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02-16-2011, 06:30 AM   #44
Thinks s/he gets paid by the post

Join Date: Jan 2006
Posts: 1,012
Quote:
 Originally Posted by rayvt All (most??) articles showing how much better off you'd be if you waited until 70 are ignoring the most important factors. The time-value of money and the alternative use for the money collected early. Sure, you get more money each month if you wait until 70 vs. 62. But they almost always neglect--or mention only in passing--the fact that you've collected 96 more months of payments. Almost all of these articles and discussions do a lot of handwaving and simplistic math. Simplistic math doesn't cut it for complex financial scenarios. Here is a spreadsheet I worked up, feel free to plug in your own numbers & assumptions: https://spreadsheets.google.com/ccc?...0d19pTnc&hl=en The "quick BE" worksheet is pretty easy to understand. Depending on your assumptions for long-term average gain, the 62 vs. 66 breakeven is about 17 years. From 12 years if you "invest" in a non-interest bearing account to 30 years if your investments pay 6%. BTW, the life expectancy for a male at 62 is 19 years. That's the breakeven time at 4% earnings. So, the question you have to ask yourself is "Can I invest and earn at least 4%?"
the problem with the "break even" type of an analysis when determining when to start taking SS is that when you are retired most people are in a decumulating phase instead of the accumulating phase of your investment life. go check any of the threads on decumulation, SWR, etc and you will see that almost no one bases how much they can afford to spend in retirement on some thought process like "Can I invest and earn at least 4%?" 1 reason for this is because they believe that to keep up with inflation their investments must include the stock market and it just doesnt give a constant 6% or even 4% yield annually.

the real value of SS is to view it, once you take it, as an as guaranteed as you can get COLAed annuity. a life time income stream that provides you a solid floor of income in your retirement years. because of this the appropriate way to determine when to take SS is to do an analysis of how the different starting ages affect the amount of spending allowed with risk held constant. i did this in my earlier post using 1 decumulation methodology, using a SWR of 4% (inflation adjusted). there are other decumulation methods that could have been used and if you are using a different method then your analysis should use the one you are planning on using. all that being said, the fact that delaying the start of SS from age 62 to age 70 will increase your monthly income by ~76% + whatever the CPI goes up those 8 years (in other word a real 76%) is hard to beat.

i can think of 2 scenerios that possibly lean toward taking SS early: 1) a person doesnt have a portfolio and therefore they need to start taking SS as soon as they retire because they have no other source of income and 2) they have a large portfolio and their main objective is to maximize the size of estate they want to pass to their heirs. if you fall in 2) then maybe a break even analysis is something you should consider, but then you should also consider a very large single premium life insurance policy which would probably maximize the amount your heirs get. the interesting thing with the insurance approach is that once you buy that policy then the decision as to when you start taking SS reverts to the income analysis and it will then probably be better to start taking SS at age 70. and on second thought, if you fall in 1) you will probably need to work till at least age 70 anyway and then start taking SS, so actually even these 2 scenerios will probably lean toward taking SS at age 70.

(BTW, as an aside, does your spread sheet take into consideration that delaying SS from age 62 to age 70 increases the monthly SS payment by ~76% + the cpi for those 8 years? so your 4% or 6% have to be real returns)
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 02-16-2011, 06:51 AM #45 Recycles dryer sheets   Join Date: Jan 2011 Location: Scotts Hill, TN Posts: 105 I’m still planning to take as soon as possible – both due to the bird in the had philosophy and also because I think I have a shot at getting a better return by investing the early payments then waiting for SS to increase my payments. Of course my penalty will be a little greater since my full retirement isn’t until 67, but I took the example in the article of someone you turns 62 this year and would receive \$1803/month if they started collecting at 62; \$2442/month if they start collecting at 66; and \$3526/month if they wait until 70 to start collecting. This was all in today’s dollars. The scenario they had did not consider inflation increases to SS or investment returns for the people collecting SS earlier. So I ran my own scenarios: person A starts collecting at 62 and invests all the money until they turn 70 person B starts collecting at 66 and invests all the money until they turn 70 person C starts collecting at 70 I assumed that the SS payments increased by 3% each year. At age 70, all three people spend the amount that person C receives each year. If I assume a conservative return of 5%, person A runs out of money at 82 and person B runs out of money at 84. Well – at least they can’t spend as much as person C anymore – they have to reduce their expenditures to what they receive in SS because they run out of money in their investment account. If I assume a reasonable return of 7%, person A runs out of money at 85 and person B runs out of money at 87. If I look at some more aggressive portfolios, a 10% return (quite possible for a somewhat aggressive portfolio), person A runs out of money at age 99 and person B runs out of money at age 105. If I look a 12% return (high volatility but still a very real possibility). Person A and B have portfolios that grow faster than they take money out. At age 100, person B as over \$1M and person A has over \$2M. __________________
 02-16-2011, 07:15 AM #46 Full time employment: Posting here.   Join Date: Apr 2008 Posts: 534 I didn't see that anyone has mentioned the tax implications. My understanding is that SS goes into the Provisional Income Formula at 50% and therefore delaying can result in lower taxes. There are a number of white papers that address this but I don't have a handy link. Maybe someone else can post one. __________________ "The best thing about the future is that it happens one day at a time." -- A. Lincoln
02-16-2011, 08:02 AM   #47
gone traveling

