Social Security take-back -- RIP

[Zero]

Forget the Private Annuity approach, too difficult to find data for a COLA’d Annuity without calling or asking for a quote.
NEW SCENARIO = Take SS at 62, save the checks and invest it in S&P500 Index.
Historical CAGR for S&P500 = 8.9% per CAGR of the Stock Market: Annualized Returns of the S&P 500

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

Adjustment assuming 3% COLA:
Recalculate the SS at 70 to reflect 8 years of COLA = FV=$32,940*(1.03^8)=$41,727

Assumptions:
1. Gross income desired at 62 would be $34,000
2. Since provisional income is ½ SS + (34,000-18816)=$24,592 then SS during 62-70 would NOT be taxed.
3. SS checks taken at 62 would be saved and earn 3% and then the sum would be privately annuitized at 70.
4. The income after age 70 from the private annuity would be COLA'd.

Calculations:
Future Value of SS paid from 62 to 70 = $18,816*((((1+0.03)^8)-1)/0.03) = $167,318
At age 70, the Future Value of the SS check begun at 62 = $18,816*(1.03^8)=$23,836
At age 70, the Future Value of the SS check begun at 70 = $32,940*(1.03^8)=$41,727
Taxation on 62 scenario = 10.03%
Taxation on 70 scenario = 12.43%
1040 Tax Calculator

Conclusion:
At age 70, the combination of the S&P500 earnings of $14,891 and the SS(begun at 62) of $23,836 = $38,272 and is run forward to age 95 and accumulates to $1,342,422.
At age 70, the SS (begun at 70) would be $41,727 and at 95 accumulates to $1,408,755.

See the attached snippet.

[Zero]

Here is a snippit from the Ecel run.

[youbet]

Quote:

Originally Posted by jdw_fire 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.

Another exception is if you are trying to provide financial protection for a spouse who cannot collect your SS as a survivor and has no/little SS of his/her own.

[jdw_fire]

some more problems.

Quote:

Originally Posted by Zero Assumptions: 1. Gross income desired at 62 would be $34,000 2. Since provisional income is ½ SS + (34,000-18816)=$24,592 then SS during 62-70 would NOT be taxed. 3. SS checks taken at 62 would be saved and earn 3% and then the sum would be privately annuitized at 70.

1st if your desired income is $34,000 then your "provisional income" is 1/2 SS + 34,000 = $43,408 not the $24,592 you state because even though you are saving the SS payment it is still counted as income and because you are saving it, it cant be used to offset the $34,000 in income desired. and that amount is high enough to be taxed.

Quote:

Originally Posted by Zero Forget the Private Annuity approach, too difficult to find data for a COLA’d Annuity without calling or asking for a quote. NEW SCENARIO = Take SS at 62, save the checks and invest it in S&P500 Index. Historical CAGR for S&P500 = 8.9% per CAGR of the Stock Market: Annualized Returns of the S&P 500 Actuals from SS form: SS est at 62 = $1568 or $18,816 SS est at 70 = $2745 or $32,940 Adjustment assuming 3% COLA: Recalculate the SS at 70 to reflect 8 years of COLA = FV=$32,940*(1.03^8)=$41,727 Assumptions: 1. Gross income desired at 62 would be $34,000 2. Since provisional income is ½ SS + (34,000-18816)=$24,592 then SS during 62-70 would NOT be taxed. 3. SS checks taken at 62 would be saved and earn 3% and then the sum would be privately annuitized at 70. 4. The income after age 70 from the private annuity would be COLA'd. Calculations: Future Value of SS paid from 62 to 70 = $18,816*((((1+0.03)^8)-1)/0.03) = $167,318

2nd, if this amount of $167,318 is to be used to provide income at age 70 (as per your 1st example) then without buying a SPIA to get that income FIRECalc will tell you that you can use approximately a 4% WR for a successful CPI adjusted income for 25 years ( i didnt run the numbers thru FIRECalc to get the exact WR produced) and that produces a yearly CPI adjusted WD of about $7K. that amount added to the inflated amount for SS that began paying at age 62 ($23,836) makes an income of $30,836/yr starting at age 70. this $30,836 starting at age 70 is the total benefit from SS that you started taking at age 62 because you saved all of the SS payments between age 62 and 70 and that amount is producing the $7K mentioned earlier. (actually the amount will be smaller because i didnt take the taxes owed on SS between the ages of 62 and 70 out of the amount saved, i just used your number.) this number is significantly smaller than if you just waited to take SS at the age of 70 and received $41,727/yr.

