SS break even formula?

[Ready]

Quote:

Originally Posted by Dave J Since he is single, no kids, does he really need it?

Well, my Dad is in a nursing home now due to dementia. We have him in a home that he can afford, but it's certainly no place I would want to spend my last few years on earth. As much as I want to die spending every last dollar I earned, the one thing that holds me back is the reminder that I never want to go anywhere near a dreaded nursing home if I can't take care of myself. But bringing people to care for you into your home can be quite expensive. LTC helps, but if you don't have it, I would just want to know that I have enough to live somewhere that isn't the worst case, miserable nursing facility that people go to when they are broke. I'd rather have the extra SS money in ten years and know that I could use it to avoid the worse case scenario.

[springnr]

Quote:

Originally Posted by kaneohe Does this make sense? If you are drawing extra funds at 62, isn't 62 ahead until at least 70 when the other guy finally starts drawing SS? Perhaps you meant 78 instead of 68?

;.) dyslexic much? Nope not me, meant to type "86" not "68"

Good catch. (I fixed my original post)

[walkinwood]

I would have a professional look over this - lawyer or CPA - so that you have someone with your interests foremost explaining it to you.

[Dave J]

Quote:

Originally Posted by brownred I owe $20,000 on my home, scheduled to be paid off July 2016. I was working on my living costs but that got out of wack due to a water pipe breaking in my house a month ago and spending money I normally wouldn't. I am not a big spender. I'm assuming your situation is different because you have more money? Correct?

I'm married with a son and Grandkids. Wife worked until 52 +/- . Health Ins. from wife's retirement. Very frugal family. Debt free for a long time.Somewhat more assets, less pension. Until you say what your normal annual spending is, I can't say retire or not.

[Dave J]

Quote:

Originally Posted by Ready Well, my Dad is in a nursing home now due to dementia. We have him in a home that he can afford, but it's certainly no place I would want to spend my last few years on earth. As much as I want to die spending every last dollar I earned, the one thing that holds me back is the reminder that I never want to go anywhere near a dreaded nursing home if I can't take care of myself. But bringing people to care for you into your home can be quite expensive. LTC helps, but if you don't have it, I would just want to know that I have enough to live somewhere that isn't the worst case, miserable nursing facility that people go to when they are broke. I'd rather have the extra SS money in ten years and know that I could use it to avoid the worse case scenario.

We live in a rural area of the Midwest, my MIL is in a nursing home. All the nursing homes in our area accept Medicaid and the rooms and care are the same, for private pay vs: Medicaid. I have yet to see a nursing home I would want to be in. Since he is single no kids, I don't see an upside for him due to high premiums. Just my opinion. YMMV.

[daylatedollarshort]

If we are working at 62, we'll probably delay SS otherwise I'm going to take the money and run.

My LTC plan is a combination of proper Medicaid planning, simple living in retirement and trying not to run down the portfolio, leaving adequate reserves in our retirement plan for LTC with death at any age, possibly becoming an ex-pat, and covering undergrad and grad school for the kids. (I am not expecting our kids to support us in our old age, but we are trying to give them every opportunity we can to get ahead and be financially self sufficient as adults.)

I think the most logical option for us in regards to LTC and longevity insurance is simply not staying in the U.S. for retirement where health care costs are many times over the rest of the world and LTC costs seem to be double most other developed countries. I believe that leaves us with a short list of every other country on the planet to choose from. Or at least the ones that welcome self supporting retirees, which still seems to leave us with a long list of potential retirement spots.

[BBQ-Nut]

I haven't seen any discussion on the 'overall' impact of taking SS early or deferring considering other assets an ER candidate has.

In my situation, I have taxable, tax deferred and tax free assets.

If I retire early, then I will need to draw on these assets in phases.

By electing to draw SS early at 62 I reduce the 'drain' on these assets - and depending on how I 'run the numbers' with different real returns (after accounting for inflation), I end up with more at 'end game' (death) than if I defer SS to 70.

The differences can be an overall portfolio that remains constant or one that is substantially bigger if I assume say a 'real return' on investments of 3% per year.

