Investing SS income

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Rosencrantz1
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Investing SS income

Post by Rosencrantz1 »

Hello,
Generally speaking - if one is able and willing to invest every dime of SS income, is it an acceptable choice to collect SS at age 62 (as opposed to waiting until FRA or some other date - as, it seems some financial folks advise)? I'm 62 now (been retired for about 3 years) and my SS income is calculated to be about $2K/month.

My wife and I have 3 secure pensions (with COLA) that generate about 150% of our monthly needs and wants (including previous employer health care). We also own a low 7 figure portfolio of IRAs, Roths, CDs and taxable brokerage. No debt at all. Own two fairly new cars. Own the house - value about $350K. One child married and pursuing her career.

I think my "breakeven" point for SS is about age 79.

Is it financially wiser to collect SS at age 62 (and invest the money) OR wait till full retirement age or later and receive the larger check? I realize, of course, it very much depends on investment performance and how long one might live. Having said that, and being motivated to generate as large a pile as possible, is this a good strategy to think about?

Thanks for reading, Rosencrantz
delamer
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Re: Investing SS income

Post by delamer »

What happens to the income of the surviving spouse when one of you dies first?

In either case, will the remaining pension income cover all expenses?
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BL
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Re: Investing SS income

Post by BL »

Be sure to consider what happens when either one of you passes before the other.

It does sound like you will be fine no matter what you do.
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Rosencrantz1
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Re: Investing SS income

Post by Rosencrantz1 »

delamer wrote: Thu Jan 23, 2020 8:13 pm What happens to the income of the surviving spouse when one of you dies first?

In either case, will the remaining pension income cover all expenses?
When I die, she'd get 66% of my pensions for the remainder of her life. If she were to die before me (unlikely), I'd get 50% of hers. In either scenario, I believe the monthly income would/will be enough for our normal expenses (plus, there's our investment accounts as back up).
kardan
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Re: Investing SS income

Post by kardan »

Be sure to look at the impact additional income will have if you are subject to IRMMA once you reach age 65.
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Rosencrantz1
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Re: Investing SS income

Post by Rosencrantz1 »

kardan wrote: Thu Jan 23, 2020 8:30 pm Be sure to look at the impact additional income will have if you are subject to IRMMA once you reach age 65.
Thank you. I hadn't thought of that. I did check and I'm reasonably sure we won't get into the IRMMA. I had to look that up to see what it meant :beer
Admiral
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Re: Investing SS income

Post by Admiral »

I would def focus on the tax issues (IRMAA, % of SS that will be taxed) more than the breakeven analysis issue, since it sounds like financially you are set even w/o SS. Also if you plan to do Roth conversions, your income is likely already high with the pensions, so you'd have to look at whether early SS pushed you into the next marginal bracket.
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Rosencrantz1
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Re: Investing SS income

Post by Rosencrantz1 »

Admiral wrote: Thu Jan 23, 2020 8:38 pm I would def focus on the tax issues (IRMAA, % of SS that will be taxed) more than the breakeven analysis issue, since it sounds like financially you are set even w/o SS. Also if you plan to do Roth conversions, your income is likely already high with the pensions, so you'd have to look at whether early SS pushed you into the next marginal bracket.
Thanks, that'll be something I need to look at regarding Roth conversions. I don't think it'd take much income beyond our pensions to bump us up.
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Wiggums
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Re: Investing SS income

Post by Wiggums »

This is an interesting question because most people try and maximize Social Security.

At age 62, you'll collect 73.3% of the amount you'd collect at full retirement age. Thus, if your full retirement age benefit is $1,000 and you claim at age 62, you'll receive $733 per month in Social Security income. If there is a big difference between you and your spouses SS, that lower amount will affect them as well when you pass.

The main reasons to draw early are: you need the money now yo live or you won’t live to the break even date.
Last edited by Wiggums on Thu Jan 23, 2020 9:12 pm, edited 4 times in total.
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JoeRetire
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Re: Investing SS income

Post by JoeRetire »

Rosencrantz1 wrote: Thu Jan 23, 2020 8:02 pm Generally speaking - if one is able and willing to invest every dime of SS income, is it an acceptable choice to collect SS at age 62 (as opposed to waiting until FRA or some other date - as, it seems some financial folks advise)?
It's your benefit. Anything you choose to do with it is acceptable.
I think my "breakeven" point for SS is about age 79.
Do you have some reason to believe that you won't live that long?
Is it financially wiser to collect SS at age 62 (and invest the money) OR wait till full retirement age or later and receive the larger check?
If you expect to live longer than 80 or so, it's almost certain to be better financially to wait until FRA or perhaps even 70. That would be particularly true if you are the higher earner compared to your wife.

That could change if you have some way to generate a very high return on your investments going forward.

see: https://opensocialsecurity.com/
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quantAndHold
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Re: Investing SS income

Post by quantAndHold »

Life expectancy of a man who makes it to age 65 is 84.4. For women, it's 85. If you've done the math and your breakeven is 79, you're probably better waiting until 70 to collect.

