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Re: When to take SS
Old 05-17-2007, 02:27 PM   #141
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Re: When to take SS

Quote:
Originally Posted by Cute Fuzzy Bunny
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)
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Re: When to take SS
Old 05-17-2007, 03:13 PM   #142
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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
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Re: When to take SS
Old 05-17-2007, 03:25 PM   #143
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Re: When to take SS

Quote:
Originally Posted by Cute Fuzzy Bunny

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
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Re: When to take SS
Old 05-17-2007, 03:59 PM   #144
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Re: When to take SS

Quote:
Originally Posted by vimwick
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? :
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Re: When to take SS
Old 05-17-2007, 04:02 PM   #145
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Re: When to take SS

Quote:
Originally Posted by ERD50
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
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Re: When to take SS
Old 05-17-2007, 05:15 PM   #146
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Re: When to take SS

Quote:
Originally Posted by Bikerdude
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.)
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Re: When to take SS
Old 05-17-2007, 05:21 PM   #147
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Re: When to take SS

Bunny, you seem to be the one taking my post personally
Quote:
Originally Posted by Cute Fuzzy Bunny
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.
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Re: When to take SS
Old 05-17-2007, 05:29 PM   #148
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Re: When to take SS

Quote:
Originally Posted by Independent

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.
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Re: When to take SS
Old 05-17-2007, 05:30 PM   #149
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Re: When to take SS

Quote:
Originally Posted by jdw_fire
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?
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Re: When to take SS
Old 05-17-2007, 06:33 PM   #150
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Re: When to take SS

Quote:
Originally Posted by ERD50
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/20...ntials/p42.htm

He suggests that age 62 is the best time to take SS benefits.
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Re: When to take SS
Old 05-17-2007, 06:49 PM   #151
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Re: When to take SS

Oh dont go throwing actual facts written by actual experts in the matter into this ugly bowl of soup.

To save people the lengthy read, the Dalton piece has come up before. His article suggests that if you can make 5% or better on your money, that you're better of taking social security at 62 and continuing your investments growth. At a growth rate of 8%, he calculates that you'd have to reach the age of 106 before a delay strategy would pay off.

Here's another way to look at it, since it seems we're stuck on playing with the money and return rates in a manner I consider ridiculous.

Take a look at the social security payment $ amount you'd get at 62. What portion of your annual cost of living is this? 25%? 35%?

By taking the benefit at 62 and using it to replace that portion of your income stream, you're also freeing that same percentage of your portfolio from a short investment time horizon and loosening up volatility concerns.

So that 25% (whatever) of your portfolio no longer has to produce an income or be sold for 8 years, given the silly 8 year model we're going to build in the middle of our retirement, sole value being to try to microscope a decision that should be looked at with a macroscope.

Would you do anything differently with what is now intermediate term money?

I guess the alternative way of asking the question is this: at this age range (early to mid 60's), people are often throttling back their equities and other high risk investment classes and shifting towards bonds and cash. The senseless argument posted above suggests you look at is as an all cash proposition. How about instead of the throttle back, you take the benefit early and leave your allocations towards higher return, higher volatility options.

Methinks you get that 8%. Maybe more. And probably wont do a lot of lamenting on your 107th birthday

Pay particular attention to the legislative articles that Dalton links to.

And before the same misinformation that floated the last time Daltons article came into play, NO, he did not later admit that he screwed up any calculations and NO, he did not retract any portion of his article.
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Re: When to take SS
Old 05-17-2007, 07:14 PM   #152
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Re: When to take SS

then why when i took 3 minutes to run the numbers (as cfb suggested) did firecalc indicate it was better (higher revenue stream) to delay?
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Re: When to take SS
Old 05-17-2007, 07:31 PM   #153
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Re: When to take SS

Quote:
Originally Posted by youbet
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?
No, by the 4% rule the $327K portfolio will produce a real (i.e. inflation adjusted) $13080/yr for 30 yrs.
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Re: When to take SS
Old 05-17-2007, 07:48 PM   #154
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Re: When to take SS

Quote:
Originally Posted by jdw_fire
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.)
The problem that I have with this analysis is that the multiplier you are using should not be 25. I know you are using it because it is the reciprocal of the 4% SWR. But the 4% SWR doesn't apply to the average 70 year-old who, according to the table Spanky posted (which is from the SS web site) has a life expectancy of 12.8 years. I think you should be using a much lower multiplier.

