Social Security take-back -- RIP

[teejayevans]

I used to feel that taking it at 62 was best, but now I'm pretty confident that waiting until 70 is the best strategy for me. Using the age 70 rate, I should be able to live comfortably on SS even if my investments dry up.

But I don't have to decide for a few years.
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I think that's great strategy and plan on doing the same, all things remaining equal, unless you think that SS rules change and want to be grandfathered in. You get an extra 8% for every year you wait past your retirement age.
TJ

 

[TromboneAl]

Right. My old "take it at 62" policy was based on: Bird in the hand, and a good chance I'd get more money (investing what I don't need to withdraw).

But I like the new policy in case I live a very long time.

 

[bamsphd]

Right. My old "take it at 62" policy was based on: Bird in the hand, and a good chance I'd get more money (investing what I don't need to withdraw).

But I like the new policy in case I live a very long time.

Yes.

They may increase the retirement age, they may tax more benefits, they may means test the benefits, they may outright reduce the benefits for everyone. However, it is difficult to imagine outliving social security in a scenario that doesn't involve the US dollar trading near par with the Confederate dollar.

Waiting to take social security seems to be the safest, and probably the cheapest, longevity insurance available in the US.

 

[chinaco]

There is a lot of focus on loopholes that are "in real terms" only available to affluent people.

 

[haha]

Yesterday I got a statement from SS telling me what my monthly benefit will be at age 70. Funny that they sent it, as previously I hadn't received one since I started Medicare.

Anyway, it is only about $4 off from what I projected when I was considering the re-do. $4 less that is! I feel quite good about the transaction, the biggest flaw is that a private annuity would be less likely to be yanked from me when federal budget pressures get even more acute.

They only strategy I can imagine that would not precipitate massive political fallout is some sort of divide and conquer. So that is what I expect.

Ha

 

[NW-Bound]

I used to feel that taking it at 62 was best, but now I'm pretty confident that waiting until 70 is the best strategy for me. Using the age 70 rate, I should be able to live comfortably on SS even if my investments dry up.

But I don't have to decide for a few years.
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I have 8 years to think about it. Hopefully when my time comes, there is anything left for me to decide.

What if they say "Use up your personal stash, then we will talk", meaning apply means testing?

 

[Zero]

I Exceled a scenario of taking SS at 62 vs 70 with a goal of which pays the most. I got a surprising answer and would love to have a double-check.

Actuals from SS form:
SS est at 62 = $1568 or $18,816
SS est at 70 = $2745 or $32,940

Assumptions:
1. SS checks taken at 62 would be saved and privately annuitized at 70.
2. The income after age 70 from the private annuity would not be COLA'd.
3. SS checks taken at 62 would be COLA'd at 3% and also be invested and earn 3%.


Calculations:
Future Value of SS paid from 62 to 70 = $18,816*((((1+0.03)^8)-1)/0.03) = $167,318
Private $167,318 annuity payouts beginning at 70 for single male (immediateannuities.com) = $1,203 or $14,436
Future Value of SS check begun at 62 when age 70 is reached = $18,816*(1.03^8)=$23,836

Conclusion:
At age 70, the combination of the private annuity of $14,436 and the SS(begun at 62) of $23,836 = $38,272
At age 70, the SS (begun at 70) would be $32,940.

Amazingly, running the number out from 70 till 90 shows the combo of SS/private annuity winning by $46,000 cumulatively and the yearly checks are higher than the SSat70 checks up until age 88.

Not until age 100 do the cumulative values equal each other.

What did I do wrong?

 

[Duke of Sands]

What does the SSA assume for COLAs in order to arrive at the age 70 estimate? May not be the same as that which you used for the age 62 COLA growth??

 

[Peter]

I went to immediateannuties.com and didn't see an single life inflation adjusted annuity that yielded $1203 pm payout?

 

[Zero]

What does the SSA assume for COLAs in order to arrive at the age 70 estimate? May not be the same as that which you used for the age 62 COLA growth??

AWI is used in the estimate of benefits.
CPI-W is used once the benefits commence, so my 3% is just my WAG at what the CPI-W might be during my 8 years from 62 till 70.

 

[Zero]

I went to immediateannuties.com and didn't see an single life inflation adjusted annuity that yielded $1203 pm payout?

Peter, as I said in item #2 of my assumptions, the private annutity would not be COLA's, i.e. not inflation adjusted.

The one I used was the SL, Single Life Annuity with no beneficiary payouts.

Ran it once more and it shows $1,203.

 

[haha]

Peter, as I said in item #2 of my assumptions, the private annutity would not be COLA's, i.e. not inflation adjusted.

The one I used was the SL, Single Life Annuity with no beneficiary payouts.

Ran it once more and it shows $1,203.

I haven't closely followed your plan, but isn't this an apples to oranges comparison?

Also, don't forget that you will be paying tax on that SS from age 62.

I don't have an opinion about this, I just raise these questions.

Ha

 

[Zero]

EDITED: Ha, I made the changes to reflect the SS being taxed. I used provisional income of $30,000 for the SS tax calculation.
I Exceled a scenario of taking SS at 62 vs 70 with a goal of which pays the most. I got a surprising answer and would love to have a double-check.

Actuals from SS form:
SS est at 62 = $1568 or $18,816
SS est at 70 = $2745 or $32,940

Assumptions:
1. SS checks taken at 62 would be saved and privately annuitized at 70.
2. The income after age 70 from the private annuity would not be COLA'd.
3. SS checks taken at 62 would be COLA'd at 3% and also be invested and earn 3%.
4. SS taxed from 62 to 70.


