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The old Social Security break even dilemma
Old 02-02-2020, 10:56 AM   #1
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The old Social Security break even dilemma

Social Security break even has been batted around on this board to the nth degree.

But I needed to make my own spreadsheet to digest my latest thought. DW is taking SS this July at FRA. My initial plan was to take mine at FRA next October. But why should I wait longer than DW to take ss? I decided that I want to start taking it at 65 instead of at 66 yrs 2 mo.

My thought is this - I don't have a pension. I'm living off investment income. Taking SS will decrease my portfolio withdrawal, so in theory an amount equal to SS in my portfolio will be allowed to stay in the portfolio and grow as opposed to being withdrawn.

So I ran the numbers based on various scenarios depending on estimated future rate of return on my portfolio. Based on the estimated rate of return and estimated spending, I was able to compare the monthly difference in estimated future portfolio value based on taking SS at 65 and at 66 yrs 2 mo.

And this provided the break even point at which taking at 66/2 starts yielding a larger portfolio value than the taking at 65 option.

At a 2% return, the break even point is in 12 yrs, 1 mo at age 76 - 8 mos
At a 3% return, the break even point is in 12 yrs, 10 mo at age 77 - 4 mos
At a 4% return, the break even point is in 13 yrs, 8 mo at age 78 - 2 mos
At a 5% return, the break even point is in 14 yrs, 9 mo at age 79 - 3 mos
At a 6% return, the break even point is in 16 yrs, 1 mo at age 80 - 7 mos

I compounded the rate of return monthly in my spreadsheet. I did not take tax implications into my model.

I don't know how the online calculators calculate break even, but the ability to reduce portfolio withdrawals creates more of an incentive to take ss earlier than what I expected. And it seems like there would be more of an incentive to take ss early for non-pension people than for those who live off pensions.

And of course there are a lot more variables that can go into this depending on each person's situation. But I'm comfortable enough with my break even findings to take SS 1 yr 2mos earlier than FRA.
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Old 02-02-2020, 11:17 AM   #2
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What do you figure your odds are at living past any of those breakeven ages? If I've got a reasonable chance of surpassing the breakeven age I'm going to delay and take the longevity insurance. I'm thinking a "reasonable chance" is about 20%.
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Old 02-02-2020, 11:19 AM   #3
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I'm comfortable enough with my break even findings to take SS 1 yr 2mos earlier than FRA.
Which is the only thing that really matters, isn't it?
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Old 02-02-2020, 11:22 AM   #4
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the ability to reduce portfolio withdrawals creates more of an incentive to take ss earlier than what I expected. And it seems like there would be more of an incentive to take ss early for non-pension people than for those who live off pensions.
We will have my wife's pension, but we still need to figure out the best time to take SS. Waiting longer to take SS increases the benefits we receive, but it means spending more of our portfolio. I use the Flexible Retirement Planner and added entries for the benefits we would each receive at 62, 63, 64, etc. Then I try selecting different combinations and see which results in the best overall success rate in our retirement plan. For now, the best outcome seems to be if each of us take SS at 65, though due to our different ages means she will start five years later than me.

That said, as our portfolio grows, it seems the best time to take SS changes. Just a year or two ago the best option was for both of us to start SS at 62. So, I will probably keep reevaluating until we actually start SS.
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Old 02-02-2020, 11:32 AM   #5
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And how will you include the possibility that benefits are cut before your break even date?

My belief, whether we are talking about pensions, or Social Security, or any other benefit or entitlement is that a bird in hand...

You take the payments now/sooner, you know that what you have collected is yours and won't be taken away. Considering the way things evolve over time, the corruptness everywhere you look these days, the way government operates, personally, I want what's mine, and I want it as soon as I can get my hands on it. Will it ultimately turn out to be the most financially correct decision? Will I collect less in total than I may have? Who really knows until we are able to look at history in the rear view mirror maybe 20 or 30 years from now? At any time along the way, you/I could get hit by a bus, develop cancer, or so many other unanticipated bad things could potentially happen and all the money is ultimately left on the table. Of course nobody expects or really wants to think about such things considering that each individually has a generally low risk of happening. However, adding up everything that could possibly go bad - I don't believe the answer is always so cut and dry.

