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Old 05-17-2015, 07:38 PM   #161
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Originally Posted by rayvt View Post
Yes. But there are some big caveats.

It's not just like any regular annuity. There is no flexibility. The terms -- timings and monthly annuity amount -- are set by the SSA and you have no ability to change them. Your only real choice is to take it or not.

For example, consider an (above average) FRA amount of $1,900/mo. Early at 62 is $1,350 and delayed at 70 is $2,376.

By delaying, you'd get an extra $1,026/mo. But it cost $129,600 (8 * 12 * $1350) to get that. So you are buying an annuity paying $1,026/mo for $129,600.
(The up-side is that you aren't paying the $129K as a lump sum, but as $1350 a month. The down-side is that if you die before 70, none of that is returned to your estate.)

$1,350/mo for 8 years gets you $1,026/mo for the rest of your life.

In the first 126 months (129,600 / 1026) after you hit 70, you are just getting your own money back. You don't see any net benefit until after you are 80.

To make a comparison, pull up a commercial quote for an SPIA for a 70 year old with a purchase price of $129,600. I got these quotes from Fidelity:
With no COLA increase:
$114,400 buys $1,026/mo
$129,600 buys $1,162/mo

With 2% annual increase:
$141,500 buys $1,026/mo
$129,600 buys $940/mo.

To compare like-to-like:
The (delayed) SS annuity $1,026/mo vs. $940/mo, for the same cost of $129,600.
An SPIA that pays initially $1,026/mo costs $141,500 vs. $129,600.

The annuity from SS pays you $86 more a month. To buy the same monthly payout costs $11,900 less.

So, yeah, the (delayed) SS annuity is cheaper than a commercial annuity. But not a whole lot cheaper, just a little bit.

If $1,026/mo isn't what you want, if you want $2,000? Tough, you can't get that. If your FRA benefit isn't $1,900/mo but is only $1,500/mo? Too bad, you can't get $1,026 you get $855. Have a nice day.

But what if we did it another way. What if instead of deferrring the SS we collect it at 62 and put it into a savings account (or bonds, or whatever) where it earns 2% after taxes. In 8 years it will grow to $140,400. Which is almost exactly enough to buy an SPIA that pays $1,026/mo.

Delaying SS as longevity insurance. fine. But you're not really getting much better than you could get with an SPIA. Plus a commercial SPIA won't cut your monthly payment when/if the SS trust fund runs dry.
if delaying many of us have to spend down assets. selling equities possibly even at a loss to sustain delaying is another factor to add in with the checks you are not receiving from ss.

in our case all of the above would happen plus my wife gets no spousal adder to hers until i file. that is another 3k a year.

we would not break even waiting until 84-85
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Old 05-17-2015, 07:54 PM   #162
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Originally Posted by eta2020 View Post
But you will not get a deal like this from any Insurance Company.
Actually, you can get significant increases from private insurance companies if you're willing to give up a year's benefit.

I have these monthly payouts for a $100,000 premium, for a straight life annuity, issued by Principal Life, sold to either a male who is 62 today or who is 63 today:

62: $532.04
63: $544.47

It looks like they only provide a 2.3% increase for the extra year of life. But, that is not equivalent to the SS choice. SS has an obligation to pay me today, but I am willing to forego 12 months of payments they owe me, to get up to 63 next year.

To get the right comparison, imagine this scenario.
I'm 62 today and I send Principal $100,000. They send me a contract that says they will pay $532.04 monthly until I die, starting a month from now.

After paying my money, I decide that I don't really need that money this year, and I'd rather have a larger lifetime income. So I put my first 12 checks aside. At the end of the year, I take my $6,384 of accumulated payments back to Principal, and buy a second annuity. This time, the issue age is 63. This annuity pays $34.76 per month.

I am now getting $566.80 per month, or 6.5% more than the $532.04.
Almost all that increase came from the fact that I refunded the 12 monthly benefits they paid me.

If lots of people wanted to do this, Principal would set up an automated system that would simply hold my first 12 checks at their office, then buy my annuity at the end of the year. This would look like SS to me.

If Principal gave me credit for a couple small mortality factors in that scenario, they could actually do a little bit better than the 6.5% increase.

Now, I'm not trying to talk you out of deferring. I'm 67 and I haven't started yet, so I think deferring is a good idea for people like me. I'm just saying that the "8% Return" that you mentioned isn't a "Return" like we use that word when we talk about most investments. It's an increase in monthly benefit that you purchase by forgoing 12 monthly benefits that you were legally entitled to receive.

