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.
Warning: Social Security PayBack System May be Discontinued
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ziggy29
Moderator Emeritus
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.
ERD50
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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.
-ERD50
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!)
ziggy29
Moderator Emeritus
And don't forget that with the higher payouts come the likelihood of higher taxes and higher tax rates paid on the benefit.
MasterBlaster
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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.
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.
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.
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.
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.
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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%.
MasterBlaster
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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.
[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.
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.
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.
ERD50
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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.
I don't look at it that way. It is very relevant if you are that 1 or 2%!
-ERD50
FIRE'd@51
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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.
haha
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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
haha
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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.
Ha
Lsbcal
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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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haha
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
There you go. Let that mo-fo eat beans.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
ha
clifp
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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.
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.
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.
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.
ERD50
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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.
-ERD50
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