[Dave J]

Quote:

Originally Posted by BBQ-Nut I haven't seen any discussion on the 'overall' impact of taking SS early or deferring considering other assets an ER candidate has. In my situation, I have taxable, tax deferred and tax free assets. If I retire early, then I will need to draw on these assets in phases. By electing to draw SS early at 62 I reduce the 'drain' on these assets - and depending on how I 'run the numbers' with different real returns (after accounting for inflation), I end up with more at 'end game' (death) than if I defer SS to 70. The differences can be an overall portfolio that remains constant or one that is substantially bigger if I assume say a 'real return' on investments of 3% per year.

I'm kind of in the same boat you are with a mix of assets. I'll be 62 this year. Previously, I was sure I would draw at 70 and my SO would draw at 66 or 70.Partly due to this thread and some other info., I have changed my plan to both of us starting at 62. I've been working on this for several days and ran a boatload of scenarios, and I'll have more dollars every year up to between 84 and 88. At 70, I'm ahead 235k, at 75 190k, at 80 119k and 85 24k.The amounts going forward from mid 80's up were not that much (at 90 would be ahead 102k waiting until 70).I tried to take into account inflation, COLA's, taxes and assets.
I was sure before I was on the correct tract, but my figures have proven my earlier assumptions were not correct in my situation. Others very well may have a different outcome. My assets are about equal in after tax dollars, Roth dollars and tax-deferred dollars(IRA and I-Bonds)

[JerryinPA]

Don't forget to include health insurance costs in your calculations if your employer is paying them now, but you intend to buy private health insurance after retirement....

I had a quote from a local insurer for myself that ranged around the $400 per month, or $9600 per year figure.

This factor is primarily what is keeping me working at my age of 62 1/2. That, and my wife won't allow me to retire!

Regards,

Jerry.

[Dave J]

Quote:

Originally Posted by JerryinPA Don't forget to include health insurance costs in your calculations if your employer is paying them now, but you intend to buy private health insurance after retirement.... I had a quote from a local insurer for myself that ranged around the $400 per month, or $9600 per year figure. Regards, Jerry.

For me, already retired and insurance from wife's former employer.
My figures are when to start SS, not weather to retire early or not.

Also, please clarify your quote. $400 month is not $9600, unless 400 EACH.

[InParadise]

Quote:

Originally Posted by brownred Hello, I am having difficulty figuring out the SS break even point. Can someone post the simple formula? Example: Say I would get $800 a month now. If I wait 7 years I would get $1800 a month. What would be the break even point or how many years would I break even. Can you please show how you figured it too? Thanks.

Are you married? Because that can make the scenarios much more complicated if you have to consider two SS payments and spousal benefits.

Our FP ran 5 different scenarios. The one we have decided on brings in the most money over our projected lifetimes, and has a wonderful insurance policy built in. DH's SS payout is way bigger than mine. He is 4 years older than I and more likely to die first. It is quite involved:

Scenario Five

• Wife files for retirement benefits to begin at age 62 + 1 month (first month she is age 62 for entire month) - $628
• Husband files a restricted application for "spouse only" benefits at age 66 + 10 months - $446
• Husband files for retirement benefits to begin at age 70 - $3,288 His "spouse only" benefit stops.
• Wife files for additional spouse benefits to begin when her husband files for retirement benefits - $374
• Wife's survivor benefit - $3,288 This benefit includes her retirement benefit and her spouse benefit stops.

Insurance: Prior to age 70, the person can request all or some of the benefits previously suspended to be paid if they change their mind about delaying benefits. The request to receive benefits previously suspended must be made before benefits are started by Social Security automatically at age 70. The delayed retirement credits earned and the benefit amount would be adjusted downward if benefits previously suspended were paid. This would also reduce the survivor benefit payable to the spouse. The request to reinstate benefits must be made in the person's lifetime. Therefore, an unexpected death could result in the loss of benefits.

I thought the built in insurance kinda cool, a buffer if you will to insure that you won't be harmed by holding out for more at 70. If the person who suspended the benefit dies before you can reverse suspension, then you would go without those benefits they could have earned in their lifetime.

Spousal benefit does not get bigger by waiting til age 70...it is based on what the other spouse would have received at FRA.

