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Taking pensions & SS early?
Old 04-19-2015, 06:41 PM   #1
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Taking pensions & SS early?

So I run my numbers through cfiresim using our 3 non-COLA pensions and SS, both taking it as early as possible (age 58 for the pensions, 62 for SS) and late (age 65-70). Each is worth more as time goes by obviously. But, when I do that, cfiresim indicates that I'm best taking the distributions earlier ... not what I would have thought. Does this make sense, or am I missing something?
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Old 04-19-2015, 06:44 PM   #2
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Maybe since you are collecting over a longer time frame. WE took our pensions early-my hubby ran the #'s & we were better off but will leave SS for 70 since we still work p.t. & don't need it sooner.
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Old 04-19-2015, 07:04 PM   #3
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Originally Posted by Steelart99 View Post
So I run my numbers through cfiresim using our 3 non-COLA pensions and SS, both taking it as early as possible (age 58 for the pensions, 62 for SS) and late (age 65-70). Each is worth more as time goes by obviously. But, when I do that, cfiresim indicates that I'm best taking the distributions earlier ... not what I would have thought. Does this make sense, or am I missing something?
What does "best" mean in this case?
The higher median ending assets?
or the fewest failures in extra long projections?
Or ... ?
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Old 04-19-2015, 07:08 PM   #4
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Both the fewest failures and highest median ending assets. Just not what I was expecting given the recommendations I always hear to postpone as long as possible.
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Old 04-19-2015, 09:03 PM   #5
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There was another thread, last year I think, about this. From memory (and you could search for it, but there are so many threads about whether to take SS early you probably can't find it!) there were 2 factors:

1) end date: If you calculate the end of your lifespan early enough, taking SS will come out ahead. A major reason to delay SS is that if you live longer than expected, perhaps a lot longer, delaying SS looks better and better.

2) higher assumptions about your investment rate of return: If you take SS early, presumably you are using less of your retirement funds. If your rate of return is high enough, you will make enough that it always provides for more money than the higher SS, perhaps no matter how long you live.
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Old 04-20-2015, 10:48 AM   #6
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There was another thread, last year I think, about this. From memory (and you could search for it, but there are so many threads about whether to take SS early you probably can't find it!) there were 2 factors:

1) end date: If you calculate the end of your lifespan early enough, taking SS will come out ahead. A major reason to delay SS is that if you live longer than expected, perhaps a lot longer, delaying SS looks better and better.

2) higher assumptions about your investment rate of return: If you take SS early, presumably you are using less of your retirement funds. If your rate of return is high enough, you will make enough that it always provides for more money than the higher SS, perhaps no matter how long you live.
I'd done a search and didn't see the issue discussed as I'd seen it in cfiresim. Doesn't mean it isn't there
1) I plan to live a long time, especially given the advances in medicine and longevity. I'd used 100 years old as my demise data. Still, the overall data showed I'd be better off taking SS early. Not in line with conventional wisdom ...
2) The ROR was simply based on historical data in cfiresim. Again, the indication was to "take it early". I may have to go back and re-run all my numbers and make sure that I didn't just have some sort of typo.
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Old 04-20-2015, 01:13 PM   #7
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Also if you intend to work p.t. they take a dollar away for every 2 you earn so it's a bad deal.
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Old 04-20-2015, 01:26 PM   #8
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Originally Posted by Steelart99 View Post
I'd done a search and didn't see the issue discussed as I'd seen it in cfiresim. Doesn't mean it isn't there
1) I plan to live a long time, especially given the advances in medicine and longevity. I'd used 100 years old as my demise data. Still, the overall data showed I'd be better off taking SS early. Not in line with conventional wisdom ...
2) The ROR was simply based on historical data in cfiresim. Again, the indication was to "take it early". I may have to go back and re-run all my numbers and make sure that I didn't just have some sort of typo.
All simulations I've seen (and my own spreadsheet) show that as long as the rate of return > than about 5% for the funds invested by virtue of taking SS at 62 (i.e. money not taken out for living expenses) push the crossover point to over age 100. As others will no doubt point out, this does not take into account possible taxes or possible benefits to spouse of the SS annuity etc etc. Special situations get complicated in a hurry.
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Old 04-20-2015, 02:02 PM   #9
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I came across the following article by Michael Kitces during a recent discussion of the costs and benefits of delaying SS. Kitces' calculations indicate that the breakeven point of delaying SS from age 62 until 70 is around age 84 - you're better off starting at 70 if you live past 84, otherwise you should start taking benefits early. I did some calculations that supported Kitces' conclusions, but also suggested that the breakeven point is delayed into one's 90s using more optimistic assumptions about portfolio growth. So part of the issue may be the assumptions you are making.

https://www.kitces.com/blog/how-dela...money-can-buy/

The non-COLA pension is another story. Most pensions don't have the same generous assumptions built into the additional benefits you'll receive by delaying. So I suspect that collecting the pension as early as possible is probably your best option.
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Old 04-20-2015, 02:10 PM   #10
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If you intended to retire at 58, have you verified that you have 35 good earnings years for SS purposes? Even one year of zero can made a significant difference in your SS payment calculation.

