Modelling when to take Social Security and other pensions

B

Brianjone5

Confused about dryer sheets
Joined
May 14, 2021
Messages
8
Location
Kingston
Hi all,
I retired at 55. Six years later I am approaching the point where 'when to take Social Security' (SS) becomes more than an academic question.

Our NW is $5m. Half our net worth is in stocks and bonds, targeting 5% growth. It has repeatedly exceeded that, but I think the market is a bit weird, recently.

One quarter of NW is in company pensions that grow about 1.5% a year.

One quarter is in property we own free and clear.

I have been modelling different scenarios around taking SS at 62, 65, 67 and 70 years of age. I am making the following assumptions:

*SS continues to increase by 8% for each year you delay starting it.
*SS COLAs matches the recent decade with +1.5% per year
*I will pay 40% tax on my SS
*I will pay 20% tax on gains from investments to cover income delayed by not taking SS.

What I am looking at is the impact on my investments if I pull from there to replace income I am not getting because of not starting SS, and what that money would deliver at 5% compounding, out until I am 80 and 85.

My modelling shows very clearly (if correct) that taking SS at 62 is the best route. This is because although you get a smaller SS payment, the invested funds remain invested and have longer to compound to 80 and 85.

So many financial advisers push the 'leave it until late' mantra for SS. I am not clear at all that works for everyone, even leaving aside the question of longevity.

On our company pensions, the same logic applies, to me at least. As these grow so slowly, conserving the equivalent funds as investments is even more obvious, and I should start those pensions asap. It is hard to know our exact budget in post-Covid life, but I estimate SS plus pensions could leave us with a SWR of zero.

How has any modelling you have done played out?

Cheers,

B
 
You might try https://opensocialsecurity.com to model for your situation and see what it suggests.

You didn’t mention if you have a spouse and whether they would also collect SS, either on their own or on your account. If you do have a spouse that may outlive you, waiting to take SS at 70 is a sort of longevity insurance for them.
Life expectancy is another issue. DW and I were both going to wait until 70, but I’ve changed my mind and have a telephone appointment on Tuesday to sign up (I’m 65 in August) because of a health condition. DW will get more than me anyway, so she is waiting.
One reason we had been holding off is to maximize Roth conversions, but we’ll just reduce them to accommodate my social security.
It all comes down to a personal decision with no right or wrong answer since we don’t know how much time we have left, and won’t care when we’re gone.
 
As Dash Man mentioned, the first place to go is opensocialsecurity.com. Sounds like you like customized, detailed analyses, so if you have Excel, I recommend Pralana Gold (IIRC it is $99 1st year, $49/yr updates). To get everything right, it requires detailed input, but it's well organized and does everything you can imagine. One module optimizes SS claim age for you (and your spouse if applicable) for your particular assumptions for rate of return, taxes, etc.
 
Social Security increases 8% a year for any years after your full retirement age. Before that, the increase is close to 6% from 62 to full retirement age. I'm not sure if this would change any assumptions, but opensocialsecurity .com will show you the monetary difference between claiming ages. It uses a very conservative discount rate and the rate is adjustable for your own situation.
 
I did some similar modelling, though I didn't include the tax effect. I probably should have. I did various iterations with different times for a cut in benefits to happen, various return and inflation rates. Breakeven usually came somewhere in my 80s. Taking at 66 or 67 had an earlier breakeven vs 62 than 70 vs 62 so you might want to consider middle ground.

Bear in mind that there is more risk and volatility with market returns than social security benefits. I didn't try to take that into account.

Ultimately, what I decided that unless the breakeven comes very late, I prefer the longevity insurance given by taking SS at 70. If the market has tanked and not recovered by the time I hit 62 I'd likely take at 62, thinking returns could be higher in a recovery. Likewise if that happens any time between 62 & 70. If no big drop happens I'll wait until 70. If I die before the crossover time, that's fine, I won't run out of money. But if I live on beyond then, every month I'll appreciate the larger benefit.

