Social Security take-back -- RIP

[Zero]

Interesting work, Zero. Correct me if I am wrong- you assumed 3% after tax earnings on the saved money?

The only issue I can mention is that you choose a value for the SS cola, and in its present form the SS cola is unbounded, at least on the upside.(Not sure about downside.)

This is an issue that I think should be decided by one's goals, and predicitons for the future. Perhaps because of my age and adult householder experience of the 70s I have never wanted to own nominal interest debt longer than a few years-unless interest rates are very high and it appears that something might happen to change that.

So owning the nominal annuity would not appeal to me. However, the risk of having the government mess with SS may be at least as large as the risk of inflation quite a bit over 3%.

I realize that interst rates would very likely respond to higher inflation also, but having the larger portion with full cola would sooner or later dominate, and thus perhaps make the age 70 option a better longevity insurance policy.

Ha

I did assume 3% earned on the after tax SS money.

As you point out, guessing at a COLA is one of the really difficult issues. We could easily see a few years of deflation, or stagflation or 12% inflation in 5 years.

In the case I ran, the private annuity amounted to about 1/3 and the SS annuity was about 2/3. So it accounts for only 2/3 of the inflation requirements. And as you say, "what plans hath the SS monsters", or something like that, I see pale, gaunt figures with money signs for eyes coming my way. SS zombies.

Not to hijack this thread but the next 10-20 years could be the most interesting times of our lives. Those of us who lived thru the 50's to 2010 have seen monumental changes, the near future may exceed that.

 

[bamsphd]

Assumptions:
1. SS checks taken at 62 would be saved and privately annuitized at 70.
2. The income after age 70 from the private annuity would not be COLA'd.
3. SS checks taken at 62 would be COLA'd at 3% and also be invested and earn 3%.
4. SS taxed from 62 to 70.

Did you also run it assuming more pessimistic inflation assumptions like 12% or 24% inflation starting after you buy the annuity? Inflation could quickly destroy the real value of a fixed annuity.

Did you run it with a COLA'd private annuity to avoid the apples to oranges comparison problem?

What did I do wrong?

I don't think you found a free lunch. You just have to decide, do you like apples, or do you like oranges? It looks like you traded part of your COLA'd longevity insurance for an initially higher income stream which unfortunately declines in real terms with inflation. Might be a good trade if you need the money now for cigarettes. Perhaps not such a good trade if you need the money for your Ironman triathlon entry fees, and trips to visit your parents.

 

[bamsphd]

Here is a snippet from the spreadsheet showing the yearly values of the two choices.

You might find it useful to use constant dollars in your spreadsheet. So instead of increasing SS by the COLA, decrease the annuity by inflation. That way all the lines are comparable, and you can see the "real dollar" trends.

 

[youbet]

Conclusion:
At age 70, the combination of the private annuity of $13,368 and the SS(begun at 62) of $23,836 = $37,204
At age 70, the SS (begun at 70) would be $32,940.

What did I do wrong?

The SS at 70 of $32,940 is in "age 62" (whatever calendar year that is for you) dollars. I believe you would have to find a way to adjust this.

 

[Zero]

The SS at 70 of $32,940 is in "age 62" (whatever calendar year that is for you) dollars. I believe you would have to find a way to adjust this.

Yeah, I have some adjustments to make but for the life of me any assumptions I make as to inflation or returns seem like I'm just plotting to make my preferred scenario work.

Any suggestion on what you would use at age 70?

I'll try to update the spreadsheet based on a couple of good suggestions and re-post. I think the outcome depends heavily on assumptions that I don't have any gut feel for which way things might go.

Re-work in progress.

 

[youbet]

Any suggestion on what you would use at age 70?

No, not right now......

But I do appreciate the methodology you're working up and it's as good a guess as any regarding the true difference between taking SS at 62 and taking it at 70 for singles or single equivalents.

