When to delay pension or SS

[MasterBlaster]

Re: Delay Pension and/or Social Security

Running Man:

Per an earlier post example by another poster, the 62 year old man just starting SS could save $319k and then have the same cashflow by buying an annuity as a 70 year old that started SS.

In other words, the cashflow of the 70 year old SS starter would cost the person who started at 62 $319k when they turn 70.

I was under the impression that your example was refering to the previous discussion.

 

[Running_Man]

Re: Delay Pension and/or Social Security

NO our calculations musthave been similar. Based on an inflation adjusted quote just now from Vanguard a 70 year old male could receive $24,154.68 with the money available on my worksheet at age 70. About 2,000 per year less than social security would pay if inflation and social security average 3% per year for the next years.

 

[Running_Man]

Re: Delay Pension and/or Social Security

So Person C has a question to the guys that advise taking SS at 62. What investment does he make to get better than 27% (Guaranteed by the U.S. Gov. of course) to have $350K at the end of 8 years?

Of course the US goverment is not insuring anything close to that amount. The US government is insuring an ANNUITY not a cash balance. The difference is immense. FIRECALC is advocating a 3.7% withdrawl rate at age 70? Wow FireCalc must be have been written by heirs. Upon death there is no cash balance for social security. And with luck for the US there will be no payments ever made if death is before age 70. That reduces the amount needed to fund a retirement.

To get an annuity as quoted 15 minutes ago by Vanguard for an inflation annuity you would need $211,304 to get the inflation adjusted amount of $15,988 per year. That would require an 9.15% after tax return not 27%.

SS security @ 62 ROI YE Balance Forgone amount @ 70
62 16,000.00 732.32 16,732.32 13,000.00
63 16,480.00 3,040.26 36,252.58 13,390.00
64 16,974.40 4,872.40 58,099.37 13,791.70
65 17,483.63 6,918.87 82,501.87 14,205.45
66 18,008.14 9,200.69 109,710.70 14,631.61
67 18,548.39 11,740.84 139,999.92 15,070.56
68 19,104.84 14,564.45 173,669.21 15,522.68
69 19,677.98 17,699.00 211,046.19 15,988.36

 

[Cut-Throat]

Re: Delay Pension and/or Social Security

FIRECALC is advocating a 3.7% withdrawl rate at age 70? Wow FireCalc must be have been written by heirs.

FireCalc does not know how old you are. - It asks for how long to plan to. I used 30 years for age 70 to 100 years old.

A lot of the folks here plan to age 120 - I don't age 100 is fine.

What age would you use?

 

[Cut-Throat]

Re: Delay Pension and/or Social Security

To get an annuity as quoted 15 minutes ago by Vanguard for an inflation annuity you would need $211,304 to get the inflation adjusted amount of $15,988 per year. That would require an 9.15% after tax return not 27%.

SS security @ 62 ROI YE Balance Forgone amount @ 70
62 16,000.00 732.32 16,732.32 13,000.00
63 16,480.00 3,040.26 36,252.58 13,390.00
64 16,974.40 4,872.40 58,099.37 13,791.70
65 17,483.63 6,918.87 82,501.87 14,205.45
66 18,008.14 9,200.69 109,710.70 14,631.61
67 18,548.39 11,740.84 139,999.92 15,070.56
68 19,104.84 14,564.45 173,669.21 15,522.68
69 19,677.98 17,699.00 211,046.19 15,988.36

I did not use annuties because most of the vocal takethe S.S. at age 62 group, would not buy an annuity either. So I tried to keep the example in their realm.

But OK let's buy an annuity where can I get 9.15% guarenteed?

 

[donheff]

Re: Delay Pension and/or Social Security

Person C (Newbie ER) sees CT's simple question and this is of great interest to him, because he is 62 and is comtemplating taking SS early. It just so happens that at age 62 he will get $16K, if he waits until age 70 he will get $13K more! He decides to run FireCalc and see what amount portfoilo would produce that $13K cola adjusted amount. He decides on a 50/50 portfoilo and takes the FireCalc defaults and comes up with about $350K that is needed. Oddly enough this is 26.9 times the $13K (CT only suggested 25 times)

So Person C now takes Quicken and runs the Savings Calculator plugging in $16K every year for 8 years to see if he can turn the $16K early SS withdrawal into the $350K he needs to produce that extra $13k per year.

