Social Security future? Applying at 62?

[pb4uski]

While I don't disagree with you... what we think really doesn't matter a rat's a$$.

Medicare is a totally separate issue/potential problem.

The SS fund is legally prohibited from borrowing so once they have redeemed the money that they have lent to the general fund, their hands are tied (unless something is done, which I think/hope will happen).... what they can pay out is limited to what they are taking in.

 

[RunningBum]

I meant will they ask for the money back that we make from when we are 62 to 2034? We will be collecting benefits long before 2034 happens.

I would very seriously doubt it. Of all of the uncertainty about what will happen in 2034 or as it approaches, clawing back that money seems to be the least likely thing. And there's no reason to. A 23% or 25% cut would apparently allow SS to continue without going in the red.

 

[pb4uski]

I meant will they ask for the money back that we make from when we are 62 to 2034? We will be collecting benefits long before 2034 happens.

No clawback that I have heard of.

For me, it is breakeven. I was born in 1955. So let's say that I could collect $1,000 at my FRA of age 66 + 2 months.

From 62 to FRA I would collect $750/month for 50 months or $37,500. Beginning at FRA I would collect an additional $250/month so it would take me 150 months or 12 1/2 years to "breakeven" which will be 2034... so I'll take my chances with FRA because if I am collecting $1,000 and get haircut 23% that is $770/month from 2034 on vs if I start at 62 it be $750 haircut to $578.

$750 for the rest of my life from 2034 on is better than $578.

 

[daylatedollarshort]

I would very seriously doubt it. Of all of the uncertainty about what will happen in 2034 or as it approaches, clawing back that money seems to be the least likely thing. And there's no reason to. A 23% or 25% cut would apparently allow SS to continue without going in the red.

I doubt it as well. That is why we will probably go with 62. I'm just not sure what other point pb4uski was trying to make regarding my initial post about claiming at 62.

 

[Huston55]

IMO, this is a conservative way to increase your retirement spending. Let's take and example of 62 yo a retiree with $1 million saved and SS of $25k a year at their FRA of 66.

If they take SS at 62 and use a conservative 3.5% WR, then their inflation-adjusted spending can be $53,750 ($35,000 from portfolio and $25,000*75% or $18,750 from SS).

Alternatively, they carve out 8 years worth of age 70 benefits into a separate fund of $264,000 to provide $33,000 a year for ages 62-70 since their age 70 SS benefit will be $33,000 ($25,000 * (1+(8%*4))). They have $736k left and at a 3.5% WR that is $25,760... add the $33,000 and the total is $58,760.

So with some minimal financial engineering they have increased their retirement spending by 9.3%!

(I'm assuming that the $264k side fund earns the inflation rate so the $33,000 a year can be increased for inflation, but even if you bumped the $264k up a little bit to consider inflation more explicitly, it is still a winning strategy.)

Not arguing the SS early or late question. But, the problem with this comparison is that in the first case 62-70 annual spending is $53,750 and, in the second case it’s $33,000. To be apples-to-apples, the ‘carve out’ would be $430k (not $264k), leaving $570k*WDR (not $736k) + Age 70 SS.

 

[RunningBum]

I doubt it as well. That is why we will probably go with 62. I'm just not sure what other point pb4uski was trying to make regarding my initial post about claiming at 62.

You understand that there is a breakeven point, where if you live long enough to get enough of the larger checks from delaying to 70 (or 67, or whatever), that you will come out ahead in the long run by taking SS later, right? I don't know if he factored in investment returns on the money you'd keep invested if you take SS early, but there is still a breakeven. And he will hit it right around 2034. So if he lives to 2034 and the cuts come then, he's already broken even, so getting a larger check (taking at 70) at that point puts him ahead.

For my case, I won't have hit that breakeven point in 2034 yet, but I'll be partway there. A reduction in benefits just moves the breakeven out a couple years or so.

