Life of Social Security Fund ??

[youbet]

I'll ignore your rudeness... but please educate me how you are eligible for SS retirement benefits but that your DW can't collect on yours. I believe you but I'm just not aware of what situations where tha would occur and have never heard of such a thing.

There was no rudeness meant pb4uski. Your analysis is from the viewpoint of your own situation, not atypical of folks skilled at quantitative analysis such as yourself. Nothing implied beyond that.

My DW cannot collect on my SS record because of GPO, a SS provision discussed in detail on this forum many times and a number of folks here have it as part of their financial planning lives.

But my viewpoint on how I handled SS for myself (certainly NOT saying it applies to you in any way) is that when you have a person or an organization in your life you wish to have benefit from your SS but who cannot collect on your SS record, then starting SS early and investing the payments is an option to consider. The person might be a spouse impacted by GPO, a child, a niece or nephew, a sibling, a life-partner, a grandchild, an organization such as a church or charity, etc. Anyone you would like to see benefit from your SS benefits but doesn't qualify to collect on your record.

 

[Gumby]

The GPO totally eliminating any spousal or survivor benefits for the young wife, and her ineligibility for SS on her own, is precisely why I started SS at 62. When I die, the SS stops entirely. By taking at 62, there will be more money remaining in the portfolio for her to use once I'm gone.

 

[pb4uski]

Thank you for that well thought out breakdown.



Couple thoughts:


-The COLA feature is HUGE for sure


-Re the time value of money if the money I took early grew at say 8% instead of 5% in your example that I guess would buffer the case for taking it earlier right?

It would but it gets a little complicated in that since the SS benefits are COLAed you need to use a real interest rate rather than a nominal interest rate and a 5% real rate would be very high. 8% would be outrageous IMO. If you visit opensocialsecurity.com you will notice that they use a real discount rate in their present value calculations.

 

[pb4uski]

There was no rudeness meant pb4uski. Your analysis is from the viewpoint of your own situation, not atypical of folks skilled at quantitative analysis such as yourself. Nothing implied beyond that.

My DW cannot collect on my SS record because of GPO, a SS provision discussed in detail on this forum many times and a number of folks here have it as part of their financial planning lives.

But my viewpoint on how I handled SS for myself (certainly NOT saying it applies to you in any way) is that when you have a person or an organization in your life you wish to have benefit from your SS but who cannot collect on your SS record, then starting SS early and investing the payments is an option to consider. The person might be a spouse impacted by GPO, a child, a niece or nephew, a sibling, a life-partner, a grandchild, an organization such as a church or charity, etc. Anyone you would like to see benefit from your SS benefits but doesn't qualify to collect on your record.

Well, it certainly was rude IMO but we can agree to disagree on that. All you needed to do was to include that it was "due to GPO"... 3 critical words... in posts 88 or 92 of this thread... there was no need to be nasty.

In December 2022, 734,601 Social Security beneficiaries, or about 1% of all beneficiaries, had their benefits reduced by the GPO.

So my characterizing it as "unusual" as I did in post 91 isn't outrageous.

And I agree that taking early makes sense in such circumstances, just like it often makes sense to take early if one has children in there early to mid teens when they turn 62, which is even more unusual than GPO.

 

[FREE866]

It would but it gets a little complicated in that since the SS benefits are COLAed you need to use a real interest rate rather than a nominal interest rate and a 5% real rate would be very high. 8% would be outrageous IMO. If you visit opensocialsecurity.com you will notice that they use a real discount rate in their present value calculations.

OK...my comment was based on your comment of:
All of the above excludes the time value of money, but $700 invested per month earning 5% annually would be $82,418 after 8 years.

So what I'm saying is , in your example, IF I took the $700 early withdrawal and invested it and made 8% and not 5% it would be worth much more than 82K....and given stock market returns 8% wouldn't be out of the question
Follow?

 

[RunningBum]

OK...my comment was based on your comment of:
All of the above excludes the time value of money, but $700 invested per month earning 5% annually would be $82,418 after 8 years.

