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Do Social Security Calculators Miss This?
Old 01-27-2023, 11:38 AM   #1
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Do Social Security Calculators Miss This?

Looking at claiming options for SS. Iíve tried a couple of calculators (Open Social Security, My Social Security). Both of these solve for my optimum payout by delaying file date to 70 yrs of age. Wife would file now at 64 on her earnings an then claim spousal when I file. This scenario maximizes the payout vs. filing now at 65\64.

The concern I have is the optimum scenario ignores the fact that the bulk of living expenses then come out of assets and are unavailable to participate in the market. When I plug these two scenarios into my wildly complicated spreadsheet to evaluate my asset value over retirement, the earlier filing date always wins because of the lower drawdown in assets.

Has anyone else been thru this analysis? What were your conclusions?
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Old 01-27-2023, 11:42 AM   #2
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I've created multiple scenarios in PC and they show me the same thing. It's better to use SS than investments if the money is needed. The increase in delaying SS is offset by investments earnings and since my investments are in tax deferred, ALL of my investment withdrawals are taxed but SS tops out at 85%.
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Old 01-27-2023, 11:45 AM   #3
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My conclusions have always been that it almost doesn't matter. On the average, SS is supposed to be neutral from an actuarial standpoint. Problem is, nobody is average. Bigger problem not everybody knows when their last day on earth is.

Many of the online calculators do a great job of optimizing. But I've also found that it's highly sensitive to the input data and I've seen the results slam from one end of the age range to the other for what I think is a small change in inputs.

So we're going to hope that the longevity genes in both of our families dominates, so we're both planning for age 70. If something happens to either of us that makes us believe that we'll fall short of our relatives' longevity then we will adjust.

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Old 01-27-2023, 11:51 AM   #4
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Originally Posted by TNBigfoot View Post
Looking at claiming options for SS. I’ve tried a couple of calculators (Open Social Security, My Social Security). Both of these solve for my optimum payout by delaying file date to 70 yrs of age. Wife would file now at 64 on her earnings an then claim spousal when I file. This scenario maximizes the payout vs. filing now at 65\64.

The concern I have is the optimum scenario ignores the fact that the bulk of living expenses then come out of assets and are unavailable to participate in the market. When I plug these two scenarios into my wildly complicated spreadsheet to evaluate my asset value over retirement, the earlier filing date always wins because of the lower drawdown in assets.

Has anyone else been thru this analysis? What were your conclusions?
I'd guess that the SS calculators assume that you'll work until age 70 rather than draw from your income producing assets.

My less than "wildly complicated" spreadsheets support your findings however "take the money and run" has always been a motto that has served me well.

Eight years (62-70) is a long time to be needlessly withdrawing almost $50k per year (the two of us) and once that $400k is gone it's gone.

Others here may disagree.
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Old 01-27-2023, 11:54 AM   #5
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Thereís the insurance component. Even if my portfolio gets wiped out the SS at 70 would cover my essential expenses the rest of my life.
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Old 01-27-2023, 12:10 PM   #6
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The concern I have is the optimum scenario ignores the fact that the bulk of living expenses then come out of assets and are unavailable to participate in the market. When I plug these two scenarios into my wildly complicated spreadsheet to evaluate my asset value over retirement, the earlier filing date always wins because of the lower drawdown in assets.
What kind of return are you assuming on your investments? With decent returns, you are correct, taking SS early and keeping more investing wins. However, you are probably still in a good situation with good returns and delaying SS.

On the other hand, what if you have poor returns? Delaying SS will do better in this case, and it might be more critical to you to pick the winner in this scenario.

So do you want to optimize the most likely case, or have the best chance to stay solvent in a less likely case? I choose the latter.

The wild card for me is that every year the SS shortfall is not addressed, it's a little more likely that benefits will get cut. I don't know how likely this is, but I do believe it is possible. This leans me back in the direction of taking it earlier. I'm going to wait until at least 65 because taking it earlier raises my ACA health insurance net cost, and then I will reevaluate.
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Old 01-27-2023, 12:16 PM   #7
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The wild card for me is that every year the SS shortfall is not addressed, it's a little more likely that benefits will get cut. I don't know how likely this is, but I do believe it is possible. This leans me back in the direction of taking it earlier..
That's the other half of the story isn't it!

Another angle is this: We both took SS at 62. Now, I've just turned 70 and all of a sudden a whole new crop of health issues have me wondering if I'll make the break even point (so I've got that going for me...a game I'd rather lose. ).
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Old 01-27-2023, 12:29 PM   #8
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Besides the financial aspect of who dies with the most money wins, which is all I can see as any advantage to delayed SS, is that it's highly unlikely I would need MORE discretionary/disposable income after age 70 than before. Afterall, the younger I am, the more likely I will be active and wanting to do activities that require money. The older I am, the more likely I'll slow down and no longer have a financial need to fund those activities I now would be too old to participate in.
I'd rather reminisce about all the fun things I did in retirement than compare net worth with the fellows in the dining room at the retirement home.

