When to take Social Security

[ERD50]

Re: When to take SS

And I see no reason to bucket it, or 'simplify' it. It needs to be muddy, its not a simple decision. .... Do you invest without thinking about taxes?

Of course the details need to be factored in. But until we can agree on the basics, there is no sense moving on to those details. Let's not put the cart before the horse.

As always, I think many people have their minds made up already. Anything that 'muddies the water' is suspect or being made too complicated to suit the preordained decision.

Exactly why I am trying to understand the two views. I am solidly on the fence, I have *not* made up my mind. I was previously in the 'take it early' camp, then I saw some of C-T's posts. I did not follow him for a while, then I started to get his point, and then JDW's example made it clear to me. So now, I'm trying to see if there is a flaw in that example.

I don't get that statement at all - he uses a 4% SWR number for the 'take it early' scenario. What else is there to account for?

Because i'm making a ****load more than 4% on my money when i'm not spending it.

Well that statement can be turned around 180 degrees. Sure, you talk less out of your portfolio during the 'early' years, but if you delay, you take less out for all remaining years because you get a higher SS payment in all those years.

Chances are if I made it 30 years with a 4% plan, i'll make it another 30 years. I havent seen too many plans that made it 30 years and werent bulletproof.

Well, if you are running Advanced FireCalc with the default 30 years and 4% spend you get a 94.3% success rate. So by definition, 5.7% of the time you won't even get to *start* the next 30 years, let alone survive an additional 30 years.

See, this encapsulates what makes me grouchy about this discussion...on one hand lets presume a ridiculously long life span

Once again, look at JDW's example. Life span has nothing to do with it. Unless there is an error in his numbers, you get to spend *more* in the early years, and the same amount in the later years - there is no life span factor.

I can all but assure you that you wont be getting 100% of your currently quoted, cpi adjusted social security dollars 30-40 years from now. Changes have already been made, so theres plenty of precedent.

Fine, let's understand C-T and JDW's POV, and *then* apply some estimates to SS devaluation to see where it falls apart.

-ERD50

 

[chinaco]

Re: When to take SS

How could you? Who could know what they might be?

Ha

I have not run the numbers on a variety of what-if scenarios. Since there are are many likely events... there are many scenarios. One can do a sensitivity analysis to determine what might move the model and make a difference... ect... This type of analysis helps one to understand outcomes and possible weaknesses.

Since I have at least 12 years before I make the SS Decision... and many of those variables will change... I am not going to spend much time today running the numbers on those scenarios. It is time consuming. My only concern about the SS question today is what do I need to do to preposition myself. For example. Because of the tax implications (which is difficult to know 12 years out), should I try to position my assets a certain way.

 

[Cut-Throat]

Re: When to take SS

Exactly why I am trying to understand the two views. I am solidly on the fence, I have *not* made up my mind. I was previously in the 'take it early' camp, then I saw some of C-T's posts. I did not follow him for a while, then I started to get his point, and then JDW's example made it clear to me. So now, I'm trying to see if there is a flaw in that example.
-ERD50

I agree, I used to be in the 'take it early' camp, because I believed it would allow you to spend more earlier. Then after Master Blaster pointed out in an example where taking it late allowed spending more earlier. That is the camp I am leaning to now. I have not made up my mind either and will not until I am 62. I will continue to look at the different sides when I am 63, 64, 65, 66, 67, 68, 69 and 70.

There is only one person here that has 'made up his mind' and is taking things personally. The rest of us are trying to learn without distorting either side.

JDW_Fire has provided very convincing examples as what you could do if the 'rules do not change'. But, having been around awhile and a student of American Politics, change will probably not happen to those that are drawing SS or close to drawing it. SS only needs a few tweaks to keep it solvent. Or if the baby Boomers don't all run for the door at age 62 and start drawing SS, it may not need any tweaks at all. Most likely tweaks will be delaying SS for those under age 45, eliminating the 'cap', raising SS taxes a bit. BTW - My friend is a U.S. Congressman (One of the most Conservative, in fact), and we have discussed this very topic - And while he favored private accounts a couple years ago, he admitted it will probably not affect anyone who is older than 45 today.

