Social Security Math

[pb4uski]

pb4uski,

While you are making a number of great points, there is one more aspect that needs to be looked at. And that is the Medicare premiums that are becoming increasingly ominous for the affluent recipients. As you may know, for 2016, those whose AGI (filing jointly) exceeded $175K Medicare premiums were slated to be an additional $375/mo. It did not happen as the Congress intervened and voted in a patch that saved that category of Medicare recipients for 2016. However, this will become an issue again next year... So, if you are in the $175K/yr area, then delaying SS and adding an additional $10-$20K/yr to your income will lead to a substantial increase in Medicare premiums.

Just something to think about when making a decision to postpone the SS...

Good point but to be honest if as a retiree my AGI exceeded $175k a year then $375/month of higher Medicare premiums would be the least of my worries, but I can see if one was close to that line that you would want to manage your income to avoid it.

 

[pb4uski]

I used this site Retirement Planning and Social Security Calculator: options for you and the spouse.
to do the math and help me determine when to start SS.
I started at 62.

Interesting site that I was not familiar with. Interestingly, the highest NW alternative is if we both claim at FRA according to this calculator. There is a big difference with both claiming at 62 (starting at FRA NW is 154% of starting at age 62 NW). For me to claim at 70 and DW at FRA is slightly lower but would give DW more protection if I should pass on earlier so that is probably what I will do.

 

[ejman]

Cut-Throat, how do you account for the anticipated 25% reduction in SS benefits starting in 2033 -17 years from now? Are you assuming congress will fix this or is the shortage mathematically taken into account in your calculations?

Although Cut-Throat has not responded I'm still curious to know if everyone else assumes the standard warning from the SS trustees is put there in the statements we all got just for the fun of it? Again, how does this (maybe) likely reduction in benefits correlate to spending one's nest egg during the 62-70 period on the assumption of higher SS starting at 70 which may be reduced by 25% going forward?

 

[nun]

Interesting site that I was not familiar with. Interestingly, the highest NW alternative is if we both claim at FRA according to this calculator. There is a big difference with both claiming at 62 (starting at FRA NW is 154% of starting at age 62 NW). For me to claim at 70 and DW at FRA is slightly lower but would give DW more protection if I should pass on earlier so that is probably what I will do.

The site confirms my decision to take SS at age 62. With a 4% investment return I'll have to live well into my 90s for deferring to be advantageous.

 

[Sunset]

Although Cut-Throat has not responded I'm still curious to know if everyone else assumes the standard warning from the SS trustees is put there in the statements we all got just for the fun of it? Again, how does this (maybe) likely reduction in benefits correlate to spending one's nest egg during the 62-70 period on the assumption of higher SS starting at 70 which may be reduced by 25% going forward?

It's put there to goad the politicians.
There will be nothing done about it until its an emergency, much like the SS Disability fund.
Then the politicians (or those that want to be re-elected) will act.

I do think they will make a host of changes, like move the 85% taxable to 100% , add another delay to FRA, and <gasp> raise the tax level.

I have some years to decide, but would I want 75% of age 62 SS or 75% of age 70 SS ?

 

[foxfirev5]

I have some years to decide, but would I want 75% of age 62 SS or 75% of age 70 SS ?[/QUOTE]

I believe it would be more like 100% of age 62 or 100% of age 70 with a reduction a few years later. Age 62 gives you more years at 100%. But since it's impossible to predict, I plan to take it year by year and take it when I need it.

 

[pb4uski]

.....I believe it would be more like 100% of age 62 or 100% of age 70 with a reduction a few years later. Age 62 gives you more years at 100%. But since it's impossible to predict, I plan to take it year by year and take it when I need it.

But the point of deferring is to provide us with longevity insurance so it still serves that purpose even at 75%.... but just less effectively than without the haircut.

