What percentage of your assets have you annuitized / do you plan to annuitize ?

[youbet]

ripper1......

I agree with your strategy. I think you mentioned in another thread that you earned a public pension in a job that didn't participate in SS and are therefore subject to GPO. That's another reason, beyond your breakeven point analysis, for your DW to start SS at 62. If she were to predecease you, you won't receive an SS survivor benefit from her SS due to GPO.

We're in the same situation here except I have SS and it's DW with the gov't pension and GPO.

 

[Silver]

I donno, seems like a 5-year CD, with the downside of losing the principal if you die in the next 5 years (not a big deal if you have no one to leave the money to or no desire to). It's not a terrible idea, IMO.

This annunity has a right to survivorship, so any remaining principle goes to a beneficiary.

 

[Sirka]

Good you give a link to any discussion of this change you mention?

Ha

Social Security was on the negotiating table of 'supercommittee', but we all know nothing happened. There are no fresh links - I believe that SS will not get changed during election year - it's a hot potato.

 

[ripper1]

ripper1......

I agree with your strategy. I think you mentioned in another thread that you earned a public pension in a job that didn't participate in SS and are therefore subject to GPO. That's another reason, beyond your breakeven point analysis, for your DW to start SS at 62. If she were to predecease you, you won't receive an SS survivor benefit from her SS due to GPO.

We're in the same situation here except I have SS and it's DW with the gov't pension and GPO.

Exactly. Thanks for your comment.

 

[pb4uski]

I haven't seen any discussion about short-term annunities (five year) being a fixed income strategy as part of a portfolio. We are currently considering this with a Sentinal annuity at 3.42%. Any thoughts on this?

Is the annuity you are considering a payout annuity or a deferred annuity? If a deferred annuity, are there any surrender charges if you want or need to access your account balance? How long is the 3.42% guaranteed for?

 

[mickeyd]

Social Security was on the negotiating table of 'supercommittee', but we all know nothing happened. There are no fresh links - I believe that SS will not get changed during election year - it's a hot potato.

From what I recall in news accounts, it appears as though congress goes out of its way to make sure that those 55+ are not affected negatively by any plans to make SS adjustments. I can only hope that this will continue in the future.

No one can predict the wisdom of congress.

 

[pb4uski]

my DW will also take SS at 62 instead of 66. If taken early it takes 14 years to break even. You never know how long one might live. Besides you could invest it and if you had waited you would never catch up.

The 14 years that you came up with is about what I come up with. So if you live to be 80 (66+14) you would come out ahead by taking at 66 rather than 62.

My calcs suggest that if one lives to be 87 that you would come out ahead by taking SS at 70 compared to 66.

Since given the longevity of my bloodline, particularly on my mother's side, (my grandmother lived to 98 + two great aunts still living in their 90s) I'm planning on waiting until I am 70 to start drawing SS, but knowing that I can anytime after 62 if I need to is comforting.

 

[Silver]

Is the annuity you are considering a payout annuity or a deferred annuity? If a deferred annuity, are there any surrender charges if you want or need to access your account balance? How long is the 3.42% guaranteed for?

It is deferred with 10% annual right of withdrawal, and then surrender charges. The 3.42 % is guaranteed for five years, which is the length of the annunity. We plan to take out 3-4% annually, and we have a cash emergency fund if necessary.

 

[pb4uski]

Doesn't sound too bad as long as there are no surrender charges after the five years and you can get and reinvest your account balance at that time without penalty. The important thing is that you are going into this well aware that there will be restrictions on your withdrawals and a cost associated with excessive withdrawals.

I would also check what the issuer's A.M. Best rating is. I would probably be hesitant to deal with any company that is not A or better.

 

[misty57]

From what I recall in news accounts, it appears as though congress goes out of its way to make sure that those 55+ are not affected negatively by any plans to make SS adjustments. I can only hope that this will continue in the future.

