Would you take this risk of maybe running out of assets?

[dallas27]

Yes, twice within the last 12 years.

I can't agree with that statement, see link. That said, i would love if stocks went on sale like that more often.

http://247wallst.com/investing/2011/08/12/the-worst-modern-stock-market-collapses/2/

And it was thrice. Peak to trough, which is sandbagging it, really.


Sent from my iPhone using Early Retirement Forum

 

[walkinwood]

I don't see the risk in this plan.

You don't have to "declare" that you'll take SS at 70 and have to stick by that decision.

See how things go and make a decision based on the reality of the moment. I would definitely keep some money on hand for emergencies (ie. not wait till my portfolio was depleted before applying for SS)

This is a plan, not a commitment.

 

[NW-Bound]

I can't agree with that statement, see link.

The Worst Stock Market Collapses Since The Great Depression - 24/7 Wall St.

This article lists the 2000-2002 decline as the 7th, at 34% loss. However, they use the Dow Jones Industrial which is only 30 stocks. A better measure is the S&P 500 which encompasses something like 80% of the market.

My own daily record shows that the S&P 500 was 1527 the week ending on Fri 3/24/2000, and 777 on 10/09/2002. That was a drop of almost 50%.

Note that in the 2000-2002 rout, the S&P dropped more than DJ because the former has more tech stocks. The NASDAQ, being loaded with dotcoms, fared the worst. It dropped from 5048 to 1114, for a loss of 78%. As of this writing, 14 years later, the NASDAQ is only 4350, still short of its peak in 2000.

 

[Midpack]

Where was your money when the bottom fell out in '08-09? If you had money in equity and the market dropped by 50%, how would you feel? Would you buy more at lower prices or run for the hills?

We are about due for a drop -- it could happen tomorrow or it could be months or years away. 50-60% haircut would be normal.

Not to minimize the potential impact, but "normal?"

 

[Totoro]

Would you take a risk like this?... running out of money is super scary but it does answer the question of longevity risk and if all of your income is coming from SS then the stock market vagaries are no longer an issue.

Who do you trust more, the market and your ability to invest or the government and its ability to keep its commitments to retirees?

In any case, do a yearly evaluation.

I'd trust most governments to honor existing commitments, but not trust them enough that they won't fiddle around with low-balling COLA and such.

 

[daylatedollarshort]

We are more interested in avoiding portfolio depletion and having multiple independent income streams, including investment income, in retirement so we would not run down the portfolio. If we are still working part-time at 62 we will most likely delay for income tax and ACA subsidy reasons. Our spreadsheet has us not working and both taking SS at 62 so that is the default plan with working optional.

We also do not trust the government to not lower SS's COLA or cut benefits in other ways. I think multiple income streams provide the most security for us.

 

[photoguy]

Not to minimize the potential impact, but "normal?"

I see 6 out of 15 that are ~50% or greater declines ( rounding up on the 46, 48, 49 declines). Seems not unusual to me.

 

[Senator]

I am planning on SS at age 70.

I am going to make a health assessment every year, or every month, on how healthy I am. Assuming all is OK, 70 is the date. This will help out any surving spouse, assuming I have one. I may get married at 69, just for that reason.

Rental income from 56 until 65. Investment income as needed, but plan on selling rentals at 65 and themn using investment income. Estimated value would be ~1.5M in equity I would roll into a 1031 exchange. I should have ~2M in investments by then too, assuming a reasonable (5%) total return.

Wait if you can, collect early if you must.

 

[RetireAge50]

I think it is reasonable to use a good chunk of your portfolio for income in your early years. But not all as social security alone would not be good.

We plan to lean heavily on our investments for income between age 50 an 65 then later use mostly pensions and SS.

 

[Midpack]

I see 6 out of 15 that are ~50% or greater declines ( rounding up on the 46, 48, 49 declines). Seems not unusual to me.

And 9 out of 15 are 36% or less. A "50-60% haircut" is certainly possible, but arguably "normal" is 34%...

 

[ERD50]

And 9 out of 15 are 36% or less. A "50-60% haircut" is certainly possible, but arguably "normal" is 34%...