When someone that is in their mid-forties tells us that he has run the numbers and knows what the right move is for someone that is turning 62 today is, you have to be a bit suspect!

 

[W2R]

Re: When to take SS

My "full retirement age" for social security purposes is age 66. I am presently 58 and plan to ER at 62.

Is anybody else thinking of putting the equivalent of 48 months worth of (after tax) social security into laddered or one year CD's, drawing on that from 62 to 66, and then starting SS at age 66?

The stash equivalent to SS after taxes for 48 months isn't going to break the bank. If I know that I have that much coming in like clockwork every month, no matter what the market is doing, I might not have to withdraw from my investments at all during bear markets.

If something happens and I need the stash for emergency purposes, I could always start my SS at that time. I could re-assess every year, and I like the flexibility.

 

[ERD50]

Re: When to take SS

My "full retirement age" for social security purposes is age 66. I am presently 58 and plan to ER at 62.

Is anybody else thinking of putting the equivalent of 48 months worth of (after tax) social security into laddered or one year CD's, drawing on that from 62 to 66, and then starting SS at age 66?

The stash equivalent to SS after taxes for 48 months isn't going to break the bank. If I know that I have that much coming in like clockwork every month, no matter what the market is doing, I might not have to withdraw from my investments at all during bear markets.

If something happens and I need the stash for emergency purposes, I could always start my SS at that time. I could re-assess every year, and I like the flexibility.

As I understand it, that is essentially what is discussed here:

http://early-retirement.org/forums/index.php?topic=12870.msg240069#msg240069

You and I see the positives, I have not torn apart negatives yet (other than SS insolvency).

-ERD50

 

[Spanky]

Re: When to take SS

My "full retirement age" for social security purposes is age 66. I am presently 58 and plan to ER at 62.

Is anybody else thinking of putting the equivalent of 48 months worth of (after tax) social security into laddered or one year CD's, drawing on that from 62 to 66, and then starting SS at age 66?

The stash equivalent to SS after taxes for 48 months isn't going to break the bank. If I know that I have that much coming in like clockwork every month, no matter what the market is doing, I might not have to withdraw from my investments at all during bear markets.

If something happens and I need the stash for emergency purposes, I could always start my SS at that time. I could re-assess every year, and I like the flexibility.

I only look at it from a net-present-value view. I compare the three options using future cash flows (future inflated income from SS - inflated expenses) and discount them at 2%, 4%, 6% and 10%. Deferring to 66 or 70 only makes financial sense if the discount rate (or cost of capital or portfolio return) falls below 4%. Even at 4%, the break-even will still be 78 years of age for option 66 and 80 years old for option 70.

 

[bosco]

Re: When to take SS

Let me clarify what I meant (although most seem to have figured it out).

2 people, both took SS at 62

One is 62
One is 72

the 72 year old has an expectation of dying at an older age than the 62 year old, and thus a better chance of reaching the "break-even" age, assumed to be 80.

Spanky's mortality table supported this contention. This seemed to be the opposite of what Chinaco was saying in the post I originally replied to.

Of course, the fellow who is now 72 had to make his decision when he was 62 and that was 10 years ago. So at the time he made his decision, he might have had a smaller chance of reaching 80 than the fellow who is 62 now and deciding. Maybe that's what Chinaco meant....

 

[cute fuzzy bunny]

Re: When to take SS

JDW - The numbers you used are old SS numbers, and are not my current numbers. Therefore they're wrong. But thats irrelevant because using a money market as the comparator is simply hamstringing the returns and tilting the results.

Since I pooh-poohed your multiple bucket annuity idea a few years ago, you've laid in a pattern of picking a position i've taken, then creating scenarios with a twist in them in some effort to prove me wrong. Why dont you get over it, or at least figure out why external validation is so important to you and/or why you feel that a criticism of your ideas is a criticism of you as a person.

As far as taking it personally...hmm...the only thing I'm displeased with is people who form opinions and then curve data to them, then claim them to be facts. Nothing personal about it. I just dont like bull****.

I still havent seen one single person actually take the 3 minutes to do the firecalc runs on their own personal portfolio to see what the results are and publish the link to the summary. In the instances in the past discussions when someone actually did it, and found that taking it early was better, the canned response is "yeah, but look at how much money you have left. I dont want money left when I die". Unfortunately, unless you put all your money into an annuity, you'll have money left over. Theres no free lunch.

