Wade Pfau: The new math of social security

[bizlady]

The New Math of Delaying Social Security Benefits - The Experts - WSJ

 

[panacea]

not sure that's really "new math". Isn't this sort of old news?

 

[bizlady]

not sure that's really "new math". Isn't this sort of old news?

Delaying certainly is old news. But I thought the withdrawal rate and set aside were an interesting read. Both I had not considered.

 

[MichaelB]

From the link

It used to be a closer call, when people didn’t live as long and when interest rates were higher. But these days, I think the math is clear: People should delay claiming when possible. That’s especially true for singles and the higher-earning spouse from a married couple.
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By reducing financial assets a bit more quickly in the short-run, delaying Social Security can ultimately support more overall spending in retirement and/or will eventually support an even larger legacy value for assets as well.
./.
However, Social Security is no longer actuarially fair. Those calculations were done in the early 1980s when interest rates were higher and when people weren’t living as long as they do today. With lower interest rates and longer lives today, the calculus leans toward delay as an advantageous route for new beneficiaries.

 

[Car-Guy]

I read a lot of these articles looking for something new or a different perspective that might change my mind. Nothing so far.

 

[enjoyinglife102]

The math is straight forward and one factor to consider in all these discussions about SS. Personally I don't think nearly enough attention though is focused on taking SS as soon as possible if it allows one to enjoy the healthier early years of retirement. I've seen enough old people delay living so they have more money and for what?

 

[nun]

I'm taking a measured approach to deferring. I have 3 deferrable "pensions"; a state pension, UK SS and US SS. The respective annual deferral increases are 5%, 5.8% and 8%. I will take the state pension at 55 to give me stable income in early retirement, the UK SS at normal retirement age of 67 and the US SS at 70.

 

[stepford]

I'm taking a measured approach to deferring. I have 3 deferrable "pensions"; a state pension, UK SS and US SS. The respective annual deferral increases are 5%, 5.8% and 8%. I will take the state pension at 55 to give me stable income in early retirement, the UK SS at normal retirement age of 67 and the US SS at 70.

Similar here. My US Megacorp pension seems very close to actuarially neutral, with actually a slight benefit to taking it early, so I'll be taking it at 56. SS is quite the opposite and I plan to delay until 70. Sure will look silly though if benefits are substantially cut or means tested by then.

 

[nun]

SS is quite the opposite and I plan to delay until 70. Sure will look silly though if benefits are substantially cut or means tested by then.

You should have time to act before any rule changes.

 

[harley]

The math is straight forward and one factor to consider in all these discussions about SS. Personally I don't think nearly enough attention though is focused on taking SS as soon as possible if it allows one to enjoy the healthier early years of retirement. I've seen enough old people delay living so they have more money and for what?

How about for dealing with the higher medical expenses that tend to come along as you age? I think the majority of people have gotten into the position of needing to take SS early by not delaying gratification. The people who can afford to delay tend to be able to do so because they accumulated a healthy nest egg that will get them through the gap. They can use that to enjoy themselves while they are younger. Having the larger annuity when you are older is a safety feature, especially the part about survivor benefits for the lower earning partner. People who save tend tolike safety.

 

[Car-Guy]

I think the majority of people have gotten into the position of needing to take SS early by not delaying gratification. The people who can afford to delay tend to be able to do so because they accumulated a healthy nest egg that will get them through the gap.

Maybe true for the majorly (I really don't know) but it's certainly not true for a lot of folks I know and we don't try to live below our means (or delay gratification). For myself, I have accumulated more than I'll ever realistically need but I still took SS at 62.

 

[Car-Guy]

Sure will look silly though if benefits are substantially cut or means tested by then.

Surely the US Government wouldn't change the rules, again, just because someone was financially successful in life?

 

[Fedup]

I take my pension early next year, my husband is taking his SS early. However I will delay taking my SS to 70 because I consider that bonus money, in 15 more years.
Too many people that I know never made it to take SS at 62 but somehow everywhere I've read everybody is living longer than 70. Maybe the dead ones aren't here to tell you otherwise.


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[panacea]

The math is straight forward and one factor to consider in all these discussions about SS. Personally I don't think nearly enough attention though is focused on taking SS as soon as possible if it allows one to enjoy the healthier early years of retirement. I've seen enough old people delay living so they have more money and for what?

Of course this also depends on how much savings you've accumulated, but if you've planned for it, you'll have enough to live on until age 70 to be able to delay SS benefits. You just spend more savings now and less savings later when SS kicks in. There is no better retirement benefit than COLA adjusted SS benefit based on out of date life tables and high interest rate assumptions (last reviewed in 1983).

 

[OrcasIslandBound]

Our plan is to delay SS if possible. But, SS is a good fall back option to deal with a poor market performance. In our case, according to Fidelity's new RIP tool, for an average market performance, our withdrawals will be about 4.3% between my ages of 62 and 69. Then they drop to about 2.3% from then on. However, for a poor market performance, these withdrawals are 6% climbing to 8% as I go from 62 to 69. This high a % withdrawal combined with a declining savings will trigger us to take SS at 62 for both of us. We'll try to preserve the nest egg as much as possible. I don't expect to go over even a 5% withdrawal rate without pulling the trigger on starting SS.