Join Date: Apr 2009
Location: Eastern PA
Posts: 3,851
Quote:
 Originally Posted by misanman There are a number of white papers that address this but I don't have a handy link. Maybe someone else can post one.
Go to page six (e.g. page 8 of the PDF) of this document for some thoughts on taxes and withdrawl of TIRA vs. SS income:

http://www.prudential.com/media/mana...Strategies.pdf

BTW, since it's from 2010, it still mentions the file/repay option within the document, which of course was changed late in the year.

IMHO, it's a good overview of the SS options (based upon your situation) that should be considered, even if it is sponsored by a commercial company...
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 02-16-2011, 09:24 AM #48 Thinks s/he gets paid by the post   Join Date: Oct 2004 Location: LaLa Land Posts: 4,378 Not to throw a curve ball here but does anyone know what the top amount is that one can receive at 62? I paid the top amount for over 35 years and according to my latest paperwork from SS I will receive \$1737 as of this April when I turn 62. How could this amount be higher, and what is it based on if I did the full 35 years. __________________
02-16-2011, 09:30 AM   #49
gone traveling

Join Date: Apr 2009
Location: Eastern PA
Posts: 3,851
Quote:
 Originally Posted by 73ss454 Not to throw a curve ball here but does anyone know what the top amount is that one can receive at 62? I paid the top amount for over 35 years and according to my latest paperwork from SS I will receive \$1737 as of this April when I turn 62. How could this amount be higher, and what is it based on if I did the full 35 years.
That seems about right. Here's an article on the expected benifits, based upon income:

Social Security - Estimated Payments Chart
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02-16-2011, 09:32 AM   #50

Join Date: Jan 2007
Location: New Orleans
Posts: 38,846
Maximum Social Security retirement benefit

Quote:
 The maximum benefit depends on the age a worker chooses to retire. For example, for a worker retiring at age 66 in 2011, the amount is \$2,366. This figure is based on earnings at the maximum taxable amount for every year after age 21.
So, the corresponding amount at age 62 would be \$2366*0.75 = \$1774/month.

All I can say is, "Lucky you!" My SS will be a lot lower. Still, it will be welcome.
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 02-16-2011, 09:33 AM #51 Give me a museum and I'll fill it. (Picasso) Give me a forum ...   Join Date: Jun 2002 Location: Texas Hill Country Posts: 42,078 If I read this table correctly, the maximum amount at age 62 was \$1803 in both 2010 and 2011. Maximum-taxable benefit examples As to why your benefits are lower than the max, here's how benefits are calculated: Social Security Retirement Benefit Calculation Good luck in figuring out the reason for the shortfall... __________________ Numbers is hard When I hit 70, it hit back Retired in 2005 at age 58, no pension
02-16-2011, 10:14 AM   #52
Thinks s/he gets paid by the post

Join Date: Oct 2010
Location: Waimanalo, HI
Posts: 1,881
Quote:
 Originally Posted by rescueme That seems about right. Here's an article on the expected benifits, based upon income: Social Security - Estimated Payments Chart
My SS payments are substantially higher than indicated in that table. Well, my birth year is one year before the 1943 starting date of the table, but the disparity seems odd.
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Greg (retired in 2010 at age 68, state pension)

