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Re: Delay Pension and/or Social Security
Old 01-25-2007, 08:42 PM   #141
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Re: Delay Pension and/or Social Security

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As an example if I am to have a porfolio of 1,000,000 and choose a withdrawl rate of 3.7% I will have $37,000 per year. Add the $16,000 from Social Security and you have $53,000 per year. If instead you want to increase your retirement income and take the future increase now you will be withdrawing $37,000 + $16,000 + $13,000 = $66,000.
.... all in current $ ... in the years prior to receiving ss, you are taking 39k (16+13) for each of those years. assume 8. fund this 312k from your 1,000,000, leaving 688k, which will generate 25,456 @ 3.7%. your income will now be 25,456+39,000 = 64,456. this is clearly better than 37,000 + 16,000 = 53,000. (assumes only that you earn 0% real on the 312k).

Quote:
If there is a negative return in those 8 years
... the 312k could be in mm or other riskless assets, thus reducing your risk. further, should the markets go south, one could then opt to begin taking ss, thus reducing future withdrawals and risk.

while there are other matters to be considered, i think what i've suggested will result in a greater income received per year, and a reduced risk. (see my earlier comment which notes that the age at retirement determines (by this method) the appropriate age to take ss.)
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Re: Delay Pension and/or Social Security
Old 01-25-2007, 08:46 PM   #142
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Re: Delay Pension and/or Social Security

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Originally Posted by Cute Fuzzy Bunny

What all this stuff (social security, annuities, etc) comes down to is a bit of financial insurance. At one level you need it, and in great big gobs, no matter how much it costs. At another level, it pays you to take on a little risk and "self insure". I would imagine most ER's fall into the latter category. I would imagine there are many, many others that fall into the former. Some funny gray area in the middle where you might want to sort of self insure by taking the annuity gap route to delay taking the SS benefit, as rich described.
What you've written is pretty much how I see it. An annuity is insurance against the possibility that you live a lot longer than you had planned. Some people need to buy the insurance to free up money so they can live today.

I'm in the gray area where "self insurance" is plausible. But, when I looked at purchase prices for private annuities, I decided to self insure.

However, it looks to me like Uncle Sam has a better price. The decision to defer SS from 62 to 66 amounts to buying a COLA annuity at age 66 with a premium factor around 12. That's reasonably attractive (especially when you have a life expectancy of maybe 16 years, making the "insurance" part free). So I had planned to go down that route.

(BTW, the next step, going from 66 to 70 isn't so attractive. You still get a purchase price around 12, but that's a poorer deal when you are 70. I have a long time before I need to make that decision.)

However, that article by Dalton in the CPA Journal suggests otherwise. I thought maybe I missed some clear tax effect. I've thought about it some, and I can't match his numbers. At the moment seems best to assume he isn't talking about me.
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Re: Delay Pension and/or Social Security
Old 01-25-2007, 08:50 PM   #143
 
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Re: Delay Pension and/or Social Security

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Originally Posted by jdw_fire
You too are missing the point. Using your example the goal is to increase the amount of spending between the years 62-70 over the $37000+$16000=$53000 amount without creating any more risk (assuming SS is riskless).

So the first step is to see how much of our portfolio is required to produce $13000/yr of COLAed income. Using simple math that amount is ~$351351. (Note this means it takes $1,000,000-$351,351=$648,649 to produce $37000-$13000=$24000 per yr COLAed income).

The second step is to remove this amount from the portfolio and put it in a "savings" account paying atleast the inflation rate. This means we now only have $24000/yr COLAed income from our portfolio. At the same time we defer our SS to age 70 thus guaranteeing us our equivalent income at 70 of $24000+$16000+$13000=$53000 per yr COLAed.

The last step is to increase our spending between 62 & 70 which is accomplished by reaping the $24000/yr COLAed income from our portfolio and taking $43918/yr ($351,351/8) COLAed from our "savings" account making our total spending between 62 & 70 equal to $67918/yr COLAed.

This actually has less risk than not doing it this way because less of our income between the ages of 62 - 70 is exposed to the stock market.

Do you get it yet?
Very well said!