In my case, DW cannot collect on my SS due to GPO. And her own SS is less than $1k/year due to working at jobs not covered by SS. My decision regarding starting SS was based on wanting to protect DW as much as possible but with the complication that she cannot collect SS based on my earnings either while I'm alive or as a survivor.

I started my SS at 62 and am saving and investing that money. I don't literally take the SS checks to the bank. I reduce my withdrawals from my FIRE portfolio by my SS amount. This way, should I predecease DW, our FIRE portfolio will be larger by the amount of SS I collected from 62 through date of death + earnings.

I believe this method provides the highest level of protection for DW in the event that I predecease her and won't result in significantly less total SS collected if it turns out I live to a ripe old age, depending on the investment success (or not) I have with the SS dollars collected between 62 and 70.

 

[Zero]

No, not right now......

But I do appreciate the methodology you're working up and it's as good a guess as any regarding the true difference between taking SS at 62 and taking it at 70 for singles or single equivalents.

In my case, DW cannot collect on my SS due to GPO. And her own SS is less than $1k/year due to working at jobs not covered by SS. My decision regarding starting SS was based on wanting to protect DW as much as possible but with the complication that she cannot collect SS based on my earnings either while I'm alive or as a survivor.

I started my SS at 62 and am saving and investing that money. I don't literally take the SS checks to the bank. I reduce my withdrawals from my FIRE portfolio by my SS amount. This way, should I predecease DW, our FIRE portfolio will be larger by the amount of SS I collected from 62 through date of death + earnings.


I believe this method provides the highest level of protection for DW in the event that I predecease her and won't result in significantly less total SS collected if it turns out I live to a ripe old age, depending on the investment success (or not) I have with the SS dollars collected between 62 and 70.

Thanks for responding, I was beginning to think I was the only person on Earth that was thinking that way. I like the idea of the "surer" years of 62-70 as a means of collecting a nest egg, sort of "bird in hand".

"...and won't result in significantly less total SS collected if it turns out I live to a ripe old age...", EXACTLY my objective in this scenario. I'm trying to show that there is not sufficient benefit to me for waiting until 70 and risking getting nothing should I die at 70. Just like portfolio risk analysis, there has to be some risk factor accounted for in waiting 8 years.

I can see the thinking of the couples who want to provide larger payments for a spouse by waiting until 70. But without the spousal issue in the picture, I am thinking that this strategy might reduce the overall risk in case the gov't tinkers with our SS and starts means testing at some point.

I'm refining the spreadsheet with some better assumptions and will repost soon.

 

[FIRE'd@51]

Any suggestion on what you would use at age 70?

When I do these types of calcualtions, I use age-62 dollars, and try to compare everything in real terms. IOW, I assume 0% inflation. For the annuity purchased at age 70, I would use a COLA'd one like the type Vanguard sells. This way everything is affected in a similar way by changes in the CPI.

 

[jdw_fire]

EDITED: Ha, I made the changes to reflect the SS being taxed. I used provisional income of $30,000 for the SS tax calculation.
I Exceled a scenario of taking SS at 62 vs 70 with a goal of which pays the most. I got a surprising answer and would love to have a double-check.

Actuals from SS form:
SS est at 62 = $1568 or $18,816
SS est at 70 = $2745 or $32,940

Assumptions:
1. SS checks taken at 62 would be saved and privately annuitized at 70.
2. The income after age 70 from the private annuity would not be COLA'd.
3. SS checks taken at 62 would be COLA'd at 3% and also be invested and earn 3%.
4. SS taxed from 62 to 70.


Calculations:
Future Value of SS paid from 62 to 70 = $18,816*((((1+0.03)^8)-1)/0.03) = $167,318

...


What did I do wrong?

well 1st, you didnt take any taxes out of the SS payments between 62 and 70 nor did you take any taxes out of the earning on that money. both of these would reduce the "future value of SS paid between 62 and 70" you show above.

