Surprising "when should we take SS" exercise outcome

[MasterBlaster]

Did this take into account RMD's from traditional IRA's/401k's?

yes, I believe that to be the case. I would be surprised if ORP did not take that into account.

 

[Lisa99]

Did this take into account RMD's from traditional IRA's/401k's?

Yes it did. ORP has us converting 90% of our IRAs to Roth by 70, but we will have small RMDs to account for.

 

[Koolau]

Aren't you the spoiler.

You left out future inflation, investment returns, and your personal lifespan and expenses.

All we can do is plan. When things change we can re-plan. There are many unknowns.

We have nothing to fear but fear itself - and the bogeyman. - Pat Paulson

 

[Lsbcal]

I think this is important as it screens out those portfolio declines that go down below your comfort level before going back up. At the bottom of the Investigate tab you see:

There should be a minimum of $ left in the portfolio at all times, including at the end.

You might want to define this level before running all scenarios. Some of those "successes" may kill you.

BTW, I was holding out to take our SS at 66 based on maybe having more in very old age. But at 64 we just decided to do it. Huge relief as the portfolio withdrawals will help me to sleep much better -- probably will live longer as a result which could be a bit of a problem.

 

[LOL!]

SS is supposed to actuarially neutral with respect to age, isn't it?

For married folks, doesn't delaying often leave a surviving spouse with higher benefits? How would one model in FIREcalc the death of a spouse at various ages? (Is there an appropriate smiley to append to that question?)

 

[MasterBlaster]

SS is supposed to actuarially neutral with respect to age, isn't it?

That is true. However if you plan on dying young you may want to get all you can when you can - and vice versa.

Things get complicated with dual earners and spousal and survivors benefit. In that case some people believe that you can game the system to your (the married couple's) favor.

 

[Lisa99]

I think this is important as it screens out those portfolio declines that go down below your comfort level before going back up. At the bottom of the Investigate tab you see:
You might want to define this level before running all scenarios. Some of those "successes" may kill you.

BTW, I was holding out to take our SS at 66 based on maybe having more in very old age. But at 64 we just decided to do it. Huge relief as the portfolio withdrawals will help me to sleep much better -- probably will live longer as a result which could be a bit of a problem.

I have the minimum comfort level defined and run all scenarios with that number plugged in.

While DH wouldn't mind spending it will he can and then living on SS (he even wants to be a Walmart greeter some day!) I don't lean that way. And since I'm the finance arm of this gig we shouldn't run out of money while I'm alive.

 

[Lsbcal]

I have the minimum comfort level defined and run all scenarios with that number plugged in.

While DH wouldn't mind spending it will he can and then living on SS (he even wants to be a Walmart greeter some day!) I don't lean that way. And since I'm the finance arm of this gig we shouldn't run out of money while I'm alive.

Good job! I think many who run FIRECalc just look at the success rate number.

It would be more helpful if FIRECalc showed graphical data in a different way or provide more output options, but I'm afraid the resources for doing this are not there.

 

[plex]

Ran the scenarios for my parents who have similar predicted SS payouts. Having one take it around 65-66, then the other claim a spousal benefit until 70, by far produced the best results. There is a risk that the estate would lose money if they both died before their late 70s, but past that it was a huge benefit if both or just one of them was alive (an extra $9k/year).

Definitely have to explore the spousal benefit path in most people's cases these days since most of the time both spouses work.

 

[RunningBum]

Try doing both and noting both results. The 30 year test uses additional data not included in the 40 year test and is sometimes worthwhile to check.

For example, the run I do which tests my current situation has a 100% success rate with either 30 or 40 years. But, the 30 year scenario shows lower early year portfolio balances than the 40 year scenario.

Just another way to get yourself confused I guess. But do try both. And note that the end result on a 30 year run is different than the 30 year point on a 40 year run, all other things being equal.

What additional data does the 30 year test include? Any idea why the 40 year test doesn't include it?

It's been awhile since I've run Firecalc. I guess I should do it again, even though not much has really changed in my situation, and I'm years from the SS decision.

 

[Animorph]

What additional data does the 30 year test include? Any idea why the 40 year test doesn't include it?

It's been awhile since I've run Firecalc. I guess I should do it again, even though not much has really changed in my situation, and I'm years from the SS decision.

I'm not sure what year the latest data in FIRECalc comes from, but for a 40 year retirement FIRECalc has to stop retirement scenarios 40 years before its data ends. Not enough data available for a 40 year retirement starting in 1980 for example. A 30 year retirement scenario probably does have enough data to start in 1980, just barely. Neither retirement period can test retirements staring in 2000, for the same reason.

