Buddy of mine keeps telling everyone Soc Sec breakeven age is 86?

[ransil]

I downloaded a spreadsheet somewhere either here or Bogleheads that runs the numbers to show the brek even.

 

[Chuckanut]

One thing to remind people is that it’s not a binary choice between 62 and 70. There are nearly 100 points between these two ages when a person can choose to turn on SS payments.

One good thing about choosing a later start for SS is that you can easily change your mind anytime. But, Start at 62 and you have a few months at the beginning to change your mind. After that, you are locked in. Granted most people who start at 62 need the money ASAP, and will never change their mind.

 

[Montecfo]

I just started reading a new book and it said 95% of our decisions are based on our feelings, not on facts. . . It started talking about people with brain injuries that can no longer make the simplest of decisions (like what to eat for lunch) . . .

Yes. Same reason average people who invest underperform the market. Emotions are not your friend as an investor or with SS claiming strategy.

 

[jazz4cash]

I just started reading a new book and it said 95% of our decisions are based on our feelings, not on facts. . . It started talking about people with brain injuries that can no longer make the simplest of decisions (like what to eat for lunch) . . .

Sounds about right. I had some discussion with work colleagues that were mostly in the take it ASAP group. I believe they were primarily influenced by one of our loudmouth buddies. I couldn’t just sit there without speaking up. After a bit I realized they only wanted to hear info to confirm what they already believed. When I mentioned RMDs they looked at me in disbelief and suddenly I was the bad guy.

 

[JohnDoe]

I ran my own break even numbers. Of course it depends on if I keep working or retire anytime before 62. My break even age is 77-78 years old taking it at 65, 67, and 70 vs 62.

 

[Evee]

I was a low income worker. I just ran the numbers the break even age is 74.5 for 62 vs 70 Could that be right?

 

[latexman]

I was a low income worker. I just ran the numbers the break even age is 74.5 for 62 vs 70 Could that be right?

Show your work, otherwise how do we know? But, probably not.

 

[Exchme]

I was a low income worker. I just ran the numbers the break even age is 74.5 for 62 vs 70 Could that be right?

You've done something wrong. Regardless of size, SS benefits grow in a predictable way when deferred and are adjusted for inflation, so the easiest way to do an analysis is ignore inflation and just enter the real rate of return you want for having taken the risk of deferring benefits. If you were looking for a simple payout with no discount rate above inflation, that would still be about age 79.3.

The most sensible action is to spend down bonds while waiting to claim SS as a larger SS benefit reduces your need for the security of bonds. So you can look at the current real yield of long TIPS (since SS is lifelong and inflation adjusted, you should compare to a long term, inflation adjusted product). Long TIPS are currently yielding about 2.34%. That would give you a breakeven age of 82.0. It has been wobbling around between 2% (age 81.5 breakeven) and 2.5% (age 82.3 breakeven).

The individual breakeven ages are much less important for many than maximizing ACA premium credits, making room for Roth Conversions or optimizing benefits for married couples (where the larger earner is incentivized to maximize benefits).

 

[audreyh1]

^^

 

[sengsational]

I think it really comes down to what rate you use for investment returns. I believe the 81 is based on a real conservative rate. Use the 10, 20 or 30 year S&P 500 return yield and it lengthens significantly.

This.

I remember what blew my mind when I did the hard math (including time value of money, which is not as easy to comprehend, but is really the more accurate way), was that

"By taking SS at 62, you can spend MORE in retirement and get LESS from Social Security." All you gotta do is make a "good" return, not a completely unreasonably high one. True that risk is not the same, but an historical rate for your target asset allocation is the most likely rate, just not the most conservative.

Break-even is a distraction, IMO. The money you spend in retirement can come directly from SS but also from earnings on portfolio value you didn't spend. Different sources spend the same way.

 

[Evee]

You've done something wrong. Regardless of size, SS benefits grow in a predictable way when deferred and are adjusted for inflation, so the easiest way to do an analysis is ignore inflation and just enter the real rate of return you want for having taken the risk of deferring benefits. If you were looking for a simple payout with no discount rate above inflation, that would still be about age 79.3.