And, you can see that private insurance companies could do something similar.

(MetLife sells a deferred, no cash value, no death benefit annuity. If I could find a quote engine for it, I could give you a more direct example. Unfortunately, I don't know how to get online quotes for that product.)
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Old 05-17-2015, 07:56 PM   #163
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We are treating SS income as longevity insurance. We don't need SS income from 62-70 based on the current portfolio. Instead, by delaying the intent is to maximize the monthly payout later in life, as a backup source of income should the portfolio suffer an unexpected valuation excursion.

This is similar to the function that a deferred annuity would have in long term planning.
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Old 05-17-2015, 08:00 PM   #164
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That looks very attractive to me. I couldn't get the Fidelity site to work (browser maybe?) so I used incomesolutions which I can access through Vanguard.

I asked for a straight life, level annuity on a male who was born on 5/15/1945 with a $100,000 premium.

The best monthly benefit it had was $646.83, which converts to $740.00 for a premium of $114,400.

This was for Principal Mutual. They also showed Integrity, Mutual of Omaha, and AIG with lower payouts. Did you notice what company you were getting through Fidelity?
Yes, I checked on a couple of immediate annuity sites and got similar results, in the $750 pm month range. Obviously this would affect the conclusions, in favor of delay.
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Old 05-17-2015, 08:09 PM   #165
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Bottom line...... They hope you die soon, you hope to live a long and prosper....
Regardless when you take it.
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Old 05-17-2015, 08:13 PM   #166
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Some additional thoughts on when to take Social Security:

1. Much analysis indicates taking it at 62 versus 70 will keep you ahead financially until around 80 years of age (more or less depending on your investment assumptions AND factoring income tax implications and tax brackets). So, for the first 18 Years or so, you are ahead financially --> Do you think you really have another 18 years to offset the number of years you were ahead OR are you weighing those later years as much more in importance? Statistically, more than half of us will expire around our mid eighties.

.
The bold is relevant to us.

All of us buy auto insurance and HO insurance, even though we know that the total dollars these companies pay in claims are less than the total dollars that their policyowners pay as premiums. Why do we make such a foolish decision? I wouldn't bet in a casino with those odds.

Because the dollars we pay in premiums are dollars that would have otherwise been spent on "nice to have" stuff. IF my house burns down, the dollars in claims payments get me back into a house - that'e "need to have" in my world. A claim dollar is worth more to me than a premium dollar.

SS is my insurance policy if my other retirement plans go haywire for some reason. It would keep us in the house, with the furnace and lights working, with food on the table. In that unlikely but possible situation, those dollars really are more important.

Lots of people here have so much money that they could lose almost all of it and still cover the necessities of life without SS. We're not in that category.
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Old 05-17-2015, 09:31 PM   #167
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We are treating SS income as longevity insurance. We don't need SS income from 62-70 based on the current portfolio. Instead, by delaying the intent is to maximize the monthly payout later in life, as a backup source of income should the portfolio suffer an unexpected valuation excursion.

This is similar to the function that a deferred annuity would have in long term planning.
+1

Some have pointed out that by taking SS later, one needs to spend down one's portfolio earlier, possibly selling in a down market early on when a bad sequence of returns has the most impact. But I also see two advantages for the portfolio by taking a later, larger, inflation-indexed SS payment: Less (or no) need to spend part of the portfolio to purchase longevity insurance, and less (or no) need to invest in TIPS and their unattractive real returns.
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Old 05-17-2015, 10:13 PM   #168
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I pretty much view the decision for SS as a cash flow problem rather than how to maximize total return from it. We currently cover our retirement expenses with our investment income without SS so there is no need for me to take it now. We are thinking of doing some more traveling before we get much older (currently 64 and 67) which will require more income and then I might elect to take SS. Otherwise just wait until 70. I never put SS into our retirement planning. It is really icing on the cake.
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Old 05-17-2015, 10:46 PM   #169
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We are delaying SS until 70 and drawing down our IRAs and/Roth converting in the meantime. One reason is to reduce the RMD tax torpedo, especially for a surviving spouse.

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Old 05-17-2015, 11:31 PM   #170
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You are counting the increased benefit but ignoring what you had to forego in order to get it. You can't do that -- unless you're an insurance agent trying to convince somebody to buy a Whole LIfe policy.

