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View Poll Results: Would you take a lump sum buy out instead of monthly Social Security?
Yes 20 21.98%
No 71 78.02%
Voters: 91. You may not vote on this poll

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Old 09-18-2015, 09:58 AM   #21
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Absent specifics, I'd assume the OP meant a neutral lump sum vs SS choice. IOW, would you rather have a $X lump sum or the inflation adjusted immediate annuity that $X would buy? Then of course there's still the issue of current rates/yields...
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Old 09-18-2015, 10:14 AM   #22
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Yes, if the lump sum was equal to my contributions (plus employer contributions) compounded annually by 5%. If it was a number the government comes up with, then no.
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Old 09-18-2015, 10:57 AM   #23
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Originally Posted by Independent View Post
How can anybody answer that without knowing the size of the lump sum?

I'm currently deferring SS, so I'm actually buying a little more of their CPI adjusted life annuity each month. At the current "lump sum vs. annuity" trade-off, I think SS is a good deal.

A complete buyout might come at a different price.
Minimum Present Value Segment Rates

For August 2015, 1st segment 1.68, 2nd segment 4.05, 3rd segment 4.98. Single, 67 (assuming that's FRA) and RMD Single Life Expectancy Table.

1st Segment:
PV(0.0168, 19.4, 826*0.90*12) = 146,573

2nd Segment:
PV(0.0405, 19.4, (4980-826)*0.32*12) = 262,174

PIA (1st Bend Point): 743/mo or 8,916/yr
PV: 146,652
Initial WR: 6%

PIA (2nd Bend Point): 2,073/yr or 24,876/yr
PV: 146,573 + 262,174 = 408,747
Initial WR: 6%
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Old 09-18-2015, 11:06 AM   #24
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^ that's not how the calculation works

the first segment rate is used to discount the first 5 years of payments, the second rate is used to discount the next 15 years (years 5 to 20)

also, you don't fix the pv calculation at life expectancy, the pv is a mathematical expectation so you need to assume a little piece of you dies each year until you are 100% dead (end of mortality table)

SS will never allow cashouts, the monies are needed for the insurance pooling feature of SS

let me know if you need a lump sum factor at age 67 using those rates, the problem is, the rates need to be shaved for a future CPI assumption
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Old 09-18-2015, 11:30 AM   #25
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I'm interested in people's attitude to risk and "guaranteed" income in retirement.
I voted yes (assuming it was a reasonable lump sum) for two reasons: (1) with 2 pensions and rentals covering 70% of our spend, we already have enough "guaranteed" income; and (2) I believe that SS will eventually be watered down through some combination of additional income taxes on benefits, means testing, reduced COL adjustments, increased retirement age, or they'll just allow the mandated reductions to happen.

My retirement spreadsheet includes a "factor" to reduce SS benefits. It's currently set at 70%, but I've had it as low at 50%. During the accumulation phase, I never thought SS would be a reality for us at all. I'm now beginning to think it will be, but not at the levels currently promised. If I'm wrong, my kids will make out like bandits.

I'm a big believer in having some level of "guaranteed" income, especially in early retirement to help mitigate sequence of returns risk. Both our pensions had attractive lump sum options, but we elected the annuity for this reason. One of them has no COLA and the other is partially COLA'd. For the same reason (sequence of returns risk), we also paid off the mortgage, bought 2 rental houses, increased cash allocation to 5%, and tilted the taxable portfolio to high dividends.

If the next 30 years is anything like the last 30, then these actions probably sacrificed some long-term growth potential. But we like the risk/reward trade-off in this case. With pensions, rentals, and dividends, our expenses are 85% covered (basic, non-discretionary is over 100% covered). The 5% cash allocation covers the remaining gap for many years. There's still a large portfolio to cover other risks, like inflation, longevity, LTC. Later on when SS comes around, I'd be less concerned about sequence of returns and thus more inclined to take the OP's theoretical lump sum. I doubt that would ever be an option though. If it was, I'd jump all over it.
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Old 09-18-2015, 11:31 AM   #26
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^ that's not how the calculation works

the first segment rate is used to discount the first 5 years of payments, the second rate is used to discount the next 15 years (years 5 to 20)

also, you don't fix the pv calculation at life expectancy, the pv is a mathematical expectation so you need to assume a little piece of you dies each year until you are 100% dead (end of mortality table)

SS will never allow cashouts, the monies are needed for the insurance pooling feature of SS

let me know if you need a lump sum factor at age 67 using those rates, the problem is, the rates need to be shaved for a future CPI assumption
Ah, thanks for that. I was trying to figure out how their discounting works. But yeah, SS is insurance. They need the large pool to subsidize low income and disability payments.

Don't know what the contribution rates are in previous years but 12.4% OASDI works out to 54,595 in contributions at the first bend point. At 5% APR, that's 152,606 after 35 years (earning 826/mo). That's 5.8% inflation-adjusted withdrawal rate, tax-free so very good deal for really low income.
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Old 09-18-2015, 11:45 AM   #27
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If you are a 65 year old single male and receiving $2k a month in SS using the IRS segmented rates of 1.68%, 4.05% and 4.98% you'd get a lump sum of $316k......this does not factor in inflation adjustment which is obviously a big positive for SS payments. Still to generate $2k/month from $316k for an average lifespan you'd only need 3% annual return. If this was an annuity or pension plan lump sum payout people would take the lump sum.