EDITED: Ha, I made the changes to reflect the SS being taxed. I used provisional income of $30,000 for the SS tax calculation.
I Exceled a scenario of taking SS at 62 vs 70 with a goal of which pays the most. I got a surprising answer and would love to have a double-check.

Actuals from SS form:
SS est at 62 = $1568 or $18,816
SS est at 70 = $2745 or $32,940

Assumptions:
1. SS checks taken at 62 would be saved and privately annuitized at 70.
2. The income after age 70 from the private annuity would not be COLA'd.
3. SS checks taken at 62 would be COLA'd at 3% and also be invested and earn 3%.
4. SS taxed from 62 to 70.


Calculations:
Future Value of SS paid from 62 to 70 = $18,816*((((1+0.03)^8)-1)/0.03) = $167,318
Private $167,318 annuity payouts beginning at 70 for single male (immediateannuities.com) = $1,114 or $13,368
Future Value of SS check begun at 62 when age 70 is reached = $18,816*(1.03^8)=$23,836

Conclusion:
At age 70, the combination of the private annuity of $13,368 and the SS(begun at 62) of $23,836 = $37,204
At age 70, the SS (begun at 70) would be $32,940.

...

What did I do wrong?

and 2nd, you didnt inflate the amount of SS that would be paid at 70 if you wait to start taking it then. that payment receives a CPI adjustment also even though you arent receiving it yet. based on your numbers the amount you will receive at age 70 would be $41,727, not $32,940.

here is a quote from the SS website

You are eligible for cost-of-living benefit increases starting with the year you become age 62. This is true even if you do not get benefits until your full retirement age or even age 70. Cost-of-living increases are added to your benefit beginning with the year you reach 62 up to the year you start getting benefits.

EDITED: Ha, I made the changes to reflect the SS being taxed. I used provisional income of $30,000 for the SS tax calculation.
I Exceled a scenario of taking SS at 62 vs 70 with a goal of which pays the most. I got a surprising answer and would love to have a double-check.

Actuals from SS form:
SS est at 62 = $1568 or $18,816
SS est at 70 = $2745 or $32,940

Assumptions:
1. SS checks taken at 62 would be saved and privately annuitized at 70.
2. The income after age 70 from the private annuity would not be COLA'd.
3. SS checks taken at 62 would be COLA'd at 3% and also be invested and earn 3%.
4. SS taxed from 62 to 70.


Calculations:
Future Value of SS paid from 62 to 70 = $18,816*((((1+0.03)^8)-1)/0.03) = $167,318
Private $167,318 annuity payouts beginning at 70 for single male (immediateannuities.com) = $1,114 or $13,368
Future Value of SS check begun at 62 when age 70 is reached = $18,816*(1.03^8)=$23,836

Conclusion:
At age 70, the combination of the private annuity of $13,368 and the SS(begun at 62) of $23,836 = $37,204
At age 70, the SS (begun at 70) would be $32,940.

Amazingly, running the number out from 70 till 95 shows both plans are equal in cumulative amount and the yearly checks are higher than the SSat70 checks up until age 84.



What did I do wrong?

and 3rd, therefore your conclusion is incorrect. actually SS taken at age 70 is greater than what you would get (under your assumptions) if you started taking it at age 62, saved all of it and bought an annuity with that saved amount at age 70. it has been pointed out on this board many times that it generally pays to put off taking SS till age 70 if all you are planning on doing with the checks is stuff them in a bank. one exception is if you die young.

 

[Zero]

Yes, the effort is a project in work and I was asking for some suggestions, thanks for yours.

I had not seen a thread where the actual approach, methods and numbers were present, thought I might take a crack at it.