 

[youbet]

What additional data does the 30 year test include? Any idea why the 40 year test doesn't include it?

Animorph answered that nicely above.

It's been awhile since I've run Firecalc. I guess I should do it again, even though not much has really changed in my situation, and I'm years from the SS decision.

I've been FIRE'd about 6 years. I generally construct a run testing my current situation every year. The run driven by the "Great FIRE Portfolio Dip of 2009" was interesting.....

But, so far, so good.

 

[jdw_fire]

Using Firecalc I just estimated our 'level of spending' with a 95% success rate using SS benefits starting at 62, 67 and 70.

I'm shocked to learn that our highest level of spending ability will occur if we both take SS at 62. There is a slight drop in spending level if we wait to 65 and 67, but an overall 5% drop in spending ability if we wait until 70.

I would have thought it would have been the opposite, but I will have a very small pension and DH doesn't have one so I guess spending from the portfolio only for too many years really takes a toll.

Wahoo for Firecalc!

i am late to this thread and i havent yet read all the posts but i wanted to comment while my thought are fresh, so here goes.

this topic has been discussed at length and for many years. back in 2007 i showed by example (2 actually) that a single person (62 y.o.) can actually spend more money and have a lower market risk if that person delays taking SS till age 70. ( the 1st example is extreme and was made to show off my point, the second example is more likely to be the way it is done.) http://www.early-retirement.org/forums/f28/social-security-at-62-66-or-70-a-26354-3.html#post494511 In this thread CFB argued your point exactly but when you run thru the numbers it turns out you can spend more by delaying SS. however, to get this additional spending, you have to be willing to spend down (some) of your portfolio (which might not be popular in today's environment).

some after thoughts on that old post: 1) i used a SWR of 4%. now days there are many people that would disagree that 4% is a SWR and would rather use something lower. however, when you do the math, the lower the SWR you use the greater the portfolio needs to be to get the income number used for the age 62 person and that leads to larger increase in monthly income from age 62-70 for the person who waits to start SS till age 70. 2) i used a MM account as keeping up with inflation for the 8 yrs between 62 and 70. now days that isn't true so i-bond might be a good alternative. however doing so means lots of i-bond would have to be purchased prior to age 62 for the i-bond technique to be comparable or maybe some kind of CD ladder could be used. (however, if the fed is to be believed, in this environment of low interest rates there isn't much inflation so maybe it isnt a problem.) when you combine 1) and 2) you could use some of the extra money you get because of 1) to gradually increase your monthly spend rate each year in order to compensate for 2). and finally 3) these examples can be reworked to make lifetime (instead of just between ages 62 and 70) income rise by taking SS at age 70. i think the key that makes these examples work is that the retiree is removing some of their portfolio from market risk when waiting till age 70 to start SS. this is possible because a higher amount of the retiree's income's longevity risk is transferred from the portfolio to SS.


when this discussion is applied to couples more income is available sooner (as pointed out by rescueme), however i think the same basic math is the same. the application, as i see it, would be for the higher (SS qualified) earner (A) to wait till 70 to claim on A's own record and the other spouse (B) starts their own at B's FRA. if B starts earlier than FRA their benefit and their percentage of A's benefit will be permanently reduced.

 

[ERD50]

i am late to this thread and i havent yet read all the posts but i wanted to comment while my thought are fresh, so here goes.

this topic has been discussed at length and for many years. back in 2007 i showed by example (2 actually) that a single person (62 y.o.) can actually spend more money and have a lower market risk if that person delays taking SS till age 70. ( the 1st example is extreme and was made to show off my point, the second example is more likely to be the way it is done.) http://www.early-retirement.org/forums/f28/social-security-at-62-66-or-70-a-26354-3.html#post494511 In this thread CFB argued your point exactly but when you run thru the numbers it turns out you can spend more by delaying SS. however, to get this additional spending, you have to be willing to spend down (some) of your portfolio (which might not be popular in today's environment). ...

Thank you jdw_fire for linking to that old thread. To save others some time, please note that CFB had an error in his numbers (the $21,348 annual SS at 70YO should be $23,748), so some later posts used this bad number before getting corrected later.

I think your numbers very clearly show how one could spend more in the early years by delaying SS, even though this may seem counter-intuitive. Looking at it another way, it is easy to see though - one is simply trading in their portfolio for the governments SS annuity. So with a fully annuitized future, you can spend the rest today. You are also trading in the chance to leave an estate to heirs/charity with that example.

