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Old 01-06-2010, 11:11 AM   #41
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This is off thread, but I thought worth posting. I have complained before about the fact that you can not get a SS estimate of payment once you start Medicare. The only way to get your estimate benefits was to call them and they would figure it out on the phone. Well, that has changed. I got an estimate on-line yesterday. It had a caveat 'this does not include Medicare reductions'. It only took them two years to figure that statement out!.
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Old 01-06-2010, 04:42 PM   #42
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When I first heard of this I was excited at the possibilities. But after I pushed some numbers around came to the conclusion there was no there there.
The SS admin is very unlikely to close this "loophole" because it is NOT a loophole. There is no substantive benefit to doing it, and it doesn't cost SS anything when somebody does it. It's pretty much like trading ten dimes for a dollar bill.

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Originally Posted by donheff View Post
As Burns or someone someone said a while back, this is the cheapest, most secure cola'd SPIA you can buy.
Yes, hence the title of the very first article on the topic: "Where can a 70-year-old buy the least expensive life annuity?"
But too many people read into this much more than what it really is. For someone who is in just the right circumstance it is the cheapest way to get this specific annuity. But that's it.

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Originally Posted by donheff View Post
...[in rayvt's earlier post] last two sentences are the answer to why it isn't silly. And don't belittle the difference between deciding to take a larger payout when you are already near 70 and having to decide the issue at 62. SSA says a 62 YO has a life expectancy of 80.91. A 70 YO has a life expectancy of 83.3.....
Granted. But I still don't see the advantage. If your plan is to return the money when you hit 70, then by definition you didn't need it. So, you return money you didn't need in order to collect a higher payout--that you also probably don't need. But if you didn't need it at 62, then you could have just waited until you hit 70 in the first place.
Since you must save the payments so you can pay it all back, you don't really get any tangible benefit from collecting them.

What you mainly get is an intangible benefit---the fact that your heirs can keep the money if you die before paying it back at 70. The tangible benefit you get is keeping the interest the money will earn in the savings account. If you get 2% after tax (as if!!), you'd get a total of $8000 of interest in the 8 years from 62 to 70 for each $1000 of monthly benefit. At 1% net, you'd get $4000. These two benefits are better than a poke in the eye with a sharp stick, but they are trivial.

Here are some figures from an actual SS benefit statement:
Age 62, $1744/mo
Age 70, $3054/mo
Seems a significant difference until you do the math.

62YO living to 80.9 = 18.9 years = 277 months. Times $1744 = $483K
70YO living to 83.3 = 13.3 years = 160 months. Times $3054 = $488K
A $4K difference over a timespan of 20 years is trivial, and nothing to get excited about.

But if the person dies at, say, 75:
62 YO living to 75 = 156 mo. times $1744 = $272K
70 YO living to 75 = 60 mo. times $3054 = $183K
That $89K is a large amount of money at risk to lose out on. IMHO.
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Old 01-06-2010, 05:25 PM   #43
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Originally Posted by rayvt View Post
When I first heard of this I was excited at the possibilities. But after I pushed some numbers around came to the conclusion there was no there there.
The SS admin is very unlikely to close this "loophole" because it is NOT a loophole. There is no substantive benefit to doing it, and it doesn't cost SS anything when somebody does it. It's pretty much like trading ten dimes for a dollar bill.
The loophole, if you can call it that is that the money paid back does not include an interest charge. So you can pull out the money at 62, invest it, keep the interest. Then you can pay back your draw and get the higher amount as if you started later.

But I must agree with you, there isn't really much there and more ink has been printed on this topic than it's worth.
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Old 01-06-2010, 09:23 PM   #44
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There are other negatives to paying back. If you are already getting Medicare, and don't have more than an AGI as modified of $85,000 you are paying $96.50/mo for Medicare Pt B. If you stop SS, your monthly Medicare payment will increase to $110.50. Not a big deal, but it does show how small things you might not think of can bite.

Then there is the problem of possible changes to the benefit formula. I formerly though this was very unlikely, but since I see how much has been spent over the last couple of years, with two wars, uncountable bailouts, and now the health bill, I am not so sure.

Some say that those over a certain age will be grandfathered at current rates. I don't think so. I think that income testing may come, and after that, even asset testing. But the money that we already have we will continue to have; they won't try a clawback. Once we write that payback check we may never see that money again.

So payback might be clever, but it also might not be.