[Dave J]

Quote:

Originally Posted by InParadise Are you married? Because that can make the scenarios much more complicated if you have to consider two SS payments and spousal benefits. Our FP ran 5 different scenarios. The one we have decided on brings in the most money over our projected lifetimes, and has a wonderful insurance policy built in. DH's SS payout is way bigger than mine. He is 4 years older than I and more likely to die first. It is quite involved: Scenario Five Wife files for retirement benefits to begin at age 62 + 1 month (first month she is age 62 for entire month) - $628 Husband files a restricted application for "spouse only" benefits at age 66 + 10 months - $446 Husband files for retirement benefits to begin at age 70 - $3,288 His "spouse only" benefit stops. Wife files for additional spouse benefits to begin when her husband files for retirement benefits - $374 Wife's survivor benefit - $3,288 This benefit includes her retirement benefit and her spouse benefit stops. Insurance: Prior to age 70, the person can request all or some of the benefits previously suspended to be paid if they change their mind about delaying benefits. The request to receive benefits previously suspended must be made before benefits are started by Social Security automatically at age 70. The delayed retirement credits earned and the benefit amount would be adjusted downward if benefits previously suspended were paid. This would also reduce the survivor benefit payable to the spouse. The request to reinstate benefits must be made in the person's lifetime. Therefore, an unexpected death could result in the loss of benefits. I thought the built in insurance kinda cool, a buffer if you will to insure that you won't be harmed by holding out for more at 70. If the person who suspended the benefit dies before you can reverse suspension, then you would go without those benefits they could have earned in their lifetime. Spousal benefit does not get bigger by waiting til age 70...it is based on what the other spouse would have received at FRA.

Have you plugged your numbers into this calculator?
Social Security calculator: retirement planning for you and spouse.


I was going to do the exact as your plan 5 above until I crunched the numbers. It takes into consideration the time value of the money gained in the early(62) Social Security. It may not be as advantages to you due to your kinda low 62 number for yourself, but it sure made a difference in ours.

[InParadise]

Quote:

Originally Posted by Dave J Have you plugged your numbers into this calculator? Social Security calculator: retirement planning for you and spouse. I was going to do the exact as your plan 5 above until I crunched the numbers. It takes into consideration the time value of the money gained in the early(62) Social Security. It may not be as advantages to you due to your kinda low 62 number for yourself, but it sure made a difference in ours.

Thanks for the link. I've bookmarked it for future use.

One problem I see with the calculator is the seeming inability to change life expectancy. I certainly don't envision either of us living to 100, and suspect DH will live less long than I. This is one reason we are looking at maxing out survivor benefit for me.

I ran the calculator assuming 7% ROA. We have done substantially better than that, but since I was bumping it up from the assumed 4%, I was hesitant to bump it up further. This return would indicate it is better for DH to retire at 62 and me at FRA!

Will need to look also at DH's pensions. I know that one of them does back out from your pension what you collect in SS, which I guess would reinforce DH taking the lower SS at 62 since less would then be backed out while we kept our money making money.

Gotta love the internet! Thanks so much.

[InParadise]

Quote:

Originally Posted by InParadise Thanks for the link. I've bookmarked it for future use. One problem I see with the calculator is the seeming inability to change life expectancy. I certainly don't envision either of us living to 100, and suspect DH will live less long than I. This is one reason we are looking at maxing out survivor benefit for me.

Actually the nifty side by side comparison chart shows year by year projections, but still not sure how my lower survivor benefit would impact things if DH dies well before me.

[Dave J]

Quote:

Originally Posted by InParadise Thanks for the link. I've bookmarked it for future use. One problem I see with the calculator is the seeming inability to change life expectancy. I certainly don't envision either of us living to 100, and suspect DH will live less long than I. This is one reason we are looking at maxing out survivor benefit for me.

If you click on the links on the two you are comparing, It gives you a year by year value.(Accum. real cash flow) I picked these numbers from both scenarios, then found the difference at different ages of my untimely demise. I then compared what my SO would get as a survivor then manually calculated how long to break even and then go ahead. I compared 65,70,75,80,85. For us, the 62...62 one worked out best. until 84 to 87 years old for SO.
YMMV.