But then person C goes over to Vanguard and finds out that he can get a $13K COLAd annuity with 50-% survivor for less:
Initial Payment Amount: $13,000.00
Total Premium Amount for Fixed Joint and 50% Survivor Annuity with inflation adjustments: $228,095.26.

Of course that is buying it at age 70 today, in today's dollars. $13K would really be more inflation adjusted, but $350K?

 

[Running_Man]

Re: Delay Pension and/or Social Security

I did not use annuties because most of the vocal takethe S.S. at age 62 group, would not buy an annuity either. So I tried to keep the example in their realm.

But OK let's buy an annuity where can I get 9.15% guarenteed?

Your payment is equally not guaranteed. As the baby boomers retire the government shortly will only be taking in enough to pay 2/3 of the benefits so either taxes go up or benefits are cut. That is your hidden risk. The idea that spend more of your money now because an unfunded plan will give you more later is a riskier option than the 9.15%.

If you are Warren Buffet 9.15% is a bad year

 

[Cut-Throat]

Re: Delay Pension and/or Social Security

Your payment is equally not guaranteed. As the baby boomers retire the government shortly will only be taking in enough to pay 2/3 of the benefits so either taxes go up or benefits are cut. That is your hidden risk. The idea that spend more of your money now because an unfunded plan will give you more later is a riskier option than the 9.15%.

If you are Warren Buffet 9.15% is a bad year

OK - now your speculating, guessing, etc. etc.

Move along!

 

[Running_Man]

Re: Delay Pension and/or Social Security

FireCalc does not know how old you are. - It asks for how long to plan to. I used 30 years for age 70 to 100 years old.

A lot of the folks here plan to age 120 - I don't age 100 is fine.

What age would you use?

Well I do not use FireCalc, although I do understand the idea behind it, and find it a decent guide.

The most pertinent forecst to me is minimizing risk for retirement. Consuming more of my portfolio now while counting on a government grant later is not my idea of ideal risk management. I prefer more self-reliance.
I hold a red beans and rice philosophy to retirement - insure an existence of the required elements with absolute minimum risk. Everything else is the gravy for the rice. Social Security is gravy for me and I'll take my gravy before everyone else comes to the table thank you


The percentages that are required to equal what is assumed to occur in the future are not so outlandish as to be unatainable.

 

[Cut-Throat]

Re: Delay Pension and/or Social Security

But then person C goes over to Vanguard and finds out that he can get a $13K COLAd annuity with 50-% survivor for less:
Initial Payment Amount: $13,000.00
Total Premium Amount for Fixed Joint and 50% Survivor Annuity with inflation adjustments: $228,095.26.

Of course that is buying it at age 70 today, in today's dollars. $13K would really be more inflation adjusted, but $350K?

Well, I would buy an annuity, but CFB would never buy one, so I'm just reporting the numbers that FireCalc gives. If you are going to plod along with your Portfoilo with a less than 4% withdrawal rate well into your 90's - Well, you can't be too careful!

 

[Cut-Throat]

Re: Delay Pension and/or Social Security

Well I do not use FireCalc, although I do understand the idea behind it, and find it a decent guide.

The most pertinent forecst to me is minimizing risk for retirement. Consuming more of my portfolio now while counting on a government grant later is not my idea of ideal risk management. I prefer more self-reliance.
I hold a red beans and rice philosophy to retirement - insure an existence of the required elements with absolute minimum risk. Everything else is the gravy for the rice. Social Security is gravy for me and I'll take my gravy before everyone else comes to the table thank you


The percentages that are required to equal what is assumed to occur in the future are not so outlandish as to be unatainable.

Again, time for you to move on! - Only people that believe in SS need to discuss this any further. This was not a discussion of whether SS was going to survive (we've had those) - Bush was going to end it 2 years ago! If you have a Tin Hat on get your survival gear and fox hole it!

 

[Running_Man]

Re: Delay Pension and/or Social Security

Mr Cut-throat

Your implication that I am speculating and guessing I find amusing. My entire strategy is to minimize guesswork and concentrate on the known and available. I do not believe social security is going away, yet if you believe all is well and there will be no changes you are in disagreement with the current Fed chairman.

