When to delay pension or SS

[Cut-Throat]

Re: Delay Pension and/or Social Security

You have missed the point somewhat if you believe that you have to spend down all of your nest-egg before turning 70. The point was that you could spend down some large amount of the nestegg (was it $345k ?) between 62 and 70 and have the same cash flow as taking SS at 62.

Nobody is suggesting that you deplete everything in the nestegg by 70 and rely on Uncle Sam for their wherewithall.

The concept was to carve that piece of the nestegg and spend it of which SS would make up the cash-flow for.

Very well said MB. - Yes this is all I'm talking about.

 

[renferme]

Re: Delay Pension and/or Social Security

How about this scenario: begin collecting ss at age 62, but don't spend it - save or invest it until the age that you thought you'd begin collecting ss. In cut-throats case it would be age 70.
If ss = 1200 / month, 6% interest/earnings, for 8 years = $147000 at age 70
or
If ss= 1000/month, 6% interest/earnings, for 8 years = $122,000 at age 70
or
if ss = 1500/month, 6% interest/earnings, for 8 years = $184,000 at age 70.
.
then at age 70, you'd still be collecting X dollars / month SS, and you'd have a tidy
sum available to do with as you please !
In the first example above, if you wanted to pay yourself 4% per month off of the $147,000, you would get an extra $490/month. Maybe by age 70 you could be able to take an around the world cruise - all on Uncle Sam, and have a lot left over.

 

[MasterBlaster]

Re: Delay Pension and/or Social Security

Bennevis:

Last time I looked the $345k that could be spent is larger than your compound interest numbers of $184k.

Perhaps the best way to do this is to price an immediate annuity with the extra cashflow purchased when you are 70 years old. As I recall from another thread on this topic, the immediate annuity cost less than the amount you could spend.

 

[haha]

Re: Delay Pension and/or Social Security

This is what is called a convergent problem. If you can leave aside your worries about possible SS changes, all the facts to make a decision are clear as a bell in SS regs. Read 'em and decide.

Or if worry over solvency of the system trumps this, take it at 62. Either way, no need to wade through what is said here.

Ha

 

[renferme]

Re: Delay Pension and/or Social Security

Masterblaster,
sorry, it's too tedious to read thru the entire 6 pages, so I don't know what the $345K is.

 

[MasterBlaster]

Re: Delay Pension and/or Social Security

Bennevis:

CT gave an example for someone who took SS at 62 or delayed until 70. Using safe withdrawal rates and increased payouts at 70 from SS, CT showed that a person could spend down their nest-egg by around $345k and have the same cash flow as they would by taking SS at 62.

Whilst I am at it, from your compound interest example you need to take away maybe half or so of the SS payout cause thats what the combined federal and state income tax hit will be for people with incomes above the SS threshold pay. So for many of us, cut those totals approximately in half for your analysis.

 

[renferme]

Re: Delay Pension and/or Social Security

ok, thanks
I guess in my example, a person would not spend down his portfolio excessively from
age 62 to 70, but would or could spend a little more (how much, I don't know) and then at age 70 would have a "bonus" for not having spent the ss for 8 years.

 

[MasterBlaster]

Re: Delay Pension and/or Social Security

Bennevis:

You are kind of missing the concept. The concept is that you get to spend more money by depleting a portion of your nestegg than by taking SS early. The extra amount that you can spend your nestegg down by exceeds the early SS payout.

Yet when you turn 70, there is no cashflow penalty cause you have the extra SS income to make up for the now smaller nestegg.

 

[renferme]

Re: Delay Pension and/or Social Security

gotcha ! I'm a bit stupid in my old age.

 

[Moemg]

Re: Delay Pension and/or Social Security

. My new wife gets a military retirement. She is five years younger than me and will probably draw against her ex's SS at some point, as she will start drawing SS before we have our 10th anniversary. Although I am active, work out everyday, and all conditions are under control, I suffered a lot of damage to my heart and will feel lucky if I actually get to retire. Both my parents died at age 66 from heart attacks. Anyone have some simple suggestions about my SS situation?
Lloyds,
How does your wife get to collect on an ex's Social Security when she remarried before age 60 ?