There are lots of other factors that impact when to take SS, like health and family history, leaving room for Roth conversions, ACA subsidies before 65, or if you don't have the savings to support waiting to take SS. Most are very valid reasons. The only one I cringe at is the "I want the money now while I'm young enough to enjoy it" argument. I will spend the same either way, and if I defer I'll spend more out of my investments knowing that I'll get a larger benefit starting SS later.
 
I too retired at 55 and am just at the point where I can apply for benefits at age 62. I also just finished up a SS modeling exercise last week.

I considered the estimated annual payout for 62,63, 64, 65, 66+10M and 70. I considered the cumulative after tax difference for each year, the after tax investment earnings on that difference (assumed a 4.5% investment return), the months to break even and my age at break even among other factors. All scenarios showed a break even between 79 and 81 vs. starting the SS benefit at 62. So that is 17 - 19 years before break even.

After mulling it for a bit, and knowing that in our situation we conservatively won't depend on SS, I ended up just feeling happier taking the benefit now and getting a monthly 'paycheck' vs. making more money in my 80's. ;-)
 
I started my SS about 1 1/2 years ago at the age of 62. For me, each dollar in SS was a dollar I didn't withdraw from my portfolio. Assuming a modest ROI of around 3%, the breakeven point was in the early to mid 80's. My number one decision for taking SS at 62 was not necessarily the breakeven point, but legislation risk. I don't trust the government with respect to leaving my full benefits in tact. Any future legislation will likely reduce the value and extend the breakeven point.
 
Dash man said:
You might try https://opensocialsecurity.com to model for your situation and see what it suggests.
Click to expand...
+3. Best tool I’ve seen so far, especially if you use the extra options at the top of the webpage - “Certain situations require additional input. Click here [ ] to select situation(s) that may apply to you (and/or your spouse, if filing jointly).”

I also did paid Income Strategy software for other reasons, they’re experts at Social Security. Open Soc Sec is all I really needed for Soc Sec.
 
Last edited:
OP, I don't think you posted your AA. Depending on what it is, it may be hard to get a 5% return over the next decade. I would rerun the model with lower investment returns and see how sensitive your results are to your investment return assumption.

That being said, I am considering a similar strategy. If stock values seem high at a future date (SS age), I may elect to sell stocks to fund retirement spending and allow SS to grow. If stocks appear to be reasonably priced (or low priced) I may take SS to avoid selling stocks.
 
Here's another way to look at when to take SS. It has its limitations, the primary one being that it works only if you have no plans to leave a big estate to your heirs. That is a big IF for many of us.

https://www.early-retirement.org/forums/f28/laurence-kotlikoff-maximize-my-ss-com-77660.html#post1604411


Maximize SS how much you get to spend​


Here is a pretty simple calculation for those that wish to spend more money in retirement and do not care about leaving an estate. For those that have a Big enough Portfolio and can afford to wait until 70 to take SS, you'll have more to spend every year of retirement.

Let's Say you retire this year at age 62 with the $1 Million Portfolio and decide to take a 4% SWR. You get Social Security of $19,476 per year at age 62 and delaying to age 70 would get you $34,092 per year. Let's assume no inflation for ease of calculations.

Scenario age 62. Your SWR is $40K per year and Social Security of $19,476 gets you a Spending total of $59,476 for each year of your retirement period.

Scenario age 70. You stash 8 years of $34,092 from your portfolio into a savings account for a total of $272,736. Your portfolio is now down to $727,264. Your 4% SWR is now $29,090 per year and you remove $34,092 from your savings account giving you a total of $63,182 to spend each year for the rest of your 30 year retirement period.

The Delay to age 70 gives you $3,706 more every year starting at age 62 with no more increased risk.

No need for any ... 'break even analysis'.

If your WR is more conservative, such as a majority of the people here and myself, the results are even more compelling. At a 3% WR plus SS at age 62 scenario is a total of $49,476 and the age 70 scenario is $55,910. The delay of SS to age 70 now increases your annual spending by $6,434.
Click to expand...
 
