MOST middle class folks who plan to retire early need to take SS at 62

[Bestwifeever]

Hmmm, this sounds a bit like this thread, doesn't it?


http://www.early-retirement.org/for...ntil-70-to-collect-social-security-83301.html


Is the banned poster who started that thread back?

Perhaps we have a winner! That poster was planning to move to Minnesota at the end of the year. This poster lives in....

 

[Amethyst]

One can change one's screen name, but one's rhetorical style is harder to disguise.

 

[frankbrenowitz]

Thanks RunningBum. It took 10 seconds of reading the prior thread to identify numerous linguistic markers between EarlySS and ForcedtoRetiire. Move along folks, nothing to see (or learn from) here. Just the same old troll.

 

[PhrugalPhan]

I agree with others that the year to start SSI is actuarially neutral. To me the big question is going to be will I be able to take advantage of various tax rates (given I will have a pension) to pull money out of my accounts and roll the money over to a Roth IRA. I haven't worked it out in depth, but I think it will be worth it to me to hold off on SSI payments and try to reduce my 457 plan via Roth rollovers. Otherwise I could be stuck with a sizable yearly tax hit when I turn 71.

 

[Hermit]

Thanks RunningBum. It took 10 seconds of reading the prior thread to identify numerous linguistic markers between EarlySS and ForcedtoRetiire. Move along folks, nothing to see (or learn from) here. Just the same old troll.

Wow! You must be related to The Great Carnac!

 

[haha]

I agree with others that the year to start SSI is actuarially neutral. To me the big question is going to be will I be able to take advantage of various tax rates (given I will have a pension) to pull money out of my accounts and roll the money over to a Roth IRA. I haven't worked it out in depth, but I think it will be worth it to me to hold off on SSI payments and try to reduce my 457 plan via Roth rollovers. Otherwise I could be stuck with a sizable yearly tax hit when I turn 71.

It is not and cannot be actuarially neutral.

At minimum one needs an interest rate to support this frequent assertion.

Ha

 

[pb4uski]

.... Maybe, but that is a real gamble taking out so much money during those 5 years if we go into a bear market.

Not really, because if the bear shows up and decides to stay a while you can always then opt to start collecting SS.

 

[PhrugalPhan]

It is not and cannot be actuarially neutral.

At minimum one needs an interest rate to support this frequent assertion.

Ha

Well ok, I assumed there was an implied interest rate factor. When I work up my own spreadsheets to approximate this I include an interest rate I can change to see where the crossover (i.e. neutral) would be with different rates.

I would believe that whenever "actuarially neutral" is used for any time in the future, an estimated interest rate is always included in the calculations.

Whether that rate is a reasonable number is often where the argument starts.

 

[pb4uski]

It is not and cannot be actuarially neutral.

At minimum one needs an interest rate to support this frequent assertion.

Ha

It is actuarial neutral... or at least that is what SSA claims and I believe it is true.... mortality and interest are effectively embedded in the ~ 6% annual discount if you take early or 8% annual premium if you take later.

 

[pb4uski]

Thanks RunningBum. It took 10 seconds of reading the prior thread to identify numerous linguistic markers between EarlySS and ForcedtoRetiire. Move along folks, nothing to see (or learn from) here. Just the same old troll.

Probably soon to be "gone traveling".

 

[haha]

It is actuarial neutral... or at least that is what SSA claims and I believe it is true.... mortality and interest are effectively embedded in the ~ 6% annual discount if you take early or 8% annual premium if you take later.

I'll drop this after this post, as it has come up before.The SSA and all kinds of commenters have made this actuarially neutral claim when 10 year or 30 year rates or even the whole curves have been radically different. The "equal" mantra cannot be true. First, it cannot even be equal for single males, or females, or married couples. And there is no assumed interest rate that makes any sense. There are actual interest rates that exist, and can be bought or sold. If you apply to Northwestern Life for an annuity, in addition to your health data and age, the actuaries at minimum will need to know what it is going to cost the company to fund this annuity. There are very long tails. Once you have your contract, they cannot come back to you and change the amount they are going to send you every month. They have to get it right, and their quotes will not depend on some mythical assumed interest rate, but on what they can see currently in their portfolio, and their very careful projections of what they will have in their very conservative portfolios going forward. The same considerations apply to the SS annuity, albeit the legal issues are different between a life company's annuity and SS. This is because SS involves a political struggle that may break in various ways. To me, the key to SS is one's opinion of the political forces affecting payouts.

Ha

 

[imoldernu]

If you are middle class, have less than a million in investments, and plan to retire before you are 63, it is necessary for you to start collecting Social Security at age 62. Here is why:

If you retire at age 62 and don't have a regular paycheck anymore, to continue your middle-class lifestyle between ages 62 and 67 (the regular SS age), you should limit your annual withdrawals to 4-5%. Unless you have a million dollars or more, or a pension, you can't live that middle-class lifestyle until your Social Security checks come in.