Facts:
- Every analysis I've seen shows that taking SS early and investing the money at even nominal market returns produces a break even point that is past the average persons mortality
- Firecalc says taking it early is beneficial...and the bigger amount later isnt as much help as the smaller amount earlier because lots more money 2 years after you go broke isnt particularly helpful. LOTS of firecalc runs barely fail or fail a year or two before their end point, so even a modest amount injected early in a run helps the failure rate. Compounding helps the withdrawal rate.
- Creating a 'simpler' comparison and changing the comparative market returns to mimic cash will produce a favorable result for taking it later, simply because you've tilted the game. Why not compare it to returns from support of nigerian leaders attempts to transfer their bank accounts? Come on...if you're going to fudge, go all the way!

Taxation is often waved about. You cant make any blanket statements about taxes, they're different for everyone. Thing is, I'm quite sure for many people, a higher amount in your early 70's when you're also likely facing some RMD's isnt going to be a heck of a lot better.

Theres also a lot of stuff that we simply cant and wont know until it happens. Mortality rates, program changes, benefit reductions. While I cant quantify those, if the results of going early or late are even in the ballpark of each other, i'm compelled to take the money and run.

So whats the dilemma? Run your own firecalc, let it do all the work for you except the taxation. Look at the tax rules vs what your own scenario shows as being your financial case.

The take-it-later crowd have to use money markets returns, 120 year lifespans or remove factors from the decision that matter, like the risk of benefit reductions.

I'm all for a fair comparison. What I see is oversimplification and overt hamstringing of one side of the equation.

But like I said, I think at the end of the day this comes down to a series of psychological issues. Ones risk tolerance, the wish for "guaranteed money", trust in government payouts, political biases, "bird in the hand" inclinations and fears of low income old age scenarios.

As far as want2retires scenario, it simply sacrifices some market return potential for the monies put into cd's to create a more predictable (but smaller) return. This is the same string New Thinking plucks with his annuity product that pays you a rate between 62 and 70, allowing you to defer the benefit but still receive similar 'predictable' income. However you do of course pay for the pleasure and could likely do better creating your own private 'annuity'.

I should also say that for the whole range of people who are in their late 50's or early 60's and looking at the decision...your benefits are unlikely to be cut or have the CPI indexing dropped off unless you live quite a while. You probably have a good idea what your tax situations going to look like. Simpler decision for that range of people.

 

[vimwick]

Re: When to take SS

three cheers to all who have contributed with extra kudos to jdw and cfb for clearly framing the issues. great thread. thanks

 

[HFWR]

Re: When to take SS

three cheers to all who have contributed with extra kudos to jdw and cfb for clearly framing the issues. great thread. thanks

Did you mean "flaming"...

I still have nine years to go, but, based on my current projections of portfolio size and probable longevity, I'll probably start SS at age 62. I'll get back to you in 2016...

 

[Silhan]

Re: When to take SS

It seems reasonable to me that the decision to take SS early depends on how many years a person plans on being in early retirement. For example, someone who retires in their forties has a small chance of needing to begin taking SS at age 62 to prevent them from going broke. However, someone who has already made it successfully to age 62, and who doesn't need the extra money right away, might be better off defering SS until age 70.

 

[Spanky]

Re: When to take SS

It seems reasonable to me that the decision to take SS early depends on how many years a person plans on being in early retirement. For example, someone who retires in their forties has a small chance of needing to begin taking SS at age 62 to prevent them from going broke. However, someone who has already made it successfully to age 62, and who doesn't need the extra money right away, might be better off defering SS until age 70.

If you expect to live beyond 81, deferring SS to normal (66) or extended (70) will be better. http://www.nysscpa.org/cpajournal/2006/606/images/ex1p43.pdf

 

[ERD50]

Re: When to take SS

JDW - The numbers you used are old SS numbers, and are not my current numbers. Therefore they're wrong. But thats irrelevant because using a money market as the comparator is simply hamstringing the returns and tilting the results.
....

I fail to see how putting the money in a money market account and drawing it down over eight years is 'tilting the results'. It is a very realistic and do-able action to take with the money in the JDW example.