 

[Dave J]

For years, I thought I would wait to take SS at 70 or so. At 61, I began doing a lot of thinking about the govt. actions of late. The math was too close for me to take a chance on the clowns making the rules now. I started at 62 even tho I don't need it. I will invest it. Now if they change the rules, I will have several years "in the bank". When looking at your personal situation, also factor in the time value of money, and the taxability of SS.
Some, if delaying too long may end up paying more taxes from 70 on than if taking a smaller amount earlier. YMMV ect. , ect. ect.
I found it to be a very tough decision, and I am glad it is behind me. I "hope" I live long enough to regret taking it early. That would mean I get to see my Granddaughter grow up!

 

[DEC-1982]

I think it's a good article. I hadn't thought about setting aside money for 8 years and then managing the rest separately, so it is something for me to think about.

 

[marko]

. Sure will look silly though if benefits are substantially cut or means tested by then.

IMHO: Take the money and run. Hope for grandfathering. That's what I did. Break-even at 78? I'll worry about it then if I'm lucky enough to make 78.

 

[Markola]

I'm 49 and assume the gov't will remain unable to agree on which day of the week it is, much less solve SS and Medicare challenges for several more years. Someday, when it is finally forced to do something, I will likely be in the older age slot they won't dare mess with at risk of pitchforks and torches outside of their offices. So, I'm assuming status quo on the SS front. I could be wrong, but I could also be wrong about my portfolio projections, job status, health status, marital status and acts of god, all all of that ambiguity x2 since I'm married, so I just do my best to save and invest a lot. As I look around, my lifelong savings habit and debt allergy have put us about 10x beyond any of our nearest friends so, at some point, if we can't retire, no one really can. Anyway, I plan to delay taking SS until 70 after watching my parents both claim as early as possible because they kind of needed the dough, yet then they keep right on working because they needed that dough, too. The resulting 8 years flew by in a blink of an eye and now they could both certainly use that extra margin from having waited. Similarly, I have a close friend who is constitutionally unable to save one dime. He asked me recently how he could retire and I could only say, "Don't dare touch SS until you are 70". I fear it is not going to be a pretty picture in this country for old people soon since retirement planning flipped completely to the individual worker, who largely seems unable to handle the responsibility. And we are all getting older fast.


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[Fedup]

The math maybe right but your health might not. Only if you are really healthy, should you delay taking it at 70. My coworker's mom was super healthy even at age 88 that she out did everybody on the yoga and exercise floor. I was shocked that she dropped dead 2 weeks ago. In fact, everybody who knew her was shocked. I'm sure you've heard of brain aneurysm.


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[Hermit]

I guess I'm following Pfau's thoughts. I withdraw from a 401K Stable Value fund enough each year to approximately equal what I will get when I reach 70 and begin collecting SS on my account. I call it "income smoothing". It gets taxed at 25%, but I don't think I will ever be lower and may go into a higher bracket thanks to RMDs. The total income (pension, SS on late wife's account, and withdrawal from 401K) gives me about twice what I should be spending, but probably about equal what I do spend. Between house construction (not part of spending budget, but it goes through the same checking account) and my young adult kids, keeping track of actuals is not easy.

 

[growing_older]

Our plan is to delay SS if possible. But, SS is a good fall back option to deal with a poor market performance.

I've done as much planning as I think I can, but even so it's possible for future events to unfold in an unexpected way. I view SS, along with downsizing my house, as one of the reinforcements I can call on in case of adverse events. If all goes to plan, I'll take it at 70. If I need the money, I will be able to change this plan and take SS early.

 

[enjoyinglife102]

How about for dealing with the higher medical expenses that tend to come along as you age? I think the majority of people have gotten into the position of needing to take SS early by not delaying gratification. The people who can afford to delay tend to be able to do so because they accumulated a healthy nest egg that will get them through the gap. They can use that to enjoy themselves while they are younger. Having the larger annuity when you are older is a safety feature, especially the part about survivor benefits for the lower earning partner. People who save tend tolike safety.

I'm surely not saying not to be personally responsible but I've seen a lot of people in their 70's, 80's and beyond who have deferred living for too much "just in case" planning. Now they have a pile of cash, optimized SS cash flow and I guess can look back and be satisfied that they existed safely rather than lived fully.

 

[bmcgonig]

I ran the new Fidelity planner yesterday and there was a remarkable difference in my ending balance, larger by a factor of 2, by waiting until 70 to take SS.


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[truenorth418]

I think it's a good article. I hadn't thought about setting aside money for 8 years and then managing the rest separately, so it is something for me to think about.

I've been following the RMD tables to determine my withdrawals in retirement, but I have been considering setting aside money to match my pension which will begin in about 13 years. I would then apply the RMD tables to the remainder. In my case this would lead to much higher current spending as well as a smoother transition when my pension comes on line.

I think Larry Kotlikoff has recommended this sort of smoothing approach in some of his books.

I will still plan to take SS at 70 and consider that "reinforcements" in the event my pension smoothing approach does not work out as well as planned.



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