Here is my real life example:

Assets $600K in my 401k, IRA and taxable accounts total.

I have no other income such as a pension, annuity, real estate or other money making products.

A 4% withdrawal of that is $24K a year or $2000 a month. (Not enough to continue my middle-class lifestyle and pay the bills.)

But if I collected Social Security at age 62, I would get another $1500 a month in income which would give me $3500 a month. Enough for my middle-class lifestyle and pay my bills.

If I stop working at age 62, there is no other option than collecting SS early.

This will get me in trouble with my friends here on ER, but I respect your reasoning, and, though it was years ago, was in almost your exact position. If you have some time, you might want to take a peek at this thread.

http://www.early-retirement.org/forums/f27/sharing-23-years-of-frugal-retirement-62251.html

Now, it's 28 years, but not much has changed. Though my dear wife and I did retire earlier, at age 53, we faced the same type of gap in income, and did take SS @ 62. The title uses the word "frugal" but for us, it didn't mean poor, or that we ever really sacrificed. The good part is that our nest egg, while not in the 7 figure range, is almost exactly where it was back in 1989.

I wish you well, and would encourage you to keep looking at your spending plan to keep it in line with your expectations.

 

[timo2]

I don't have a wife so that is not an option.

I am talking about my middle-class lifestyle which I suspect is similar to many people.

There is no other income, which I suspect is common.

Regardless of a break even point two things are lost on the average person;

If you start collecting at 62 you get more SS checks.

The typical person's health goes down hill in their late 60s. I consider the years between 62-67 to be my last period where I will have the energy and clear mind to really enjoy myself as a retired person. I can use those five years to work on my golf game, bowl, hunt, fish, and travel. Which I never had much time for before.

If I keep working until I am 67-70 like the experts tell me I should, I may have more money but will likely not be in good enough health to enjoy it.

If you don't have a spouse for survivor benefits, than I agree with everything you say. I have a spouse that needs the larger amount at 70.

 

[Big_Hitter]

I'll drop this after this post, as it has come up before.The SSA and all kinds of commenters have made this actuarially neutral claim when 10 year or 30 year rates or even the whole curves have been radically different. The "equal" mantra cannot be true. First, it cannot even be equal for single males, or females, or married couples. And there is no assumed interest rate that makes any sense. There are actual interest rates that exist, and can be bought or sold. If you apply to Northwestern Life for an annuity, in addition to your health data and age, the actuaries at minimum will need to know what it is going to cost the company to fund this annuity. There are very long tails. Once you have your contract, they cannot come back to you and change the amount they are going to send you every month. They have to get it right, and their quotes will not depend on some mythical assumed interest rate, but on what they can see currently in their portfolio, and their very careful projections of what they will have in their very conservative portfolios going forward. The same considerations apply to the SS annuity, albeit the legal issues are different between a life company's annuity and SS. This is because SS involves a political struggle that may break in various ways. To me, the key to SS is one's opinion of the political forces affecting payouts.

Ha

I can come up with a single set of interest rate and mortality assumptions that will match the SS reduction/increase factors....that's what "actuarially neutral" means in this context...I think?

 

[jebmke]

The slack variable (to use an old OR term) is the "middle class lifestyle"

 

[pb4uski]

I'll drop this after this post, as it has come up before.The SSA and all kinds of commenters have made this actuarially neutral claim when 10 year or 30 year rates or even the whole curves have been radically different. the "equal" mantra cannot be true. First, it cannot even be equal for single males, or females, or married couples. And there is no assumed interest rate that makes any sense. There are actual interest rates that exist, and can be bought or sold. If you apply to Northwestern Life for an annuity, in addition to your health data and age, the actuaries at minimum will need to know what it is going to cost the company to fund this annuity. There are very long tails. Once you have your contract, they cannot come back to you and change the amount they are going to send you every month. They have to get it right, and their quotes will not depend on some mythical assumed interest rate, but on what they can see currently in their portfolio, and their very careful projections of what they will have in their very conservative portfolios going forward. The same considerations apply to the SS annuity, albeit the legal issues are different between a life company's annuity and SS. This is because SS involves a political struggle that may break in various ways. To me, the key to SS is one's opinion of the political forces affecting payouts.

Ha

No one has ever claimed that it is actuarially fair for married couples. It is also well recognized that it is not actuarially fair between genders as the discounts and premiums are unisex.

The discounts and premiums for taking before FRA or after FRA however, are broadly actuarially neutral. See http://crr.bc.edu/wp-content/uploads/2012/03/IB_12-6-508.pdf

Conclusion

The actuarial reduction factor for early retirement, set by Congress over 50 years ago, has proven remarkably durable. Despite rising longevity and changes in interest rates, the cost of lifetime benefits claimed at 62 remains reasonably close to the cost of lifetime benefits claimed at 65. Rising longevity has decreased the actuarial equivalence of early claiming, but this effect has been largely offset by the interest rate changes.

