Do Social Security Calculators Miss This?

[pb4uski]

The additional Social Security from delaying is like an inflation-adjusted annuity. If you were to buy this outside Social Security, you would use your bond money to buy it. Therefore the money spent on living expenses while delaying should also come out of bonds/fixed income investments. Your stock investments continue to participate in the market.

That makes sense IF that is what you are doing... withdrawing money from bonds... but if you do that your AA would be changing all else being equal.

OTOH, some people may maintain a steady AA by occasionally rebalancing to a target AA and in that case should use the expected return for that AA.

 

[schenbew]

Boglehead's Retiree Portfolio Model a Useful Tool

OP - you may find the Retiree Portfolio Model (RPM) at Bogleheads a useful tool to run various scenarios to determine where their comfort level is on when to take SS. Everyone's situation is different, but assuming one has enough assets to allow them to defer taking SS beyond 62, RPM's Summary Tab presents a great summary showing the difference in total assets and annual cash flows for taking SS earlier and later, as specified by the user.

Standard caveat applies - all models are wrong, but some are useful.

I think RPM is very useful as a guide on when to take SS. RPM does take some effort and time to configure correctly to get good answers, but does allow you to evaluate the tradeoffs in different values for "how long will I live?", rates of return, future SS haircuts, etc.

DW and I are going to split it down the middle, waiting until FRA. We found that the advantages for us in taking it immediately at 62 or waiting until 70 weren't worth it.

Good luck finding your "sweet spot"!

The RPM calculator can be found here:
https://www.bogleheads.org/forum/viewtopic.php?t=97352

 

[PatrickA5]

Only in this forum (and Bogleheads) will people develop massive spreadsheets to try to figure out when to take Social Security. I'm guilty as well. But, most likely, if you die when you're supposed to it won't make any difference. And, if you die before or after you're supposed to it probably still won't make that much difference.

If you need the money to live on, take SS early. If you have some health condition that will likely shorten your life, take SS early. If neither of these apply, do whatever makes you happy. I imagine most people that take SS at 62 or 70 (and in-between) end up not regretting their decision.

In my case, I took at 62 and my higher income spouse might wait until 70. Or, she might take it tomorrow (at 65).

Only us spreadsheeters will know if it matters, and only if we can update our spreadsheets the day before we die.

 

[TNBigfoot]

Only us spreadsheeters will know if it matters, and only if we can update our spreadsheets the day before we die.

At least then, we can say “I told you so…”

 

[CRLLS]

It wasn't based on any specific formula for us. We were fortunate to be able to have DW file at her FRA of 66 and 9 months later, I could file a restricted application at my FRA. I collected for 4 years before I filed on my own benefit. That is essentially "found money". That option has since left the building. In the meantime, we have increased the surviving spouse's benefit.

While ~83 years of age may be a breakeven point for an individual, for a couple, the life expectancy of a survivor is much longer.

 

[marko]

Ok. So I just ran some numbers at FireCalc.
Assumed a $100K spend rate and a $2MM portfolio. 30 years. Assumed a $20K X2 for a couple taking SS

SS taken in 2024 would net an average of $5,212,067 at the end.

Then I assumed an 8% increase on the $20K over 8 years which brought it to $34.2K X 2 for a couple, but for 22 years because it would be 8 years later...62 vs 70.

SS taken in 2032 would net an average of $3,725,378 at the end.

Now, most here know that I'm horrible at math (and very often logic) so please feel free to (gently) critique.

 

[wmc1000]

We both started SS at FRA. All of our monthly costs, if one were to die, could still be covered if necessary by a single SS monthly payment without touching retirement funds or life insurance proceeds.

Therefore, if our situation, there was no need to delay for the extra benefit amounts and IF SS takes a haircut, the additional needed funds can come from retirement accounts or it can be utilized for LTC as needed.

If a catastrophic health situation arose for the remaining spouse a home sale would generate a significant value.

We feel comfortable that we have covered our bases as well as we can. Also there are no pensions involved for us.

 

[Out-to-Lunch]

Ok. So I just ran some numbers at FireCalc.
Assumed a $100K spend rate and a $2MM portfolio. 30 years. Assumed a $20K X2 for a couple taking SS

SS taken in 2024 would net an average of $5,212,067 at the end.

Then I assumed an 8% increase on the $20K over 8 years which brought it to $34.2K X 2 for a couple, but for 22 years because it would be 8 years later...62 vs 70.

SS taken in 2032 would net an average of $3,725,378 at the end.

Now, most here know that I'm horrible at math (and very often logic) so please feel free to (gently) critique.

I just tried to replicate your numbers. I get close to what you found for the age 62 case, but not the age 70 case.

I put in the 100k spend and $2M portfolio, 30 year duration. I started the SS payments in the year 2023 (@ 2x$20k) and got an average ending value of $5.4M
I then put in the SS payments starting in 2031 (@ 2x$34.2k) and got an average ending value of $5.3M.

What exactly did you do for your age-70 case?

 

[marko]

I just tried to replicate your numbers. I get close to what you found for the age 62 case, but not the age 70 case.

I put in the 100k spend and $2M portfolio, 30 year duration. I started the SS payments in the year 2023 (@ 2x$20k) and got an average ending value of $5.4M
I then put in the SS payments starting in 2031 (@ 2x$34.2k) and got an average ending value of $5.3M.

What exactly did you do for your age-70 case?

