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

I ask the one we love and hate, ChatGPT to analyze a person retiring at 62 and earning 6% until they are 70. Then stop all interest and see when the numbers cross for a person that retires at 70. It comes back with 83.6 years. I stopped all interest because I would hope you are spending it all by 70. Chat does agree with no growth, the crossover is 81.
On the other hand, I am very confused by the fact that you are either spending your SS or you are spending from you portfolio. If you spend from your portfolio you are losing 6% growth from that but gaining 6% growth on your saved SS check and vise versa. I guess either way, you have growth.
I'm just relying on, I had more years to Roth convert and my wife will get a bigger check. Our checks begin in April 1 month after my 70th birthday. :)
 
Evee said:
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.
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According to Vanguard the average for a 60/40 portfolio is 7.6%

1738267260190.png
 
mountainsoft said:
I'm sure I am in the minority, but I really don't care what the break even age is.
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I think that minority is probably bigger than you may believe. I thought about breaking even, but that was not my main concern when choosing my age to take SS. As mentioned in an earlier post, as a single man, my goal was to beef up a rather weak pension/SS leg. I don't give a hoot if I breakeven or not.

For those still choosing when to take SS, this is certainly a useful discussion and it should stimulate one to consider a wide range of possible scenarios and their outcomes. I am grateful we have the choices SS gives us. YMMV.
 
Jerry1 said:
I think so. Their formatting is the reverse of our typical format. We usually have equities/fixed and they have fixed/equities.
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According to that graph it’s definitely 8.6% for a 60/40 portfolio. So in the “ discount rate” field one should enter 5.6 % if you want to account for inflation.
 
audreyh1 said:
Married folks should be sure to look at SS benefits for the surviving spouse.
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I was shocked to the very core - that I actually got through to one of my friends about this. We discuss his retirement plans often. (Male, partner in law firm, out earns his wife by quite a lot.) I had discussed with him about taking a joint and survivor of his wife's pension, and to run the numbers on taking her SS first, and his at 70 to provide her with that higher income stream.
 
FREE866 said:
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?
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Yes, that is a real return... after inflation... so if inflation was 3% then it would be a 5.34% nominal return. The rate used there should be the projected inflation-adjusted rate of return of the assets that would be used while delaying SS. As mentioned, many people use their fixed income money while delaying .
 
FREE866 said:
According to that graph it’s definitely 8.6% for a 60/40 portfolio. So in the “ discount rate” field one should enter 5.6 % if you want to account for inflation.
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Got it... I'm used to stocks first and bonds second and that graphic reverses them.
 
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Exchme said:
??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.
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A few different things are being said. My response was to what bada bing posted. And I think it is rather clear that if you claim early, investing in TIPS is about the most conservative course you can take.

Now to your post, I made no assumptions. I simply stated a fact.

But I was not referring to claiming late. If you claim late there is no extra money to invest so not sure how a rate assumption comes into play. But to take the view that the approach is to spend from bonds while you wait, you need to rebalance that at some point classically, which would mean selling stocks.

Now, if you want to defer are wishing to assume a low "opportunity cost" from waiting and you assume the TIPS rate fine. I have no issue with that. But it is the most aggressive case since it is the lowest return assumption.

And that's fine too if we all understand where those assumptions fit on the risk spectrum.

Full disclosure: I am not a proponent of early or late since there is no single answer.
 
^^^ IMO the right answer is to use the estimated real rate of return of the assets that you plan to use to live on while you are deferring SS.

I undersand that Mike and many others prefer to use TIPs rates because TIPs have similar risk characteristics to SS benefits and that is a valid argument, but I think it fall apart if the money funding the delay is from a 60/40 portfolio that is regularly balanced.
 
Montecfo said:
A few different things are being said. My response was to what bada bing posted. And I think it is rather clear that if you claim early, investing in TIPS is about the most conservative course you can take.
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My point was not that investing early SS in TIPS is a recommended course, it is a comment on best modelling practice. There's lots of individually valid reasons for both early and late claiming. There is a time value of money that needs to be accounted for in breakeven modelling. The most appropriate time value of money for breakeven modelling is not whatever rate you attribute to your portfolio allocation, it is the TIPS rate. That doesn't mean that you actually invest in TIPS, it means that any excess return above TIPS rates comes from different assumed risk, not from early claiming. That is the important concept. Yeah, you can claim early and invest for superior returns. But the superior returns don't come from the decision to claim early. They come from the decision, either conscious or unconscious, to alter your overall risk and allocations. And you can choose to alter those whether you claim early or late.
 
pb4uski said:
Yes, that is a real return... after inflation... so if inflation was 3% then it would be a 5.34% nominal return. The rate used there should be the projected inflation-adjusted rate of return of the assets that would be used while delaying SS. As mentioned, many people use their fixed income money while delaying .
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Looks like this is incorrect. When I am on the OSS site under the "discount rate" section it is defined as" The default discount rate is the yield on 20-year TIPS, (which is currently 2.34%)." So that tells me if , for example, if I'm 100% stock and I expect a 5% return on stocks I should input 5 in that field which is nominal rate before inflation. Am I understanding this correctly?
 
pb4uski said:
^^^ IMO the right answer is to use the estimated real rate of return of the assets that you plan to use to live on while you are deferring SS.