 

[cute fuzzy bunny]

Re: Delay Pension and/or Social Security

You have missed the point somewhat if you believe that you have to spend down all of your nest-egg before turning 70. The point was that you could spend down some large amount of the nestegg (was it $345k ?) between 62 and 70 and have the same cash flow as taking SS at 62.

Nobody is suggesting that you deplete everything in the nestegg by 70 and rely on Uncle Sam for their wherewithall.

The concept was to carve that piece of the nestegg and spend it of which SS would make up the cash-flow for. This SS-delay concept is for someone with a nest-egg substantially larger than $345k to consider.

Not at all what I said or meant, but I suppose actually reading the material is a bit onerous for some.

As far as C-T's magic $325k or 345k, its not so simple as to take a number, whap 25x on it and then backtrack and say you can spend that much. Nice and simplistic, but not even close to valid. Again, I volunteered to take a look at the spreadsheet or reproduce the firecalc runs, but it appears that I wont be given the opportunity to do that.

I believe we're well past the point of diminishing returns on this diatribe. I think people already know what they're going to do. I doubt people are even reading the material at this point, just shouting their opinions.

I urge anyone making this decision to read the article I linked, do their own due diligence and not wait until you're in your 60's to evaluate the possible benefits of when to take the benefit.

For the record (again) its not even in my plan. If its available when I'm 62, i'll take it and spend it on something fun while i'm young enough to enjoy it.

 

[cute fuzzy bunny]

Re: Delay Pension and/or Social Security

Heres another simple example...

My benefit in 2024 at age 62 will be 2290 in 2024's dollars; $27.5k/year *
My benefit in 2032 at age 70 will be 5029 in 2032's dollars; $60k/year *

WOW...more than twice as much! This is a slam dunk, right?

No social security, 95% SWR is $29,216 (3.90%) #
SS @ 62, SWR is $37,097 (4.95%) #
SS @70, SWR is $34,318 (4.58%) #

Wow, a full one percent increase in SWR by taking SS early, slightly more than half a percent by taking it late. Seven grand extra a year or four grand, looking forward with the presumption that SS will be there and pay as advertised.

Whats in YOUR wallet?


* The social security numbers I input are from the social security web sites calculator, and are expressed in inflated future dollars at the time of payment and these numbers are produced by the SSA calculator itself, just to address the concerns about such calculations being done improperly by using todays dollars in error.

# To reproduce the results, take advanced firecalc, leave it at the defaults unless you feel like being creative and introducing more calculation errors. Only thing I changed was upping the length of the run from 30 years to 40 years because the 30 year one cut off a lot of the social security benefits for taking it late since i'm only 45.

 

[unclemick]

Re: Delay Pension and/or Social Security

Wellllll - I had it all figured out:

Hold off on SS, women outlive men, rent or don't carry a mortgage.

Wrong! on all the above in my case. At least we got 13 yrs of ER in before Katrina and the women passed.

So I'm taking early SS sans even running the numbers - if I make my 'IRS age of 84.6' hopefully I'll be happy regardless of the $.

heh heh heh - you run your numbers and place your bets - but sometimes life makes you an offer you can't refuse.

 

[Rich_by_the_Bay]

Re: Delay Pension and/or Social Security

Has anyone figured in opportunity cost here?

Taking SS early allows funds you would otherwise have used for expenses to stay invested in your allocation du jour.

If you are earning the typical 9% or so on your longterm savings, doesn't that favor an early SS withdrawal -- you give up a 6% annual benefit raise in return for averaging 8-10% on that amount not withdrawn from your portfolio.

 

[Cut-Throat]

Re: Delay Pension and/or Social Security

CFB,

This delay or take SS thing is a decision that you can re-visit every year from age 62-70, so you don't have to know the 'right' answer ahead of time.

