Should I start social security at 62 to invest it?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
reln
Posts: 446
Joined: Fri Apr 19, 2019 4:01 pm

Re: Should I start social security at 62 to invest it?

Post by reln »

climbingFool wrote: Fri Jul 24, 2020 3:31 pm I am strongly considering whether to start social security at 62 and invest the money in stocks. My wife and I are both 61. I have been retired for a year and she is retiring in 2 weeks.
We do not need the money to live on. To explain my financial philosophy my whole career I saved a high salary % in multiple ways and invested aggressively. I was always 100 % in stocks with a small to medium cash position (no bonds). I still am 100 % in stocks and bought a lot mid March.

There are many conflicting opinions on social security out there. With covid I don't really want to go to a seminar at this time. We went to a financial planner once 3 years ago and were told we were doing everything right but didn't discuss social security.
Plugging my social security benefit projections for different starting ages into a model - if I live to standard life expectancy it looks like a no-brainer to me. I only have to beat 1 % compound interest to have starting at 62 be the best option. The longer I live starting social security at 62 is less attractive.
It also interacts with taxes. I've been doing large 401k to Roth conversions since the lower taxes. This year I doubled down in mid March on an even bigger conversion with the market low. Perhaps if I am doing the 401k conversions it's less wise to start social security due to tax consequences?

My wife's projected social security benefits are slightly less than mine. If it makes sense for me to start at 62 it probably makes sense for her unless of large tax consequences.

Just trying overall to use social security the most wisely overall and transfer money most efficiently to the kids.

Any thoughts? I am struggling to see why most financial planners say wait until later to start social security.
I would be willing to the opposite side of that bet on both an absolute and on a risk adjusted basis.
pandersfishy
Posts: 3
Joined: Mon Jul 27, 2020 8:15 pm

Re: Should I start social security at 62 to invest it?

Post by pandersfishy »

lakpr wrote: Mon Jul 27, 2020 7:09 pm
grobertj wrote: Mon Jul 27, 2020 6:27 pm
Tracker968 wrote: Mon Jul 27, 2020 4:59 pm I just read that SS benefits will be cut to 75% starting in 2035 unless something changes. I'll have to model that and see if that affects the breakeven age.
In my opinion the chance of reducing SS benefits is 0%. People over 62, vote in droves. NO chance...NO way!!! :!:
Politicians are very much aware of this. If there is a reduction of SS benefits on the table, it will be drafted in such a way that it affects only those who are younger than 50 (carve out). << I will stop here, since speculation about future legislation is verboten according to forum rules. Please don't reply either >>
I wish to remember the recent past, not speculate about the future.

I was 61 years old when the Bipartisan Budget Act of 2015 was enacted, which materially changed my benefits, by no longer allowing me to claim spousal benefits on my spouse's record while DW's benefits were delayed to 70. This was a reduction in benefits to me exceeding $50,000. Granted, it was a specific elimination of a specific claiming strategy, and I just missed the deadline for the grandfathering delay, but it was a material reduction, and I was 61, 11 years past 50.

I believe that the only thing that can be said of any future congressional action (or non-action) is that congress will do what seems politically expedient and viable at the time. I wouldn't bet my future on anything else.
Topic Author
climbingFool
Posts: 11
Joined: Thu Jul 16, 2020 12:35 pm

Re: Should I start social security at 62 to invest it?

Post by climbingFool »

Well - I have read over all the extra replies. Thanks again.
If there were no tax consequences for sure I would take SS at 62 and not even blink an eye at the risks. But it looks like I should probably see a fiduciary for a 2nd time and evaluate how much 401k to Roth conversion to do prior to SS.
For SS we modeled only 62, "full retirement', and 70 as that is what the government website provided for estimates of our benefits.

I understand all the risk talk. But I look at it two ways - at a certain level of accumulation risk doesn't matter. Also most likely all the money is going to my kids as unless someone has very expensive medical issues that is likely the case. How should young people invest their money? 100 % in stocks in my opinion.
We are fortunate to be able to travel for low cost. My wife and I took a trip to New Zealand last winter. I was there for a month. The total trip tallied up was between $2500 and $3500. We did tally it up but forgot the exact amount. I took a month trip to Nepal last October and hiked the Everest 3 passes trek starting in Jiri. I doubt I spent over $1500. Had a blast meeting new people. I don't need a lot of money to enjoy life but I will gladly spend on any adventure.

