Re: When to take SS
ERD50 said:
CFB, the problem with this statement is that it is a *general* statement. The results *will* vary dependent upon how much less and how much earlier. Several Firecalc runs have shown that it can help to defer SS.
Which is why I repeatedly suggested people do their own calcs, take everything into consideration, and dont stack the deck. Unless of course you want a particular answer, in which case stack away!
There is the possibility that the model using a MMF for the short term money tips this further to delay. Yes, I know, you reject that as not Apples-to-Apples, fine, but if them apples are better, I'm all for it. I mean, aren't we looking for better alternatives? Doesn't 'better' imply 'different'? As I said, I'll try to tackle an apples-to-apples format (simulate FireCalc with the first 4 or 8 years in a MMF - constant SS) in a separate thread a bit later.
I think I distilled this whole thing down to a simpler form while I was grocery shopping earlier. Hey, produce makes ya smarter, doesnt it?
We're comparing a CPI indexed immediate annuity to a CPI indexed deferred annuity to a cash position.
With no other inputs, the deferred annuity will usually win with the immediate annuity in second place. Cash is always going to lose, its the low common denominator. You dont even need any fancy math, special buckets, or much of an explanation.
However, I think its been well established that a self directed portfolio using a reasonable asset allocation containing at least 25-35% equities will trump both an immediate and deferred annuity due to the expenses of the latter two options.
The wild cards and other inputs to this equation:
- When are you going to die? Obviously long livers (not to mention long spleens) will start to gain in the 90+ age range. Now next serial question: will it matter to you to have extra money at that point? Unfortunately we cant answer this question for any individual that isnt bought into the smith and wesson retirement plan.
- Will the 'insurer' pay? Would you buy an annuity from a company who printed on their prospectus that they anticipated running out of money in <40 years, and that their operating management were frequently working towards cutting payments and payment benefits, and had done so several times already? Pretty bloody unlikely IMO. If you're so risk averse that you're looking to defer your annuity for a larger payout, risk factors like that would give you the heebie jeebies.
- Can you manage the volatility risk and sleep at night factors? Everyones got their own answer for this one, its pretty personal. But I'm thinking most ER's are risk takers.
Looking at this from a pure ER standpoint, starting in my 40's, self directed portfolio of about 75% equities, borrowing Nords' "invest like you're immortal" strategy, 50 year time horizon, social security early allows me to draw thousands more per year starting from my current age...for the rest of my life. Unfortunately I dont believe that SS will be paying what they say they will by the time I'm eligible, so I plan without it. However, if I was 8-10 years older...maybe a different story.
Here's another way to look at it, tying in the "dividend stock" approach, which I also favor. Its pretty easy to dig up a dividend stock mutual fund that pays close to 3%, has good NAV growth to offset inflation over a 20-30+ year period. I think for most people, even early social security will pay at least 25% of their costs of living. Between the two, you're at well over a 4% draw, with a skinny tax profile of your SS income and qualified dividends. Not too shabby.
I'm not in this to argue. I just think its patently stupid to think you can spend down your money in your 50's, then count on a 30k a year annuity to bail you out and keep paying when there are clear and present signs that it might not, when an alternative approach still lets you spend extra in your youth AND maintain a safe withdrawal rate that works for any life span. There just isnt a free lunch here. It might sound great when your wife is making six figures and has no plans to retire...you've got a backup plan. I'm thinking that most actual retirees living off a portfolio that take a swing at this 'alternative plan' better think about living in an efficiency apartment and eating a lot of spaghetti in their 90's.
I'm also not into stacking the deck. While there are some ER's that have serious risk aversion and think 5 year cd's are a little too risky, I think most retired and prospective retired folks are comfortable with at least some equity risk, self directed portfolios and low cost investment shops. Those folks can kick the crap out of any annuity if they work their plan and stick with it.
For those people, taking an income stream injection as early as possible, mid plan, will help their portfolio survivability.
Or me, the guy that started the web site and wrote the retirement calculator, and a couple of other smart guys have it all wrong.