SS @ 62 w $300k savings or SS @ 70 & rely on $300k by age 60

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BlueCollarLawyer
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SS @ 62 w $300k savings or SS @ 70 & rely on $300k by age 60

Post by BlueCollarLawyer » Sun Feb 09, 2014 9:59 pm

Two scenarios.

First, retire at 60 with $300k savings invested in a Vanguard target retirement fund that comes into its target date as I hit that age. Then at 70 begin drawing maximum SS benefits.

Second, retire at 62 and immediately begin drawing SS benefits and rely on my $300k savings invested in a target retirement fund as above.

These scenarios assume no debt, expenses of about $20k a year in a low COL community, SS income of $1200/yr at 62 or $2k/yr at age 70, life expectancy to age 80-85, and the possibility of the occasional practice of my profession as needed to top up income needs, but probably earnings less than $10k per year between ages 60 and 70.

(I know a lot of posts put in lots more detail than this to get very tailored advice. My primary interest is in opinions on the idea of retirement at 60 vs 62 and how SS could impact the $300k lasting me as necessary to live very modestly in retirement. Thanks.)

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FNK
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Re: SS @ 62 w $300k savings or SS @ 70 & rely on $300k by ag

Post by FNK » Sun Feb 09, 2014 10:42 pm

Assuming the SS benefits are 1200 and 2000 a month, not year...

$1200*12=$14400 a year, does not cover your needs.

$2000*12=$24000 a year, does cover your needs, indexed, for the rest of your life, with a bit of surplus

$300K/$20K=15 years, enough to cover the gap from 60 to 70, with a bit of surplus.

Sounds like a slam dunk to me.

Effectively, what you'd be doing is annuitizing your savings via SS. That's the only way you have to guarantee not running out of money.

freddie
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Re: SS @ 62 w $300k savings or SS @ 70 & rely on $300k by ag

Post by freddie » Sun Feb 09, 2014 11:35 pm

12*12k + .04*300k = 26k though which would be enough. You should even be fine retiring at 60 but that is getting pretty close.

Personally I think this is one of those false dichotomy things. You have 2 choices
a) Retire at 60 or 62
b) take SS at 62 or 70

They really aren't linked. And there is no reason you can't decide to take SS at 65/67 if things change.

In theory you should be fine with either approach but the second approach is much safer if you happen to live longer than expected. Personally I would vote to retire at 62 and put off SS until I was down to something like 150k. If you like your job I would suggest working part time until 65 and ease into retirement.

FNK wrote:Assuming the SS benefits are 1200 and 2000 a month, not year...

$1200*12=$14400 a year, does not cover your needs.

$2000*12=$24000 a year, does cover your needs, indexed, for the rest of your life, with a bit of surplus

$300K/$20K=15 years, enough to cover the gap from 60 to 70, with a bit of surplus.

Sounds like a slam dunk to me.

Effectively, what you'd be doing is annuitizing your savings via SS. That's the only way you have to guarantee not running out of money.

sscritic
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Re: SS @ 62 w $300k savings or SS @ 70 & rely on $300k by ag

Post by sscritic » Sun Feb 09, 2014 11:47 pm

70 is actually a little better than as given. If your FRA is 66, then 62 is 75%, 70 is 132%, and 70 is 1.76 times 62, e.g., $2,112 per month, not $2,000. Similarly, if FRA is 67, 62 is 70%, 70 is 124%, and 70 is 1.77 times 62, e.g., $2,125 per month, not $2,000.

BlueCollarLawyer
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Re: SS @ 62 w $300k savings or SS @ 70 & rely on $300k by ag

Post by BlueCollarLawyer » Sun Feb 09, 2014 11:50 pm

Yes, I meant SS of $1200/mth@62 or 2k/mth@70, NOT yr.

Thanks for the replies so far. Broken down like that, it's clear waiting until 70 for SS is the way to go.

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CyberBob
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Re: SS @ 62 w $300k savings or SS @ 70 & rely on $300k by ag

Post by CyberBob » Mon Feb 10, 2014 12:45 am

William Bernstein had a good answer to the 62/70 question:
There are two possible goals with SS: 1) buy the optimal amount of longevity insurance for a given input, or 2) optimize your total amount of SS benefits. Both are valid goals, but let's assume you want to prioritize the former.

The clearest way to think about this is to imagine a pair of 62-year-old twins, both of who are entitled to $3,000 per month at age 70, which, coincidentally, is also their living expenses.

Twin A defers SS to age 70, when he will get $3,000 monthly benefits. He must thus cover 8 years of living expenses to get to age 70, costing $288,000 in real terms ($36,000 x 8). After he pays that liability, he's home free.

Twin B also has $3,000 per month living expenses, but decides to take $1,705 in SS at age 62. Thus, he has a $1,295 per month of shortfall until he dies. To cover this with a joint-survivorship inflation-adjusted fixed annuity costs approximately $438,000.

The difference between the two is $150,000. That's not chopped liver.

I'd even go so far as to recommend that if twin A runs out of money a year or two before 70, he should max out his credit cards to make it there.

Best,

Bill
Bob

alaska55
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Re: SS @ 62 w $300k savings or SS @ 70 & rely on $300k by ag

Post by alaska55 » Mon Feb 10, 2014 2:40 am

I'm almost in the same boat, except my is either 62 or 66-2mths(FRA). I'm planning on ER at 59 next year with total of 500k saved. At 62 i get @1580 and 66 @2190 and i have a inherited annuitiy of $550 a month that lasts til 65 1/2 aso will start receiving a small pension of $300 mth at 65 . I need a min of $1500 but plan on $2500. I also have the option of working about 10 weeks a year for @30k. I have already cut back to @20 weeks for @60K. Debt free, 2012 auto, all major work done on house in the last 3 years. So 1950x12=23400x7=163800. Plan on keeping 2years of living expenses in cash. I'm leaning toward chucking it all next year and waiting till 66 to collect SS.

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englishgirl
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Re: SS @ 62 w $300k savings or SS @ 70 & rely on $300k by ag

Post by englishgirl » Mon Feb 10, 2014 8:08 am

Make sure your SS estimates are accurate. The default estimates are based on SSA assuming that you will continue to work until age 70 (or whenever you have plugged in as the date you will take benefits). If you have less than 35 years of earnings in the bank, or you have some very low earning years in there, the amount you actually get at age 70 if you retire at 60 or 62 may be lower. You have to dig around a bit on the SSA website and use calculators that will allow you to plug in 0 for future earnings.
Sarah

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SteveNet
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Re: SS @ 62 w $300k savings or SS @ 70 & rely on $300k by ag

Post by SteveNet » Mon Feb 10, 2014 9:26 am

I recently went through the same exercise myself at the end of 2013.
600k aprox, in savings (invested). Age 60 now.
I took 300k (aprox) and did a CD ladder based on 5 yrs out, the excess each year to roll over into another 5 yr to make it to age 70.
Age 70 is what I'm shooting for for SS to start, if I fall short then I can take SS at 69 or 68...etc.

The other 300k is invested in ira/roth combined and I will start converting the ira to roth during the low tax years.
I believe waiting as long as you can to start SS is the better option, at least in my case of course.
Everyone has different factors to consider.

It is certainly a good feeling that the CD ladder money is there and not subject to the gyrations of the markets... only inflation will nibble at it a bit.
Being frugal is hard to learn, but once learned is hard to stop.

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