Social Security future? Applying at 62?

[rayvt]

My only concern is I do not consider SS & Medicare Payment a Tax. It is an investment/insurance in our future that We make from OUR OWN Pockets. Like an insurance policy it is a "Promise to Pay". I think any reduction in SS or lack of Medicare services is a result of lack of forethought. Therefore it is foreseen and should be corrected early. Just letting it break is not an option IMHO. If we know it will break in 2034, we are obliged to fix it, even if it means raising the percentages of what the pre-eligible folk are paying. I really hope and think that will be the eventual outcome.

It doesn't really matter if you consider it a tax or investment/insurance. What matters is what the GOVERNMENT considers it. And that is very clear, and was solidified by a Supreme Court ruling several years ago.

FICA (SS & Medicare tax) is a tax, and is not any sort of "Promise to Pay". You have no property right to an SS benefit. Paying the SS tax and collecting an SS benefit are only connected in our minds. Legally there is no connection.

Too, what you (or I) think "should" be done is immaterial, and nobody is "obligated" to fix it.

 

[pb4uski]

..... The bottom line is that $59k/yr from a $1M portfolio is a 5.9% WR, no matter how much “financial engineering” is done. That might be OK for some but, let’s call it what it is. TINSTAAFL

Let me try another way of explaining this. I think you are confusing cash flows with withdrawals.

I think/hope that we agree that under the age 62 scenario where the retiree takes SS at 62 that their WR is 3.5%... right? That should be clear as a bell.

Mr. A is spending $53,750 a year but $18,750 is covered by SS so his gap is $35,000 and $35,000 of inflation adjusted withdrawals from a $1,000,000 portfolio is a 3.5% WR. Agree?

Mrs. B is identically situated, but decides to defer SS to 70 and buy an 8 year annuity certain that pays $33,000 a year and that costs her $264,000*. After she buys the 8 year annuity certain she has $736,000 of retirement savngs left.

Mrs. B spends $58,760 each year but receives $33,000 each year, initially from the annuity and later from SS, so her gap is $25,760 and $25,760 of inflation adjusted withdrawals on a $736,000 portfolio is a 3.5% WR.

* in reality an 8 year fixed annuity for a 62 year old would likely cost less than $264,000... probably more like $225k based on pricing on immediateannuities.com but the payments are fixed so $264,000 is probably in the ball-park for an 8 year inflation adjusted annuity certain.

If you still think the WR's are not 3.5% then WADR, then you don't understand what WR is and what it means.

 

[Katsmeow]

Once you hit 70 and start collecting the larger benefit check, you start making up for what you depleted out of your portfolio. The larger check means you need to take less out of your portfolio to supplement your living expenses, every month, for the rest of your life. By the breakeven point you've totally made up the difference, so you have no longer preserved more of the portfolio by taking at 62. That's the whole gist of talking about the breakeven point.

Sure if there are never any changes in SS. Even assuming the actual payment formula doesn't decrease (which it could) there are more subtle ways of reducing benefits. Changing how inflation is calculated, getting rid of the Medicare hold harmless, taking your entire benefit, and so on.

The thing is that I have no control at all over what changes might or might not happen to SS. What I do have some control over is how much of my portfolio I spend between 62 and 70. So, I want to exercise the control that I can exercise and want to preserve more of my portfolio than I could preserve if I wanted until 70.

Sure if I get every last penny that I expect to get from SS then it would be fine to have depleted my portfolio. But, since I can't assume that will happen I prefer to keep more of my portfolio available in the event that there are events that occur that would reduce SS.

 

[Huston55]

Let me try another way of explaining this. I think you are confusing cash flows with withdrawals.

I think/hope that we agree that under the age 62 scenario where the retiree takes SS at 62 that their WR is 3.5%... right? That should be clear as a bell.

Mr. A is spending $53,750 a year but $18,750 is covered by SS so his gap is $35,000 and $35,000 of inflation adjusted withdrawals from a $1,000,000 portfolio is a 3.5% WR. Agree?