 

[Zero]

Forget the Private Annuity approach, too difficult to find data for a COLA’d Annuity without calling or asking for a quote.
NEW SCENARIO = Take SS at 62, save the checks and invest it in S&P500 Index.
Historical CAGR for S&P500 = 8.9% per CAGR of the Stock Market: Annualized Returns of the S&P 500

Actuals from SS form:
SS est at 62 = $1568 or $18,816
SS est at 70 = $2745 or $32,940

Adjustment assuming 3% COLA:
Recalculate the SS at 70 to reflect 8 years of COLA = FV=$32,940*(1.03^8)=$41,727

Assumptions:
1. Gross income desired at 62 would be $34,000
2. Since provisional income is ½ SS + (34,000-18816)=$24,592 then SS during 62-70 would NOT be taxed.
3. SS checks taken at 62 would be saved and earn 3% and then the sum would be privately annuitized at 70.
4. The income after age 70 from the private annuity would be COLA'd.

Calculations:
Future Value of SS paid from 62 to 70 = $18,816*((((1+0.03)^8)-1)/0.03) = $167,318
At age 70, the Future Value of the SS check begun at 62 = $18,816*(1.03^8)=$23,836
At age 70, the Future Value of the SS check begun at 70 = $32,940*(1.03^8)=$41,727
Taxation on 62 scenario = 10.03%
Taxation on 70 scenario = 12.43%
1040 Tax Calculator

Conclusion:
At age 70, the combination of the S&P500 earnings of $14,891 and the SS(begun at 62) of $23,836 = $38,272 and is run forward to age 95 and accumulates to $1,342,422.
At age 70, the SS (begun at 70) would be $41,727 and at 95 accumulates to $1,408,755.

See the attached snippet.

 

[Zero]

Here is a snippit from the Ecel run.

 

[youbet]

it has been pointed out on this board many times that it generally pays to put off taking SS till age 70 if all you are planning on doing with the checks is stuff them in a bank. one exception is if you die young.

Another exception is if you are trying to provide financial protection for a spouse who cannot collect your SS as a survivor and has no/little SS of his/her own.

 

[jdw_fire]

some more problems.

Assumptions:
1. Gross income desired at 62 would be $34,000
2. Since provisional income is ½ SS + (34,000-18816)=$24,592 then SS during 62-70 would NOT be taxed.
3. SS checks taken at 62 would be saved and earn 3% and then the sum would be privately annuitized at 70.

1st if your desired income is $34,000 then your "provisional income" is 1/2 SS + 34,000 = $43,408 not the $24,592 you state because even though you are saving the SS payment it is still counted as income and because you are saving it, it cant be used to offset the $34,000 in income desired. and that amount is high enough to be taxed.

Forget the Private Annuity approach, too difficult to find data for a COLA’d Annuity without calling or asking for a quote.
NEW SCENARIO = Take SS at 62, save the checks and invest it in S&P500 Index.
Historical CAGR for S&P500 = 8.9% per CAGR of the Stock Market: Annualized Returns of the S&P 500

Actuals from SS form:
SS est at 62 = $1568 or $18,816
SS est at 70 = $2745 or $32,940

Adjustment assuming 3% COLA:
Recalculate the SS at 70 to reflect 8 years of COLA = FV=$32,940*(1.03^8)=$41,727

Assumptions:
1. Gross income desired at 62 would be $34,000
2. Since provisional income is ½ SS + (34,000-18816)=$24,592 then SS during 62-70 would NOT be taxed.
3. SS checks taken at 62 would be saved and earn 3% and then the sum would be privately annuitized at 70.
4. The income after age 70 from the private annuity would be COLA'd.

