Michael Edesess on Delaying Social Security

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tms
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Michael Edesess on Delaying Social Security

Post by tms »

In an otherwise decent column on William Bernstein's new book "Deep Risk", Michael Edesess writes:
A second quibble is with his recommendation to “spend your nest egg down on living expenses until age 70 so as to obtain the world’s cheapest and best inflation-adjusted annuity: the 8% per year increase in Social Security payments from delaying their start.”

An 8% per year increase in Social Security payments sounds good, but I there’s no good reason to delay the start of Social Security payments. Each year of payments delayed is a year of payments you don’t receive, so of course the payments need to be increased to make up for the lost year. Unless a Social Security recipient has reason to believe her actuarial prospects are significantly different from the average person’s, she should be essentially indifferent as to whether she starts collecting early or late. The Social Security actuaries undoubtedly designed the level of increase that way on purpose.
He’s right that it provides no expected benefit from a purely actuarial perspective, but he’s making the mistake of not looking at is as a form of insurance. The point of annuitization (or delaying SS) is to protect against longevity risk. According to his rationale, there is no reason to ever buy life insurance, but we do so because it protects against the risk of premature death. Delaying SS (or buying an immediate annuity) is the same concept.

In addition, I don't think he appreciates how rich the benefits are from delaying SS relative to what is available in the marketplace, particularly for married couples.
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Re: Michael Edesess on Delaying Social Security

Post by ObliviousInvestor »

I would take issue with the claim of actuarial neutrality as well.

Social Security may be roughly actuarially neutral from a broad program perspective over an extended period of time (and therefore a variety of interest rate environments). But for an individual person trying to figure out when to claim, given that person's health and sex, given current real interest rates, and given that person's marital status (and related benefits), it's pretty unusual for the decision to be actuarially neutral.

For anybody interested, by the way, here's the article in question:
http://advisorperspectives.com/newslett ... ng_Run.php

(Page 4 is where you'll find the quote about Social Security.)
Mike Piper | Roth is a name, not an acronym. If you type ROTH, you're just yelling about retirement accounts.
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Re: Michael Edesess on Delaying Social Security

Post by gerrym51 »

tms wrote:In an otherwise decent column on William Bernstein's new book "Deep Risk", Michael Edesess writes:
A second quibble is with his recommendation to “spend your nest egg down on living expenses until age 70 so as to obtain the world’s cheapest and best inflation-adjusted annuity: the 8% per year increase in Social Security payments from delaying their start.”

An 8% per year increase in Social Security payments sounds good, but I there’s no good reason to delay the start of Social Security payments. Each year of payments delayed is a year of payments you don’t receive, so of course the payments need to be increased to make up for the lost year. Unless a Social Security recipient has reason to believe her actuarial prospects are significantly different from the average person’s, she should be essentially indifferent as to whether she starts collecting early or late. The Social Security actuaries undoubtedly designed the level of increase that way on purpose.
He’s right that it provides no expected benefit from a purely actuarial perspective, but he’s making the mistake of not looking at is as a form of insurance. The point of annuitization (or delaying SS) is to protect against longevity risk. According to his rationale, there is no reason to ever buy life insurance, but we do so because it protects against the risk of premature death. Delaying SS (or buying an immediate annuity) is the same concept.

In addition, I don't think he appreciates how rich the benefits are from delaying SS relative to what is available in the marketplace, particularly for married couples.

i would be interested to know if the bogelheads who are worried about longevity risk are the same ones who are not concerned with ltc risks. the odds of longevity risk though they exist are actually exceded by the risks of one of a couple needing long term care insurance although by what percentage can be argued
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Re: Michael Edesess on Delaying Social Security

Post by Leesbro63 »

The problem with LTC risk is that, at present, there doesn't seem to be very cost effective ways to hedge it. Some will continue to argue about the benefits of buying LTC insurance...but it's very costly and could very well get even more costly. So in the end there isn't much one can do short of serious "lawyering up"...and most won't consider that until it's too late or close to too late. And lawyering up involves some serious drawbacks, most notably tying up your money in (an) irrevocable trust(s). Some consider that unethical/unAmerican.