Mrs. B is identically situated, but decides to defer SS to 70 and buy an 8 year annuity certain that pays $33,000 a year and that costs her $264,000*. After she buys the 8 year annuity certain she has $736,000 of retirement savngs left.

Mrs. B spends $58,760 each year but receives $33,000 each year, initially from the annuity and later from SS, so her gap is $25,760 and $25,760 of inflation adjusted withdrawals on a $736,000 portfolio is a 3.5% WR.

* in reality an 8 year fixed annuity for a 62 year old would likely cost less than $264,000... probably more like $225k based on pricing on immediateannuities.com but the payments are fixed so $264,000 is probably in the ball-park for an 8 year inflation adjusted annuity certain.

If you still think the WR's are not 3.5% then WADR, then you don't understand what WR is and what it means.

PB My Friend, we simply disagree. But, I’m OK with that; there’s utility in the discussion.

I will just say that you’re making a classic ‘mental accounting’ error by putting $$$ into separate ‘buckets.’ But, that works for some folks, which is why a healthy chunk of FAs use it. So, even though several authorities describe the differences btwn ‘bucket’ & ‘SWR’ approaches to be a “mirage”, there’s utility in it for some people.

I’d close this line of discussion by asking you what your AA would be in the two scenarios. Same? Different? No need to answer but, think about it.

 

[martyp]

Thanks for the input to everyone. You've been very helpful and given me some things to consider.

Right now I'm being swayed by the argument to preserve my present next egg in consideration of unknown changes to future SS benefits. That is I control the money I have in the bank. I have little control over future SS benefits. Plus there is the argument that any changes would probably not affect me whether I'm in the system or not. Plus I have a good income now and I'm not affected by the ACA and I'm single without kids and I'm living a cheaper cost of living in Thailand. Finally, I ER'd at 55 to enjoy life. If I take the SS at 62 I can enjoy it now and/or save some for the future. I'm well off enough now that I don't have to or want to worry about the details.

 

[daylatedollarshort]

Plus I have a good income now and I'm not affected by the ACA and I'm single without kids and I'm living a cheaper cost of living in Thailand. Finally, I ER'd at 55 to enjoy life. If I take the SS at 62 I can enjoy it now and/or save some for the future. I'm well off enough now that I don't have to or want to worry about the details.

For us the best longevity insurance has been low overhead, at least as much as we can for now without relocating or downsizing. It seems like you have the low overhead part covered with your move to Thailand. The decision as to when to take SS has a much smaller impact on our financial security compared to the impact optimizing our expenses has had for us.

 

[RunningBum]

Sure if there are never any changes in SS. Even assuming the actual payment formula doesn't decrease (which it could) there are more subtle ways of reducing benefits. Changing how inflation is calculated, getting rid of the Medicare hold harmless, taking your entire benefit, and so on.

The thing is that I have no control at all over what changes might or might not happen to SS. What I do have some control over is how much of my portfolio I spend between 62 and 70. So, I want to exercise the control that I can exercise and want to preserve more of my portfolio than I could preserve if I wanted until 70.

Sure if I get every last penny that I expect to get from SS then it would be fine to have depleted my portfolio. But, since I can't assume that will happen I prefer to keep more of my portfolio available in the event that there are events that occur that would reduce SS.

And what I'm saying is that taking at 62 is no guarantee at all that you'll be keeping more of your portfolio. pb4 showed with his real numbers and assumptions that his portfolio projects to be dead even when cuts potentially come in 2034, whether he takes at 62 or 70. And since his 70 payment will be larger than 62 even with cuts, the portfolio difference will be a bit larger every year from taking at 70.

Run your own numbers with your own assumptions and projections. Don't just assume that taking at 62 is best because cuts may be coming. It may or may not be. Yes, you take control by taking at 62, but that control may be shooting yourself in the foot.