I also think some are way too negative on individual stocks. A big part of it is keeping the brain alert in retirement. From March 12 of 2020 to March 31 I made 74 stock purchases of 40 different stocks. Much of it was buying past big winners that were way down but some was new stocks. That kept me very active and engaged - I think it helps the brain stay active. Yes - it was a little spooky buying in the huge volatility but I kept buying every big down day. Every single buy is above 8 percent return now. I think it bad karma to give the best stats. Yes I realize we might have another big downturn - I'll just buy more. Of course it makes sense to start small and keep it small if you don't beat the market. But I find it adds enjoyment to retirement. I think that would be true even if you lost a little money. It's much more fun than index funds. And I have averaged beating the market since 1996. I am still buying in the current market but much less.

Lastly - I grew up poor until my dad got his PhD at my age 12 or so. I earned my money. My kids have already shown a good work ethic so I'm not too concerned with passing money along.
bberris
Posts: 1546
Joined: Sun Feb 20, 2011 9:44 am

Re: Should I start social security at 62 to invest it?

Post by bberris »

grobertj wrote: Mon Jul 27, 2020 6:27 pm
Tracker968 wrote: Mon Jul 27, 2020 4:59 pm I just read that SS benefits will be cut to 75% starting in 2035 unless something changes. I'll have to model that and see if that affects the breakeven age.
In my opinion the chance of reducing SS benefits is 0%. People over 62, vote in droves. NO chance...NO way!!! :!:
Avoiding speculating on the future, I can speculate on the past. Benefits have been cut several times. This was done in ways to hide the fact that they are cuts: 1. Raise the full retirement age. 2. Tax on part of benefits. 3. Change in the inflation index
Good politicians know how to cut benefits and keep their jobs. I think it's safe to say that wholesale cuts to 75 % won't happen.
smitcat
Posts: 6493
Joined: Mon Nov 07, 2016 10:51 am

Re: Should I start social security at 62 to invest it?

Post by smitcat »

climbingFool wrote: Tue Jul 28, 2020 12:26 am Well - I have read over all the extra replies. Thanks again.
If there were no tax consequences for sure I would take SS at 62 and not even blink an eye at the risks. But it looks like I should probably see a fiduciary for a 2nd time and evaluate how much 401k to Roth conversion to do prior to SS.
For SS we modeled only 62, "full retirement', and 70 as that is what the government website provided for estimates of our benefits.

I understand all the risk talk. But I look at it two ways - at a certain level of accumulation risk doesn't matter. Also most likely all the money is going to my kids as unless someone has very expensive medical issues that is likely the case. How should young people invest their money? 100 % in stocks in my opinion.
We are fortunate to be able to travel for low cost. My wife and I took a trip to New Zealand last winter. I was there for a month. The total trip tallied up was between $2500 and $3500. We did tally it up but forgot the exact amount. I took a month trip to Nepal last October and hiked the Everest 3 passes trek starting in Jiri. I doubt I spent over $1500. Had a blast meeting new people. I don't need a lot of money to enjoy life but I will gladly spend on any adventure.

I also think some are way too negative on individual stocks. A big part of it is keeping the brain alert in retirement. From March 12 of 2020 to March 31 I made 74 stock purchases of 40 different stocks. Much of it was buying past big winners that were way down but some was new stocks. That kept me very active and engaged - I think it helps the brain stay active. Yes - it was a little spooky buying in the huge volatility but I kept buying every big down day. Every single buy is above 8 percent return now. I think it bad karma to give the best stats. Yes I realize we might have another big downturn - I'll just buy more. Of course it makes sense to start small and keep it small if you don't beat the market. But I find it adds enjoyment to retirement. I think that would be true even if you lost a little money. It's much more fun than index funds. And I have averaged beating the market since 1996. I am still buying in the current market but much less.

Lastly - I grew up poor until my dad got his PhD at my age 12 or so. I earned my money. My kids have already shown a good work ethic so I'm not too concerned with passing money along.
"If there were no tax consequences for sure I would take SS at 62 and not even blink an eye at the risks. But it looks like I should probably see a fiduciary for a 2nd time and evaluate how much 401k to Roth conversion to do prior to SS."