So most of us just live with the risk cause there isn't much choice. "You gotta better idea?"
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Re: Michael Edesess on Delaying Social Security

Post by Bill Bernstein »

This is a very useful discussion, and I'd particularly like to thank those who have pointed out that although the increased SS payments through delay are in the aggregate actuarially fair, they're not demographically neutral. The unmarried male who decides to delay is not likely to get, on average, as good a deal as a married couple, and if the couple has a much older high wage earner, it's almost certainly a spectacular free lunch. ("Viagra pension," anyone?)

But even the unmarried male is not likely to get as good a deal on commercial longevity insurance as SS delay, which is the key point: even if SS were to adjust out the marital differences so that it's actuarially fair to everyone, that's still a whole lot better than what's available on the commercial market.

Bill
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Re: Michael Edesess on Delaying Social Security

Post by bsteiner »

wbern wrote:...But even the unmarried male is not likely to get as good a deal on commercial longevity insurance as SS delay, which is the key point: even if SS were to adjust out the marital differences so that it's actuarially fair to everyone, that's still a whole lot better than what's available on the commercial market.
Suppose you have a male, in good health, whose wife is a pre-1984 CSRS Federal employee so not eligible for spouse benefits under Social Security. That's a similar situation to someone who was never married). It's purely an investment decision. In other words, he has enough money so he's not concerned about the risk of living too long and running out of money, or the risk of having to live below his means in case he lives a long time (so he would not otherwise buy an annuity).

How would you analyze the decision whether to begin collecting Social Security at 66 or 70? What interest rate would you use to compare the larger benefits beginning at 70 to the smaller benefits beginning at 66? A relatively low rate because they're safe? Or a relatively high rate because you can't sell or borrow against the rights to future benefits, and if you begin at 66 you could invest the first 4 years' payments in stocks rather than a safe investment?
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Re: Michael Edesess on Delaying Social Security

Post by gerrym51 »

Leesbro63 wrote:The problem with LTC risk is that, at present, there doesn't seem to be very cost effective ways to hedge it. Some will continue to argue about the benefits of buying LTC insurance...but it's very costly and could very well get even more costly. So in the end there isn't much one can do short of serious "lawyering up"...and most won't consider that until it's too late or close to too late. And lawyering up involves some serious drawbacks, most notably tying up your money in (an) irrevocable trust(s). Some consider that unethical/unAmerican.

So most of us just live with the risk cause there isn't much choice. "You gotta better idea?"

my wife and i own 4 year ltc policies. we both took ss at 62 :mrgreen:
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Re: Michael Edesess on Delaying Social Security

Post by manwithnoname »

tms wrote:In an otherwise decent column on William Bernstein's new book "Deep Risk", Michael Edesess writes:
A second quibble is with his recommendation to “spend your nest egg down on living expenses until age 70 so as to obtain the world’s cheapest and best inflation-adjusted annuity: the 8% per year increase in Social Security payments from delaying their start.”

An 8% per year increase in Social Security payments sounds good, but I there’s no good reason to delay the start of Social Security payments. Each year of payments delayed is a year of payments you don’t receive, so of course the payments need to be increased to make up for the lost year. Unless a Social Security recipient has reason to believe her actuarial prospects are significantly different from the average person’s, she should be essentially indifferent as to whether she starts collecting early or late. The Social Security actuaries undoubtedly designed the level of increase that way on purpose.
He’s right that it provides no expected benefit from a purely actuarial perspective, but he’s making the mistake of not looking at is as a form of insurance. The point of annuitization (or delaying SS) is to protect against longevity risk. According to his rationale, there is no reason to ever buy life insurance, but we do so because it protects against the risk of premature death. Delaying SS (or buying an immediate annuity) is the same concept.

In addition, I don't think he appreciates how rich the benefits are from delaying SS relative to what is available in the marketplace, particularly for married couples.

You need to analyze whether its better to not to delay SS until 70. For me it was optimum to commence SS at 65 for the following reasons:

1. According to my own calculation in order to receive more total benefits if I delayed SS to 70 I would have to live until 84 which was too miniscule to be worth the delay.