If you deferred and received 132% of your FRA benefit for a while and then there was a 25% haircut then that would effectively bring you back to your FRA benefit.... but I think it more likely that something will be done so the effect of the haircut will be more modest than 25%.

 

[mathjak107]

our concerns about when to take ss in order of how i would prioritize:


will savings be spent down dangerously low if delaying ?

do we want more or less dependency on markets and interest rates in light of the fact we are at high valuations and history says the next 8-15 years are likely to be below average performance ?


spousal benefits . with the loss of one ss check and the surviving spouse now filing single , if they have to take a cut because they may end up taking ss pre their fra will a double hit because you also filed early be a financial crisis ?


if you file early will the additional taxable income preclude you from getting an aca subsidy if retiring pre 65 ?

what will your rmd tax situation look like with the higher ss check ? remember , at least now the higher ss payment is only taxed on 85% .

lastly and least important on our list is what if we die ? dead is dead .

most important on our list what if we live ?

 

[Cut-Throat]

Cut-Throat, how do you account for the anticipated 25% reduction in SS benefits starting in 2033 -17 years from now? Are you assuming congress will fix this or is the shortage mathematically taken into account in your calculations?

Well......The 'anticipated 25% reduction' is more political than reality. When has our government been able to predict anything 17 years in the future?

Also, any substantial changes to S.S. that will decrease benefits will be made to those that are probably not of voting age when they are enacted. (This is what politicians do). The recent changes to File and Suspend affected a small minority, so they could get away with it.

There is a much better chance that I won't be alive 17 years from now (I'm 64), than me having to deal with Budget Problems because my S.S. has decreased.

So, no...... I am more worried about Shark attacks and getting struck by lightning.

 

[MasterBlaster]

Also, any substantial changes to S.S. that will decrease benefits will be made to those that are probably not of voting age when they are enacted. (This is what politicians do). The recent changes to File and Suspend affected a small minority, so they could get away with it.

I'm not so sure about that, This projected glacial change(s) to SS thing we keep hearing and reading by many pundits and articles doesn't add up. Just follow the money. To save any real money the boomers would be included.

The recent File and Suspend and the Deeming changes came fast and furious. Are changes like that the exception or the new normal ?

They've done a very poor job planning for the boomers retirement and what has been promised. We'll see how this all plays out. I am not so confident as you that changes, for the worse, are not coming.

 

[Cut-Throat]

I'm not so sure about that, This projected glacial change(s) to SS thing we keep hearing and reading by many pundits and articles doesn't add up. Just follow the money. To save any real money the boomers would be included.

The recent File and Suspend and the Deeming changes came fast and furious. Are changes like that the exception or the new normal ?

They've done a very poor job planning for the boomers retirement and what has been promised. We'll see how this all plays out. I am not so confident as you that changes, for the worse, are not coming.

All you have to do is search this very forum when 'W' was beginning his second term and pushing his 'private accounts', because S.S. was in 'real jeopardy'. This was in 2004 - 12 years ago.... Even 'W' was saying that people age 55 and older would not be affected. And he still could not sell it.... So, don't look for any BIG changes (File and Suspend affected a very small minority and not BIG - Fast and Furious maybe, maybe not, but did not affect the majority). The changes that were enacted in 1982, which delayed benefits did not affect those receiving or close to receiving S.S.

What you are also missing is that S.S. benefits could be increased as well. As more people depend on S.S, the better chance that the benefits could also be increased. Remember before the Great Depression, there was no S.S..... So, there is probably a greater chance that taxes could be raised and benefits increased rather then benefits cut to provide solvency.

Also, remember that Social Security currently has a $2.7 Trillion Dollar Surplus, so most all of this talk is Political rather than a Fiscal Issue. I don't know of another Government Program that has this kind of surplus that has this kind of scrutiny.

 

[ejman]

Well......The 'anticipated 25% reduction' is more political than reality. When has our government been able to predict anything 17 years in the future?