Firecalc will calculate a withdrawl amount that is relatively light due to the problems of early negative returns, you are proposing to ignore that for 8 years and accelerate the spending of a portfolio for the promise of a future benefit. However, that is ignoring the biggest retirement risk is in the early years of retirement and the possibility of losses early in retirement is the reason for a lower portfolio drawdown. Your strategy turns that on its head.

As an example if I am to have a porfolio of 1,000,000 and choose a withdrawl rate of 3.7% I will have $37,000 per year. Add the $16,000 from Social Security and you have $53,000 per year. If instead you want to increase your retirement income and take the future increase now you will be withdrawing $37,000 + $16,000 + $13,000 = $66,000. If there is a negative return in those 8 years the portfolio will never recover. The speculation is totally being taken by deferring the reception of social security by increasing drawdowns beyond the safe withdrawl rate.

If in year one you have a 50/50 portfolio and their is a bear market with a 29% fall your portfolio will fall by 12% (.5*-.29 + .5*.5 fixed). So your portfolio will start year 2 at 1,000,000 - 120,000 - 66,000 = $814,000 and your year 2 withdrawl will be over 8% of the portfolio, a second down year and there will not be enough to provide the needed income. That to me is a severe speculation.

 

[Cut-Throat]

Re: Delay Pension and/or Social Security

I never said you had to spend an extra $13K every year! - You can decide that every year - You don't give up that option! I find this amusing!

Also, I would expect that the further the market dropped the more I would be thankful that I had a bigger SS check coming down the road. And if at any time you decided that you needed the SS income, just apply. You can take it at 62, 63, 64, 65, 66, 67, 68, 69, or 70 - The more you delay the more you get!

You guys are always playing an all or nothing game! - You don't have to!

Also SS will change, but not for someone that is age 62 and making the decision today.

 

[Running_Man]

Re: Delay Pension and/or Social Security

Your arguement throughout the thread has been delaying Social Security is a resource to increase spending in your 60's. To state well I never said you had to increase spending is a fallacious arguement. That your entire point. The problem is there are no mathematics to back up the porfolio calculations you have stated are guaranteed.

Under your method a retiree's income at age 70 could very widely - what would you do if you started as I stated and had 2 years of a bear market and now your portfolio is at $600,000? Begin taking Social Security of $19,000 at 64 and a safe withdrawl of $22,000 for a total of $41,000? That does not appear to be to appealling to me. Cutting $25,000 of spending 2 years into retirement would certainly be burdensome.

That appears to make the promise of $13,000 additional to age 70 and beyond totally dependent on a minimium of historical returns on your portfolio for the coming 8 years with no bear markets in the early years.

You did state earlier you did not plan on leaving any money to your heirs.

 

[jdw_fire]

Re: Delay Pension and/or Social Security

As an example if I am to have a porfolio of 1,000,000 and choose a withdrawl rate of 3.7% I will have $37,000 per year. Add the $16,000 from Social Security and you have $53,000 per year. If instead you want to increase your retirement income and take the future increase now you will be withdrawing $37,000 + $16,000 + $13,000 = $66,000. If there is a negative return in those 8 years the portfolio will never recover. The speculation is totally being taken by deferring the reception of social security by increasing drawdowns beyond the safe withdrawl rate.

If in year one you have a 50/50 portfolio and their is a bear market with a 29% fall your portfolio will fall by 12% (.5*-.29 + .5*.5 fixed). So your portfolio will start year 2 at 1,000,000 - 120,000 - 66,000 = $814,000 and your year 2 withdrawl will be over 8% of the portfolio, a second down year and there will not be enough to provide the needed income. That to me is a severe speculation.

You too are missing the point. Using your example the goal is to increase the amount of spending between the years 62-70 over the $37000+$16000=$53000 amount without creating any more risk (assuming SS is riskless).

So the first step is to see how much of our portfolio is required to produce $13000/yr of COLAed income. Using simple math that amount is ~$351351. (Note this means it takes $1,000,000-$351,351=$648,649 to produce $37000-$13000=$24000 per yr COLAed income).

The second step is to remove this amount from the portfolio and put it in a "savings" account paying atleast the inflation rate. This means we now only have $24000/yr COLAed income from our portfolio. At the same time we defer our SS to age 70 thus guaranteeing us our equivalent income at 70 of $24000+$16000+$13000=$53000 per yr COLAed.

