Interesting Social Security analysis

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
User avatar
corn18
Posts: 844
Joined: Fri May 22, 2015 6:24 am

Interesting Social Security analysis

Post by corn18 » Tue Jun 12, 2018 4:24 pm

I have been wondering why every time I run the Flexible Retirement Planner and vary my SS plan from taking it at 62 vs. 70, the probability of success never changes. Didn't make any sense to me. So I did some math.

These are the 3 scenarios I ran:

Scenario 1
Retirement age: 55
SS Start age: 62
SS Benefit @ 62: $31,000

Scenario 2
Retirement age: 55
SS Start age: 67
SS Benefit @ 67: $40,000

Scenario 3
Retirement age 55
SS Start age: 70
SS Benefit @ 70: $51,500

Income:

$43,757 COLA Pension (I am collecting this now)
$XX SS bridge $$$ then SS (the bridge dollars are taken from the portfolio balance)
4% SWR of remaining portfolio @ SS age

Portfolio balance at 55 is estimated @ $1.96M.

In all 3 scenarios, my annual income was about the same: $142,350 +- $200.

Other than longevity insurance, it seems like there is no benefit to delaying SS.

Am I missing something?

soccerrules
Posts: 772
Joined: Mon Nov 14, 2016 4:01 pm

Re: Interesting Social Security analysis

Post by soccerrules » Tue Jun 12, 2018 4:36 pm

corn -
When I used FIREcalc last week and change only the age/date of taking SS and the corresponding amount- and left everything else the same.

My plan success increased by 10 basis points when I took SS at 62 instead of taking it at 70.

I am assuming because I was withdrawing less from my portfolio to meet my yearly income needs from 60-70, the impact of the sequence of return variances were lessened.
Don't let your outflow exceed your income or your upkeep will be your downfall.

User avatar
corn18
Posts: 844
Joined: Fri May 22, 2015 6:24 am

Re: Interesting Social Security analysis

Post by corn18 » Tue Jun 12, 2018 4:45 pm

soccerrules wrote:
Tue Jun 12, 2018 4:36 pm
corn -
When I used FIREcalc last week and change only the age/date of taking SS and the corresponding amount- and left everything else the same.

My plan success increased by 10 basis points when I took SS at 62 instead of taking it at 70.

I am assuming because I was withdrawing less from my portfolio to meet my yearly income needs from 60-70, the impact of the sequence of return variances were lessened.
That makes sense. I look at the detailed output from the Flexible Retirement Planner (FRP) by year and the failures come earlier if I delay SS and later if I don't. I think in my case because the COLA pension and COLA SS @ 70 cover all of my expenses at age 78, there is 0% chance of failure after age 78 if I delay to 70.

I'm just trying to decide whether to mitigate SS risk by reducing benefits in 2034 by 21% or just take it at 62.

suemarkp
Posts: 37
Joined: Sun Nov 12, 2017 8:18 pm

Re: Interesting Social Security analysis

Post by suemarkp » Tue Jun 12, 2018 9:52 pm

Could it also be the assumed rate of return on your investments -vs- the rate on delaying SS? I think the benefit to waiting on SS is about 8% per year. If your investments are yielding 8% then it seems like a wash. Seems like if you can make over 8%, take SS early so you're not sucking out of your investments. If you can't achieve 8% investment returns (with its associated risk level), then delay SS.

Taxes could weigh in too if its a Roth investment -vs- a taxable SS benefit.
Mark | Kent, WA

MrPotatoHead
Posts: 429
Joined: Sat Oct 14, 2017 10:41 pm

Re: Interesting Social Security analysis

Post by MrPotatoHead » Tue Jun 12, 2018 10:34 pm

I have no idea what a "Flexible Retirement Planner" is, but my understanding form the social security folks is nothing you do is suppose to make a difference in your expected payout. In other words they have an actuarial assumed neutral mandate so your total time value of money payout is theoretically the same no matter when you claim your social security. The only way you win on personal level is if you guess correctly about the date of your demise and made an adjustment to when you take social security that capitalized on your guess. Stated differently, from the social security administrations standpoint you get the same time value of money payout no matter if you take you SS at full retirement age or delay it until 70(or any other scenario you come up with).

So when you delay taking SS until 70, what you are really doing is betting that you will live longer than the SS average.

I hope that helps.

DavidW
Posts: 75
Joined: Wed Jan 24, 2018 4:14 pm

Re: Interesting Social Security analysis

Post by DavidW » Tue Jun 12, 2018 11:50 pm

soccerrules wrote:
Tue Jun 12, 2018 4:36 pm
corn -
When I used FIREcalc last week and change only the age/date of taking SS and the corresponding amount- and left everything else the same.

My plan success increased by 10 basis points when I took SS at 62 instead of taking it at 70.

I am assuming because I was withdrawing less from my portfolio to meet my yearly income needs from 60-70, the impact of the sequence of return variances were lessened.
+1

I had the same thing happened to me as well...