Bottom line, there are so many unpredictable factors like what your investment return will be between 62 & 70, what will the changes to the actual benefits be (if any), how long will you live, etc, that there is no way to know the best strategy. You can make assumptions and look at it mathematically, you can set priorities (longevity insurance vs. spending more in early retirement years), or emotionally (I'm taking it now because I can!). I feel like this is something where you can use the information you identify with and through out the info you don't, because it's an educated guess anyway. I like to contribute to the discussions because I learn things and my strategy evolves as I learn more and get closer to 62.

 

[pb4uski]

Not arguing the SS early or late question. But, the problem with this comparison is that in the first case 62-70 annual spending is $53,750 and, in the second case it’s $33,000. To be apples-to-apples, the ‘carve out’ would be $430k (not $264k), leaving $570k*WDR (not $736k) + Age 70 SS.

Nope. Deja vu all over again.

	SS at 62	SS @ 70 (62-70)	SS @ 70 (70+)
Nestegg @ 3.5%	35,000	25,760	25,760
SS Replacement Side-fund	0	33,000	0
SS	18,750	0	33,000
Total	53,750	58,760	58,760

 

[ShokWaveRider]

Mine is still 100% dependent on the ACA subsidies, as DW is 5 years younger than me. I "was" going to take SS at 62, then changed that to 65, and now I think FRA (66) will be the day. Because even though I will be on Medicare her subsidies are based on combined income. If ACA subsidies are defunded by then, we will need to re-evaluate. So it really is speculation at this point. Or move back to the Frozen North one of the many options.

 

[Huston55]

Nope. Deja vu all over again.

Yup.

	SS at 62	SS @ 70 (62-70)	SS @ 70 (70+)
Nestegg @ 3.5%	35,000	25,760	25,760
SS Replacement Side-fund	0	33,000	0
SS	18,750	0	33,000
Total	53,750	58,760	58,760

And, $53,750/yr*8yrs=$430k (leaving $570k) or, $58,760/yr*8yrs=$470k (leaving $530k); making the WDRs @ age 70 = 4.5% & 4.9% respectively.

 

[pb4uski]

Yup.



And, $53,750/yr*8yrs=$430k (leaving $570k) or, $58,760/yr*8yrs=$470k (leaving $530k); making the WDRs @ age 70 = 5.5% & 6.0% respectively.

How do you get the 5.5% and 6.0%... please show your calculations.

You do realize that for the $53,750 that $18,750 is coming from SS and only $35,000 is coming from the $1m in retirement funds.... that a 3.5% WR (WR is measured at retirement).

Same with the other alternative.

The problem of measuring WR at age 70 is if you are going to do that then you also need to adjust the demoninator for 8 years worth of investment results (and arguably the numerator for 8 years of inflation).

 

[daylatedollarshort]

You understand that there is a breakeven point, where if you live long enough to get enough of the larger checks from delaying to 70 (or 67, or whatever), that you will come out ahead in the long run by taking SS later, right? I don't know if he factored in investment returns on the money you'd keep invested if you take SS early, but there is still a breakeven. And he will hit it right around 2034. So if he lives to 2034 and the cuts come then, he's already broken even, so getting a larger check (taking at 70) at that point puts him ahead.

For my case, I won't have hit that breakeven point in 2034 yet, but I'll be partway there. A reduction in benefits just moves the breakeven out a couple years or so.

Bottom line, there are so many unpredictable factors like what your investment return will be between 62 & 70, what will the changes to the actual benefits be (if any), how long will you live, etc, that there is no way to know the best strategy. You can make assumptions and look at it mathematically, you can set priorities (longevity insurance vs. spending more in early retirement years), or emotionally (I'm taking it now because I can!). I feel like this is something where you can use the information you identify with and through out the info you don't, because it's an educated guess anyway. I like to contribute to the discussions because I learn things and my strategy evolves as I learn more and get closer to 62.