But don't make this too complicated just follow me on this:

1.) Say for instance you get $16K at age 62 and $29K at age 70. That is $13K a year more at age 70 correct?

2.) If you were to advise someone at age 70 that wanted to 'withdraw' $13K a year from his portfoilo safely, would 25 times that amount be prudent? Or $325K should do the trick. Correct?

3.) The person that took $16K at age 62 would receive $128K before age 70. Their challenge to be in the same financial shape as the guy delayed it to age 70 would be to turn that $128K into $325K by age 70. What investment would you recommend to him? I know I'd be hardpressed to find a guarenteed method to equal that $325K!

So, what part of this don't you agree with?

This does not even factor in the spousal benefits, tax advantages, less exposure to the stock market in later years, and the fact that the guy that took ss earlier does not have $128k to invest from the get go, but it is paid out to him over the course of 8 years.

Gee Rich - If you look at my example, it looks like you'd have to make over 25% APR (completely ignoring taxes) to even approach delaying to age 70.

You also have to be sure which problem you are working on.

1.) How much you can pile up and leave to your heirs
2.) How much you get to spend before you die.

 

[Bikerdude]

Re: Delay Pension and/or Social Security

I have to go with CFB's logic here. The size of your portfolio and pension is probably what makes the difference. If your SWR is 2% of your portfolio taking the extra $$ out to cover SS for 8 years may bring you to 4% SWR. Not much risk there.

However, if you are starting with a SWR close to or at 4% and then take the additional bridge to 70 you may hit 6% or more WR. And to then add the "extra" spending, well, you're toast IMHO.

So one size does not fit all and size does matter.

I beginning to think this topic is the equivalent of the "oil" thread on motorcycle forums.

 

[d]

Re: Delay Pension and/or Social Security

CT & CFB:

for your considerations: though this thread is getting very long, the following may not yet have been noted.

you could both be correct! i've just pushed some numbers which show that:

1) when retiring prior to (about) age 51, one is better-off to take ss at 62
2) when retiring in the 52-59ish range, one is better-off to take ss at 65
3) when retiring at or after 60ish, one is better-off to take ss at 70

no doubt these "switch" points are dependent upon the exact ss amounts used, and the assumed swr, but it serves to illustrate how situation dependent this can be.

the basic underlying assumption used was that all year's income would be reduced by the (present-value of ss annual receipts x yrs retired prior to ss) x swr ... basically meaning that you shift a portion of your "stash" to fund the equivalent of ss in those years prior to actually receiving it. this maintains a constant present value income over all years and assumes only that your earnings on this amount equals inflation.

this looks only at the annual present value of all income, so ignores any tax implications, spousal benefits, residual estate, etc.

... for what it might be worth.

 

[Independent]

Re: Delay Pension and/or Social Security

In your particular case CT, you're most welcome to email me your spreadsheet and tell me what your assumptions are in the numbers you've put in it. I'd be most pleased to look it over and tell you where you might have left something critical out or missed something. Chances are equally good its a fully formed and perfectly good idea for your relatively rare financial situation.

I’m not CT, and I’m not ready to start emailing spreadsheets, but I did follow the link and I’m trying to understand what I’m reading. Maybe you can help?

I’m in the section that’s labeled “High Return (8%)”. The situation is that I’m 62, I have $500,000 of investments, and I want an annual income of $30,000.

I have a SS benefit which will be $24,000 per year if I wait to age 66 to start. However, if I start today, I get 75% of that, or $18,000 per year.

So I start today. Since I want to spend $30,000, and SS only gives me $18,000, I need to take $12,000 out of my investments. I’ll assume that I do that at the beginning of the year. This leaves $488,000 which accumulates to $527,040 by the end of the year.

In the next year, my target spending and my SS benefit both increase by 3%. So I need to withdraw $30,900 - $18,540 = $12,360. Again, if I do this at the beginning of the year, then grow the fund at 8%, I end the year at $555,854.

If I continue for 43 years, I have $7,513,810 at age 105.