My other thought is that while it is more at 70, my body may not be able to allow me to travel and enjoy the things I want to do. If I were to take it at 62, there is more to enjoy. $31K is a lot of travel and things to do....

SGM
Posts: 2680
Joined: Wed Mar 23, 2011 4:46 am

Re: Interesting Social Security analysis

Post by SGM » Wed Jun 13, 2018 3:59 am

Some of these calculators must assume that you are getting good portfolio returns while delaying SS. I would only compare delaying SS while assuming the additional amounts available for investments by claiming early would be saved in 10 year treasuries which have rather low returns. Of course I gave up these calculations as I chose to value the longevity insurance of delaying SS until 70 and also do Roth conversions before collecting SS.

The Wizard
Posts: 12019
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Interesting Social Security analysis

Post by The Wizard » Wed Jun 13, 2018 4:08 am

DavidW wrote:
Tue Jun 12, 2018 11:50 pm

...My other thought is that while it is more at 70, my body may not be able to allow me to travel and enjoy the things I want to do. If I were to take it at 62, there is more to enjoy. $31K is a lot of travel and things to do....
Practically all of us who are delaying SS until 70, are withdrawing that additional "$31k" from portfolio during those bridge years...
Attempted new signature...

Carl53
Posts: 1587
Joined: Sun Mar 07, 2010 8:26 pm

Re: Interesting Social Security analysis

Post by Carl53 » Wed Jun 13, 2018 5:47 am

SGM wrote:
Wed Jun 13, 2018 3:59 am
Some of these calculators must assume that you are getting good portfolio returns while delaying SS. I would only compare delaying SS while assuming the additional amounts available for investments by claiming early would be saved in 10 year treasuries which have rather low returns. Of course I gave up these calculations as I chose to value the longevity insurance of delaying SS until 70 and also do Roth conversions before collecting SS.
While doing conversions, our bridge funds thus far have come from safe short term taxable accounts, expiring CDs, I bonds, and online savings accounts. Will need to dip into the IRAs for a couple of years to support the conversions/lifestyle. I don't feel as though we are holding back on our travel. Just got back from an overseas trip that cost north of $18k. I do see that as we age very active trips are getting a little harder on the body.

JoeRetire
Posts: 1342
Joined: Tue Jan 16, 2018 2:44 pm

Re: Interesting Social Security analysis

Post by JoeRetire » Wed Jun 13, 2018 7:04 am

corn18 wrote:
Tue Jun 12, 2018 4:24 pm
Other than longevity insurance, it seems like there is no benefit to delaying SS.
That could be a pretty big "other".
Have you taken a stab at a lifespan estimate?
Do you have a spouse?

neilpilot
Posts: 1736
Joined: Fri Dec 04, 2015 1:46 pm
Location: Memphis area

Re: Interesting Social Security analysis

Post by neilpilot » Wed Jun 13, 2018 8:10 am

MrPotatoHead wrote:
Tue Jun 12, 2018 10:34 pm
I have no idea what a "Flexible Retirement Planner" is, but my understanding form the social security folks is nothing you do is suppose to make a difference in your expected payout. In other words they have an actuarial assumed neutral mandate so your total time value of money payout is theoretically the same no matter when you claim your social security. The only way you win on personal level is if you guess correctly about the date of your demise and made an adjustment to when you take social security that capitalized on your guess.
This discussion has been repeated many times on Bogleheads. Most of the analysis is centered upon mortality and investment return assumptions. That's fine if the analysis is applied to a person who's single, or who's spouse has nearly the same SS benefit at FRA.

However, many Bogleheads are married to a spouse who has a much lower SS benefit, and often also is likely to live beyond the higher earner's mortality. When you factor in the value of delayed increased benefits to your surviving spouse, the OP's analysis can be misleading.

JW-Retired
Posts: 6817
Joined: Sun Dec 16, 2007 12:25 pm

Re: Interesting Social Security analysis

Post by JW-Retired » Wed Jun 13, 2018 8:13 am

corn18 wrote:
Tue Jun 12, 2018 4:24 pm
Income:

$43,757 COLA Pension (I am collecting this now)
$XX SS bridge $$$ then SS (the bridge dollars are taken from the portfolio balance)
4% SWR of remaining portfolio @ SS age

Portfolio balance at 55 is estimated @ $1.96M.

In all 3 scenarios, my annual income was about the same: $142,350 +- $200.

Other than longevity insurance, it seems like there is no benefit to delaying SS.

Am I missing something?
Perhaps taxes? Is the above annual $142,350 your gross income?..... or is it your net after Federal & State tax income?

