Theory Behind taking Social Security Early?

[joeea]

That’s the category I’m in. Life insurance jus eases the pain and possibly provide a bit more to my heirs.

I understand the part about heirs, although I personally wouldn't choose to purchase insurance in order to increase their wealth. If my heirs wish to profit more from my death, they can pay for the life insurance!

I don't understand how any pain is eased though.

Good luck.

 

[youbet]

Almost.

It's actuarially neutral for the average person. But not necessarily for any real individual person.

Emmmmmmm...... not quite.

SS is actuarially neutral for the population as a whole. It may not be actuarially neutral for the average person, or any person actually, if the data is not normally distributed.

Anyway, our gov't probably needs to make some adjustments to the age vs. payout schedule and to the dependent/spousal benefits schedule as certainly the data no longer supports them as-is. Additionally, blending retirement benefits with disability and other welfare type benefits in the same funding pool confounds it all.

But, yeah........

 

[youbet]

An interesting anecdote but it really doesn't matter much to others. I know a guy who retired in his late 50's and now has been retired longer than he worked!! As far as sticking to the averages, one must be aware that 1/2 the people live less than average and 1/2 live longer than average. How does that help?

Not exactly. It's completely possible for more than half of the data to be above or below "average."

10 people live on an island. 9 die at 100 yo and 1 dies at 10 yo. The average age of death = 910/10 or 91 years old. So, 9 died "above average" and 1 died "below average."

This from my 12 year old grandson who I asked about it. Is he correct or do I need to straighten him out on this? He also mentioned he hopes Papa lives to an "above average" age. What a nice young man!

 

[Dtail]

Not exactly. It's completely possible for more than half of the data to be above or below "average."

10 people live on an island. 9 die at 100 yo and 1 dies at 10 yo. The average age of death = 910/10 or 91 years old. So, 9 died "above average" and 1 died "below average."

This from my 12 year old grandson who I asked about it. Is he correct or do I need to straighten him out on this? He also mentioned he hopes Papa lives to an "above average" age. What a nice young man!

Appears that your grandson is on his way.

 

[Floridatennisplayer]

So your Retirement Plan ends at age 78? (Average Life expectancy of a Male in the U.S.)


A lot of Folks here use age 100 to be 'On the Safe Side'.... I can't see how the 'Safe Side' is Age 78. If you're wrong your spending will be pretty lean after age 78.

No, I’m just saying you can’t count on genetics or anything else to predict your own mortality.

 

[youbet]

But the drain may not be as bad as thought for some. Our annual spending (>$150K) right now--both healthy--is more than LTC would cost.

If one of us were to need LTC, the other spouse would be spending a lot less: no expensive travel, big dinners out, entertaining, new cars, boat expenses etc and instead would be sort of hanging around visiting the other in the nursing home each day. The healthy spouse would certainly change his/her lifestyle. I've seen this first-hand.

Not that the expenses would go to zero, but a $130K nursing home cost might only dent savings by about $50K additional from what we spend now.

My point is that a $130K nursing home cost isn't $130K over and above what you're already spending; one's entire life changes on both sides of the bed as do the expenses.

And, depending on tax rules and regs at the time, the dollars spent on the NH will likely result in tax savings greater than when those dollars were spent on "normal" FIRE life.

 

[Cut-Throat]

No, I’m just saying you can’t count on genetics or anything else to predict your own mortality.

Correct! .... So, to be on the 'Safe Side' (i.e. --- Not to run out of money in your old age), your retirement plan should go out to age 100 or so... Planning on dying at an 'Average Age', might leave you pretty short, if you exceeded 'Average Age'.

 

[youbet]

So tell me how your term life insurance could serve as Long Term Care Insurance? I don't see it.

When I looked into that avenue as a possibility for ensuring DW would not be impoverished if I went into LTC early and lasted a long time, I viewed term life insurance as a source of funds that would replenish our portfolio after the expenses of the NH were paid. I assumed she'd have the money to pay my way for many years but might appreciate an influx of new funds when I eventually croaked. I eventually did not take this path because (1) term life insurance is expensive when you're a geezer! and (2) the bull market of the past decade has left us in pretty good shape to self-insure for LTC without excessive fear of impoverishing the survivor (despite no SS for DW either on her own or as my survivor - the reason I started SS at 62).

 

[youbet]

No, I’m just saying you can’t count on genetics or anything else to predict your own mortality.

Yep. Sometimes life (or death for that matter) has a way of defying probability and statistics.

 

[Fedup]

When I looked into that avenue as a possibility for ensuring DW would not be impoverished if I went into LTC early and lasted a long time, I viewed term life insurance as a source of funds that would replenish our portfolio after the expenses of the NH were paid. I assumed she'd have the money to pay my way for many years but might appreciate an influx of new funds when I eventually croaked. I eventually did not take this path because (1) term life insurance is expensive when you're a geezer! and (2) the bull market of the past decade has left us in pretty good shape to self-insure for LTC without excessive fear of impoverishing the survivor (despite no SS for DW either on her own or as my survivor - the reason I started SS at 62).