No one can predict the wisdom of congress.

We turn 55 this year and we are hoping this is the case for both SS and Medicare.

 

[ejman]

my DW will also take SS at 62 instead of 66. If taken early it takes 14 years to break even. You never know how long one might live. Besides you could invest it and if you had waited you would never catch up.

Does the 14 year period you mention to break even include any return on the investments not drawn after age 62? I.E. my long term return since I retired in 2002 is 7.5% per year. By taking SS at 62 then an equal amount will not be withdrawn from my investments and will (if lucky) earn some return. My back of the envelope simplistic calculation shows that a return of more than 5-6% in the amounts not withdrawn results in a breakeven point beyond my 100th birthday

 

[pb4uski]

The way I calculated the 14 years was to have two parallel simulations. The first would take the amount that I would receive if I began SS at 62 and accumulate those monthly payments at a 2.5% real rate of return, which is the same as assuming that the SS payments COLA at 3% and the investment earnings rate is 5.5%. The second begins accumulating the amount I would receive at 66 at the same 2.5% real interest rate. At age 80, the accumulated amount under the age 66 scenario first exceeds the accumulated amount under the age 62 scenario and 80-66 = 14 years.

I'm not sure how ripper1 got the 14 years that he shared.

If I change the real rate of return to be 4.5% (7.5% - 3% inflation) then the crossover point is age 85, or 19 years. At 7.5% the crossover is about age 101, consistent with your calculations.

Did you include the COLA increases to SS in your calculations?

 

[skipro3]

I think it's important to consider how you might be able to use the money at 62 as opposed to 66 your quality of life, as it were. I'm pretty sure I'm going to have a lot more fun drawing the estimated $1750 per month for the years between 62 and 66 than I would to hold off and wait for $2500 at 66.

 

[ejman]

The way I calculated the 14 years was to have two parallel simulations. The first would take the amount that I would receive if I began SS at 62 and accumulate those monthly payments at a 2.5% real rate of return, which is the same as assuming that the SS payments COLA at 3% and the investment earnings rate is 5.5%. The second begins accumulating the amount I would receive at 66 at the same 2.5% real interest rate. At age 80, the accumulated amount under the age 66 scenario first exceeds the accumulated amount under the age 62 scenario and 80-66 = 14 years.

I'm not sure how ripper1 got the 14 years that he shared.

If I change the real rate of return to be 4.5% (7.5% - 3% inflation) then the crossover point is age 85, or 19 years. At 7.5% the crossover is about age 101, consistent with your calculations.

Did you include the COLA increases to SS in your calculations?

As I said, mine was a quick back of the envelope calculation. I used a 3% COLA applied to both income streams (The one starting at 62 as well as the one starting at 70). My underlying assumption is that over a very long period of time (30 to 38 years) equity returns would incorporate a sufficient return over inflation to overcome inherent risk and thus the relative advantage of SS COLA applying to the larger payout at 70 would not overpower the additional equity return over a very long term.

I simply used quicken to determine that if my payout at 62 was say $18 K a year, then at the end of 8 years I would have a cummulative investment of $184K at 7% return (not adjusted for inflation) the $184k at 7 % over an additional 30 years (to bring me to age 100) becomes $1.4 M. This $1.4 M discounted at the same COLA rate (3%) and then added to the age 62 cummulative payout is roughly in the ballpark of the start age 70 payout hence the crossover in the vicinity of age 100.

I'm sure there are many scenarios where inflation rates can be manipulated to where the conclusion is not valid. Given enough inflation a la Weimar Republic no calculation means a hill of beans so I'm not loosing sleep over this one.

But my conclusion is that I'm gonna start my SS annuity at age 62 (this year) and so did my wife.

 

[ejman]

I just realized when I reread my last post that discounting the $1.4M by the 3% COLA is in error because the cummulative SS payments after COLA are in future dollars not discounted to PV. I.E. there is no break even point within a reasonable life span if one assumes a 7% rate of return on the equity investment of the age 62 payout.