 02-16-2011, 10:19 AM #53 Thinks s/he gets paid by the post   Join Date: Oct 2004 Location: LaLa Land Posts: 4,378 Thanks, according to W2R the max would be \$1774 yet the chart says about \$1714 and my letter says \$1737. Rew, I guess there's no point trying to figure out why I'm more on the chart yet less on the 25% factor. Yet I paid the 35 years and always the max, go figure. __________________
 02-16-2011, 10:55 AM #54 Full time employment: Posting here.   Join Date: Sep 2007 Posts: 716 >> the problem with the "break even" type of an analysis when determining when to start taking SS is that when you are retired most people are in a decumulating phase Agreed, a BE analysis isn't without problems. But it's a pretty good tool to help you see the big picture. But also realize that the 62 vs. 66 issue does not arise for somebody who *must* decumulate. If you need the money at 62, then you don't have the option of delaying until 66 or 70----so all the calculations showing the benefit of waiting are moot. The debate/discussion is relevant ONLY to people who don't need the money at 62! And for those people, a good method of comparison is to save the early money until you hit 66 (or 70) and then when you do start collecting SS withdraw enough from that side account to cover the shortfall, so that the total you get is equal to the amount you'd have gotten if you would have waited. Eventually the savings account will be depleted--that's the BE point. And that is generally about 15 years, depending on what earnings you get on the account. >> delaying the start of SS from age 62 to age 70 will increase your monthly income by ~76% + whatever the CPI goes up those 8 years (in other word a real 76%) is hard to beat. There are several factors you are leaving out. 1) Both the 62 & the 70 SS payments will be increased by the CPI, This is a wash in the comparison and therefor can be ignored. So it's 76% exactly. 2) For the 2nd year in a row, the SS CPI has been ZERO. So retirees are being screwed, since their cost of living has, in fact, gone up -- even though the SSA says it hasn't. 3) The 76% higher check is only what you get from SS. To arrive at the total income you have to add in the withdrawal from the side account. This last is what I meant by people ignoring major important factors when making the comparisons. You look at the higher amount at age 70, but ignore the 8 years of collecting the lower amount. When the age 62 person hits 70, he has collected an extra \$72,000, which has grown to around \$85,000 to \$95,000. Drawing that down, he will get the same total income as the age 70 SS for 15 to 25 years. That's a huge hurdle for the "wait until 70" proponent to overcome. That's a very long time before break-even. 4) You must take into account your life expectancy. LE at 62 is age 81. LE at 70 is age 83. The "age 62 side account" method break-even point is AFTER your expected mortality age. 5) You must take into account your life expectancy. According to the SSA mortality table, only 86% of 62 year olds are still alive at 70. IOW, 14% of the people who are 62 won't be collecting ANYTHING at 70---they're dead. __________________
02-16-2011, 12:53 PM   #55
Thinks s/he gets paid by the post

Join Date: Jan 2006
Posts: 1,012
Quote:
 Originally Posted by Aeowyn I’m still planning to take as soon as possible – both due to the bird in the had philosophy and also because I think I have a shot at getting a better return by investing the early payments then waiting for SS to increase my payments. Of course my penalty will be a little greater since my full retirement isn’t until 67, but I took the example in the article of someone you turns 62 this year and would receive \$1803/month if they started collecting at 62; \$2442/month if they start collecting at 66; and \$3526/month if they wait until 70 to start collecting. This was all in today’s dollars. The scenario they had did not consider inflation increases to SS or investment returns for the people collecting SS earlier. So I ran my own scenarios: person A starts collecting at 62 and invests all the money until they turn 70 person B starts collecting at 66 and invests all the money until they turn 70 person C starts collecting at 70 I assumed that the SS payments increased by 3% each year. At age 70, all three people spend the amount that person C receives each year. If I assume a conservative return of 5%, person A runs out of money at 82 and person B runs out of money at 84. Well – at least they can’t spend as much as person C anymore – they have to reduce their expenditures to what they receive in SS because they run out of money in their investment account. If I assume a reasonable return of 7%, person A runs out of money at 85 and person B runs out of money at 87. If I look at some more aggressive portfolios, a 10% return (quite possible for a somewhat aggressive portfolio), person A runs out of money at age 99 and person B runs out of money at age 105. If I look a 12% return (high volatility but still a very real possibility). Person A and B have portfolios that grow faster than they take money out. At age 100, person B as over \$1M and person A has over \$2M.
well i ran the take it at 62 scenerio you mention above except instead of using "\$3526/month if they wait until 70" i took the "\$1803/month if they started collecting at 62" and multiplied it by 1.76 equalling \$3155.25/mo (which provides the increase obtained by waiting to start SS at age 70 but does not include the inflation adjustment) and then inflated that number by the inflation rate you used (3%) which in this case means at age 70 the SS benefit would actually be \$4019.81/mo. i didnt run the take it at age 66 case.