Ha
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Old 01-06-2010, 10:29 PM   #45
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rayvt, if I am understanding your post, do you realize that you make out much better by starting SS at 70--.... By re-starting and beginning to collect at 70--and assuming I live to 90--I will do so, so, so much better than by beginning collecting at 6x...
There must be a chart on this somewhere on the net to back up my statement.
There's a good spreadsheet here: http://web.bryant.edu/~rmuksian/text...62vsNormal.xls

Unfortunately he doesn't include the effect of earnings (interest) on the early money you collect. I discussed this with him via email, and he agreed with my findings, but he's never modified his SS.

Basically what you do is start collecting SS at 62 and save (not spend) the monthly checks until normal retirement age (or age 70). Then, at N.R.A. (or 70) you start to withdraw from the savings account, the shortfall between the SS benefit you would have received if you had waited until that age and the amount that you are actually getting from SS. So you collect the entire N.R.A. amount, some from SS (the age 62 amount) and some from your savings account.

When you are looking at financial figures that run for decades, you absolutely *must* include SS COLA and earnings on the early benefits collected. And you need to use your own personal figures that SS provides.

I slightly modified his spreadsheet to include interest earnings, and ran the numbers for age 62 vs N.R.A. of 66.
For me, with 3% COLA and earning 3% interest, the break-even age is 88.6. That's 26.6 years.
With 3% COLA and earning 5%, it's age 97.7.
If I can earn 6%, the BEP is basically infinity. Even at age 106 the NRA amount still hasn't caught up.

Even at only 1% earning, the BEP is age 84. That's still 12 years to break even. Far too long for me.
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Old 01-07-2010, 06:50 AM   #46
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I guess I would agree that the gist of his thread is that the payback option is not a very big deal. But the various analyses people have made show that it does appear to make more sense to take SS at 62 whether you intend to re-apply or not. Even if you spend the money it would be worth investigating whether your circumstances warrant buying back the years at 70 using other 401k/IRA money. The later would likely depend on whether Al's original post about deductibility is true.
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Old 01-07-2010, 07:11 AM   #47
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I guess I would agree that the gist of his thread is that the payback option is not a very big deal. But the various analyses people have made show that it does appear to make more sense to take SS at 62 whether you intend to re-apply or not.
I don't agree ...

It all depends on your personal situation, IMHO.

Collecting at the earliest eligibility (in some cases, as I outlined in a previous response) presents the question of just because you can doesn’t necessarily mean you should. All possible combinations of your personal situation facts, along with your feelings related to "leaving $$$ on the table after you pass" have to be considered. There is a different answer for each person - and each couple. There is no right, nor wrong answer to the question, due to the variables.

As for me/DW? I'm 62 - she will be in a few months. Somewhere between age 62 and her FRA age of 66, she will retire (not yet accepted the fact that she's getting old - but that's another subject).

Anyway, I'm planning on filing against her as her spouse at age 66, and get 50% of her FRA benefit (yes, even if she takes it at 62, I can get 50% of her age 66 benefit). That will be just under $1k/month that I'll get in "her" SS benefit between the ages of 66-69.

At age 70, I will file for my SS benefit, which will be 175% of my age 62 (current) benefit.

Being that we're the same age and it is expected that she will outlive me, this solution gives me SS income (albeit, not my own) starting at age 66, but ensuring her income after I pass at around 2.5x her age 62 benefit.

As for collecting ASAP because we may pass before we "get our $$$"? Doesn’t matter to us. We don't figure on spending it in the afterlife (not that I believe in one ).

Current cash flow in retirement is most important to us. Also, we've always had the belief that we would rather die with money than live without it.
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Old 01-07-2010, 09:48 AM   #48
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Here are some figures from an actual SS benefit statement:
Age 62, $1744/mo
Age 70, $3054/mo
Seems a significant difference until you do the math.

62YO living to 80.9 = 18.9 years = 277 months. Times $1744 = $483K
70YO living to 83.3 = 13.3 years = 160 months. Times $3054 = $488K
A $4K difference over a timespan of 20 years is trivial, and nothing to get excited about.
You've actually got a pretty good point here, and have caused me to rethink this a bit.

However, SS, being an annuity, takes some uncertainty out of life, and is insurance against the possibility that you live longer than you expected. Let's say the person lives to be 100 years old.

62YO living to 100 = 38 years = 456 months. Times $1744 = $795
70YO living to 100 = 30 years = 360 months. Times $3054 = $1099K
Difference = $304K


Not only is $304 some serious coin, but if the guy ran out of money at age 92, and needs $2,500 per month to live, the repayment would have been a great idea.
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Old 01-07-2010, 09:52 AM   #49
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Let's say the SS goes to asset testing or even income testing. I wonder if this would have a dampening effect on saving for retirement?