Calculations:
Future Value of SS paid from 62 to 70 = $18,816*((((1+0.03)^8)-1)/0.03) = $167,318
Private $167,318 annuity payouts beginning at 70 for single male (immediateannuities.com) = $1,114 or $13,368
Future Value of SS check begun at 62 when age 70 is reached = $18,816*(1.03^8)=$23,836

Conclusion:
At age 70, the combination of the private annuity of $13,368 and the SS(begun at 62) of $23,836 = $37,204
At age 70, the SS (begun at 70) would be $32,940.

Amazingly, running the number out from 70 till 95 shows both plans are equal in cumulative amount and the yearly checks are higher than the SSat70 checks up until age 84.



What did I do wrong?

 

[Nords]

I did this exercise because over on Bogleheads, Rick Ferri said he was definitely taking his SS at 62. So far nobody has changed his mind.

I think the people most in favor of taking SS at 70 are the recipient's surviving spouses.

 

[Alan]

I think the people most in favor of taking SS at 70 are the recipient's surviving spouses.

Yep, this why DW plans for me taking it at 70

 

[Zero]

Good point guys, about the spouses. I can see that is a different strategy altogether.

The more I look at the analysis, it appears that a single person might want to consider this strategy now that the "Do-Over" is dead.

 

[73ss454]

DW also told me not to cash in the LI policy. (heh)

 

[Alan]

DW also told me not to cash in the LI policy. (heh)

Mine made sure I can't - it's in her name on my life

 

[Dawg52]

Good point guys, about the spouses. I can see that is a different strategy altogether.

The more I look at the analysis, it appears that a single person might want to consider this strategy now that the "Do-Over" is dead.

Thanks for all the work. Me being single, looks like a pretty good plan.

 

[haha]

EDITED: Ha, I made the changes to reflect the SS being taxed. I used provisional income of $30,000 for the SS tax calculation.
I Exceled a scenario of taking SS at 62 vs 70 with a goal of which pays the most. I got a surprising answer and would love to have a double-check.

Actuals from SS form:
SS est at 62 = $1568 or $18,816
SS est at 70 = $2745 or $32,940

Assumptions:
1. SS checks taken at 62 would be saved and privately annuitized at 70.
2. The income after age 70 from the private annuity would not be COLA'd.
3. SS checks taken at 62 would be COLA'd at 3% and also be invested and earn 3%.
4. SS taxed from 62 to 70.


Calculations:
Future Value of SS paid from 62 to 70 = $18,816*((((1+0.03)^8)-1)/0.03) = $167,318
Private $167,318 annuity payouts beginning at 70 for single male (immediateannuities.com) = $1,114 or $13,368
Future Value of SS check begun at 62 when age 70 is reached = $18,816*(1.03^8)=$23,836

Conclusion:
At age 70, the combination of the private annuity of $13,368 and the SS(begun at 62) of $23,836 = $37,204
At age 70, the SS (begun at 70) would be $32,940.

Amazingly, running the number out from 70 till 95 shows both plans are equal in cumulative amount and the yearly checks are higher than the SSat70 checks up until age 84.

Interesting work, Zero. Correct me if I am wrong- you assumed 3% after tax earnings on the saved money?

The only issue I can mention is that you choose a value for the SS cola, and in its present form the SS cola is unbounded, at least on the upside.(Not sure about downside.)

This is an issue that I think should be decided by one's goals, and predicitons for the future. Perhaps because of my age and adult householder experience of the 70s I have never wanted to own nominal interest debt longer than a few years-unless interest rates are very high and it appears that something might happen to change that.

So owning the nominal annuity would not appeal to me. However, the risk of having the government mess with SS may be at least as large as the risk of inflation quite a bit over 3%.

I realize that interst rates would very likely respond to higher inflation also, but having the larger portion with full cola would sooner or later dominate, and thus perhaps make the age 70 option a better longevity insurance policy.

Ha

 

[FIRE'd@51]

Another point to consider is whether the extra amount of SS at age 70 (~76% more than at age 62) will trigger the Medicare Parts B & D means testing. This is not all that hard to do if you are a single filer (~85K AGI), especially if you are forced to take RMD's from a traditional IRA/401k.

 

[haha]

Another point to consider is whether the extra amount of SS at age 70 (~76% more than at age 62) will trigger the Medicare Parts B & D means testing. This is not all that hard to do if you are a single filer (~85K AGI), especially if you are forced to take RMD's from a traditional IRA/401k.

Yes, but if this is true Zero's plan would be even more likely to trigger higher part B and D premiums, as his plan produces larger cash flows for a long time, given his parameters.

Ha

 

[Zero]

Thanks for all the work. Me being single, looks like a pretty good plan.

I am going to hammer on this spreadsheet till it looks nice and smooth and see if this plan holds water. Meanwhile, I think it could lead to more meds for me in the future, and that's a good thing.

 

[FIRE'd@51]

Yes, but if this is true Zero's plan would be even more likely to trigger higher part B and D premiums, as his plan produces larger cash flows for a long time, given his parameters.

Not obvious. As I understand it, the private annuity in Zero's example would not be qualified (i.e. it would be purchased with after tax $) and therefore only a portion of the annuity payment would be taxable with the rest being considered return of principle (which would not be included in AGI).

 

[Zero]

Another point to consider is whether the extra amount of SS at age 70 (~76% more than at age 62) will trigger the Medicare Parts B & D means testing. This is not all that hard to do if you are a single filer (~85K AGI), especially if you are forced to take RMD's from a traditional IRA/401k.

Yes, but if this is true Zero's plan would be even more likely to trigger higher part B and D premiums, as his plan produces larger cash flows for a long time, given his parameters.

Ha

Exactly! And I certainly have to consider whether this "annuitizing" of the the 62-70 SS earnings is the best move for tax, Medicare, etc.

But for a simple comparison of a single person's maximization of SS, the approach I'm outlining seems to have some merit to it.

At least on a first pass.