2. Unlike an IRA, SS is an annuity which ends at death. By commencing SS to pay for my living expenses I am able to defer IRA distributions to 70 1/2 and transfer part to a Roth IRA while I am in the 15% bracket. The Roth IRA will be inherited by my heris at 2-3X the amount they were valued at conversion because I wil not take any distributions. Heirs will also receive t-IRAs. At death SS has a value of bupkis unless you have a spouse whose own SS is less than yours (but the spouse loses own SS benefits).

3. Only 85% of SS benefits are includible in taxable income which allows me to transfer the equivalent of the 15% of my SS benefits to the Roth IRA in the 15% bracket.

Delaying SS until 70 is a richer benefit only if you live past 81. Probability of male age 70 living 11 years is 60%. female is 70%.
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Re: Michael Edesess on Delaying Social Security

Post by cheese_breath »

manwithnoname wrote: You need to analyze whether its better to not to delay SS until 70. For me it was optimum to commence SS at 65 for the following reasons:

1. According to my own calculation in order to receive more total benefits if I delayed SS to 70 I would have to live until 84 which was too miniscule to be worth the delay.

2. Unlike an IRA, SS is an annuity which ends at death. By commencing SS to pay for my living expenses I am able to defer IRA distributions to 70 1/2 and transfer part to a Roth IRA while I am in the 15% bracket. The Roth IRA will be inherited by my heris at 2-3X the amount they were valued at conversion because I wil not take any distributions. Heirs will also receive t-IRAs. At death SS has a value of bupkis unless you have a spouse whose own SS is less than yours (but the spouse loses own SS benefits).

3. Only 85% of SS benefits are includible in taxable income which allows me to transfer the equivalent of the 15% of my SS benefits to the Roth IRA in the 15% bracket.

Delaying SS until 70 is a richer benefit only if you live past 81. Probability of male age 70 living 11 years is 60%. female is 70%.
Yes. Seems too many arguments for delaying SS to 70 focus on the SS and neglect consideration of one's overall financial picture. In my case I could either take the money I needed to live on from SS or out of my investments. Similar to the reasoning above I chose to take SS early and leave the investments untouched as long as possible. My wife and I both took ours at 62 (2003 for me and 2008 for her) leaving the investments to grow that much longer.
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Re: Michael Edesess on Delaying Social Security

Post by Leesbro63 »

gerrym51 wrote:
Leesbro63 wrote:The problem with LTC risk is that, at present, there doesn't seem to be very cost effective ways to hedge it. Some will continue to argue about the benefits of buying LTC insurance...but it's very costly and could very well get even more costly. So in the end there isn't much one can do short of serious "lawyering up"...and most won't consider that until it's too late or close to too late. And lawyering up involves some serious drawbacks, most notably tying up your money in (an) irrevocable trust(s). Some consider that unethical/unAmerican.

So most of us just live with the risk cause there isn't much choice. "You gotta better idea?"

my wife and i own 4 year ltc policies. we both took ss at 62 :mrgreen:
And what guarantee do you have that premiums on your policies won't explode?
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Re: Michael Edesess on Delaying Social Security

Post by gerrym51 »

Leesbro63 wrote:
gerrym51 wrote:
Leesbro63 wrote:The problem with LTC risk is that, at present, there doesn't seem to be very cost effective ways to hedge it. Some will continue to argue about the benefits of buying LTC insurance...but it's very costly and could very well get even more costly. So in the end there isn't much one can do short of serious "lawyering up"...and most won't consider that until it's too late or close to too late. And lawyering up involves some serious drawbacks, most notably tying up your money in (an) irrevocable trust(s). Some consider that unethical/unAmerican.

So most of us just live with the risk cause there isn't much choice. "You gotta better idea?"

my wife and i own 4 year ltc policies. we both took ss at 62 :mrgreen:
And what guarantee do you have that premiums on your policies won't explode?
i actually don't although i've had them 10 years. my point was you pick what odds you want to buck-the odds of needing ltc or the odds of longevity. the odds of 1 person in a couple are greater than both living to 95.

if a person was taking ss at 70 for the longevity and had LTCI policies-they would be covering both sets of odds.
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Re: Michael Edesess on Delaying Social Security

Post by tms »

wbern wrote:This is a very useful discussion, and I'd particularly like to thank those who have pointed out that although the increased SS payments through delay are in the aggregate actuarially fair, they're not demographically neutral. The unmarried male who decides to delay is not likely to get, on average, as good a deal as a married couple, and if the couple has a much older high wage earner, it's almost certainly a spectacular free lunch. ("Viagra pension," anyone?)

