Winemaker
Thinks s/he gets paid by the post
https://www.cnsnews.com/news/articl...individual-income-taxes-through-may-still-run
I don't think the issue is tax revenue this fiscal year, it's the tax spending.
Social Security at 62 - Yes or No
- Thread starter Easypick
- Start date
https://www.cnsnews.com/news/articl...individual-income-taxes-through-may-still-run
I don't think the issue is tax revenue this fiscal year, it's the tax spending.
Cut-Throat
Thinks s/he gets paid by the post
The Tax Revenue Shortfall has not kicked in yet.......
But as far as the Tax Spending..... Please tell us What meaningful part of the Spending would you like to see Cut?
- Joined
- Oct 13, 2010
- Messages
- 10,735
So I ran those scenarios today. I started with my base numbers, turned-off Roth conversions (for simplicity) and varied the "plan duration" from age 80 to 105, all the while flipping SS initiation back and forth from 62 to 70.
I collected the "annual spend" (the bold number reported by i-orp), plus I added up taxes paid across all years and added up Social Security income across all years.
Although the "break even", looking at total SS $ collected, is age 80, the available spend is 3% higher if I take SS at 62. In other words, i-orp is saying that I can spend 3% more per year across the entire span of this 21 years if I take SS early.
Even extending the span to 31 years, to age 90, i-orp is saying I can spend 1% more. It's not until age 105, a 46 year span, that taking SS late (at 70) beats taking it early.
Something I noticed from this analysis was that the total taxes paid is between 5% and 10% higher for taking SS early. 5% higher at the short plan duration end and 10% at the long plan duration end. So by taking SS early, you're apparently able to leave your assets invested longer so you have more money to pay these taxes and spend more. Oh, by the way, I don't have any funky rate assumptions...I ran with the defaults for everything (asset class returns and inflation, and 40% stock allocation).
So what I've determined is that there's really no downside to taking SS early if you believe the i-orp simulation. I'm not quite done with the analysis, though. What I need to do is, rather than run my rather complicated "real numbers" through the tool, I need to try putting a simplified set through and chuck that output into a spreadsheet to make sure I agree with what it's doing.
Last edited:
pompanobeach
Recycles dryer sheets
- Joined
- Jun 4, 2018
- Messages
- 79
Dear Sengsational. Although i haven’t run any extensive research, i agree with you that taking SS early is sound planning whether you need it or not!
PompanoBeach, FL
mamadogmamacat
Full time employment: Posting here.
- Joined
- Dec 27, 2012
- Messages
- 751
And there is the rub, not doing extensive research yet somehow making a conclusion
I made the same error for years, just assuming the "break even" point of roughly age 80 made waiting wrong for me due solely to longevity concerns. Now, the fact, proven by many an analysis presented on this forum, of having more to spend by waiting has convinced me to at least strongly consider waiting at least until 65 or 67.
I await sengsational's results with interest
however, i suspect there are just too many moving parts involved for me to make a final decision until i am say a yr or so out from 62, and then re-look every year thereafter if i do choose to wait past that age. mainly for the following two reasons:
1) market conditions may drive an earlier start if we have a severe correction/recession by then
2) if my health goes south based on a life threatening diagnosis by then, it may behoove me to take it and enjoy some lavish spending for whatever short time may be left to me at that point. We never know what can hit us regarding our health
I made the same error for years, just assuming the "break even" point of roughly age 80 made waiting wrong for me due solely to longevity concerns. Now, the fact, proven by many an analysis presented on this forum, of having more to spend by waiting has convinced me to at least strongly consider waiting at least until 65 or 67.
I await sengsational's results with interest
however, i suspect there are just too many moving parts involved for me to make a final decision until i am say a yr or so out from 62, and then re-look every year thereafter if i do choose to wait past that age. mainly for the following two reasons:
1) market conditions may drive an earlier start if we have a severe correction/recession by then
2) if my health goes south based on a life threatening diagnosis by then, it may behoove me to take it and enjoy some lavish spending for whatever short time may be left to me at that point. We never know what can hit us regarding our health
Winemaker
Thinks s/he gets paid by the post
Why can't we just say your budget has been cut 1%? With baseline budgeting in affect for 30 years plus, a annual budget increase every year of 3%plus is ludicrous.
The analysis you did will be highly sensitive to the assumed rate of growth of your portfolio assets. Taking SS early comes out very well if we assume a high rate of growth in the portfolio (since your withdrawals of those assets is reduced by the SS check). The larger that a person's SS benefit is in relation to their portfolio withdrawals, the higher this effect will be.