I went to the Vanguard annuity calculator and priced a lifetime inflation-adjusted (using CPI-U) annuity for a 70 year-old man. The SWR is 6.85%, which implies a multiplier of 14.6. Redoing your analysis with a 14.6 multiplier leaves you with 14.6 x $13,080 = $190,968 to spend down over the 8 years from 62-70, or $23,870 per year. So the residual portfolio becomes 650K - 191K = 459K. Applying the 4% SWR to the 459K yields $18,360. So you have a total amount to spend from age 62-70 of $18,360 + $23,870 = $42,230 about the same as the original $43K you would get from taking 17K SS at 62 and adding it to 26K (4% of 650K).

So it seems to me that all this additional spending power from age 62-70 is the result of choosing a multiplier which is way too high.
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Re: When to take SS
Old 05-17-2007, 08:24 PM   #155
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Re: When to take SS

Quote:
Originally Posted by FIRE'd@51

I went to the Vanguard annuity calculator and priced a lifetime inflation-adjusted (using CPI-U) annuity for a 70 year-old man. The SWR is 6.85%, which implies a multiplier of 14.6. Redoing your analysis with a 14.6 multiplier leaves you with 14.6 x $13,080 = $190,968 to spend down over the 8 years from 62-70, or $23,870 per year. So the residual portfolio becomes 650K - 191K = 459K. Applying the 4% SWR to the 459K yields $18,360. So you have a total amount to spend from age 62-70 of $18,360 + $23,870 = $42,230 about the same as the original $43K you would get from taking 17K SS at 62 and adding it to 26K (4% of 650K).

So it seems to me that all this additional spending power from age 62-70 is the result of choosing a multiplier which is way too high.
Very interesting! Maybe we're getting close to understanding this issue.
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Re: When to take SS
Old 05-17-2007, 08:25 PM   #156
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Re: When to take SS

Really, I'm glad someone can figure this stuff out. My head is about to explode.
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Re: When to take SS
Old 05-17-2007, 08:48 PM   #157
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Re: When to take SS

Quote:
Originally Posted by FIRE'd@51
The problem that I have with this analysis is that the multiplier you are using should not be 25. I know you are using it because it is the reciprocal of the 4% SWR. But the 4% SWR doesn't apply to the average 70 year-old who, according to the table Spanky posted (which is from the SS web site) has a life expectancy of 12.8 years. I think you should be using a much lower multiplier.

I went to the Vanguard annuity calculator and priced a lifetime inflation-adjusted (using CPI-U) annuity for a 70 year-old man. The SWR is 6.85%, which implies a multiplier of 14.6.

So it seems to me that all this additional spending power from age 62-70 is the result of choosing a multiplier which is way too high.
Well, If a 70 year old man runs FireCalc and he has a lot of longevity in his family, and uses a 30 year time frame, his SWR would be less than 4% - So that is where the 25 multiplier comes in.

Which also may be why I might be interested in an annuity when I'm age 70, so that I could get a 6.8% SWR

Which is why I am also interested in Delaying SS to age 70 and an inflation adjusted annuity at 70 too
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Re: When to take SS
Old 05-17-2007, 09:34 PM   #158
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Re: When to take SS

Quote:
Originally Posted by Bikerdude
Very interesting! Maybe we're getting close to understanding this issue.
Yes, it is very helpful when we get numbers and methodology to base a comparison on.

Well, I agree with C-T's post right above this, I support the 4% number for the 70 yo. But I think I see a source of error. We are using 4% whether the person is 62 or 70. It is the same person, planning for the chance that they will be one of those people that live a long time (averages have little to do with it). But, if you use 100yo as your outside number, that is a 38 year cycle for the 62yo and a 30 year cycle for the 70yo.

Or a 30 year cycle for the 62yo (out to 92) and a 22 year cycle for the 70yo.

OK, so now a dozen of us will go run 22, 30 and 38 year cycles on FireCalc and report back in.....

-ERD50
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Re: When to take SS
Old 05-17-2007, 09:39 PM   #159
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Re: When to take SS

Geez, I don't even pretend to understand all of the math, but with all of the different parameters that affect all of the conclusions, I think that this is an example of a case of 'exceeding the precision of the model'.

I take it most of you guys were on the debate team in high school ...
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Re: When to take SS
Old 05-17-2007, 10:15 PM   #160
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Re: When to take SS

Quote:
Originally Posted by megacorp-firee
I take it most of you guys were on the debate team in high school ...
That makes this a "mass-debation"...
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