 

[pb4uski]

I'll have to take a closer look at that later, but I don't think the conclusion that it is economically best to take SS at 62 even if one lives to 100 is a valid conclusion, even at 7%. It is certainly at odds with the analysis results that many of us have done.

 

[donheff]

I'll have to take a closer look at that later, but I don't think the conclusion that it is economically best to take SS at 62 even if one lives to 100 is a valid conclusion, even at 7%. It is certainly at odds with the analysis results that many of us have done.

As I read these posts I wonder whether it is ever "advantageous" to take SS late if you are retired and withdrawing from your portfolio at 62. Certainly the SSA will pay you more if you wait to apply and then live long. But SS says that the average individual breaks even in payments over an actuarial lifespan. As I have understood the SSA portrayal - this is in actual inflation adjusted dollars paid, not through some arbitrary calculation of investing the difference. We often argue here that ONLY IF the early SS applicant invests the SS payment can they make up the increase they would get at 70. But the average person would otherwise have to pull funds from their portfolio for expenses. They automatically save and invest the difference since early SS offsets the need for withdrawals. So those withdrawal savings (and gains at the average rate of the portfolio) are always generated. That means the "average" individual who is retired and lives the average lifespan must, by definition, do better taking it early to the extent of the portfolio savings and gains for 8 years. It would take many years beyond average lifespan to tilt toward SS. It seems to me that this makes delayed SS an expensive annuity.

 

[ripper1]

YOUBET had made another point which benefits a person like me in my situation that if my wife were to predecease me I would not be entitled to SS survivors benefit because I was a public employee and it would be eliminated due to GPO. The other thing is state tax. Indiana does not tax SS and federally we would pay tax on 85% of the benefit. At that time I will reduce my withdrawals from my investments by the difference.

 

[donheff]

YOUBET had made another point which benefits a person like me in my situation that if my wife were to predecease me I would not be entitled to SS survivors benefit because I was a public employee and it would be eliminated due to GPO.

I am in the same situation and would lean toward early SS regardless whether I was correct above in concluding that it is advantageous for everyone.

 

[Independent]

We're currently deferring SS to increase the benefit. If we defer long enough, it will cover our basic spending.

So we're using SS as our only annuity.

Like W2R, I'm aware of SPIAs and could change plans at a later age if the situation changes. Unlike most insurance products, there isn't much risk in waiting to buy an SPIA.

 

[Sirka]

But the average person would otherwise have to pull funds from their portfolio for expenses. They automatically save and invest the difference since early SS offsets the need for withdrawals. So those withdrawal savings (and gains at the average rate of the portfolio) are always generated. That means the "average" individual who is retired and lives the average lifespan must, by definition, do better taking it early to the extent of the portfolio savings and gains for 8 years. It would take many years beyond average lifespan to tilt toward SS. It seems to me that this makes delayed SS an expensive annuity.

+1

If you start taking the payments at 62 and invest it with a modest 5% annual return, you'd have about $89,000 extra after the 54 months (4.5 years).
If you then switch to drawing the interest only from that $89,000, combined with your reduced SS payment, the net maybe the same as if you waited for the higher SS payments. And you (or your heirs) would have the $89,000 principal.
I concluded this after reading the old thread:
http://www.early-retirement.org/forums/f28/social-security-pays-to-delay-says-scott-burns-23317.html

 

[donheff]

If you start taking the payments at 62 and invest it with a modest 5% annual return, you'd have about $89,000 extra after the 54 months (4.5 years).
If you then switch to drawing the interest only from that $89,000, combined with your reduced SS payment, the net maybe the same as if you waited for the higher SS payments. And you (or your heirs) would have the $89,000 principal.