"Save for retirement, kids, but if you do, you'll get less SS, so on second thought..."
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Old 01-07-2010, 10:32 AM   #50
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<snip> Not only is $304 some serious coin, but if the guy ran out of money at age 92, and needs $2,500 per month to live, the repayment would have been a great idea.
But isn't that true of all insurance? you are simply betting against the gods. (Not being fluent in statistics) I am guessing that there would be as many people at the beginning of this cycle as at the end with the majority being somewhere in the middle. The pay-out being determined by the early "drop-outs" paying for the "hanger-ons" -- and a big bunch for the Insurance provider. All those in the middle? They break-even to varying degrees.

It's your money, place your wager on where you feel you personally fit into the overall scheme of things.
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Old 01-07-2010, 10:38 AM   #51
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Let's say the SS goes to asset testing or even income testing. I wonder if this would have a dampening effect on saving for retirement?

"Save for retirement, kids, but if you do, you'll get less SS, so on second thought..."
I think once they start monkeying around with the promised payback, a lot of folks will lose confidence that SS will be there for them. So, they'll save more. But once means testing starts there will be big growth in the use of legitimate and illegitimate asset shielding/hiding schemes. Trusts, "gifts" to kids with an understanding that this is to be paid back in a couple decades, etc.
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Old 01-07-2010, 10:40 AM   #52
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Originally Posted by TromboneAl View Post
Let's say the SS goes to asset testing or even income testing. I wonder if this would have a dampening effect on saving for retirement?
I think any means-testing of entitlements and "goodies" can do this. Whether or not it happens to the degree that it acts as a widespread disincentive to keep working and saving remains to be seen. As I expect this trend of higher taxes and more means-tested goodies to continue, it's definitely shaping how I approach saving and investing for retirement as well as when I might pull the trigger. If anything, it's likely to move my retirement date closer because it's looking better to retire on a lower income.

And to some degree, SS already *is* means-tested because your income determines how much of it is taxable income.
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Old 01-07-2010, 12:38 PM   #53
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You've actually got a pretty good point here, and have caused me to rethink this a bit.

However, SS, being an annuity, takes some uncertainty out of life, and is insurance against the possibility that you live longer than you expected. Let's say the person lives to be 100 years old.

.... if the guy ran out of money at age 92, and needs $2,500 per month to live, the repayment would have been a great idea.
That is how I look at it too. I think most of use retirees fear that our portfolio dies before we do. This is a way to provide "income for life", except it's already "paid for", we can't decide to not buy it, so we might as well take the option that would help us the most if we do live a long time. It's just portfolio diversification, the way I look at it.

Exception would be if you have a high certainty of not making it to a ripe old age.

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Old 01-07-2010, 12:44 PM   #54
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One thing's for sure: If asset-based taxation or reductions in SS become reality, the gold bugs and survivalists with $100K in gold coins stashed somewhere will have the last laugh. The smart stock to buy: any company making metal detectors (for finding backyard stashes!)
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Old 01-07-2010, 12:56 PM   #55
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Here are some figures from an actual SS benefit statement:
Age 62, $1744/mo
Age 70, $3054/mo
Seems a significant difference until you do the math.

62YO living to 80.9 = 18.9 years = 277 months. Times $1744 = $483K
70YO living to 83.3 = 13.3 years = 160 months. Times $3054 = $488K
A $4K difference over a timespan of 20 years is trivial, and nothing to get excited about.
And don't forget that with the higher payouts come the likelihood of higher taxes and higher tax rates paid on the benefit.
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Old 01-07-2010, 01:05 PM   #56
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Quote:
Originally Posted by rayvt
Here are some figures from an actual SS benefit statement:
Age 62, $1744/mo
Age 70, $3054/mo
Seems a significant difference until you do the math.

62YO living to 80.9 = 18.9 years = 277 months. Times $1744 = $483K
70YO living to 83.3 = 13.3 years = 160 months. Times $3054 = $488K
A $4K difference over a timespan of 20 years is trivial, and nothing to get excited about.
I don't beleive that these are the numbers to compare.

Shouldn't this analysis have the person living to the same age ?? I know that the numbers reflect an estimate of lifespan. However the question should be how much cumulatively a given individual can expect over a retirement. This is not correct for (different) individuals who die at the population median age of death.