The actuarial equivalence of early claiming inevitably will continue to fluctuate. However, as a key component of the nation’s Social Security program, the actuarial reduction factor for early retirement must be reasonably stable over long periods of time. It cannot be adjusted each time interest rates change or life expectancy ticks up.

Generally speaking, if you take at 62 you receive 75% of your PIA and if you take at age 70 you receive 132% of your PIA (for someone with a FRA of age 66).

If you go to immediateannuities.com and buy a $100,000 immediate payout annuity at age 62, a male and female (from NY) would receive $510 and $490, respectively. Defer that benefit for 4 years, from age 62 to age 66, and a male and female would receive $659 and $621, respectively. Defer that benefit for 8 years, from a 62 to age 70, and a male and female would receive $897 and $828, respectively. So in a cases, the value at age 62 is $100,000.

Males and females collecting at age 62 receive 77% and 79% of the age 66 benefit, respectively, compared to the 75% paid by SS. Males and females collecting at age 70 receive 136% and 133% of the age 66 benefit, compared to 132% paid by SS.

So the discounts and premiums are roughly actuarially fair, especially on a unisex basis.

 

[haha]

"The actuarial equivalence of early claiming inevitably will continue to fluctuate. "

I adore the sentence above. Today. 4/2 = 2, but tomorrow, quien sabe? This is a special equivalence that fluctuates!

OK by me!

Ha

 

[Bryan Barnfellow]

This is because SS involves a political struggle that may break in various ways. To me, the key to SS is one's opinion of the political forces affecting payouts.

Ha

This last statement completely explains why I signed up for the early withdrawal (age 62) this week. I have lost the trust that I held over my lifetime, so I took this side of the bet.

-BB

 

[ShokWaveRider]

This last statement completely explains why I signed up for the early withdrawal (age 62) this week. I have lost the trust that I held over my lifetime, so I took this side of the bet.

-BB

I will too but at 65 not 62, hopefully not much will change till then.

 

[Out of Steam]

Not really, because if the bear shows up and decides to stay a while you can always then opt to start collecting SS.

True, it's not a binary choice. If I completely stop working by then, 65 looks quite good to me as a collection age. It limits the number of months I have to take larger chunks from savings, and reduces the benefit cut by more than half.

 

[garyt]

So you want me to take an 8-10% annual withdrawal of my $600K from age 62-67 so I can get more money in SS by waiting to my full retirement age. (Vs my plan of collecting SS at age 62 and only taking out 4% a year.)

Under your idea, I could cut that withdrawal down to 4% at age 67 once I start collecting SS at the higher amount.

Maybe, but that is a real gamble taking out so much money during those 5 years if we go into a bear market.

You could always start SS at 63, or 64.

 

[Badger]

From the SS pages: The average age expectancy for a 62 yr old male is 83.7 yrs. If you are in the 10th percentile that means about a 50/50 chance of having 33 yrs of retirement(95-62).

I need to start spending more at a faster rate to enjoy what I spent so many years being frugal and doing without. Otherwise someone else will be having fun playing with my investments when I'm gone.

Cheers!

 

[aaronc879]

Sorry to rain on your parade, but a 5% WR at age 62 is risky... a 47% chance of success.... 53% chance of failure.

$48k spending, $600k investments, 60/40 AA, $18k SS starting immediately, 38 year time horizon

You can look at scenarios your situation using firecalc.

Sorry to rain on your parade but less than 1/2 of 1% of Americans live to be 100. 5% WR at 62 will be fine for a large majority of people. Nothing wrong with planning to live to 100, just know that you will likely leave a massive pile of money for someone else to spend.

 

[pb4uski]

I'm well aware that very few people will likely live to 100, but most of us prefer not to eat cat food if we end up being one of them..Besides, as you can see many of the failures are wages for less than 100.

 

[foxfirev5]

This will get me in trouble with my friends here on ER, but I respect your reasoning, and, though it was years ago, was in almost your exact position. If you have some time, you might want to take a peek at this thread.

http://www.early-retirement.org/forums/f27/sharing-23-years-of-frugal-retirement-62251.html

Now, it's 28 years, but not much has changed. Though my dear wife and I did retire earlier, at age 53, we faced the same type of gap in income, and did take SS @ 62. The title uses the word "frugal" but for us, it didn't mean poor, or that we ever really sacrificed. The good part is that our nest egg, while not in the 7 figure range, is almost exactly where it was back in 1989.

I wish you well, and would encourage you to keep looking at your spending plan to keep it in line with your expectations.

It is hard to argue with experience. DW and I plan to take SS at 62 as well. Not looking to maximize the benefit, but rather to provide flexibility with our resources for the next ten years.