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Old 07-07-2018, 04:11 AM   #141
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Originally Posted by tomhole View Post
The problem isn't the wage base, the problem is the rate:



But it's easier to raise the wage base. Doesn't cause as much angst to tax the higher income earners.

Raise the rate, keep the increase in base tracking and raise FRA by a year or 2 over the next 20 years.
But don't forget that chart includes the payroll tax reduction holiday passed December 2010 and lasted 2 years, IIRC.
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Old 07-07-2018, 04:26 AM   #142
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..... If I'm wrong, correct me...if one earned $100,000 for 30 years, that contribution would be $186,000. Take into consideration interest on that. We should at least get paid back for what we contributed plus interest.
Assuming that you live to an average life span, you would get paid back what you contributed plus interest.

I once took my SS earnings and calculated the SS taxes that my employer and I paid each year (excluding Medicare taxes). Then take 80% of that amount... the 20% excluded relates to disability and life insurance benefits within SS... the remaining 80% relate to retirement benefits. At that point I know my year by year contributions for retirement benefits.

The value of my benefits can be estimated by my annual PIA divided by a 4% SWR since SS is COLAed.

Then solve for the rate of return... in my case it was 5.85%. Most people will be higher... I was a high income earner so mine would be lower because of the way retirement benefits are skewed to lower income earners (I get less in relation to what I paid in than a lower income earner).

So if I claim at my FRA and live until I'm 82 I'll get back everything that my employers and I paid in plus 5.85% interest.... if I live longer then more and if I die earlier then less.
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Old 07-07-2018, 05:55 AM   #143
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Deferring SS does allow one to spend more money in retirement. Take a simple example of a single 62 yo with $1 million and a PIA of $2k/month at age 66.

Option 1... they take $1,500/month or $18k/year of SS at age 62 and 4% WR on $1 million and spend $58k/year for life.

Option 2... they split their $1 million into $253,440* SS "replacement fund" and $746,560 retirement portfolio. The retirement portfolio provides $29,862/year at 4% WR. SS provides $2,640/month or $31,680/year... for a total of $61,452/year for life starting at age 62.

Under Option 2 they draw $2,640/month from the SS replacement fund starting at age 62 until it is exhausted at age 70, then SS benefits of $2,640/month start.

* $253,440 = $2,640/month of SS at age 70 ($1,500 PIA * (1+(8%*(70-66)))) for 96 months ((70-62)*12).... funding a "replacement" of SS at age 70 for the SS deferral years.

The person who defers gets to spend 6% more with the same risk of ruin.
In your math, it appears that you assume your $1M is in cash and earns nothing?

And I'd argue that the person who defers actually has a lower "risk of ruin" due to a higher percent of income not subject to market risk and buffered from inflation risk.

I'm pretty sure I tend to agree with your high-level conclusion regarding deferring benefits. But I'm not sure your math helps the argument much. Folks tend to make this choice without regard to the math behind it and won't likely be swayed. "Bird in hand" isn't about math.
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Old 07-07-2018, 06:15 AM   #144
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Deferring SS does allow one to spend more money in retirement.

The person who defers gets to spend 6% more with the same risk of ruin.
Everything looks good if you look only at the plusses and ignore the minuses.

The two risks that you've ignored are:
1) Only the person who lives long enough gets the benefit of deferring.
2) The risk of SS benefits being cut in the future.
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Old 07-07-2018, 06:23 AM   #145
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In your math, it appears that you assume your $1M is in cash and earns nothing?

And I'd argue that the person who defers actually has a lower "risk of ruin" due to a higher percent of income not subject to market risk and buffered from inflation risk.

I'm pretty sure I tend to agree with your high-level conclusion regarding deferring benefits. But I'm not sure your math helps the argument much. Folks tend to make this choice without regard to the math behind it and won't likely be swayed. "Bird in hand" isn't about math.
No, under the 4% rule in both cases it is assumed that the portfolio is invested and earns a market return. For the SS fund, I assume that it is invested in a CD ladder and earns interest that approximates inflation.

