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Old 02-23-2012, 11:45 AM   #61
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Remember also that while you are delaying SS it is rising not with COLA, but against the wage index, and the wage index has historically risen faster than COLA. Once you start drawing SS it is COLA'ed.
Thanks. I did not know that.
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Old 02-23-2012, 12:54 PM   #62
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Remember also that while you are delaying SS it is rising not with COLA, but against the wage index, and the wage index has historically risen faster than COLA. Once you start drawing SS it is COLA'ed.
This is a new one for me. I looked up the differences and they are much bigger then I would have thought, see Cost-of-Living and Average Wage Index Assumptions . Table reproduced here:



Then I looked at my statements from SS that showed my age 66 benefit increases:

Dec 2009 paper statement: increase of +2.8% from late 2008 statement
Dec 2010 paper statement: increase of 0.0% from late 2009 statement
SS on-line calculator, Feb 2012: +3.6% from the late 2010 statement

It does seem like the increases are reasonable in keeping up with inflation.
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Old 02-23-2012, 01:19 PM   #63
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Lsbcal,
I did give some false information there which you have corrected - thanks .

The wage indexing only applies up to 2 years before age 62, or 60 as you point out.

Between 62 and 70 it is COLA'ed.


National Average Wage Index
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When indexing an individual's earnings for benefit computation purposes, we must first determine the year of first eligibility for benefits. For retirement, eligibility is at age 62. If a person reaches age 62 in 2012, for example, then 2012 is the person's year of eligibility. We always index an individual's earnings to the average wage level two years prior to the year of first eligibility. Thus, for a person retiring at age 62 in 2012, we would index the person's earnings to the average wage index for 2010, or 41,673.83. We would multiply earnings in a year before 2010 by the ratio of 41,673.83 to the average wage index for that year; we would take earnings in 2010 or later at face value.
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Old 02-23-2012, 01:30 PM   #64
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I'm considering taking SS at 62 but frankly I don't understand the tax consequences. Neither of us work at all and we are not yet drawing from our SEP IRA for living expenses. We have been converting about 60000 from SEP to a Roth each year and staying in the 15 % bracket. I am going to run it by our CPA but would like some kind of idea what the situation is. Anyone willing to take a stab at it? Thanks.
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Old 02-23-2012, 03:06 PM   #65
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I'm considering taking SS at 62 but frankly I don't understand the tax consequences. Neither of us work at all and we are not yet drawing from our SEP IRA for living expenses. We have been converting about 60000 from SEP to a Roth each year and staying in the 15 % bracket. I am going to run it by our CPA but would like some kind of idea what the situation is. Anyone willing to take a stab at it? Thanks.
I'm not a CPA but your problem is to somehow optimize the income streams and tax consequences for (1) taxable income, (2) IRA's and RMD's at age 70.5, (3) Roths, and (4) SS. You're CPA may be able to run some planning software (or suggest a source). This tool may help a bit but the tax issues are probably not fully explored: Optimal Retirement Calculator and Retirement Decision Support System
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Old 02-23-2012, 07:55 PM   #66
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The various amounts are stated somewhere (can't recall where I read it) to be "actuarially equivalent".
It's right there on the SSA web site, where they describe the early/late options.

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IMO one key is to determine whether you will live longer or shorter than those averages.
Yeah, everything is easier if you know just when you are going to die. But nobody does, hence the use of actuary tables. Despite what age your grandparents lived to, all it takes is for one 18-wheeler to cross the centerline to mess up your calculations.

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by delaying to get 100% instead of 75% at 62, you get a boost each year of 7.5%. But note that is a real return of 7.5% not a nominal return. Also this is a government guaranteed return.
First off, it's not a "return" at all, not real and not nominal. All it is is changing the timing of receiving the money. The present-value is the same. That's what "actuarially equivalent" means. You get the same total amount of money spread over fewer years, so of course the monthly amount is larger.
Second, it's not "guaranteed" at all. Congress can change it at any time -- as they have several times in the past. Anyway, it's already by law slated to be automatically cut by ~25% if/when SS collections run the trust fund dry.