But the example was picked to make the numbers 'pure' and demonstrate the principles. In reality, one would not likely give up all their portfolio to do this, but would blend it and give up a portion.

Thought provoking.

-ERD50

 

[RunningBum]

I'm not sure what year the latest data in FIRECalc comes from, but for a 40 year retirement FIRECalc has to stop retirement scenarios 40 years before its data ends. Not enough data available for a 40 year retirement starting in 1980 for example. A 30 year retirement scenario probably does have enough data to start in 1980, just barely. Neither retirement period can test retirements staring in 2000, for the same reason.

OK, thanks. It sounded like there was some factor that wasn't being considered for the 40 year range. 1980 and the 9 years before are included in the 40 yr scenario, but not as starting points.

 

[ejman]

Thank you jdw_fire

I think your numbers very clearly show how one could spend more in the early years by delaying SS, even though this may seem counter-intuitive. Looking at it another way, it is easy to see though - one is simply trading in their portfolio for the governments SS annuity. So with a fully annuitized future, you can spend the rest today. You are also trading in the chance to leave an estate to heirs/charity with that example.

But the example was picked to make the numbers 'pure' and demonstrate the principles. In reality, one would not likely give up all their portfolio to do this, but would blend it and give up a portion.

Thought provoking.

-ERD50

I would seriously consider this approach for my own SS withdrawal if the U.S. had a rapidly diminishing budget deficit, a majority consensus on what measures need to be implemented to bring the staggering deficits into line and a political atmosphere that allowed the discussion of weighty issues in a serious manner meant to find solutions in the best interest of the country.

As I calculate it, by starting SS at 62, the equivalent funds that I do not withdraw to live on should grow to about $250,000 before I collect a single dollar of my SS at age 70. By the nominal "break even" point at age 79 those funds grow to almost $400,000. This pushes the real break even point way way out into the future.

Based on my evaluation of the factors listed above, I've decided to keep as much of my own resources as possible instead of trusting that a dysfunctional system will somehow make up for using my own resources by forking over more money 20 or 30 years from now. Thus, I've elected to start my SS at 62 at the end of this year.

 

[jdw_fire]

I would seriously consider this approach for my own SS withdrawal if the U.S. had a rapidly diminishing budget deficit, a majority consensus on what measures need to be implemented to bring the staggering deficits into line and a political atmosphere that allowed the discussion of weighty issues in a serious manner meant to find solutions in the best interest of the country.

As I calculate it, by starting SS at 62, the equivalent funds that I do not withdraw to live on should grow to about $250,000 before I collect a single dollar of my SS at age 70. By the nominal "break even" point at age 79 those funds grow to almost $400,000. This pushes the real break even point way way out into the future.

Based on my evaluation of the factors listed above, I've decided to keep as much of my own resources as possible instead of trusting that a dysfunctional system will somehow make up for using my own resources by forking over more money 20 or 30 years from now. Thus, I've elected to start my SS at 62 at the end of this year.

so clearly you believe there is great risk in counting on SS to pay as "advertised", and that is a valid opinion (even more valid now then when i posted the original post). but your discussion of how many dollars you will have in the future (or any discussion of the SS break even point) does not refute my post (except if your fear of SS not paying as advertised actually happens). if however SS pays as advertised (as i suggested in that earlier thread), the method i demonstrated in that post works as stated for anyone in that (or similar) situation and that retiree can increase his/her spending by delaying the start of SS.

 

[ERD50]

I would seriously consider this approach for my own SS withdrawal if the U.S. had a rapidly diminishing budget deficit, a majority consensus on what measures need to be implemented to bring the staggering deficits into line and a political atmosphere that allowed the discussion of weighty issues in a serious manner meant to find solutions in the best interest of the country. ...

Well, there is that.

But if things are that bad for the govt to cut SS, we'll probably see poor market returns over that time also.

Heck, it's all a crap shoot.

-ERD50

 

[ejman]

so clearly you believe there is great risk in counting on SS to pay as "advertised", and that is a valid opinion (even more valid now then when i posted the original post). but your discussion of how many dollars you will have in the future (or any discussion of the SS break even point) does not refute my post (except if your fear of SS not paying as advertised actually happens). if however SS pays as advertised (as i suggested in that earlier thread), the method i demonstrated in that post works as stated for anyone in that (or similar) situation and that retiree can increase his/her spending by delaying the start of SS.