The most sensible action is to spend down bonds while waiting to claim SS as a larger SS benefit reduces your need for the security of bonds. So you can look at the current real yield of long TIPS (since SS is lifelong and inflation adjusted, you should compare to a long term, inflation adjusted product). Long TIPS are currently yielding about 2.34%. That would give you a breakeven age of 82.0. It has been wobbling around between 2% (age 81.5 breakeven) and 2.5% (age 82.3 breakeven).

The individual breakeven ages are much less important for many than maximizing ACA premium credits, making room for Roth Conversions or optimizing benefits for married couples (where the larger earner is incentivized to maximize benefits).

Here are the numbers 62=864 70=1522
I went 864*12=10,386*8 years=83,088 then 1522*12=18,264
83,088/18,264=4.54 years

 

[Montecfo]

Here are the numbers 62=864 70=1522
I went 864*12=10,386*8 years=83,088 then 1522*12=18,264
83,088/18,264=4.54 years

You did not account for the $864.70 for the years after age 70. Your analysis assumes that goes to zero at age 70.

 

[Evee]

You did not account for the $864.70 for the years after age 70. Your analysis assumes that goes to zero at age 70.

Ok Thanks.

 

[Evee]

You've done something wrong. Regardless of size, SS benefits grow in a predictable way when deferred and are adjusted for inflation, so the easiest way to do an analysis is ignore inflation and just enter the real rate of return you want for having taken the risk of deferring benefits. If you were looking for a simple payout with no discount rate above inflation, that would still be about age 79.3.

The most sensible action is to spend down bonds while waiting to claim SS as a larger SS benefit reduces your need for the security of bonds. So you can look at the current real yield of long TIPS (since SS is lifelong and inflation adjusted, you should compare to a long term, inflation adjusted product). Long TIPS are currently yielding about 2.34%. That would give you a breakeven age of 82.0. It has been wobbling around between 2% (age 81.5 breakeven) and 2.5% (age 82.3 breakeven).

The individual breakeven ages are much less important for many than maximizing ACA premium credits, making room for Roth Conversions or optimizing benefits for married couples (where the larger earner is incentivized to maximize benefits).

One more question if I could earn 6% what would the break even age be?

 

[finnski1]

Here are the numbers 62=864 70=1522
I went 864*12=10,386*8 years=83,088 then 1522*12=18,264
83,088/18,264=4.54 years

864X=1522(X-96) X=222months or 18.5 years. SO 62+18.5 =80.5 years old.

 

[FREE866]

One more question if I could earn 6% what would the break even age be?

My sense is if you're earning 6% on the money you'd be drawing on before taking SS then the breakeven age would be higher...like late 80s....thats what the open SS calculator indicates

 

[pb4uski]

I wonder if the OPs friend was sophisticated enough to include the time value of money because most people aren't and don't. If that is the case, then the OP's friend is definitely wrong.

If one is looking at the difference between 62 and 70, a breakeven of 86 equats to a real rate of return of 4.16%. Assuming 3% inflation, that would equate to a nominal return of 7.16% which is in the ballpark with the historical return on a 60/40 portfolio. So to say breakeve is 86 isn't outrageous if one includes the time value of money and has a ~60/40 AA.

 

[pb4uski]

My sense is if you're earning 6% on the money you'd be drawing on before taking SS then the breakeven age would be higher...like late 80s....thats what the open SS calculator indicates

No, I don't think so. Assuming 3% inflation, the breakeven point with a 3% real rate of return comparing 62 to 70 would be between 83 and 84 based on the differential cash flows.