I worked up a spreadsheet for early/late comparisons, using a couple of different methods. https://spreadsheets.google.com/ccc?...0d19pTnc&hl=en
You can plug in your own assumptions & figures.

BTW, the SSA life-expectancy tables show an average age at death is about 83-84 years old. With the assumptions I used, 3% earnings rate and 2.8% COLA, the break-even age is 87. So, on average, you don't breakeven in your lifetime.
If you can earn 6%, the break-even age is 104.
A well-diversified portfolio of investment-grade bonds & preferred stocks can easily earn 6%. Mine is currently earning 7.4%.
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Old 02-23-2012, 08:38 PM   #67
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It's right there on the SSA web site, where they describe the early/late options.


Yeah, everything is easier if you know just when you are going to die. But nobody does, hence the use of actuary tables. Despite what age your grandparents lived to, all it takes is for one 18-wheeler to cross the centerline to mess up your calculations.


First off, it's not a "return" at all, not real and not nominal. All it is is changing the timing of receiving the money. The present-value is the same. That's what "actuarially equivalent" means. You get the same total amount of money spread over fewer years, so of course the monthly amount is larger.
Second, it's not "guaranteed" at all. Congress can change it at any time -- as they have several times in the past. Anyway, it's already by law slated to be automatically cut by ~25% if/when SS collections run the trust fund dry.

I worked up a spreadsheet for early/late comparisons, using a couple of different methods. https://spreadsheets.google.com/ccc?...0d19pTnc&hl=en
You can plug in your own assumptions & figures.

BTW, the SSA life-expectancy tables show an average age at death is about 83-84 years old. With the assumptions I used, 3% earnings rate and 2.8% COLA, the break-even age is 87. So, on average, you don't breakeven in your lifetime.
If you can earn 6%, the break-even age is 104.
A well-diversified portfolio of investment-grade bonds & preferred stocks can easily earn 6%. Mine is currently earning 7.4%.
It would not let me change to my numbers.
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Old 02-23-2012, 08:46 PM   #68
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First off, it's not a "return" at all, not real and not nominal. All it is is changing the timing of receiving the money. The present-value is the same. That's what "actuarially equivalent" means. You get the same total amount of money spread over fewer years, so of course the monthly amount is larger.
Second, it's not "guaranteed" at all. Congress can change it at any time -- as they have several times in the past. Anyway, it's already by law slated to be automatically cut by ~25% if/when SS collections run the trust fund dry.

I worked up a spreadsheet for early/late comparisons, using a couple of different methods. https://spreadsheets.google.com/ccc?...0d19pTnc&hl=en
You can plug in your own assumptions & figures.

BTW, the SSA life-expectancy tables show an average age at death is about 83-84 years old. With the assumptions I used, 3% earnings rate and 2.8% COLA, the break-even age is 87. So, on average, you don't breakeven in your lifetime.
If you can earn 6%, the break-even age is 104.
A well-diversified portfolio of investment-grade bonds & preferred stocks can easily earn 6%. Mine is currently earning 7.4%.
Two comments. First, nothing is guaranteed, but a reduction in SS pension is a very low probability event. Second, the decision to delay is not to maximize return or break even but to minimize the risk of running out of money. That risk is real, and the value must be reflected in the choice.
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Old 02-23-2012, 08:48 PM   #69
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Maybe it is a good idea to think of SS as an annuity that will start at a higher monthly payout if you delay. Of course, you don't know if you will reach the break even point. Plus taxes and RMD's to some minor extent play into this. That is different depending on your income streams and tax profile. I think our tax situation is quite different from the average USA retiree.

My DW is one who falls into the "50% of higher earner" category so my delaying also would help her should she outlive me. Not a major consideration but a minor one.

BTW, I do not bill myself as an expert on when to take SS. Just trying to figure this stuff out for myself and throwing out some info in the process. I appreciate alternate views on this subject.
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Old 02-24-2012, 07:51 AM   #70
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SS as long life insurance... It's worth a thought.
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Old 02-24-2012, 08:35 AM   #71
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It would not let me change to my numbers.
Copy it, then you can change your copy. Naturally, it won't let you edit my original.