Either way, you're golden.
Yes, I’m really that pedantic.
heyyou
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Re: Investing SS income

Post by heyyou »

Consider the situation of one of you needing to live in a care facility, while the other is still able to live at home.
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Rosencrantz1
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Re: Investing SS income

Post by Rosencrantz1 »

JoeRetire wrote: Thu Jan 23, 2020 9:05 pm
Rosencrantz1 wrote: Thu Jan 23, 2020 8:02 pm Generally speaking - if one is able and willing to invest every dime of SS income, is it an acceptable choice to collect SS at age 62 (as opposed to waiting until FRA or some other date - as, it seems some financial folks advise)?
It's your benefit. Anything you choose to do with it is acceptable.
I think my "breakeven" point for SS is about age 79.
Do you have some reason to believe that you won't live that long?
Is it financially wiser to collect SS at age 62 (and invest the money) OR wait till full retirement age or later and receive the larger check?
If you expect to live longer than 80 or so, it's almost certain to be better financially to wait until FRA or perhaps even 70. That would be particularly true if you are the higher earner compared to your wife.

That could change if you have some way to generate a very high return on your investments going forward.

see: https://opensocialsecurity.com/
Thanks. By "acceptable", I'm really trying to get a feel from Bogleheads as to whether this early SS benefit and investing it might produce superior returns as opposed to simply waiting for the larger check. I know there are a LOT of variables.

I don't know how long I'll live - but, based on family history, I question getting seriously into my 80s.

I did a crude - back of the envelope - calculation of future value of a SS benefit of $24.5K/year over a period of 6 years earning 8.5%/year (historical return of stock market?) and it came out to about $182K. I choose 6 years because that would be me at about age 68. That seems like a good amount to have in the market - assuming I live to 68....that probably is a good bet. :happy

One other thing to note.... my wife is a retired teacher and is subject to the Windfall Elimination Provision (WEP), so, her SS benefit (including anything from me) is going to be quite small.
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Rosencrantz1
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Re: Investing SS income

Post by Rosencrantz1 »

quantAndHold wrote: Thu Jan 23, 2020 9:20 pm Life expectancy of a man who makes it to age 65 is 84.4. For women, it's 85. If you've done the math and your breakeven is 79, you're probably better waiting until 70 to collect.

Either way, you're golden.
Thank you. So if I waited till 70, I'd collect much larger SS checks for about 5.5 years beyond my breakeven (given those life expectancies). Something to think about...
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arcticpineapplecorp.
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Re: Investing SS income

Post by arcticpineapplecorp. »

Rosencrantz1 wrote: Thu Jan 23, 2020 9:40 pm Thanks. By "acceptable", I'm really trying to get a feel from Bogleheads as to whether this early SS benefit and investing it might produce superior returns as opposed to simply waiting for the larger check. I know there are a LOT of variables.

I don't know how long I'll live - but, based on family history, I question getting seriously into my 80s.

I did a crude - back of the envelope - calculation of future value of a SS benefit of $24.5K/year over a period of 6 years earning 8.5%/year (historical return of stock market?) and it came out to about $182K. I choose 6 years because that would be me at about age 68. That seems like a good amount to have in the market - assuming I live to 68....that probably is a good bet. :happy

One other thing to note.... my wife is a retired teacher and is subject to the Windfall Elimination Provision (WEP), so, her SS benefit (including anything from me) is going to be quite small.
Have you seen Jonathan Clements' articles on Social Security? If not read the link below.
What if you plan to invest in stocks, not bonds? That could raise the breakeven age, because the potential return is higher. But the risk is also vastly greater, and that messes up the analysis. You shouldn’t make a straight comparison between a relatively sure bet (the government keeps paying Social Security) and something so uncertain (remember, stocks lost roughly half their value twice in the past two decades) without factoring in the difference in risk.

source: https://humbledollar.com/money-guide/br ... -security/
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Rosencrantz1
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Re: Investing SS income

Post by Rosencrantz1 »

arcticpineapplecorp. wrote: Thu Jan 23, 2020 9:53 pm
Rosencrantz1 wrote: Thu Jan 23, 2020 9:40 pm Thanks. By "acceptable", I'm really trying to get a feel from Bogleheads as to whether this early SS benefit and investing it might produce superior returns as opposed to simply waiting for the larger check. I know there are a LOT of variables.

I don't know how long I'll live - but, based on family history, I question getting seriously into my 80s.