I agree with not getting new life insurance at an older age, but I was debating about keeping or dropping LTCi, so life insurance is much better for me. MathJack in CD apparently said something similar. No RMD, no tax is what life insurance proceed can bring to the surviving spouse. Plus a long time ago, maybe 2011, I read an article from WSJ, wealthy people(I’m not in this category btw), use life insurance as part of an estate planning. Something like a couple purchased $20million life insurance.

 

[Sunset]

But the drain may not be as bad as thought for some. Our annual spending (>$150K) right now--both healthy--is more than LTC would cost.

If one of us were to need LTC, the other spouse would be spending a lot less: no expensive travel, big dinners out, entertaining, new cars, boat expenses etc and instead would be sort of hanging around visiting the other in the nursing home each day. The healthy spouse would certainly change his/her lifestyle. I've seen this first-hand.

Not that the expenses would go to zero, but a $130K nursing home cost might only dent savings by about $50K additional from what we spend now.

My point is that a $130K nursing home cost isn't $130K over and above what you're already spending; one's entire life changes on both sides of the bed as do the expenses.

Good point, I never realized it, but I have seen it as well.

 

[joeea]

Emmmmmmm...... not quite.

SS is actuarially neutral for the population as a whole.
But, yeah........

Yup. That's what I meant by the fictitious "average person".

 

[joeea]

When I looked into that avenue as a possibility for ensuring DW would not be impoverished if I went into LTC early and lasted a long time, I viewed term life insurance as a source of funds that would replenish our portfolio after the expenses of the NH were paid. I assumed she'd have the money to pay my way for many years but might appreciate an influx of new funds when I eventually croaked.

And what if your funds were depleted by she croaked first?

 

[imoldernu]

Motley fool... Sept 16 article:

Most People Don't Regret Taking Social Security Early
Even though you can receive fatter checks by waiting, 62 is still the most popular age to claim benefits.

https://www.fool.com/retirement/2018/09/16/most-people-dont-regret-taking-social-security-ear.aspx

 

[SecondCor521]

That would be my concern.... long-term equities return is about 10%... long-term inflation is about 3%... so real is 7%.... 6.6% doesn't leave a lot of room for lower future returns that some pretty smart people predict.

I'm still reading through the thread, but for my situation (single 49 year old male), and assuming the default SS cut of 23% in 2034 or whatever, an ROI of as low as 1.28% resulted in the tool recommending me take it at 62.

For me, too, the ROI number needs to encapsulate two things: opportunity costs on the dollars I would have to pull out of my portfolio to replace those SS dollars at age 62, and the fact that a dollar at age 62 might have more utility to me than a dollar at 82.

There is still the longevity insurance aspect of the decision and the taxation aspects to consider, but as a former "wait until 70" type of person, I'm strongly considering turning into a "take it at 62 and invest it" type of person.

 

[Independent]

Not exactly. It's completely possible for more than half of the data to be above or below "average."

10 people live on an island. 9 die at 100 yo and 1 dies at 10 yo. The average age of death = 910/10 or 91 years old. So, 9 died "above average" and 1 died "below average."

This from my 12 year old grandson who I asked about it. Is he correct or do I need to straighten him out on this? He also mentioned he hopes Papa lives to an "above average" age. What a nice young man!

Good for him. I'll guess that most 12 year olds have seen the difference between "mean" and "median" in school, but very few can apply it like this outside of school.

For this mortality table*, the median (age at which 50% have died) and the mean (the sum of the total years of life above age x, divided by the number alive at x) differ by about one year. The median is a little higher.

The life expectancy (aka expectation of life) at age 62 is

20.49 for males
23.28 for females

If we look at 1,000 males attaining age 62

512 reach 83 (21 years)
475 reach 84 (22 years)
So the 500th death must be around 21.3 years

Similarly, for 1,000 females attaining age 62

518 reach 86 (24 years)
478 reach 87 (25 years)
So the 500th death must be around 24.4 years


* The table is the Social Security Actuaries' Cohort Table for the entire population born in 1960. https://www.ssa.gov/oact/NOTES/as120/LifeTables_Tbl_7_1960.html

A "cohort" table projects a continuation of falling mortality rates. I think it's a better choice than a "period" table.
OTOH, the entire population includes people in hospices, people in nursing homes, people who have been told by their doctors they only have __ months to live, etc. If I'm making plans for myself, I'd prefer a table that's based on people in "normal good health".

 

[Independent]

I'm still reading through the thread, but for my situation (single 49 year old male), and assuming the default SS cut of 23% in 2034 or whatever, an ROI of as low as 1.28% resulted in the tool recommending me take it at 62.

For me, too, the ROI number needs to encapsulate two things:
1) opportunity costs on the dollars I would have to pull out of my portfolio to replace those SS dollars at age 62, and
2) the fact that a dollar at age 62 might have more utility to me than a dollar at 82.