case 1) (5% nominal, after tax return) the cross over, including spending the entire savings account, happens between ages 79 and 80

case 2) (7% nominal, after tax return) the cross over, including spending the entire savings account, happens between ages 80 and 81

case 3) (10% nominal, after tax return) the cross over, including spending the entire savings account, happens between ages 84 and 85

case 4) (12% nominal, after tax return) the cross over, including spending the entire savings account, happens between ages 89 and 90

so it is obvious to me that you didnt inflate the amount received at age 70 figure for inflation the 8 years between age 62 and age 70.

as an aside there are a number of things wrong with your assumed rates of return but the most obvious is that they have to be after tax and there is no way an average person is gonna pull down returns like that over an 18-28yr period that is being used here. if you really could get those consistant returns over those extended periods you could have the very high SWRs shown below.

case 1) (5% nominal, after tax return) SWR = 4.34%

case 2) (7% nominal, after tax return) SWR = 5.48%

case 3) (10% nominal, after tax return) SWR = 7.39%

case 4) (12% nominal, after tax return) SWR = 8.74%

and NO ONE believes these (maybe with the exception of 4.34%) are Safe WR.

therefore i think your analysis is not realistic for multiple reasons, two of which are fleshed out above
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02-16-2011, 01:29 PM   #56
Thinks s/he gets paid by the post

Join Date: Oct 2006
Posts: 3,815
Quote:
 Originally Posted by rayvt [I] There are several factors you are leaving out. 1) Both the 62 & the 70 SS payments will be increased by the CPI, This is a wash in the comparison and therefor can be ignored. So it's 76% exactly. 2) For the 2nd year in a row, the SS CPI has been ZERO. So retirees are being screwed, since their cost of living has, in fact, gone up -- even though the SSA says it hasn't. 3) The 76% higher check is only what you get from SS. To arrive at the total income you have to add in the withdrawal from the side account.
Everyone has his/her personal inflation rate. The best the gov't can do is use an average.

The relevant numbers they are using (CPI-W for third quarter of calendar years) are:
2006 199.067
2007 203.596
2008 215.495
2009 211.001
2010 214.136

So yes, prices were up in 2010 compared to 2009. But they were still lower than in 2008. Since SS benefits ratchet up, there was no decrease on 1/1/10. SS beneficiaries were effectively overpaid in 2010, so there is no increase on 1/1/11.
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 02-16-2011, 01:45 PM #57 Give me a museum and I'll fill it. (Picasso)Give me a forum ...   Join Date: Feb 2008 Location: East Nowhere, 43N Latitude, NY Posts: 9,017 My status: Born in 1958, widowed with only my own SS to draw on (husband was in federal CSRS retirement system). I'm still single so I have no spouse benefit issues to deal with...unless Mr B gets some wild matrimonial ideas after I turn 55 and am eligible to remarry without losing that CSRS survivor pension/health benefits. I will draw my own deferred FERS pension at age 56, and unless taking SS at age 62 will greatly reduce my FERS pension, I'm going for it at age 62. I will be on a much better financial playing field with the addition of whatever my SS benefit turns out to be. __________________ "All our dreams can come true, if we have the courage to pursue them." - Walt Disney
02-16-2011, 01:51 PM   #58
Thinks s/he gets paid by the post

Join Date: Jan 2006
Posts: 1,012
Quote:
 Originally Posted by rayvt >> the problem with the "break even" type of an analysis when determining when to start taking SS is that when you are retired most people are in a decumulating phase Agreed, a BE analysis isn't without problems. But it's a pretty good tool to help you see the big picture. But also realize that the 62 vs. 66 issue does not arise for somebody who *must* decumulate. If you need the money at 62, then you don't have the option of delaying until 66 or 70----so all the calculations showing the benefit of waiting are moot.
first, unless the retiring person is extremely wealthy (i.e. using an inflation adjusted WR of 2% or less) or is still working (i.e. not retired) this person is going to be in the decumulating phase of his/her financial life.

second, i did mention the case where a person has no savings
Quote:
 i can think of 2 scenerios that possibly lean toward taking SS early: 1) a person doesnt have a portfolio and therefore they need to start taking SS as soon as they retire because they have no other source of income ... and on second thought, if you fall in 1) you will probably need to work till at least age 70 anyway and then start taking SS, so actually even these 2 scenerios will probably lean toward taking SS at age 70.
and third not much savings is needed to challenge the argument of someone "need the money at 62". if for example if person A is due to receive \$1K/mo from SS at 62 then A would receive \$1760/mo at age 70 (for simplicity i am asuming 0% inflation). if A has a portfolio of \$169k s/he could have an inflation adjusted retirement income at 62 yo of \$18758/yr if s/he starts taking SS at 62 and using the 4% rule for the portfolio. but if s/he puts the portfolio in an account or CDs that just keep up with inflation s/he can spend \$21,120/yr for 8 years and then at age 70 start drawing SS which will provide \$21120/yr for the rest of life, all inflation adjusted.