So again, at the end of the day - give me what's mine now and let the chips fall where they may. 20 or 30 years from now I'm certainly not going to be reconsidering if my retirement/life would have been so much better if I had delayed taking Social Security, pension, or any other deferred benefit I may have coming to me.
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Old 02-02-2020, 11:41 AM   #6
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give me what's mine now and let the chips fall where they may. 20 or 30 years from now I'm certainly not going to be reconsidering if my retirement/life would have been so much better if I had delayed taking Social Security, pension, or any other deferred benefit I may have coming to me.
I'm certainly not going to live in fear of what "might" happen. Our pension fund could fall apart. The stock market could tank leaving us with little to no savings. Social Security could be dismantled. Taxes could skyrocket. All I can do is plan for "known" factors (such as SS benefit reductions in 2034) and figure out which would give us the best overall outcome. I don't care if we didn't get the maximum amount we could have from SS. And I'm not interested in amassing a huge portfolio. I just want our retired life to be as stable and worry free as it can be.
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Old 02-02-2020, 11:44 AM   #7
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If you both do not die simultaneously, then one of you will have to live on the higher SSA benefit. Would delaying longer, even to age 70, make that a more comfortable situation?

If SSA is not a significant portion of your retirement spending plan, it may not matter.
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Old 02-02-2020, 12:11 PM   #8
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Originally Posted by Ronstar View Post
Social Security break even has been batted around on this board to the nth degree.

But I needed to make my own spreadsheet to digest my latest thought. DW is taking SS this July at FRA. My initial plan was to take mine at FRA next October. But why should I wait longer than DW to take ss? I decided that I want to start taking it at 65 instead of at 66 yrs 2 mo.

My thought is this - I don't have a pension. I'm living off investment income. Taking SS will decrease my portfolio withdrawal, so in theory an amount equal to SS in my portfolio will be allowed to stay in the portfolio and grow as opposed to being withdrawn.

So I ran the numbers based on various scenarios depending on estimated future rate of return on my portfolio. Based on the estimated rate of return and estimated spending, I was able to compare the monthly difference in estimated future portfolio value based on taking SS at 65 and at 66 yrs 2 mo.

And this provided the break even point at which taking at 66/2 starts yielding a larger portfolio value than the taking at 65 option.

At a 2% return, the break even point is in 12 yrs, 1 mo at age 76 - 8 mos
At a 3% return, the break even point is in 12 yrs, 10 mo at age 77 - 4 mos
At a 4% return, the break even point is in 13 yrs, 8 mo at age 78 - 2 mos
At a 5% return, the break even point is in 14 yrs, 9 mo at age 79 - 3 mos
At a 6% return, the break even point is in 16 yrs, 1 mo at age 80 - 7 mos

I compounded the rate of return monthly in my spreadsheet. I did not take tax implications into my model.

I don't know how the online calculators calculate break even, but the ability to reduce portfolio withdrawals creates more of an incentive to take ss earlier than what I expected. And it seems like there would be more of an incentive to take ss early for non-pension people than for those who live off pensions.

And of course there are a lot more variables that can go into this depending on each person's situation. But I'm comfortable enough with my break even findings to take SS 1 yr 2mos earlier than FRA.
This is interesting.
I suppose if you were younger, you could apply this same calculation to decide if taking SS at 62 would be best.

Issues to consider:
  1. Taking it earlier, will mean less room for Roth conversions, so a higher RMD which is a problem for folks with substantial IRA's. The higher tax paid would extend the breakeven point a small amount.
  2. If you are the higher wage (higher SS) person, then this cuts down the longevity factor a couple enjoy, where one of the two will live longer than both, most likely passing the breakeven point by a wide margin.
  3. If you are age 64, then the 2015 SS actuarial table says life expectancy for a male would be to age 82.65 which is past the break even point for 6% return.
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Old 02-02-2020, 12:17 PM   #9
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I'm certainly not going to live in fear of what "might" happen. Our pension fund could fall apart. The stock market could tank leaving us with little to no savings. Social Security could be dismantled. Taxes could skyrocket. All I can do is plan for "known" factors (such as SS benefit reductions in 2034) and figure out which would give us the best overall outcome.
It's not living in fear at all. I look at it in the same light as life insurance. Do you purchase life insurance out of fear? Of course not, you purchase it for what might happen.

Quote:
I don't care if we didn't get the maximum amount we could have from SS.
But isn't that exactly why anyone delays taking Social Security? To get more? Why else? It's just a gamble that you live past the break even point, with what we know today. Simple as that. As with investing, you have an investment objective and some level of risk tolerance. Some will take more risk, others less.
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Old 02-02-2020, 12:21 PM   #10
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Here are my musings on the topic. In summary, I don't think the break even point is what we should be looking at when deciding on when to take SS. The total number of dollars you get from SS before you die, is not terribly important compared with the value of those dollars to you, at that time. Merely looking at the total dollars is a huge mistake, IMO, that many of us make. Timing is crucial.