 

[VanWinkle]

The numbers bear out your strategy:

264,000 @2% less 33,000(annual withdrawal for 8 years) = ending balance of 26,125.
736,000 @6% less 25,760(annual withdrawal for 8 years) = ending balance of 922,730
At 70, SS of 33,000 plus 33,209(3.5% of 948,855) = income of 66,209

1,000,000@6% less 35,000(annual withdrawal 8 years) = ending balance of 1,203,973.

At 70, SS of 18,750 plus 42,139(3.5% of 1,203,973) = income of 60,889

This is roughly 8% less income than the wait to 70 approach.

Your heirs may prefer the take at 62 approach as it leaves them almost 300,000 more, but you live off of 6000 less per year to make that happen.

The person that claimed at 62 would need to increase his WR to 4% to match the income of the person that waited til 70. 1,203,973 x 4% = 48,158 plus 18,750 SS = 66,908.

VW

I used 2% for the 264,000 set aside and 6% for the invested balance of 736,000. These #s are not beyond reason.

 

[pb4uski]

PB My Friend, we simply disagree. But, I’m OK with that; there’s utility in the discussion.

I will just say that you’re making a classic ‘mental accounting’ error by putting $$$ into separate ‘buckets.’ But, that works for some folks, which is why a healthy chunk of FAs use it. So, even though several authorities describe the differences btwn ‘bucket’ & ‘SWR’ approaches to be a “mirage”, there’s utility in it for some people.

I’d close this line of discussion by asking you what your AA would be in the two scenarios. Same? Different? No need to answer but, think about it.

To answer the last question first, the same... though one could argue that it could be more aggressive since a higher percentage of spending is covered by annuity-type benefits (SS and the period certain annuity that is a temporary replacement of SS).

And I totally agree that there is no substantive difference between a withdrawal strategy and buckets... in my case the results are similar... but Mrs.B buying an annuity isn't a bucket since once the premium is paid the money is gone so it is no longer part of the denominator (unless you capitalize it ... but if you capitalize it then you should also capitalize SS).

Where I think where we disagree is that I'm defining WR as a measurement taken at retirement (which is its classic definition) with the initial withdrawal (the product of the WR and the retirement date portfolio balance) increased annually for inflation and the retiremnt nestegg in each subsequent period being increased for investment results and reduced for withdrawals. There is no assessment of a withdrawal rate at dates after the retirement date. I'm not sure how you are doing but it is not as described above.

We would agree if SS and annuities were capitalized and added to the investment nestegg in the denominator and the numerator was spending rather than the gap between spending and other sources of income... but that is not the way it is typically done due to measurement issues.

 

[garyt]

Yes, from everything I have read if congress fails to act benefits will be cut across the board, so if someone is collecting $100, then will then receive $77 as the taxes collected will only be sufficient to pay 77% of the promised benefits.

There is no way that happens, imo. For many people SS is all they have. They will not be kicking Granny out in the street. They may means test it, they may raise the tax level, they may do lots of things, but it won't be an across the board cut.

 

[Which Roger]

Why do you think people are boasting about waiting until 70?

If I'm dying before 70, not picking up an SS check is way off the page of my list of problems.

+1 We beat these SS threads to death, and I think the main reason is we are making incorrect assumptions about others' situations and priorities.

 

[pb4uski]

I suspect that you may be right but the ability of Congress to do anything is a big question mark IMO... note that I said that if Congress fails to act then this is what would happen under the law... I would not be foolish enough to try to handicap what the bozos in the swamp might actually do in response.

 

[ShokWaveRider]

+1 We beat these SS threads to death, and I think the main reason is we are making incorrect assumptions about others' situations and priorities.

And things we have absolutely zero control over. Story of our lives.

 

[DEC-1982]

It occurred only once so far? And recently. I think it was 2016 and 2017

But after two years of a break in Part B premiums, the held harmless folks are catching up in 2018.