[QUOTE]...a reduction in SS pension is a very low probability event./QUOTE] You're kidding, right? The are news stories & columns & articles all over that indicate that reduction is a high probability event.

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the decision to delay is not to maximize return or break even but to minimize the risk of running out of money. That risk is real, and the value must be reflected in the choice.
Granted. And that's why you need to look at the figures and make you own assessment of your risk level.

I will point out that if a person delays to age 70, then they have enough assets that they did not need the SS money for those 8 years, and it's quite unlikely that they exhausted their own money and then need to switch to SS at 70. If you are (relatively) poor, you don't have the option of delaying, because you need the SS money as soon as you retire.

Also, nobody (voluntarily) retires at 62 unless they don't need the paycheck. Which means they have considerable assets, which means that they could easily delay receiving SS, which means that they don't need the SS benefit -- not at 62 and not at 70.

We're not really talking about a whole lot of money here, either. The average monthly benefit is about $1200. The maximum is $1900 (for age 62 start). That's for someone who has been a high earner all their life -- that is, someone who has has plenty of opportunity to accumulate a lot of money to retire on, who therefore doesn't really need the SS money.

It all gets very complicated, 'cause there are so many figures, growth, COLA, etc. to juggle. That's why I worked up that spreadsheet. The basic question I had was, "Okay, I don't need the money at 62, so how about if I take it and put in into a savings account. Then at 66 or 70 I switch gears and start spending the SS money and suppliment that with withdrawals from the savings account such that the total is equal to what the SS benefit would be if I had simply delayed collecting SS until that age." Now that I'm drawing down the account, when will it be depleted? At that point, the suppliment disappears, so all I get is what SS pays.

The question is: What is that age? At 0% interest and no SS COLA, that's about 77. That's a breakeven time of 15 years.
Each person must decide for themself whether that's acceptable or not. It's rather like an annuity, and you need to decide if you want your heirs to inherit any money if you die before you start collecting SS. Like someone said, if you delay until 70 but then die at 68, your rate of return is zero. Whereas if you start and save, they inherit the money in the account.

For some people, you can also toss in the complexity of claiming on a spouse, which is way to complex for me to figure.
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Old 02-24-2012, 09:14 AM   #72
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...a reduction in SS pension is a very low probability event./QUOTE] You're kidding, right? The are news stories & columns & articles all over that indicate that reduction is a high probability event.

The Facts.......SS currently has a 2.3 Trillion Dollar Surplus......The money has been spent on Wars and other government programs. The debt is backed by Treasury Bonds which are the safest Investment in the world.
SS is still taking in more money that it pays out and will continue to do so for at least another 25 years.

Any statements that declare SS as 'In Danger', going Broke are purely political and are just trying to sucker the low informed voter.
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Old 02-24-2012, 10:39 AM   #73
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Here is a link to the government bipartisan commission (Simpson-Bowles) report on deficit reduction http://www.fiscalcommission.gov/site...hair_Draft.pdf

See the Social Security section starting at slide #42 in this PDF file. You'll notice that the changes contemplated are pretty modest, especially for those near or in retirement. Many of the changes would phase in over several years.

My conclusion: don't worry about SS. Changes will come (probably after the elections this year) but will not hurt.
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Old 02-24-2012, 11:27 AM   #74
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If the rules didn't change so often, I'd be tempted to put together a website similar to firecalc to let people input their situation (variables) and have it output the impact (graphs, charts, etc...) on how early, mid late would effect things for them.

Maybe if I have some spare time this summer I'll look into that...
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Old 02-24-2012, 11:41 AM   #75
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If the rules didn't change so often, I'd be tempted to put together a website similar to firecalc to let people input their situation (variables) and have it output the impact (graphs, charts, etc...) on how early, mid late would effect things for them.

Maybe if I have some spare time this summer I'll look into that...
from Rayvt link above, it had a link to

Social Security calculator: retirement options for you and spouse.

which has some great calculators, similar to what you are talking about. Give it a look.
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Old 02-24-2012, 12:41 PM   #76
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Yeah, everything is easier if you know just when you are going to die. But nobody does, hence the use of actuary tables. Despite what age your grandparents lived to, all it takes is for one 18-wheeler to cross the centerline to mess up your calculations.
I sense sarcasm in your response. I'm sorry you feel you have to attack people that way.