For example, if taking SS at 62 means the difference between someone retiring comfortably at 62, or not retiring until years later, then I think that SS should be taken at 62 no matter what the total number of dollars received by the time that person croaks.

Also, I think dollars have greater value to someone who is nearly broke, than to someone who is well to do. Right now, $1,000 would mean about nothing to me but when I was 20 and broke, I would have nearly sold my soul for $1,000.
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Old 02-02-2020, 12:27 PM   #11
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This is interesting.
I suppose if you were younger, you could apply this same calculation to decide if taking SS at 62 would be best.

Issues to consider:
  1. Taking it earlier, will mean less room for Roth conversions, so a higher RMD which is a problem for folks with substantial IRA's. The higher tax paid would extend the breakeven point a small amount.

This is my position, I want to do as much in Roth Conversions while staying in the 12% bracket, before I add SS payments to my income.
I have 79 year old friend that is stuck with a lot of RMD income putting him up around the 24% bracket.
He says he tries to make the best of it by saying ,"I get to keep 76% of my money" :-)
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Old 02-02-2020, 01:22 PM   #12
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Originally Posted by Ronstar View Post
Social Security break even has been batted around on this board to the nth degree.



But I needed to make my own spreadsheet to digest my latest thought. DW is taking SS this July at FRA. My initial plan was to take mine at FRA next October. But why should I wait longer than DW to take ss? I decided that I want to start taking it at 65 instead of at 66 yrs 2 mo.



My thought is this - I don't have a pension. I'm living off investment income. Taking SS will decrease my portfolio withdrawal, so in theory an amount equal to SS in my portfolio will be allowed to stay in the portfolio and grow as opposed to being withdrawn.



So I ran the numbers based on various scenarios depending on estimated future rate of return on my portfolio. Based on the estimated rate of return and estimated spending, I was able to compare the monthly difference in estimated future portfolio value based on taking SS at 65 and at 66 yrs 2 mo.



And this provided the break even point at which taking at 66/2 starts yielding a larger portfolio value than the taking at 65 option.



At a 2% return, the break even point is in 12 yrs, 1 mo at age 76 - 8 mos

At a 3% return, the break even point is in 12 yrs, 10 mo at age 77 - 4 mos

At a 4% return, the break even point is in 13 yrs, 8 mo at age 78 - 2 mos

At a 5% return, the break even point is in 14 yrs, 9 mo at age 79 - 3 mos

At a 6% return, the break even point is in 16 yrs, 1 mo at age 80 - 7 mos



I compounded the rate of return monthly in my spreadsheet. I did not take tax implications into my model.



I don't know how the online calculators calculate break even, but the ability to reduce portfolio withdrawals creates more of an incentive to take ss earlier than what I expected. And it seems like there would be more of an incentive to take ss early for non-pension people than for those who live off pensions.



And of course there are a lot more variables that can go into this depending on each person's situation. But I'm comfortable enough with my break even findings to take SS 1 yr 2mos earlier than FRA.
One thing I didn't notice in your evaluation, or maybe I missed it. But upon your passing did you calculate the additional break even for your wife as she would then collect your benefit after you pass. I get what you are trying to do and each person has to make decision based on their data points.
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Old 02-02-2020, 01:23 PM   #13
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OP, have you run your situation through opensocialsecurity.com? Check the Advanced Options box at the top of the page. I use the 2017 CSO Nonsmoker Preferred mortality and a 3.3% real discount rate (I don't agree with Piper that the TIPs rate should be used because if I delay SS the money will come from my 65/35 retirement portfolio).

In addition to the tool's optimal solution, I test alternative claiming strategies of 1) both taking SS now, 2) both at 65, 3) both at FRA and 4)DW at FRA, me at 70. The expected present values that the tool returns are the amounts you are due for SS based on the data that you provide times the probability of your being alive to receive them (aka expected value), and then all present valued to today at the discount rate that you provide.

For us, the expected present values are not all that different.

 No haircutHaircut
Optimal solution100.0%100.0%
Both now97.8%98.9%
Both 6599.0%99.7%
Both at FRA98.7%96.3%
Me 70/DW FRA99.2%99.2%

We plan the Me 70/DW FRA alternative because it gives us much more headroom to do low tax cost Roth conversions and my thinking is that the benefit of those Roth conversions exceed the 0.8% that we are leaving on the table compared to the optimal solution.