I did a crude - back of the envelope - calculation of future value of a SS benefit of $24.5K/year over a period of 6 years earning 8.5%/year (historical return of stock market?) and it came out to about $182K. I choose 6 years because that would be me at about age 68. That seems like a good amount to have in the market - assuming I live to 68....that probably is a good bet. :happy

One other thing to note.... my wife is a retired teacher and is subject to the Windfall Elimination Provision (WEP), so, her SS benefit (including anything from me) is going to be quite small.
Have you seen Jonathan Clements' articles on Social Security? If not read the link below.
What if you plan to invest in stocks, not bonds? That could raise the breakeven age, because the potential return is higher. But the risk is also vastly greater, and that messes up the analysis. You shouldn’t make a straight comparison between a relatively sure bet (the government keeps paying Social Security) and something so uncertain (remember, stocks lost roughly half their value twice in the past two decades) without factoring in the difference in risk.

source: https://humbledollar.com/money-guide/br ... -security/
No, I have not see this article.... but, I certainly plan to read it now. Thank you.
delamer
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Re: Investing SS income

Post by delamer »

Rosencrantz1 wrote: Thu Jan 23, 2020 8:26 pm
delamer wrote: Thu Jan 23, 2020 8:13 pm What happens to the income of the surviving spouse when one of you dies first?

In either case, will the remaining pension income cover all expenses?
When I die, she'd get 66% of my pensions for the remainder of her life. If she were to die before me (unlikely), I'd get 50% of hers. In either scenario, I believe the monthly income would/will be enough for our normal expenses (plus, there's our investment accounts as back up).
We are not waiting to max out our Social Security. Like you, we have more than adequate income to cover our expenses from pensions and by taking Social Security earlier. This is equally true regardless of who is the surviving spouse.

Not having to draw down investments allows us to save more for long-term care and increase the inheritance for our kids.

Somewhat different than your situation because we aren’t actually planning on saving the Social Security benefit (although we may end up adding to savings).
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Rosencrantz1
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Re: Investing SS income

Post by Rosencrantz1 »

I've read the article and it is eye-opening. I wish the author would have gone ahead and done the calculations for equity investments (based on historical returns). I say this because, in spite of the additional and known risks of equities, that's likely where I'd put the money. If I thought we'd NEED the money for something during the rest of my life, I'd probably feel differently. We're already "self insuring" for long term care (see portfolio value).

Thanks again, :beer
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Watty
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Re: Investing SS income

Post by Watty »

Be sure to understand how Social Security is taxed since it is complex and can put you into a higher than expected tax bracket on you other income.

https://www.bogleheads.org/wiki/Taxatio ... y_benefits

At most 85% in Social Security will be taxed and many states do not tax Social Security so a dollar in Social Security may be worth a lot more than a dollar in IRA withdrawals which can make getting a larger check later on better than it might seem.

I don't know that there is a good general way to answer your question so you should do some dummy tax returns to see how the taxes might work out for you.

There are some other tax issues to keep in mind;
1) The federal tax brackets are scheduled to revert back to the higher rates in 2026 if there are not future changes.

2) Most likely one of you will survive the other and then be filing returns in the higher single tax brackets.

3) Under the new rules your heirs(other than your spouse) that inherit your IRAs will have to take all the money out within 10 years. That could put them into a high tax bracket. If you are expecting to leave a lot of IRA money to your heirs then doing Roth conversions can be more favorable for estate planning now.

If I was in your situation I would take a hard look at doing as many Roth conversions as possible. In 2026 the 22% federal tax bracket will revert back to 25% if there are no tax law changes. This could make doing Roth conversions up to the top of the current 24% tax bracket worthwhile but you would need to crunch the numbers on that. It would take roughly $350K for a couple to get to the top of the 24% tax bracket. You might also want to keep the Roth conversions just below the next IRMAA tier.

Starting your Social Security now would reduce the amount of the Roth conversions that you could do without going up to the next tax bracket.
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Rosencrantz1
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Re: Investing SS income

Post by Rosencrantz1 »

Watty wrote: Thu Jan 23, 2020 10:23 pm Be sure to understand how Social Security is taxed since it is complex and can put you into a higher than expected tax bracket.

https://www.bogleheads.org/wiki/Taxatio ... y_benefits

At most 85% in Social Security will be taxed and many states do not tax Social Security so a dollar in Social Security may be worth a lot more than a dollar in IRA withdrawals.

I don't know that there is a good general way to answer your question so you should do some dummy tax returns to see how the taxes might work out for you.

There are some other tax issues to keep in mind;
1) The federal tax brackets are scheduled to revert back to the higher rates in 2026 if there are not future changes.

2) Most likely one of you will survive the other and then be filing returns in the higher single tax brackets.

3) Under the new rules your heirs(other than your spouse) that inherit your IRAs will have to take all the money out within 10 years. That could put them into a high tax bracket. If you are expecting to leave a lot of IRA money to your heirs then doing Roth conversions can be more favorable for estate planning now.

If I was in your situation I would take a hard look at doing as many Roth conversions as possible. In 2026 the 22% federal tax bracket will revert back to 25% if there are no tax law changes. This could make doing Roth conversions up to the top of the current 24% tax bracket worthwhile but you would need to crunch the numbers on that. It would take roughly $350K for a couple to get to the top of the 24% tax bracket.