Quote:

Originally Posted by Zero Conclusion: At age 70, the combination of the S&P500 earnings of $14,891 and the SS(begun at 62) of $23,836 = $38,272 and is run forward to age 95 and accumulates to $1,342,422. At age 70, the SS (begun at 70) would be $41,727 and at 95 accumulates to $1,408,755.

these "conclusions" arent supported by the facts not are they reasonable. why would anyone wanting to retire early save all of their SS payments instead of using those SS payments to support their living expenses?

[Zero]

Gross Income = $34,000 e.g. ($18, 816 SS + $15,184 income)
Provisional Income = 1/2 of SS benefits plus all other income.
Therefore:
Provisional Income = 1/2($18,816) + $15,184 = $24,592

[Zero]

Quote:

Originally Posted by jdw_fire some more problems. these "conclusions" arent supported by the facts not are they reasonable. why would anyone wanting to retire early save all of their SS payments instead of using those SS payments to support their living expenses?

The spreadsheet is shown, and unless Excel is miscalculating, the totals in the scenario that I have just defined are indeed factual and there for all to see.

Taking SS at 62 and saving the checks till 70, requires a person to live off their existing savings until 70.
Taking SS at 70, also requires a person to live off their existing saving until 70.

Same impact to the existing savings so not sure what you mean by "why would anyone...". You could just as easily said, "why would anyone wait till 70 before getting SS payments to support their living expenses?".

The difference is that taking money at 62 gets approx $170,000 into your pocket, under your control. I.E. a nestegg.

Then starting at 70 one can look at the apples to apples benefits of the two choices. I have done exactly that and feel comfortable that taking the money at 62 yields only a slightly smaller lifetime accumulation of income.

[73ss454]

Zero, I like it. This year I'll be 62 and will be taking my SS. If I drop dead at 70 I won! Well at least I got some money out of SS.

[rescueme]

Quote:

Originally Posted by youbet Another exception is if you are trying to provide financial protection for a spouse who cannot collect your SS as a survivor and has no/little SS of his/her own.

That's my/our reason for me to delay SS till age 70 (DW will take it at FRA age of 66).

BTW, I do get an SS benefit; 50% of her FRA benefit when I turn 66 (three years, two days from today ).

It's a different story when you are trying to compute what is best in a single vs. married situation. Nothing is "the best"; when you are married, it all depends on age difference, lifetime earnings, along with the standard questions as related to health and retirement portfolio size vs. expenses - as a single person has.

IMHO, there is (like all things in life) no "standard answer" to the question...

[Zero]

Quote:

Originally Posted by 73ss454 Zero, I like it. This year I'll be 62 and will be taking my SS. If I drop dead at 70 I won! Well at least I got some money out of SS.

73ss454, good for you. You have already seen that SS can reduce the benefit estimate as deflation takes hold. Imagine your check if you waited till 70 and there was a 2010-2018 period of deflation. You'd be kicking yourself.

For me, there is a big ole "I want my money" feeling in the pit of my stomach and it's saying; "get that SS before they come up with a sleight of hand."

To me there is some "value" in the early collecting versus the "uncertainty" of waiting. I cannot tell you how many times the gravy train has dried up just as I got there. I worry that SS will be means tested by 2020 or so.

[youbet]

Quote:

Originally Posted by rescueme That's my/our reason for me to delay SS till age 70 (DW will take it at FRA age of 66). BTW, I do get an SS benefit; 50% of her FRA benefit when I turn 66 (three years, two days from today ). It's a different story when you are trying to compute what is best in a single vs. married situation. Nothing is "the best"; when you are married, it all depends on age difference, lifetime earnings, along with the standard questions as related to health and retirement portfolio size vs. expenses - as a single person has. IMHO, there is (like all things in life) no "standard answer" to the question...

I think you misunderstand our situation. DW has a near zero SS entitlement of her own due to WEP and having worked very little under SS. And she cannot collect on my SS either while I am alive or as a survivor due to GPO. Therefore the only way for me to use SS to provide some financial protection for her should I predecease her is to collect SS at 62 and invest it.

For us, and for other couples where one member is effected by WEP and GPO and the goal is to provide some financial protection for the non-SS spouse, collecting early is the only answer. Otherwise zero protection is provided.

The work Zero is doing is showing me that the price we'll pay due to starting my SS at 62 if we turn out to both be long-livers will probably not be significant.

[Zero]

OK, here is a very straightforward approach. I have in hand my SS Estimate for age 62 and age 70. Since that data is in current dollars, lets look at it as if I am 62 today and then look again as if I am 70 today.

This spreadsheet shows very simple calculations that have rather conservative assumptions.

Facts:
SS Estimate for 62 = $18,816
SS Estimate for 70 = $32,940

Assumptions:
1. Both checks will COLA at 3%
2. Tax on the smaller income from the 62 age checks will be taxed at 10%
3. Tax on the larger income fromt he 70 age checks will be taxed at 12%

So, it's pretty easy to see how much money accumulates during the period to 100 years. And in reality, that is what counts, the accumulation of assets, namely cash.