​	SS at 62​	SS at 70​	Difference​	Real IRR​
62​	70​	​	-70​	​
63​	70​	​	-70​	​
64​	70​	​	-70​	​
65​	70​	​	-70​	​
66​	70​	​	-70​	​
67​	70​	​	-70​	​
68​	70​	​	-70​	​
69​	70​	​	-70​	​
70​	70​	124​	54​	​
71​	70​	124​	54​	​
72​	70​	124​	54​	​
73​	70​	124​	54​	​
74​	70​	124​	54​	​
75​	70​	124​	54​	​
76​	70​	124​	54​	​
77​	70​	124​	54​	​
78​	70​	124​	54​	​
79​	70​	124​	54​	-0.40%​
80​	70​	124​	54​	0.62%​
81​	70​	124​	54​	1.48%​
82​	70​	124​	54​	2.20%​
83​	70​	124​	54​	2.81%​
84​	70​	124​	54​	3.33%​
85​	70​	124​	54​	3.77%​
86​	70​	124​	54​	4.16%​
87​	70​	124​	54​	4.50%​
88​	70​	124​	54​	4.80%​
89​	70​	124​	54​	5.06%​
90​	70​	124​	54​	5.29%​
91​	70​	124​	54​	5.49%​
92​	70​	124​	54​	5.67%​
93​	70​	124​	54​	5.83%​
94​	70​	124​	54​	5.97%​
95​	70​	124​	54​	6.10%​
96​	70​	124​	54​	6.22%​
97​	70​	124​	54​	6.32%​
98​	70​	124​	54​	6.41%​
99​	70​	124​	54​	6.50%​
100​	70​	124​	54​	6.57%​

 

[Evee]

I wonder if the OPs friend was sophisticated enough to include the time value of money because most people aren't and don't. If that is the case, then the OP's friend is definitely wrong.

If one is looking at the difference between 62 and 70, a breakeven of 86 equats to a real rate of return of 4.16%. Assuming 3% inflation, that would equate to a nominal return of 7.16% which is in the ballpark with the historical return on a 60/40 portfolio. So to say breakeve is 86 isn't outrageous if one includes the time value of money and has a ~60/40 AA.

No, I don't think so. Assuming 3% inflation, the breakeven point with a 3% real rate of return comparing 62 to 70 would be between 83 and 84 based on the differential cash flows.

​	SS at 62​	SS at 70​	Difference​	Real IRR​
62​	70​	​	-70​	​
63​	70​	​	-70​	​
64​	70​	​	-70​	​
65​	70​	​	-70​	​
66​	70​	​	-70​	​
67​	70​	​	-70​	​
68​	70​	​	-70​	​
69​	70​	​	-70​	​
70​	70​	124​	54​	​
71​	70​	124​	54​	​
72​	70​	124​	54​	​
73​	70​	124​	54​	​
74​	70​	124​	54​	​
75​	70​	124​	54​	​
76​	70​	124​	54​	​
77​	70​	124​	54​	​
78​	70​	124​	54​	​
79​	70​	124​	54​	-0.40%​
80​	70​	124​	54​	0.62%​
81​	70​	124​	54​	1.48%​
82​	70​	124​	54​	2.20%​
83​	70​	124​	54​	2.81%​
84​	70​	124​	54​	3.33%​
85​	70​	124​	54​	3.77%​
86​	70​	124​	54​	4.16%​
87​	70​	124​	54​	4.50%​
88​	70​	124​	54​	4.80%​
89​	70​	124​	54​	5.06%​
90​	70​	124​	54​	5.29%​
91​	70​	124​	54​	5.49%​
92​	70​	124​	54​	5.67%​
93​	70​	124​	54​	5.83%​
94​	70​	124​	54​	5.97%​
95​	70​	124​	54​	6.10%​
96​	70​	124​	54​	6.22%​
97​	70​	124​	54​	6.32%​
98​	70​	124​	54​	6.41%​
99​	70​	124​	54​	6.50%​
100​	70​	124​	54​	6.57%​

The Long term average for a 60/40 is 8.6% I have a 60/40 I wanted to be conservative so I used 6% maybe I should have used 6.5%. With family history I am leaning towards taking it early. You also have been paid if you happen to die younger than you expected. That is worth something to. I want to thank everybody here I have learned so much today.