It's similar to the decision of paying points on a mortgage to get a lower interest rate. Yes, interest payment will be lower, but that wasn't free, you had to pay a large chunk of money up front. Nobody ignores the money you pay in points when figuring whether to do it or not.

For an FRA benefit of $1000, if you delay for 12 months you get $1080. But you have to give up $12,000. In order to get an additional $80/mo for the rest of your life you have to forego receiving $1,000/mo for 12 months right now.

That $12,000 is gone forever, just like the points on a mortgage. You get the benefit back $80 at a time, monthly. It will take you 150 months ($12,000 / 80) -- 12.5 years -- until you've collected enough to break-even. Essentially, for the first 12.5 years they are just giving you your own money back, a little bit every month. Just like every other SPIA.
You have a couple of long posts showing what most people has said repeatedly.... the for a single person SS is agnostic on when to take it... IOW, they take into account everything you put down and it is basically a wash for the average person...


You fail to put in your post that most people that take SS are married and the calculations do NOT follow what you have... I am in that boat... there is ZERO calculation you can come up with that would make taking SS early or even on time beneficial to 'my family'.... the only thing that would change my calculation is my DW dying before me or we got a divorce... which would put me back into the single calculation...
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Old 05-17-2015, 11:54 PM   #171
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Question for the group.... would it be worthwhile to pay $67,200 for a single life COLAed annuity that pays $540/month starting at age 70?
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Old 05-17-2015, 11:57 PM   #172
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That is essentially the math for taking SS at 70 vs 62. Let's say that your FRA is 67 and your FRA benefit is $1,000/month. If you claim at age 62, your benefit will be about 30% lower, or $700/month. If you claim at 70 your benefit would be 24% higher, ore $1,240/month.

If you delay to 70 then you will have forgone $700/month for 8 years, or $67,200 and you gain a $540 COLAed benefit for the rest of your life. An argument could be made that you give up more than $67,200 because of COLA, ok... so if you bake in a 2.75% annual COLA, the $67,200 becomes $74,036.

According to immediateannuities.com, $74,036 of premium at age 70 (male) would buy a $467/month non-COLA lifetime benefit, so by delaying SS you get an extra $73 per month plus COLA on the whole $540/month. Good deal IMO.
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Old 05-18-2015, 08:56 AM   #173
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Two different views on taxes:

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4. Waiting until 70 will give you the max payout, but will often also result in the max tax hit. Combine it with RMDs at that time, in addition to pension, dividends,... and the percent of taxable social security income could be significant versus taking it earlier.
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We are delaying SS until 70 and drawing down our IRAs and/Roth converting in the meantime. One reason is to reduce the RMD tax torpedo, especially for a surviving spouse.
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Old 05-18-2015, 09:04 AM   #174
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Two different views on taxes:
Delaying till 65 will maximize Obamacare Subsidies ...

Just collect 60k in dividends get another 60k from cash and you have 10k a month plus Health Care subsidies (I am talking about couple)

Add to this 20k - 30k in SS and say goodbye to subsidies. You can go and spend half of SS on Health Care Insurance for a privilege of collecting it early.
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Old 05-18-2015, 09:05 AM   #175
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That looks very attractive to me. I couldn't get the Fidelity site to work (browser maybe?) ... Did you notice what company you were getting through Fidelity?
https://www.fidelity.com/annuities/i...ities/overview Then click on "estimator" at the bottom. They just say, "Fixed annuities available at Fidelity are issued by third-party insurance companies..." no companies named.

With your inputs I get $637 for $100K. Same ballpark as you got.
For $129,600, $826 for no cola, $691 for 2% annual increase. I must have used different parameters yesterday, when I posted $940.

So...for $129K a cola SPIA pays $691 and SS pays $1026. As we all say, the SS "annuity" is cheaper. So if you want the longevity insurance and are okay with the limitations on timing and amount that the SS annuity will give you, that's the way to go.

That's a comparison of annuities, if you decide that you want an annuity.

A separate question is whether you want an annuity at all. It is still the case that you have to give up 100% of one year of SS benefits to collect that 8% larger benefit. So the breakeven point is 100/8 = 12.5 years. The SPIA is worse, 187 (15.5 years) months to break even.

For me, that's too long of a payback period. Others may differ.
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Old 05-18-2015, 09:27 AM   #176
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https://www.fidelity.com/annuities/i...ities/overview Then click on "estimator" at the bottom. They just say, "Fixed annuities available at Fidelity are issued by third-party insurance companies..." no companies named.