But even the unmarried male is not likely to get as good a deal on commercial longevity insurance as SS delay, which is the key point: even if SS were to adjust out the marital differences so that it's actuarially fair to everyone, that's still a whole lot better than what's available on the commercial market.

Bill
Good point, it is not demographically neutral. It is a great deal for married couples when you factor in the higher survivor benefit as well as the possibility of collecting a spousal benefit while waiting to collect your own benefit at age 70.

And you are also right that it's still a good deal for a single person compared to what you can get from an insurance company. I've compared the incremental benefit from delaying vs. what you can get on the market for the benefits not collected from 66-69. The beginning monthly benefit is about the same, but the SS benefit grows with inflation. That's a huge difference.

I think the decision comes down to whether or not you need/want to annuitize a portion of your nest egg. If you do, then delaying SS is the best annuity you can buy, by far.
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Re: Michael Edesess on Delaying Social Security

Post by irishguy »

I read today the most compelling reason for delaying the start of social security if one is able to do so. It was included in an attachment to a post from Taylor. It said "For each dollar of social security you give up now (by delaying benefits) you can expect to receive a greater level of income in the future than you could safely take from a dollar invested in a typical stock/bond portfolio"
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Re: Michael Edesess on Delaying Social Security

Post by Bill Bernstein »

I really don't care too much whether the breakeven point is 79, 81, or 84, for two reasons:

1) For a married couple, there's a much better than even chance that one partner will make it past 84.

2) The consequences of "losing" with the two strategies are highly asymmetrical. If you delay to 70 and "lose" you're dead, and all you've lost is a little bit of spending power along the way. If you take SS early and "lose" by living too long and you don't have sufficient income, that's far worse.

This isn't about obtaining the largest cumulative distributions: it's about insuring against an impoverished old age. If you delay until 70 and don't have sufficient income, you can likely supplement with a part time job.

Try doing that at age 90.


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Re: Michael Edesess on Delaying Social Security

Post by Cut-Throat »

wbern wrote:I really don't care too much whether the breakeven point is 79, 81, or 84, for two reasons:

1) For a married couple, there's a much better than even chance that one partner will make it past 84.

2) The consequences of "losing" with the two strategies are highly asymmetrical. If you delay to 70 and "lose" you're dead, and all you've lost is a little bit of spending power along the way. If you take SS early and "lose" by living too long and you don't have sufficient income, that's far worse.

This isn't about obtaining the largest cumulative distributions: it's about insuring against an impoverished old age. If you delay until 70 and don't have sufficient income, you can likely supplement with a part time job.

Try doing that at age 90.


Bill
Completely Agree with your logic. And if I may add; those that are 'worried' about the 'Break-even Point' of 83, I would ask "Is that what you are also planning your Overall retirement to last?"

Most of those would answer; that their retirement plan lasts well into their 90's. So, why not Social Security too?
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Re: Michael Edesess on Delaying Social Security

Post by toddy »

gerrym51 wrote:
tms wrote:In an otherwise decent column on William Bernstein's new book "Deep Risk", Michael Edesess writes:
A second quibble is with his recommendation to “spend your nest egg down on living expenses until age 70 so as to obtain the world’s cheapest and best inflation-adjusted annuity: the 8% per year increase in Social Security payments from delaying their start.”

An 8% per year increase in Social Security payments sounds good, but I there’s no good reason to delay the start of Social Security payments. Each year of payments delayed is a year of payments you don’t receive, so of course the payments need to be increased to make up for the lost year. Unless a Social Security recipient has reason to believe her actuarial prospects are significantly different from the average person’s, she should be essentially indifferent as to whether she starts collecting early or late. The Social Security actuaries undoubtedly designed the level of increase that way on purpose.
He’s right that it provides no expected benefit from a purely actuarial perspective, but he’s making the mistake of not looking at is as a form of insurance. The point of annuitization (or delaying SS) is to protect against longevity risk. According to his rationale, there is no reason to ever buy life insurance, but we do so because it protects against the risk of premature death. Delaying SS (or buying an immediate annuity) is the same concept.