Quote:
 Originally Posted by rayvt >> the problem with the "break even" type of an analysis when determining when to start taking SS is that when you are retired most people are in a decumulating phase ... The debate/discussion is relevant ONLY to people who don't need the money at 62! And for those people, a good method of comparison is to save the early money until you hit 66 (or 70) and then when you do start collecting SS withdraw enough from that side account to cover the shortfall, so that the total you get is equal to the amount you'd have gotten if you would have waited. Eventually the savings account will be depleted--that's the BE point. And that is generally about 15 years, depending on what earnings you get on the account.
no, as i pointed out in multiple posts above and on previous threads the BE method is not appropriate for the analysis of when to start taking SS

Quote:
 Originally Posted by rayvt >> delaying the start of SS from age 62 to age 70 will increase your monthly income by ~76% + whatever the CPI goes up those 8 years (in other word a real 76%) is hard to beat. There are several factors you are leaving out. 1) Both the 62 & the 70 SS payments will be increased by the CPI, This is a wash in the comparison and therefor can be ignored. So it's 76% exactly. it is 176% of what the payment stream that started at age 62 would have been at age 70. in doing the analysis you have to assume an inflation rate (0% if you are ignoring it) and you have to use that rate appropriately in your calculations, which Aeowyn didnt. 2) For the 2nd year in a row, the SS CPI has been ZERO. So retirees are being screwed, since their cost of living has, in fact, gone up -- even though the SSA says it hasn't. this has no bearing on the example i gave in my 1st post 3) The 76% higher check is only what you get from SS. To arrive at the total income you have to add in the withdrawal from the side account. i dont know what you are getting at here. in my example i fully consider the case of the person taking SS at age 62. that person spends it. This last is what I meant by people ignoring major important factors when making the comparisons. You look at the higher amount at age 70, but ignore the 8 years of collecting the lower amount. When the age 62 person hits 70, he has collected an extra \$72,000, which has grown to around \$85,000 to \$95,000. this is a red herring, the person in my example is spending his SS not saving it so there is no "extra \$72,000" Drawing that down, he will get the same total income as the age 70 SS for 15 to 25 years. That's a huge hurdle for the "wait until 70" proponent to overcome. That's a very long time before break-even. 4) You must take into account your life expectancy. LE at 62 is age 81. LE at 70 is age 83. The "age 62 side account" method break-even point is AFTER your expected mortality age. see my above post and notice at any investment rate of return even close to reality the cross over is before age 81. also i think you are missing my point about using SS as longevity insurance i.e. what if you live longer than your "life expectancy"? 5) You must take into account your life expectancy. According to the SSA mortality table, only 86% of 62 year olds are still alive at 70. IOW, 14% of the people who are 62 won't be collecting ANYTHING at 70---they're dead. and in my examples of using an income approach to deciding when to take SS if they wait to take it till age 70 they get to spend more while they are still alive. but if you wanna spend less, by all means do so
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02-16-2011, 02:03 PM   #59
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Give me a forum ...

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Posts: 13,263
Quote:
 Originally Posted by rayvt 2) For the 2nd year in a row, the SS CPI has been ZERO. So retirees are being screwed, since their cost of living has, in fact, gone up -- even though the SSA says it hasn't.
You and others seem to conviently forget that huge increase the year prior for the high gas prices that was short lived but baked into the SS increase... seems to me that retirees got more money than they deserved these past two years and now their inflation is catching up to their payout...
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02-16-2011, 02:03 PM   #60
Thinks s/he gets paid by the post

Join Date: Jan 2006
Posts: 1,012
Quote:
 Originally Posted by freebird5825 My status: Born in 1958, widowed with only my own SS to draw on (husband was in federal CSRS retirement system). I'm still single so I have no spouse benefit issues to deal with...unless Mr B gets some wild matrimonial ideas after I turn 55 and am eligible to remarry without losing that CSRS survivor pension/health benefits. I will draw my own deferred FERS pension at age 56, and unless taking SS at age 62 will greatly reduce my FERS pension, I'm going for it at age 62. I will be on a much better financial playing field with the addition of whatever my SS benefit turns out to be.
i think i can show you that (unless you doubt SS) you will be better off waiting till age 70 to start SS. you will need to have a portfolio for this to work so to show you i will need your numbers (portfolio size, income streams, projected SS at age 62 and 70 and expenses/desired spending)
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