Sounds like a good plan - please consider having your consultant model the Roth taxes for your potential heirs as well. If he has a rough feel for their potential tax rates then the Roth conversions can be best viewed for various future possibilities with their associated costs.
tibbitts
Posts: 11947
Joined: Tue Feb 27, 2007 6:50 pm

Re: Should I start social security at 62 to invest it?

Post by tibbitts »

Tracker968 wrote: Mon Jul 27, 2020 4:59 pm I just read that SS benefits will be cut to 75% starting in 2035 unless something changes. I'll have to model that and see if that affects the breakeven age.
Sorry but if you are only just hearing of this now I would not trust your model, because I'd wonder what else hadn't been accounted for.
tibbitts
Posts: 11947
Joined: Tue Feb 27, 2007 6:50 pm

Re: Should I start social security at 62 to invest it?

Post by tibbitts »

bberris wrote: Tue Jul 28, 2020 6:17 am
grobertj wrote: Mon Jul 27, 2020 6:27 pm
Tracker968 wrote: Mon Jul 27, 2020 4:59 pm I just read that SS benefits will be cut to 75% starting in 2035 unless something changes. I'll have to model that and see if that affects the breakeven age.
In my opinion the chance of reducing SS benefits is 0%. People over 62, vote in droves. NO chance...NO way!!! :!:
Avoiding speculating on the future, I can speculate on the past. Benefits have been cut several times. This was done in ways to hide the fact that they are cuts: 1. Raise the full retirement age. 2. Tax on part of benefits. 3. Change in the inflation index
Good politicians know how to cut benefits and keep their jobs. I think it's safe to say that wholesale cuts to 75 % won't happen.
It seems to be difficult for Bogleheads, many of whom have relied on modeling and other predictive techniques their entire lives, to realize that claiming strategy for social security, at least for the those reaching eligibility recently or in the next decade, will be need to be based on nothing but pure speculation. Every generation experiences some good and bad luck, and for those of us around claiming age, we'll have to chalk up our lack of ability to plan for social security on the Covid-19 side of the board.
User avatar
arcticpineapplecorp.
Posts: 6212
Joined: Tue Mar 06, 2012 9:22 pm

Re: Should I start social security at 62 to invest it?

Post by arcticpineapplecorp. »

climbingFool wrote: Tue Jul 28, 2020 12:26 am I also think some are way too negative on individual stocks. A big part of it is keeping the brain alert in retirement. From March 12 of 2020 to March 31 I made 74 stock purchases of 40 different stocks.Much of it was buying past big winners that were way down but some was new stocks. That kept me very active and engaged - I think it helps the brain stay active. Yes - it was a little spooky buying in the huge volatility but I kept buying every big down day. Every single buy is above 8 percent return now. I think it bad karma to give the best stats. Yes I realize we might have another big downturn - I'll just buy more. Of course it makes sense to start small and keep it small if you don't beat the market. But I find it adds enjoyment to retirement. I think that would be true even if you lost a little money. It's much more fun than index funds. And I have averaged beating the market since 1996. I am still buying in the current market but much less.
1. did you do any tax loss harvesting in March? If not, why not?
2. is picking individual stocks the ONLY way to keep one's brain alert or could there be other, better ways?
3. are the 40 stocks reflective of the market or a tilt in some way? I.E. what percentage of the 40 stocks are small cap vs. large cap, value vs. small, etc. Are the 40 stocks in all sectors of the market, or tilting more specifically to a few sectors?

If your 40 stocks don't represent a true expression of the market, then that could be why your returns have been different from the market...but that's also likely only because you've taken higher risk than the market. Not because you've somehow managed to outsmart the market. While you may have "beaten the market" with your individual stock picks, was it enough to compensate you for the extra risk taken? I.E., what is your "risk adjusted" return? Do you know?

if your 40 stocks represent a true expression of the market, then why not just own the market?
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
User avatar
CyclingDuo
Posts: 3682
Joined: Fri Jan 06, 2017 9:07 am

Re: Should I start social security at 62 to invest it?