I undersand that Mike and many others prefer to use TIPs rates because TIPs have similar risk characteristics to SS benefits and that is a valid argument, but I think it fall apart if the money funding the delay is from a 60/40 portfolio that is regularly balanced.
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But that's the point, you are not keeping your risk constant if you keep your portfolio constant and let the SS benefits vary. You keep your risk constant if you spend down your bonds while waiting for SS. Changing your risk profile when you do comparisons is a sure way to confuse the issue.
 
FREE866 said:
Looks like this is incorrect. When I am on the OSS site under the "discount rate" section it is defined as" The default discount rate is the yield on 20-year TIPS, (which is currently 2.34%)." So that tells me if , for example, if I'm 100% stock and I expect a 5% return on stocks I should input 5 in that field which is nominal rate before inflation. Am I understanding this correctly?
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No, it is correct. TIPs return is the real return. In addition to the 2.34% YTM you also get increases in your par value for inflation between the purchase date and maturity so the nominal return will be the 2.34% plus inflation.

So if you expect 5% on stocks and your expect inflation to be 3% then you would enter 2% in that field in OSS.
 
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Exchme said:
But that's the point, you are not keeping your risk constant if you keep your portfolio constant and let the SS benefits vary. You keep your risk constant if you spend down your bonds while waiting for SS. Changing your risk profile when you do comparisons is a sure way to confuse the issue.
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That's certainly one way to look at it, but I think it is flawed economically. If I delay SS, and all else is equal, then the money needed for spending because I'm delaying SS needs to come from my retirement assets and the economic cost of delay is the return on those assets. If I used bond money then the economic cost is the bond yield that I would have received if I hadn't delayed SS, but that decision to use bond money will cause my AA to drift towards stocks. If I decide to keep my AA then the return that I miss out on is the portfolio return.

I can understand in theory why some of you want to dissect the return as you're advocating, I just don't agree.

I concede that it blends in other factors but it also reflects my projected true economic cost.
 
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bada bing said:
My point was not that investing early SS in TIPS is a recommended course, it is a comment on best modelling practice. There's lots of individually valid reasons for both early and late claiming. There is a time value of money that needs to be accounted for in breakeven modelling. The most appropriate time value of money for breakeven modelling is not whatever rate you attribute to your portfolio allocation, it is the TIPS rate. That doesn't mean that you actually invest in TIPS, it means that any excess return above TIPS rates comes from different assumed risk, not from early claiming. That is the important concept. Yeah, you can claim early and invest for superior returns. But the superior returns don't come from the decision to claim early. They come from the decision, either conscious or unconscious, to alter your overall risk and allocations. And you can choose to alter those whether you claim early or late.
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As a theoretical exercise, I agree with you.

But as a real world concept I think that is less useful than it might be. Just about no one is invested 100% in TIPS. And given that, you ultimately have to sell equities or change your allocation, a point I made up-thread. Both of these activities involve risk and it is a good thing- risk is why we are able to retire early or otherwise.

And so I can see the TIPS rate as a base case. But for most folks that would be skewing the results of the analysis compared to the investor's actual real world plans. It would understate the real world benefits of claiming early, and overstate the real world benefits of deferring compared to an estimate of the investor's expected rate.
 
pb4uski said:
No, it is correct. TIPs return is the real return. In addition to the 2.34% YTM you also get increases in your par value for inflation between the purchase date and maturity so the nominal return will be the 2.34% plus inflation.

So if you expect 5% on stocks and your expect inflation to be 3% then you would enter 2% in that field in OSS.
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Gotcha. Didn't realize that TIPS are inflation adjusted.
 
Exchme said:
But that's the point, you are not keeping your risk constant if you keep your portfolio constant and let the SS benefits vary. You keep your risk constant if you spend down your bonds while waiting for SS. Changing your risk profile when you do comparisons is a sure way to confuse the issue.
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As I noted in my original contribution to this thread, I acknowledge that the risk is not the same if the rate used in the model is for equities, not TIPS. But spending down bonds, if you have enough of those, will change you from maintaining fixed asset allocation targets to variable. That's another thing I'm not going to be doing (along with buying TIPS).

If one compares between two things that are the two real options, and acknowledges the risk difference, that's good enough for me. Given the long time frame of the analysis, I'm comfortable with the risk. Certainly you can buy-down your risk, but it's not something I need to do.
 
Exchme said:
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).
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This!

SS claiming age should be considered in the larger context of retirement finances, not as a stand-alone options.
 
pb4uski,

I haven't seen it suggested otherwise on these boards, but - I've often seen breakeven analyses on these boards presented as if they were stand-alone on When To Take Social Security threads.
 
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