Also, any substantial changes to S.S. that will decrease benefits will be made to those that are probably not of voting age when they are enacted. (This is what politicians do). The recent changes to File and Suspend affected a small minority, so they could get away with it.

There is a much better chance that I won't be alive 17 years from now (I'm 64), than me having to deal with Budget Problems because my S.S. has decreased.

So, no...... I am more worried about Shark attacks and getting struck by lightning.

Maybe. If the money is not there to pay full benefits I suspect they will not be paid. As an aside, it's kind of interesting that most posters here plan on a 95-100 life span but consider a major peg (SS) that is in the process of developing a significant leak to be inviolable into the far future. Considering how the political winds have been blowing for a while now I would think that any reliance on sanity in that quarter is merely wishful thinking.

Just think, we (meaning 50-70 yr olds) have relied on SS and assume it will be there as it currently is and so it maybe for the next 10-15 years. When I ask people in their 30's about SS the general answer is a shrug and words to the effect that it will go away or be vastly diminished. Our generation will only be around as a voting force for a decade or two max, the next generation doesn't count on SS and will probably only get a shadow of what we have. They won't care to vote quite as energetically as we do.

As to the government forecasting abilities , I dunno much about govmint but the demographics are pretty compelling... 2 workers supporting each retiree on SS doesn't sound like a recipe for long term love and happiness.

 

[Cut-Throat]

Maybe. If the money is not there to pay full benefits I suspect they will not be paid.

Not necessarily, It's all politics.... Remember there is a better than equal chance that taxes will be raised. The current mind set that taxes have to be cut and benefits have to be cut may be the past.... It is more likely that taxes will be increased and benefits will be increased. Remember Old people show up and Vote!

 

[MasterBlaster]

Cut Throat:

I have missed you so !

I could argue with you but...

Let me just say that when the burden becomes too high for all those boomer benefits then things will change.

 

[2017ish]

Maybe. If the money is not there to pay full benefits I suspect they will not be paid. As an aside, it's kind of interesting that most posters here plan on a 95-100 life span but consider a major peg (SS) that is in the process of developing a significant leak to be inviolable into the far future. Considering how the political winds have been blowing for a while now I would think that any reliance on sanity in that quarter is merely wishful thinking.

...

I hope that, 30 years from now when we hit our mid-80s, we will regret working the extra years because of my unwillingness to count on social for anything.... To avoid getting too political, I'll just say that we never thought it would be there for us, and it has only been in the past year that I've calculated the surprisingly large amounts we nominally will be entitled to at age 70. Nonetheless, I still think there is a not-insignificant chance that substantial changes will be made to benefits directed to "the rich," and that we will fall into that category.

Of course, Cut-Throat may be correct. "It is tough to predict things, especially in the future." If I've been overly alarmist in my planning, it will benefit our likely grandchild[ren].

 

[Cut-Throat]

Cut Throat:

I have missed you so !

I could argue with you but...

Let me just say that when the burden becomes too high for all those boomer benefits then things will change.

Yes, MB, I have missed you as well ..... Just go back and read those posts from 2004-2005 about how S.S. was about to 'Crash', and see who was correct. 12 years is a long time, and not too much has changed, except the U.S. is in better financial shape now!

 

[ejman]

Yes, MB, I have missed you as well ..... Just go back and read those posts from 2004-2005 about how S.S. was about to 'Crash', and see who was correct. 12 years is a long time, and not too much has changed, except the U.S. is in better financial shape now!

I'm one of those weird people that actually hang on to their Social Security statements. Here is what my SS statement from June 29, 2005 has to say on the subject :
"Unless action is taken soon to strengthen SS, in just 12 years we will begin paying more in benefits than we collect in taxes. Without changes by 2041 the Social Security trust fund will be exhausted. By then, the number of Americans 65 or older is expected to have doubled. There won't be enough younger people working to pay all of the benefits owed to those who are retiring. At that point, there will be enough money to pay only about 74 cents for each dollar of scheduled benefits"

The only difference from that statement in 2005 is that the train is derailing faster than expected back then and it's now 2033 instead of 2041. The demographics have not changed. If anything they have gotten worse. We have relied on a lot of immigration in the past to keep the demographics from overwhelming us. Politically this is becoming more difficult.