Post by CyclingDuo »

Tracker968 wrote: Mon Jul 27, 2020 4:59 pm I just read that SS benefits will be cut to 75% starting in 2035 unless something changes. I'll have to model that and see if that affects the breakeven age.
If you use i-ORP, by default it already calculates the 2035 change.

25% reduction in Social Security benefits in 2035 when the Trust Fund is depleted.

https://www.i-orp.com/Inflate/index.html

You can also run the numbers by switching from the default setting to run your numbers as if there is not a cut in benefits come 2035. There is a lot of water to flow under the bridge between 2020 and 2035 - so who knows what will be. Preparing your other streams of income by strengthening them as best you can between now and then is about all we can control. Examples: pension, risk portfolio, real estate income, dividend income, royalty income, etc... .

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
User avatar
ObliviousInvestor
Posts: 3781
Joined: Tue Mar 17, 2009 9:32 am
Contact:

Re: Should I start social security at 62 to invest it?

Post by ObliviousInvestor »

Spurred by this thread, I spent some time yesterday reworking the code from Open Social Security to calculate a breakeven ROI for various sets of inputs for married couples -- then output it all to a spreadsheet.

Here's the data dump for anybody curious:
https://articles.opensocialsecurity.com ... 7/ROI.xlsx

You'll find that the necessary ROI is often in the 4-5% (real) range for the higher earner in a couple. Or said differently, the expected rate of return from delaying from 62 to 70 is often roughly 4-5% real, for the higher earner in a married couple. Of course there are plenty of caveats.

Points of note:
1) The calculation uses the most recent SSA (2017) period life table. Many people here have longer life expectancies, which would push the expected ROI upward.
2) The calculation assumes no cuts to benefits. Obviously if a cut occurs and it applies to you, that would push the expected ROI downward.
3) All ROI figures are real (inflation-adjusted).
4) For the sake of minimizing the calculation time, I cut it off whenever a negative return got to -5%. So any -5.01% return figure is actually worse than stated. (These are basically for people waiting 67-70 when they'd be getting a spousal benefit which doesn't increase beyond FRA. So no surprise that it's not desirable to wait!)
5) "You" are assumed to be age 60 as of today. (Just went with 1960 year of birth so that FRA is 67.)
6) The calculations assume no complicating factors -- no government pension (so no WEP/GPO to worry about), no minor or adult disabled children, etc.
Mike Piper | Roth is a name, not an acronym.
infotrader
Posts: 338
Joined: Tue Feb 28, 2017 2:39 pm

Re: Should I start social security at 62 to invest it?

Post by infotrader »

Nowizard wrote: Sat Jul 25, 2020 7:51 am Based on your comment about not needing the money, if your finances support having "Won the game," I suspect you are beginning to raise an issue that has caused substantial discussion in our household. Common recommendations would definitely suggest that unless you have unusual circumstances such as saving for your heirs, that you become more conservative, that you will gain significant increases in eventual SS payments by delaying, etc. However, though we had no need to take additional risk and had sufficient assets and income to sustain us in the future, we still took SS as early as possible to invest the proceeds. It has worked out for us in terms of asset appreciation, but we have realized there was a psychological factor driving that decision. Specifically, we had great difficulty moving from an accumulation to preservation stage. Like you, we had done a good job with saving, researching investment decisions with positive results, etc., but had not looked far enough into the future to adequately incorporate post-retirement financial considerations. The net result is that we did accumulate additional assets by investing SS proceeds, but that also had negatives attached. Now that we are in RMD stages, we have greater income than we had while working and are in a higher tax bracket, plus have significant IRMAA payments. Though that is a first world issue, it reflects that we did not look far enough into the future when planning for retirement and should have made decisions that "cost" money initially but not in the long run. The main one we did not adequately consider was conversion of tax sheltered assets to ROTH-IRA's. Your situation may be different, but these details are presented to add additional consideration to your decision.

