Modelling when to take Social Security and other pensions

[pb4uski]

It all depends on what the money that you would otherwise be using because you are deferring benefits is earning and how long you live... see post #27... so the reality isn't that simple.

@pb4uski You mean longevity, correct? Is this what you mean by "how long you live"?

@Time2 Taking SS early applies to people, for example, who "don't need" SS. A high tax bracket individual in California hopefully doesn't need SS to have a successful portfolio to their life expectancy. Hopefully they are living below their means and not frittering away their resources. I am anti-Roth conversions for a similar reason as delaying Social Security. The Roth benefit is non-existent for many people, and negligible for many other people. Any benefit, if present, breaks even very late in life. Not worth the machinations. Juice not worth the squeeze.

Roth conversions are part the mainstream Kool-Aid passed around in plastic cups by financial advisors, custodian firms and financial news sites.

On the first part, yes, I'm refering to longevity... how long you live. If you go back to the second table in post #27 which looks at the differential cash flows of claiming SS at 62 vs 70 assuming a 2% annual COLA and 7% nominal investment rate, the IRRs become increasingly attractive from the early to mid-80s.... so IMHO, if one is in good health deferring is a smart play. I concede that we disagree on this but that's ok.

On the second part, we also disagree but it can be situational and it may be that Roth conversions are less advantageous in your situation. We've converted almost $1/2 million over the last 10 years and paid on average 9% in federal tax... much less than the 28% or more in federal tax that we saved when we deferred that income and also much less than the 22% that we would pay on RMDs if we didn't do those conversions... so for us it is a good thing. Also, the conversions will reduceur RMDs enough that some of our future RMDs will be at 12% rather than 22%. It seems that the real punch of Roth conversions is where one is trading 22% for 12%... but if you are trading 24% for 22% then there isn't anywhere near the benefit. But to make a blanket statement that for Roth conversions that the juice isn't worth the squeeze is untrue for many.

 

[chassis]

@pb4uski It is quite simple. A taking the government's money early is a no brainer when the money isn't needed for immediate consumption. Financial market returns exceed the incentives the government (SSA) is offering to delay/defer, so the government handout is invested in the market. Your analysis points to this; you likely have a different expectation of market return than I do. Using your model, what market returns (you call it "real return") are required to achieve equivalency among all claiming scenarios?

Regarding longevity, no one knows how much time we have. You and I could die before the sun sets today.

Decisions that have such marginally small consequence as age of SS claiming (when one doesn't "need" it) make no practical difference from a longevity point of view. "Not life changing" as you put it.

 

[pb4uski]

Ok, I surrender.... you obviously know it all and I'm just a dumb-ass.

At least I have a lot of company with other dumb-asses that think that delaying SS and Roth conversions can be smart plays.

P.S. You might want to google what a "real return" is.

 

[chassis]

Ok, I surrender.... you obviously know it all and I'm just a dumb-ass.

At least I have a lot of company with other dumb-asses that think that delaying SS and Roth conversions can be smart plays.

P.S. You might want to google what a "real return" is.

@pb4uski What does your model tell you? What returns required to achieve parity between all SS claiming scenarios?

 

[qwerty3656]

@pb4uski What does your model tell you? What returns required to achieve parity between all SS claiming scenarios?

I did a calculation a while back and (ignoring inflation) came up with:

Age Die>break even discount rate

83>3%
85>4%
89>5%
96>6%
104>6.5%

 

[pb4uski]

@pb4uski What does your model tell you? What returns required to achieve parity between all SS claiming scenarios?

I don't really look at it that way. Let's say one accepts that 2% is a sensible COLA (and it happens to coincide with the Fed's long-term inflation target) and expect to live to 85. Looking at the bottom table in post #27 if you expect that your portfolio will earn more than 5.85% between when y are 62 and 85 then then it would be preferable to take at 62 and invest. Similarly, if you expect to live until you are 90 then you would have to beat a 7.39% average return from 62 to 90 to be better off claiming SS at 62.

Many pundits expect future investment returns to be lower than historical averages, so that is another factor to be considered. My main point is that it isn't a no brainer as you claim.

In their 2021 global outlook, Vanguard projected returns for US equities of 4.7% for 2020-2030 and 4.6% for a global balanced 60/40 portfolio.

https://pressroom.vanguard.com/noni...mic-and-market-outlook-report-2021-120920.pdf

I suspect that you have much more optimistic expectations and that is why you think taking at 62 is a no brainer. Let's compare notes in 30-40 years and see how it all turns out.

 

[pb4uski]

I did a calculation a while back and (ignoring inflation) came up with:

Age Die>break even discount rate

83>3%
85>4%
89>5%
96>6%
104>6.5%

Those break even discount rates broadly agree with the first table in post#27 which excludes COLAs... also, I think those are real rates of return since COLA isn't included... so add ~2% to derive nominal breakeven rates of return.