So what I'm saying is , in your example, IF I took the $700 early withdrawal and invested it and made 8% and not 5% it would be worth much more than 82K....and given stock market returns 8% wouldn't be out of the question
Follow?

My personal view on this is if the stock market does well and makes something like 8%, I'll be in great financial shape even if I make the "wrong" financial decision by delaying my SS payments.

But if the stock market does poorly, SS becomes a more important factor for me. I'd much rather get the decision "right" for this situation, which means I shouldn't start SS early.

So I'd rather cover the situation where SS is more important than try to maximize my SS benefit.

This benefits my heirs too. If I die before starting SS or before a breakeven point, I should still have plenty of investment money left, even if I did chew through some of it from 62 to 70. And if the market does well, I should also be leaving plenty of money for them, no matter when I start SS. If I live long, or the market does poorly, odds are that my best decision for them as well as for myself is to delay SS.

This is why longevity insurance is a much more important factor to me than trying to optimize my SS benefit, so I shrug off the "what if the market does great" question.

The wild card is how the SS shortfall is addressed. That could make my so-called longevity insurance too expensive to "buy", meaning I might be giving up too much by delaying SS.

 

[rkser]

Another SS related question,

Can DW claim her SS at 62 or will we be better off to wait till her FRA of 67 yrs of age ?

Her Social Security benefit -
At age 62 her own SS benefit will be $1209
At age 62 her spousal benefit will be $958, (I will need to be drawing at age 67 of around $2948)
At age 67 (FRA) will be @1717


My Social Security if claimed today, i.e a few months after my FRA (of 66 + few months) is $2948,
& if claimed at age 70 is projected to be $3713

I am 66, higher earner of the two and was planning to wait till 70,
DW is approaching 62,

When I will be 70, she will be 65, - ( that is another possibility we can look into at that point in time.)

We are retired & fortunate to be financially independent & our present living expenses are purely from our investment portfolio at S/B -67/33. Our present income is some from the dividends & some from the selling of our taxable accounts.
We just do Roth conversions from my IRA,

I appreciate your input, thankyou in advance.

 

[RunningBum]

Did you run your numbers through opensocialsecurity.com as suggested in post 4?

 

[MissMolly]

Can DW claim her SS at 62 or will we be better off to wait till her FRA of 67 yrs of age ?

Her Social Security benefit -
At age 62 her own SS benefit will be $1209
At age 62 her spousal benefit will be $958, (I will need to be drawing at age 67 of around $2948)
At age 67 (FRA) will be @1717


My Social Security if claimed today, i.e a few months after my FRA (of 66 + few months) is $2948,
& if claimed at age 70 is projected to be $3713

I am 66, higher earner of the two and was planning to wait till 70,
DW is approaching 62,

When I will be 70, she will be 65, - ( that is another possibility we can look into at that point in time.)

We are retired & fortunate to be financially independent & our present living expenses are purely from our investment portfolio at S/B -67/33. Our present income is some from the dividends & some from the selling of our taxable accounts.
We just do Roth conversions from my IRA,

I appreciate your input, thankyou in advance.

One can no longer choose between spousal/own benefit. When she files for SS she will get the highest amount she is eligible for on that day.

 

[rkser]

Yes I did, open social security.com recommended -

DW file for her own SS at age 62, few months &
I file for mine at age 70

 

[pb4uski]

Yes I did, open social security.com recommended -



DW file for her own SS at age 62, few months &

I file for mine at age 70

I think that is the typical optimal solution for your situation as you described it.

 

[RunningBum]

Yes I did, open social security.com recommended -

DW file for her own SS at age 62, few months &
I file for mine at age 70

That sounds right. Being single I avoid giving advice for couples for SS since I don't know all of the special situations, but I figured that'd probably be what it says.

 

[audreyh1]

Yes I did, open social security.com recommended -

DW file for her own SS at age 62, few months &
I file for mine at age 70

I usually click on “more options” or whatever it is called and select a better health statistics option since DH and I are non-smokers and generally in good health.