They did get to pay lower premiums for two years, but (almost) everyone is back to paying the same rate in 2018. So maybe it doesn't matter so much to those who delayed after all.

This will never be an issue for us because we are in one of the higher income tiers, and higher income folks are never held harmless.

Audreyh1, if it is generally true that the "hold harmless" is good only for a couple of years, then it probably won't be a big consideration. $30*12*2, while not zero, is not big enough to change my SS start date planning, given the guaranteed 8% increases for SS.

I guess I'll watch closely for the next few years and see what other surprises in this area come along.

 

[Independent]

First, I want to reiterate that I’m not arguing for any particular age to take SS; too many individual variables to say one age is better than another for a particular person/couple.

I know this was just a shorthand analysis to illustrate why the ‘bridging’ strategy might be good. I’m simply saying that, IMHO, the logic is faulty, and so is some of the math. And, that doesn’t even begin to account for any risk based comparison of ‘bridging’ versus ‘SS @ 62’ (i.e.: longevity risk, sequence of returns risk, AA risk, Market risk, inflation risk, interest risk, etc.)

The bottom line is that $59k/yr from a $1M portfolio is a 5.9% WR, no matter how much “financial engineering” is done. That might be OK for some but, let’s call it what it is. TINSTAAFL

We sometimes have posters say that taking SS earlier means they can safely spend more money in the early years of retirement.

IMO, this shorthand analysis shows that is false, at least for a simple case and for people who buy into the Trinity Study and its descendants.

I'm thinking that you agree with that conclusion, but you want to use different words to explain your agreement.

OTOH, maybe I'm wrong about that. Maybe you think that people who are concerned about sequence of returns risk really can safely spend more in the early years if they start SS earlier. If so, then I'd like to see the example.

 

[martyp]

There is no way that happens, imo. For many people SS is all they have. They will not be kicking Granny out in the street. They may means test it, they may raise the tax level, they may do lots of things, but it won't be an across the board cut.

No they won't kick granny into the streets but for myself and maybe lots of people in ER forum, means testing might kick in to reduce benefits.

 

[DEC-1982]

These are some considerations that go into waiting longer to collect SS.

1. 2 persons
2. one person is significantly younger/older than the other
3. lower earning person gets 1/2 the higher earning person's SS while both are alive
4. between the 2 persons, the larger amount is collected past the break-even point (@15 years from 70).

Under these circumstances it may be worthwhile to wait to collect SS. Only time will tell whether this is the right decision for any specific person or couple. There are so many other variables to think about, like personal health, parents' health history, current financial situation etc You make a decision and hope it's the right one.

One thing I do not think about is whether SS will be around. I believe it will for DW and me.

 

[audreyh1]

Audreyh1, if it is generally true that the "hold harmless" is good only for a couple of years, then it probably won't be a big consideration. $30*12*2, while not zero, is not big enough to change my SS start date planning, given the guaranteed 8% increases for SS.

I guess I'll watch closely for the next few years and see what other surprises in this area come along.

I think it was the first time it ever happened, but who knows in the future. Since we wouldn't be held harmless unless our income suddenly dropped big time, it's not a consideration for us.

 

[Chuckanut]

Right now I'm being swayed by the argument to preserve my present next egg in consideration of unknown changes to future SS benefits. That is I control the money I have in the bank. I have little control over future SS benefits.

I think that is wise to protect a good amount of personal savings, whether one takes SS at 62, FRA, 70 or anywhere in between. Otherwise one loses a good bit of diversification. Diversification is a valuable tool when facing an unknown future.

I was toying with taking SS at my FRA as a compromise between 62 (to big of a cut in SS benefits) and 70 (four more years of drawing down my savings). However, I ended up being one of those folks who fell into a crack in the SS laws that lets me collect 1/2 my former spouse's SS at FRA while my SS benefit continues to grow at 8% a year. So, it's 70 for me unless the current situation changes radically.