The last step is to increase our spending between 62 & 70 which is accomplished by reaping the $24000/yr COLAed income from our portfolio and taking $43918/yr ($351,351/8) COLAed from our "savings" account making our total spending between 62 & 70 equal to $67918/yr COLAed.

This actually has less risk than not doing it this way because less of our income between the ages of 62 - 70 is exposed to the stock market.

Do you get it yet?

 

[d]

Re: Delay Pension and/or Social Security

As an example if I am to have a porfolio of 1,000,000 and choose a withdrawl rate of 3.7% I will have $37,000 per year. Add the $16,000 from Social Security and you have $53,000 per year. If instead you want to increase your retirement income and take the future increase now you will be withdrawing $37,000 + $16,000 + $13,000 = $66,000.

.... all in current $ ... in the years prior to receiving ss, you are taking 39k (16+13) for each of those years. assume 8. fund this 312k from your 1,000,000, leaving 688k, which will generate 25,456 @ 3.7%. your income will now be 25,456+39,000 = 64,456. this is clearly better than 37,000 + 16,000 = 53,000. (assumes only that you earn 0% real on the 312k).

If there is a negative return in those 8 years

... the 312k could be in mm or other riskless assets, thus reducing your risk. further, should the markets go south, one could then opt to begin taking ss, thus reducing future withdrawals and risk.

while there are other matters to be considered, i think what i've suggested will result in a greater income received per year, and a reduced risk. (see my earlier comment which notes that the age at retirement determines (by this method) the appropriate age to take ss.)

 

[Independent]

Re: Delay Pension and/or Social Security

What all this stuff (social security, annuities, etc) comes down to is a bit of financial insurance. At one level you need it, and in great big gobs, no matter how much it costs. At another level, it pays you to take on a little risk and "self insure". I would imagine most ER's fall into the latter category. I would imagine there are many, many others that fall into the former. Some funny gray area in the middle where you might want to sort of self insure by taking the annuity gap route to delay taking the SS benefit, as rich described.

What you've written is pretty much how I see it. An annuity is insurance against the possibility that you live a lot longer than you had planned. Some people need to buy the insurance to free up money so they can live today.

I'm in the gray area where "self insurance" is plausible. But, when I looked at purchase prices for private annuities, I decided to self insure.

However, it looks to me like Uncle Sam has a better price. The decision to defer SS from 62 to 66 amounts to buying a COLA annuity at age 66 with a premium factor around 12. That's reasonably attractive (especially when you have a life expectancy of maybe 16 years, making the "insurance" part free). So I had planned to go down that route.

(BTW, the next step, going from 66 to 70 isn't so attractive. You still get a purchase price around 12, but that's a poorer deal when you are 70. I have a long time before I need to make that decision.)

However, that article by Dalton in the CPA Journal suggests otherwise. I thought maybe I missed some clear tax effect. I've thought about it some, and I can't match his numbers. At the moment seems best to assume he isn't talking about me.

 

[Cut-Throat]

Re: Delay Pension and/or Social Security

You too are missing the point. Using your example the goal is to increase the amount of spending between the years 62-70 over the $37000+$16000=$53000 amount without creating any more risk (assuming SS is riskless).

So the first step is to see how much of our portfolio is required to produce $13000/yr of COLAed income. Using simple math that amount is ~$351351. (Note this means it takes $1,000,000-$351,351=$648,649 to produce $37000-$13000=$24000 per yr COLAed income).

The second step is to remove this amount from the portfolio and put it in a "savings" account paying atleast the inflation rate. This means we now only have $24000/yr COLAed income from our portfolio. At the same time we defer our SS to age 70 thus guaranteeing us our equivalent income at 70 of $24000+$16000+$13000=$53000 per yr COLAed.

The last step is to increase our spending between 62 & 70 which is accomplished by reaping the $24000/yr COLAed income from our portfolio and taking $43918/yr ($351,351/8) COLAed from our "savings" account making our total spending between 62 & 70 equal to $67918/yr COLAed.

This actually has less risk than not doing it this way because less of our income between the ages of 62 - 70 is exposed to the stock market.

Do you get it yet?

Very well said!

I tried to keep it simple, but it just sent people off on tangents. If they cannot do the math on what you just wrote, we'll have to give up. These are facts and they just have to do the numbers!