[ejman]

One feature I find interesting in all of the break even calculations I've seen is that the present payment schedule is assumed to last forever. This is a quote from the SS trustee reports for 2013:

"While the combined OASDI program fails the long-range test of close actuarial balance, it does satisfy the test for short-range (ten-year) financial adequacy. The Trustees project that the combined trust fund asset reserves at the beginning of each year will exceed that year’s projected cost through 2027."

So if nothing changes, there will be a benefit reduction starting in 2028 which is 14 years from now. Sorry but I'd rather not burn up my assets expecting the large payoff at the end starting at age 70. Trustees Report Summary

Note that the shortage year has been creeping closer and closer. It used to be 2035, then 2033, now 2028.

[W2R]

Quote:

Originally Posted by ejman One feature I find interesting in all of the break even calculations I've seen is that the present payment schedule is assumed to last forever. This is a quote from the SS trustee reports for 2013: "While the combined OASDI program fails the long-range test of close actuarial balance, it does satisfy the test for short-range (ten-year) financial adequacy. The Trustees project that the combined trust fund asset reserves at the beginning of each year will exceed that year’s projected cost through 2027." So if nothing changes, there will be a benefit reduction starting in 2028 which is 14 years from now. Sorry but I'd rather not burn up my assets expecting the large payoff at the end starting at age 70. Trustees Report Summary Note that the shortage year has been creeping closer and closer. It used to be 2035, then 2033, now 2028.

This worries me too. How are we supposed to know when to claim our benefits, when we don't have the information we need? Gee. Chances are pretty good that I will be alive and kicking long after 2028.

[JustCurious]

Quote:

Originally Posted by ejman One feature I find interesting in all of the break even calculations I've seen is that the present payment schedule is assumed to last forever. This is a quote from the SS trustee reports for 2013: "While the combined OASDI program fails the long-range test of close actuarial balance, it does satisfy the test for short-range (ten-year) financial adequacy. The Trustees project that the combined trust fund asset reserves at the beginning of each year will exceed that year’s projected cost through 2027." So if nothing changes, there will be a benefit reduction starting in 2028 which is 14 years from now. Sorry but I'd rather not burn up my assets expecting the large payoff at the end starting at age 70. Trustees Report Summary Note that the shortage year has been creeping closer and closer. It used to be 2035, then 2033, now 2028.

Actually, the "shortage year" as you call it is still 2035 for retirement benefits, unchanged from last year. You are misinterpreting the report and taking that quote out of context. The language that you quoted does not say that the trust fund will be depleted in 2027, or that benefits will be reduced starting in 2028. Rather, the report says that using current intermediate assumptions, the combined OASDI social security trust funds will not be depleted until 2033. Also, if you break down OAS (old age survivor benefits) from DI (disability insurance benefits), you will see that the trust fund has enough to pay retirement benefits at current levels until 2035. See the following quote from the executive summary of the report...

"Long-Range Results

The Trustees project that annual OASDI cost will exceed non-interest income throughout the long-range period under the intermediate assumptions. The dollar level of the combined trust fund reserves declines beginning in 2021 until reserves are depleted in 2033. Considered separately, the DI Trust Fund reserves become depleted in 2016 and the OASI Trust Fund reserves become depleted in 2035. The projected reserve depletion years are unchanged from last year’s report."

OVERVIEW

So even based on current intermediate assumptions, with no changes in the law, retirement benefits (not disability benefits) will not be reduced until 2035, some 21 years from now.

[W2R]

Quote:

Originally Posted by JustCurious So even based on current intermediate assumptions, with no changes in the law, retirement benefits (not disability benefits) will not be reduced until 2035, some 21 years from now.

Thanks. That's a lot better, for me anyway, because if I am still living in 2035 I will be 87 years old with not too many years left to fund.

[Dave J]

Quote:

Originally Posted by JustCurious OVERVIEW So even based on current intermediate assumptions, with no changes in the law, retirement benefits (not disability benefits) will not be reduced until 2035, some 21 years from now.

And if they keep spending like the last decade, all bets are off.