In addition, I don't think he appreciates how rich the benefits are from delaying SS relative to what is available in the marketplace, particularly for married couples.

i would be interested to know if the bogelheads who are worried about longevity risk are the same ones who are not concerned with ltc risks. the odds of longevity risk though they exist are actually exceded by the risks of one of a couple needing long term care insurance although by what percentage can be argued

what about this perspective
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Re: Michael Edesess on Delaying Social Security

Post by Aptenodytes »

I thought this came up earlier and people pointed out the error.

Edesess is acting as if the choice to delay is a choice to switch to a stream of payments with higher expected value. That's not what it is, any more than swapping a dollar bill for four quarters is. It is a very cheap way to purchase high-quality longevity insurance. It is an element of a risk management strategy. And you might want four quarters because you need change for a parking meter. It makes sense even if it is "actuarily neutral."

He is trying to act smart but revealing ignorance.
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Re: Michael Edesess on Delaying Social Security

Post by jwa »

cheese_breath wrote:
manwithnoname wrote: You need to analyze whether its better to not to delay SS until 70. For me it was optimum to commence SS at 65 for the following reasons:

1. According to my own calculation in order to receive more total benefits if I delayed SS to 70 I would have to live until 84 which was too miniscule to be worth the delay.

2. Unlike an IRA, SS is an annuity which ends at death. By commencing SS to pay for my living expenses I am able to defer IRA distributions to 70 1/2 and transfer part to a Roth IRA while I am in the 15% bracket. The Roth IRA will be inherited by my heris at 2-3X the amount they were valued at conversion because I wil not take any distributions. Heirs will also receive t-IRAs. At death SS has a value of bupkis unless you have a spouse whose own SS is less than yours (but the spouse loses own SS benefits).

3. Only 85% of SS benefits are includible in taxable income which allows me to transfer the equivalent of the 15% of my SS benefits to the Roth IRA in the 15% bracket.

but there are tax advantages for doing the exact opposite.

Delaying SS until 70 is a richer benefit only if you live past 81. Probability of male age 70 living 11 years is 60%. female is 70%.
Yes. Seems too many arguments for delaying SS to 70 focus on the SS and neglect consideration of one's overall financial picture. In my case I could either take the money I needed to live on from SS or out of my investments. Similar to the reasoning above I chose to take SS early and leave the investments untouched as long as possible. My wife and I both took ours at 62 (2003 for me and 2008 for her) leaving the investments to grow that much longer.
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Re: Michael Edesess on Delaying Social Security

Post by manwithnoname »

irishguy wrote:I read today the most compelling reason for delaying the start of social security if one is able to do so. It was included in an attachment to a post from Taylor. It said "For each dollar of social security you give up now (by delaying benefits) you can expect to receive a greater level of income in the future than you could safely take from a dollar invested in a typical stock/bond portfolio"
That strategy only works if you live to 81. If you delay SS until 70 and die at 71 you have lost 9 years of SS benefits.

Only compelling reason to delay SS benefits until 70 is fear of running out of money.

As I indicated previously, cash flow analysis can make commencing SS benefits at an earlier age financially attractive because the investor can conserve IRA funds and transfer them to a Roth IRA where they can be passed down to next generation without any income or estate tax. Using SS instead of IRA funds to pay for living expenses makes sense because SS benefits cannot be transferred to heirs. Avoiding distributions from IRAs maximizes intergenerational transfers.
Last edited by manwithnoname on Thu Oct 03, 2013 8:16 pm, edited 1 time in total.
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Re: Michael Edesess on Delaying Social Security

Post by jwa »

Some how my comment was not posted.