Starting your Social Security now would reduce the amount of the Roth conversions that you could do without going up to the next tax bracket.
Thank you. Appreciate your detailed comments. And, I think you're right - we should be looking into Roth conversions. Fortunately, we live in a state that does not tax SS.
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Re: Investing SS income

Post by Eagle33 »

Be sure to factor in higher taxes when filing Single instead of MFJ in your calculations.
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JoeRetire
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Re: Investing SS income

Post by JoeRetire »

Rosencrantz1 wrote: Thu Jan 23, 2020 9:48 pm
quantAndHold wrote: Thu Jan 23, 2020 9:20 pm Life expectancy of a man who makes it to age 65 is 84.4. For women, it's 85. If you've done the math and your breakeven is 79, you're probably better waiting until 70 to collect.

Either way, you're golden.
Thank you. So if I waited till 70, I'd collect much larger SS checks for about 5.5 years beyond my breakeven (given those life expectancies). Something to think about...
Not just you would collect the larger checks, should your spouse survive you, she would continue to receive the same maximal check for the remainder of her life.

Don't think break even, think longevity, think guaranteed, think inflation-protected, think tax-advantaged.

https://www.kitces.com/blog/how-delayin ... y-can-buy/

"Nonetheless, the decision to delay Social Security can be evaluated based on the implicit rate of return it creates by choosing to delay, and over longer time horizons – when clients may “need the money most” as they have more years of retirement expenses to cover in the first place – the return of the Social Security delay becomes quite compelling. In fact, the return is generally far superior to any risk-adjusted returns that can be achieved over comparable time periods by the available alternatives, whether investing in risk-free bonds, growth equities, or buying a commercially available annuity. And because the system is indexed to inflation, its real returns will be maintained even if inflation rises, and will only become better if longevity continues to increase as well. In fact, ultimately the decision to delay Social Security delivers the best results when there is either unexpected inflation, unusually long longevity, or especially bad market returns, which are the exact three scenarios that traditional portfolios are the least effective at managing, making the decision to delay Social Security the ultimate form of “anti-fragile” triple hedge!"
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Tamarind
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Re: Investing SS income

Post by Tamarind »

It's acceptable but probably not optimal. If you don't need the money, why not let it grow until 70? 8% annual growth is likely competitive with what you would achieve by investing, and as a guaranteed rate it can't be beat. It will also serve as an extra protection against extended LTC costs late in life.
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Re: Investing SS income

Post by Dandy »

I would rather have a lower asset level and higher inflation protected income for the spouse that lives longest. It seems as if you have enough assets and current income to be in great financial shape. Since you can't take it with you and your heir will probably be in great shape no matter what-- higher growth is less of a need. Secure income especially income that is inflation protected and will last the longest lifetime seems to be a better choice.

You might be in a position to gift some early inheritance to your daughter since you will have more than enough income and assets. We are doing that with my daughters each year and we enjoy taking some of the financial pressure off them while we are all alive instead of them getting a big inheritance later in life. This approach allows them and our grandchildren to enjoy life a bit more -- and so do we. Just a thought.

Having maximized my SS at age 70 helped make that a low risk effort. It is often hard to stop trying to make the "number" higher after decades of saving and investing. But, when I look at the need to make it higher it was for our heirs more than us and heirs would likely appreciate some assets earlier than later -- unless they are in very great financial shape. I still focus on how high our number is -- but I'm learning to let that go a bit.
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Re: Investing SS income

Post by #Cruncher »

Rosencrantz1 wrote: Thu Jan 23, 2020 9:40 pmI did a crude - back of the envelope - calculation of future value of a SS benefit of … earning 8.5%/year (historical return of stock market?) and it came out to about ...
Unless you invest 100% in stocks, this is the wrong return to use for your calculation. You should use the expected real return of the bond portion of your portfolio. This is nicely illustrated in ObliviousInvestor's post, Re: Wait for Social Security - breakeven returns. I reach a similar conclusion from a different perspective in my post, Re: Effect of Social Security when Retiring before Benefits Begin.
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Re: Investing SS income

Post by dbr »

Rosencrantz1 wrote: Thu Jan 23, 2020 9:40 pm
Thanks. By "acceptable", I'm really trying to get a feel from Bogleheads as to whether this early SS benefit and investing it might produce superior returns as opposed to simply waiting for the larger check. I know there are a LOT of variables.
Of course you can amass more wealth in the end by investing earlier SS at a high enough return. The math of this problem is that the day you start taking early SS and invest it you have more money than if you wait. If the return is high enough taking the larger amount later never catches up. At too low a return the later election of SS does catch up and you eventually end up richer for having waited for the higher benefits. The break even is being able to invest at a return of about 8%. All of this before taxes, etc. If you invest at 6% the crossover happens about age 92. At 4% it happens at about age 84. At 0% it happens at age 79.*

Given that the whole problem is just arithmetic I am not sure how a concept of "acceptable" applies.