I tried to keep it simple, but it just sent people off on tangents. If they cannot do the math on what you just wrote, we'll have to give up. These are facts and they just have to do the numbers!
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Re: Delay Pension and/or Social Security
Old 01-25-2007, 09:04 PM   #144
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Re: Delay Pension and/or Social Security

Do I get it?

Well look at the math you want a 6.7% portfolio drawdown financed by future Social Security. The return of the 8 years of the portfolio will not matter because 35.1% of be invested in safe"Fixed" instruments and spend and social security will jump in for that piece. So that at age 70 if all is well you'll drop from 67,000 to 53,000 spending. 8 years of free lunches

OF course at age 70 your portfolio will be 35% smaller than mine. And at that point I could annuitize my entire portfolio and get 3.51 X 7,500 in Cola annuity or $25,000 more - $13,000 = $12,000 inflation adjusted for every year over age 70 than would be available to you. Might help with the medical bills. Stop buy my place at age 75 I'm buying lunch.
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Re: Delay Pension and/or Social Security
Old 01-25-2007, 09:08 PM   #145
 
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Re: Delay Pension and/or Social Security

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Originally Posted by Running_Man
Do I get it?

Well look at the math you want a 6.7% portfolio drawdown financed by future Social Security. The return of the 8 years of the portfolio will not matter because 35.1% of be invested in safe"Fixed" instruments and spend and social security will jump in for that piece. So that at age 70 if all is well you'll drop from 67,000 to 53,000 spending. 8 years of free lunches

OF course at age 70 your portfolio will be 35% smaller than mine. And at that point I could annuitize my entire portfolio and get 3.51 X 7,500 in Cola annuity or $25,000 more - $13,000 = $12,000 inflation adjusted for every year over age 70 than would be available to you. Might help with the medical bills. Stop buy my place at age 75 I'm buying lunch.

And now were back to the whole point of this thread in which you now seem to agree. If you delay S.S. to age 70 you can spend more money in your 60's. If you're happy to live it up in your 70's that can certainly be your choice. : I will be done with a lot of worldwide travel by then.

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Re: Delay Pension and/or Social Security
Old 01-25-2007, 09:09 PM   #146
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Re: Delay Pension and/or Social Security

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Originally Posted by jdw_fire
If I understand your option correctly you plan on buying a COLAed life annuity at age 70 paying $20885/yr to cover the difference between what you would get at 70 if you started SS at 70 and what you'd get at 70 if you started SS at 62. However you forgot to convert the $20885 to what its COLAed number would be at age 70 (remember I used the value of the dollar at age 62 in my example because the 4% SWR comes from using constant value dollars). Based again on CFB's SS numbers the $20885/yr in current year dollars would be $26106/yr in actual dollars by the time you buy the annuity at age 70. Thus the cost of your annuity just went up 25%.

However what is being done here defeats the point CT was making with his post and that is that he found a way to spend more money between the ages of 62 and 70 without increasing his risk (provided you believe SS is riskless).
Certainly, I have to be consistent. Either do the whole thing in constant dollars or the whole thing with inflation.

I thought the original example was constant dollars, so I stayed with that. The 8% interest that someone provided isn't very plausible in that situation, but I thought is was just a case where the argument worked at nearly any interest rate (since there aren't a lot of years).

If I want to do it with inflated dollars, I also have to inflate the SS benefit that started at age 62. So I think it's one step more complicated than you've stated. Looking at plausible numbers (3% inflation and 5% gross investment return), the advantage of taking SS early does become pretty pronounced.
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Re: Delay Pension and/or Social Security
Old 01-25-2007, 09:18 PM   #147
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Re: Delay Pension and/or Social Security

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Originally Posted by Running_Man
Do I get it?

