Break-even SS 62 vs 66 vs 70 calculators ?

[Sandy & Shirley]

I think you are confusing the wage index (measured by the national average wage index) with price inflation (measured by the CPI), they are not the same thing. Social security uses changes in the wage index, not price inflation, to index earnings.

https://www.ssa.gov/oact/cola/awifactors.html

I think the correct inflation number is closer to the $63,525 number cited by bobandsherry.

Actually, I was using the Social Security "Index Factor", but by mistake I used last year's factor of 3.17. The factor this year is 3.19, so the break even for $25,000 is $79,750.

https://www.ssa.gov/pubs/EN-05-10070.pdf

This is the biggest problem when working with figures published by government agencies, each agency uses different calculations. In this case, both numbers come from the same agency, ssa.gov, so I correct my statement to say that each department within each agency used different calculations.

 

[JustCurious]

Actually, I was using the Social Security "Index Factor", but by mistake I used last year's factor of 3.17. The factor this year is 3.19, so the break even for $25,000 is $79,750.

You still do not understand. The indexing factors used by Social Security refer to the National Average Wage Index and they use the wage index to adjust benefits based on changes in average wages over time, that is not the same as price inflation over time which is a different thing and is measured by the CPI. So, if you want to find out what the cost of living is today compared to 1983, you have to use CPI not the social security indexing factors.

Again, using the correct adjustment, the number is $63,525.

This is a common misunderstanding, and I did not understand it myself until recently.

 

[Lawrencewendall]

Certainly, an 8.8% rate will favor an early start for SS.

Do you also use the 8.8% to determine annual withdrawals from your portfolio? It seems that you could withdraw 8.8% every year and never touch the principle.

My plan is to withdraw to the top of the 12% tax bracket (101k) starting at 57 and convert the difference between my expenses and the 101k into a ROTH. I will have 13 years of converting approximately 25k a year until RMDs kick in. The 2 unkowns are my DW's future spending and my future portfolio returns. That's the plan at least. Not really looking at the WR. For me, it's all about spending rate.

 

[Ready-4-ER-at-14]

Medicare fees are based upon earnings basically filed 2 years before so if you earn more in retirement than these amounts you can pay hundreds a month more for Medicare. As I recall without verifying, the highest earning bands pay 2-3x what the base charge is.

per a quick web search I found "Your MAGI is your total adjusted gross income and tax-exempt interest income. If you file your taxes as “married, filing jointly” and your MAGI is greater than $170,000, you'll pay higher premiums for your Part B and Medicare prescription drug coverage."
The bands are relatively generous for married filing together but less so for a single. Above 85k increased costs for Medicare.

So if the amounts of income into retirement are high relative to most you might want to look into this too. Nothing worse than to jump through hoops to gain an advantage only to find an unknown factor eliminates the gain or forbid the thought decreases income.

I expect the intent is still to have the amounts paid out to be roughly the same in total regardless how long I live. I can tell myself the odds do not apply to me re how long i'll live but Las Vegas reminds me that odds do have some truth built in.

 

[jkern]

With so many variables (inflation, taxes, ROI, government rule changes, date of death, etc..) it is virtually impossible to come up with the perfect SS start date. Making multiple assumptions, I'm guessing my break even point to be somewhere in the 80s. Since I believe I can sustain my standard of living even without SS, I'm going to start at age 62. A bird in the hand......

 

[Perryinva]

What a breath of fresh air to read so manu intelligent understandings of why break even is a useless metric. Over at CD it is a constant discussion that goes nowhere. Since most everyone here does not NEED SS to live without a paycheck, the understanding of what it provides as net income insurance and less dependence on market returns is self evident. Over there it’s like trying to explain color to a blind man. One other factor to add is that how many here think they will be Warren Buffect saavy at 85? Do you WANT to take that chance? I’d rather have a larger portion as a tax preferenced COLA annuity automatically as income, then ahve to depend on what may be failing faculties or family members to generate that income in very old age.

 

[Sandy & Shirley]

Since most everyone here does not NEED SS to live without a paycheck, the understanding of what it provides as net income insurance and less dependence on market returns is self evident.

Is that a true statement?
​

Is this site restricted to the mega rich with a minimum of a 6 figure income and savings in the millions?

If so, where do those with average incomes of say $50,000 to $60,000 or those with upper middle class incomes of $60,000 to $99,999 go for information on how to plan for retirement?

 

[ShokWaveRider]

We do not need SS and we fall into the category you note without SS.

 

[mpeirce]

Is that a true statement?

Certainly not everyone here views SS as "gravy" (not necessary), but I expect a pretty large percentage would get by just fine without it.

You could always run a poll on this.

 

[Dtail]

Well let me say that although our spending budget is on the higher side on this site, we definitely are factoring in the need for SS for the DGF and me.
Not saying we couldn't adjust, but have said in previous posts, we don't wish to give up the Travel/Entertainment.

