Interesting SS question

[marko]

Here's an interesting (at least to me) SS question that I'd like to throw out before the collective wisdom here:

BIL is getting ready to RE. He receives a good amount from dividends and interest. 60/40 portfolio running about 9%

Between dividends and taking SS at 62 he'd have enough to live on, and a bit more and he'd be within his SWR.

If he waits for SS at FRA, he'll have to dip into his principal to the tune of about $20K per year for 3 or 4 years and he'd be slightly over his SWR.

He's fully aware of the pitfalls of taking SS at 62 vs 65-66 but has no spouse or other longer term considerations.

So...any insight? Save the principal or wait to FRA? Personally, I've had "never touch the principal" drilled into me since I was 8 years old.

 

[braumeister]

Personally, I've had "never touch the principal" drilled into me since I was 8 years old.

Sure, but why was it drilled into you?
Maybe because there was a reason like "you'll need it when you're older?"

Maybe this is the time he should be dipping into it, since the SS increase at FRA (or even later) would be great longevity insurance?

Maybe a lot of things.

 

[Katsmeow]

For single individuals actuarially there is no real difference in taking SS at 62 versus a later age. Yes, you get more money at the later ages but you collect for a shorter period of time. The recommendations to wait until FRA are usually where there is a spouse and there are considerations based upon joint life expectancy.

As far as being over SWR for a few years, that is common with early retirees. If he runs Firecalc and tell it when you want it to start SS it will base withdrawals accordingly.

DH is retired and I'm semi-retired. I am several years younger than DH and I will likely fully retire before FRA. During that period of time our withdrawal rate is well above our SWR average for the life of our retirement. We also have college expenses for the next few years. So in Firecalc we have a higher SWR for the next few years and then it would go down markedly when I take SS (whether at 62 or FRA). I'm not concerned about it since I look at the entirety of the retirement period.

 

[marko]

Sure, but why was it drilled into you?
Maybe because there was a reason like "you'll need it when you're older?"
.

More of a multi-generational wealth management strategy. AKA "The first commandment".

 

[Major Tom]

More of a multi-generational wealth management strategy. AKA "The first commandment".

It's interesting how many rules and general guidelines are passed among people (even down to the next generation) and accepted as common wisdom long after the reason for that rule is forgotten.

This could be an interesting topic for a new thread.

 

[growing_older]

For single individuals actuarially there is no real difference in taking SS at 62 versus a later age.

But for a single individual, there is also the consideration that only some of the outcomes matter. If I dip into principal but die early, then I don't care. Perhaps my heirs, if I have any, will inherit less, but it won't reduce my spendable income since I'm deceased and have very little need for money. If I happen to live longer than expected, then I will be very glad indeed to have the larger benefit amount. If I take SS early, but die early, my extra principal goes to my happy heirs, but I don't get to spend it. Alternatively, if I take SS early but live a long time, I'm more likely to exhaust my principal and wish I had the larger benefit amount. This result I care about and wish I hadn't got into this mess.

Actuarial identical results give subjectively different outcomes.

Personally, I prefer to bet on long life, so I'm planning to delay SS, but that seems a minority position. Most people have been claiming early.

 

[jdw_fire]

i have many times posted on this forum showing that, if your desire is spending more money early in your retirement w/o added risk, the better approach is to delay SS till age 70. this is definitely true for a single individual (the picture is more complicated for couples but still holds for the higher wage earner). the only refutation comes from the scenario that SS stops paying as scheduled for the person collecting, which i think is unlikely for someone old enough to collect. however if your motivation is to leave as big an estate as possible, starting it earlier is probably better.

p.s. here, i looked 1 up for you http://www.early-retirement.org/forums/f28/social-security-at-62-66-or-70-a-26354-3.html#post494511

 

[pb4uski]

I think he needs to look at his health and longevity in his family. If he is in good health and has good longevity then I would delay SS as much as possible. Once he turns 62, it is always there if he needs it so he can reassess each year.

If his health and longevity are not that great, then I would lean to starting SS at 62.

 

[marko]

Thanks All! I guess I'm so hung up on "never touch the principal" that I was wondering if having to do so might mitigate the downside of an earlier SS withdrawal.

 

[jdw_fire]

I think he needs to look at his health and longevity in his family. If he is in good health and has good longevity then I would delay SS as much as possible. Once he turns 62, it is always there if he needs it so he can reassess each year.