4 observations:
1) I-orp is a fine tool for what it does, but it has a very simplistic growth model for assets. The portfolio grows by the same amount every year--no drops, no spikes. Compare this to FIRECalc. And the default growth rate for equities in i-orp is 7%, (5% real). That's pretty generous, IMO, right now.
2) When folks have done similar comparisons of taking SS at 62 vs 70 using FIRECalc, IIRC the results depended a lot on the AA dedicated to equity.
3) "Break even" or "which approach gives me the most money on average" is a worthwhile metric if we are looking at donating every penny to charity upon our death. In that case, only the expected average amount matters: 0 is bad, 2 million is good, and 1 million is exactly 1/2 as good as 2 million. If we instead need to support our spending in old age, the "utility" of each monthly dollar isn't constant, and the amount needed to support baseline spending (first $4000/mo?) has a lot more utility (is a lot more important to us) than dollars above that. Very few retirees have 100% of their funds in equities, but that is exactly what everyone would do if they wanted to maximize their absolute expected number of dollars, on average. Instead, we virtually all pick an AA that sub-optimizes absolute expected average returns in favor of a mix that we hope will do the best job of assuring we have very high likelihood having "enough." The SS decision should be made the same way, IMO.
4) In consideration of 1-3 above, what if investment returns are crummier than expected? That's the most difficult case. I'm not too interested in the average expected ending balance of a model, I want to give us the best chance to avoid a real catastrophe. And that's where, IMO, taking SS later may provide a higher expected inflation-adjusted spendable amount, for as long as either member of a couple lives.
It's not a slam-dunk either way, but it does deserve some careful analysis, which you are evidently doing. I've got about a decade to think on it.
Last edited:
Independent
Thinks s/he gets paid by the post
- Joined
- Oct 28, 2006
- Messages
- 4,629
That's true. But, once you start this pure paygo system with a fixed tax rate, benefits will go down over time from whatever starting point you picked. It would take a very large tax and benefit increase at the beginning to keep all foreseeable future benefits above 2018 levels.
Yes, it's possible that congress could re-direct the general fund money that had been used to "redeem the special bonds" into a means tested program for people whose SS benefits were cut "too much" by the 25%. Like you, I'd prefer that they simply fiddle with the SS PIA formula.
Note that the US already has a means tested program for old people, funded from general tax revenue. It is the "Supplemental Security Income" program.
https://www.ssa.gov/ssi/ The gov't uses the letters SSI to refer to that program. I believe you are using "SSI" here to refer to the regular, not means-tested, program that applies to most people here.
I don't think we can say that the total benefits paid out will decline, that would depend on the overall growth trend of total US wages (seniors will have a vested interest in improving US these). The trend line for total SS taxes would be positive over time (assuming the total of all US wages climbs), so total SS expenditures would also go up. But, due to the demographics of the situation, avg benefits per retiree will likely decline. Again, we'd likely seek a benefits curve that preserves benefits for those at the lower end.
Yes, thanks. I meant OASDI, not SSI.
Last edited:
Cut-Throat
Thinks s/he gets paid by the post
That Math won't work. Federal Budget is $3.8 Trillion. 1% cut across the board is $38 Billion. We Currently are running a $600 Trillion deficit. Every year the deficit still gets bigger.
I said Meaningful Cut.
Last edited:
Independent
Thinks s/he gets paid by the post
- Joined
- Oct 28, 2006
- Messages
- 4,629
Yes, I meant "average benefit per retiree, as compared to average wage of workers". Or, "replacement ratio".
I can see that if real wages grew fast enough, it would be possible to maintain the CPI adjusted purchasing power of benefits, even with declining worker/beneficiary ratios. That ratio changes from 2.8 to 2.3 between 2017 and 2030. If average real covered wages grew at 1.5% annually for that period, the real tax base per beneficiary would stay the same. That's actually less than the SS Trustees seem to be expecting https://www.ssa.gov/OACT/TR/2018/V_B_econ.html#242370
After that, the demographics aren't nearly as severe. A smaller wage gain would be sufficient.
- Joined
- Oct 13, 2010
- Messages
- 10,735
Yep, I think that's the effect I was seeing. And I agree 5% real return on stock is optimistic (but I just "took the defaults"). I'll go back and run with lower return some day and see how far down it comes from age 105.
I agree that the results would be more useful if the model didn't give a fixed return every year, but then it wouldn't be able to optimize (wouldn't be able to be modeled as a linear program). To have faith in the model, one must assume that the asset allocation chosen will properly manage the bumps in the equity valuation and global economy road.