I wouldn't even dream of attempting to refute your post. I haven't checked your math but I'm sure other posters here have and are satisfied that your math is correct. As I said in my earlier post I'm very concerned that there are very powerful economic, political and social factors that will make any such calculation irrelevant. That is my belief and I certainly respect anyone's belief to the contrary. Lets check back in 30 years and see how it all turned out shall we?

 

[gerntz]

Not exactly on point, but an article on the value of delaying SS vs. other fixed investments:

How to Get a 7% Guaranteed Return—From Social Security - WSJ.com

 

[jeffmete]

Of course quality of life needs to be part of this discussion. Not too many 90 year olds traveling or even driving a car! I think discrentionary spending drops as we age, so there is some benefit to weighting income up front when we still have the desire to do stuff.

 

[BigNick]

Based on my evaluation of the factors listed above, I've decided to keep as much of my own resources as possible instead of trusting that a dysfunctional system will somehow make up for using my own resources by forking over more money 20 or 30 years from now. Thus, I've elected to start my SS at 62 at the end of this year.

+1.

From my observations, most "now or later" calculations come out roughly even given average lifespans. That's hardly surprising, since the calculations are being done by actuaries who know their stuff. But they're only interested in how much they spend, not what people get out of it.

To add to your lack of trust in the ability of the system to pay out in future (existing beneficiaries are always the best protected when a system runs into trouble) there's the point made by jeffmete just above this one, that $1,000 now is typically worth a lot more than $1,000 at age 90, or indeed at any age 5-10 years after today's.

I'm about to take my company pension at 52, which will give me 66% of what I would have had if I waited until 60. The break-even date, assuming that I invest the money at 0-2% above inflation, is age 72. If I live to that age so that, had I known in advance, I would have had more money in total by waiting, I'm not going to feel very bad about it at that point. But I know some people for whom the thought that they might feel bad in 20 years is enough to have them defer (my brother-in-law is an example).

Finally, there's also the small matter of the roughly 10% chance of dying between 62 and 70. At least if you take the money at 62, you've got it to hand over to the grandkids.

 

[rayvt]

I think your numbers very clearly show how one could spend more in the early years by delaying SS, even though this may seem counter-intuitive. Looking at it another way, it is easy to see though - one is simply trading in their portfolio for the governments SS annuity. So with a fully annuitized future, you can spend the rest today.

You may like to look at delayed SS as an annuity -- but it's not actually an annuity.

It's unlikely that Congress will cut SS benefits to people who are receiving them. But for people who are *not* receiving benefits, they could easily cut the benefit that would be paid out when they actually start getting them.
The argument could go along the lines of "This is not a cut of anybody's SS check. They are not getting checks now, it's just that when they start getting checks it'll be less than they expected."

Illinois make a similar argument one time when they raised the state income tax by the 2-step shuffle. Step 1: This is not an increase in the tax, this is just a temporary surcharge. Step 2: We are making it permanent, but it's not an increase, it's the same as people have been paying for the last couple of years.

Net result: The income tax went up even though the state never "officially" increased the tax.

 

[ejman]

It's unlikely that Congress will cut SS benefits to people who are receiving them.

In principle I agree with your statement but I think its important to note that the estimate as to when "trust funds" run out has been moving forward in time with the latest date being in 2036. Of course, this date is based on certain assumptions on the economy's growth rate as well as demographics.

Specifically, I don't think that the possibility of a Japan like economic stagnation scenario has been baked into a SS forecast that I'm aware of and secondly, if any of the SS privatization schemes gain traction, they can't help but draw resources away from funding the current model of SS. It certainly wouldn't be the first time in the history of the world that a Government says "look we would like to pay you but there is no money".

If this were only an economic issue I would be inclined to agree that we as a nation will solve it but, our increasingly dysfunctional political environment where any discussion of rational alternatives is a non starter in my opinion dooms the possibility of acting with enough anticipation to assure SS payments as promised. Hence my decision for taking SS at 62 regardless of some calculations in certain scenarios that show a very moderate increase in total income by taking SS later.

Incidentally, the scenario I describe above is starting to get "baked" into the national psychology. When I ask my kids (ages 34 and 32) what they think about SS the say it doesn't matter it won't be there for them anyway. We are the only ones that are really passionate about it and we are dying off...

 

[rayvt]

I think its important to note that the estimate as to when "trust funds" run out has been moving forward in time with the latest date being in 2036.

I don't wish to start another argument thread, but the SS "trust fund" is not real, it's only a book-keeping entry, which keeps track of money that one part of the government "owes" to another part of the government. It doesn't represent real assets.

Just like when you borrow money from your "replace the roof" e-fund to replenish your "repair the car" e-fund.