pb4uski
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May we have the table link/reference?
Fairmark Forum :: Retirement Savings and Benefits :: Distributions from RIRA after TIRA transfer
Starts about 1/2 way down the page.
May we have the table link/reference?
With a 1% Fund return, crossover occurs late in the age 82 year.
2%, age 84
3%, age 86
4%, age 88
5%, age 92
6%, late in age 98 year
So as the investment return percentage of the Fund increases, it takes longer and longer for “B”, who delayed taking SS till age 70, to catch up to “A”, who took SS at age 66. Remember, there is no inflation, no COLAs, and no tax brought into this model. Also, I set SS benefits to equal living expenses.
Inflation and COLAs are irrelevant to the calculation, since SS benefits are inflation adjusted. Your original calculations assumed a 6% rate of return with 3% inflation, which of course is a 3% real return. That's why the crossover point occurs in one's 86th year in both your original 6% returns, 3% inflation scenario and the new 3% returns, 0% inflation scenario.Remember, there is no inflation, no COLAs, and no tax brought into this model. Also, I set SS benefits to equal living expenses.
I agree that there are some interesting parallels to sequence of return risks. But this is also another clear cut reason to delay SS benefits until age 70. Many people on this board refer to delayed SS as "longevity insurance". Sure, it's possible to come out behind by delaying SS benefits, either by dying early or missing out on extremely strong stock market returns, but in return you are eliminating the absolutely worst case scenarios - living so long that your money runs out before you do and the equally grim possibilty that stock market returns may fall in the low end of their historic ranges. In both cases of an extremely long life span and extremely sup par investment performance, the higher delayed SS benefits will be there to make your old age much more comfortable than if you had claimed benefits at either 62 or 66.It would seem that there are parallels here to the “sequence of returns” situation. But instead of poor market returns clobbering a just-retired person, “B”s Fund gets hit with early withdrawals for living expenses that are not compensated for by SS. “A” does not.
I am NOT advocating one way or the other here, I just wanted to find out why what I had expected to be an obvious conclusion, that delaying SS till age 70 would be a fund winner in my big spreadsheet, did not occur at all, unless I cranked the expected fund return percentage down. There was no spreadsheet mistake made.
Taxes are another story. I believe, but haven't made extensive calculations to prove it, that delaying SS would generally improve one's tax situation by spreading income over more years and hence tend to favor delaying SS until 70. You do, of course, need to take full advantage of the entire 15% tax bracket during the years before you claim in order to make as big Roth conversions as possible. This strategy is well known to the regulars on this board.
Sure, it's possible to come out behind by delaying SS benefits, either by dying early or missing out on extremely strong stock market return.........
My bold above.
Actually, market returns don't have to be "extremely" strong in order for the SS benefits collected during ages 62 though 69 to build into a large enough kitty to more than compensate for the difference between SS at 62 and SS at 70 payments. As Telly showed above, even moderate returns will do it.
Just saying...... No need to overstate the scenario.
Sure, as long as you pull it out of the market after those gains..... So, if you're extremely good at timing the market, take your S.S. early and 'play' the stock market!
Yes, you've got the math right. Other people have arrived at the same numbers.With a 1% Fund return, crossover occurs late in the age 82 year.
2%, age 84
3%, age 86
4%, age 88
5%, age 92
6%, late in age 98 year
So as the investment return percentage of the Fund increases, it takes longer and longer for “B”, who delayed taking SS till age 70, to catch up to “A”, who took SS at age 66. Remember, there is no inflation, no COLAs, and no tax brought into this model. Also, I set SS benefits to equal living expenses.
It would seem that there are parallels here to the “sequence of returns” situation. But instead of poor market returns clobbering a just-retired person, “B”s Fund gets hit with early withdrawals for living expenses that are not compensated for by SS. “A” does not.
I am NOT advocating one way or the other here, I just wanted to find out why what I had expected to be an obvious conclusion, that delaying SS till age 70 would be a fund winner in my big spreadsheet, did not occur at all, unless I cranked the expected fund return percentage down. There was no spreadsheet mistake made.