And you're right on the second part, people tend to make the choice based on emotion rather than math, especially the "I want my money back" crowd.
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Old 07-07-2018, 06:35 AM   #146
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Everything looks good if you look only at the plusses and ignore the minuses.

The two risks that you've ignored are:
1) Only the person who lives long enough gets the benefit of deferring.
2) The risk of SS benefits being cut in the future.
Your first argument is nonsense, if you defer you get to spend 6% more as long as you live no matter how long you live.... so explain to me how that is a minus.

On 2, you are correct, I haven't factored the risk of SS benefits being cut in the future into account... but even with a future cut it still favors deferring.

If in 2034 benefits are cut 25%, the person under Option 1 can spend $53,500 annually (in 2018 dollars) and the person under Option 2 can spend $55,440 (in 2018 dollars), a 3.6% advantage.
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Old 07-07-2018, 06:58 AM   #147
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Originally Posted by pb4uski View Post
Deferring SS does allow one to spend more money in retirement. Take a simple example of a single 62 yo with $1 million and a PIA of $2k/month at age 66.

...

The person who defers gets to spend 6% more with the same risk of ruin.
I agree with your math. I'll also note that people who defer are in better shape if they exhaust their portfolios because they have significantly higher SS benefits.

My post allowed for people who don't follow a 4% SWR (or a level spending FireCalc run). Some people here promote a fixed percent of portfolio spending pattern. Suppose they start with a 6% withdrawal rate. Unless I made a math mistake, the same approach gives a 2% advantage in the first year to the people who start SS early. ($78,000 vs. $76,500)
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Old 07-07-2018, 07:08 AM   #148
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Your first argument is nonsense, if you defer you get to spend 6% more as long as you live no matter how long you live.... so explain to me how that is a minus.

On 2, you are correct, I haven't factored the risk of SS benefits being cut in the future into account... but even with a future cut it still favors deferring.

If in 2034 benefits are cut 25%, the person under Option 1 can spend $53,500 annually (in 2018 dollars) and the person under Option 2 can spend $55,440 (in 2018 dollars), a 3.6% advantage.
The worry about SS cuts is that they wait until 2034 and make an across the board cut at that time. I'll be 72. If I had taken at 62 I'd have received 10 years without cuts, but if I waited until 70 I'll only have received 2 years without cuts. I did a spreadsheet analysis on this last year. Assuming a 5% return on my investments, and 2% COLA increases in SS, my breakeven for taking at 70 is at age 84. If a 25% cut comes in 2034 (age 72 for me), with no provision for making things "fair", my breakeven moves to age 88.

Breakeven point may not be the right thing to look at for longevity insurance, but if someone has poor odds to live longer than the average, AND has a concern about how much money they will leave behind, taking it earlier in that scenario might make sense.

In another post in this thread you said
Quote:
For the SS fund, I assume that it is invested in a CD ladder and earns interest that approximates inflation.
yet when you do pay-off-the-mortgage-or-not analysis you use your overall investment return rate. Why the difference? It seems to me that you are skewing factors to make numbers back up your side of the argument. Or am I confusing you with someone else?
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Old 07-07-2018, 07:56 AM   #149
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If I use 2% for both my investment rate and inflation rate (SS COLA increase), my breakeven points are 80 without cuts, and 82 with cuts coming at 72.
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Old 07-07-2018, 10:55 AM   #150
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If they did change the taxes, I wish we would know now....
as this could influence the delay of SS equation
My best guess based upon nothing but my own observation of the political process and my gut feeling, is that they will 'means test' SS benefits. The more income you have, the bigger the tax on the SS benefit.
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Old 07-07-2018, 11:11 AM   #151
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My best guess based upon nothing but my own observation of the political process and my gut feeling, is that they will 'means test' SS benefits. The more income you have, the bigger the tax on the SS benefit.
And, to add to the guessing game, what income will they use?