SS is more tax favored, especially if you live in a high tax state.
JW
Retired at Last

User avatar
corn18
Posts: 844
Joined: Fri May 22, 2015 6:24 am

Re: Interesting Social Security analysis

Post by corn18 » Wed Jun 13, 2018 8:44 am

I think my statement regarding longevity insurance was too harsh. There is extraordinary value in that, especially for my situation. I am the sole SS earner and my spouse is 4 years younger than me. Delaying to 70 is definitely the best way to go for us. I guess the light bulb finally came on with respect to the actuarily neutral bit of 62 vs 70. Yeah! I'm a slow learner.

To JW-Retired, the numbers are gross before taxes. In the bridge years, that would come out of taxable which would be LTCG @ 10%-15%. During the collection years, it would be SS vs. taxable or tax deferred, so it might be tax favorable to SS.

The only reason I might consider taking SS early vs. later is if the benefits might be reduced. I can't predict that, so I will stick with our plan to draw at 70.

JW-Retired
Posts: 6817
Joined: Sun Dec 16, 2007 12:25 pm

Re: Interesting Social Security analysis

Post by JW-Retired » Wed Jun 13, 2018 9:59 am

corn18 wrote:
Wed Jun 13, 2018 8:44 am
To JW-Retired, the numbers are gross before taxes. In the bridge years, that would come out of taxable which would be LTCG @ 10%-15%. During the collection years, it would be SS vs. taxable or tax deferred, so it might be tax favorable to SS.
My state (CA) taxes dividends and realized LTCG at the same rate as wages, so state tax adds another 9 or 10% on top of my Federal tax rate for most all investment income. On the other hand, my SS income is not state taxed at all. I would bet that your state does similarly but check into it.

Given no state tax and a maximum of 85% of SS being federally taxed, trading some investment income for higher delayed SS income is a pretty good deal.
JW
Retired at Last

User avatar
David Jay
Posts: 5277
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Interesting Social Security analysis

Post by David Jay » Wed Jun 13, 2018 10:36 am

For single men, the numbers are pretty similar. It comes down to a philosophical question: "more money now" versus "longevity insurance". No right or wrong.

For women, delaying has slightly better numbers.

For married couples, having the higher earner delay almost always generates a better result. Using the "opensocialsecurity" app (Mike Piper's creation), my wife (lower earner) will claim at 62 and I will claim at 70.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

soccerrules
Posts: 772
Joined: Mon Nov 14, 2016 4:01 pm

Re: Interesting Social Security analysis

Post by soccerrules » Wed Jun 13, 2018 1:12 pm

The Wizard wrote:
Wed Jun 13, 2018 4:08 am
DavidW wrote:
Tue Jun 12, 2018 11:50 pm

...My other thought is that while it is more at 70, my body may not be able to allow me to travel and enjoy the things I want to do. If I were to take it at 62, there is more to enjoy. $31K is a lot of travel and things to do....
Practically all of us who are delaying SS until 70, are withdrawing that additional "$31k" from portfolio during those bridge years...
Here are my thoughts about taking SS at 62, 70 or somewhere in between
1) I plan to stop working FT in 7-8 years at 60. My PIA is fairly set. It probably will not move much even if I earn less over the next 6-7 years. #2ndbendpoint
2) I'll know when I know, meaning once I get closer to 62, the smoke probably clears a little (portfolio value, SS changes?, healthcare, true expenses)
3) It appears to be wise to make Roth conversions before 70.5/RMD's
4) I can't pass SS on to heirs - but we can our portfolio.
5) Assuming an age 85 or 90 death what is the real dollar trade off for taking at 62 or 70 and corresponding impact to portfolio to have taken early or delayed. If by taking early i lose out on SS $150K (to 85) or $300K (to 90) what % rate of return is needed on the money not taken from my portfolio to equal this trade off over 23 years (62-85) or 28 years (62-90).

This is what will keep me up at night after I pay off the mortgage. :D
Don't let your outflow exceed your income or your upkeep will be your downfall.

smectym
Posts: 153
Joined: Thu May 26, 2011 5:07 pm

Re: Interesting Social Security analysis

Post by smectym » Thu Jun 14, 2018 12:14 am

No doubt this has been addressed in other strings...I hope I didn’t miss it addressed above. Isn’t “Take It at Seventy” dogma negated in the case of those households grandfathered in to the regime under which high-earning Spouse A starts the benefit at FRA (say $2600/month) and relatively lower-earning Spouse B takes the spousal benefit at 50% of A’s benefit ($1300)? B’s benefit based on B’s own earnings record continues to grow. At 70 B switches to B’s own benefit (~$2100).

Sure, A’s benefit would be higher at age 70 if A waited till 70 to claim. But A is bumping up against the max anyway. So the difference isn’t great. Meanwhile, the household benefits by $1300 x48 months = $62,400 through B’s spousal, while B can look forward to a much more robust payment at 70.

This strategy is going to go away soon (another “loophole” plugged; we’ll see what comes next) but for those who can still take advantage of it, seems more compelling than for both A and B to doggedly “wait till 70” because that’s what they read on some finance blog.

Smectym

Post Reply