that keeps up with inflation for these 8 years the income will be adjusted for inflation too.

now in this example (taking SS starting at age 70), the single person has enough income to support his/her $52,940 requirement for the rest of his/her life (30 yrs) PLUS can spend an additional, inflation adjusted $11,197.50 ($64,137.50 total) per year for each year between the ages 62 and 70.

and what if you wanted additional income for life? well then again you need to take SS at age 70. you liquidate $263,520 of your portfolio and put it in that account that keeps up with inflation which you will use $32940/yr of each year between age 62 and 70 (after age 70 SS provides this amount for the rest of your life). you then take 4% of the remaining portfolio ($589,580) resulting in $23583.20/ yr. adding these 2 yearly amounts together we get $56,523.20/yr for the 30 yr plan (which is $3583.20 more for the 30 yr plan that the 30 yr plan that has you starting SS at age 62). it is just a question of when you want to spend it.
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