Suppose it is only non-SS income. In that case, deferring SS and spending down traditional IRA money, will lower non-SS income (when I start). That will lower my "means", and that may protect more of my SS benefit from means testing.
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Old 07-07-2018, 11:17 AM   #152
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In regards to not living long enough to 'get it back' I have a thought:

1. This is where a good assessment of your overall health and family health history is important. But, keep in mind that medical science is getting very good at keeping people alive into their 80's. Most of the increase in average life-span is more people living well into their 80's rather than passing in their 60's and 70's.

2. Anybody who thinks those taking SS early will be grandfathered in, while somebody of the same age who takes it later in life will be cut off at the knees, is not being realistic. My guess is that the early takers will be hit with some sort of 'adjustment factor' that will equalize the difference over the two groups as a whole. For example, COLA increases reduced or suspended until the difference is made up. Who knows?

Well, that's two thoughts. 2 for the price of 1 is not a bad deal, and worth every penny you paid for them.
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Old 07-07-2018, 11:17 AM   #153
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... yet when you do pay-off-the-mortgage-or-not analysis you use your overall investment return rate. Why the difference? It seems to me that you are skewing factors to make numbers back up your side of the argument. Or am I confusing you with someone else?
I think that if you look at the math, you'll find that using a lower rate for this bridge fund makes deferring less attractive. If he picked a higher rate, the advantage of deferring would be even more.

You may have missed the fact that the low rate only applies to the bridge fund, the rest of the portfolio is still invested in the long term assets that support the 4% SWR.
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Old 07-07-2018, 11:18 AM   #154
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And, to add to the guessing game, what income will they use?

Suppose it is only non-SS income. In that case, deferring SS and spending down traditional IRA money, will lower non-SS income (when I start). That will lower my "means", and that may protect more of my SS benefit from means testing.
Again, my guess only, I think they might do something sneaky like include Roth withdrawals as income to make the decision on how much to tax the SS benefits, but not directly tax the Roth withdrawal itself. (Yes, I know, money is fungible. )
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Old 07-07-2018, 11:20 AM   #155
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My best guess based upon nothing but my own observation of the political process and my gut feeling, is that they will 'means test' SS benefits. The more income you have, the bigger the tax on the SS benefit.
My first thought they will extend the SS W/H limit to unlimited from current ~130k(wishful thinking perhaps). My second thought is in agreement with you.

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And, to add to the guessing game, what income will they use?

Suppose it is only non-SS income. In that case, deferring SS and spending down traditional IRA money, will lower non-SS income (when I start). That will lower my "means", and that may protect more of my SS benefit from means testing.
I would hope you are correct, as I would be spending down my TIRA more as in the 62-70 y.o. range.
Almost like a circular reference which actually works......
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Old 07-07-2018, 11:51 AM   #156
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I think that if you look at the math, you'll find that using a lower rate for this bridge fund makes deferring less attractive. If he picked a higher rate, the advantage of deferring would be even more.
I think it's the opposite. You have some money that could be used as a bridge fund. The question is whether to take SS at 62 and invest the bridge fund, or defer to 62, and drain the bridge fund over 8 years.

The higher the return, the better you'll do if you keep the whole bridge fund invested. In other words, take SS now so you don't have to spend any of the bridge fund, and let it grow. IF you have reason to believe the return will be high.

If the return on investments were high enough, you'd never catch up by spending down that bridge fund and deferring to 70 even with the higher benefits later. The bridge fund would be large enough to continue producing more return than the higher benefits provide.

Quote:
You may have missed the fact that the low rate only applies to the bridge fund, the rest of the portfolio is still invested in the long term assets that support the 4% SWR.
I didn't miss that. What I'm pointing out is that (I think) pb4 made the case for holding a mortgage is that you don't compare a mortgage rate to the alternative of holding a safe CD investment, you compare it to your overall investment rate. But in this situation, he is saying to use a CD rate for comparison, rather than your overall investment rate. That's inconsistent. He uses the point that people don't (usually) adjust their AA whether or not they've paid off their mortgage. One could just as easily assume that they don't adjust their AA whether they take SS at 62, 70, or somewhere in between.