What I wrote is that there are tax advantages for doing the exact opposite. Not saying you were wrong Cheesebreath as everyone's situation is different but for many living off of their savings and especially doing Roth conversions or even lowering 401k and IRA amounts by spending them down prior to age 70 could be a favorable thing to do from a tax standpoint.
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Re: Michael Edesess on Delaying Social Security

Post by Cut-Throat »

manwithnoname wrote:That strategy only works if you live to 81. If you delay SS until 70 and die at 71 you have lost 9 years of SS benefits.

Only compelling reason to delay SS benefits until 70 is fear of running out of money.
And if you die at age 71 and didn't get to spend down your portfolio, you missed out on spending all that money!

So, the answer is to plan on spending down your portfolio before you hit age 71, just in case you die early?
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Re: Michael Edesess on Delaying Social Security

Post by Dutch »

manwithnoname wrote:That strategy only works if you live to 81. If you delay SS until 70 and die at 71 you have lost 9 years of SS benefits.

Only compelling reason to delay SS benefits until 70 is fear of running out of money.

As I indicated previously, cash flow analysis can make commencing SS benefits at an earlier age financially attractive because the investor can conserve IRA funds and transfer them to a Roth IRA where they can be passed down to next generation without any income or estate tax. Using SS instead of IRA funds to pay for living expenses makes sense because SS benefits cannot be transferred to heirs. Avoiding distributions from IRAs maximizes intergenerational transfers.
That's a strange set of arguments.

Your "only compelling reason" is actually at the core of financial planning for retirement. If there was no risk of running out of money, we could dispense with SWR altogether.

Your other arguments strike me as more important for the heirs, than for the retiree. While the best interest of my heirs is certainly not unimportant, I'm not sure if I would put them above my own.
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Re: Michael Edesess on Delaying Social Security

Post by manwithnoname »

Dutch wrote:
manwithnoname wrote:That strategy only works if you live to 81. If you delay SS until 70 and die at 71 you have lost 9 years of SS benefits.

Only compelling reason to delay SS benefits until 70 is fear of running out of money.

As I indicated previously, cash flow analysis can make commencing SS benefits at an earlier age financially attractive because the investor can conserve IRA funds and transfer them to a Roth IRA where they can be passed down to next generation without any income or estate tax. Using SS instead of IRA funds to pay for living expenses makes sense because SS benefits cannot be transferred to heirs. Avoiding distributions from IRAs maximizes intergenerational transfers.
That's a strange set of arguments.

Your "only compelling reason" is actually at the core of financial planning for retirement. If there was no risk of running out of money, we could dispense with SWR altogether.

Your other arguments strike me as more important for the heirs, than for the retiree. While the best interest of my heirs is certainly not unimportant, I'm not sure if I would put them above my own.
If you have enough assets you will not run out of money and will be able to leave the assets to your heirs. Intergenerational transfers is one of the important aspects of wealth management.

Reducing/eliminating taxes on assets increases wealth.
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Re: Michael Edesess on Delaying Social Security

Post by bobcat2 »

This topic came up in a thread last week and I emailed a comment to Edesess. His response was that since I agreed that SS was actuarially neutral on average, what was I complaining about. I emailed him back to make it very explicit what I was complaining about. Edesess did not respond to my second email.
Link to last week's thread - http://www.bogleheads.org/forum/viewtop ... s#p1810602

One point that is sometimes overlooked is that the level of real interest rates has a large impact on the efficacy of SS benefit delay strategies. Implicit in SS benefits is a 20 year real interest rate of about 2.9%. When real interest rates are well below 2.9% there is a big advantage for nearly everyone, but the terminally ill, to delay SS benefits. This is because the pricing of private real life annuities is determined by the prevailing real interest rate - not the constant 2.9% in the SS calculations. Conversely, when real interest rates are well above 2.9%, there is little advantage to delay for some groups. For example, if real interest rates are above 3.5% most single men are probably made worse off by delaying SS benefits beyond their retirement date.

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Re: Michael Edesess on Delaying Social Security

Post by Bill Bernstein »

Bobcat:

I do appreciate your pointing out the connection between real interest rates and the actuarial fairness of delaying SS.

The key phrase in your last post was "single male," since that's the least favorable case for delaying SS. The case for a single female is more favorable and, of course, for a married couple it's hard to beat delaying unless *both* have reduced life expectancy.