I think a lot of people assume this means that you have to cut back somehow to "save" the SS payments. But, as long as you maintain the same lifestyle (i.e. expenses) that you would have had you delayed you automatically save the $89K through smaller withdrawals from your portfolio. There is no cutting back or discipline needed other than to stay your planned course of spending.

 

[Independent]

As I read these posts I wonder whether it is ever "advantageous" to take SS late if you are retired and withdrawing from your portfolio at 62. Certainly the SSA will pay you more if you wait to apply and then live long. But SS says that the average individual breaks even in payments over an actuarial lifespan. As I have understood the SSA portrayal - this is in actual inflation adjusted dollars paid, not through some arbitrary calculation of investing the difference.

We often argue here that ONLY IF the early SS applicant invests the SS payment can they make up the increase they would get at 70. But the average person would otherwise have to pull funds from their portfolio for expenses. They automatically save and invest the difference since early SS offsets the need for withdrawals. So those withdrawal savings (and gains at the average rate of the portfolio) are always generated.

That means the "average" individual who is retired and lives the average lifespan must, by definition, do better taking it early to the extent of the portfolio savings and gains for 8 years. It would take many years beyond average lifespan to tilt toward SS. It seems to me that this makes delayed SS an expensive annuity.

I'm not sure where you saw the SSA portrayal, but here are some numbers that seem relevant to me:

Real Inv Inc Rate =	0.0%	3.0%	6.0%
At 62 - Male	19.72	14.42	11.18
At 62 - Female	22.77	16.09	12.16
At 66 - Male	21.08	14.23	10.12
At 66 - Female	25.11	16.42	11.38
66/62 - Male	1.07	0.99	0.90
66/62 - Female	1.10	1.02	0.94

The first two rows are the present value of $1 per year, payable at age 62 and then as long as you live. The next two rows are the pv of $0 for four years, followed by $1.33 payable annually for life. All four use the 2004 US Life Tables. The last two rows are the ratios.

In my mind, this is a reasonable approximation of taking SS at age 62 or deferring to age 66. Note that the "roughly equivalent" discount rate is 3%, and note that's a real (CPI adjusted) rate, so 3% means you're beating the CPI by 3%.

There's the obvious fact that mortality rates matter. It makes more sense for a woman to defer than a man, simply because on average women live longer.

But, almost anyone who is asking this question has a longer life expectancy than the US Life Tables. The reason is that those tables use everyone alive, even people who are on their death beds. People asking the question are not (knowingly) terminally ill, so they will, on average, live a little longer than the table.

So I'd say that on a pure dollar basis, the "roughly equivalent" statement takes into account reasonable investment returns.

But, IMO, the important question for lots of people isn't "How do I maximize the money I'll leave to my heirs?", which is what this table is calculating. It is "How do I minimize the chances of outliving my money?" The future scenarios where I outlive my money are those where investment returns are low and my life is long. Those are exactly the scenarios where SS shines.

OTOH, few people who post here have any real concern about outliving their money. Most of us retired with some sort of belt and suspenders plan, so the "maximize my estate" question is more relevant for most of us.

 

[Midpack]

OTOH, few people who post here have any real concern about outliving their money. Most of us retired with some sort of belt and suspenders plan, so the "maximize my estate" question is more relevant for most of us.

That conclusion would surprise me. As is sometimes the case here, the answer may vary between the two camps. While those in the SIRE (pension above SS and/or retiree health care above Medicare) group may not be nearly as concerned, I'd guess that outliving their money' is pretty high on the list of concerns for many in FIRE (no pension or retiree health care) group.

 

[Sirka]

As is sometimes the case here, the answer may vary between the two camps. While those in the SIRE (pension above SS and/or retiree health care above Medicare) group may not be nearly as concerned, I'd guess that outliving their money' is pretty high on the list of concerns for many in FIRE (no pension or retiree health care) group.

You are right on about the two camps. It would be interesting to do a poll, I am in [-]SIRE[/-] camp. Wait it should be FIRE camp with some pension but no health care.