Tim
I have been thinking the same way. The goal is to achieve a balanced (with less fluctuation) taxable amount on your 1040 after retirement.
Since most people don't have this issue, they can start SS at 62.
However, if you have 2m plus tax-deferred account, you should take advantage of the relatively low income period before RMD to do aggressive 100k+ Roth conversions annually (to 100% stocks, of course), and pay tax use taxable assets.
The tax benefits will clearly overweigh the SS benefits. In addition, the delayed SS can also be used as a cushion to offset the risk involved in this scenario.
For those being offered retirement contribution programs plus pensions and ss, they should think twice about voluntary contributions when they are in relatively low tax brackets, since they may have higher income after retirement.
User avatar
grobertj
Posts: 88
Joined: Fri May 15, 2020 1:02 pm
Location: Greensboro, NC

Re: Should I start social security at 62 to invest it?

Post by grobertj »

bberris wrote: Tue Jul 28, 2020 6:17 am
grobertj wrote: Mon Jul 27, 2020 6:27 pm
Tracker968 wrote: Mon Jul 27, 2020 4:59 pm I just read that SS benefits will be cut to 75% starting in 2035 unless something changes. I'll have to model that and see if that affects the breakeven age.
In my opinion the chance of reducing SS benefits is 0%. People over 62, vote in droves. NO chance...NO way!!! :!:
Avoiding speculating on the future, I can speculate on the past. Benefits have been cut several times. This was done in ways to hide the fact that they are cuts: 1. Raise the full retirement age. 2. Tax on part of benefits. 3. Change in the inflation index
Good politicians know how to cut benefits and keep their jobs. I think it's safe to say that wholesale cuts to 75 % won't happen.
I was referring to benefits for people currently receiving SS. And I stand on my opinion that there is 0% chance that benefits to current recipients will be cut.
The only constant is CHANGE!!
User avatar
CyclingDuo
Posts: 3682
Joined: Fri Jan 06, 2017 9:07 am

Re: Should I start social security at 62 to invest it?

Post by CyclingDuo »

ObliviousInvestor wrote: Tue Jul 28, 2020 8:53 am Spurred by this thread, I spent some time yesterday reworking the code from Open Social Security to calculate a breakeven ROI for various sets of inputs for married couples -- then output it all to a spreadsheet.

Here's the data dump for anybody curious:
https://articles.opensocialsecurity.com ... 7/ROI.xlsx

You'll find that the necessary ROI is often in the 4-5% (real) range for the higher earner in a couple. Or said differently, the expected rate of return from delaying from 62 to 70 is often roughly 4-5% real, for the higher earner in a married couple. Of course there are plenty of caveats.

Points of note:
1) The calculation uses the most recent SSA (2017) period life table. Many people here have longer life expectancies, which would push the expected ROI upward.
2) The calculation assumes no cuts to benefits. Obviously if a cut occurs and it applies to you, that would push the expected ROI downward.
3) All ROI figures are real (inflation-adjusted).
4) For the sake of minimizing the calculation time, I cut it off whenever a negative return got to -5%. So any -5.01% return figure is actually worse than stated. (These are basically for people waiting 67-70 when they'd be getting a spousal benefit which doesn't increase beyond FRA. So no surprise that it's not desirable to wait!)
5) "You" are assumed to be age 60 as of today. (Just went with 1960 year of birth so that FRA is 67.)
6) The calculations assume no complicating factors -- no government pension (so no WEP/GPO to worry about), no minor or adult disabled children, etc.
Excellent! Thank you so much for doing this as it helps many of us with our planning.

:sharebeer

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
bberris
Posts: 1546
Joined: Sun Feb 20, 2011 9:44 am

Re: Should I start social security at 62 to invest it?

Post by bberris »

grobertj wrote: Tue Jul 28, 2020 1:07 pm
bberris wrote: Tue Jul 28, 2020 6:17 am
grobertj wrote: Mon Jul 27, 2020 6:27 pm
Tracker968 wrote: Mon Jul 27, 2020 4:59 pm I just read that SS benefits will be cut to 75% starting in 2035 unless something changes. I'll have to model that and see if that affects the breakeven age.
In my opinion the chance of reducing SS benefits is 0%. People over 62, vote in droves. NO chance...NO way!!! :!:
Avoiding speculating on the future, I can speculate on the past. Benefits have been cut several times. This was done in ways to hide the fact that they are cuts: 1. Raise the full retirement age. 2. Tax on part of benefits. 3. Change in the inflation index
Good politicians know how to cut benefits and keep their jobs. I think it's safe to say that wholesale cuts to 75 % won't happen.
I was referring to benefits for people currently receiving SS. And I stand on my opinion that there is 0% chance that benefits to current recipients will be cut.
#2 and #3 were cuts to current participants at the time.
User avatar
ObliviousInvestor
Posts: 3781
Joined: Tue Mar 17, 2009 9:32 am
Contact:

Re: Should I start social security at 62 to invest it?

