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Old 01-07-2010, 03:32 PM   #61
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[update]
I went back to my shreadsheet and ran the numbers for age 62 vs. age 70.
With 1% earning and 3% COLA, my breakeven is age 86.5.
With 3% earning and 3% COLA, age 91.1
With 5% earning and 3% COLA, age 100.5

FWIW, at age 100 the monthly COLA'd amounts are $5400 for starting at age 62 and $8300 for age 70 start.
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Old 01-07-2010, 04:14 PM   #62
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Originally Posted by jdw_fire View Post
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.
Right you are. My bad. It's about a 9.5% difference. Not trivial.

Better plan to living longer than shorter.

Now I don't know how to think about this. I'll have to, um, think about it some more. Dang.

Thing is, at 62, you make your decision not knowing how long you are going to live, so you have to use the mortaility table and assume you'll live to 80.9.

But when you hit 70, you aleady know that you weren't one of the unlucky 62 year-olds that died before 70. Now we're in the "Bob Barker let's make a deal---do you want to switch doors" territory. And 95% of people get it wrong here, so there's a real good chance that my reasoning here is wrong. double dang.

For those people who are still alive at 70, they now know something that they didn't know at 62. And, just like the "switch doors or not" people, you can change your mind based in the knowledge that you now have.

You can change your mind, return the money and re-file, and have your cake & eat it too.

I haven't run the numbers, but I stongly suspect that the optimum strategy (if you want to do this) is to start collecting at 62 and re-file each year until 70. Each year you can take advantage of the new thing that you now know (that you didn't die), and reset to the new higher amount.

Personally, I wouldn't do it though. I still don't like the figures. Even at 0% earnings rate and 3% COLA, my break-even point is 85--which is already beyond the age 70 life expectancy of 83.3.
Any earnings above 0% pushed the BEP even further out. 5% (with 3% COLA) pushes it past age 100.
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Old 01-07-2010, 04:35 PM   #63
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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.
OK, I think we can discuss it w/o going political - Let's assume SS does change for the worse going forward (regardless of any political reasons).

Let's picture Mr TIE (Take It Early) and Mr TIL (Take it Late), with equal work histories. Is there any reason to think the changes would affect Mr TIL differently from Mr TIE? Yes, Mr TIL is getting a bigger check (but for a shorter time), but will the changes be based on the current annual amount received, or based on your benefit accrual formula? Sure, the eight years Mr TIE got were not affected, presumably.

But for someone currently 62, I doubt that any changes are going to be all that great, or that soon, going forward. And for someone not so close to 62 (I'm 7 years away), I say cross that bridge when you come to it, things may change, pictures may be clearer, and we can't act until then anyhow!

If it is tax rates that concern you - I assume that for most of us, SS does not meet our expenses. By taking a higher SS late, we can reduce other taxable withdraws, so that could pretty much wash - but it depends on where that other money comes from.

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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.
I don't look at it that way. It is very relevant if you are that 1 or 2%!

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Old 01-07-2010, 05:16 PM   #64
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Another issue to consider is that paying it back (or even delaying to age 70) can have a negative effect when combined with the RMD from a regular IRA. The combination may trigger the higher means-tested Medicare part B payment, which is based on AGI and not taxable income. This is especially true for a single filer.
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Old 01-07-2010, 05:42 PM   #65
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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.
I think you are certainly correct. However, not everyone feels that he should optimize for the maximum lifetime payout. As Al mentioned, another worthy goal is to optimize for size of benefit, should you be one of those people who live a long time. Not to win the SS lottery, but to buy some relatively cheap longevity insurance.

Relatively small amounts of money can really matter when you are out of resources. I know a cop who patrols lower Queen Anne in Seattle. He told me some old guy with a $500 disability pension is royalty on the street. Has all kinds of gofers and helpers for whatever he might want.

Ha
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Old 01-07-2010, 05:54 PM   #66
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Another issue to consider is that paying it back (or even delaying to age 70) can have a negative effect when combined with the RMD from a regular IRA. The combination may trigger the higher means-tested Medicare part B payment, which is based on AGI and not taxable income. This is especially true for a single filer.
Excellent point. It is going to be a job to try to stay under that. I have only just done it in 2008, and expect that I have done it again in 2009. I have been thinking that a really solid MLP may be a better buy than the SS payback plan. Depends on price, but there is no reason to expect that we won't see some periods of substantial volatility going forward. It would be less secure from an orthodox POV, but more secure politically, and and this juncture that may be the most important.

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Old 01-07-2010, 06:19 PM   #67
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Well there is always the half solution: DW takes hers at 62 and I wait until 66. Easier to convert more from IRA -> Roth with that solution. And could 4 years make that much difference in how much SS I'm going to wind up collecting over my lifetime? If I die early, DW has plenty anyway for one -- and who wants to set up her next husband in clover anyway .
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Old 01-07-2010, 07:36 PM   #68
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Well there is always the half solution: DW takes hers at 62 and I wait until 66. Easier to convert more from IRA -> Roth with that solution. And could 4 years make that much difference in how much SS I'm going to wind up collecting over my lifetime? If I die early, DW has plenty anyway for one -- and who wants to set up her next husband in clover anyway .
There you go. Let that mo-fo eat beans.

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Old 01-07-2010, 09:24 PM   #69
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Ravvt I think you are missing the main benefit of being able to payback SS. You have 8 years of visibility into the future. Simply put you have a much clearer picture of what your financial and physical health will look like at age 71,72, 73... when you are 70 than when you are age 62 trying to forecast life at ages 71,72,73....

As you rightly point the SS administration has designed SS that our expected benefits are the same if you take SS at 62, normal age or late at 70. This makes deciding to take SS early or not a difficult choice, is my life expectancy shorter or longer than average, what about my financial situation. However, the ability to payback SS make the decision for people with substantial retirement, like most board members, pretty straightforward. You should take SS at 62, and consider repaying it when you get closer to age 70.

I lot can happen between 62 and 72. So for instance at age 69 you could get diagnosed with cancer, on the other hand they could discover a simple cancer cure at age 69. Clearly in the first case you don't payback SS in the second case you would because the life expectancy of 70 old dramatically increases if cancer no longer kills people.
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Old 01-07-2010, 09:39 PM   #70
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The conundrum (Alan Greenspan's fav. expression) is.......if you wait to take SS until 66 or 70 ...how will the new rates (yet to be revealed) for IRS taxes and Medicare impact your total portfolio?

I can envision a taxation rate at 70 1/2 that becomes so burdensome you have negated your "edge" by waiting to collect. Thus, you have seriously diminished your "privately held" portfolio (IRA/401K).

Any thoughts?

I for one would like to leave my kids a nest egg. SS ends when I croak.
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Old 01-08-2010, 09:37 AM   #71
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Ravvt I think you are missing the main benefit of being able to payback SS. You have 8 years of visibility into the future. Simply put you have a much clearer picture of what your financial and physical health will look like at age 71,72, 73... when you are 70 than when you are age 62 trying to forecast life at ages 71,72,73....
Thanks clifp - that really puts it in perspective for me.

All the financial calculations have so many unknowns, it's tough to really calculate, and the differences are probably small anyway. However, no question (assuming they don't actually change the rules) that it gives you those 8 years and a chance to go back in time and rescind a previous decision. We don't get many chances like that in life.

I'm with the others that doubt the IRS (Congress?) will change this. I doubt any large % of people are actually doing it, and what's 8 years of interest lost to the few that do it anyhow? Probably not even on their radar screen, and it probably shouldn't be - they got bigger problems to attend to, IMO.


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