Last edited:
A Gold One said:
........ knowing that in our situation we conservatively won't depend on SS, I ended up just feeling happier taking the benefit now and getting a monthly 'paycheck' vs. making more money in my 80's. ;-)
Click to expand...

I am 61 (FRA is 67) and started thinking about this also. In the same boat as above quote (i.e don't need it but looking forward to getting some of my money returned) and, at least for now, leaning towards taking it at 62 or 63 to help pay for travel in my 60s.
 
I find the results, take SS at 62, very surprising since stocks and bonds are at 5% and SS is at 6-8%. Ignoring taxes, those rates make it intuitive that growing SS will payout better. I've run opensocialsecurity with extra options a few times, and it consistently tells me to wait to about 70.

Look into opensocialsecurity. It's free.

Also, I think your objective function, "impact on my investments", needs to be changed to something like net present value of total returns.
 
Last edited:
The help file in the Optimal Retirement Planner explains how the interaction of taxes, withdrawing existing investments sooner or later, and the increased SS payout the longer you work in a complex manner on deciding when to take SS that is not always intuitive.

Here's a link to where ORP explains how these factors all interact with each other, often in unexpected ways:

https://www.i-orp.com/Plans/help/ORPHelp.html#SocSec

As the author notes, taking SS at 62 in some situations is more advantageous than waiting until FRA or 70. The link provides several concrete examples to demonstrate how this might work.

I would recommend the OP try out ORP's Extended Planner to see how things work out in their specific case to help decide.
 
Last edited:
schenbew said:
The help file in the Optimal Retirement Planner explains how the interaction of taxes, withdrawing existing investments sooner or later, and the increased SS payout the longer you work in a complex manner on deciding when to take SS that is not always intuitive.

Here's a link to where ORP explains how these factors all interact with each other, often in unexpected ways:

https://www.i-orp.com/Plans/help/ORPHelp.html#SocSec

As the author notes, taking SS at 62 in some situations is more advantageous than waiting until FRA or 70. The link provides several concrete examples to demonstrate how this might work.

I would recommend the OP try out ORP's Extended Planner to see how things work out in their specific case to help decide.
Click to expand...

Thank you SO much for this. I have been feeling like I was fooling myself and contradicting the advice of my own financial advisor, who can't seem to see past SS accumulation as the sole decider. May need to rethink him.
 
I guess I don’t understand why you’re willing to think of the equivalent assets behind your pension as part of your net worth but, if I read correctly, not the equivalent assets behind your SS payment? For us, it is projected at 67 to be $64,000 / .04 = $1,600,000.

Plus, it’s annuitized and guaranteed much more strongly than stock and bond returns. Also, from what I’ve read, I don’t think all of your SS income would be as fully taxed as you assume at 40% but YMMV.

FWIW, our modeling is to wait and see how our portfolio is doing at 67 and then take it year by year to 70 with regard to starting SS. There’s just nowhere else to get 8% /year growth and then lifetime income. I realize this comment may bring out the SS-is-going-bankrupt bah humbugs but I’m one of the optimists about the most popular federal program that there is.
 
Last edited:
I see some posts talking about decent or maybe even historically just average market returns making it better to take SS at 62, to be able to keep more invested. But I step back and look at when (in which scenarios) SS is going to be most important to me.

Assuming I have no indication of how the market might do (unlike the probable recovery after a big drop scenario I talked about earlier):

If the market does well, then taking SS early and letting my investments run is the right move. This would add to a fat retirement for me.

If the market does poorly, it would be better to have spent more of my investments (rather than letting them drop on their own), and hold out for a higher SS benefit.

Now, which situation is more important to me? Clearly the second, because my retirement is going to be more difficult if the market drops. I'd rather optimize my situation for that bad situation than optimize it for an already good situation.

Whether this applies to others in different situations, is up to each person. I'm just sharing my thought process.
 