There is still the longevity insurance aspect of the decision and the taxation aspects to consider, but as a former "wait until 70" type of person, I'm strongly considering turning into a "take it at 62 and invest it" type of person.

I agree with (1).
However, although (2) may be a true statement, I don't see how it is relevant to the "when to start SS" question. If I spend a dollar I got from SS at age 62, it has the same utility as a dollar I withdraw from my IRA at age 62.

With 13 years to go, you've got plenty of time to let events sort themselves out before you decide.

 

[Independent]

The bigger factor is that SS is paying out more money than it is taking in. So, if you think it will go into default or will reduce the payments sometime in the future, then 62 is the best bet; get what you can out of it as soon as you can.

Yes, if Congress does nothing, all benefits in payment status will be cut by the same percent when the Trust Fund starts bouncing around close to zero. In that case, taking it early seems like the better choice.

However, it's possible that Congress will do something. Some people speculate that they might put a means test on benefits. If that means test looks at non-SS assets and/or income, spending down my IRA before the means test hits may be a good idea. Or, not, depending on the details.

 

[NW-Bound]

I agree with (1).
However, although (2) may be a true statement, I don't see how it is relevant to the "when to start SS" question. If I spend a dollar I got from SS at age 62, it has the same utility as a dollar I withdraw from my IRA at age 62...

One can spend a lot of time to run SS calculators and optimizers, but the fact remains that it is mentally harder to spend down your own stash while delaying SS, compared to spending the money that is auto-deposited into your account every month.

And then, there's that nagging feeling that "one dollar in hand is worth two in the bush", particularly as one knows about the SS fund shortfall.

 

[Independent]

One can spend a lot of time to run SS calculators and optimizers, but the fact remains that it is mentally harder to spend down your own stash while delaying SS, compared to spending the money that is auto-deposited into your account every month.

And then, there's that nagging feeling that "one dollar in hand is worth two in the bush", particularly as one knows about the SS fund shortfall.

I was thinking about the utility of whatever you buy with the dollars.

I can see that for many people, taking dollars out of savings today is psychologically difficult.

Personally, I kind of get a psychological benefit from knowing that I'm building up that CPI indexed income. But, I'm probably rare.

 

[SecondCor521]

I agree with (1).
However, although (2) may be a true statement, I don't see how it is relevant to the "when to start SS" question. If I spend a dollar I got from SS at age 62, it has the same utility as a dollar I withdraw from my IRA at age 62.

With 13 years to go, you've got plenty of time to let events sort themselves out before you decide.

What you say on (2) is right. I was thinking that taking it at 62 and investing it might increase my spendable income at 62 (versus taking it at 70), and it was that potential increase in spendable income at 62 that I was thinking had higher utility than having higher spendable income at, say, 82.

Thinking about it further, I think the tax effects (paying a higher tax rate on Roth conversions and/or SS income from 62 to 70) probably overwhelm either the utility or the NPV arguments...for my situation, at least.

 

[marko]

I may have already posted this (here or on another thread), but, I see three types of people taking SS at 62.

People with longevity concerns
People who need the money desperately
People who don't need the money at all and see it as extra fun money to enjoy while younger.

Most everyone else wants/needs to maximize their income potential. Not desperate, not wealthy enough to never need it and feel that longevity is on their side.

I see this debate overall as more of a life-driven one more than a matter of number calculations.

Of course there's also the fear/motivation that the plan will change/be diminished etc but I think that's a smaller slice of the population.

 

[Dtail]

I may have already posted this (here or on another thread), but, I see three types of people taking SS at 62.

People with longevity concerns
People who need the money desperately
People who don't need the money at all and see it as extra fun money to enjoy while younger.

Most everyone else wants/needs to maximize their income potential. Not desperate, not wealthy enough to never need it and feel that longevity is on their side.

I see this debate overall as more of a life-driven one more than a matter of number calculations.

Of course there's also the fear/motivation that the plan will change/be diminished etc but I think that's a smaller slice of the population.

That's us and it is complex........

 

[marko]

Most everyone else wants/needs to maximize their income potential. Not desperate, not wealthy enough to never need it and feel that longevity is on their side.

That's us and it is complex........

But that should eliminate age 62 as a consideration, no?
Then it's just a matter of deciding to take it at FRA or 70 to maximize your income.

I was just pointing out that while age 62 appears to be the least advantageous, for some waiting is not an option and for others who take it, it doesn't matter. It's more of a matter of what's going on in your life than mere number calculations.

Maybe we're lumping in 62, FRA and 70 into one bucket when 62 might be set aside as a "no choice/don't care" group and focus just on a FRA to 70 debate?

 

[gerntz]

I keep coming back to that it doesn't much matter when you take it if you're single but that there's an added surviving spouse income (significant?) insurance benefit if the higher beneficiary spouse waits till FRA & spouse has a near-equal or longer life expectancy.