Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 06-01-2021, 06:13 AM   #161
Thinks s/he gets paid by the post
 
Join Date: Aug 2016
Location: Northern Virginia
Posts: 4,830
Quote:
Originally Posted by bada bing View Post
The difference between the two scenarios is not an apples to apples comparison. You are comparing what is probably the least risky investment possible (deferring SS) to an investment that has some bit of risk. The delta in outcomes for deferring SS is practically zero. The outcome delta on a portfolio including equities over 25 years is substantial.

If you wanted to do a more even comparison, model deferring SS while also moving amounts equal to what the early payout would have been from your portfolio bond allocation to portfolio stock allocation. In other words, equalize the growing equity exposure (the risk) between the two scenarios. When you do that, I am confident that deferring SS will beat by a small but consistent amount any projection past your actuarial lifetime and partially close the gap in the case of dying early. The reason is because currently, deferring SS pays a better return than any comparable fixed income investment. SS deferral rates are fixed and they were fixed when we under a higher interest rate environment. Someday interest rates may go up, or SS deferral rates may be adjusted down. Until that happens SS deferral has an advantageous return over comparables.

Most people who retire early with portfolio assets and enter the SS decision years value a de-risking of their withdrawal plans, although almost no one consciously models it that way. Deferring SS is an insurance that a lot of people want. If you don't want the insurance, consider the ways (like the paragraph above) to equalize the risks.

Of course, there's lots of individual situations with health, or cash flow, or spousal/family factors that would trump the above analysis. I don't have a dog in the fight for other people's SS claiming strategies. Just trying to bring a perspective to modelling factors I seldom see addressed when the discussion gets repeated.

I personally am waiting until 70 and I am also aware that the risk reduction of that choice allows for a rising equity glide slope, if I wanted the risk. So far I don't.
You made some good points, but I think you are mischaracterizing SS deferral as the "least risky" investment. I also think you err in suggesting that deferring social security generates a "better return than any comparable fixed income investment".

You seem to not be considering the effect of mortality. Each year you defer is one less year you collect. Your "return" from that decision will be a negative one for many folks, which is why people do breakeven analysis.

Just think it is important to not mix returns from investments, which are not death dependent with a deferred life annuity.

Deferring SS can make sense in my view, for a lot of reasons. But not because it generates a riskless "return", as it does not.
Montecfo is online now   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 06-01-2021, 06:28 AM   #162
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 32,242
Quote:
Originally Posted by chassis View Post
@pb4uski Thanks. What do you mean by deferred tax liability? Is there a term, time period or date for this?
Deferred taxes are a common accounting convention to provide for income taxes for differences between the book basis and tax basis of assets and liabilities... an easy way of thinking of it is the taxes that would be due if all assets were sold and liabilities were settled on the balance sheet date. Almost any company balance sheet will have it and if a CPA were to prepare personal financial statements for an individual deferred taxes would be required to be included as well. That said, there are some measurement difficulties, principally around the appropriate tax rate to us in the calculation.... some members of this forum provide for them in calculating net worth... but most do not.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 06-01-2021, 06:30 AM   #163
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 32,242
Quote:
Originally Posted by 11522914 View Post
Here is where I saw the SS haircut figures.

https://www.foxbusiness.com/economy/...l-affect-first

"Based on CBO's*figures, Social Security’s retirement benefit would be cut by roughly one-quarter in 2031," the CRFB said in an*analysis*on Wednesday. "In other words, today’s youngest retirees will face a sharp 25% drop in their benefits when they turn 73."
Thanks... I guess I'll wait to see what the next SS Trustees report says rather than the CBO, but I think it likely that it will be worst than the last report.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 06-01-2021, 06:48 AM   #164
Thinks s/he gets paid by the post
 
Join Date: Oct 2019
Posts: 2,674
And still crickets from our legislators.