Last edited:
Exchme said:
As Dash Man mentioned, the first place to go is opensocialsecurity.com. Sounds like you like customized, detailed analyses, so if you have Excel, I recommend Pralana Gold (IIRC it is $99 1st year, $49/yr updates). To get everything right, it requires detailed input, but it's well organized and does everything you can imagine. One module optimizes SS claim age for you (and your spouse if applicable) for your particular assumptions for rate of return, taxes, etc.
Click to expand...

Concur with the Pralana Gold recommendation. It will provide a very comprehensive look at the impact of different SS start ages on your overall financial condition. As the developer states in the Pralana Gold 2021 User manual (https://pralanaretirementcalculator.com/manuals/) on pp 138-9:

"The analysis Pralana performs during this process is considerably more involved than just determining the start ages that result in the largest long term income; it also examines the long term effects of this income on the interest on your savings, taxes, and survivor scenarios to provide you with the best overall solution which, in turn, will enable you to maximize your standard of living."

After using Pralana Gold and iterating various scenarios, it was clear that in our case taking SS at approx FRA made the most sense. For us taking SS at 62 or 70 resulted in sub-optimum results. However, "sub optimum" results were within 3% of the "optimum" result.

When I used the same scenarios in ORP I got the same results, with annual disposable income levels changing by $1,000 to $2,000 at most.

Bottom-line: DW and I have FRA as a pencil mark on the wall for us to begin taking SS, a number we feel free to change if and when circumstances change (health, zombie apocalypse, etc.) without much concern.
 
flintnational said:
OP, I don't think you posted your AA. Depending on what it is, it may be hard to get a 5% return over the next decade. I would rerun the model with lower investment returns and see how sensitive your results are to your investment return assumption.

That being said, I am considering a similar strategy. If stock values seem high at a future date (SS age), I may elect to sell stocks to fund retirement spending and allow SS to grow. If stocks appear to be reasonably priced (or low priced) I may take SS to avoid selling stocks.
Click to expand...

I tend to agree with you. One neat thing about SS is you can change your plan any day.

We are planning to wait until FRA. But I would probably go sooner if not for Roth conversions.

As much as people try to model this, there is no way to do so without knowing your date of death. Accordingly timing is often based in other factors.
 
RunningBum said:
I see some posts talking about decent or maybe even historically just average market returns making it better to take SS at 62, to be able to keep more invested. But I step back and look at when (in which scenarios) SS is going to be most important to me.


Now, which situation is more important to me? Clearly the second, because my retirement is going to be more difficult if the market drops. I'd rather optimize my situation for that bad situation than optimize it for an already good situation.

Whether this applies to others in different situations, is up to each person. I'm just sharing my thought process.
Click to expand...

The other factor I take into account is my level mental health. In my 60's and 70's I should be able to manage my investments with a simple AA. After that, who knows? I could become a bit 'unstable' and do stupid things with my money, or be conned into investing it with the next Bernie Madoff, or send it to Mexico to bail out my grandchild, or whatever scam somebody thinks up.
 
Chuckanut said:
The other factor I take into account is my level mental health. In my 60's and 70's I should be able to manage my investments with a simple AA. After that, who knows? I could become a bit 'unstable' and do stupid things with my money, or be conned into investing it with the next Bernie Madoff, or send it to Mexico to bail out my grandchild, or whatever scam somebody thinks up.
Click to expand...


Well, if I'm going to lose it, can I have fun watching it go?
 

Attachments

  • Anna Nicole.jpg
    Anna Nicole.jpg
    172.1 KB · Views: 90
You must log in or register to reply here.

Similar threads

P
The age when you actually retire, vs. the age when you begin taking social security
2 3
Replies
55
Views
5K
Midpack
Midpack
FiveDriver
Question about Income Taxes and 2nd Social Security claim
Replies
3
Views
328
FiveDriver
FiveDriver
G
Options for guaranteed income if you’re delaying Social Security until FRA
2
Replies
35
Views
2K
Surewhitey
S
B
What does W2 income consist of when on Social Security?
Replies
4
Views
487
buckskinbowman
B
waynezo
Social Security Number on The Dark Web
2
Replies
36
Views
4K
JOBO
J

Latest posts

Back
Top Bottom