 

[N02L84ER]

Yes I did, open social security.com recommended -

DW file for her own SS at age 62, few months &
I file for mine at age 70

I agree with the open social security recommendation unless you are doing large Roth conversions and/or she qualifies for large PTC (health insurance credits), then she may want to wait until age 65 to begin collecting.

 

[youbet]

And I agree that taking early makes sense in such circumstancesn

It isn't just spouses impacted by GPO. I stated in an earlier post:

when you have a person or an organization in your life you wish to have benefit from your SS but who cannot collect on your SS record, then starting SS early and investing the payments is an option to consider. The person might be a spouse impacted by GPO, a child, a niece or nephew, a sibling, a life-partner, a grandchild, an organization such as a church or charity, etc. Anyone you would like to see benefit from your SS benefits but doesn't qualify to collect on your record.

Anyone who wants to provide a benefit derived from their SS for someone not entitled to collect on their record could consider the advantage of taking SS early and investing it to accomplish that goal. It's NOT just the specific case, as in my situation, of a spouse impacted by GPO. My situation is just one example of a general situation that impacts single folks and married folks with a non-eligible spouse.

 

[MichaelB]

Anyone who wants to provide a benefit derived from their SS for someone not entitled to collect on their record could consider the advantage of taking SS early and investing it to accomplish that goal. It's NOT just the specific case, as in my situation, of a spouse impacted by GPO.

I too took earlier that I would have liked, and we are not affected by GPO. DW had no earning record of her own and could not begin collecting until I filed, so I filed at 65 and should have filed even earlier.

 

[Out-to-Lunch]

The GPO totally eliminating any spousal or survivor benefits for the young wife, and her ineligibility for SS on her own, is precisely why I started SS at 62. When I die, the SS stops entirely. By taking at 62, there will be more money remaining in the portfolio for her to use once I'm gone.

(Emphasis added.)

I agree that the lack of survivor benefits argues against waiting until later to file. However, you don't know the veracity of the bolded statement unless you know when you will die.

 

[RetiredAt55.5]

My oldest brother and his DW both started collecting SS at age 62. He was the high earner, and she didn't have much income over the years. They were both of the "take the money and run" mindset.

They didn't plan on him getting brain cancer and passing a year later at 63.

Now, she forever receives just his reduced age 62 benefit.

It is a worst case scenario, but they rolled the dice and lost. YMMV.

 

[audreyh1]

My oldest brother and his DW both started collecting SS at age 62. He was the high earner, and she didn't have much income over the years. They were both of the "take the money and run" mindset.

They didn't plan on him getting brain cancer and passing a year later at 63.

Now, she forever receives just his reduced age 62 benefit.

It is a worst case scenario, but they rolled the dice and lost. YMMV.

What would she have gotten as a survivor if neither had started SS?

 

[pb4uski]

It looks like a surviving spouse gets what the deceased would get but can start as early as 60 rather than 62 but the benefit maxes out at FRA.... but the surviving spouse can't get delayed retirement credits by waiting after FRA.

These are examples of the benefits that survivors may receive:

• Surviving spouse, full retirement age or older — 100% of the deceased worker's benefit amount.
• Surviving spouse, age 60 — through full retirement age — 71½ to 99% of the deceased worker's basic amount.

 

[audreyh1]

But if the deceased worker never had started SS what then? Their benefit at their age of death? Or their FRA?

 

[yclipse]

> The trust fund is the excess of collections plus interest over payments accumulated through approx 2019.

This is inaccurate. The "trust funds" are essentially the current checking accounts for the two Social Security programs. Money comes in and money is paid out daily. The two SS trust funds each maintain an "asset reserve," essentially a savings account, to which excess funds are added and from which funds may be drawn when needed to pay shortfalls. That reserve has built up over the decades since the 1940s, and the balance in the OAI reserve has been well over $2 trillion since 2006. The program has added to the reserve (deposited excess funds to the savings account) each year since 1984 with only two exceptions: 2018 and 2021, the last year for which we have a trustee's report. The total OAI asset reserve for 2021, after the withdrawal from the savings account, was over $2.75 trillion.