I still havent seen one single person actually take the 3 minutes to do the firecalc runs on their own personal portfolio to see what the results are and publish the link to the summary.

I started to enter mine in FireCalc, spent more than three minutes, and two observations slowed me down. I (we) need to understand this before I (we) trust the output. I meant to get back to it and study the excel output, but I have 9 years to do that . But, since you mentioned that no one has taken 3 minutes to do it.....

FireCalc QUESTION: If I tell Firecalc that I will start taking SS in 2017, what number do I enter? Do I enter it in today's dollars? Does Firecalc inflate it according to CPI ( for each time frame in its database) between now and the time I start taking it, or does it take the number I enter as the starting point in 2017? IIRC, the SS output (depending what calculator/options or statement you reference) gives you both the inflated (I think they assume ~ 4% per year) number and a 'today dollar' number. I *think* that FireCalc wants the 'today' number.

So, before people start plugging their numbers into FireCalc and reporting the results as yea/nea, that should be understood.

And, I'm not certain FireCalc is providing a good view into the differences in the methods. I think you would need to tweak comparisons a bit, since the goals are different. Plus, the CT/JDW method would have most/all of the money in a mm for eight years. That money is not subject to market downturn which seems to be the primary driver of failure - a market downturn in the early years. If the CT/JDW analysis holds, one should be able to demonstrate in FireCalc that equal success rates can be achieved with higher early spending and delayed SS, versus flat spending and early SS. But, I think it would help to have real numbers from a 62 year old, and make absolutely sure we understand which numbers those are (inflated or not), and how FireCalc deals with them. I'm suspicious that taking the 62 and 70 yo SS payouts from a 45 yo is adding more unknowns. The decision really should be made by a 62yo for or against taking it at 62.

Any 62 yo want to share their SS numbers for early/delayed?

In the instances in the past discussions when someone actually did it, and found that taking it early was better, the canned response is "yeah, but look at how much money you have left. I dont want money left when I die". Unfortunately, unless you put all your money into an annuity, you'll have money left over. Theres no free lunch.

In the JDW example, that is essentially what he did. That delayed SS payment is your annuity, and you 'paid' for it in the early years when you did not collect SS. Since his was an extreme example (your spending equals your delayed SS) you end up with zero nest egg. Just like putting all your money in an annuity.

I should also say that for the whole range of people who are in their late 50's or early 60's .... Simpler decision for that range of people.

Anyone who is curious can look at it, but *no* one should be *deciding* unless they are 62, 63, 64, etc.

-ERD50

 

[ERD50]

Re: When to take SS

If you expect to live beyond 81, deferring SS to normal (66) or extended (70) will be better. http://www.nysscpa.org/cpajournal/2006/606/images/ex1p43.pdf

Spanky (and others that keep referring to the 'break even point' around age 80), please go back to the JDW example that has been linked a dozen times in this thread. Show me where life span is a factor. In his analysis, delaying SS is a plus at any and all ages.

Since most here are believers in the 4% SWR (plus/minus a bit), the CT/JDW example refers to the impact of the SS payment on a 4% SWR nest egg. We don't know what sort of analysis is behind the nysscpa graph you provide.

Now, there may be a flaw in that analysis, which is why I keep posting in this topic, but if it holds we should stop saying that it depends how long you live.

-ERD50

 

[Bikerdude]

Re: When to take SS

OK let’s try JDW’s scenario with some different numbers.

Age 62 SS is 17K per year and your stash is 650K, so income at age 62 is 17K plus 4% of 650K (or 26K) for a total of 43K per year.

Now delay SS to age 70 and spend an extra 200K over 8 years to age 70 by reducing your stash to 450K. So your simple income is 4% of 450K (or 18K) plus 25K of the 200K for a total income of 43K per year.

Is there a benefit I’m missing here? Are my assumptions correct??

Now in the early SS example I would only pay taxes on 29% of my SS reducing my taxable income to 31K. I would pay taxes on the full 43K on the delay example.

 

[W2R]

Re: When to take SS

As far as want2retires scenario, it simply sacrifices some market return potential for the monies put into cd's to create a more predictable (but smaller) return.