If his health and longevity are not that great, then I would lean to starting SS at 62.

actually, my analysis is not dependent on a givens persons health, period. what i stated above holds even if said person alters his/her WD rate based on their health.

i have not run all the scenarios but i do concede (for example) that if, based on health, the retiree decides that s/he will definitely die at age 69 and is therefore going to totally spend down their portfolio so that it is exhausted by that age then taking SS at the earliest possible age will increase the amount they live on as opposed to waiting to start at age 70.

BUT, i can not believe anyone would be so sure that they will die in 7 year that they would actually completely spend their entire portfolio over that period of time!

 

[Katsmeow]

Regardless of whether to take SS at 62 or not (a subject as enduring as whether to pay off the mortgage), the larger point for the OP's question is that if the individual chose to take a slightly higher withdrawal rate in order to take SS later that would probably be OK (need to look at Firecalc to be sure).

 

[jdw_fire]

Regardless of whether to take SS at 62 or not (a subject as enduring as whether to pay off the mortgage), the larger point for the OP's question is that if the individual chose to take a slightly higher withdrawal rate in order to take SS later that would probably be OK (need to look at Firecalc to be sure).

actually FireCalc, by itself, doesnt really work well for this analysis because, as you can see in my analysis at the link i supplied, part of the portfolio (the amount used to fund the SS replacement and the increased spending between ages 62 and 70) isnt in a portfolio that it makes sense to apply FireCalc, instead it is in something (in my post it was a MM account) that is trying to keep up with the CPI. granted that was easier back in 2007 when i wrote the analysis but i think it can still hold today, for the most part.

 

[Katsmeow]

actually FireCalc, by itself, doesnt really work well for this analysis because, as you can see in my analysis at the link i supplied, part of the portfolio (the amount used to fund the SS replacement and the increased spending between ages 62 and 70) isnt in a portfolio that it makes sense to apply FireCalc, instead it is in something (in my post it was a MM account) that is trying to keep up with the CPI. granted that was easier back in 2007 when i wrote the analysis but i think it can still hold today, for the most part.

Well for me using Firecalc for this purpose works fine.... It can handle taking SS at various times and I don't see the benefit of putting the amount to be SS replacement in anything other than your normal asset allocation.

 

[jdw_fire]

Well for me using Firecalc for this purpose works fine.... It can handle taking SS at various times and I don't see the benefit of putting the amount to be SS replacement in anything other than your normal asset allocation.

the advantage is that since the retiree plans on spending that amount over a short period of time (8 years in this case) it eliminates the market risk that is inherent in your "normal asset allocation".

 

[Katsmeow]

the advantage is that since the retiree plans on spending that amount over a short period of time (8 years in this case) it eliminates the market risk that is inherent in your "normal asset allocation".

I understand the concept, I just think it is better to stick with the normal asset allocation

 

[jdw_fire]

I understand the concept, I just think it is better to stick with the normal asset allocation

so, you think that if you know you have a major purchase/expense coming in the near future (next few years), like buying a new car for cash or college tuition, you should leave that money in the market? i think you will find that a number of people will disagree with that approach.

o and BTW, if someone was going to implement my plan at the time i wrote that analysis and they had taken the 8 yrs of spending and put it in some type of cash equivalent, that money wouldnt have lost half its value in the market crash and they wouldnt have had to take money out of the market to live on at a time when the market was very low.

 

[pb4uski]

actually, my analysis is not dependent on a givens persons health, period. what i stated above holds even if said person alters his/her WD rate based on their health.

i have not run all the scenarios but i do concede (for example) that if, based on health, the retiree decides that s/he will definitely die at age 69 and is therefore going to totally spend down their portfolio so that it is exhausted by that age then taking SS at the earliest possible age will increase the amount they live on as opposed to waiting to start at age 70.

BUT, i can not believe anyone would be so sure that they will die in 7 year that they would actually completely spend their entire portfolio over that period of time!

I wasn't commenting on your post - I was commenting on the OPs post. I actually don't give a hoot about your "analysis'.

It is well accepted that for singles that the decision is supposed to be actuarially neutral, so if that is the case and you have specific insights as to your longevity compared to average longevity, it would be a significant factor in the decision.

 

[Bikerdude]

He has to do the math as it pertains to taxes. Whether he has a substantial amount in after tax account vs taxable IRA/401K accounts. He should look at how his SS is taxed in the State that he resides. He should make a realistic assessment on how much his investments earn and how that amount will extend his break-even date. Once that is done then look at how long he can realistically expect to live. Run the math then make an educated decision.