Calculations:
Future Value of SS paid from 62 to 70 = $18,816*((((1+0.03)^8)-1)/0.03) = $167,318

2nd, if this amount of $167,318 is to be used to provide income at age 70 (as per your 1st example) then without buying a SPIA to get that income FIRECalc will tell you that you can use approximately a 4% WR for a successful CPI adjusted income for 25 years ( i didnt run the numbers thru FIRECalc to get the exact WR produced) and that produces a yearly CPI adjusted WD of about $7K. that amount added to the inflated amount for SS that began paying at age 62 ($23,836) makes an income of $30,836/yr starting at age 70. this $30,836 starting at age 70 is the total benefit from SS that you started taking at age 62 because you saved all of the SS payments between age 62 and 70 and that amount is producing the $7K mentioned earlier. (actually the amount will be smaller because i didnt take the taxes owed on SS between the ages of 62 and 70 out of the amount saved, i just used your number.) this number is significantly smaller than if you just waited to take SS at the age of 70 and received $41,727/yr.

Conclusion:
At age 70, the combination of the S&P500 earnings of $14,891 and the SS(begun at 62) of $23,836 = $38,272 and is run forward to age 95 and accumulates to $1,342,422.
At age 70, the SS (begun at 70) would be $41,727 and at 95 accumulates to $1,408,755.

these "conclusions" arent supported by the facts not are they reasonable. why would anyone wanting to retire early save all of their SS payments instead of using those SS payments to support their living expenses?

 

[Zero]

Gross Income = $34,000 e.g. ($18, 816 SS + $15,184 income)
Provisional Income = 1/2 of SS benefits plus all other income.
Therefore:
Provisional Income = 1/2($18,816) + $15,184 = $24,592

 

[Zero]

some more problems.

these "conclusions" arent supported by the facts not are they reasonable. why would anyone wanting to retire early save all of their SS payments instead of using those SS payments to support their living expenses?

The spreadsheet is shown, and unless Excel is miscalculating, the totals in the scenario that I have just defined are indeed factual and there for all to see.

Taking SS at 62 and saving the checks till 70, requires a person to live off their existing savings until 70.
Taking SS at 70, also requires a person to live off their existing saving until 70.

Same impact to the existing savings so not sure what you mean by "why would anyone...". You could just as easily said, "why would anyone wait till 70 before getting SS payments to support their living expenses?".

The difference is that taking money at 62 gets approx $170,000 into your pocket, under your control. I.E. a nestegg.

Then starting at 70 one can look at the apples to apples benefits of the two choices. I have done exactly that and feel comfortable that taking the money at 62 yields only a slightly smaller lifetime accumulation of income.

 

[73ss454]

Zero, I like it. This year I'll be 62 and will be taking my SS. If I drop dead at 70 I won! Well at least I got some money out of SS.

 

[rescueme]

Another exception is if you are trying to provide financial protection for a spouse who cannot collect your SS as a survivor and has no/little SS of his/her own.

That's my/our reason for me to delay SS till age 70 (DW will take it at FRA age of 66).

BTW, I do get an SS benefit; 50% of her FRA benefit when I turn 66 (three years, two days from today ).

It's a different story when you are trying to compute what is best in a single vs. married situation. Nothing is "the best"; when you are married, it all depends on age difference, lifetime earnings, along with the standard questions as related to health and retirement portfolio size vs. expenses - as a single person has.

IMHO, there is (like all things in life) no "standard answer" to the question...

 

[Zero]

Zero, I like it. This year I'll be 62 and will be taking my SS. If I drop dead at 70 I won! Well at least I got some money out of SS.

73ss454, good for you. You have already seen that SS can reduce the benefit estimate as deflation takes hold. Imagine your check if you waited till 70 and there was a 2010-2018 period of deflation. You'd be kicking yourself.

For me, there is a big ole "I want my money" feeling in the pit of my stomach and it's saying; "get that SS before they come up with a sleight of hand."

To me there is some "value" in the early collecting versus the "uncertainty" of waiting. I cannot tell you how many times the gravy train has dried up just as I got there. I worry that SS will be means tested by 2020 or so.

 

[youbet]

That's my/our reason for me to delay SS till age 70 (DW will take it at FRA age of 66).

BTW, I do get an SS benefit; 50% of her FRA benefit when I turn 66 (three years, two days from today ).