I'm sure when they start talking seriously about cutting the amount of SS checks $**t will hit the fan.
I was never a great fan of the return on my SS contribution, but I also know it is more than just a retirement program. It takes care of those that don't take care of themselves, it is a disability program, it takes care of children that lost a parent ans spouses that didn't work outside the house.
That said now that I'm of SS age, I see it as important and I'm kind of ticked off that the future problem is not being addressed before it becomes more drastic measures need to be taken to shore it up. Ten years of increased savings in the SS program starting now, would reduce the sacrifices needed in 2031.
Time2 is offline   Reply With Quote
Old 06-01-2021, 06:52 AM   #165
Thinks s/he gets paid by the post
USGrant1962's Avatar
 
Join Date: Dec 2016
Location: DC area
Posts: 2,083
Quote:
Originally Posted by pb4uski View Post
Thanks... I guess I'll wait to see what the next SS Trustees report says rather than the CBO, but I think it likely that it will be worst than the last report.
Yea, that is due out any time now, 2020 was published on April 22. I suspect this year is delayed a bit simply because of lost workhours due to Covid-19.
__________________
FI and Semi-ER March 24, 2017
Consulting to stay engaged

"All models are wrong, some are useful." - George Box
There is always a well-known solution to every human problem: neat, plausible, and wrong.” - H.L. Mencken
USGrant1962 is offline   Reply With Quote
Old 06-01-2021, 07:01 AM   #166
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 25,266
Quote:
Originally Posted by daylatedollarshort View Post
We took our pensions as annuities at 55 and SS at 62 for a variety of reasons, including income diversity, concerns over future legislation changes and inheritance reasons. No regrets so far. Right now pensions and SS more than cover our baseline annual expenses, so if we get dementia in the future and make some bad investments, we still should have enough regular income coming in to pay the bills. We'll use the investments for big expenses like LTC, remodeling the house and leaving money to the kids to help them ER, too.
It's kinda interesting I guess, but I am delaying SS and pension for pretty much those same reasons (though I'm assuming, maybe wrongly, that any legislation changes will affect early/late takers the same)!

Knowing that I'll have more coming in later means I can tap more deeply into the portfolio now, if needed. If I develop dementia later (unlikely to kick in too badly between my current age 66 and age 72, and if I sense that, I can start pension/SS - that flexibility is nice) I'll have an even larger income stream.

-ERD50
ERD50 is online now   Reply With Quote
Old 06-01-2021, 07:31 AM   #167
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
 
Join Date: Mar 2005
Location: Chicago
Posts: 12,382
Quote:
Originally Posted by audreyh1 View Post
Well, it would be way worse if you hadn’t converted.
You're describing having more money as "worse?"
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote
Old 06-01-2021, 07:56 AM   #168
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 12,379
Quote:
Originally Posted by youbet View Post
You're describing having more money as "worse?"
If the goal is to get money from a tax deferred account to a tax free account, missing a chance to pay lower taxes on the conversion and seeing the tax deferred account grow more would be worse. It would be better to have that growth in the tax free account. All within the confines of tax rate arbitrage.
RunningBum is offline   Reply With Quote
Old 06-01-2021, 08:55 AM   #169
gone traveling
 
Join Date: Aug 2020
Posts: 682
Quote:
Originally Posted by pb4uski View Post
Deferred taxes are a common accounting convention to provide for income taxes for differences between the book basis and tax basis of assets and liabilities... an easy way of thinking of it is the taxes that would be due if all assets were sold and liabilities were settled on the balance sheet date. Almost any company balance sheet will have it and if a CPA were to prepare personal financial statements for an individual deferred taxes would be required to be included as well. That said, there are some measurement difficulties, principally around the appropriate tax rate to us in the calculation.... some members of this forum provide for them in calculating net worth... but most do not.
@pb4uski Thanks again. What in your mind is a reasonable deferral window for the tax liability? 1 month? 1 year? 1 decade?
chassis is offline   Reply With Quote
Old 06-01-2021, 03:36 PM   #170
Full time employment: Posting here.
WestUniversity's Avatar
 
Join Date: Oct 2017
Posts: 717
Quote:
Originally Posted by bada bing View Post
I don't have a dog in the fight for other people's SS claiming strategies. Just trying to bring a perspective to modelling factors I seldom see addressed when the discussion gets repeated.

