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

[pb4uski]

Greetings:

If you don' t take social security early, the benefit grows at 8%. That's a long term growth rate that's hard to beat and it's certain. ...

People should take Social Security early if they need the money to live on (of course), if they are going to die young for some reason, or if they have other investments that are certain to grow more than 8%.

This is a popular misconception. You are not getting an 8% return. Your benefit increases 8% for each year that you delay, but that is vey different from an 8% return.

Or twisted another way, if you wait from FRA of 67 until 70 to get $24 a year more, if you die at 75 you will only have collected an additional $120... not nearly enough to compensate for having given up $100 a year for 3 years.

Or put another way, if you start at 67 and die at 75 you'll collect $800. If you start at 70 and die at 75 you will only have collected $620.

 

[landover]

Social Security is a pure longevity insurance play. Seeing it as an “investment” with a break even point is misguided. You can’t get inflation-protected longevity insurance at a better price than Social Security offers. Especially for longer living females.

Yes, and just see recent advancements in medical science, people current age less than 60 can easily live to 100. If non-working spouse, better longevity insurance

 

[Dalton]

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.

Keeping my risk constant from 62 to 70 doesn't involve spending down bonds. My equities, on average are expected to return at least twice as much every year, and since I maintain a 70/30 portfolio, most of my spending is from the equity side. That concept isn't affected by whether I decide to collect SS at 62 or at 70. I spend less than the (conservatively) expected growth in my account. I have 35x invested, without SS included, so barring a catastrophic market failure, I don't agree with your presumption, and it's not confusing.

 

[Exchme]

Keeping my risk constant from 62 to 70 doesn't involve spending down bonds. My equities, on average are expected to return at least twice as much every year, and since I maintain a 70/30 portfolio, most of my spending is from the equity side. That concept isn't affected by whether I decide to collect SS at 62 or at 70. I spend less than the (conservatively) expected growth in my account. I have 35x invested, without SS included, so barring a catastrophic market failure, I don't agree with your presumption, and it's not confusing.

To do a good comparison, you must control for your total risk, not just portfolio risk. SS is a secure funding source so maximizing it reduces your risk once you start receiving it, so to properly compare that to taking at 62, the proper comparison is to reduce your bond holdings between 62 and 70.

 

[Gumby]

The way I see it, when I started social security at 62, it decreased my overall risk, so I could increase my portfolio risk by shifting toward equities. I didn't actually do that, but I think I could have. If I had, the higher expected return of that portfolio would push out the breakeven age.

In any event, my claiming decision was not based on any sort of breakeven analysis, and it's a done deal, so I don't worry about it.

 

[almost there]

I took mine early. Have not touched the IRA or Roth in 11 years of ret.
Converted over 1/2 the IRA to Roth prior to taking SS.
For me this makes it even easier to just let the ret. $$ run.
I also believe that not having a pension can make a difference.
As its nice to get outside money if you have a home made ret. plan like myself.
As its cool getting checks in the mail. (Direct dep. But you get the idea)
You could say I waited 11 years in ret to take it at 62 1/.2.
There is some longevity in my family. My dad is still good, drives, lives alone etc at 91.
But also know in the USA the average male in 2024 was 75.
And things like cancer can change pre preconceived family longevity models. So there is that.
Another misconception are the 2 standard reasons some use (early) and (late) as an argument.
Both cases can also be seen as the exact opposite. So, both can be true or neither.
2 Random examples out of 100.

1. "Take early" if you need the money to live on. (Exhausted other streams of income)

2. "Take later" if you need a larger amount of money to live on. (Exhausted other streams of income)

These threads just go in circles. But I still enjoy them.

 

[Dalton]

To do a good comparison, you must control for your total risk, not just portfolio risk. SS is a secure funding source so maximizing it reduces your risk once you start receiving it, so to properly compare that to taking at 62, the proper comparison is to reduce your bond holdings between 62 and 70.

I understand your point, but I'm not going to pretend that I would spend down my fixed income vehicles to try to force this constant level of risk that you are insistent is required to have a "good comparison" of some future possibilities. I've done thousands and thousands of calculations in my years, and every time I do another iteration of a formula, I am changing one or more variables and weighing the outcomes against each other in total. What you prescribe is one iteration. I can have two plans to choose from, and they don't have to be apples to apples on every level for me to decide which one is better for me.

 

[Dtail]

There is no one right answer and that is why this is the most frequent financial topic on this site.

 

[RunningBum]

The way I see it, when I started social security at 62, it decreased my overall risk, so I could increase my portfolio risk by shifting toward equities. I didn't actually do that, but I think I could have. If I had, the higher expected return of that portfolio would push out the breakeven age.