Post by ObliviousInvestor »

bberris wrote: Tue Jul 28, 2020 1:28 pm Benefits have been cut several times. [...] 3. Change in the inflation index
As far as I know the only time the COLA provision was changed (after initially being added in the 1972 Amendments) was the 1986 change which removed the 3% threshold for COLAs. Am I missing something?
Mike Piper | Roth is a name, not an acronym.
User avatar
grobertj
Posts: 88
Joined: Fri May 15, 2020 1:02 pm
Location: Greensboro, NC

Re: Should I start social security at 62 to invest it?

Post by grobertj »

ObliviousInvestor wrote: Tue Jul 28, 2020 3:03 pm
bberris wrote: Tue Jul 28, 2020 1:28 pm Benefits have been cut several times. [...] 3. Change in the inflation index
As far as I know the only time the COLA provision was changed (after initially being added in the 1972 Amendments) was the 1986 change which removed the 3% threshold for COLAs. Am I missing something?
I think you're right. If anything, the 86 change was a benefit increase.
The only constant is CHANGE!!
bberris
Posts: 1546
Joined: Sun Feb 20, 2011 9:44 am

Re: Should I start social security at 62 to invest it?

Post by bberris »

ObliviousInvestor wrote: Tue Jul 28, 2020 3:03 pm
bberris wrote: Tue Jul 28, 2020 1:28 pm Benefits have been cut several times. [...] 3. Change in the inflation index
As far as I know the only time the COLA provision was changed (after initially being added in the 1972 Amendments) was the 1986 change which removed the 3% threshold for COLAs. Am I missing something?
Right. Maybe I was thinking that CPI-W lags other measures of CPI.
Topic Author
climbingFool
Posts: 11
Joined: Thu Jul 16, 2020 12:35 pm

Re: Should I start social security at 62 to invest it?

Post by climbingFool »

arcticpineapplecorp. wrote: Tue Jul 28, 2020 8:15 am
climbingFool wrote: Tue Jul 28, 2020 12:26 am I also think some are way too negative on individual stocks. A big part of it is keeping the brain alert in retirement. From March 12 of 2020 to March 31 I made 74 stock purchases of 40 different stocks.Much of it was buying past big winners that were way down but some was new stocks. That kept me very active and engaged - I think it helps the brain stay active. Yes - it was a little spooky buying in the huge volatility but I kept buying every big down day. Every single buy is above 8 percent return now. I think it bad karma to give the best stats. Yes I realize we might have another big downturn - I'll just buy more. Of course it makes sense to start small and keep it small if you don't beat the market. But I find it adds enjoyment to retirement. I think that would be true even if you lost a little money. It's much more fun than index funds. And I have averaged beating the market since 1996. I am still buying in the current market but much less.
1. did you do any tax loss harvesting in March? If not, why not?
2. is picking individual stocks the ONLY way to keep one's brain alert or could there be other, better ways?
3. are the 40 stocks reflective of the market or a tilt in some way? I.E. what percentage of the 40 stocks are small cap vs. large cap, value vs. small, etc. Are the 40 stocks in all sectors of the market, or tilting more specifically to a few sectors?

If your 40 stocks don't represent a true expression of the market, then that could be why your returns have been different from the market...but that's also likely only because you've taken higher risk than the market. Not because you've somehow managed to outsmart the market. While you may have "beaten the market" with your individual stock picks, was it enough to compensate you for the extra risk taken? I.E., what is your "risk adjusted" return? Do you know?

if your 40 stocks represent a true expression of the market, then why not just own the market?
I was going to pass on this one but I'll bite. I enjoy discussing risk taking. I had a long running discussion with a co-worker who always argued a 60:40 stock blend had the best return. Wrong - the bonds just dampen the volatility. Who cares about volatility for long term investors? Guess who retired quite a few years younger? Maybe he just had fewer outside interests.