 

[Running_Man]

Re: Delay Pension and/or Social Security

Do I get it?

Well look at the math you want a 6.7% portfolio drawdown financed by future Social Security. The return of the 8 years of the portfolio will not matter because 35.1% of be invested in safe"Fixed" instruments and spend and social security will jump in for that piece. So that at age 70 if all is well you'll drop from 67,000 to 53,000 spending. 8 years of free lunches

OF course at age 70 your portfolio will be 35% smaller than mine. And at that point I could annuitize my entire portfolio and get 3.51 X 7,500 in Cola annuity or $25,000 more - $13,000 = $12,000 inflation adjusted for every year over age 70 than would be available to you. Might help with the medical bills. Stop buy my place at age 75 I'm buying lunch.

 

[Cut-Throat]

Re: Delay Pension and/or Social Security

Do I get it?

Well look at the math you want a 6.7% portfolio drawdown financed by future Social Security. The return of the 8 years of the portfolio will not matter because 35.1% of be invested in safe"Fixed" instruments and spend and social security will jump in for that piece. So that at age 70 if all is well you'll drop from 67,000 to 53,000 spending. 8 years of free lunches

OF course at age 70 your portfolio will be 35% smaller than mine. And at that point I could annuitize my entire portfolio and get 3.51 X 7,500 in Cola annuity or $25,000 more - $13,000 = $12,000 inflation adjusted for every year over age 70 than would be available to you. Might help with the medical bills. Stop buy my place at age 75 I'm buying lunch.

And now were back to the whole point of this thread in which you now seem to agree. If you delay S.S. to age 70 you can spend more money in your 60's. If you're happy to live it up in your 70's that can certainly be your choice. : I will be done with a lot of worldwide travel by then.

 

[Independent]

Re: Delay Pension and/or Social Security

If I understand your option correctly you plan on buying a COLAed life annuity at age 70 paying $20885/yr to cover the difference between what you would get at 70 if you started SS at 70 and what you'd get at 70 if you started SS at 62. However you forgot to convert the $20885 to what its COLAed number would be at age 70 (remember I used the value of the dollar at age 62 in my example because the 4% SWR comes from using constant value dollars). Based again on CFB's SS numbers the $20885/yr in current year dollars would be $26106/yr in actual dollars by the time you buy the annuity at age 70. Thus the cost of your annuity just went up 25%.

However what is being done here defeats the point CT was making with his post and that is that he found a way to spend more money between the ages of 62 and 70 without increasing his risk (provided you believe SS is riskless).

Certainly, I have to be consistent. Either do the whole thing in constant dollars or the whole thing with inflation.

I thought the original example was constant dollars, so I stayed with that. The 8% interest that someone provided isn't very plausible in that situation, but I thought is was just a case where the argument worked at nearly any interest rate (since there aren't a lot of years).

If I want to do it with inflated dollars, I also have to inflate the SS benefit that started at age 62. So I think it's one step more complicated than you've stated. Looking at plausible numbers (3% inflation and 5% gross investment return), the advantage of taking SS early does become pretty pronounced.

 

[jdw_fire]

Re: Delay Pension and/or Social Security

Do I get it?

Well look at the math you want a 6.7% portfolio drawdown financed by future Social Security. The return of the 8 years of the portfolio will not matter because 35.1% of be invested in safe"Fixed" instruments and spend and social security will jump in for that piece. So that at age 70 if all is well you'll drop from 67,000 to 53,000 spending. 8 years of free lunches

OF course at age 70 your portfolio will be 35% smaller than mine. And at that point I could annuitize my entire portfolio and get 3.51 X 7,500 in Cola annuity or $25,000 more - $13,000 = $12,000 inflation adjusted for every year over age 70 than would be available to you. Might help with the medical bills. Stop buy my place at age 75 I'm buying lunch.

Yes at age 70 my porfolio will be smaller but my US gov guaranteed income from SS will be 76% larger than yours. If you want to use an annuity to increase your spending just buy it at age 62.

 

[Running_Man]

Re: Delay Pension and/or Social Security

And now were back to the whole point of this thread in which you now seem to agree. If you delay S.S. to age 70 you can spend more money in your 60's.