62 SS starts at 2024. Age 70 ran for 22 years, both get youto age 92. I should have lowered the start portfolio for age 70 considering that you'd be withdrawing feom it by $40k for 8 years.

 

[Out-to-Lunch]

62 SS starts at 2024. Age 70 ran for 22 years, both get youto age 92. I should have lowered the start portfolio for age 70 considering that you'd be withdrawing feom it by $40k for 8 years.

Well, yes, you would need a lower portfolio based on 8 years of withdrawals. But you don't know how much lower, because of market returns.

Or you could let Firecalc do that work for you (and more closely approximate the risk/reward that a real person is facing) by just running the comparison for 30 years for both, but start SS at the two different times.

 

[cathy63]

Ok. So I just ran some numbers at FireCalc.
Assumed a $100K spend rate and a $2MM portfolio. 30 years. Assumed a $20K X2 for a couple taking SS

SS taken in 2024 would net an average of $5,212,067 at the end.

Then I assumed an 8% increase on the $20K over 8 years which brought it to $34.2K X 2 for a couple, but for 22 years because it would be 8 years later...62 vs 70.

SS taken in 2032 would net an average of $3,725,378 at the end.

Now, most here know that I'm horrible at math (and very often logic) so please feel free to (gently) critique.

Does it make sense to assume an 8% increase starting at age 62? I think it's actually a 30% reduction from the age 67 amount (PIA) if you take it age 62 and then an 8% increase each year to age 70 from there. (Everyone who turns 62 after 2022, as the couple in your example does, has a FRA of 67.)

If 70% of your PIA is $20K, then your PIA is $28571. Increasing that by 8% per year for three years gives ~$36K.

 

[marko]

Well, yes, you would need a lower portfolio based on 8 years of withdrawals. But you don't know how much lower, because of market returns.

Or you could let Firecalc do that work for you (and more closely approximate the risk/reward that a real person is facing) by just running the comparison for 30 years for both, but start SS at the two different times.

I'd think that running both scenarios for 30 years skews the result. I'd think you must assume both results end at age 92.

 

[marko]

Does it make sense to assume an 8% increase starting at age 62? I think it's actually a 30% reduction from the age 67 amount (PIA) if you take it age 62 and then an 8% increase each year to age 70 from there. (Everyone who turns 62 after 2022, as the couple in your example does, has a FRA of 67.)

If 70% of your PIA is $20K, then your PIA is $28571. Increasing that by 8% per year for three years gives ~$36K.

This is where my eyes glaze over, but I was hoping those who can do this stuff would take over from my original premise. Please carry on!

 

[Out-to-Lunch]

I'd think that running both scenarios for 30 years skews the result. I'd think you must assume both results end at age 92.

I am assuming both scenarios end at age 92. Both start in 2023, and end in 2053. But in one, SS turns on in 2023, and the other turns SS on (at a higher rate) in 2031.

 

[marko]

I am assuming both scenarios end at age 92. Both start in 2023, and end in 2053. But in one, SS turns on in 2023, and the other turns SS on (at a higher rate) in 2031.

Oh. So that's where my premise falls apart. I told you my logic is often flawed! I was using 22 years for the second scenario instead of 30 thinking......well, I don't know what I was thinking. I guess I was thinking that SS would only last 8 years fewer.

In that case, as you post in #33, it doesn't really matter which way you do it, does it. At least according to FC.

 

[pb4uski]

Ok. So I just ran some numbers at FireCalc.
Assumed a $100K spend rate and a $2MM portfolio. 30 years. Assumed a $20K X2 for a couple taking SS

SS taken in 2024 would net an average of $5,212,067 at the end.

Then I assumed an 8% increase on the $20K over 8 years which brought it to $34.2K X 2 for a couple, but for 22 years because it would be 8 years later...62 vs 70.

SS taken in 2032 would net an average of $3,725,378 at the end.

Now, most here know that I'm horrible at math (and very often logic) so please feel free to (gently) critique.

I can replicate your $5,212,067.

For the delay scenario, you need to take the $20k divided by 70% and multiplied by 124%, which is $35,429. That results in $5,193,312... not much of a difference.

A more realistic version would be one spouse for $12,000 at 62 and the other for $35,429 at 70 and that ends up with $5,202,689. Again, all pretty similar.

Or perhaps make one spouse's benefit 60% of the other spouses benefit so $12,000/$20,000 at 62 and $21,257/$35,428 at 70 or $12,000 at 62 for one and $35,428 at 70 for the other.

Those scenarios result in $4,599,479, $4,583,986 and $4,590,059... again very similar.

All pretty similar. But what it misses is that it is highly unlikely that for a 62yo couple that both people will live to 92... it is very likely that one or the other will live until 92, it is unlikely that both will.

And taking SS later results in the higher of the two benefits for the remaining spouse and that benefit isn't captured in the numbers above. My 2c.

 

[Koolau]

The concern I have is the optimum scenario ignores the fact that the bulk of living expenses then come out of assets and are unavailable to participate in the market.

Depends on the tangential issues. In our case, we had WAY too much qualified money (tIRAs and 401k.) Pulling from that stash before SS (for Roth conversions and living expenses) meant lower RMDs post SS. I can't guarantee this is the best or even a good way to proceed, but the mix of investment categories in your retirement stash should not be ignored in all your calculations. Very much YMMV situation. BUT, think on the bright side, it's a good problem to have.