Certainly my own money is inheritable where-as SS vanishes when I die. Spend 100% of the latter pot before touching the hard cash.
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Old 01-27-2023, 12:34 PM   #9
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Everyone's situation is different based on expenses, assets and social security value. For example, my wife didnt make that much and so we will be claiming Spousal benefits

The calculators also showed waiting until 70. My spread sheets assuming a 3% ROI showed 65 as the best value with the Break even point being 85ish. If the ROI goes down the Breakeven point is earlier and if it goes up, it is later.

I am going to be 62 in June and I plan on evaluating this every year and adjusting if need be

62 showed everything would still be ok. The break even for 65 vs 62 is in my late 70's Also, my assets increase with 65 and decrease with 62 at a 3% ROI. Both scenarios show investment increase at 4% ROI. Again that is my situation with my combination of ROTH, IRA, BONDs, Pension etc.
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Old 01-27-2023, 12:45 PM   #10
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Originally Posted by marko View Post

Another angle is this: We both took SS at 62. Now, I've just turned 70 and all of a sudden a whole new crop of health issues have me wondering if I'll make the break even point (so I've got that going for me...a game I'd rather lose. ).
That's a non-issue to me. Even it I die just before my 70th birthday without having taken any SS, I'll still leave plenty to my heirs (even if not optimized) and I'll be dead, so I won't care. That one just strikes me as being worried about "winning the SS game" which isn't a priority to me. There are plenty of valid issues to take at 62 (or 70 or anywhere in between), but for me this isn't one.
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Old 01-27-2023, 12:47 PM   #11
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What kind of return are you assuming on your investments? With decent returns, you are correct, taking SS early and keeping more investing wins. However, you are probably still in a good situation with good returns and delaying SS.

On the other hand, what if you have poor returns? Delaying SS will do better in this case, and it might be more critical to you to pick the winner in this scenario.

So do you want to optimize the most likely case, or have the best chance to stay solvent in a less likely case? I choose the latter.

The wild card for me is that every year the SS shortfall is not addressed, it's a little more likely that benefits will get cut. I don't know how likely this is, but I do believe it is possible. This leans me back in the direction of taking it earlier. I'm going to wait until at least 65 because taking it earlier raises my ACA health insurance net cost, and then I will reevaluate.
Bolded by me.
Same thoughts and situation for me with the addition of a lump sum pension at age 65. The ACA game until 65 works quite well for me.
So at 66, will evaluate each year.
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Old 01-27-2023, 12:53 PM   #12
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Besides the financial aspect of who dies with the most money wins, which is all I can see as any advantage to delayed SS, is that it's highly unlikely I would need MORE discretionary/disposable income after age 70 than before. Afterall, the younger I am, the more likely I will be active and wanting to do activities that require money. The older I am, the more likely I'll slow down and no longer have a financial need to fund those activities I now would be too old to participate in.
I'd rather reminisce about all the fun things I did in retirement than compare net worth with the fellows in the dining room at the retirement home.
My parents, who did take a few nice trips once they retired in their early 60s, now spend 3x what they used to spend now that my mom is in assisted living. Think about that likelihood.
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Certainly my own money is inheritable where-as SS vanishes when I die. Spend 100% of the latter pot before touching the hard cash.
As you said in your first line of your post, if you defer SS and live long enough, you'll have more money. Which means you leave more to your heirs if you live long enough. Taking SS early does not guarantee the best outcome for your heirs.
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Old 01-27-2023, 01:06 PM   #13
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We retired a couple years early at 61 and initially intended to take SS at 65 or after but with no debt and one pension our bills are paid, travel funded and a bit more for savings. A spread sheet showing inflation, taxes, major house/vehicle replacements clearly showed that our wealth increased every year out to age 80 and beyond. It certainly worked for us to claim SS at 62.
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Old 01-27-2023, 01:47 PM   #14
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For the zillionth time, IF you donít care about leaving an estate and you can fund retirement until you hit 70 (yes, very big IFs), taking SS at 70 gives you more to spend as early as 62, each year until you leave this world.

No need to do when-I-die calculations.
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Old 01-27-2023, 02:28 PM   #15
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For the zillionth time, IF you donít care about leaving an estate and you can fund retirement until you hit 70 (yes, very big IFs), taking SS at 70 gives you more to spend as early as 62, each year until you leave this world.

