Taking Social Security early vs. not

[rayvt]

Learn the difference between arithmetic average and median. People use sloppy terminology all the time, saying "average" when they are actually talking about "median".

Averaging is meaningless, as you pointed out.
The median age is what is used in talking about mortality statistics.

This: Actuarial Life Table is what should be looked at when we are discussing mortality & longevity.

Look at the rows for age 66 and age 82. For every 78,351 males that are 66, only 41,683 will still be alive at 82. IOW, 53% will make it to 82 and 47% won't. That's about 50/50. On the age 66 row, we see the Life Epectancy of a 62 year old male is a little over 16 years. 66 + 16 = 82.

Life expectancy at age X is defined as the number of years it takes for the number of people who are still alive to be half the original number.

So... a 62 YO male has a 50/50 chance to make it to 81.
A 70 YO has a 50/50 chance to make it to 84.
An 80 YO has a 50/50 chance to make it to 88.

Now, we are worried that me might be one of the unlucky (?) 53% and live past 82 and don't want to risk running out of money.
So we could define an "optimistic life expectancy" as 25% chance of still being alive.
Age 62 = 83,217 50% of that is 41608. Closest row to that is 82 with 41,683 survivors. This is the normal 50/50 L.E.

Age 62 = 83,217 25% of that is 20804. Closest row to that is 88 with 21,785 survivors. This is the optimistic 25/75 L.E.

Marine Corps method. "Look at the man on your left, look at the man on your right. When it's all done, only one you will still be here."

Age 62 = 83,217 33% of that is 27739. Closest row to that is 86 with 28,341 survivors. This is the "marine" 33/67 L.E.

Let's go crazy. What's the stats for 62 year olds making it to 90?
Age 62 = 83,217 Age 90 = 15,722. That's 19%.

For your poker table club of 5 guys of 62 years old, only 1 will make it to 90. The other 4 will be gone.

 

[youbet]

Sorry if I confused things with that statement.

-ERD50

Oh, no problem. I was just trying to understand what you folks were doing with all that high powered calculating........

But...... Ehhhh...... One other thing.....

In all this arm wrestling over when to start SS, the case for waiting until 70 yo is frequently given as the choice "to provide longevity insurance." I go along with that. And, apriori, before you know how things work out for you, your life span and your investments over time, waiting until 70 would be my choice (if I had a DW who qualified for spousal benefits).

But looking back later it may turn out that starting at 62 would have done better in terms of giving you or your survivor more money in old age.

1. If your investments did very well over the 8 years you were collecting between 62 and 70, you might have enough to more than offset the higher SS that waiting until 70 brings. Say you used your early SS bux to buy AAPL every month for 8 years while AAPL it was moving up to $700+.

2. If the person you're interested in providing the longevity insurance for isn't yourself or your spouse, you might be better off starting SS early and investing the money. This person might be a friend, child, sibling, life partner, faithful poodle, spouse impacted by GPO, etc. If you predecease them, they wouldn't qualify for spousal benefits but your portfolio would be larger by the amount of early SS you collected and the associated earnings.

#1 above sounds a bit far-fetched. But I started dollar cost averaging early SS into VTI in 2010 and so far, so good!

 

[GolfingDuo]

Nobody expects the spanish inquisition

Remeber only one person got out of here alive and that is still under contention.

 

[RetiringAt55]

For your poker table club of 5 guys of 62 years old, only 1 will make it to 90. The other 4 will be gone.

What about the wives of the men sitting around at that poker table? This is the key thing everyone keeps forgetting in their calculations. When calculating the benefit of delaying SS, you have to remember the survivor benefit. If you add in their possible wives, you would have two or three people still drawing SS. This is why you have to think about this decision more seriously if you are married, especially with a younger wife whose benefit may be lower.

 

[gerrym51]

What about the wives of the men sitting around at that poker table? This is the key thing everyone keeps forgetting in their calculations. When calculating the benefit of delaying SS, you have to remember the survivor benefit. If you add in their possible wives, you would have two or three people still drawing SS. This is why you have to think about this decision more seriously if you are married, especially with a younger wife whose benefit may be lower.

my wifes 5 years older than me

 

[RetiringAt55]

my wifes 5 years older than me

Well she will still probably outlive you.

