Would you take a lump sum buy out from SS?

[hnzw_rui]

^ that's not how the calculation works

the first segment rate is used to discount the first 5 years of payments, the second rate is used to discount the next 15 years (years 5 to 20)

also, you don't fix the pv calculation at life expectancy, the pv is a mathematical expectation so you need to assume a little piece of you dies each year until you are 100% dead (end of mortality table)

SS will never allow cashouts, the monies are needed for the insurance pooling feature of SS

let me know if you need a lump sum factor at age 67 using those rates, the problem is, the rates need to be shaved for a future CPI assumption

Ah, thanks for that. I was trying to figure out how their discounting works. But yeah, SS is insurance. They need the large pool to subsidize low income and disability payments.

Don't know what the contribution rates are in previous years but 12.4% OASDI works out to 54,595 in contributions at the first bend point. At 5% APR, that's 152,606 after 35 years (earning 826/mo). That's 5.8% inflation-adjusted withdrawal rate, tax-free so very good deal for really low income.

 

[nun]

If you are a 65 year old single male and receiving $2k a month in SS using the IRS segmented rates of 1.68%, 4.05% and 4.98% you'd get a lump sum of $316k......this does not factor in inflation adjustment which is obviously a big positive for SS payments. Still to generate $2k/month from $316k for an average lifespan you'd only need 3% annual return. If this was an annuity or pension plan lump sum payout people would take the lump sum.

The question becomes why do so many people like SS, but hate annuities?

 

[hnzw_rui]

if you are a 65 year old single male and receiving $2k a month in ss using the irs segmented rates of 1.68%, 4.05% and 4.98% you'd get a lump sum of $316k......this does not factor in inflation adjustment which is obviously a big positive for ss payments. Still to generate $2k/month from $316k for an average lifespan you'd only need 3% annual return. If this was an annuity or pension plan lump sum payout people would take the lump sum.

The question becomes why do so many people like ss, but hate annuities?

cola.

 

[Theseus]

No, and I don't ever see that option being made available either. Think about it - if it were an option, those more likely to choose it might include people with seriously shortened life expectancy. For that reason, I'd expect that any cash buyout made available would only be a fraction of the benefits over time. Creating yet another loophole to destabilize SS is the last thing we need.

 

[Midpack]

If you are a 65 year old single male and receiving $2k a month in SS using the IRS segmented rates of 1.68%, 4.05% and 4.98% you'd get a lump sum of $316k......this does not factor in inflation adjustment which is obviously a big positive for SS payments. Still to generate $2k/month from $316k for an average lifespan you'd only need 3% annual return. If this was an annuity or pension plan lump sum payout people would take the lump sum.

The question becomes why do so many people like SS, but hate annuities?

They're becoming scarcer, but according to this source, evidently the inflation adjusted annuity lump sum would be about $467K (assuming your $316K is correct) in 2013. Those may have changed or been discontinued.

Should you get an inflation-adjusted annuity?

It's a false question. Annuities are elective, Social Security is not for most Americans. And annuities are an investment option, Social Security is not, never has been.[/COLOR]

 

[Big_Hitter]

SS is a "pay-go" social insurance program - participation is mandatory (with few exceptions), need is presumed, benefits are "related" to earnings and there is a component that blends intergenerational equity with social adequacy


http://swagman.typepad.com/curmudgeon/2010/11/the-nine-guiding-principles-of-social-security.html

 

[nun]

They're becoming scarcer, but according to this source, evidently the inflation adjusted annuity lump sum would be about $467K (assuming your $316K is correct) in 2013. Those may have changed or been discontinued. Should you get an inflation-adjusted annuity? It's a false question. Annuities are elective, Social Security is not for most Americans. And annuities are an investment option, Social Security is not, never has been.

I agree that it's a fantastical question, but it's interesting to think about. That $467k inflation adjusted lump sum looks pretty inviting. If course SS in mandatory and there won't be any lump sums coming, but it's an interesting thought experiment. I'm surprised so many people would take SS over the lump sum given the numbers. Or maybe they didn't run the numbers or SS is their only stable retirement income source that won't go up and down with the markets so whatever the lump sum they really want the guaranteed COLA income.

 

[Texas Proud]

yes


pay me back everything I contributed with interest


we'll call it even

I do not just want interest.... I want a balanced portfolio return!!!

 

[Texas Proud]

I agree that it's a fantastical question, but it's interesting to think about. That $467k inflation adjusted lump sum looks pretty inviting. If course SS in mandatory and there won't be any lump sums coming, but it's an interesting thought experiment. I'm surprised so many people would take SS over the lump sum given the numbers. Or maybe they didn't run the numbers or SS is their only stable retirement income source that won't go up and down with the markets so whatever the lump sum they really want the guaranteed COLA income.