 

[pb4uski]

Another way I like to frame the SS decision is that by deferring you are effectively buying a COLA-adjusted annuity from the feds. Using the example in post #27, you are forgoing $8,400/year for 8 years or $67,200. Because you delayed, from age 70 you will collect $6,480/year MORE for the rest of your life. That is a payout rate of 9.6% ($6,480/$67,200).

Some will point out that one should include interest so let's do that. $8,400/year at 5% for 8 years is $80,212... a payout rate of 8.1% ($6,480/$80,212).

For reference, the annual benefits for a $80,212 premium for a 70 yo male from FL is $5,400 and the benefit for a female is $5,016... so not only is the $6,480 from SS much better it also is COLA adjusted where the $5,400 and $5,016 are fixed. (source immediateannuities.com)

Point is that deferring SS is a screaming deal way to buy a COLA-adjusted life annuity from the feds.... and if you're married then that COLA adjusted annuity is a joint life annuity. The annual benefit for a premium of $80,212 for a joint life fixed annuity is $4,428.

 

[Bigdawg]

My conclusions (up to today and only including today) after reading this thread and the mutiple other threads on SS over the past 8 years or so is this: Just like paying off the mortgage, SS is a personal decision based on more variables than just #'s. I will give my decision (here at age 55) on DW and I's current thought on when to take SS. After taking SS we will have mutiple sources of income.

Military pension: We both receive. Neither elected survivor benefit.
SS: Career earnings almost identical.
VA Dis: I receive. Gone when I'm gone.
ROTH IRA: Still there after I take my last breath.
401k: Still there after I take my last breath.

Hypothetically if I used up my ROTH and 401k from age 62-70 and then take my last breath at age 69 and 364 days, DW loses them and does not receive my military pension nor my SS. Statistically I will live past age 70 but obviously no guarentee. As of today my plan is to take it at somewhere between 62-65. That is 7-10 years away so we will see how it goes. I(we) don't need the money. IF I am gone prior to 62 DW gets to keep ALL of my ROTH and 401k. If I use it up instead of taking SS then DW ends up potentially short. I am encouraging DW to wait until 70. She is 6 years younger. If she waits until 70 she will be receiving via her military pension, FERS pension and SS over 120k/yr. Plus whatever I/we have left in our ROTH's etc...

 

[chassis]

@pb4uski Thanks for running your model. It gave two returns an age 62 claimer needs to achieve parity.

If a different claiming strategy is chosen, for example delaying past age 62 and claiming at FRA, what is the percentage difference in total flows, and at what age do the flows equal each other?

 

[youbet]

Let's compare notes in 30-40 years and see how it all turns out.

We can only hope and pray you let it rest for 30 - 40 years!

 

[Music Lover]

Excluding those who make choices based on Roth or spousal benefits...if you have enough money and the break even point is around age 80 then why are you waiting? Take it at 62, have fun and enjoy spending the extra money while you still have some energy to do things.

When you finally break even 18 years later and start "losing"...so what? You were ahead for 18 years. You won the game.

 

[pb4uski]

^^^^ You have a false premise there Music Lover.

For those who delay, what makes you presume that we don't have fun and enjoy spending whatever we want anyway?

 

[Dtail]

^^^^ You have a false premise there Music Lover.

For those who delay, what makes you presume that we don't have fun and enjoy spending whatever we want anyway?

Agree.
The general concept used in comparing the different dates on when to take Social Security, assumes that the overall spending will be the same either way.
From there it is just a comprehensive numbers exercise with of course the projected longevity playing a major role.

 

[street]

We can only hope and pray you let it rest for 30 - 40 years!

I never seen a person so adamant, about his way is right, and trying to convince people about SS of when, what, where and why as one guy is here. Lol

 

[Bigdawg]

^^^^ You have a false premise there Music Lover.

For those who delay, what makes you presume that we don't have fun and enjoy spending whatever we want anyway?

What makes me think we/they/80+ year olds, don't have fun(don't need as much money) is the examples set by my father, mother, father in law, mother in law, grand mother, mothers boyfriend and my neighbors who are all over 80. They all have shown me and told me the same thing. "We don't need the extra money post 80". "Spend the extra money from 62-80". "More utility with that money from 62-80 instead of having a bigger pile post 80". These conversations with people in my life who are older than 80 years old makes me lean towards taking SS earlier (less $) than later (more $).

 

[Hopeful]

The biggest factor for us is spousal survivor benefits. We are delaying the larger benefit to age 70 to provide the largest spousal survivor benefit. The other benefit we may or may not take earlier than 70.

 

[Markola]

What makes me think we/they/80+ year olds, don't have fun(don't need as much money) is the examples set by my father, mother, father in law, mother in law, grand mother, mothers boyfriend and my neighbors who are all over 80. They all have shown me and told me the same thing. "We don't need the extra money post 80". "Spend the extra money from 62-80". "More utility with that money from 62-80 instead of having a bigger pile post 80". These conversations with people in my life who are older than 80 years old makes me lean towards taking SS earlier (less $) than later (more $).