Ok, but but but Bunny... (cute fuzzy smart variety)... since the money is in CD's for only 4 years (the blink of an eye?), even if the return is zero here's what I'm thinking:

"WANT2RETIRE's POSSIBLE SS-AT-66 SCENARIO:"
If my monthly SS after taxes at 66 is $x, then by using savings of $48x to pay myself from age 62 to 66, my monthly income from 62 to death would be: $x.

"SS-AT-62 SCENARIO:"
My monthly income from SS after taxes at age 62 is $0.75x.
My monthly income from investing $48x with an SWR of 4.0% is ($48x)*(.04)*(.85 taxes)/12 = $0.136x
My total monthly income from 62 to death would be the sum $0.75x + $0.119x = $0.886x.

I know I missed something. Probably a whole lot of somethings. Obviously I need to go back and study the past threads some more. (sigh of frustration)

 

[vimwick]

Re: When to take SS

from advanced firecalc (pretend we're 62) starting with default parameters

on the results page

1. select the 'how much you spend each year' radio button
2. change success rate to 100%

on the 'how much you will spend' page

1. change 'your social security' to 10000
2. change 'starting in' year to 2007 (age 62)

submit/result

$36,962 (4.93% of your starting portfolio) for 30 years (ss early)


then on the 'how much you will spend' page

1. change 'your social security' to 17600 (1.76 * 10000)
2. change 'starting in' year to 2015 (age 70)

submit/result

$39,291 (5.24% of your starting portfolio) for 30 years (ss delay)

20 years -- approx average life expectancy at 62

$43,176 (5.76% of your starting portfolio) for 20 years (ss early)
$42,411 (5.65% of your starting portfolio) for 20 years (ss delay)

48 years -- best case life expectancy at 62

$35,929 (4.79% of your starting portfolio) for 48 years (ss early)
$38,635 (5.15% of your starting portfolio) for 48 years (ss delay)

seems like, on the whole, firecalc suggests delaying

 

[Independent]

Re: When to take SS

I still havent seen one single person actually take the 3 minutes to do the firecalc runs on their own personal portfolio to see what the results are and publish the link to the summary. In the instances in the past discussions when someone actually did it, and found that taking it early was better, the canned response is "yeah, but look at how much money you have left. I dont want money left when I die". Unfortunately, unless you put all your money into an annuity, you'll have money left over. Theres no free lunch.

I'm sure I ran a FireCalc example before that showed higher income with the later SS start date. I didn't "link to the summary". I'm not sure if I can make the link work, but I'll try.

My example below isn't exactly my situation, but it's close to where I would have been if I had retired a few years sooner. I think there are a reasonable number of Americans who are close to this.

I have two runs. Both have $500,000 in assets.

The first starts SS in 2007, with a $24,000 benefit. FireCalc says that $43,875 gives a 95.3% success rate over a 30 year horizon.

The second starts SS in 2011, with a $32,000 benefit. FireCalc says that $46,426 gives a 94.3% success rate over 30 years.

Other than the numbers above, everything is exactly the defaults in "Advanced FireCalc today (5-17). In particular, the investments are 75% equities.

For some reason, I had to run FireCalc twice in each example. The first time I let it solve for the spending rate, and got the numbers above. Then I had to input that spending rate to get a "Results" screen that had the data on it.

In response to an earlier question, for the deferred start on SS, you just put $32,000 into the SS benefit field - you don't need to inflate it. Firecalc does that for you. I'm pretty confident of this because I downloaded the year-by-year fund balances that Firecalc provides, and could force out reasonable annual investment returns.

This is what I get when I click on "link to this set of data" for the first case. I've never seen an address that long before, maybe it embeds all the assumptions. If the links don't work, it only takes a minute to input the numbers above and let it run.

Moderator edit: first shorter link

This is what I get for the second:

Second shorter link

 

[ERD50]

Re: When to take SS

seems like, on the whole, firecalc suggests delaying

vimwick (and Independent), thanks for that.

vimwick, funny thing is I came up with the 1.76 factor just before you posted. To me , this is not clear from my annual statements, but it is on the ssa website.

http://www.ssa.gov/retire2/delayret.htm
http://www.ssa.gov/retire2/agereduction.htm

In case others missed it (and I have one question on it):

For those born 1943 to 1954 (includes a current 62yo):

Age 66 is 'full retirement' age.
Age 62, retirement benefits are reduced by 25% (.75 of full).
Retirement benefits are increased 8% for each year past age 66 through age 70.