*My numbers are from a simple spreadsheet using constant annual return. To display investing results more realistically one should probably run a probabilistic model using some kind of input for actual investment returns of real investments. That could even be done in Firecalc, for example.
Admiral
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Re: Investing SS income

Post by Admiral »

I think what several posters are missing is that you don't need the money. If you truly don't need it, then that means either choice is fine financially: take less money sooner, or wait and take more money later.

The difference between the two is the issue of life expectancy: waiting longer means (or may mean) greater chances of death before claiming, or right after claiming. Clearly date of death is unknowable, but if you feel strongly (based on family history) that you won't live much past 70/75, then the bird is in the hand.

(You have not posted your full financial picture, which would be helpful to give more granular advice.)

But I will give one example, my dad. His father died at 70. He decided to take SS at 62, while still working. He also did not really need the money. Since like everyone here I believe in delaying at least until FRA, I asked him why. His answer was "I liked the guaranteed cash flow." (And clearly longevity was part of his decision I'm sure.)

Fast forward: He's now 81 and still working. Should he have waited? Who knows. But the stock market has tripled since he began SS, so I'm sure he's made some nice profit on whatever he either saved or what was in his portfolio that he did not need to withdraw. I also think it allowed him to work less and take more trips (he's self employed).

YMMV!
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Re: Investing SS income

Post by dbr »

Admiral wrote: Fri Jan 24, 2020 10:06 am I think what several posters are missing is that you don't need the money. If you truly don't need it, then that means either choice is fine financially: take less money sooner, or wait and take more money later.

The difference between the two is the issue of life expectancy: waiting longer means (or may mean) greater chances of death before claiming, or right after claiming. Clearly date of death is unknowable, but if you feel strongly (based on family history) that you won't live much past 70/75, then the bird is in the hand.

Correct. Posters missed the statement that the objective is to invest the money and "generate as large a pile as possible." The outcome is simply a matter of what investment returns one can get and how long one thinks one is going to live.
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Rosencrantz1
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Re: Investing SS income

Post by Rosencrantz1 »

Dandy wrote: Fri Jan 24, 2020 8:34 am I would rather have a lower asset level and higher inflation protected income for the spouse that lives longest. It seems as if you have enough assets and current income to be in great financial shape. Since you can't take it with you and your heir will probably be in great shape no matter what-- higher growth is less of a need. Secure income especially income that is inflation protected and will last the longest lifetime seems to be a better choice.

You might be in a position to gift some early inheritance to your daughter since you will have more than enough income and assets. We are doing that with my daughters each year and we enjoy taking some of the financial pressure off them while we are all alive instead of them getting a big inheritance later in life. This approach allows them and our grandchildren to enjoy life a bit more -- and so do we. Just a thought.

Having maximized my SS at age 70 helped make that a low risk effort. It is often hard to stop trying to make the "number" higher after decades of saving and investing. But, when I look at the need to make it higher it was for our heirs more than us and heirs would likely appreciate some assets earlier than later -- unless they are in very great financial shape. I still focus on how high our number is -- but I'm learning to let that go a bit.
Thanks. Your " I still focus on how high our number is -- but I'm learning to let that go a bit." rang true for me. I should probably learn to do that too.
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Rosencrantz1
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Re: Investing SS income

Post by Rosencrantz1 »

dbr wrote: Fri Jan 24, 2020 9:54 am
Rosencrantz1 wrote: Thu Jan 23, 2020 9:40 pm
Thanks. By "acceptable", I'm really trying to get a feel from Bogleheads as to whether this early SS benefit and investing it might produce superior returns as opposed to simply waiting for the larger check. I know there are a LOT of variables.
Of course you can amass more wealth in the end by investing earlier SS at a high enough return. The math of this problem is that the day you start taking early SS and invest it you have more money than if you wait. If the return is high enough taking the larger amount later never catches up. At too low a return the later election of SS does catch up and you eventually end up richer for having waited for the higher benefits. The break even is being able to invest at a return of about 8%. All of this before taxes, etc. If you invest at 6% the crossover happens about age 92. At 4% it happens at about age 84. At 0% it happens at age 79.*

Given that the whole problem is just arithmetic I am not sure how a concept of "acceptable" applies.

*My numbers are from a simple spreadsheet using constant annual return. To display investing results more realistically one should probably run a probabilistic model using some kind of input for actual investment returns of real investments. That could even be done in Firecalc, for example.
Thank you. I'm not nearly sophisticated enough using Firecalc to run those probabilistic models - but, I appreciate your simple spreadsheet, constant return numbers. If the crossover happens at about age 92 with 6% returns, it seems like collecting and investing at age 62 could be a decent strategy. I really do not expect to see late 80s/90s. And, as previously mentioned, I'd most certainly invest the SS income in equities. I realize, of course, past returns do not dictate the future in equities.