My spreadsheet tells me to take my SS at 62. Who knows, I may not make it to 66 & 2 months. If financially I could wait, then I don’t need the SS income, and can invest it. For us, as an example, putting the extra cash on one of the rental mortgages would then at 66 & 2 months provide us ongoing additional rental income in our pocket that exceeds the difference in what my “full” SS payment would have been.
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Old 04-20-2015, 03:45 PM   #11
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Originally Posted by Steelart99 View Post
I'd done a search and didn't see the issue discussed as I'd seen it in cfiresim. Doesn't mean it isn't there
1) I plan to live a long time, especially given the advances in medicine and longevity. I'd used 100 years old as my demise data. Still, the overall data showed I'd be better off taking SS early. Not in line with conventional wisdom ...
2) The ROR was simply based on historical data in cfiresim. Again, the indication was to "take it early". I may have to go back and re-run all my numbers and make sure that I didn't just have some sort of typo.
This really has nothing to do with conventional wisdom,. or any other kind of wisdom.

Assuming that the program uses its algorithms correctly and accurately it all depends on the assumptions you make going in.

Ha
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Old 04-20-2015, 04:12 PM   #12
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Both the fewest failures and highest median ending assets. Just not what I was expecting given the recommendations I always hear to postpone as long as possible.
The "fewest failures" is surprising. It seems there should be some scenarios where the investment return is low and in those cases deferring wins.

Remember that your age 70 benefit should be about 176% of your age 62 benefit, and the CPI increases that occur in those eight years increase both benefits.
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Old 04-20-2015, 04:54 PM   #13
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All simulations I've seen (and my own spreadsheet) show that as long as the rate of return > than about 5% for the funds invested by virtue of taking SS at 62 (i.e. money not taken out for living expenses) push the crossover point to over age 100. As others will no doubt point out, this does not take into account possible taxes or possible benefits to spouse of the SS annuity etc etc. Special situations get complicated in a hurry.
Looking at our returns since 2007, we averaged 5.8% before spending. Maybe taking SS early as we did will work out. No regrets yet.
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Old 04-20-2015, 05:31 PM   #14
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Depends on what you want from SS. If markets behave favorably, then taking it early and investing will likely do quite well, but because markets are behaving favorably, that wasn't a problem scenario. I would have done fine in that future, whether I claim SS early or not.

On the other hand, if markets behave poorly, perhaps even outside the historic record of poorly that FIRECalc uses, then a maximum SS claim at age 70 will be very nice insurance indeed. I don't care as much about optimizing the cases where I'm doing okay anyway. I do care about not hitting a failure case if I can prudently avoid it.
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Old 04-20-2015, 06:36 PM   #15
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We've been receiving Social Security since 1997. DW didn't have enough quarters to be more than 1/2 of my SS, so she receives the default. My earnings were more than enough to receive the max. FWIW, and for anyone who wants to compare the current estimated payments, our combined annual SS $$$ is $25K. Can't remember how much it was in the beginning, but maybe 18K? Adjusted to today's dollars, the total would be $450K. An interesting number, when figuring out actual dollars (not using retirement calculators). Sometimes makes me wonder how easily some people brush off the idea of receiving Social Security as being to "iffy" to calculate. While it may be true that the calculations for future retirees might change I look at this as being a government promise to me... safe for the future, and backed by the full faith and trust of the US Government. It's good enough for me. I don't plan on leaving my country.

We took SS at age 62, because it seemed to make sense. We had been retired for 9 years, living on savings, so the extra income seemed to make sense. Never put a calculator to the decision then or now. We're happy with what we get, and if there were some dollars left on the table, sobeit.

Original spread sheet plans for retirement only went to age 75, when we retired at age 53... Recalculated as we went along and revised to age 85... now latest revision looks like we'll be ok to 90+ ...
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Old 04-20-2015, 07:39 PM   #16
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I came across the following article by Michael Kitces during a recent discussion of the costs and benefits of delaying SS. Kitces' calculations indicate that the breakeven point of delaying SS from age 62 until 70 is around age 84 - you're better off starting at 70 if you live past 84, otherwise you should start taking benefits early. I did some calculations that supported Kitces' conclusions, but also suggested that the breakeven point is delayed into one's 90s using more optimistic assumptions about portfolio growth. So part of the issue may be the assumptions you are making.

https://www.kitces.com/blog/how-dela...money-can-buy/

The non-COLA pension is another story. Most pensions don't have the same generous assumptions built into the additional benefits you'll receive by delaying. So I suspect that collecting the pension as early as possible is probably your best option.
The problem I have with these kinds of "breakeven" numbers is that everyone's situation is different when it comes to taking SS. It is complex and depends on many factors. Of course Kitces can say your case was different than the one he is talking about.
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