I was responding to "I don't think you are right on that... if they fail to act from everything that I have read both current and future benefits will be be haircut... essentially across the board". I don't see how my initial post contradicted or even addressed that point. My point was what katsmeow made in her post about claiming at 62. Maybe she said it more clearly so I'll leave my comments as ditto to what katsmeow posted:

"In the end, I looked at how much of our portfolio we would need to deplete by waiting to take it -- either for both of us or just me. We could have done that. And, again, I understand the longevity reasons to do that. But, I felt that doing it would deplete the portfolio to a point that I would feel uncomfortable. Right now, if SS were to get cut in the future we would still have a sufficient portfolio that things would be OK. But, if we depleted our portfolio and SS benefits were cut then that would really hurt. SO I felt more comfortable preserving more of the portfolio."

 

[Huston55]

How do you get the 5.5% and 6.0%... please show your calculations.

I made an error & edited the WDR.

The key point though is that in the SS defer to 70 scenario all the $$$ for 8 yrs (age 62-70) comes from the $1M portfolio, leaving the $530k or $570k, depending on which annual spend one uses. All the figures are from your table.

 

[RunningBum]

I was responding to "I don't think you are right on that... if they fail to act from everything that I have read both current and future benefits will be be haircut... essentially across the board". I don't see how my initial post contradicted or even addressed that point. My point was what katsmeow made in her post about claiming at 62. Maybe she said it more clearly so I'll leave my comments as ditto to what katsmeow posted:

"In the end, I looked at how much of our portfolio we would need to deplete by waiting to take it -- either for both of us or just me. We could have done that. And, again, I understand the longevity reasons to do that. But, I felt that doing it would deplete the portfolio to a point that I would feel uncomfortable. Right now, if SS were to get cut in the future we would still have a sufficient portfolio that things would be OK. But, if we depleted our portfolio and SS benefits were cut then that would really hurt. SO I felt more comfortable preserving more of the portfolio."

Once you hit 70 and start collecting the larger benefit check, you start making up for what you depleted out of your portfolio. The larger check means you need to take less out of your portfolio to supplement your living expenses, every month, for the rest of your life. By the breakeven point you've totally made up the difference, so you have no longer preserved more of the portfolio by taking at 62. That's the whole gist of talking about the breakeven point.

 

[pb4uski]

Two FIRECalc runs. First is spending $53,750/yr for 45 years and $1 million beginning balance and including $18,750 of SS beginning in 2017. Second is spending $58,760/yr for 45 years with $736k beginning balance including $33,000 of SS beginning in 2025 and $33,000 of inflation adjusted pension income per year beginning in 2017 and ending in 2025 ($264k side fund payments). Note success rate is the same despite 9.3% higher spending for the SS at 70 alternative.

FIRECalc looked at the 102 possible 45 year periods in the available data, starting with a portfolio of $1,000,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 102 cycles. The lowest and highest portfolio balance at the end of your retirement was $-478,764 to $20,347,540, with an average at the end of $3,807,446. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

For our purposes, failure means the portfolio was depleted before the end of the 45 years. FIRECalc found that 4 cycles failed, for a success rate of 96.1%.

FIRECalc looked at the 102 possible 45 year periods in the available data, starting with a portfolio of $736,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 102 cycles. The lowest and highest portfolio balance at the end of your retirement was $-352,370 to $14,975,789, with an average at the end of $2,802,280. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

For our purposes, failure means the portfolio was depleted before the end of the 45 years. FIRECalc found that 4 cycles failed, for a success rate of 96.1%.

 

[daylatedollarshort]

Once you hit 70 and start collecting the larger benefit check, you start making up for what you depleted out of your portfolio. The larger check means you need to take less out of your portfolio to supplement your living expenses, every month, for the rest of your life. By the breakeven point you've totally made up the difference, so you have no longer preserved more of the portfolio by taking at 62. That's the whole gist of talking about the breakeven point.

I get the breakeven point. I think everyone here does. It just isn't everyone's main consideration. DH and I both used breakeven points at work and we never did projects with breakeven points 20 years into the future. It is the same reason we're not getting on grid, roof solar panels at our house for now. And if SS benefits get changed our breakeven point could be moved even further out into the future.

