Re: When to take SS
Cute Fuzzy Bunny said:
But dont just listen to me...
CFB - Thanks to the link to the "grandfather" thread. I can now see an example of test with a lower starting age. I think the three quotes you posted all related to this post:
Now for Firecalc data!
I used 60k/yr, 800k portfolio, 50 yrs, withdrawal change of -38400 non inflation adjusted in year 0 (to model a fixed pension), 80% stocks, and defaults for the rest. I then looked for the 95% point max safe withdrawal returned by Firecalc. With SS as below, here are the max withdrawals:
$15,168 in year 12 (1,264/mo at 62): $62,880
$20,112 in year 16 (1,676/mo at 66): $61,680
$26,500 in year 20 (2,212/mo at 70): $60,560
Not quite what I expected! Any insight on this out there? This seems to indicate that the earlier payout at age 62 is the best!
Wayne
I put that data into FireCalc today and got similar, but not identical, results. The three "safe" spending levels were: $62,430 $61,848 and $61,801. These numbers are closer together than those from the post, but there is still a decreasing pattern.
I looked at the Firecalc detail and thought that I could see something that makes sense.
I think it pays to consider three things that people seem to agree on:
1) Low investment returns are bad for your portfolio's chances of outliving you (duh).
2) Although poor returns are always bad, they seem especially bad if they occur early on.
3) Deferring SS gives better results if your investment yields are low.
The cases that have been posted here with a starting age of 62, and a conservative definition of success (e.g. 95% probablity at 30 years), generally show that deferring SS gives the higher safe income. My reasoning about this it that when you specify 95% success, the five or six worst investment cases control FireCalc’s safe spending numbers.
For a starting age of 62, there is an interesting connection between statements (2) and (3). The worst cases have (of course) low investment returns, especially in the early years. But low returns in the 62-72 age range (very approx on the 72) make deferring SS look better. So, although deferring makes the "average" scenario worse, it helps out in exactly those cases that control the FireCalc numbers when you've specified 95%.
i.e. When your analysis starts at age 62, statement (2) and (3) above work together to tell a conservative person it’s best to defer SS.
But what about Wayne's example? or Firecalc runs that you've done for yourself? Why don't they favor deferring?
Because starting the run at age 50 or 44 breaks the connection between (2) and (3). The scenarios that are most likely to get into the 5% failures are the ones that start out with low returns. For Wayne, that would be low returns in his 50's when he’s first taking withdrawals from his fund. But the scenarios that favor deferring SS are the ones with low returns in his late 60’s and early 70’s.
For example, in one of FireCalc’s scenarios, Wayne would have retired in 1954. He would turn 62 in 1966. Investment yields were low for more than ten years after 1966. The FireCalc detail shows that deferring SS was in fact the better choice in the scenario that starts with 1954. The defer option pulls ahead at age 78 or 79 (Wayne was running to age 100). However, 1954 was irrelevant as far as the 95% confidence was concerned. The good returns from 1954 through 1965 years would have grown his portfolio to over $2 million by age 62. He was never close to failing for this starting year.
The five (out of 86) years with the worst results were 1906, 1909, 1911, 1912, and 1937. In all of these cases, poor returns in the first 12 years would have chewed up more than half his initial portfolio. The next 8 years showed “average” returns. Taking SS at 62 usually gave better results. I think 1909 is a critical year -- the one where deferring fails but taking SS at 62 survives. For a 1909 starting date, low returns take the portfolio all the way down to $275k by the end of year 12. However, yields recovered and averaged double digits for the next 8 years. In this case, taking SS at 62 was the better option. That option still had $184k at 100. But deferring SS wasn’t as good. Those options failed at ages 98 and 99.
My conclusion to all the above is that FireCalc gives a good indicator for someone who is currently 62. It says that if you’re most concerned about the possibility of low yields and a long lifespan, you should consider deferring. For someone who is currently 50 or 44, it gives you good information on the “safety level” of your retirement plans, but I don’t think it’s saying much about this question of when to take SS.
Note: The comments on the specific years above all come from three FireCalc runs that I did using Wayne’s assumptions and his three options for SS, but using the same $62,000 input spending level in all cases.