 

[MissMolly]

But if the deceased worker never had started SS what then? Their benefit at their age of death? Or their FRA?

It depends. If the survivor claims survivor benefits prior to their own FRA, they would receive a reduced amount (between 71.5% - 99%) based on their age and calculated on the deceased persons full retirement age amount. If the survivor waits until they are FRA, they would receive 100% of the deceased person's full retirement age amount.

ETA: the above is assuming the deceased was not yet FRA at death. If the deceased was FRA or greater then the same percentages apply but would be based on what the deceased was entitled to on their date of death.

 

[Rianne]

But if the deceased worker never had started SS what then? Their benefit at their age of death? Or their FRA?

Good question. Or if the deceased is older than FRA, was waiting until 70. Does the surviving spouse get benefits at FRA of the deceased?

 

[Gumby]

(Emphasis added.)

I agree that the lack of survivor benefits argues against waiting until later to file. However, you don't know the veracity of the bolded statement unless you know when you will die.

(Emphasis added.)

I agree that the lack of survivor benefits argues against waiting until later to file. However, you don't know the veracity of the bolded statement unless you know when you will die.

I should have been more specific. There will be more for her during the period I am most concerned about, which is the event of my death before the break even point, which is when she will most need it.

To illustrate:

Common assumptions - Assume that everything inflates at the same rate so use current real dollars. Assume FRA is 67 and that SS at 62 = 0.7 x SS at 67.

Scenario A -- Spending is $100k per year and that $25k comes from SS taken at 62 and the balance ($75k) from a 4% draw on a portfolio of $1.875M.

Scenario B -- Spending is $100k per year, covered for the first 5 years entirely by draw on portfolio and after year 5 (age 67) by $35.7k from SS and $64.3k from draw on portfolio.

1st Question: When will portfolio value of B be larger than A?

A: Portfolio stays at $1.875M

B: 1st 5 years - portfolio decreases to $1.750M = 1.875M - (5 yrs x $25k/yr). Subsequently, portfolio increases by $10.7 per year, representing the extra SS at FRA.

Answer: At my age 78.7 = 67 + (125/10.7)

If I assume that the portfolio performance actually exceeds inflation as it has for most of my life, this age will only increase, as unspent money in the portfolio for the first 16.7 years will compound for a longer time.

2nd question: If I die at the break even point, how much will the young wife be able to spend for the rest of her life? What if it is sooner? Later?

Answer: Under Scenario A - At the break even point and at all times both prior and after, she can spend $75k per year once I am gone, because that's what the portfolio will support . Under Scenario B, if I die before the break even point, she will be forced to spend less than $75k per year (and still follow the 4% rule). Thus, for instance, if I die the day before my 67th birthday, she could spend only $70k per year (all from the portfolio). If I die after the break even point, she could spend more than $75k/year, but that amount will increase by only $478 per year that I live after that point (= $10.7k/year extra SS added to the portfolio x 4%) or 0.63%.

*****

A more likely event is that she will want to continue spending close to $100k per year after I die, since the Gumby-specific spending is not a large proportion of our total. Up until the break even point, around my age 79, the portfolio will be larger and will last longer with spending exceeding the 4% rule. After the break even point, the portfolio will not be as large as it could have been had I taken SS at FRA, but it also has to last fewer years, since she herself will be 77.

To bridge the difference between the $75k in income that I have thus secured by taking SS early and $100k of spending, I also have a fully paid up whole life policy, which, if the death benefit is taken as an annuity, will fully make up the shortfall. And the later I die, the better the annuity rate will be for her and the higher her income.

In sum, I am concerned only with maintaining her income after I am no longer here. We have no heirs, so I am unconcerned with either maximizing the total amount of SS received or the amount of money at the end of our lives.