 

[RunningBum]

I get the breakeven point. I think everyone here does. It just isn't everyone's main consideration. DH and I both used breakeven points at work and we never did projects with breakeven points 20 years into the future. It is the same reason we're not getting on grid, roof solar panels at our house for now. And if SS benefits get changed our breakeven point could be moved even further out into the future.

Were any of those work project breakeven points based on your own life expectancy?

 

[daylatedollarshort]

Were any of those work project breakeven points based on your own life expectancy?

I think you know that would not be the case, so I am not sure why you are asking. Many posters here have given thoughtful and carefully considered reasons for taking SS at 62, if you choose to do otherwise based on breakeven that is certainly your decision to make for your own circumstances.

 

[RunningBum]

I think you know that would not be the case, so I am not sure why you are asking. Many posters here have given thoughtful and carefully considered reasons for taking SS at 62, if you choose to do otherwise based on breakeven that is certainly your decision to make for your own circumstances.

I thought you were trying to figure out pb4's post, the one where he talks about being at the breakeven point when cuts come. Since you don't seem concerned about breakeven points, I'll stop. Just keep in mind that just because you take at 62 doesn't mean you will always have a bigger portfolio if/when cuts come.

 

[daylatedollarshort]

I thought you were trying to figure out pb4's post, the one where he talks about being at the breakeven point when cuts come. Since you don't seem concerned about breakeven points, I'll stop. Just keep in mind that just because you take at 62 doesn't mean you will always have a bigger portfolio if/when cuts come.

No, I was replying to a comment he made about a post of mine that did not mention breakeven points. If my withdrawal rate is zero or close to it and I have a matching strategy with a low allocation to equities, it is not likely our portfolio will be less than it is in today's dollars at any future point. All I have to do is have a zero real return to maintain the portfolio value. Ten year TIPS are at .46% today and I have a pile of 30 year TIPS I bought at ~2% real yield, so an overall portfolio blended real return of 0 seems pretty easy to achieve.

 

[pb4uski]

I made an error & edited the WDR.

The key point though is that in the SS defer to 70 scenario all the $$$ for 8 yrs (age 62-70) comes from the $1M portfolio, leaving the $530k or $570k, depending on which annual spend one uses. All the figures are from your table.

WADR, those age 70 WR's are not relevant. Any WR is going to show that... if you use a 3.5% WR and ignore inflation and investment returns after 8 year's you'll have 72% of the original balance left and 3.5/72 is 4.9%.. so what... its still a 3.5% WR because you don't measure it 8 years out... you measure it at retirement and you also ignore investment results and inflation so you have no point other than regurgitating our an irrelevant number and trying to paint it as having some sort of relevance.

 

[Floridatennisplayer]

I wonder how many people who boast....” well we are waiting till 70 to get the bigger check” will even make it to age 70 it’s such a guess you don’t know how long you’re going to live. I have a lot of friends who thought they would live to 90 and died at 61 with heart attack.

 

[RunningBum]

I wonder how many people who boast....” well we are waiting till 70 to get the bigger check” will even make it to age 70 it’s such a guess you don’t know how long you’re going to live. I have a lot of friends who thought they would live to 90 and died at 61 with heart attack.

Why do you think people are boasting about waiting until 70?

If I'm dying before 70, not picking up an SS check is way off the page of my list of problems.

 

[JoeWras]

I wonder how many people who boast....” well we are waiting till 70 to get the bigger check” will even make it to age 70 it’s such a guess you don’t know how long you’re going to live. I have a lot of friends who thought they would live to 90 and died at 61 with heart attack.

Of course, and that's why people earlier in the thread were talking about it being personal. If you have had cancer, or heart disease, or a family history, probably go early.

If you have a history of long life in your family (over 90), going late provides a form of longevity insurance. But you may lose the bet, because there's always that bus that could run you over.