You also raise a point that contradicts Edsesses's article, which is his contention that TIPS protect against deflation. They most certainly do not; 5% annual deflation implies a 5% real return for cash in the mattress, and thus a >5% real rate.

Which would not do good things for TIPS prices.

Best,

Bill
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Re: Michael Edesess on Delaying Social Security

Post by cheese_breath »

jwa wrote:Not saying you were wrong Cheesebreath as everyone's situation is different.
And that's my point exactly. Achieving the highest SS payment isn't the most important thing to everyone. Assuming we have accumulated enough to last our projected lifetimes some of us would like to leave as much as possible to our heirs and don't wish to deplete the piggy bank in case we don't reach the break even point.
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Re: Michael Edesess on Delaying Social Security

Post by irishguy »

manwithnonamewrote:
That strategy only works if you live to 81. If you delay SS until 70 and die at 71 you have lost 9 years of SS benefits.

Only compelling reason to delay SS benefits until 70 is fear of running out of money.

As I indicated previously, cash flow analysis can make commencing SS benefits at an earlier age financially attractive because the investor can conserve IRA funds and transfer them to a Roth IRA where they can be passed down to next generation without any income or estate tax. Using SS instead of IRA funds to pay for living expenses makes sense because SS benefits cannot be transferred to heirs. Avoiding distributions from IRAs maximizes intergenerational transfers.[quote][/quote]

You may have lost benefits, but then your wife would receive yours, which is nice if you were the breadwinner. Delaying has nothing to do with running out of money. You can delay and not have to take IRA funds if you have money in taxable accounts and enough cash on hand which is the case with myself. There are so many variables in taking ss and it almost gets down to just being an emotional decision. If you have no other sources of income and lack investments then you take it early. If you have multi-millions you don't care either way as it doesn't impact you much. Everyone in between (which is probably most people) need to make a decision based on what they are comfortable with, knowing that it is impossible to predict their life expectancy and what return their investments will generate over their lifetime.

irishguy
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Re: Michael Edesess on Delaying Social Security

Post by Leesbro63 »

Roth IRAs are potentially Federal estate taxable...but with a $10M+ per couple exemption it would only hit people for whom SS is a small part of their overall financial equation.
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Re: Michael Edesess on Delaying Social Security

Post by Allan »

tms wrote:But he’s making the mistake of not looking at is as a form of insurance.
That's the key for me, when considering when to take SS. It is a form of insurance and if I wait until age 70 (which I plan to do), as with any insurance I might win (live beyond expected age) or lose (die before). After all, I learned in the 7th grade that SS was a result of the Federal Insurance Contributions Act (FICA).

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Re: Michael Edesess on Delaying Social Security

Post by exoilman »

irishguy wrote:manwithnonamewrote:
That strategy only works if you live to 81. If you delay SS until 70 and die at 71 you have lost 9 years of SS benefits.

Only compelling reason to delay SS benefits until 70 is fear of running out of money.

As I indicated previously, cash flow analysis can make commencing SS benefits at an earlier age financially attractive because the investor can conserve IRA funds and transfer them to a Roth IRA where they can be passed down to next generation without any income or estate tax. Using SS instead of IRA funds to pay for living expenses makes sense because SS benefits cannot be transferred to heirs. Avoiding distributions from IRAs maximizes intergenerational transfers.
You may have lost benefits, but then your wife would receive yours, which is nice if you were the breadwinner. Delaying has nothing to do with running out of money. You can delay and not have to take IRA funds if you have money in taxable accounts and enough cash on hand which is the case with myself. There are so many variables in taking ss and it almost gets down to just being an emotional decision. If you have no other sources of income and lack investments then you take it early. If you have multi-millions you don't care either way as it doesn't impact you much. Everyone in between (which is probably most people) need to make a decision based on what they are comfortable with, knowing that it is impossible to predict their life expectancy and what return their investments will generate over their lifetime.

irishguy
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Re: Michael Edesess on Delaying Social Security

Post by coachz »

Isn't there also the real risk that if you wait to take SS, that benefits could be cut where if you take it at 62 you lock in the amount or can they still reduce that too ?
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Re: Michael Edesess on Delaying Social Security

Post by ObliviousInvestor »

coachz wrote:Isn't there also the real risk that if you wait to take SS, that benefits could be cut where if you take it at 62 you lock in the amount or can they still reduce that too ?
It's much like tax law in that our elected officials in Congress have the power to change (almost) anything they want, whenever they want.