 

[bada bing]

"By taking SS at 62, you can spend MORE in retirement and get LESS from Social Security." All you gotta do is make a "good" return, not a completely unreasonably high one. True that risk is not the same, but an historical rate for your target asset allocation is the most likely rate, just not the most conservative.

If you make no attempt to equalize risk, all your model is doing is showing that a riskier position has a higher expected return, but also a higher standard deviation. TIPs are the best (but not perfect) risk matched proxy for the time value of money for SS deferral. Everyone is free to construct whatever models they want, but you don't have to take SS early to increase your equity exposure. If you want more equity risk/return, just increase your equity allocation. The two choices, SS deferral and equity exposure, are independent of each other. Just another way of saying spend only from bond allocation for money to replace early claimed SS checks if you want a closer to apples:apples comparison.

 

[Montecfo]

If you make no attempt to equalize risk, all your model is doing is showing that a riskier position has a higher expected return, but also a higher standard deviation. TIPs are the best (but not perfect) risk matched proxy for the time value of money for SS deferral. Everyone is free to construct whatever models they want, but you don't have to take SS early to increase your equity exposure. If you want more equity risk/return, just increase your equity allocation. The two choices, SS deferral and equity exposure, are independent of each other. Just another way of saying spend only from bond allocation for money to replace early claimed SS checks if you want a closer to apples:apples comparison.

Sure. But if the investor is not planning to invest the new money in TIPS I am not sure how valuable that number is except as just a conservative case

 

[Exchme]

Sure. But if the investor is not planning to invest the new money in TIPS I am not sure how valuable that number is except as just a conservative case

??Please re-read what bada bing wrote. The idea is to not spend down your stocks while you wait, spend from bonds instead.

Don't make the assumption that the only way to finance the wait for SS is to spend from stocks and then decide that you don't want to sell stocks so you don't want to wait. No one is forcing you to sell stocks to finance the wait. It actually keeps the risk/reward of your retirement finances more constant if you don't sell stocks, the bonds you sell provide similar security to your retirement (though bonds are not quite as good) as the bigger social security benefits you get from waiting.

 

[FREE866]

No, I don't think so. Assuming 3% inflation, the breakeven point with a 3% real rate of return comparing 62 to 70 would be between 83 and 84 based on the differential cash flows.

​	SS at 62​	SS at 70​	Difference​	Real IRR​
62​	70​	​	-70​	​
63​	70​	​	-70​	​
64​	70​	​	-70​	​
65​	70​	​	-70​	​
66​	70​	​	-70​	​
67​	70​	​	-70​	​
68​	70​	​	-70​	​
69​	70​	​	-70​	​
70​	70​	124​	54​	​
71​	70​	124​	54​	​
72​	70​	124​	54​	​
73​	70​	124​	54​	​
74​	70​	124​	54​	​
75​	70​	124​	54​	​
76​	70​	124​	54​	​
77​	70​	124​	54​	​
78​	70​	124​	54​	​
79​	70​	124​	54​	-0.40%​
80​	70​	124​	54​	0.62%​
81​	70​	124​	54​	1.48%​
82​	70​	124​	54​	2.20%​
83​	70​	124​	54​	2.81%​
​	​	​	​	​
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So when I go to the Open Social Security calculator and the default rate for the discount rate is 2.34%. Thats an inflation adjusted number?

 

[FREE866]

??Please re-read what bada bing wrote. The idea is to not spend down your stocks while you wait, spend from bonds instead.

But what if you , as in my case, only have stocks?

 

[mountainsoft]

I'm sure I am in the minority, but I really don't care what the break even age is. I look at what our monthly expenses are, and determine what income we need to pay those expenses. If my SS amount at 62 covers those needs, that's all I care.

Would my "lifetime benefits" be higher by waiting? Sure. They would also be higher if I worked another year or two. I would rather enjoy life at an earlier age than worry whether I'll end up with more money in my 80's. There's no guarantee I'll even make it to my 80's.

Also, SS is just part of our income. Delaying SS means we have to spend down our savings while we wait. SS ends when I die, our savings doesn't. I would rather preserve our savings, for emergencies, or to pass on to our daughter.