Well look at the math you want a 6.7% portfolio drawdown financed by future Social Security. The return of the 8 years of the portfolio will not matter because 35.1% of be invested in safe"Fixed" instruments and spend and social security will jump in for that piece. So that at age 70 if all is well you'll drop from 67,000 to 53,000 spending. 8 years of free lunches

OF course at age 70 your portfolio will be 35% smaller than mine. And at that point I could annuitize my entire portfolio and get 3.51 X 7,500 in Cola annuity or $25,000 more - $13,000 = $12,000 inflation adjusted for every year over age 70 than would be available to you. Might help with the medical bills. Stop buy my place at age 75 I'm buying lunch.
Yes at age 70 my porfolio will be smaller but my US gov guaranteed income from SS will be 76% larger than yours. If you want to use an annuity to increase your spending just buy it at age 62.
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Re: Delay Pension and/or Social Security
Old 01-25-2007, 09:18 PM   #148
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Re: Delay Pension and/or Social Security

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And now were back to the whole point of this thread in which you now seem to agree. If you delay S.S. to age 70 you can spend more money in your 60's.
Spending more in your '60's is always an option. You at age 70 will certainly be in worse financial shape under that method than the one I proposed. The worse financial shape you are willing to be in at age 70 the more you can spend.

So much is made of the fact that people spend less as they get older. This is almost assuredly due to the fact they have consumed their funds.

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Re: Delay Pension and/or Social Security
Old 01-25-2007, 09:26 PM   #149
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Re: Delay Pension and/or Social Security

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Originally Posted by Running_Man
Spending more in your '60's is always an option. You at age 70 will certainly be in worse financial shape under that method than the one I proposed. The worse financial shape you are willing to be in at age 70 the more you can spend.
I disagree (unless you are going to say that SS is not secure), at age 70 I have the same income as you and more of it is coming from SS so there is less market risk to me.
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Re: Delay Pension and/or Social Security
Old 01-25-2007, 09:58 PM   #150
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Re: Delay Pension and/or Social Security

Wow, I need some popcorn.

I'm still trying to correlate
- the initial concerns that the firecalc approach is a worst case scenario that leaves too much money at the end and is too conservative, therefore not allowing you to spend more money earlier

with

- the need to use firecalcs 4%/25x multiplier, thereby delivering a sure-thing portfolio that leaves a lot of money at the end and is too conservative

and...

- doing the calc to 100 years of age, at which point only 2% of the general population would still be alive, pretty much creating a worst case scenario instead of picking...oh...say 85 years old when 95% of the proposed contenders would be dead

with...

- Since thats kind of weird, lets ante up a huge amount of cash to an annuity provider, pay them their profit margin, and hope I'm one of the 5% of the population that will outlive the sucker. (remember, we're doing this to spend a little more money in our 60's)

But...

- we cant use the tool that does all this for us, or do a realistic plan that uses a 95% certainty that expires when 95% of the participants would be dead.

Which...

- would produce a result that you'd need about 120-180k starting at age 70 to produce a satisfactory replacement income stream, using ordinary fixed income assets and dividend paying stocks I can buy today, with 95% certainty of paying out a satisfactory result through the age of 85, at which point 95% of us will be dead.

ORRRR...

- we could just use the dreaded unsatisfactory planning tool that uses the same 4%/25x "unlikely to ever run out" overly conservative approach that has been put forward (but which is what we want to avoid), take SS early, take 5k more per year for 20 years of early retirement (in my example and instance) and still end up with a satisfactory and fairly likely income stream that would last until I was 85. Or 100. Or 120.

Except...

- we dont want to use the tool, because it produces results inconsistent with the preordained decision, we do however want to use its parameters to create the worst case scenario that we dont want

And...

- we'd dont want to hear any plausible arguments that would create uncertainties about the future of SS...lets just depend on it even though its a foregone conclusion that benefits will be cut or eliminated for some people because the math simply doesnt work.

Do I have this wrapped up now?



Oh yeah, and I see we need to sign up a few more people for the "reading is fundamental" class, since as was twice implied above, I never said that nobody should buy an annuity, or even ruled out buying one for myself. I would say with some authority that I wouldnt put all, or even a majority of my money into one, nor would I recommend that most other people do so either. Unless you come from a planet where people live past 100 and high inflation doesnt exist.

Then I'd get one and put all my money into it. But I'd be real careful about who I bought it from and I'd avoid variable annuities.

But then again, the point in saying that I did say that wasnt simply the poster being daffy, it was just to troll me into re-engaging the conversation. Right? Oh yeah, I forgot...nobody read this far, they started typing their 'responses' around paragraph #3.

Said conversation allegedly not being about who is right or wrong, but to share information.