You're lucky not to have to decide on this yet. I had to chuckle because this is the first time I'm getting serious about this 62/70 decision. Through all these years on this board, I only glanced at the "when to take SS" posts. I thought "ah, I can't do anything about that now anyway". One thing I realized, though, is that even young whippersnappers often need to take a stab early since it's an input to the financial models.
I'm sure I'm missing something. In 2017 we were still at parity between SS revenues and expenditures, and we aren't far off. The Trustees forecast that productivity (their proxy for real wage growth) will be between approx 1.4 and 1.9% per year. You've looked at the beneficiary demographics and it looks like 1.5% per year real growth in the total spending will allow the per-recipient amounts to remain constant. If that's all true, why will we be dipping in to the trust fund? It seems instead we'd be continuing to add to it.
Possible factors:
1) I'm misunderstanding something (most likely
)2) The productivity increase doesn't translate exactly into higher covered wage growth. We've seen a disconnect between productivity and wages for awhile, and we've also seen that income at the lower quintiles has remained flat in some cases while higher quintiles have had real growth. The current payroll tax misses this growth at the top.
But, in the big picture, it seems plausible that, with changes now, a "pure" year-to-year paygo system might result in no per beneficiary cuts and even increases for tomorrow's retirees.
Winemaker
Thinks s/he gets paid by the post
Oh, I agree with you wholeheartedly. But first stop the baseline budgeting where 3-6% boosts in budgets are the norm. And the pols will complain that a 4% budget raise is a CUT, when they used to get 6%.
1% was a start.
Samclem has saved me from asking the exact same questions with the same understanding of the “machine”. Thank you! I too, absolutely am more concerned with yearly “hugh quality” maximum income, not final at death value or maximum lifetime or break even point from OASDI. Knowing that it is a higher amount if needed much later in life means less risky use of more current funds early in retirement, for our specific situation.
Last edited:
Cut-Throat
Thinks s/he gets paid by the post
Sure your 1% was a start, but hardly noticeable and even less politically feasible. We all know what the answer will be. All you have to do is go back in History. We've been here before and we know what the solution is and will be.
Attachments
Um, where do you get $600 Trillion deficit? Did you mean $600 billion?
Cut-Throat
Thinks s/he gets paid by the post
Typo, yes.... I'll fix it. --- I guess I can't fix it... Does not allow editing anymore.
We have certainly gone pretty far afield from the point of this thread.
The OP (almost four years ago) asked:
The most recent posts here have broadened the topic to the point that I can't see the relevance anymore.
The OP (almost four years ago) asked:
The most recent posts here have broadened the topic to the point that I can't see the relevance anymore.
Independent
Thinks s/he gets paid by the post
- Joined
- Oct 28, 2006
- Messages
- 4,629
Starting with your last paragraph, I look at Table IV.B1 hereI'm sure I'm missing something. In 2017 we were still at parity between SS revenues and expenditures, and we aren't far off. The Trustees forecast that productivity (their proxy for real wage growth) will be between approx 1.4 and 1.9% per year. You've looked at the beneficiary demographics and it looks like 1.5% per year real growth in the total spending will allow the per-recipient amounts to remain constant. If that's all true, why will we be dipping in to the trust fund? It seems instead we'd be continuing to add to it.
Possible factors:
1) I'm misunderstanding something (most likely
2) The productivity increase doesn't translate exactly into higher covered wage growth. We've seen a disconnect between productivity and wages for awhile, and we've also seen that income at the lower quintiles has remained flat in some cases while higher quintiles have had real growth. The current payroll tax misses this growth at the top.
But, in the big picture, it seems plausible that, with changes now, a "pure" year-to-year paygo system might result in no per beneficiary cuts and even increases for tomorrow's retirees.
https://www.ssa.gov/OACT/TR/2018/IV_B_LRest.html#402226
and see the 2018 cost as a percent of taxable payroll is 13.81%. The income rate is 12.64%, for a shortfall of 1.17%. The shortfall is about 8.5% of costs, so it seems that benefits would need to be cut about 8% to make the program pure paygo in 2018.
In trust fund language, that difference is mostly covered by interest on the trust fund, though there may be some redemptions in 2018.
I said that "it would be possible to maintain CPI adjusted purchasing power". That is, we could design a benefit rule to do that. The benefit rule we've actually got indexes initial benefits to wages rather than prices. If wages have been growing faster than prices, then the PIAs of newly retired workers are higher than the CPI adjusted PIAs of older retirees who are dying.
But, it really seems like that's not enough to get the impact we're seeing in the next 17 years or so. I'd like to do some math on those Trustees Report tables, but no time today.
Similar threads