Another poster mentioned the lack of specifics regarding our portfolio (in terms of giving "granular" advice). All the accounts together (not including primary home or lake cabin (both paid for)) are about 1.75M. I already have an emergency fund that would cover us for at least a year. Point being, I'd be more than comfortable putting the SS proceeds into equities exclusively.
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Rosencrantz1
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Re: Investing SS income

Post by Rosencrantz1 »

#Cruncher wrote: Fri Jan 24, 2020 9:35 am
Rosencrantz1 wrote: Thu Jan 23, 2020 9:40 pmI did a crude - back of the envelope - calculation of future value of a SS benefit of … earning 8.5%/year (historical return of stock market?) and it came out to about ...
Unless you invest 100% in stocks, this is the wrong return to use for your calculation. You should use the expected real return of the bond portion of your portfolio. This is nicely illustrated in ObliviousInvestor's post, Re: Wait for Social Security - breakeven returns. I reach a similar conclusion from a different perspective in my post, Re: Effect of Social Security when Retiring before Benefits Begin.
Thank you for the links. I don't have the time to read them now.... but, I will. I'm very interested in the collective wisdom of this site.
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Rosencrantz1
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Re: Investing SS income

Post by Rosencrantz1 »

Don't think break even, think longevity, think guaranteed, think inflation-protected, think tax-advantaged.
Thanks. All very good points. I know this is a bit off-topic (in a thread I started!)....but, anyone concerned about taking a haircut when SS is unable to pay 100% of promised benefits? Do you think there is political will to make SS "whole" in - what's the latest - 2035? It seems to me this is a can that's regularly kicked down the road (making the fix all the more expensive)....
rossington
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Re: Investing SS income

Post by rossington »

Rosencrantz1 wrote: Fri Jan 24, 2020 4:09 pm I know this is a bit off-topic (in a thread I started!)....but, anyone concerned about taking a haircut when SS is unable to pay 100% of promised benefits? Do you think there is political will to make SS "whole" in - what's the latest - 2035? It seems to me this is a can that's regularly kicked down the road (making the fix all the more expensive)....
That is one more argument one might have for taking your SS early...we don't know, we can only speculate about the "what ifs" @ the solvency issue....

Having said that I think you only need to focus on how the extra income will affect your tax situation.

We have been giving much thought as to whether to take or invest the SS payments and when.
Maybe depositing the payment now in VTSAX every month and letting it ride is the way to go as a possble buffer to the solvency issues...and if you don't need the money.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
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Re: Investing SS income

Post by ByThePond »

Rosencrantz1 wrote: Fri Jan 24, 2020 4:09 pm

Thanks. All very good points. I know this is a bit off-topic (in a thread I started!)....but, anyone concerned about taking a haircut when SS is unable to pay 100% of promised benefits? Do you think there is political will to make SS "whole" in - what's the latest - 2035? It seems to me this is a can that's regularly kicked down the road (making the fix all the more expensive)....
I don't have any opinion about whether SS gets fixed, but I am in roughly similar circumstances to you and I run my projected numbers through the RPM spreadsheet with the haircut turned on. Those are the numbers I look at, and if things get fixed, so much the better.
So, no, I'm not concerned.
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Rosencrantz1
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Re: Investing SS income

Post by Rosencrantz1 »

Unless you invest 100% in stocks, this is the wrong return to use for your calculation. You should use the expected real return of the bond portion of your portfolio. This is nicely illustrated in ObliviousInvestor's post, Re: Wait for Social Security - breakeven returns. I reach a similar conclusion from a different perspective in my post,
.
[/quote]

I would invest 100% of SS benefits in equities. I read through your "effect of Social Security..." analysis and it reminds me that I should endeavor to use search more often. Thank you for the link once again. It shows that with a 7.32% real return, delaying until age 70 will never "catch up" with starting SS at 62. A very good point. I have no idea if equities will have a CAGR of 7.32% over the next 15 years or so, much less if that return could be expected as a real return. I certainly have some things to think about. I suspect much of it (my thinking) will be related to what my expected mortality might be....tax considerations... and, to be fair, I am a bit concerned about SS solvency (ie. NO haircut) in 15 years or so.
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Re: Investing SS income

Post by JoeRetire »

Rosencrantz1 wrote: Fri Jan 24, 2020 6:57 pmI am a bit concerned about SS solvency (ie. NO haircut) in 15 years or so.
Social Security will remain solvent throughout your life. That's not what "no haircut" means.
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Re: Investing SS income

Post by Wiggums »

Dandy wrote: Fri Jan 24, 2020 8:34 am I would rather have a lower asset level and higher inflation protected income for the spouse that lives longest. It seems as if you have enough assets and current income to be in great financial shape. Since you can't take it with you and your heir will probably be in great shape no matter what-- higher growth is less of a need. Secure income especially income that is inflation protected and will last the longest lifetime seems to be a better choice.

You might be in a position to gift some early inheritance to your daughter since you will have more than enough income and assets. We are doing that with my daughters each year and we enjoy taking some of the financial pressure off them while we are all alive instead of them getting a big inheritance later in life. This approach allows them and our grandchildren to enjoy life a bit more -- and so do we. Just a thought.