Tax loss - of course I have losers but they are a small part of the portfolio and I have held none of them more than a year. I tend to buy a small starter position. Now even smaller with zero commission. Then I rarely add to losers - only add to winners especially on big dips. That way tend to avoid big losers. I also like to give losers 2-3 years before I sell. If I believed in them why sell that soon. They just fade into insignificance. I've had some big turnarounds. Also with wash-sale rule would hate to sell and then see the stock start to take off.

Of course many ways to stimulate the brain but I see no harm in individual stocks if you are equaling the market.

As to risk perhaps 2000+ climbing routes has desensitized me a little. Or perhaps the risk is part of the fun. In general in investing to make money you have to risk money. More risk = more potential gain. I don't do crypto, options yet, or stupid Robinhood trendy stocks like bankrupt Hertz.

I would also argue that when I bought all those high growth stocks at high discounts that buying at a much lower price helped minimize the risk. Most of the stocks I bought also were expected to do better in covid times (but also good not in covid times) and have. You are aware of how the math works out that when you buy a stock that is down 50 % when it recovers to the original price you are up much more than 50 %?

I tend to take risk. For work when I had to select how I take stock options I could take pure stock or in increments to pure options. I always took 100 % options. I was in the minority. Won't know for 4-10 years whether that was the right call but I worked for a diverse company (minimizing risk) and the upside was big.

I tend to strongly favor 1B to 100 B market cap although I have owned MSFT for a many years and own AMZN. Broad spectrum high growth mostly.
User avatar
bluquark
Posts: 1151
Joined: Mon Oct 22, 2018 2:30 pm

Re: Should I start social security at 62 to invest it?

Post by bluquark »

From my POV it makes more sense to take lots of risk if you have a backstop to catch you if things go really wrong. Social security is perfect for that. If there's some stagflation scenario or non-insurance-covered health crisis or giant lawsuit settlement or you get all your money conned out of you, those checks will still come every month.

It's possible that you have so much saved up that the sheer total amount of money amounts to a backstop (i.e. you could lose 90% and still retire). But in that case the SS amount is likely a rounding error so it's still not really worth doing.

Maybe talking about unlikely catastrophes sounds like a bad argument to you because you don't believe in making decisions based on paranoia. But for me the dichotomy is not paranoid vs risk-taking as maximizing for its own sake vs satisficing life goals. You have the life goal of having safe finances in retirement. Your children's life goals are probably not really affected by the extra margin of legacy you're aiming to maximize, either way. From a satisficing point of view, waiting longer for SS is a no-brainer.
70/30 portfolio | Equity: global market weight | Bonds: 20% long-term munis - 10% LEMB
User avatar
arcticpineapplecorp.
Posts: 6212
Joined: Tue Mar 06, 2012 9:22 pm

Re: Should I start social security at 62 to invest it?

Post by arcticpineapplecorp. »

climbingFool wrote: Tue Jul 28, 2020 11:29 pm I was going to pass on this one but I'll bite. I enjoy discussing risk taking. I had a long running discussion with a co-worker who always argued a 60:40 stock blend had the best return. Wrong - the bonds just dampen the volatility. Who cares about volatility for long term investors? Guess who retired quite a few years younger? Maybe he just had fewer outside interests.

Tax loss - of course I have losers but they are a small part of the portfolio and I have held none of them more than a year. I tend to buy a small starter position. Now even smaller with zero commission. Then I rarely add to losers - only add to winners especially on big dips. That way tend to avoid big losers. I also like to give losers 2-3 years before I sell. If I believed in them why sell that soon. They just fade into insignificance. I've had some big turnarounds. Also with wash-sale rule would hate to sell and then see the stock start to take off.

Of course many ways to stimulate the brain but I see no harm in individual stocks if you are equaling the market.

As to risk perhaps 2000+ climbing routes has desensitized me a little. Or perhaps the risk is part of the fun. In general in investing to make money you have to risk money. More risk = more potential gain. I don't do crypto, options yet, or stupid Robinhood trendy stocks like bankrupt Hertz.