Spending more in your '60's is always an option. You at age 70 will certainly be in worse financial shape under that method than the one I proposed. The worse financial shape you are willing to be in at age 70 the more you can spend.

So much is made of the fact that people spend less as they get older. This is almost assuredly due to the fact they have consumed their funds.

Your club needs a name - I am struggling between the Pollyanna's and the Ostriches. No I got it the Grasshoppers.

The Ant

 

[jdw_fire]

Re: Delay Pension and/or Social Security

Spending more in your '60's is always an option. You at age 70 will certainly be in worse financial shape under that method than the one I proposed. The worse financial shape you are willing to be in at age 70 the more you can spend.

I disagree (unless you are going to say that SS is not secure), at age 70 I have the same income as you and more of it is coming from SS so there is less market risk to me.

 

[cute fuzzy bunny]

Re: Delay Pension and/or Social Security

Wow, I need some popcorn.

I'm still trying to correlate
- the initial concerns that the firecalc approach is a worst case scenario that leaves too much money at the end and is too conservative, therefore not allowing you to spend more money earlier

with

- the need to use firecalcs 4%/25x multiplier, thereby delivering a sure-thing portfolio that leaves a lot of money at the end and is too conservative

and...

- doing the calc to 100 years of age, at which point only 2% of the general population would still be alive, pretty much creating a worst case scenario instead of picking...oh...say 85 years old when 95% of the proposed contenders would be dead

with...

- Since thats kind of weird, lets ante up a huge amount of cash to an annuity provider, pay them their profit margin, and hope I'm one of the 5% of the population that will outlive the sucker. (remember, we're doing this to spend a little more money in our 60's)

But...

- we cant use the tool that does all this for us, or do a realistic plan that uses a 95% certainty that expires when 95% of the participants would be dead.

Which...

- would produce a result that you'd need about 120-180k starting at age 70 to produce a satisfactory replacement income stream, using ordinary fixed income assets and dividend paying stocks I can buy today, with 95% certainty of paying out a satisfactory result through the age of 85, at which point 95% of us will be dead.

ORRRR...

- we could just use the dreaded unsatisfactory planning tool that uses the same 4%/25x "unlikely to ever run out" overly conservative approach that has been put forward (but which is what we want to avoid), take SS early, take 5k more per year for 20 years of early retirement (in my example and instance) and still end up with a satisfactory and fairly likely income stream that would last until I was 85. Or 100. Or 120.

Except...

- we dont want to use the tool, because it produces results inconsistent with the preordained decision, we do however want to use its parameters to create the worst case scenario that we dont want

And...

- we'd dont want to hear any plausible arguments that would create uncertainties about the future of SS...lets just depend on it even though its a foregone conclusion that benefits will be cut or eliminated for some people because the math simply doesnt work.

Do I have this wrapped up now?



Oh yeah, and I see we need to sign up a few more people for the "reading is fundamental" class, since as was twice implied above, I never said that nobody should buy an annuity, or even ruled out buying one for myself. I would say with some authority that I wouldnt put all, or even a majority of my money into one, nor would I recommend that most other people do so either. Unless you come from a planet where people live past 100 and high inflation doesnt exist.

Then I'd get one and put all my money into it. But I'd be real careful about who I bought it from and I'd avoid variable annuities.

But then again, the point in saying that I did say that wasnt simply the poster being daffy, it was just to troll me into re-engaging the conversation. Right? Oh yeah, I forgot...nobody read this far, they started typing their 'responses' around paragraph #3.

Said conversation allegedly not being about who is right or wrong, but to share information.

Which seems rather odd because theres an awful lot of effort to contort and limit the 'sharing' unless it produces a specific outcome, which makes one of the 'sharers' right.

But...you wanna know what I think?

Sure you do.

I think that almost nobody will do anything different with their spending as a result of all this multiplying, annuitizing and dividing. Then at 62, 65 and/or 70 they'll do exactly what they were going to do before a single post was put up in this or any other SS thread.

Simply because the axial decision is based on a couple of hairballs around "bird in the hand/two in the bush" and/or "do I trust the government to pay me now vs later" and/or "I'll be the one guy who lives to 120 and his money runs out because I didnt wring every penny out of my social security benefits" and/or "I want my wife to have as much money as possible after I die".

One of the hairballs will win. Guaranteed.