I also notice that people downsize their homes around that time, likely resulting in a big plug of money that needs to be invested.

 

[pb4uski]

I never seen a person so adamant, about his way is right, and trying to convince people about SS of when, what, where and why as one guy is here. Lol

WADR street, I think you are totally off-base.

I think I have been pretty balanced about when to take SS. I typically recommend that people consult opensocialsecurity.com where they can chose their own assumptions for mortality and rates of return/discount rates because I know that the right decision is highly dependant on longevity and expected rates of return/discount rates.

I've been clear that if one thinks their longevity isn't great and/or future investment returns will be high that they should take earlier but if one thinks their longevity will be good and/or investment returns will be good then you are better taking earlier.

....Let's say one accepts that 2% is a sensible COLA (and it happens to coincide with the Fed's long-term inflation target) and expect to live to 85. Looking at the bottom table in post #27 if you expect that your portfolio will earn more than 5.85% between when you are 62 and 85 then then it would be preferable to take at 62 and invest. Similarly, if you expect to live until you are 90 then you would have to beat a 7.39% average return from 62 to 90 to be better off claiming SS at 62. ....

I suspect that you have much more optimistic expectations and that is why you think taking at 62 is a no brainer.

All one needs to do is to refer to the tables in post #27 and follow the right column down to how long you think you will live and look at the corresponding rates of return... if you think that the money that one would use while delaying SS will earn more than that then earlier is better, otherwise later is better.

I've also opined that it isn't a big decision in many cases.

Totally agree. And while we fret and debate when to take SS at least in our case and I suspect many others it is not a life changing decision but more just a tweak. ...

So what is the problem, street? If you don't like my posts just skip them or put me on ignore.

 

[pb4uski]

What makes me think we/they/80+ year olds, don't have fun(don't need as much money) is the examples set by my father, mother, father in law, mother in law, grand mother, mothers boyfriend and my neighbors who are all over 80. They all have shown me and told me the same thing. "We don't need the extra money post 80". "Spend the extra money from 62-80". "More utility with that money from 62-80 instead of having a bigger pile post 80". These conversations with people in my life who are older than 80 years old makes me lean towards taking SS earlier (less $) than later (more $).

I totally agree with you and have seen the same with my DM and aunts.... they spend very little now compared to when they were in their 60s and traveling more.

But that wasn't my point.

My point was that, at least for us, and I suspect for many on this forum, we have overfunded retirements so we can realistically spend as much as we want in our 60s and travel as much as we want, etc. and would do so whether we are collecting SS or not so Music Lover's point is inconsequential for many here.

For most people here I don't think that starting SS flips some magic switch and causes them to spend/splurge more than when they were not collecting SS.

For people with underfunded or "just ok" funded retirements I concede that collecting SS may well result in higher spending than if they were not collecting SS.

 

[Music Lover]

^^^^ You have a false premise there Music Lover.

For those who delay, what makes you presume that we don't have fun and enjoy spending whatever we want anyway?

I'm not presuming anything. If your spending won't change based on when you take SS or CPP then it's basically irrelevant when you take it. But some people want to spend more earlier and don't care about maximizing every single penny at some distant point in the future that they might not even be around to see.

 

[copyright1997reloaded]

So what have we concluded?

 

[Chuckanut]

They all have shown me and told me the same thing. "We don't need the extra money post 80". "Spend the extra money from 62-80". "More utility with that money from 62-80 instead of having a bigger pile post 80". These conversations with people in my life who are older than 80 years old makes me lean towards taking SS earlier (less $) than later (more $).

+1

Years ago while a mere youth in my early 60's, I was traveling in Turkey and talking with a couple in their early 70's . They told me they noticed that most of their friends did quite well with travel and other exploits until they hit 80. At that point they 'slowed down' quite a bit. So, I intend to do the same just in case. OTOH, a buddy of mine in his mid 60's routinely plays pickleball with a guy in his 80's, and gets his clock cleaned fairly often by the older guy.

If I hit 80 and am still going reasonably strong, I'll have money to keep going anyway. If I can't go very fast or very far, well.... I don't have LTC insurance so every extra dollar will be welcome.

SS at 70 is one way I hope to deal with extra expenses for care in my later years. The other was to buy extra credit on my pension. Expensive? Yes. But, still cheaper than LTC insurance. And if I don't need LTC, I still get the money every month and can spend it on wine, women and song. The rest I can waste.

Back on topic: When to take SS is a personal decision based upon many factors, some of which may not be financial. Far more important is protect one's health (mental, emotional and physical) as much as possible.

 

[braumeister]

I have several neighbors on my block who are still very active golf and tennis players in their mid-80s, so I see that as a great incentive for me to keep going as long as I can. They also travel both domestically and internationally for several months every year.

One guy who recently moved away was still playing tennis at 90, as well as doing a lot of cruising.

 

[RunningBum]

So what have we concluded?

Not to get dragged into yet another "when to take social security" thread.