 

[RunningBum]

Generally speaking, it's a bad idea to generalize. Everyone is the same in that they have differences from others.

 

[Independent]

What a breath of fresh air to read so manu intelligent understandings of why break even is a useless metric. Over at CD it is a constant discussion that goes nowhere. .

I'm not familiar with "CD".

 

[Dtail]

I'm not familiar with "CD".

City Data forum.

City-Data.com Forum: Relocation, Moving, General and Local City Discussions

 

[Independent]

My plan is to withdraw to the top of the 12% tax bracket (101k) starting at 57 and convert the difference between my expenses and the 101k into a ROTH. I will have 13 years of converting approximately 25k a year until RMDs kick in. The 2 unkowns are my DW's future spending and my future portfolio returns. That's the plan at least. Not really looking at the WR. For me, it's all about spending rate.

I read your introductory post and saw that you have enough COLA'd pension to cover all your expenses. So SS and savings withdrawals are both nice to have but not critical. In that case, I can see using your "most likely" investment return for analyzing SS.

Other people may need to be more conservative.

 

[Perryinva]

The City Data Retirement forum is more about being ABLE to retire....ever. Most there have to work until their SS allows them to retire, usually with a move to a lower COL area. Not that I am judging as if there is anything wrong with that but financial strength is not the normal talking point over there. Few here would consider their retirement successful if SS was their only source. There is little discussion of the ins and outs of investing for income and tax advantaged strategy. In fact, there is a fair amount of resentment if anyone dares to even discuss strategies with anything approaching a 6 figure income. A solid percentage will have only SS as their retirement income, and truly believe there is nothing wrong with that at all. So it is a very different discussion over there. There are a fair number in here that are over there too.

 

[pb4uski]

Certainly not everyone here views SS as "gravy" (not necessary), but I expect a pretty large percentage would get by just fine without it.

You could always run a poll on this.

+1 we could get by without it... wasn't the plan but it just worked out that way.

 

[Dtail]

The City Data Retirement forum is more about being ABLE to retire....ever. Most there have to work until their SS allows them to retire, usually with a move to a lower COL area. Not that I am judging as if there is anything wrong with that but financial strength is not the normal talking point over there. Few here would consider their retirement successful if SS was their only source. There is little discussion of the ins and outs of investing for income and tax advantaged strategy. In fact, there is a fair amount of resentment if anyone dares to even discuss strategies with anything approaching a 6 figure income. A solid percentage will have only SS as their retirement income, and truly believe there is nothing wrong with that at all. So it is a very different discussion over there. There are a fair number in here that are over there too.

True, but there are some more involved discussions including yourself, Mathjak and others which I find interesting.
Yes in general the conversations would indicate a lower average NW than the ER forum, but Bogleheads is possibly higher.
Each site does have some interesting discussions to varying degrees (to me).

 

[Cessna152]

Is that a true statement?
​

Is this site restricted to the mega rich with a minimum of a 6 figure income and savings in the millions?

If so, where do those with average incomes of say $50,000 to $60,000 or those with upper middle class incomes of $60,000 to $99,999 go for information on how to plan for retirement?

Certainly not everyone here views SS as "gravy" (not necessary), but I expect a pretty large percentage would get by just fine without it.

You could always run a poll on this.

Such a poll was run last summer:

http://www.early-retirement.org/forums/f28/poll-is-ss-a-critical-part-of-your-retirement-plan-87122.html

Summary: 45% said they didn't need or care about SS. About 14% depend entirely on SS to retire. The other 41% depend on SS to some ambiguous degree.

When my wife and I tried to determine when to retire, we assumed SS would be available. We would have needed to work too much longer otherwise.

 

[DrRoy]

You can't solve for breakeven age because there is more than one variable. It depends on inflation, how much you invest, how your assets are invested, and how much they grow. Basically, if you think that you will be short-lived, take it early. If you need the money to survive, take it early. If you think you will have an average life span, take it at FRA. You get the full benefit of delaying to 70 if you live longer than the average bear. Regardless, if you can afford it, I would delay to 70 because I consider SS as longevity insurance and there is no annuity with a guaranteed 8% growth from 67 to 70 with annual COLA increases.

+1 That's how I see it too. Planning to wait for 70.

