Trade off between SS starting age and withdrawal rate

[GoGolfing]

How much in reserve?

Once we have our 4 income streams turned on (2 annuities, 2 SS) they will cover our expenses - basically living the same lifestyle we have now. That is true whether I take early, full, or late SS. DH has already started SS. We have 6 years until the annuities will start paying out. The only real variable is when I take SS.

Is it better to take SS earlier, withdrawing much less from investments to get through the initial 6 years. That would leave us with a much larger portfolio but a lower guaranteed income. Or is it better to wait for full or or late SS, ending with a smaller portfolio, but a higher guaranteed income.

Thoughts?

 

[Teacher Terry]

I am waiting until my FRA of 66 because I still work p.t. and I would lose some of the $ because I make more then what is allowed.

 

[RunningBum]

For me its not a matter of WR, its comparison of the area under two curves.
If I start SS at 62 vs. 70, it would take until age at least 78 for a delayed SS start to break even.... thats 16 years of "what if I die before then".

So, tell me, what exactly does happen if you die before break even? Seriously.

 

[MRG]

So, tell me, what exactly does happen if you die before break even? Seriously.

Goes on your permanent record.[emoji111]

 

[aja8888]

So, tell me, what exactly does happen if you die before break even? Seriously.

From what I have seen, the SS checks stop and you stay dead.

 

[RunningBum]

No, I'm serious. People use this reasoning all the time. Is this really what's on people's minds on their deathbed?

 

[Dash man]

I turn 62 in August. I’ll play it one year at a time from that point on. Too many variables to try to plan that far ahead. Too much like w*rk.

 

[Dtail]

Once we have our 4 income streams turned on (2 annuities, 2 SS) they will cover our expenses - basically living the same lifestyle we have now. That is true whether I take early, full, or late SS. DH has already started SS. We have 6 years until the annuities will start paying out. The only real variable is when I take SS.

Is it better to take SS earlier, withdrawing much less from investments to get through the initial 6 years. That would leave us with a much larger portfolio but a lower guaranteed income. Or is it better to wait for full or or late SS, ending with a smaller portfolio, but a higher guaranteed income.

Thoughts?

I would think one variable would be how much of your investments are in deferred accounts which could cause much higher taxes at RMD time.

 

[Hermit]

Taking it at 70 and that's pretty much cast in concrete for me. But then I am currently collecting SS on my late DW's account so if I take mine before 70, the monthly check I get from DW's account goes Poof! This extra monthly check changes the equation for me completely.

Point is most everybody is different when it comes to SS.

 

[Out of Steam]

So, tell me, what exactly does happen if you die before break even? Seriously.

You took a bet with SS to receive fewer, but higher, payments as insurance against the possibility of outliving your other assets.

In your case, taking that insurance policy didn't pay off.

I've been paying for term life insurance for 35+ years, like clockwork. It hasn't paid off either.

 

[CardsFan]

You took a bet with SS to receive fewer, but higher, payments as insurance against the possibility of outliving your other assets.

In your case, taking that insurance policy didn't pay off.

I've been paying for term life insurance for 35+ years, like clockwork. It hasn't paid off either.

And that's a GOOD thing!

 

[MRG]

No, I'm serious. People use this reasoning all the time. Is this really what's on people's minds on their deathbed?

Seriously, I hope not.

 

[CRLLS]

Interesting discussion. I think it is great to understand how the variables might have an effect on our plans. However to really know what is the best choice, one must know 2 unknowable things (maybe 3). We don't know when we will die and we don't know how the markets will do. The third one is we don't know what life throws at us in the future that might call for some large unplanned expense. For us, we made our choice and can change if necessary. But most importantly for us, according to formulas, we can live with either choice. It doesn't make a noticeable difference in success our rate. From there it is a matter of being comfortable in our decisions more than trying to find the "best" solution, as there is none.

 

[NW-Bound]

In 2014, I ran FIRECalc with the money I had then, and knowing what I would get at 62, FRA, and at 70.

The amount that I could spend for the typical 30-year retirement came out fairly close in all 3 cases. It varied only 2% between the 3 cases.

Then, a few months ago I ran it again with the new data (I had more money than in 2014, plus was older). This time, the FRA and 70-year cases were about the same, and about 5% higher than what I could spend if taking SS at 62.

Here's another twist. The desired goal when I ran FIRECalc to get the above results was to spend the max to be broke in 30 years. If I however specified that I did not want my stash to ever deplete to less than 1/2 of its size now (with inflation adjustment too), then the 62-year case won by a big margin!

We will both turn 62 in a few months. My wife already said she wanted to claim hers early. I will likely delay mine at least till FRA.

 

[Dtail]

In 2014, I ran FIRECalc with the money I had then, and knowing what I would get at 62, FRA, and at 70.

The amount that I could spend for the typical 30-year retirement came out fairly close in all 3 cases. It varied only 2% between the 3 cases.

Then, a few months ago I ran it again with the new data (I had more money than in 2014, plus was older). This time, the FRA and 70-year cases were about the same, and about 5% higher than what I could spend if taking SS at 62.

Here's another twist. The desired goal when I ran FIRECalc to get the above results was to spend the max to be broke in 30 years. If I however specified that I did not want my stash to ever deplete to less than 1/2 of its size now (with inflation adjustment too), then the 62-year case won by a big margin!