There is a surviors bias in this thinking.
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Old 01-07-2010, 02:42 PM   #57
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Originally Posted by rayvt View Post


Here are some figures from an actual SS benefit statement:
Age 62, $1744/mo
Age 70, $3054/mo
Seems a significant difference until you do the math.

62YO living to 80.9 = 18.9 years = 277 months. Times $1744 = $483K
70YO living to 83.3 = 13.3 years = 160 months. Times $3054 = $488K
A $4K difference over a timespan of 20 years is trivial, and nothing to get excited about.
i noticed a math error for the 62yo. 18.9 years times 12 months per year equals 227 month not 277 months and that times the $1744/mo equals $396k (rounded) which refutes this argument as that difference is significant. if you take the 62yo out to a death at 83.3 then the number becomes $446k (rounded) which still shows significant difference.
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Old 01-07-2010, 02:46 PM   #58
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I don't beleive that these are the numbers to compare.

Shouldn't this analysis have the person living to the same age ?? I know that the numbers reflect an estimate of lifespan. However the question should be how much cumulatively a given individual can expect over a retirement. This is not correct for (different) individuals who die at the population median age of death.

There is a surviors bias in this thinking.
You could be right, but I don't think so. Problem is that when you start talking & thinking about different ages & related life-expectancies, it's very complex and VERY easy to make mistakes & erroneous assumptions.

As far as it goes, I believe these numbers are correct, because the question was "do you collect more over your lifetime by taking (smaller) SS early or (larger) SS later?" The SS admin says that they tailor the benefits so that the total LIFETIME payout is approximately the same no matter when you start collecting. My math shows that this is the case.
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Old 01-07-2010, 03:13 PM   #59
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You've actually got a pretty good point here, and have caused me to rethink this a bit.

However, SS, being an annuity, takes some uncertainty out of life, and is insurance against the possibility that you live longer than you expected. Let's say the person lives to be 100 years old.

62YO living to 100 = 38 years = 456 months. Times $1744 = $795
70YO living to 100 = 30 years = 360 months. Times $3054 = $1099K
Difference = $304K

Not only is $304 some serious coin, but if the guy ran out of money at age 92, and needs $2,500 per month to live, the repayment would have been a great idea.
Correct. All this would be a whole lot easier if we knew just how long we were gonna live.

I think that in general, all you can do is go by mortality tables and Net Present Value. If you have a high degree of confidence that you'll live much shorter or much longer than the tables indicate, then you might come to a different answer. However, that cement truck that is going to run the stop sign and squash your car can't be taken into account----for that you have to go by the mortality tables.

You also have a very good point about risking running out of money at 92. I see way too many 75 year-olds working as Walmart greeters, and that would really suck.

Quote:
Originally Posted by ERD50 View Post
This is a way to provide "income for life", except it's already "paid for", we can't decide to not buy it, so we might as well take the option that would help us the most if we do live a long time.
I look at it as similar to a lifetime membership in a health-club, or a lifetime subscription to a magazine. All well and good-----until the day they close down. I don't know of anyone who seriously believes that Social Security can continue on like it is. It won't. It can't possibly do so. The further into the future you look, the less likely it is that you'll get out of SS what you are supposed to. If you voluntarily give the money back and refile, you are voluntarily and un-neccessarily moving yourself into a higher risk area. IMHO. But that discussion is moving into politics and I don't want to go there.

---------------
In pure financial terms, my spreadsheet with my own personal SS figures showed that IF I can earn a long-term average of 5%-6% on what SS pays me at age 62, then the break-even point of 62 vs. 66 is far beyond my lifetime. And even only 1% takes me past the age 62 life expectancy.
Since the long-term growth of the S&P500 is about 10%, I feel pretty confident that over a 19 year period I can earn 5%-6%.
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Old 01-07-2010, 03:28 PM   #60
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You could be right, but I don't think so. Problem is that when you start talking & thinking about different ages & related life-expectancies, it's very complex and VERY easy to make mistakes & erroneous assumptions.

As far as it goes, I believe these numbers are correct, because the question was "do you collect more over your lifetime by taking (smaller) SS early or (larger) SS later?" The SS admin says that they tailor the benefits so that the total LIFETIME payout is approximately the same no matter when you start collecting. My math shows that this is the case.
Your age of death will come and is probably not dependent on what age you start taking SS payments. The amount you collect then is just the cumualtive payments from when SS starts until your demise.

There is no other way to look at it.

As to the 100 year old example, They won the lottery both in genes, years lived, and SS cumulative payout. However that example only applies to a couple of percent of the population. Interesting yes...relevant probably not.
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