I did not say that you needed to know when you were going to die. I think many people have an indication of whether they will live longer than the average. Do you have a lot of family ancestors that lived long lives? Do you have diabetes? Are you obese? Do you exercise regularly? Are you a smoker? Heavy drinker? The list goes on. Putting some thought to these things will give you an indication (not a guarantee) of whether you will live longer than the average, and therefore when you should take SS.

I did not think it was necessary to fully explain the above, but now I hope my post becomes more helpful.
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Old 02-24-2012, 02:43 PM   #77
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What I got from the link the OP posted as it pertains to married couples:
1. Spouse with lower SS numbers should start taking SS early.
2. Spouse with higher numbers at full retirement age (66 to 67 for most of us) should start taking spousal benifit which is half of the amount the lower numbers spouse is drawing.
3. Spouse with higher numbers should switch to their own full SS at age 70.
4. Spouse that took SS early should then look at the numbers and decide whether to pay their benifits back and start over as if they had waited till 70.
Seems like the right plan for my DW and I. I find it interesting that so many married posters here are talking about a different path. Everyone has a different situation but I think people should more carefully consider what that link has to say on this subject.
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Old 02-24-2012, 02:45 PM   #78
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Originally Posted by rayvt View Post
It's right there on the SSA web site, where they describe the early/late options.


Yeah, everything is easier if you know just when you are going to die. But nobody does, hence the use of actuary tables. Despite what age your grandparents lived to, all it takes is for one 18-wheeler to cross the centerline to mess up your calculations.


First off, it's not a "return" at all, not real and not nominal. All it is is changing the timing of receiving the money. The present-value is the same. That's what "actuarially equivalent" means. You get the same total amount of money spread over fewer years, so of course the monthly amount is larger.
Second, it's not "guaranteed" at all. Congress can change it at any time -- as they have several times in the past. Anyway, it's already by law slated to be automatically cut by ~25% if/when SS collections run the trust fund dry.

I worked up a spreadsheet for early/late comparisons, using a couple of different methods. https://spreadsheets.google.com/ccc?...0d19pTnc&hl=en
You can plug in your own assumptions & figures.

BTW, the SSA life-expectancy tables show an average age at death is about 83-84 years old. With the assumptions I used, 3% earnings rate and 2.8% COLA, the break-even age is 87. So, on average, you don't breakeven in your lifetime.
If you can earn 6%, the break-even age is 104.
A well-diversified portfolio of investment-grade bonds & preferred stocks can easily earn 6%. Mine is currently earning 7.4%.
Thanks for the spreadsheet. One thing I noticed is that it COLAs the benefit at the 62 amount (75%) when it starts. It goes on being COLAed for 4 years (at 2.8%) while the 100% amount stays at 100%. If this is valid, then by the time 66 years rolls around you are collecting about 84% of original and not 75%.
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Old 02-24-2012, 02:58 PM   #79
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What I got from the link the OP posted as it pertains to married couples:
1. Spouse with lower SS numbers should start taking SS early.
2. Spouse with higher numbers at full retirement age (66 to 67 for most of us) should start taking spousal benifit which is half of the amount the lower numbers spouse is drawing.
3. Spouse with higher numbers should switch to their own full SS at age 70.
4. Spouse that took SS early should then look at the numbers and decide whether to pay their benifits back and start over as if they had waited till 70.
Seems like the right plan for my DW and I. I find it interesting that so many married posters here are talking about a different path. Everyone has a different situation but I think people should more carefully consider what that link has to say on this subject.

This is what we plan to do also.

Note that you can no longer do #4 and pay back your benefits. That loophole has since been closed by SS.
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Old 02-24-2012, 03:01 PM   #80
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This is what we plan to do also.

Note that you can no longer do #4 and pay back your benefits. That loophole has since been closed by SS.
Thanks Alan, Taxes made it seem like a bad idea in our case anyway.
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