I don't know where you got the imminent "crash" info you are referring to above (may be the political fog by the last administration to predispose the playing field to their proposal) but this particular demographic slow motion crash has been advertised for a loooong time by the SS trustees.

 

[swagjb82]

You can actually Spend more money in your 60s by Delaying SS to age 70.

Here is a pretty simple calculation for those that wish to spend more money in retirement and do not care about leaving an estate. For those that have a Big enough Portfolio and can afford to wait until 70 to take SS, you'll have more to spend every year of retirement.

Let's Say you retire this year at age 62 with the $1 Million Portfolio and decide to take a 4% SWR. You get Social Security of $19,476 per year at age 62 and delaying to age 70 would get you $34,092 per year. Let's assume no inflation for ease of calculations.

Scenario age 62. Your SWR is $40K per year and Social Security of $19,476 gets you a Spending total of $59,476 for each year of your retirement period.

Scenario age 70. You stash 8 years of $34,092 from your portfolio into a savings account for a total of $272,736. Your portfolio is now down to $727,264. Your 4% SWR is now $29,090 per year and you remove $34,092 from your savings account giving you a total of $63,182 to spend each year for the rest of your 30 year retirement period.

The Delay to age 70 gives you $3,706 more every year starting at age 62 with no more increased risk.

[/U][/B]

Yes but your overall assets are lower! You've ignored asset growth (which matters as the 62 year SS guy will have higher assets) and inflation.

At age 70 the person who took SS at 62 will have something like $1.2m say assuming growth of 6.5% a year. The person who took SS at 70 will have $870k. Depending on returns the guy who took SS at 62 could end up with more income at some point in time.

You've fudged the income but at the expense of your assets.

The whole comparison needs to take into account both.

 

[Hermit]

I'm one of those weird people that actually hang on to their Social Security statements. Here is what my SS statement from June 29, 2005 has to say on the subject :
"Unless action is taken soon to strengthen SS, in just 12 years we will begin paying more in benefits than we collect in taxes. Without changes by 2041 the Social Security trust fund will be exhausted. By then, the number of Americans 65 or older is expected to have doubled. There won't be enough younger people working to pay all of the benefits owed to those who are retiring. At that point, there will be enough money to pay only about 74 cents for each dollar of scheduled benefits"

The only difference from that statement in 2005 is that the train is derailing faster than expected back then and it's now 2033 instead of 2041. The demographics have not changed. If anything they have gotten worse. We have relied on a lot of immigration in the past to keep the demographics from overwhelming us. Politically this is becoming more difficult.

I don't know where you got the imminent "crash" info you are referring to above (may be the political fog by the last administration to predispose the playing field to their proposal) but this particular demographic slow motion crash has been advertised for a loooong time by the SS trustees.

If I'm not mistaken, the money in the "Trust Fund" was spent a long time ago. All money beyond what comes in must be made up out of the general fund. I'm not sure it will make a big difference when the "Trust Fund" officially finishes collecting on its IOUs from the general fund except it will be an excuse to implement the 25% hair cut.

 

[Texas Proud]

If I'm not mistaken, the money in the "Trust Fund" was spent a long time ago. All money beyond what comes in must be made up out of the general fund. I'm not sure it will make a big difference when the "Trust Fund" officially finishes collecting on its IOUs from the general fund except it will be an excuse to implement the 25% hair cut.

Yes, the actual money was spent a long time ago.... but that really does not matter... if you own any gvmt bond, the money that is due to you has been spent and will only 'appear' when it is time to pay you... I have a bit in savings bonds and know full well that there is no money set aside to pay me...