We will both turn 62 in a few months. My wife already said she wanted to claim hers early. I will likely delay mine at least till FRA.

Interesting twist. Time to play around some more with Firecalc.....

 

[NW-Bound]

Yes, it's fun to play with FIRECalc.

You don't get something for nothing though. Here's my results.

Objective 1) Spend the max and die broke in 30 years.

==> FIRECalc result: Delay SS till 70. In the mean time, draw 5.5% WR, then reduce WR when SS starts.

Objective 2) Spend just enough to never have less than 1/2 of current stash

==> FIRECalc result: Withdraw and spend 3.5%WR, and when SS starts at 62, reduce WR by the same amount.


This means that with Objective 2), I can only spend 64% of what I can if I do not mind dying broke.


PS. Last year, we spent 2.7%WR and still without SS. So, it looks like it's not likely we will ever have less than 1/2 of what we do now.

PPS. All above runs assume that we both croak at the same time. It is more likely that I will not last another 30 years, but my wife may. In that case, she will lose one SS income at the end. But that's getting way too complicated to worry about. I think we, or she, have enough safety margin as it is.

 

[RunningBum]

In 2014, I ran FIRECalc with the money I had then, and knowing what I would get at 62, FRA, and at 70.

The amount that I could spend for the typical 30-year retirement came out fairly close in all 3 cases. It varied only 2% between the 3 cases.

Then, a few months ago I ran it again with the new data (I had more money than in 2014, plus was older). This time, the FRA and 70-year cases were about the same, and about 5% higher than what I could spend if taking SS at 62.

Here's another twist. The desired goal when I ran FIRECalc to get the above results was to spend the max to be broke in 30 years. If I however specified that I did not want my stash to ever deplete to less than 1/2 of its size now (with inflation adjustment too), then the 62-year case won by a big margin!

We will both turn 62 in a few months. My wife already said she wanted to claim hers early. I will likely delay mine at least till FRA.

My guess is that it does worse in the scenarios with early big losses--bad sequence of returns. My plan would be to start taking SS if at anytime between 62 and 70 the market tanks, so that I wouldn't have to sell as much at a market low. In other words, unlike your Firecalc runs, you don't have to lock into deferring until 70 if conditions change. A lot of people have made that point already.

 

[Dtail]

Yes, it's fun to play with FIRECalc.

You don't get something for nothing though. Here's my results.

Objective 1) Spend the max and die broke in 30 years.

==> FIRECalc result: Delay SS till 70. In the mean time, draw 5.5% WR, then reduce WR when SS starts.

Objective 2) Spend just enough to never have less than 1/2 of current stash

==> FIRECalc result: Withdraw and spend 3.5%WR, and when SS starts at 62, reduce WR by the same amount.


This means that with Objective 2), I can only spend 64% of what I can if I do not mind dying broke.


PS. Last year, we spent 2.7%WR and still without SS. So, it looks like it's not likely we will ever have less than 1/2 of what we do now.

PPS. All above runs assume that we both croak at the same time. It is more likely that I will not last another 30 years, but my wife may. In that case, she will lose one SS income at the end. But that's getting way too complicated to worry about. I think we, or she, have enough safety margin as it is.

The WR of >4% is one of the "psychological" issues I have with delaying to 70, even if it is temporary and will be offset later.
Back to Running Bum's early bad sequence of events comment....

 

[pb4uski]

A confession: Starting on my last birthday when I turned 62, I started making monthly payments of $750/month into an annuity contract. After 4 years of premium payments I can start a life annuity of $250/month with COLA or after 8 years of premium payments I can start receiving $570 for life with COLA.

Good deal or no?

 

[NW-Bound]

My guess is that it does worse in the scenarios with early big losses--bad sequence of returns. My plan would be to start taking SS if at anytime between 62 and 70 the market tanks, so that I wouldn't have to sell as much at a market low. In other words, unlike your Firecalc runs, you don't have to lock into deferring until 70 if conditions change. A lot of people have made that point already.

Exactly! And that's why one should reevaluate if he delays SS, and the market starts tanking.

 

[Dtail]

A confession: Starting on my last birthday when I turned 62, I started making monthly payments of $750/month into an annuity contract. After 4 years of premium payments I can start a life annuity of $250/month with COLA or after 8 years of premium payments I can start receiving $570 for life with COLA.

Good deal or no?

8 year deal looks better than the 4 year deal if expected longevity is in the cards.
Will leave it to the math people for further comments.

 

[bw5972]

Yes, if you live to 150.

 

[pb4uski]

Show your work.

 

[ShokWaveRider]

We are wondering when to Take SS also. I am 64 and will be on Medicare in January 2018. If I take SS at 65 with Medicare I can enjoy the "Hold Harmless" provision on Medicare going forward. BUT if I take SS at 65, (~$26k) my Wife's ACA subsidy goes DOWN by $500 a month because of our increase in income. Thus reducing my SS by $6K effectively. She is only 60 and has another 5 years of HC payments to consider.

That is our current dilemma. Not sure where to go for advice on this........

 

[vrijheid]

From what I have seen, the SS checks stop and you stay dead.

LOL! Too funny and so true! Thanks for the chuckle this morning.[emoji38]