IMHO, this is a great example of why the 'when to take SS' choice is very individual.

 

[Huston55]

We sometimes have posters say that taking SS earlier means they can safely spend more money in the early years of retirement.

IMO, this shorthand analysis shows that is false, at least for a simple case and for people who buy into the Trinity Study and its descendants.

I'm thinking that you agree with that conclusion, but you want to use different words to explain your agreement.

OTOH, maybe I'm wrong about that. Maybe you think that people who are concerned about sequence of returns risk really can safely spend more in the early years if they start SS earlier. If so, then I'd like to see the example.

Not sure how you teased any of this out of my posts.

As I said a couple of times, I’m not advocating for SS @ any particular age; individual circumstances are too varied for OSFA. The point I was trying to make is that I didn’t agree with the math & logic of some previous posts. But, hey, that’s my view; YMMV.

However, I do see from some of your posts (this & other threads) that you’ll likely (or have since you’re now ~70?) defer taking SS to 70. If that makes sense for your situation, then good on ya!

 

[foxfirev5]

For us the best longevity insurance has been low overhead, at least as much as we can for now without relocating or downsizing. It seems like you have the low overhead part covered with your move to Thailand. The decision as to when to take SS has a much smaller impact on our financial security compared to the impact optimizing our expenses has had for us.

You bet. Very simple and doesn't require a multitude of assumptions and calculations regarding past performance and future developments.

 

[Katsmeow]

And what I'm saying is that taking at 62 is no guarantee at all that you'll be keeping more of your portfolio. pb4 showed with his real numbers and assumptions that his portfolio projects to be dead even when cuts potentially come in 2034, whether he takes at 62 or 70. And since his 70 payment will be larger than 62 even with cuts, the portfolio difference will be a bit larger every year from taking at 70.

Run your own numbers with your own assumptions and projections. Don't just assume that taking at 62 is best because cuts may be coming. It may or may not be. Yes, you take control by taking at 62, but that control may be shooting yourself in the foot.

I ran my numbers extensively before I decided to take SS at 62 1/2 earlier this year.

The flaw in the assumption above is that it assumes cuts only come in 2034. I don't make that assumption. SS could be changed next year (or any time in between). It could be changed in 2024 or 2020, etc. I am comfortable with the decision I made.

 

[foxfirev5]

As we are going through our personal analysis regarding taking SS at 62, DW reminded me of past events that greatly change our NW. Having cash at our disposal enabled us to purchase our waterfront lot for $29,000 when teardowns in the same neighborhood were going for over $200k. Another lot in a generic subdivision we turned for over 15,000 profit in two weeks after cutting brush and staging for a walkout homesite. Four or five of those before everybody else caught on. Much easier than using my builders license for a 6% margin. None of these situations are repeatable but it's nice to have the cash available when an opportunity presents itself.
One more reason that we are choosing to take it at 62. Much to sloppy to fit in a formula, but isn't that what life's about?

 

[joeea]

There is no way that happens, imo. For many people SS is all they have. They will not be kicking Granny out in the street. They may means test it, they may raise the tax level, they may do lots of things, but it won't be an across the board cut.

The current laws require an across the board cut when the SS funds run short. Currently there are no other options.

That's why I suspect the laws will be changed before that happens.

 

[Independent]

Not sure how you teased any of this out of my posts.

As I said a couple of times, I’m not advocating for SS @ any particular age; individual circumstances are too varied for OSFA. The point I was trying to make is that I didn’t agree with the math & logic of some previous posts. But, hey, that’s my view; YMMV.

However, I do see from some of your posts (this & other threads) that you’ll likely (or have since you’re now ~70?) defer taking SS to 70. If that makes sense for your situation, then good on ya!

I guess I thought the math and logic were sound. It's a simple case, but I think it is makes a valid point which eliminates this one reason for starting early.

There are plenty of good arguments for starting early. "I can safely spend more in the early years" isn't one of them.