Which seems rather odd because theres an awful lot of effort to contort and limit the 'sharing' unless it produces a specific outcome, which makes one of the 'sharers' right.

But...you wanna know what I think?

Sure you do.

I think that almost nobody will do anything different with their spending as a result of all this multiplying, annuitizing and dividing. Then at 62, 65 and/or 70 they'll do exactly what they were going to do before a single post was put up in this or any other SS thread.

Simply because the axial decision is based on a couple of hairballs around "bird in the hand/two in the bush" and/or "do I trust the government to pay me now vs later" and/or "I'll be the one guy who lives to 120 and his money runs out because I didnt wring every penny out of my social security benefits" and/or "I want my wife to have as much money as possible after I die".

One of the hairballs will win. Guaranteed.
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Re: Delay Pension and/or Social Security
Old 01-25-2007, 10:22 PM   #151
 
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Re: Delay Pension and/or Social Security

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I think that almost nobody will do anything different with their spending as a result of all this multiplying, annuitizing and dividing. Then at 62, 65 and/or 70 they'll do exactly what they were going to do before a single post was put up in this or any other SS thread.
Actually not! - I was in the take SS early camp until Master Blaster pointed out a sure fire way to spend extra money in your 60's. I had always thought that taking it early would let you spend more in your 60's, but no.

I do have an open mind and will change it when presented with facts, instead of sarcasm.
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Re: Delay Pension and/or Social Security
Old 01-25-2007, 10:39 PM   #152
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Re: Delay Pension and/or Social Security

Cut throat if you live to be 85 I fear you will regret your decision to consume 351,000 of your portfolio in 8 years.

And fuzzy bunny:

My grandmother lived to 98 at age 85 moved in with my aunt in a bedroom.

My wife's Grandmother lived to 99 After age 80 all she had was social security and would not take any help.

My dad is alive at 85 Having spend his entire retirement portfolio in first 15 years of retirement. He now lives in a 1 bedroom apartment and lives on SS alone.

My mother in law is alive at 80. My father in law is alive at 84 They spent 4% of their initial portfolio for 20 years and now spend 6% of a portfolio three times the initial value in a Hyatt retirement community safe in the knowledge they will not run out before age 100. He never made more than $60,000 a year in his life and now his annual expenses run 100K. A beautiful 1800 sq foot apartment overlooking the mountains in Scottsdale. A conservative approach sometimes allows for an upgrade in life when you may not want to do things like cooking and cleaning yourself anymore.
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Re: Delay Pension and/or Social Security
Old 01-26-2007, 06:38 AM   #153
 
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Re: Delay Pension and/or Social Security

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Originally Posted by Running_Man
Cut throat if you live to be 85 I fear you will regret your decision to consume 351,000 of your portfolio in 8 years.
Really, what are you going to do with your $351K after you're dead!

I can tell you still don't understand this! - Read what the man said!

Quote:
Originally Posted by jdw_fire
I disagree (unless you are going to say that SS is not secure), at age 70 I have the same income as you and more of it is coming from SS so there is less market risk to me.
I can see it's more important for you to win than to learn something. If you fail to win, you'll change the argument just so you can win.
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Re: Delay Pension and/or Social Security
Old 01-26-2007, 07:09 AM   #154
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Re: Delay Pension and/or Social Security

Folks,

There seems to be only one answer to the question at hand...

Its what YOU believe, for your "life situation".

Since it is your life, your belief, and your decision, further discussion is not really required. I belive we have enough "options" to choose from, with the various entries.

As for what I will do - it dosen't matter, so I won't state it. However, I belive my "decision" is best for me, my family, and my situation.

- Ron 8)
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Re: Delay Pension and/or Social Security
Old 01-26-2007, 08:30 AM   #155
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Re: Delay Pension and/or Social Security

Ron'Da: Is that a motion to close this and move it to "best of". If it is I, for one, second that. It was a great discussion sometime back a few pages but recently it is getting a little tough see through the "fight".
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Re: Delay Pension and/or Social Security
Old 01-26-2007, 08:38 AM   #156
 
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Re: Delay Pension and/or Social Security

I second the motion! - I'll close and move.


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