Sure sounds like it.

Regarding the second part of your statement above, that’s exactly what I was doing, providing another perspective.

My NW is tracking in line with my 62 claiming projection which far exceeds my 70 claiming projection.

As I said YMMV…
__________________
Whatever failures I have known, whatever errors I have committed, whatever follies I have witnessed in private and public life have been the consequence of action without thought... - Bernard Baruch
WestUniversity is offline   Reply With Quote
Old 06-01-2021, 03:41 PM   #171
Thinks s/he gets paid by the post
 
Join Date: Aug 2010
Location: Back woods of Fennario
Posts: 1,169
Claiming any time between 62 and 70 will work out 100% of the time assuming you have a heavily dividend-paying portfolio ......
__________________
"Time wounds all heels...." - Groucho Marx
LRDave is offline   Reply With Quote
Old 06-01-2021, 03:44 PM   #172
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 32,242
Quote:
Originally Posted by chassis View Post
@pb4uski Thanks again. What in your mind is a reasonable deferral window for the tax liability? 1 month? 1 year? 1 decade?
It doesn't really work that way... the deferred refers to taxes that have already been deferred.... when you make pre-tax 401k or tIRA contributions you are deferring income taxes.... not paying them now knowing that you'll have to pay them later when the tax-deferred money is withdrawn.

The deferred tax liability just seeks to measure and recognize that income taxes will eventually become due... either when withdrawn voluntarily or when withdrawn as RMDs.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Something to consider
Old 06-01-2021, 04:00 PM   #173
Confused about dryer sheets
 
Join Date: Mar 2019
Location: Charlotte
Posts: 5
Something to consider

I'm a couple years behind you.
One thing I consider a lot as I watch my mother age is that she doesn't make decisions or grasp complex issues as well as she used to.
Also I believe we are all more susceptible to being swindled as we get older. (Whether stranger or family).
So I want my SS, modest pension, and likely an immediate and/or deferred annuity to provide a guaranteed monthly income.
There will be no way to make up a loss that occurs at 70 or 80 years old. So once I and financially secure there is no reason to risk major losses.
svalder85 is offline   Reply With Quote
Old 06-01-2021, 04:08 PM   #174
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 12,379
Quote:
Originally Posted by svalder85 View Post
I'm a couple years behind you.
One thing I consider a lot as I watch my mother age is that she doesn't make decisions or grasp complex issues as well as she used to.
Also I believe we are all more susceptible to being swindled as we get older. (Whether stranger or family).
So I want my SS, modest pension, and likely an immediate and/or deferred annuity to provide a guaranteed monthly income.
There will be no way to make up a loss that occurs at 70 or 80 years old. So once I and financially secure there is no reason to risk major losses.
That's a good point. I presume this favors waiting until 70 to take SS, since you are likely of sound mind to not make poor money choices before then, and want to maximize after? Though you could take it earlier and just buy more SPIAs to cover the income difference. Probably worth modeling to see which way is better.
RunningBum is offline   Reply With Quote
Old 06-01-2021, 04:16 PM   #175
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jan 2018
Location: Tampa
Posts: 9,799
Quote:
Originally Posted by Time2 View Post
And still crickets from our legislators.

I'm sure when they start talking seriously about cutting the amount of SS checks $**t will hit the fan.
I was never a great fan of the return on my SS contribution, but I also know it is more than just a retirement program. It takes care of those that don't take care of themselves, it is a disability program, it takes care of children that lost a parent ans spouses that didn't work outside the house.
That said now that I'm of SS age, I see it as important and I'm kind of ticked off that the future problem is not being addressed before it becomes more drastic measures need to be taken to shore it up. Ten years of increased savings in the SS program starting now, would reduce the sacrifices needed in 2031.
Not to mention us folks born in 1960 and the Covid effect.
__________________
TGIM
Dtail is offline   Reply With Quote
Old 06-01-2021, 05:46 PM   #176
Recycles dryer sheets
 
Join Date: Dec 2016
Posts: 77
Quote:
Originally Posted by Time2 View Post
Well, if I'm going to lose it, can I have fun watching it go?
She certainly earned every single penny...the hard way!
reneeh63 is offline   Reply With Quote
Old 06-01-2021, 05:58 PM   #177
Recycles dryer sheets
 
Join Date: Mar 2019
Posts: 247
Quote:
Originally Posted by 11522914 View Post
How does the possible 25% cut in SS benefits in 2031 factor in your calculations?