No need to do when-I-die calculations.
And for the zillionth time. Despite what we may say, many of us really do care about leaving an estate. SS gives me the play money that I would never spend otherwise. Behavioral issues may be a bigger factor than many admit.
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Old 01-27-2023, 03:34 PM   #16
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Similar to the original poster, my spreadsheet shows that claiming at 62 and 66 gives us the most money until about age 85. That's assuming that our investments earn 2% above inflation. If we were to buy a guaranteed annuity (with lower rates of return), the break-even point moves younger.

I will draw a good state government pension which will cover 60-70% of our expenses (even after factoring in high inflation). Once we start drawing SS at 62&66 I expect pension plus SS to exceed our needs. This is retiring at 58. If I defer One (or two, or three) More Year it changes and makes sense to push my SS date out a bit because we won't need as much money to fill the (shorter) gap between retirement and drawing SS.
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Old 01-27-2023, 03:40 PM   #17
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My calculations have shown the same, in order to get over the worst case scenarios, I'm further ahead , not paying down my mortgage and taking SS as early as possible. To me that makes perfect sense as a major market correction right as I enter my 60s could potentially put me in one of the 4 scenarios my current plan fails in.

The good news is, I don't have to make a decision today or tomorrow, I can just wait until I'm 62 and then make the decision month to month. If the market is doing ok, I wait, if the market is doing terribly, I take it.
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Old 01-27-2023, 04:10 PM   #18
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The wild card for me is that every year the SS shortfall is not addressed, it's a little more likely that benefits will get cut. I don't know how likely this is, but I do believe it is possible. This leans me back in the direction of taking it earlier.
They will be cut by default if no action is taken. But, what I do is estimate my SS benefits will be 25% lower than the promised amount in the SS calculator when figuring my future stash needs. So, if I actually get more than that, like the actual promised amount, it will be a bonus over my planning. I also assume 85% of benefits will be taxed.

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I'm going to wait until at least 65 because taking it earlier raises my ACA health insurance net cost, and then I will reevaluate.
I've got quite a few years to go, but that's my tentative planning as well due to the current ACA law - waiting until age 65 and re-evaluate closer to that time regarding waiting longer.
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Old 01-27-2023, 04:29 PM   #19
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You are SUPPOSED to do a combination of spend down and Roth conversion of tax-deferred assets in those years prior to age 70 SS.
This reduces your RMDs later on.
It helps if you have a pension/annuity during those years as well, but not everyone does.

Anyhow, it's possible to have excess retirement income after age 70 to rebuild your asset base in your later years. That's what I'm doing...
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Old 01-27-2023, 04:50 PM   #20
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Quote:
Originally Posted by TNBigfoot View Post
Looking at claiming options for SS. I’ve tried a couple of calculators (Open Social Security, My Social Security). Both of these solve for my optimum payout by delaying file date to 70 yrs of age. Wife would file now at 64 on her earnings an then claim spousal when I file. This scenario maximizes the payout vs. filing now at 65\64.

The concern I have is the optimum scenario ignores the fact that the bulk of living expenses then come out of assets and are unavailable to participate in the market. When I plug these two scenarios into my wildly complicated spreadsheet to evaluate my asset value over retirement, the earlier filing date always wins because of the lower drawdown in assets.

Has anyone else been thru this analysis? What were your conclusions?
The real rate of return assumption that you use/input into opensocialsecurity.com should be the expected real rate of return on the assets that you will use if you delay social security in order to get a sensible result. So if you will be using assets that you expect would have a nominal return of 5% and your inflation assumption is 3% then you would use 2% for the real rate. I know Mike Piper advocates using the real rate of return on 20 year TIPS, currently 1.26%, but I just don't agree with him on that.

For us, claiming strategies doesn't change things much. When I was 63, I ran opensocialsecurity for numerous scenarios... claim straight away, at 65, at FRA (66/2) or DW at FRA and me (higher earner) at 70. Assumptions were 2017 non-smoker preferred mortality, 3.3% real discount rate, and our PIAs from the SSA at that time. The expected present values were not dramatically different... see table below.

 No haircutHaircut
Optimal solution100.0%100.0%
Both now96.7%98.0%
Both 6599.2%99.6%
Both at FRA98.5%95.9%
Me 70/DW FRA99.2%98.9%

We decided to have DW claim at FRA and me claim at 70, in part because we could do more in low tax cost Roth conversions by delaying.. in other words we think that the benefit of being able to do more Roth conversions before beginning SS exceeds the 0.8% or 1.1% that theoretically we might be leaving on the table by taking later than the optimal solution. Also, once I start at age 70 then as long as one or the other of use are alive we will collect my maximum benefit and the longevity tables suggest that one or the other of us will live until our early 90s. As far as the whole being able to spend more if we take early... that is poppycock in our case... our retirement is overfunded and we spend less than 75% of what FIRECalc says that we could safely spend so if we have more $$$ coming in by taking SS early then it would not impact our spending one bit.
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