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Old 01-17-2012, 02:08 PM   #121
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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:
Social Security~ Pays to delay says Scott Burns
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Old 01-17-2012, 03:07 PM   #122
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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.
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Old 01-17-2012, 04:51 PM   #123
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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.
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Old 01-17-2012, 05:03 PM   #124
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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.
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Old 01-17-2012, 08:14 PM   #125
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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.
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Old 01-17-2012, 09:12 PM   #126
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Originally Posted by Sirka

+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:
Social Security~ Pays to delay says Scott Burns
I've come to a similar conclusion on my personal pension, which is reduced 4%/yr before age 60. I've calculated that a 60% payout at age 50 is the best balance (investing it until age 65, most likely) will leave me with about the same yearly amount and more principal.
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Old 01-18-2012, 04:07 AM   #127
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Originally Posted by Sirka

+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).

What pays 5% after tax?
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Old 01-18-2012, 07:16 AM   #128
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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.
Tongue in cheek I see but FWIW http://www.early-retirement.org/foru...ire-46680.html
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Old 01-18-2012, 08:12 AM   #129
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My federal pension will be my annuity when I first retire. I project it will be a little less than 1/2 my retirement income needs. SS, about 8 years after retirement, will add a bit more, of course.
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Old 01-18-2012, 10:12 AM   #130
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FIRE, If it's only two camps
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Old 01-23-2012, 09:18 PM   #131
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My annuity is Social Security.
same-will not buy annuities and I will take my pension in lump sum, annuity payments work out to about 5% and nothing when I die for heirs, unless you are one of those who have no discipline annuities usually benefit the annuity seller much more than the buyer.
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Old 01-23-2012, 09:35 PM   #132
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My annuity is Social Security.
And my non-cola pension.

And when I put put on my super duper 'cheap SOB' hat - I can still cover my core expenses but after 18 years of ER - I won't unless I have to.

heh heh heh - cause I'm not getting any younger and plan to party on til I croak.

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Old 01-23-2012, 10:35 PM   #133
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I think I might purchase one if I end up in a ALF to pay the monthly fee.
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Old 02-24-2012, 02:43 AM   #134
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So last week I met with an advisor from a major bank. It was the first time in my life I met with an advisor to discuss annuities. He agrees that 1) annuities are not for everyone 2) annuatizing some of my assets makes sense in my case (no SS, small pension, high NW, no heir, very conservative with investments). I am thinking of testing the concept, investing 100k this year to buy laddered longevity annuities - and see what happens...
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Old 02-24-2012, 09:20 AM   #135
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So last week I met with an advisor from a major bank. It was the first time in my life I met with an advisor to discuss annuities. He agrees that 1) annuities are not for everyone 2) annuatizing some of my assets makes sense in my case (no SS, small pension, high NW, no heir, very conservative with investments). I am thinking of testing the concept, investing 100k this year to buy laddered longevity annuities - and see what happens...
Could you describe just what a group of laddered longevity annuites would look like?

Thanks, Ha
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Old 02-24-2012, 10:06 AM   #136
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Yes of course, sorry for short message or for typos, as I am writing from my iPhone. Laddered longevity annuities = one with $33k premium starting payouts when / if I reach the age of 65, the next one (same $33k premium) when I turn 75, and the last one (same premium) starts paying out when / if I reach 85.... My spreadsheet shows a clear benefit in my case. Again, not true for everyone. Does this help, Ha?
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Could you describe just what a group of laddered longevity annuites would look like?

Thanks, Ha
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Old 02-24-2012, 10:42 AM   #137
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Yes of course, sorry for short message or for typos, as I am writing from my iPhone. Laddered longevity annuities = one with $33k premium starting payouts when / if I reach the age of 65, the next one (same $33k premium) when I turn 75, and the last one (same premium) starts paying out when / if I reach 85.... My spreadsheet shows a clear benefit in my case. Again, not true for everyone. Does this help, Ha?
Yes, thank you OBG. One more question if you have time- is the payout at each of these ages fixed when you pay the premium, or does it respond to events and conditions yet to come?

Ha
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Old 02-24-2012, 12:31 PM   #138
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Apologies again for short post, having a break here. still on iPhone.... Yes, payment is fixed when I pay the $33k premium this year. Taking the example above, the 3 annuities at 20, 30 or 40 years would payout about $400, $900, and $3,000 monthly respectively (but no cola and this is before tax). Insured by the state also like other "normal annuities" - up to $200k or $300k, not sure. I hope this helps.
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Yes, thank you OBG. One more question if you have time- is the payout at each of these ages fixed when you pay the premium, or does it respond to events and conditions yet to come?

Ha
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Old 03-08-2012, 06:43 AM   #139
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Well I have decided to take the plunge. A couple of online calculators have an increase in "success rate" with such an annuity. Will keep you posted if this decision is worth it in the medium and long term (if I live until when the annuity starts the monthly payments ).
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Old 03-08-2012, 10:17 AM   #140
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Before you decide on an annuity (SPIA) or not you need to define the problem that you are trying to solve....

If you decide that always having a baseline standard of living (no matter what) is more important than managing a portfolio for better payouts. Some of us here will not optimize the (spending) utility of our portfolio's because we have to plan for longevity risk. Longevity risk almost always means leaving money on the table when you pass (perhaps gobs of money).

The other issue is that if you are managing your own portfolio, you just might want to have some conservative investments in there (perhaps bonds) to insure that a down market doesn't wipe out your livelihood. However if you had an annuity to cover a basic living standard, then the risk level (and potential upside payout) of the remaining nest-egg could be substantially higher. In addition the remaining nestegg could be spent down (somewhat) more aggressively because your basic living standard is covered by the annuity. It just may be that with an annuity covering your downside then, that overall you can then outperform what a nestegg-only portolio could do in terms of usable cashflow during your lifetime.

It just may be that your usable cash-flow, and peace-of-mind is greater if you can cover basic living standards.

And lastly, The annuity referred to here is a low-cost Single Payment immediate annuity (SPIA), not some high fee deferred variable annuity plan that gets poor reviews on this forum.
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