 

[Stanley]

Say 10 people are born and live their lives. 9 die at 1 year old and 1 dies at 10 years old. 19/10 = 1.9 average age at death. In this case, half did not live longer than average age at death. Only 1 did. This doesn't seem to follow the definition you gave that says half live longer than average. What am I doing wrong?

First, the half-way point is marked by the median not the mean (average).

Think of it this way. Nine regular guys are in a bar, Bill Gates walks in and joins them in a beer. The average net-worth of the guys at the bar is three BILLION dollars.

 

[gerrym51]

First, the half-way point is marked by the median not the mean (average).

Think of it this way. Nine regular guys are in a bar, Bill Gates walks in and joins them in a beer. The average net-worth of the guys at the bar is three BILLION dollars.

i wish i thought of that analogy

 

[Stanley]

What about the wives of the men sitting around at that poker table? This is the key thing everyone keeps forgetting in their calculations.

Hmm... Not everyone. About 25% of men in the 65-74 age range are single. Women? About 44% in the same age range are single.

At 75 and above about 56% of men are still married but only 38% of the women are still married. So your point that the ladies need to me accounted for is a good one.

Ladies, if you have a good man, hang on to him and keep him healthy.

 

[youbet]

First, the half-way point is marked by the median not the mean (average).

Think of it this way. Nine regular guys are in a bar, Bill Gates walks in and joins them in a beer. The average net-worth of the guys at the bar is three BILLION dollars.

I'm disappointed you didn't pick up on the sarcasm intended in my post. The intended recipient, ERD50, did as we have been posting back and forth for years and are more sensitive to the nuiances of different ways of saying things to each other.

Anyway, congrats on your knowledge and understanding of the measures of central tendency.

And the Bill Gates analogy is excellent!

 

[Chuckanut]

Here is an article by Dr. Pfau on taking SS at 62 and 70. He assumes a person has one million dollars in assets and spends $60,000 a year inflation adjusted. The person who takes SS at 62 supplements his social security dollars from his assets. The person who takes SS at age 70, also buys an 8 year SPIA (about $173,000 cost) to fill the gap caused by not taking SS. At age 70 the SPIA ends and SS takes over.

Retirement Researcher Blog: Claiming Social Security at 62 or 70

He concludes that the age 70 SS + SPIA provides more security and less chance of depleting assets early. It may also affect the size of an estate one leaves, but this seems less clear to me.

 

[daylatedollarshort]

He concludes that the age 70 SS + SPIA provides more security and less chance of depleting assets early. It also provides more of an estate for one's heirs if one dies at a ripe old age.

Would it leave less of an estate if you died at 62 or 69?

Also he didn't consider taxes, health care subsidies, other income sources or changes to Social Security, which seems likely. In the real world these can make more of a difference than break even points.

 

[Chuckanut]

Would it leave less of an estate if you died at 69?

Upon rereading the article I am not certain my first interpretation was correct. It is unclear to me how these two plans may affect any bequest to ones heirs.

 

[Animorph]

Taking early was good for heirs if you died early. Taking late was better for heirs if you died later.

Notice that the annuity had a 1% rate of return? One of the comments suggested you could just save the cash instead of buy the annuity.

 

[daylatedollarshort]

I know from my spreadsheets if we both delay SS and die before we collect it that minimizes what is left for our heirs. I would also think dying right after buying an annuity would not work our to great for maximizing inheritances either. Plus annuities have more risk than an alternative investment like just putting the money in TIPS or CDs. TIPS would be inflation adjusted while the annuity would not be.

 

[bUU]

If you judge each option solely by its worst cases, without regard to the probabilities of each of the cases and their respective rewards and costs, then you'll sub-optimize your situation.

 

[Texas Proud]

If you judge each option solely by its worst cases, without regard to the probabilities of each of the cases and their respective rewards and costs, then you'll sub-optimize your situation.

+1 on this....


When you make any financial decision, you have to weigh the various cases and then make it... once made, it is not that productive to second guess yourself as the deed has been done...

The only reason I would buy a SPIA is that my DW is not at all financial astute... having a regular check is something that I think would be important.... for me, I think I can always do better on my own....

 

[gerntz]

Well, it's now too late for us to take SS early.

 

[Beryl]

The only reason I would buy a SPIA is that my DW is not at all financial astute... having a regular check is something that I think would be important.... for me, I think I can always do better on my own....

Good idea, IMO. I have a problem with SPIAs except in this case.