The SS trust fund is just like any other bond or treasury holder... the gvmt only has to pay you when it is time to pay you.... and they can get that money any way they want... usually by borrowing from someone else....

 

[braumeister]

As I see it, the sensible thing to do is take a trip to Parkersburg, West Virginia.

Then go into the building housing the national debt and ask for the IOUs relating to your Social Security entitlements. Cash them in. Then you won't have to worry about this any more and can cheerfully ignore this type of debate.

Anyone up for a road trip?

Social Security to Start Cashing IOUs - CBS News

 

[Cut-Throat]

Yes but your overall assets are lower! You've ignored asset growth (which matters as the 62 year SS guy will have higher assets) and inflation.

At age 70 the person who took SS at 62 will have something like $1.2m say assuming growth of 6.5% a year. The person who took SS at 70 will have $870k. Depending on returns the guy who took SS at 62 could end up with more income at some point in time.

You've fudged the income but at the expense of your assets.

The whole comparison needs to take into account both.

SWR already figures in the Growth or Non-Growth (your 6.5% is a Pure Guess) of a Portfolio. You are looking at the 'Pile' rather than what you can actually spend.

 

[Walt34]

Anyone up for a road trip?http://www.cbsnews.com/news/social-security-to-start-cashing-ious/

I was, for me it's even within driving distance, the wheels were churning until I read the last sentence of this paragraph. Bummer.

One bond is worth a little more than $15.1 billion and another is valued at just under $10.7 billion. In all, the agency has about $2.5 trillion in bonds, all backed by the full faith and credit of the U.S. government. But don't bother trying to steal them; they're nonnegotiable, which means they are worthless on the open market.

 

[Independent]

Yes but your overall assets are lower! You've ignored asset growth (which matters as the 62 year SS guy will have higher assets) and inflation.

At age 70 the person who took SS at 62 will have something like $1.2m say assuming growth of 6.5% a year. The person who took SS at 70 will have $870k. Depending on returns the guy who took SS at 62 could end up with more income at some point in time.

You've fudged the income but at the expense of your assets.

The whole comparison needs to take into account both.

He isn't ignoring asset growth or inflation. The 4% SWR in his example allows for both.

He is saying that both future returns and future inflation are unknown, so any calculation that uses just one sample of each is inadequate.

You are correct that if you die at 70 your heirs will get more money if you started at 62. That's clear. However, if you die at 95 your heirs may get more money if you defer to 70. That's somewhat messier.

For many people here, "How much my heirs may get?" is far down their list of priorities. CT is addressing people who are focused on spending as much as is "prudently" possible in their 60's, and who really aren't concerned about asset amounts along the way (as long as those amounts are positive).

 

[swagjb82]

He isn't ignoring asset growth or inflation. The 4% SWR in his example allows for both.

He is saying that both future returns and future inflation are unknown, so any calculation that uses just one sample of each is inadequate.

You are correct that if you die at 70 your heirs will get more money if you started at 62. That's clear. However, if you die at 95 your heirs may get more money if you defer to 70. That's somewhat messier.

For many people here, "How much my heirs may get?" is far down their list of priorities. CT is addressing people who are focused on spending as much as is "prudently" possible in their 60's, and who really aren't concerned about asset amounts along the way (as long as those amounts are positive).

Oh okay I understand. Pretty interesting idea now that I have wrapped my head around it.

I suppose if you are that worried about what is left to heirs then taking SS at FRA wouldn't be that much different income wise. I ran the numbers and it came out to be $62,257 per year using the same numbers and assuming the FRA was 67. You'd only need to take $139,114 from the $1m to cover the first 5 years between 62 and 67.

social security at 67 $27,822 ($19476/0.7)
$27822 * 5 years stash = $139114
Left $1m - $139114 = $860,886 at 4% = $34,435

TOTAL $34,435 + $27,822 = $62,257

Please correct my math if there is a mistake.