Hard to discuss this topic without getting into against-the-rules politics discussion. Suffice to say, there are possible changes that could be made that would make it better to claim early, some that would make it better to claim late, and some that wouldn't affect the decision at all.
Mike Piper | Roth is a name, not an acronym. If you type ROTH, you're just yelling about retirement accounts.
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Re: Michael Edesess on Delaying Social Security

Post by Leesbro63 »

Future changes to SS are offtopic and other threads have been closed for such discussion. I will note that I have read that there is anecdotal evidence that a number, larger than would be expected, of people are taking SS at 62 or even 66. These are people who, after examining their finances and family longevity, would probably be better off not taking till 70. Infer from that whatever you wish.
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Re: Michael Edesess on Delaying Social Security

Post by jwa »

"Hard to discuss this topic without getting into against-the-rules politics discussion. Suffice to say, there are possible changes that could be made that would make it better to claim early, some that would make it better to claim late, and some that wouldn't affect the decision at all."

I'm not very smart but this would seem to cover the waterfront. :beer
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Re: Michael Edesess on Delaying Social Security

Post by Ged »

It's clear that while the overall SS benefit universe may be actuarially neutral, other considerations, usually taxes. are important.

For me the tax picture seems to be compelling for delay. If I take my benefit at 66 I will have no 15% tax space. Delaying it will change that significantly. Further, once I begin taking RMDs the conversion puts me in a position where less than 85% of my SS benefit is taxable.

Plus I am married and I believe that my wife will probably outlive me.

As far as legislative uncertainty goes, well the best I can say is that you need to run scenarios and make up your own mind.
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Re: Michael Edesess on Delaying Social Security

Post by Phineas J. Whoopee »

coachz wrote:Isn't there also the real risk that if you wait to take SS, that benefits could be cut where if you take it at 62 you lock in the amount or can they still reduce that too ?
Under presently enacted law the Social Security Administration cannot pay out more than it takes in or has in saved assets. The large Social Security Trust Fund was the result of Congress, in the early 1980s, at the advice of the Greenspan Commission, deciding to tax workers more than would be necessary to pay then-current retirees, to build up a fund to pay the boomer demographic bulge. The SSA's middle-of-the-road estimate is that the strategy will have worked for just about half a century - whether that's good or bad with respect to the practicalities of legislation, I won't express an opinion.

After then, some time in the early 2030s, the trust fund will be exhausted and given present demographic trends the SSA will take in only about enough to pay 3/4 of the benefits calculated according to the formula congress adopted.

Barring new legislation, which I agree we shouldn't discuss, the reduction will happen across the board when the revenue runs short.

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Re: Michael Edesess on Delaying Social Security

Post by oxothuk »

tms wrote:I think the decision comes down to whether or not you need/want to annuitize a portion of your nest egg. If you do, then delaying SS is the best annuity you can buy, by far.
Couldn't agree more. SS Delayed Retirement Credits are much cheaper than a commercial annuity for two reasons.
1) Commercial insurers price their annuities above the mortality tables to offset adverse selection (people with terminal cancer don't buy annuities). SS implicitly assumes that knowledge of one's one health does not factor into the decision of when to claim.
2) Commercial insurers price their annuities based on current nominal interest rates (for a fixed annuity) or current real interest rates (for inflation-adjusted annuities). SS DRCs do not fluctuate with current interest rates but are fixed in law based on a historical period when rates were much higher than today.

Even with the delayed retirement credits at age 70, SS benefits are still well below what most Bogleheads would want as a minimum income stream in retirement. So delaying SS to 70 would seem like a no-brainer unless (a) one has known health problems that forecast an early death or (b) one has a very large defined benefit pension that fills their minimum income needs.
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