And maybe personally you just want to be sure you get something -- anything -- back regardless of longevity guesses and busses running you over, then probably go early, or maybe split the difference.

 

[Huston55]

First, I want to reiterate that I’m not arguing for any particular age to take SS; too many individual variables to say one age is better than another for a particular person/couple.

I know this was just a shorthand analysis to illustrate why the ‘bridging’ strategy might be good. I’m simply saying that, IMHO, the logic is faulty, and so is some of the math. And, that doesn’t even begin to account for any risk based comparison of ‘bridging’ versus ‘SS @ 62’ (i.e.: longevity risk, sequence of returns risk, AA risk, Market risk, inflation risk, interest risk, etc.)

So, let me try this again.

IMO, this is a conservative way to increase your retirement spending. Let's take and example of 62 yo a retiree with $1 million saved and SS of $25k a year at their FRA of 66.

If they take SS at 62 and use a conservative 3.5% WR, then their inflation-adjusted spending can be $53,750 ($35,000 from portfolio and $25,000*75% or $18,750 from SS).

Alternatively, they carve out 8 years worth of age 70 benefits into a separate fund of $264,000 to provide $33,000 a year for ages 62-70 since their age 70 SS benefit will be $33,000 ($25,000 * (1+(8%*4))). They have $736k left and at a 3.5% WR that is $25,760... add the $33,000 and the total is $58,760.

So with some minimal financial engineering they have increased their retirement spending by 9.3%!

(I'm assuming that the $264k side fund earns the inflation rate so the $33,000 a year can be increased for inflation, but even if you bumped the $264k up a little bit to consider inflation more explicitly, it is still a winning strategy.)

All $58,760 comes from the same source if one defers SS until age 70. That’s a 5.9% WDR; not 3.5% just because the $$$ is segregated into two pots. To further illustrate this, I could set aside $470,080 ($58,760*8) and my WDR for the remaining $529,920 would be ZERO but, that’s sort of meaningless.

Nope. Deja vu all over again.

	SS at 62	SS @ 70 (62-70)	SS @ 70 (70+)
Nestegg @ 3.5%	35,000	25,760	25,760
SS Replacement Side-fund	0	33,000	0
SS	18,750	0	33,000
Total	53,750	58,760	58,760

Here’s the same $58,760 again; all coming from the $1M portfolio from age 62-70. Again, that’s a 5.9% WR.

Two FIRECalc runs. First is spending $53,750/yr for 45 years and $1 million beginning balance and including $18,750 of SS beginning in 2017. Second is spending $58,760/yr for 45 years with $736k beginning balance including $33,000 of SS beginning in 2025 and $33,000 of inflation adjusted pension income per year beginning in 2017 and ending in 2025 ($264k side fund payments). Note success rate is the same despite higher spending.

It’s nice that you can backfit FIRECalc runs to illustrate ‘mostly’ the same output but, as we know, that’s not really where the original math came from.

The bottom line is that $59k/yr from a $1M portfolio is a 5.9% WR, no matter how much “financial engineering” is done. That might be OK for some but, let’s call it what it is. TINSTAAFL

 

[FlaGator]

If we take SS at 62, then we are using up less of our portfolio money, the money we control and won't be subject to [-]a 23% future cut[/-] additional political decisions. And then we also have the Medicare cap at 65. If something happened to us our kids would get a bigger inheritance now when they are younger and don't have a huge amount of savings of their own yet.......

.....We pay more attention to [-]the results of my spreadsheets and[/-] what works best for our particular financial situation.

This.

Having survived nearly 3 years of ER with kids at home and had the initial projections proved out, I've shifted to optimizing what I leave behind, whenever that may be. No spouse to consider (at this point )

Will see how future political decisions affect things like tax rates, treatment of IRAs, ACA subsidies, and will adjust annually. Have 4 more years before the SS window opens, and no longer thinking the customary advice of deferring until my FRA of 67 or later is optimum for my goals.