Four years past age 66 times 8% is 32% increase, or 1.32 (or is this compounded to 36%, 1.36?). And 1.32 divided by .75 = 1.76.

Therefore, benefits at 70 are 1.76 times those at 62 for a current 62yo.

That is a key piece of data I was missing. Away we go.....

-ERD50


PS: Why did that scene in 'Fatal Attraction' where the family comes home and lifts the lid on the soup pot pop into my mind? :

 

[haha]

Re: When to take SS

Four years past age 66 times 8% is 32% increase, or 1.32 (or is this compounded to 36%, 1.36?). And 1.32 divided by .75 = 1.76.

It is not compounded.

Ha

 

[jdw_fire]

Re: When to take SS

OK let’s try JDW’s scenario with some different numbers.

Age 62 SS is 17K per year and your stash is 650K, so income at age 62 is 17K plus 4% of 650K (or 26K) for a total of 43K per year.

Now delay SS to age 70 and spend an extra 200K over 8 years to age 70 by reducing your stash to 450K. So your simple income is 4% of 450K (or 18K) plus 25K of the 200K for a total income of 43K per year.

Is there a benefit I’m missing here? Are my assumptions correct??

Now in the early SS example I would only pay taxes on 29% of my SS reducing my taxable income to 31K. I would pay taxes on the full 43K on the delay example.

Let me help. First if your SS at age 62 is $17k/yr then at age 70 it will be 1.76*$17K = $29,920/yr (in real dollars). Now back to your numbers, when you take SS at age 62 you stated you get a real "income" of $43K total. Now lets suppose you wait till 70 to start taking SS, you will need to have your portfolio produce $43,000 - $29,920 = $13,080 per year. To get this you need a portfolio of 25* $13,080 = $327K. Now that leaves you $650k - $327k = $323K to spend in the 8 years between 62 and 70. So let's see what income you can have during those years. First you have the $13,080/yr produced by the $327k portfolio. Second you have $327k/8yrs = $40,875/yr. Add these two and for the years between the ages of 62 & 70 you can spend $53,955/yr and for as long as you live after age 70 you can spend the $43k you mentiond earlier. To answer your question the benefit is the additional amount you get to spend each year between the ages of 62 and 70. (Note that all the dollar figures used in this post are in real terms.)

 

[jdw_fire]

Re: When to take SS

Bunny, you seem to be the one taking my post personally

Since I pooh-poohed your multiple bucket annuity idea a few years ago, you've laid in a pattern of picking a position i've taken, then creating scenarios with a twist in them in some effort to prove me wrong.

I am not picking on you and I have no desire to prove you anything, you seem to do a good enough job of that yourself. I am trying to provide accurate info that may be helpful to some who read this board.

 

[Bikerdude]

Re: When to take SS

In response to an earlier question, for the deferred start on SS, you just put $32,000 into the SS benefit field - you don't need to inflate it. Firecalc does that for you. I'm pretty confident of this because I downloaded the year-by-year fund balances that

I was under the impression that FC added inflation only after you had reached the year of your SS payment. Are you saying FC adds inflation from 2007 to SS at a later date? I've been putting the inflated amount from the SS web calculator for future dates. If you're right that's double dipping.

 

[youbet]

Re: When to take SS

First you have the $13,080/yr produced by the $327k portfolio.

Wouldn't you have to retain earnings to offset inflation on the the $327K so it's there in real terms when you're 66?

 

[Spanky]

Re: When to take SS

Since most here are believers in the 4% SWR (plus/minus a bit), the CT/JDW example refers to the impact of the SS payment on a 4% SWR nest egg. We don't know what sort of analysis is behind the nysscpa graph you provide.
-ERD50

ERD50,

The graph is from this article written a professor in accounting/finance:
http://www.nysscpa.org/cpajournal/2006/606/essentials/p42.htm

He suggests that age 62 is the best time to take SS benefits.