That’s pretty good. The author’s graph in Exhibit 3 looks like $7.4 million. I’d normally figure that is “close enough”.

However, I completely ignored taxes. Any tax adjustment I can think of would drive my value at age 105 way down.

So: Do you think I’m doing this the same way the author is? If not, can you explain what I should be doing to match his number?

 

[cute fuzzy bunny]

Re: Delay Pension and/or Social Security

So one size does not fit all and size does matter.

A sentiment I think I expressed in almost every post I made in this thread. Run your own numbers, re-do it often, and understand all the implications before you do something that costs you money or results in being more conservative than you need to be.

you could both be correct! i've just pushed some numbers which show that:

I've already said that CT is probably quite correct for his situation. I asked for his spreadsheet so I could better understand how he was framing the deciding factors. What he put in the thread (the 25% return you'd need to break even) simply isnt the case and I have no idea where thats coming from.

As shown in the firecalc run results I posted above, ordinary and actual historic returns produced superior results by taking the benefit early. No 25% returns, no special boosts, no special anything.

You may be onto something by noting that people who start their retirement at an age much closer to traditional retirement might get different results, although most of the cold "take the benefit even if you dont need it, invest it, and look for the break even" put the crossover somewhere between 80 and 84 using ordinary moderately conservative rates of return...age of retiree irrelevant.

So: Do you think I’m doing this the same way the author is? If not, can you explain what I should be doing to match his number?

Not sure but your scenario looks reasonable, excepting that CPI and your annual returns will be variable. Likely over the course of more than 20 years to flatten out to meet the 3%/8% figures you used. Firecalc uses actual patterns of historic returns and inflation rates, so what the results show is what would have actually happened. ORP uses a different method - monte carlo (IIRC) and it produces similar results when fed the same parameters.

Sure, you're leaving out taxes in your example, but at the withdrawal rates you're talking about...you arent going to be paying much if anything at all. At $30k a year even taking the standard deductions you're going to end up in the zero bucket or close to it.

 

[cute fuzzy bunny]

Re: Delay Pension and/or Social Security

Has anyone figured in opportunity cost here?

Taking SS early allows funds you would otherwise have used for expenses to stay invested in your allocation du jour.

If you are earning the typical 9% or so on your longterm savings, doesn't that favor an early SS withdrawal -- you give up a 6% annual benefit raise in return for averaging 8-10% on that amount not withdrawn from your portfolio.

Rich, thats pretty much the gist of what I was saying. And as I mentioned, the effect is magnified if you're holding a decent sized Roth IRA, because that can continue growing tax free money for a longer period of time by reducing withdrawals.

The other end of this, which we havent talked about is pushing the larger SS payments you get at 70 and then trying those out in conjunction with big IRA RMD's starting at 70 1/2...that could be a real peachy tax situation.

 

[Rich_by_the_Bay]

Re: Delay Pension and/or Social Security

Gee Rich - If you look at my example, it looks like you'd have to make over 25% APR (completely ignoring taxes) to even approach delaying to age 70.

Gee, CT. Using CFB's numbers:

My benefit in 2024 at age 62 will be 2290 in 2024's dollars; $27.5k/year *
My benefit in 2032 at age 70 will be 5029 in 2032's dollars; $60k/year *

...you would accumulate $220k of payments between ages 62 and 70 which, even without COLA would end up, at 7%, at around $270K. Annuitized conservatively at age 70 (4.5% return) that would spin off about 10 years of income sufficient to close the 60K-27.5 per year gap. So the breakeven is about age 80 in that context.

I'm not saying that it's a bad idea to defer, just that the various alternatives are not as grossly discrepant as you seem to suggest. Feels like you are trying hard to convince yourself this is a no-brainer. Maybe for you it is, but not necessarily for all.

As an aside, I will probably defer to at least 66 if not 70 due to anticipated part-time outside income.

 

[landover]

Re: Delay Pension and/or Social Security

1.) How much you can pile up and leave to your heirs
2.) How much you get to spend before you die.