It's a different story when you are trying to compute what is best in a single vs. married situation. Nothing is "the best"; when you are married, it all depends on age difference, lifetime earnings, along with the standard questions as related to health and retirement portfolio size vs. expenses - as a single person has.

IMHO, there is (like all things in life) no "standard answer" to the question...

I think you misunderstand our situation. DW has a near zero SS entitlement of her own due to WEP and having worked very little under SS. And she cannot collect on my SS either while I am alive or as a survivor due to GPO. Therefore the only way for me to use SS to provide some financial protection for her should I predecease her is to collect SS at 62 and invest it.

For us, and for other couples where one member is effected by WEP and GPO and the goal is to provide some financial protection for the non-SS spouse, collecting early is the only answer. Otherwise zero protection is provided.

The work Zero is doing is showing me that the price we'll pay due to starting my SS at 62 if we turn out to both be long-livers will probably not be significant.

 

[Zero]

OK, here is a very straightforward approach. I have in hand my SS Estimate for age 62 and age 70. Since that data is in current dollars, lets look at it as if I am 62 today and then look again as if I am 70 today.

This spreadsheet shows very simple calculations that have rather conservative assumptions.

Facts:
SS Estimate for 62 = $18,816
SS Estimate for 70 = $32,940

Assumptions:
1. Both checks will COLA at 3%
2. Tax on the smaller income from the 62 age checks will be taxed at 10%
3. Tax on the larger income fromt he 70 age checks will be taxed at 12%

So, it's pretty easy to see how much money accumulates during the period to 100 years. And in reality, that is what counts, the accumulation of assets, namely cash.

Conclusion:
1. At age 85, the accumulated amount is "equal".
2. At age 100, the accumlated amount favors the late taking of SS by 18%.

One has to be an eternal optimist to assume he/she will live to 100, but good luck with that, honestly.

 

[RonBoyd]

One has to be an eternal optimist to assume he/she will live to 100, but good luck with that, honestly.

Let me make sure I understand this correctly.

If you expect to live to age 85, you are better off starting your draw at age 62. However, if you expect to live past age 85, you should wait until Age 70 to start drawing. However, the "Age 70" option is only valid if everyone keeps their promises and there are no "Really Rough Times" ahead.

 

[Zero]

Let me make sure I understand this correctly.

If you expect to live to age 85, you are better off starting your draw at age 62. However, if you expect to live past age 85, you should wait until Age 70 to start drawing. However, the "Age 70" option is only valid if everyone keeps their promises and there are no "Really Rough Times" ahead.

That's the way I see it. If I were assured that I would only live till 85, I'd take it at 62 in a heartbeat. Reasoning being, once I get it started it's locked in to a figure and no hanky panky by the Govt. As you saw in some earlier posts, people are already seeing the estimates they got this year went down.

If I was guaranteed to live to 90, I think it starts to get a bit harder to call. The difference in total cash collected is $60k, but that isn't much of a penalty in my mind to have the security blanket of having collected it much earlier.

In other words, I like the bird-in-hand approach and am willing to give up a bit of the pie for that warm comfy feeling.

 

[REWahoo]

In other words, I like the bird-in-hand approach and am willing to give up a bit of the pie for that warm comfy feeling.

That was my thinking when I decided to start taking early SS benefits in 2008. My 62nd birthday fell in the middle of the market meltdown. It was very nice to be able to partially plug one of the two big leaks that were rapidly shrinking my nest egg (market decline and withdrawals).

Looking back, I'd definitely do the same again.

 

[Alan]

As you saw in some earlier posts, people are already seeing the estimates they got this year went down.

Those are estimates based on what the SS calculator estimates your salary will be if it follows the trend of the average wage index.

If your salary raises happen to be above or below average then the estimate will be wrong. Your actual payments will be based on your actual earnings.

The rules have not been changed. Just wanted to re-state this point.