Having maximized my SS at age 70 helped make that a low risk effort. It is often hard to stop trying to make the "number" higher after decades of saving and investing. But, when I look at the need to make it higher it was for our heirs more than us and heirs would likely appreciate some assets earlier than later -- unless they are in very great financial shape. I still focus on how high our number is -- but I'm learning to let that go a bit.
You made two points that resonated with me.

1. We found it hard to stop growing the portfolio so aggressively as a relatively new retiree.

2. We are also finding it hard to spend the money on ourselves, since we are not needy type people. We did start a DAF and we are helping our children as you described. I find both those activities, more enjoyable than spending it for myself.

We are making an effort to think differently in retirement.
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Re: Investing SS income

Post by Rosencrantz1 »

JoeRetire wrote: Fri Jan 24, 2020 7:05 pm
Rosencrantz1 wrote: Fri Jan 24, 2020 6:57 pmI am a bit concerned about SS solvency (ie. NO haircut) in 15 years or so.
Social Security will remain solvent throughout your life. That's not what "no haircut" means.
Do you know something I don't about solving the future SS insolvency issue?

I pulled this from the web.... According to the Trustees, the Old-Age & Survivors Insurance (OASI) trust fund is projected to deplete its reserves by 2034

I may live that long. :beer
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Re: Investing SS income

Post by Admiral »

Rosencrantz1 wrote: Fri Jan 24, 2020 7:37 pm
JoeRetire wrote: Fri Jan 24, 2020 7:05 pm
Rosencrantz1 wrote: Fri Jan 24, 2020 6:57 pmI am a bit concerned about SS solvency (ie. NO haircut) in 15 years or so.
Social Security will remain solvent throughout your life. That's not what "no haircut" means.
Do you know something I don't about solving the future SS insolvency issue?

I pulled this from the web.... According to the Trustees, the Old-Age & Survivors Insurance (OASI) trust fund is projected to deplete its reserves by 2034

I may live that long. :beer
Benefits will be paid with current tax revenue at that time, but will be lower.

https://www.marketwatch.com/story/dont- ... 2019-04-23
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Rosencrantz1
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Re: Investing SS income

Post by Rosencrantz1 »

Admiral wrote: Fri Jan 24, 2020 7:50 pm
Rosencrantz1 wrote: Fri Jan 24, 2020 7:37 pm
JoeRetire wrote: Fri Jan 24, 2020 7:05 pm
Rosencrantz1 wrote: Fri Jan 24, 2020 6:57 pmI am a bit concerned about SS solvency (ie. NO haircut) in 15 years or so.
Social Security will remain solvent throughout your life. That's not what "no haircut" means.
Do you know something I don't about solving the future SS insolvency issue?

I pulled this from the web.... According to the Trustees, the Old-Age & Survivors Insurance (OASI) trust fund is projected to deplete its reserves by 2034

I may live that long. :beer
Benefits will be paid with current tax revenue at that time, but will be lower.

https://www.marketwatch.com/story/dont- ... 2019-04-23
This is what I was referring to when I used the term "haircut". I realize SS benefits will/would continue (at reduced benefits WITHOUT political intervention) with existing tax revenue. I forget what the haircut is projected to be (without changes in law)…. something like 20%?
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Rosencrantz1
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Re: Investing SS income

Post by Rosencrantz1 »

Wiggums wrote: Fri Jan 24, 2020 7:16 pm
Dandy wrote: Fri Jan 24, 2020 8:34 am I would rather have a lower asset level and higher inflation protected income for the spouse that lives longest. It seems as if you have enough assets and current income to be in great financial shape. Since you can't take it with you and your heir will probably be in great shape no matter what-- higher growth is less of a need. Secure income especially income that is inflation protected and will last the longest lifetime seems to be a better choice.

You might be in a position to gift some early inheritance to your daughter since you will have more than enough income and assets. We are doing that with my daughters each year and we enjoy taking some of the financial pressure off them while we are all alive instead of them getting a big inheritance later in life. This approach allows them and our grandchildren to enjoy life a bit more -- and so do we. Just a thought.

Having maximized my SS at age 70 helped make that a low risk effort. It is often hard to stop trying to make the "number" higher after decades of saving and investing. But, when I look at the need to make it higher it was for our heirs more than us and heirs would likely appreciate some assets earlier than later -- unless they are in very great financial shape. I still focus on how high our number is -- but I'm learning to let that go a bit.
You made two points that resonated with me.

1. We found it hard to stop growing the portfolio so aggressively as a relatively new retiree.

2. We are also finding it hard to spend the money on ourselves, since we are not needy type people. We did start a DAF and we are helping our children as you described. I find both those activities, more enjoyable than spending it for myself.

We are making an effort to think differently in retirement.
Thanks. Like you those points resonate with me too.... especially the idea of gifting $$ to my daughter and her husband. My daughter and her husband are in their mid 30s and, so far, without children :( . I've tried to gently move her in that direction with a grandpa funded 529. We'll see...