The question becomes why do so many people like SS, but hate annuities?
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Old 09-18-2015, 11:54 AM   #28
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if you are a 65 year old single male and receiving $2k a month in ss using the irs segmented rates of 1.68%, 4.05% and 4.98% you'd get a lump sum of $316k......this does not factor in inflation adjustment which is obviously a big positive for ss payments. Still to generate $2k/month from $316k for an average lifespan you'd only need 3% annual return. If this was an annuity or pension plan lump sum payout people would take the lump sum.

The question becomes why do so many people like ss, but hate annuities?
cola.
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Old 09-18-2015, 12:13 PM   #29
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No, and I don't ever see that option being made available either. Think about it - if it were an option, those more likely to choose it might include people with seriously shortened life expectancy. For that reason, I'd expect that any cash buyout made available would only be a fraction of the benefits over time. Creating yet another loophole to destabilize SS is the last thing we need.
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Old 09-18-2015, 12:18 PM   #30
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Originally Posted by nun View Post
If you are a 65 year old single male and receiving $2k a month in SS using the IRS segmented rates of 1.68%, 4.05% and 4.98% you'd get a lump sum of $316k......this does not factor in inflation adjustment which is obviously a big positive for SS payments. Still to generate $2k/month from $316k for an average lifespan you'd only need 3% annual return. If this was an annuity or pension plan lump sum payout people would take the lump sum.

The question becomes why do so many people like SS, but hate annuities?
They're becoming scarcer, but according to this source, evidently the inflation adjusted annuity lump sum would be about $467K (assuming your $316K is correct) in 2013. Those may have changed or been discontinued.

Should you get an inflation-adjusted annuity?

It's a false question. Annuities are elective, Social Security is not for most Americans. And annuities are an investment option, Social Security is not, never has been.[/COLOR]
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Old 09-18-2015, 12:54 PM   #31
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SS is a "pay-go" social insurance program - participation is mandatory (with few exceptions), need is presumed, benefits are "related" to earnings and there is a component that blends intergenerational equity with social adequacy


http://swagman.typepad.com/curmudgeo...-security.html
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Old 09-18-2015, 12:57 PM   #32
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They're becoming scarcer, but according to this source, evidently the inflation adjusted annuity lump sum would be about $467K (assuming your $316K is correct) in 2013. Those may have changed or been discontinued. Should you get an inflation-adjusted annuity? It's a false question. Annuities are elective, Social Security is not for most Americans. And annuities are an investment option, Social Security is not, never has been.
I agree that it's a fantastical question, but it's interesting to think about. That $467k inflation adjusted lump sum looks pretty inviting. If course SS in mandatory and there won't be any lump sums coming, but it's an interesting thought experiment. I'm surprised so many people would take SS over the lump sum given the numbers. Or maybe they didn't run the numbers or SS is their only stable retirement income source that won't go up and down with the markets so whatever the lump sum they really want the guaranteed COLA income.
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Old 09-18-2015, 01:03 PM   #33
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yes


pay me back everything I contributed with interest


we'll call it even

I do not just want interest.... I want a balanced portfolio return!!!
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Old 09-18-2015, 01:10 PM   #34
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I agree that it's a fantastical question, but it's interesting to think about. That $467k inflation adjusted lump sum looks pretty inviting. If course SS in mandatory and there won't be any lump sums coming, but it's an interesting thought experiment. I'm surprised so many people would take SS over the lump sum given the numbers. Or maybe they didn't run the numbers or SS is their only stable retirement income source that won't go up and down with the markets so whatever the lump sum they really want the guaranteed COLA income.

I will say again... the number should be neutral for a single person... for someone who is married (and the spouse has low or no SS coming) the extra money you get from SS makes it an easy decision... and having the payments on both lives also makes it an easy decision....


I have not thought about what I would do if I were single... but if it were truly neutral I would probably take the lump sum....
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Old 09-18-2015, 01:28 PM   #35
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I will say again... the number should be neutral for a single person... for someone who is married (and the spouse has low or no SS coming) the extra money you get from SS makes it an easy decision... and having the payments on both lives also makes it an easy decision.... I have not thought about what I would do if I were single... but if it were truly neutral I would probably take the lump sum....
Yes the survivor benefits make SS attractive, but if the lump sum took COLA and survivor benefit into consideration making it even larger would you take the lump sum?

I asked a related question a while back where I asked at what IRR people would buy an annuity. Very few people would buy one even with IRRs above 8%. So it looks like people won't buy fixed income streams with lump sums, but also like to keep a fixed income stream when they already have one.
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Old 09-18-2015, 02:10 PM   #36
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But as someone else said, what happens when some folks blow their money and come back for help. Are "we" going to have to pay for them as charity cases.
Naw, just make them into soylent green.

I would not take a lump sum option. Just my luck that I'd set a new Guinness record for longevity and exhaust the funds 10 years before passing on. Of course, by then I probably wouldn't care.
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Old 09-18-2015, 04:15 PM   #37
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No.

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Old 09-18-2015, 04:56 PM   #38
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yes

pay me back everything I contributed with interest

we'll call it even
Since your taxes were used to pay old people's benefits, we'd have to go back and get those people or their heirs to repay their benefits.

Of course, if some of those old people happen to be your parents or grandparents, maybe the "heirs" part above would make it a wash for you.
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Old 09-18-2015, 08:57 PM   #39
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Can't really answer without knowing the lump sum and the health of the person involved.
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+1 for $100 thousand.... no way.... for $100 million.... sign me up!
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Old 09-18-2015, 08:58 PM   #40
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Yes ~ Because I don't think I'll end up seeing it 35+ years from now
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