With your inputs I get $637 for $100K. Same ballpark as you got.
For $129,600, $826 for no cola, $691 for 2% annual increase. I must have used different parameters yesterday, when I posted $940.

So...for $129K a cola SPIA pays $691 and SS pays $1026. As we all say, the SS "annuity" is cheaper. So if you want the longevity insurance and are okay with the limitations on timing and amount that the SS annuity will give you, that's the way to go.
Thanks for following up on this. I've occaisionally said that delaying SS is a significantly better deal than any private SPIA available today (impacted by low interest rates). Your earlier post said it was way closer than I thought.
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Old 05-18-2015, 09:34 AM   #177
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Thanks for following up on this. I've occaisionally said that delaying SS is a significantly better deal than any private SPIA available today (impacted by low interest rates). Your earlier post said it was way closer than I thought.
I find this analysis more clearly done by pb4uski:
Quote:
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That is essentially the math for taking SS at 70 vs 62. Let's say that your FRA is 67 and your FRA benefit is $1,000/month. If you claim at age 62, your benefit will be about 30% lower, or $700/month. If you claim at 70 your benefit would be 24% higher, ore $1,240/month.

If you delay to 70 then you will have forgone $700/month for 8 years, or $67,200 and you gain a $540 COLAed benefit for the rest of your life. An argument could be made that you give up more than $67,200 because of COLA, ok... so if you bake in a 2.75% annual COLA, the $67,200 becomes $74,036.

According to immediateannuities.com, $74,036 of premium at age 70 (male) would buy a $467/month non-COLA lifetime benefit, so by delaying SS you get an extra $73 per month plus COLA on the whole $540/month. Good deal IMO.
So you can buy 467 non-COLA lifetime benefit...I would expect 200-300 range for COLA lifetime benefit. Compare this to 540 Cola from SS. That looks like incredible deal.

Collecting SS early is good if: You need the money or you are in poor health or you are a financial genius.
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Old 05-18-2015, 10:31 AM   #178
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DH and I visited a fee only FP at the point that DH retired in 2008. The visit was to have a set of eyes other than our own review our plan once to validate our numbers/assumptions. One of his suggestions was to defer taking SS until 70 and intentionally take RMD's in the amount that SS would have been between retirement(62) and 70. Doing so would keep our income taxes the same during that period but reduce the amount of future RMD's that would need to be taken once reaching 70.5. Furthermore, Converting those 8 years of annual withdrawals into a Roth IRA and investing them also avoided the concern of liquidating during a down market and in fact the Roth grew handsomely as the market since 2009 has outperformed historical returns. And now that Roth is worth a considerable amount and can never be taxed. Not to mention that the SS to be claimed at 70 will be 164 percent of its original amount, not including COLA's. I am well aware that many could not afford to take this path but would need to spend the WD's to live but as a pure math play I think this advise was flawless. Our FP earned his fee for that suggestion alone.
Because we heavily relied on 401, 403, & 457 plan deferrals to keep our taxable income low while working, I've been thinking along those lines too. Modeling potential RMD's is subject to the variability of market returns, but it does have a shorter duration than the entire retirement plan horizon so I consider that a short-term plan, and can utilize taking SS earlier if things go south. Originally I was in the take it early camp on SS, but another point I see in delaying - we can utilize AA to shield against market downturns, although that doesn't necessarily work so well for inflation protection. Delaying SS handles that aspect, with the added benefit of providing a bonus should deflation hit. That said, our situation seems to be leaning towards FRA, maybe stretch further if things are going well. But, that is 10 years out, things can change - so I''m saying plan, but be flexible.
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Old 05-18-2015, 11:20 AM   #179
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Two different views on taxes:
I side with misanman... I want to delay so I can do more Roth conversions before RMDs begin and minimize my time in the 25% tax bracket. That 10% makes a big difference.

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Delaying till 65 will maximize Obamacare Subsidies .....
True, but I concluded that the value of the Obamacare subsidies were dwarfed by the tax torpedo and I am better off foregoing the subsidies in favor or Roth conversions.
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Old 05-18-2015, 12:09 PM   #180
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I find this analysis more clearly done by pb4uski:


So you can buy 467 non-COLA lifetime benefit...I would expect 200-300 range for COLA lifetime benefit. Compare this to 540 Cola from SS. That looks like incredible deal.

Collecting SS early is good if: You need the money or you are in poor health or you are a financial genius.
You are exactly right. Truly, no contest.I've shown this several times. It does not gt accepted.
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