I will say again... the number should be neutral for a single person... for someone who is married (and the spouse has low or no SS coming) the extra money you get from SS makes it an easy decision... and having the payments on both lives also makes it an easy decision....


I have not thought about what I would do if I were single... but if it were truly neutral I would probably take the lump sum....

 

[nun]

I will say again... the number should be neutral for a single person... for someone who is married (and the spouse has low or no SS coming) the extra money you get from SS makes it an easy decision... and having the payments on both lives also makes it an easy decision.... I have not thought about what I would do if I were single... but if it were truly neutral I would probably take the lump sum....

Yes the survivor benefits make SS attractive, but if the lump sum took COLA and survivor benefit into consideration making it even larger would you take the lump sum?

I asked a related question a while back where I asked at what IRR people would buy an annuity. Very few people would buy one even with IRRs above 8%. So it looks like people won't buy fixed income streams with lump sums, but also like to keep a fixed income stream when they already have one.

 

[Walt34]

But as someone else said, what happens when some folks blow their money and come back for help. Are "we" going to have to pay for them as charity cases.

Naw, just make them into soylent green.

I would not take a lump sum option. Just my luck that I'd set a new Guinness record for longevity and exhaust the funds 10 years before passing on. Of course, by then I probably wouldn't care.

 

[Ed_The_Gypsy]

No.

Sent from my SM-G900V using Early Retirement Forum mobile app

 

[Independent]

yes

pay me back everything I contributed with interest

we'll call it even

Since your taxes were used to pay old people's benefits, we'd have to go back and get those people or their heirs to repay their benefits.

Of course, if some of those old people happen to be your parents or grandparents, maybe the "heirs" part above would make it a wash for you.

 

[pb4uski]

Can't really answer without knowing the lump sum and the health of the person involved.
Bruce

+1 for $100 thousand.... no way.... for $100 million.... sign me up!

 

[DROPOUT]

Yes ~ Because I don't think I'll end up seeing it 35+ years from now

 

[Texas Proud]

Yes the survivor benefits make SS attractive, but if the lump sum took COLA and survivor benefit into consideration making it even larger would you take the lump sum?

I asked a related question a while back where I asked at what IRR people would buy an annuity. Very few people would buy one even with IRRs above 8%. So it looks like people won't buy fixed income streams with lump sums, but also like to keep a fixed income stream when they already have one.

I would take the lump sum if they took into account both me and wife... which includes spouse and survivor benefits.... the calculators show she will get more money than I will.... and with interest rates low that means a bigger lump sum... OH, and it needs to take into account COL increases... but yea, if it took into account all that I would take the lump sum...

 

[hurricane harry]

Since your taxes were used to pay old people's benefits, we'd have to go back and get those people or their heirs to repay their benefits.

Of course, if some of those old people happen to be your parents or grandparents, maybe the "heirs" part above would make it a wash for you.

people take pensions in lump sums

old pensioners do not pay for that

 

[Animorph]

people take pensions in lump sums

old pensioners do not pay for that

For quite a while DW's pension plan was considered underfunded and was not allowed to offer lump sums. It would be possible to totally drain a pension fund if everyone wanted a lump sum. Those remaining in the plan would be screwed.

 

[kimcdougc]

Yes, I would take the lump sum. I know what we paid in our ss balance. I would rather be in control of my money than our government. Remember SS is suppose to go bankrupt in the near future or only pay out 2/3rds of what they should. Just my 2 cents.

 

[NW-Bound]

I do not just want interest.... I want a balanced portfolio return!!!

Would you like Wellesley's or Wellington's return, sir? I would take pure S&P 500, thank you.

Oh yeah, one can dream.

 

[eytonxav]

Not for me. When I retired from mega-corp, I took my pension as a lump sum instead of an annuity payout, and don't really need to increase that amount further.

 

[jimbee]

Yes ~ Because I don't think I'll end up seeing it 35+ years from now

I thought the same thing 35 years ago.

 

[Independent]

people take pensions in lump sums

old pensioners do not pay for that

In most cases, private pensions are advance funded. The pension plan simply sells stocks and bonds to raise the money for the lump sums.

SS is paygo.

 

[Fermion]

If they pay back the full contribution (from employee AND employer) along with a compounded 8% interest for the past 26 years, then yeah, maybe would take the lump sum.

I don't see them handing out million dollar checks like this though.

 

[hurricane harry]

In most cases, private pensions are advance funded. The pension plan simply sells stocks and bonds to raise the money for the lump sums.

SS is paygo.

so you think pensions only invest in stocks and bonds? better check your facts

SS is a pay as you go because those funds where raided by politicians, more reason to take the money we are owed