Will that make any difference in your decision?
It doesn't. Social Security is the 3rd rail of American politics. How many incumbent politicians want a substantial bloc of senior voters pissed-off at the polls? Not a single one. They will find a way to not cut benefits even if it means opening up the printing presses like they have for COVID "relief" bills. Not literally, but monetizing government spending is happening and they won't stop doing it. They will especially want to "save" Social Security. The trustees can issue all the reports they want. A 25% cut ain't happening. NOBODY has the political will to let that happen.
jldavid47 is online now   Reply With Quote
Old 06-01-2021, 06:39 PM   #178
gone traveling
 
Join Date: Aug 2020
Posts: 682
Quote:
Originally Posted by pb4uski View Post
It doesn't really work that way... the deferred refers to taxes that have already been deferred.... when you make pre-tax 401k or tIRA contributions you are deferring income taxes.... not paying them now knowing that you'll have to pay them later when the tax-deferred money is withdrawn.

The deferred tax liability just seeks to measure and recognize that income taxes will eventually become due... either when withdrawn voluntarily or when withdrawn as RMDs.
@pb4uski Thanks. We agree that net worth drops at the moment in time income tax is paid on a Roth conversion. You (the general “you”) are poorer at that moment in time, compared to the moment in time prior to paying the income tax on the Roth conversion. I’m glad we are on the same page with this.

What time horizon in your view would a person who has become poorer as a result of a Roth conversion, become richer than they would be had they not done the Roth conversion?
chassis is offline   Reply With Quote
Old 06-01-2021, 06:47 PM   #179
Recycles dryer sheets
 
Join Date: Jun 2018
Posts: 79
Take the money at 62! Use that money and not the money you already have saved.
pompanobeach is offline   Reply With Quote
Old 06-01-2021, 06:54 PM   #180
Thinks s/he gets paid by the post
Dash man's Avatar
 
Join Date: Mar 2013
Location: Limerick
Posts: 4,585
Quote:
Originally Posted by chassis View Post
@pb4uski Thanks. We agree that net worth drops at the moment in time income tax is paid on a Roth conversion. You (the general “you”) are poorer at that moment in time, compared to the moment in time prior to paying the income tax on the Roth conversion. I’m glad we are on the same page with this.



What time horizon in your view would a person who has become poorer as a result of a Roth conversion, become richer than they would be had they not done the Roth conversion?

I don’t think that is a question that can be answered accurately without detailed information about your conversion timing, market growth projections, tax rates, and asset allocations and a really good crystal ball. Just too many variables.
Most of us look at what tax rates we are converting to and compare them to projected tax rates when RMDs kick in. In my case we expect to be in a higher tax bracket beginning age 72 than we are now because we will have large RMDs if we do nothing. We have plenty after tax money to pay the tax on conversions so we are converting into the 24% bracket. We expect tax rates to increase, so we just hope to minimize taxes, but they will still be significant.
Dash man is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Social Security Torpedo Tax with Pensions? MrLoco FIRE and Money 39 04-17-2017 12:55 AM
What mortgage number to use in retirement modelling jazzbo FIRE and Money 9 01-27-2017 12:21 PM
Deficit panel leaders' plan curbs Social Security and Other Sacred Cows MasterBlaster FIRE and Money 140 11-15-2010 05:59 AM
Modelling health care cost in early retirement? maldini Health and Early Retirement 37 10-10-2007 01:53 PM
Valuing pensions and other income streams two4theroad FIRE and Money 2 05-10-2007 05:16 PM

» Quick Links

 
All times are GMT -6. The time now is 02:04 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2022, vBulletin Solutions, Inc.