 

[pb4uski]

One way I have looked alternatives is by having my baseline plan (which is SS at age 70) in Quicken Lifetime Planner - then you can easily do a what if to see how you nestegg would fare with the same assumptions other than changing SS to age 62 or FRA and see the effect of each scenario. While it is deterministic rather than stochastic, it can give you an idea of the effect on your nestegg.

You could do something similar in Firecalc and compare the printed graphs, range of ending nesteggs, average ending nestegg, number of failures, etc.

 

[growing_older]

so, you think that if you know you have a major purchase/expense coming in the near future (next few years), like buying a new car for cash or college tuition, you should leave that money in the market? i think you will find that a number of people will disagree with that approach.

A number of people disagree with a lot of what I do. That alone doesn't make my approach wrong.

Just because I have enough money now to go riskless for a future purchase doesn't mean that I should. By doing so, I may forgo substantial returns. If the downside of possible loss between now and the purchase time is catastrophic failure, then by all means go riskless as soon as you can. But if the downside is I simply wait a little longer or risk having a slightly higher expenditure for that particular purchase, then I can make a reasonably informed decision whether to take the short term risk or not. Individually, it's a gamble, but taken collectively over many such choices it is an investment policy statement and has worked very well.

 

[jdw_fire]

I wasn't commenting on your post - I was commenting on the OPs post. I actually don't give a hoot about your "analysis'.

One way I have looked alternatives is by having my baseline plan (which is SS at age 70) in Quicken Lifetime Planner - then you can easily do a what if to see how you nestegg would fare with the same assumptions other than changing SS to age 62 or FRA and see the effect of each scenario. While it is deterministic rather than stochastic, it can give you an idea of the effect on your nestegg.

You could do something similar in Firecalc and compare the printed graphs, range of ending nesteggs, average ending nestegg, number of failures, etc.

why is it that you are so dismissive of my analysis but free to offer your own? open your mind a little.

It is well accepted that for singles that the decision is supposed to be actuarially neutral, so if that is the case and you have specific insights as to your longevity compared to average longevity, it would be a significant factor in the decision.

He has to do the math as it pertains to taxes. Whether he has a substantial amount in after tax account vs taxable IRA/401K accounts. He should look at how his SS is taxed in the State that he resides. He should make a realistic assessment on how much his investments earn and how that amount will extend his break-even date. Once that is done then look at how long he can realistically expect to live. Run the math then make an educated decision.

all this talk of actuarially neutral and break even dates have nothing to do with trying to maximize the amount spendable each year of your retirement. what matters when trying to maximize the amount spendable each year is how large the income streams are, how many income streams are available, what flexibility there is in each income stream and how much risk (and remember that there are multiple risks, eg. market risk, inflation risk, longevity risk to name a few) the retiree is willing to shoulder. the analysis that i provided earlier (that was poo pooed by another poster), increases the amount spendable many years while reducing market and longevity risk (inflation risk arguably stays the same). with those advantages who cares if you get to the "break even" point for SS? the only people i can think of who might are the ones who want to maximize their estate at their death, which is a different goal than the 1 my analysis set out to solve.

 

[pb4uski]

So if someone has had chronic health issues and/or a family history of dying in their late 60s and early 70s then you think it is still best for them to delay SS until they are 70?

 

[jdw_fire]

So if someone has had chronic health issues and/or a family history of dying in their late 60s and early 70s then you think it is still best for them to delay SS until they are 70?

lets explore that scenario, but first, to clarify, let me ask you some questions. how would you suggest they use their portfolio? specifically, assuming the person is 62 at the time of this decision would you recommend that the retiree use a WR of 10%+ per year since they arent likely to live longer than 10 more years? or maybe more to the point of my question, would you recommend that they spend 1/10th of the portfolio the 1st year, 1/9th of the remaining portfolio the 2nd year, 1/8th of the remaining portfolio the 3rd year and so on so that their portfolio is entirely expended in 10 years? if not what WR would you recommend and why would you not recommend the above?

also, my answer will depend on the size of their portfolio, their spending requirements, and the size of their SS, so i would need to know those values to be able to answer your question.

 

[pb4uski]

You're funny. It is a simple yes/no question.

I ask you one simple yes/no question and in response you don't answer it and insist that I answer 4 of your questions.

 

[MichaelB]

It is a simple yes/no question.

reminds me of a former President of Venezuela, famous for answering direct yes / no type questions by saying "neither yes nor no, but just the opposite" (ni si ni no, sino todo lo contrario)