 

[Perryinva]

That’s why I said most everyone. On a FIRE forum, only a small percentage would depend entirely on SS, as the successful FIREs retired and lived for many years before SS. I recall that poll, and was impressed, and thought maybe 2% on CD would vote for non critical or didn’t care about SS. Probably 40 % entirely, and the remaining 58 % to some degree. There are posters there that like nothing more than to point out that CD is not a typical cross section on America and that the average income is far higher on the forum because of thr generally higher education level. And while I believe that is certainly true, it is nothing to brag about or aspire to. No doubt anyone with a retirement income under $250k would certainly consider $25-60k tax advantaged income important. Without SS (married couple) our income would be less than $100k, so it is a very important consideration for later years, ie longevity insurance. Not critical, early on, but assuming the system stays viable, then eventually my SS will exceed my pension if I live long enough. I’m sure I am about midpoint of retiree income on this site, ut only because I will work to 62. The concept of FIRE was not ever on my radar until maybe 5-6 years ago.

 

[Sandy & Shirley]

No doubt anyone with a retirement income under $250k would certainly consider $25-60k tax advantaged income important.

Yes, that is true for 95% of all American households that have incomes under $250,000.

I do not focus on the 5% who do not care, my focus is on the 43.4% with household income between $50,000 and $150,000. These are the individuals that could be facing marginal tax rates of 49.95% and 40.7% if they do not properly manage the sources of that income.

This is my 66% sized copy of the image, the real copy is located at: https://www.statista.com/graphic/1/203183/percentage-distribution-of-household-income-in-the-us.jpg
But I could not get it to display on the forum.

 

[RunningBum]

That’s why I said most everyone. On a FIRE forum, only a small percentage would depend entirely on SS, as the successful FIREs retired and lived for many years before SS. I recall that poll, and was impressed, and thought maybe 2% on CD would vote for non critical or didn’t care about SS. Probably 40 % entirely, and the remaining 58 % to some degree. There are posters there that like nothing more than to point out that CD is not a typical cross section on America and that the average income is far higher on the forum because of thr generally higher education level. And while I believe that is certainly true, it is nothing to brag about or aspire to. No doubt anyone with a retirement income under $250k would certainly consider $25-60k tax advantaged income important. Without SS (married couple) our income would be less than $100k, so it is a very important consideration for later years, ie longevity insurance. Not critical, early on, but assuming the system stays viable, then eventually my SS will exceed my pension if I live long enough. I’m sure I am about midpoint of retiree income on this site, ut only because I will work to 62. The concept of FIRE was not ever on my radar until maybe 5-6 years ago.

But what you said before was:

"Since most everyone here does not NEED SS to live without a paycheck,"

The poll says we've got 14+41% or 55% (over half) who said they NEED it to at least some degree. That's why people bristled when you said most everyone doesn't need it. It simply wasn't correct. Not even close.

And you're totally guessing on the City-Data numbers so that's pretty meaningless. But yes, I'd expect e-r.org numbers to be better in that regard.

 

[samclem]

The Social Security breakeven question is the wrong question for almost everyone. Figuring the answer is trivially easy, but the answer is meaningless in almost every case.

The more >useful< question is: "Which has a greater expected utility to me (us), a smaller monthly lifetime inflation-adjusted payout that starts earlier (e.g. age 63), or a larger monthly lifetime inflation-adjusted payout that starts later?"

For example, if a person is just scraping by at age 63, the SS check would probably have great utility immediately, and waiting to take SS would significantly reduce his/her quality of life. This is probably more important to them than the higher SS checks they could get if they waited to age 70. The money is more likely to buy more happiness if taken at age 63.

But if, at age 63 a person has investments that they can use to meet their basic spending requirements, but there is some uncertainty about whether these assets will continue to outperform inflation for 30-40 years or so, then waiting to take SS is the path of highest utility. They see that future, larger, inflation-indexed-for-as-long-as-you-live SS check as a good way to reduce the uncertainty of their financial situation down the road. That SS check has greatest expected utility to this person as long-term longevity insurance, and could allow them to safely spend down their own assets at a greater rate, or to accept higher volatility in their investments to get a higher expected return (for use by themselves or their heirs).

There are other factors ("will SS promises be kept?" "will my personal inflation rate match the SS inflation adjustments? etc ), but all of them should best be viewed with regard to how they impact the expected utility of the SS payments (taken now or later). The "breakeven" point means almost nothing.

 

[Chuckanut]

S

Summary: 45% said they didn't need or care about SS. About 14% depend entirely on SS to retire. The other 41% depend on SS to some ambiguous degree.

This makes perfect sense since this is a site for people who wish to retire earlier than 'normal'. If one really needs SS money to retire, then it is logical to assume that they are not well represented in this group since they have to wait until they are 62. Of course FIRE people they may need SS later in life after they have 'blown the dough'.

FWIW, I know a number of people whose need for SS dollars to retire is so great that they will work to 70 as they need every one of those extra dollars.

 

[Dtail]

This makes perfect sense since this is a site for people who wish to retire earlier than 'normal'. If one needs SS money to retire, then it is logical to assume that a early or even earlier retirement is not in the books.

Well yes and no.
One can need SS to retire as part of the overall WR calculation, but just doesn't need it at the point of early retirement. This is my scenario.