In any event, my claiming decision was not based on any sort of breakeven analysis, and it's a done deal, so I don't worry about it.

Yes, that's a good point about being able to take more risk, unless you do like I do and include the present value of my SS benefit in my NW and AA calcs before I take it.

And similar to you, breakeven analysis is not the main factor in my SS decision. Longevity insurance is. I still look at breakeven, because if my breakeven age is 99 (or some high age) my chance of living that long is too small to "pay" for longevity insurance.

 

[Midpack]

There is no one right answer and that is why this is the most frequent financial topic on this site.

And yet there are still lots of people who don’t understand…among others who do.

 

[pb4uski]

Yes, that's a good point about being able to take more risk,...

But you don't necessarily have to be collecting SS to absorb more risk. Just being able to start SS at any time of your chosing has a similar impact... if risk doesn't pan out then start SS.

 

[Montecfo]

Not true. But it's worthwhile to have the breakeven correct while evaluating the other considerations to arrive at your best claiming age option.

But the actually IS no single "correct" break even. Context is required.

 

[Montecfo]

Greetings:

If you don' t take social security early, the benefit grows at 8%. That's a long term growth rate that's hard to beat and it's certain.

Yet it is not "certain" that you will collect it for even a single month.

Stated differently, every month you let the benefit grow you lose a month on the back-end.

So your benefit does not "grow" in the same sense as an investment does, and it is not comparable to making an investment as you would in a stock or a bond. Instead, you are taking a life expectancy arbitrage risk. I'm not saying that that's not a good risk to take, each of us has to make their own decision. That's why threads like this exist.

But I have seen similar statements to yours made even in financial publications by people who should know better. It's just not certain that that benefit will be received.

 

[rembrandt]

Yet it is not "certain" that you will collect it for even a single month.

Stated differently, every month you let the benefit grow you lose a month on the back-end.

So your benefit does not "grow" in the same sense as an investment does, and it is not comparable to making an investment as you would in a stock or a bond. Instead, you are taking a life expectancy arbitrage risk. I'm not saying that that's not a good risk to take, each of us has to make their own decision. That's why threads like this exist.

But I have seen similar statements to yours made even in financial publications by people who should know better. It's just not certain that that benefit will be received.

Exactly. Like a SPIA, if you wait for the rates to go up before you buy one, you have to account for the payments you lost while you waited.

 

[corn18]

If I were to do this calculation, I would use an inflation adjusted return for a 100% bond portfolio with a duration of 14 years. That would match risks between the taking early and investing vs. waiting.

-2.3% Worst
2.6% Avg
9.18% Max

Doesn't matter to me, though, because the only reason I would take it early is to spend it. Makes the math easy.

 

[pb4uski]

Exactly. Like a SPIA, if you wait for the rates to go up before you buy one, you have to account for the payments you lost while you waited.

But payments aren't all return and you earn investment income on the funds while you are waiting too but I agree with the both of you that some people think that the fact that your benefit grows 8% means that you are getting an 8% return, which is totally wrong.

 

[RunningBum]

Doesn't it totally depend on how long you live?

No, not if you're still referring to what the breakeven number is. If you're referring to something else, you should have quoted it.

The breakeven number is all about the SS benefits you get at each age and your assumed return on investments. I believe the inflation rate might also be a factor because SS benefits are inflation indexed.
Higher return pushes the breakeven age out, lower bring it in. When you die does not change that breakeven number one bit. It can determine when to take SS based on your breakeven number.

If you knew the age you are going to die, you would pick your SS starting age based on which side of the breakeven number you'd fall.

But nobody knows for sure when they'll die, so you make your best guess on your age of death, and consider that against the breakeven number. But you really should consider what the consequences are of dying before your expected age (might leave less to heirs if you had deferred SS) or live beyond your expectations (might have been better to delay for the bigger SS, which would continue to cover your expenses and could leave heirs more money).

All this assumes you can afford to delay SS. And the desire to spend more at an early age is not a factor on when to take SS, as has been enumerated by pb4 and others many times.

 

[corn18]

I took a few of those online surveys and determined I will die at age 83. Makes it a lot easier for planning.

 

[mickeyd]

If you need the dough to live on, take it when needed. If you are in poor health, probably take it ASAP (62). If you can afford to let it ride (like most of us) do so. It is nice that SS gives so many options.

 

[rembrandt]

If you need the dough to live on, take it when needed. If you are in poor health, probably take it ASAP (62). If you can afford to let it ride (like most of us) do so. It is nice that SS gives so many options.

Yes, it is good to have nice things. Hopefully it will last. No good deed goes unpunished.