Daughter and hubby have been pretty financially successful on their own. I wish I had known as much as they about investments at their age.
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Re: Investing SS income

Post by Phineas J. Whoopee »

Admiral wrote: Fri Jan 24, 2020 7:50 pm
Rosencrantz1 wrote: Fri Jan 24, 2020 7:37 pm
JoeRetire wrote: Fri Jan 24, 2020 7:05 pm
Rosencrantz1 wrote: Fri Jan 24, 2020 6:57 pmI am a bit concerned about SS solvency (ie. NO haircut) in 15 years or so.
Social Security will remain solvent throughout your life. That's not what "no haircut" means.
Do you know something I don't about solving the future SS insolvency issue?

I pulled this from the web.... According to the Trustees, the Old-Age & Survivors Insurance (OASI) trust fund is projected to deplete its reserves by 2034

I may live that long. :beer
Benefits will be paid with current tax revenue at that time, but will be lower.

https://www.marketwatch.com/story/dont- ... 2019-04-23
If I may, solvency has to do with meeting one's financial obligations. The 1983 Social Security amendments, as duly enacted by Congress, make clear that the program can pay out no more than the total of: its current income from SS taxes; its savings; and the return on its savings. If I recall correctly that aspect was important to garner enough votes for passage: the amendments couldn't raise the budget deficit.

Come the mid 2030s, half a century after the amendments, the latter two are expected to be exhausted. At that time the obligation is reduced, by law, so there's no insolvency.

Congress, of course, has authority to change the law, and we have an election coming up in November.

PJW
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JoeRetire
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Re: Investing SS income

Post by JoeRetire »

Rosencrantz1 wrote: Fri Jan 24, 2020 7:37 pm
JoeRetire wrote: Fri Jan 24, 2020 7:05 pm
Rosencrantz1 wrote: Fri Jan 24, 2020 6:57 pmI am a bit concerned about SS solvency (ie. NO haircut) in 15 years or so.
Social Security will remain solvent throughout your life. That's not what "no haircut" means.
Do you know something I don't about solving the future SS insolvency issue?
Apparently I do. No trust fund does not mean insolvent.
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Rosencrantz1
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Re: Investing SS income

Post by Rosencrantz1 »

JoeRetire wrote: Sat Jan 25, 2020 7:20 am
Rosencrantz1 wrote: Fri Jan 24, 2020 7:37 pm
JoeRetire wrote: Fri Jan 24, 2020 7:05 pm
Rosencrantz1 wrote: Fri Jan 24, 2020 6:57 pmI am a bit concerned about SS solvency (ie. NO haircut) in 15 years or so.
Social Security will remain solvent throughout your life. That's not what "no haircut" means.
Do you know something I don't about solving the future SS insolvency issue?
Apparently I do. No trust fund does not mean insolvent.
Well, Joe, I thought I understood what "insolvent" meant, but, to be sure I looked it up...

in·sol·vent
/inˈsälvənt/
adjective
adjective: insolvent
unable to pay debts owed. emphasis mine.

I sure don't know about you, but, I consider that part about "unable to pay debts owed" under the umbrella of SS not paying folks current, promised benefits (without political intervention). We can argue about whether a tax law change, perhaps cutting current benefits scheduled by 20% (without trust fund), qualifies as "insolvent" - but, I think it's semantics. I strongly suspect if retirees were to receive this "haircut" (reduction in promised benefits - for whatever reasons), there'd be significant unhappiness. I, for one, think I'm "owed" these promised benefits and at their current schedule - especially when I think about my lifetime (and employer) contributions. But, that's just me.
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JoeRetire
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Re: Investing SS income

Post by JoeRetire »

Rosencrantz1 wrote: Sat Jan 25, 2020 11:55 am
JoeRetire wrote: Sat Jan 25, 2020 7:20 am
Rosencrantz1 wrote: Fri Jan 24, 2020 7:37 pm
JoeRetire wrote: Fri Jan 24, 2020 7:05 pm
Rosencrantz1 wrote: Fri Jan 24, 2020 6:57 pmI am a bit concerned about SS solvency (ie. NO haircut) in 15 years or so.
Social Security will remain solvent throughout your life. That's not what "no haircut" means.
Do you know something I don't about solving the future SS insolvency issue?
Apparently I do. No trust fund does not mean insolvent.
Well, Joe, I thought I understood what "insolvent" meant, but, to be sure I looked it up...

in·sol·vent
/inˈsälvənt/
adjective
adjective: insolvent
unable to pay debts owed. emphasis mine.

I sure don't know about you, but, I consider that part about "unable to pay debts owed" under the umbrella of SS not paying folks current, promised benefits (without political intervention).
Apparently we have different ideas regarding what the social security laws say you are "owed". No sense in discussing it further I guess.
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Re: Investing SS income

Post by cashboy »

Rosencrantz1 wrote: Thu Jan 23, 2020 8:02 pm
Is it financially wiser to collect SS at age 62 (and invest the money)
you are looking for 'opinions', so here is mine (just opinion, not fact):

in general, the answer is 'no', taking it at age 62 and investing it makes you an outlier.
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