Conclusion:
1. At age 85, the accumulated amount is "equal".
2. At age 100, the accumlated amount favors the late taking of SS by 18%.

One has to be an eternal optimist to assume he/she will live to 100, but good luck with that, honestly.

[RonBoyd]

Quote:

Originally Posted by Zero One has to be an eternal optimist to assume he/she will live to 100, but good luck with that, honestly.

Let me make sure I understand this correctly.

If you expect to live to age 85, you are better off starting your draw at age 62. However, if you expect to live past age 85, you should wait until Age 70 to start drawing. However, the "Age 70" option is only valid if everyone keeps their promises and there are no "Really Rough Times" ahead.

[Zero]

Quote:

Originally Posted by RonBoyd Let me make sure I understand this correctly. If you expect to live to age 85, you are better off starting your draw at age 62. However, if you expect to live past age 85, you should wait until Age 70 to start drawing. However, the "Age 70" option is only valid if everyone keeps their promises and there are no "Really Rough Times" ahead.

That's the way I see it. If I were assured that I would only live till 85, I'd take it at 62 in a heartbeat. Reasoning being, once I get it started it's locked in to a figure and no hanky panky by the Govt. As you saw in some earlier posts, people are already seeing the estimates they got this year went down.

If I was guaranteed to live to 90, I think it starts to get a bit harder to call. The difference in total cash collected is $60k, but that isn't much of a penalty in my mind to have the security blanket of having collected it much earlier.

In other words, I like the bird-in-hand approach and am willing to give up a bit of the pie for that warm comfy feeling.

[REWahoo]

Quote:

Originally Posted by Zero In other words, I like the bird-in-hand approach and am willing to give up a bit of the pie for that warm comfy feeling.

That was my thinking when I decided to start taking early SS benefits in 2008. My 62nd birthday fell in the middle of the market meltdown. It was very nice to be able to partially plug one of the two big leaks that were rapidly shrinking my nest egg (market decline and withdrawals).

Looking back, I'd definitely do the same again.

[Alan]

Quote:

Originally Posted by Zero As you saw in some earlier posts, people are already seeing the estimates they got this year went down.

Those are estimates based on what the SS calculator estimates your salary will be if it follows the trend of the average wage index.

If your salary raises happen to be above or below average then the estimate will be wrong. Your actual payments will be based on your actual earnings.

The rules have not been changed. Just wanted to re-state this point.

[RonBoyd]

Quote:

Originally Posted by Zero In other words, I like the bird-in-hand approach and am willing to give up a bit of the pie for that warm comfy feeling.

I am solidly in that camp also. Thank you for going through this exercise. It was an eye-opener for me.

[Alan]

Quote:

Originally Posted by RonBoyd Thank you for going through this exercise.

+1

FYI, our approach is currently for DW to take it at 62, and myself at 70.

[Zero]

Quote:

Originally Posted by REWahoo That was my thinking when I decided to start taking early SS benefits in 2008. My 62nd birthday fell in the middle of the market meltdown. It was very nice to be able to partially plug one of the two big leaks that were rapidly shrinking my nest egg (market decline and withdrawals). Looking back, I'd definitely do the same again.

Absolutely, it's like a nice big bandaid on the income while the portfolio is taking hits and allows you to pay bills with guaranteed money stream.

And in your case, turns out you might have seen a smaller paychecks eventually because of the recent AWI declines.

As Allan points out to me, that is not a change it the rules, it has always been that way but just not often in play.

It's a really personal choice and no algorithm is gonna capture all the nuances, but a person at 62 today, might want to consider whether they need a steady income from SS in case the next 8 years are rough on the portfolio.

A nice COLA'd SS income of $20k, a nice pension with COLA fo $20k, and a nice private annuity from a big insurance company of $20K with COLA would make me sleep real well at nights. Waiting 8 years to collect my SS while depending on a portfolio of stocks for income, might cause me many sleepless nights.

Taking mine at 60, but surely do understand the need to wait to 70 for spousal protection.

[Zero]

Quote:

Originally Posted by RonBoyd I am solidly in that camp also. Thank you for going through this exercise. It was an eye-opener for me.

Hey, your welcome, I am learning as I go thru this, so I'll post what I think is correct and believe me, if it's wrong, there will be some folks to chime in and help steer it back on course.

[haha]

Quote:

Originally Posted by Zero Hey, your welcome, I am learning as I go thru this, so I'll post what I think is correct and believe me, if it's wrong, there will be some folks to chime in and help steer it back on course.

Not necessarily so.

Ha