This is just semantics, but this discussion made me curious. 'Normal' is rather fuzzy, but if we look at "plus or minus one standard deviation", then the numbers in that list give us an average drop of 41% and a standard dev of 18%, which is ~ 23% to ~58%.

I don't know that anyone defines one std dev as a 'normal' amount of variation - 'normal' generally refers to the distribution itself. Just one view for comparison, maybe meaningless, but I was curious.

And it also looks like they used 20% as the definition of a bear market, so that automatically eliminates all the < 20% drops from the data-set, so a 'normal' bear would be expected to be greater than 20% with that limit applied (unless every bear was exactly 20%).

-ERD50

 

[jebmke]

Not to minimize the potential impact, but "normal?"

True; "not unusual" would have been a better term. As an early retiree, I don't leave more in equity than I would miss terribly if 50% +/- disappeared and never came back (in my lifetime).

By "miss terribly" I mean, if it would change my lifestyle/spend rate.

 

[unno2002]

Rough numbers:

If I stick with an assumption I'm not working to earn a living after reaching age 62, I've never ran a spreadsheet where it made sense to hold of on turning on the promised SS payment.

If I'm 62 and don't need the SS money until age 70, that's 8 years of SS money I can put into investments.

$1,628 - Age 62 monthly payment
$2, 279 – Full retirement age (age 66yr 2 mo) monthly payment.

50 months between earliest retirement & full payment age.

$81, 400 (if the cash is just stuffed into a mattress)

$651 monthly difference in the payments.

If I at full retirement age I just pulled $651 out the mattress each month, the cash would last 125 months (10 years 5 months). So if I take SS at the earliest date, just stack the cash without interest or investment, and start spending it later, I'm 76 and 7 months before I "break even".

If I die anywhere between age 62 & 76yr 7mo, there's a pile of cash there for the heirs that otherwise would not exist.

If the early cash is invested at 4% interest, the break even point becomes age 81 or so.

If I use the early cash to pay off the mortgage on a small rental property I have some pocket cash from the SS at age 62, and by age 66+ I have "free and clear" rental income that exceeds the full SS payment difference.

Yes, I know there are those who dislike rentals. I prefer that risk to the risk of SS disappearing.

 

[Rustward]

What if SS gives everybody a 25% haircut as SS publications been clearly stating for several years now it will do when the trust fund runs out?

EJ, would you mind telling us in which SS publication you saw the 25% haircut?

 

[braumeister]

I'm not ejman, but you'll find it here:

http://www.socialsecurity.gov/OACT/TR/2013/tr2013.pdf

In the first five pages of the pdf you'll see the whole overview of the future situation.

 

[photoguy]

It also states it on the first page of your SS statement.

I went back and checked and it looks like they changed it to 77cents from 75 this year. Woohoo.

 

[BuysToys]

EJ, would you mind telling us in which SS publication you saw the 25% haircut?

Here's a link: Retirement Estimator

I've seen the message on my SS statement for a few years and now see it on my on-line statement when I check it.

 

[NW-Bound]

Uh Oh! The above link points to the official SS site, and it says

Your estimated benefits are based on current law. The law governing benefit amounts may change because, by 2033, the payroll taxes collected will be enough to pay only about 77 cents for each dollar of scheduled benefits.​

It sounds like they are preparing the populace so there will be no big surprises later. This is actually not bad, by the way, to set people's expectation.

 

[RunningBum]

To me the question isn't so much of whether to wait until 70 or collect at 66 or earlier, but whether to retire so early with either plan. Many of the same factors that make retiring on SS alone at 70 risky also make it risky to retire at 66 (or was it 67) with some money and enough to cover expenses with SS. Market downturns will eat into that money. SS cutbacks will impact your plan no matter when you take them. I would probably put a bit more buffer in my plan. I also agree with the statement that you really don't have to answer the "when to take it" question yet.

To the OP, are you also certain about your expected SS benefits? Have you put in 0's for the years you won't be working? When you get your expected benefit statement from the SSA they calculate it based on the assumption that you'll work until you reach full retirement age.