If I've misspoken pb4 can correct me.
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Old 07-07-2018, 12:07 PM   #157
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btw I do a slightly different calculation than a bridge fund. I assume if I'm taking SS, that same amount can stay invested and earn some x% return. If I defer to 70, at 70 I'll start being able to invest that amount at that same x% return. I think it works out to be the same as taking a bridge fund, as long as you use the same return assumption for that bridge fund.

What I find is, if I get a 9% return on investments with 2% COLA on SS, deferring and taking a larger benefit at 70 still won't have quite caught up to taking at 62 by age 100. That's all the farther I went for that table. This is using the table where I assumed no cut in benefits. It's a bigger gap if there is a cut at my age 72.

I'm not counting on a consistent 9% return so I'm not using that return in my plan. What it does tell me though, is if there is a big market drop, and I anticipate a recovery, that would be a good time to take SS benefits and take less from my investments, as something close to 9% doesn't seem so unlikely after a big drop. It's market timing, but in a less risky way, IMO.
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Old 07-07-2018, 12:19 PM   #158
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They should invest that money. It'll be good for the stock market.
And they should eat health, drink moderately and abstain from non-marital sex like me.

Ha
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Old 07-07-2018, 01:37 PM   #159
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I think it's the opposite. You have some money that could be used as a bridge fund. The question is whether to take SS at 62 and invest the bridge fund, or defer to 62, and drain the bridge fund over 8 years.

The higher the return, the better you'll do if you keep the whole bridge fund invested. In other words, take SS now so you don't have to spend any of the bridge fund, and let it grow. IF you have reason to believe the return will be high.

If the return on investments were high enough, you'd never catch up by spending down that bridge fund and deferring to 70 even with the higher benefits later. The bridge fund would be large enough to continue producing more return than the higher benefits provide.

I didn't miss that. What I'm pointing out is that (I think) pb4 made the case for holding a mortgage is that you don't compare a mortgage rate to the alternative of holding a safe CD investment, you compare it to your overall investment rate. But in this situation, he is saying to use a CD rate for comparison, rather than your overall investment rate. That's inconsistent. He uses the point that people don't (usually) adjust their AA whether or not they've paid off their mortgage. One could just as easily assume that they don't adjust their AA whether they take SS at 62, 70, or somewhere in between.

If I've misspoken pb4 can correct me.
I agree with the bold. IF I know that my investment returns are going to be high enough, I should take SS at 62.

People who follow the 4% SWR, or a 95% FireCalc test, are implicitly taking a conservative approach because they don't know that returns will be high.

To me, it doesn't make sense to protect against low returns when I'm making a decision about withdrawal rates, but then use a high return assumption when I'm making a decision about SS.

Note my earlier post where I said that people who feel 6% is an acceptable withdrawal rate could do the same math and discover they are better off starting early.
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Old 07-07-2018, 02:50 PM   #160
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To me, it doesn't make sense to protect against low returns when I'm making a decision about withdrawal rates, but then use a high return assumption when I'm making a decision about SS.
That's a very reasonable point. If returns are high (and assuming inflation isn't correspondingly high), I'll be fine pretty much no matter what. I could probably do even better taking at 62, but as long as I'm safe, I'm happy.

If returns are low, my plan is probably a little more at risk, especially if I live a long time. That makes deferring to 70 a better choice.

Picking the choice that handles a bad scenario better is preferable to picking the choice that optimizes an already good scenario, for me. That's a big point for 70. It's a safeguard for both longevity and bad returns, the only real situation (other than unexpected large expenses) that really concerns me. I'll still look for a big market dip sometime between 62 and 70 to start at, but I think this revelation means the drop has to be bigger than I had been thinking to be worthwhile.

And that's why I participate in yet another SS 62/70 thread, I've still got things to learn.
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