This is more counter-intuitive than I can imagine.

Lets take this example,
@62-$14,800.00, @70-$26,700.00 difference is $11,900.

starting SS@70:
- for getting 11,900 COLAed income at 62, assuming 20x, $238K needed.
- to withdraw same amount as SS between 52-70, assuming simple addition, $95k, put it in TIPs@62. Get it from 238k from previous line
- So one can spend 238-95 = 143k, or 18k/yr from leftover money in 8 years.
Total money available to spend= 32,800/yr, Money in bank @70 = 0

starting SS@62:
- for getting 11,900 COLAed income at 62, assuming 20x, $238K.
- SS amount 14,800/yr,
Total money available to spend= 11,900 withdrawal from assets+ 14.8k SS = 26,700/yr
Money in bank @70 = 238k

So @62 one has:
0 in bank, no choice take@62.
>238 in bank take@70. $6,100/yr extra to spend/yr.

Now above quoted questions needs to be answered.
tax/surviver favors late, health either way. If one takes 25x then more money is available to be spent between 62-70, if starting SS@70.

 

[Cut-Throat]

Re: Delay Pension and/or Social Security

Gee, CT. Using CFB's numbers:

My benefit in 2024 at age 62 will be 2290 in 2024's dollars; $27.5k/year *
My benefit in 2032 at age 70 will be 5029 in 2032's dollars; $60k/year *

...you would accumulate $220k of payments between ages 62 and 70 which, even without COLA would end up, at 7%, at around $270K. Annuitized conservatively at age 70 (4.5% return) that would spin off about 10 years of income sufficient to close the 60K-27.5 per year gap. So the breakeven is about age 80 in that context.

I'm not saying that it's a bad idea to defer, just that the various alternatives are not as grossly discrepant as you seem to suggest. Feels like you are trying hard to convince yourself this is a no-brainer. Maybe for you it is, but not necessarily for all.

As an aside, I will probably defer to at least 66 if not 70 due to anticipated part-time outside income.

Once again you are talking about Breakeven. - I don't care about breakeven. As I said before, If you are trying to accumulate the biggest pile before you die, take SS early, try not to spend much and you'll succeed!

Lot's of folks here complain that FireCalc often leaves a HUGE Pile of money on the table when you die. This is one way you can spend some of that pile before you die! Which is something that interests me.

You obviously have not taken the time to read and understand my simple example. I certainly understand that if you have a driving need to collect and pile up the most S.S. then this may not be for you.

 

[Independent]

Re: Delay Pension and/or Social Security

Not sure but your scenario looks reasonable, excepting that CPI and your annual returns will be variable. Likely over the course of more than 20 years to flatten out to meet the 3%/8% figures you used. Firecalc uses actual patterns of historic returns and inflation rates, so what the results show is what would have actually happened. ORP uses a different method - monte carlo (IIRC) and it produces similar results when fed the same parameters.

Sure, you're leaving out taxes in your example, but at the withdrawal rates you're talking about...you arent going to be paying much if anything at all. At $30k a year even taking the standard deductions you're going to end up in the zero bucket or close to it.

I must not have been clear. These aren't my assumptions. They come from the link you provided. The 3% and 8% aren't my numbers, they are the author's (forgot his name). The $7.4 million that I'm trying to match is in Exhibit 3 of your link.

I agree that a monte carlo analysis is better and the withdrawal rate in this example is strangely low. However, you said that this article is excellent, so I tried reading it.

I also tried duplicating the numeric results, got to this step, thought I might be headed in the wrong direction, so I asked if you understood the math the same as I did.

 

[Bikerdude]

Re: Delay Pension and/or Social Security

You obviously have not taken the time to read and understand my simple example. I certainly understand that if you have a driving need to collect and pile up the most S.S. then this may not be for you.

I've read it and understand it but it just does not work that way for everyone. If your one of the people that it does work for, that's great. But as it has been said here, you got to do the math.