 

[Trooper]

EDIT: My reluctance with this drawdown strategy to maximize SS benefits is similar to the aversion I have to buying an annuity. It isn't going to happen.

Wahoo - when you say 'an annuity' do you mean a SPIA?

 

[REWahoo]

Wahoo - when you say 'an annuity' do you mean a SPIA?

Unless I'm unfortunate enough to someday suffer from some form of dementia, there is no way I would ever consider any type of of deferred annuity. The fees simply outweigh any real benefit.

The only annuity I would ever consider purchasing would be a SPIA. That said, the stars, sun, moon and interest rates would all have to align perfectly for me to seriously contemplate buying - and that isn't likely to happen.

 

[Rustward]

I'm not ejman, but you'll find it here:

http://www.socialsecurity.gov/OACT/TR/2013/tr2013.pdf

In the first five pages of the pdf you'll see the whole overview of the future situation.

Thanks, I'm familiar with those.

The statement says "Without changes, in 2033 the Social Security Trust Fund will be able to pay only about 75 cents for each dollar of scheduled benefits."


This

What if SS gives everybody a 25% haircut as SS publications been clearly stating for several years now it will do when the trust fund runs out?

makes it sound as though a decision has been made to reduce everybody's benefit by 25%. As far as I know, no decision on how to handle the shortfall has been made. I think that is my point.

I doubt that we will see a flat 25% reduction in everybody's benefit. It will likely be a combination of changes that will be phased in over time.

 

[footenote]

Agree with Katsmeow. Run your plans three times:
1) You both live a long time (your expectation)
2) Spouse A dies before claiming SS - what widower SS benefits will Spouse B have?
3) Spouse B dies before claiming SS - " for Spouse A

Our plan has lower earning spouse claiming at FRA (66). Higher earning spouse will wait until 70 to claim. Counterintuitively, this was a better claiming strategy than both of us waiting until 70.

My model shows our portfolio down to ~$500k (~$700k including house equity) by the time higher earning spouse turns 70, at which point combined SS + RMDs cover expenses. And the portfolio being even that low makes me nervous!

(You may want to model and then test same basic inputs using ********. My model ends up being right at the median end-portfolio value, total withdrawals, etc. So while reality will likely be higher or lower, at least it's a zero historical failure plan. Which, while it's no guarantee, is better than Ambien for my quality of sleep!)

 

[ejman]

Thanks, I'm familiar with those.

The statement says "Without changes, in 2033 the Social Security Trust Fund will be able to pay only about 75 cents for each dollar of scheduled benefits."


This makes it sound as though a decision has been made to reduce everybody's benefit by 25%. As far as I know, no decision on how to handle the shortfall has been made. I think that is my point.

I doubt that we will see a flat 25% reduction in everybody's benefit. It will likely be a combination of changes that will be phased in over time.

I was simply trying to point out to the OP that a plan that contemplates entirely using up ones resources and then relying SOLELY on SS payments may not be as entirely risk free as one could wish.

Of course no decision has been made yet as to how the shortfall will be dealt with. One could certainly hope that logical and cool minds will come up with the best solution and implement it in a logical and even handed fashion over a reasonable period of time.

I guess one's set of beliefs comes into play here. Personally, I'm not encouraged by how our political organisms have responded to such challenges over the last decade or two so I assume that such behavior will continue. Clearly you assume the opposite. I hope you are right.

 

[daylatedollarshort]

Thanks, I'm familiar with those.

The statement says "Without changes, in 2033 the Social Security Trust Fund will be able to pay only about 75 cents for each dollar of scheduled benefits."


This makes it sound as though a decision has been made to reduce everybody's benefit by 25%. As far as I know, no decision on how to handle the shortfall has been made. I think that is my point.

I doubt that we will see a flat 25% reduction in everybody's benefit. It will likely be a combination of changes that will be phased in over time.

I am assuming the 25% reduction is the default for planning purposes since that is what is currently funded. Anything better will be great, but I am not counting on it.