As we've seen in various studies/reports, spending tends to decrease with age.
So it appears that if a person with longevity in their family is delaying SS until 70 and, as a result, is withdrawing a bit more than their long-term safe withdrawal rate in the years before SS, their strategy might not be as favorable as they once thought?
omni
You are writing humorously, but to me the key issue in this whole thread is getting the math right. I normally would not get involved in a "when should I claim SS?" type of thread, since it is quite well known that SS is actuarially neutral, so it's possible to make a reasonable case both for claiming early and delaying.Unfortunately, my head exploded back in March as I was reading through these threads. I sort of follow the concepts, but can't seem to keep up with the math without looking at the spread sheets. Not to worry, I can trust this group to get the math right.
Actually, market returns don't have to be "extremely" strong in order for the SS benefits collected during ages 62 though 69 to build into a large enough kitty to more than compensate for the difference between SS at 62 and SS at 70 payments. As Telly showed above, even moderate returns will do it.
...
One thing that has always nagged at me is just the whole concept of delaying SS until you are 70, so you can collect a higher SS payment. Just who are those people who can do this? People who don't need the money, right? People who have enough money that they can get along quite well without getting anything from SS for 8 years.
But if that's the case, what is the attraction for getting extra SS money, when you didn't need anything from SS up to then? What's the point?
Longevity insurance? In case you live longer than ~86 and have managed to lose all your investments & savings? ....
....I normally would not get involved in a "when should I claim SS?" type of thread, since it is quite well known that SS is actuarially neutral, so it's possible to make a reasonable case both for claiming early and delaying.....
I have a spreadsheet that I've developed over the years, for helping me decide what to do. It's gone through a few comprehensive iterations.
https://www.dropbox.com/s/gebanzrbr3g33qf/My SS breakeven calc.xls?dl=0
As everybody says, the breakeven age is right around your life expectancy.
One thing that has always nagged at me is just the whole concept of delaying SS until you are 70, so you can collect a higher SS payment. Just who are those people who can do this? People who don't need the money, right? People who have enough money that they can get along quite well without getting anything from SS for 8 years.
.
It's not all or nothing. I believe it is Cut-Throat who pointed out that you can withdraw more now, knowing that you have the higher income stream later.
So maybe someone allows a little extra in their WR, knowing that there is some longevity insurance there in the future if they need it. And longevity insurance is just that, insurance. When we decide to buy insurance, we shouldn't expect to 'break even' or profit, we should expect (hope?) to be covered for the unknown.
That (and spousal benefit) has me leaning towards delaying, but I will revisit in a few years.
-ERD50
You are writing humorously, but to me the key issue in this whole thread is getting the math right. I normally would not get involved in a "when should I claim SS?" type of thread, since it is quite well known that SS is actuarially neutral, so it's possible to make a reasonable case both for claiming early and delaying.
/snip/
I have a spreadsheet that I've developed over the years, for helping me decide what to do. It's gone through a few comprehensive iterations.
https://www.dropbox.com/s/gebanzrbr3g33qf/My SS breakeven calc.xls?dl=0
As everybody says, the breakeven age is right around your life expectancy.
One thing that has always nagged at me is just the whole concept of delaying SS until you are 70, so you can collect a higher SS payment. Just who are those people who can do this? People who don't need the money, right? People who have enough money that they can get along quite well without getting anything from SS for 8 years.
But if that's the case, what is the attraction for getting extra SS money, when you didn't need anything from SS up to then? What's the point?
Longevity insurance? In case you live longer than ~86 and have managed to lose all your investments & savings?
Seems to me to be a case of the people who need it can't afford to do it, and the people who can afford to do it - don't need to do it.
I make the horrible assumption (I might be wrong here) that the folks at SS have spent many long hours running the numbers and have minimized any advantage obtained by when you decide to sign up. I don't see them leaving any advantages in the future either.