Since moneis fungible and we have plenty, I don't subscribe to the "take it early so you can have more fun earlier and reduce withdrawals from my nestegg" camp because we wouldn't spend any divverently if we were collecting SS and the discounting takes the second factor into account.... so I think that reasoning is silly.
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Old 02-02-2020, 01:45 PM   #14
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OP, have you run your situation through opensocialsecurity.com?
Yes - I've run a variety of ways through that calculator. I need to revisit it. But I'm somewhat hesitant to believe it when it says that my yearly benefit continues after my death year that I entered.
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Old 02-02-2020, 01:48 PM   #15
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One thing I didn't notice in your evaluation, or maybe I missed it. But upon your passing did you calculate the additional break even for your wife as she would then collect your benefit after you pass. I get what you are trying to do and each person has to make decision based on their data points.
I did not calculate it, but I think DW would get about $300 more per month with my benefit - and that is if I wait until 70 to take SS. Not enough to make a difference in my plans.
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Old 02-02-2020, 01:53 PM   #16
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Yes every situation is different.
DGF already is on SSDI.
For me, most of my monies are in TIRA, so the tax angle comes into play. Thus while there isn't any Roth conversion angle for me, there is the paydown of the TIRA to reduce the RMD's later on.
Additionally longevity plays a role, as all my grandparents and their cousins passed after 80 y.o. and my parents are currently 90 and 86.
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Old 02-02-2020, 01:59 PM   #17
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You only have to answer one question. No spreadsheet needed.
What is your planned death age?
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Old 02-02-2020, 02:28 PM   #18
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This is interesting.
I suppose if you were younger, you could apply this same calculation to decide if taking SS at 62 would be best.

Issues to consider:
[*]Taking it earlier, will mean less room for Roth conversions, so a higher RMD which is a problem for folks with substantial IRA's. The higher tax paid would extend the breakeven point a small amount.
Very good point. And the only reason why I may wait. But we may get an extra 2 years anyway when the rules change.


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[*]If you are the higher wage (higher SS) person, then this cuts down the longevity factor a couple enjoy, where one of the two will live longer than both, most likely passing the breakeven point by a wide margin.
Good point, and the opensocialsecurity plays on that point. Most calculators that I've used say for DW to take at 62, me at 70. And that is to maximize total dollars. But I don't think that we will need, or have the desire to spend, more money in our eighties.

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[*]If you are age 64, then the 2015 SS actuarial table says life expectancy for a male would be to age 82.65 which is past the break even point for 6% return.[/LIST]
True
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Old 02-02-2020, 02:37 PM   #19
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Here are my musings on the topic. In summary, I don't think the break even point is what we should be looking at when deciding on when to take SS. The total number of dollars you get from SS before you die, is not terribly important compared with the value of those dollars to you, at that time. Merely looking at the total dollars is a huge mistake, IMO, that many of us make. Timing is crucial....
Exactly! The value of dollars (IMO) is far more to a 64 year old than to an 84 year old. I did the break even analysis just to see the difference between keeping $ in the portfolio and taking ss versus spending down the portfolio and waiting for ss.

The analysis didn't create my decision. Just wanted to see the comparison. My mind was (mostly) made up before I started the spreadsheet.
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Old 02-02-2020, 02:49 PM   #20
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What do you figure your odds are at living past any of those breakeven ages? If I've got a reasonable chance of surpassing the breakeven age I'm going to delay and take the longevity insurance. I'm thinking a "reasonable chance" is about 20%.
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You only have to answer one question. No spreadsheet needed.
What is your planned death age?

I'm thinking I'll make it to 80. But that isn't enough past the break even ages to take the longevity insurance.

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Which is the only thing that really matters, isn't it?
Exactly. My mind was somewhat made up before I ran the numbers. So it's human nature for me to "like" the numbers I guess.


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Originally Posted by mountainsoft View Post
We will have my wife's pension, but we still need to figure out the best time to take SS. Waiting longer to take SS increases the benefits we receive, but it means spending more of our portfolio. I use the Flexible Retirement Planner and added entries for the benefits we would each receive at 62, 63, 64, etc. Then I try selecting different combinations and see which results in the best overall success rate in our retirement plan. For now, the best outcome seems to be if each of us take SS at 65, though due to our different ages means she will start five years later than me.

That said, as our portfolio grows, it seems the best time to take SS changes. Just a year or two ago the best option was for both of us to start SS at 62. So, I will probably keep reevaluating until we actually start SS.
Thanks for the tip on Flexible Retirement Planner. I've never seen any SS calculator that suggested taking SS at 62.
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