I would also argue that when I bought all those high growth stocks at high discounts that buying at a much lower price helped minimize the risk. Most of the stocks I bought also were expected to do better in covid times (but also good not in covid times) and have. You are aware of how the math works out that when you buy a stock that is down 50 % when it recovers to the original price you are up much more than 50 %?

I tend to take risk. For work when I had to select how I take stock options I could take pure stock or in increments to pure options. I always took 100 % options. I was in the minority. Won't know for 4-10 years whether that was the right call but I worked for a diverse company (minimizing risk) and the upside was big.

I tend to strongly favor 1B to 100 B market cap although I have owned MSFT for a many years and own AMZN. Broad spectrum high growth mostly.
if all this is true why own index funds at all?

if you are "equaling the market" then don't you understand there's no benefit to owning individual stocks...because the risk is greater. You should feel bad if you only equaled the market with your stock picks. Because the stock picks need to BEAT the market in order to have compensated you for the extra risk above the market. If it didn't, you got LOWER risk adjusted returns.

You say you like taking risk, but it makes no sense to take uncompensated risk, which is what you've done if you "equalled the market". Now if you say you BEAT the market, that's where I'd say you've got to show not tell. Because I think people who buy individual stocks think they beat the market, just as gamblers at the casino only tell you about their "winnings".

yes i understand buying something at 50% lower that recovers completely doubles your money. But it's more likely the market will recover, unlike certain stocks. Which individual stocks will recover and which one's won't? Therein lies the rub. No way to know. Even you say "hate to sell and then see the stock start to take off." So there's no way to know if something is really a loser or not, until some future date? See how you're merely playing a guessing game, hoping to be right? No such games are needed when you own the market. You're right all the time. You're guaranteed to not underperform the market as a whole.

Here's one example. The total market (in blue below) vs. AIG (in orange below). I only picked it because I know the market recovered by March 2012, but AIG hasn't. Yes you're saying you'd have cut and run because it's a "loser" but you wouldn't have had to do anything with the total market. It recovered. You can live your life, not having to make buy/sell decisions every 1-3 years.

Image

source: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

this information is mainly for others who find bogleheads and want to learn what investing is. I would hate for them to think picking stocks is the way to go which your post implies, even though there's no evidence of that whatsoever, except hyperbole. You never said what the risk adjusted return of your 40 stocks. I know you've made up your mind as to the way to go, but it's important for others to see the real risk of owning individual stocks, which your posts dramatically downplay.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
User avatar
#Cruncher
Posts: 3057
Joined: Fri May 14, 2010 2:33 am
Location: New York City
Contact:

Re: Should I start social security at 62 to invest it?

Post by #Cruncher »

ObliviousInvestor wrote: Tue Jul 28, 2020 8:53 amYou'll find that the necessary ROI is often in the 4-5% (real) range for the higher earner in a couple. Or said differently, the expected rate of return from delaying from 62 to 70 is often roughly 4-5% real, for the higher earner in a married couple.
Thinks for doing the computations, Mike. The following little calculation confirms this. If we assume a life expectancy of 89, [1] an ROI of 4.8% is the breakeven for claiming at ages 62 or 70 for someone with a Normal Retirement Age (NRA) of 67. [2] I.e., the benefits would grow to the same value by age 89. By then one would have accumulated $44,500 for each $100 of Primary Insurance Amount (PIA).

Code: Select all

44,500 = 12 *  70 * (1.048 ^ (89 - 62) - 1) / 0.048
44,500 = 12 * 124 * (1.048 ^ (89 - 70) - 1) / 0.048
Here's a table [3] that expands on this. It shows the breakeven age for every annual delay combination assuming the same 4.8% growth rate. For example, while 89 is the breakeven age for delaying eight years from 62 all the way to 70, it is only age 87.4 for delaying just five years to age 67. On the other hand for delaying three years to age 70 to breakeven with claiming at age 67, benefits would need to continue until age 91.2.

Code: Select all

Row  Col A           Col C
  1  Born             1960
  2  NRA             67.00
  3  Discount rate   4.80%
  4       To age        63     64     65     66     67     68     69     70
  5       To % PIA   75.00  80.00  86.67  93.33 100.00 108.00 116.00 124.00
      --- From ---
      Age    % PIA    ------------------- Breakeven Age -------------------
Row Col A    Col B   Col C  Col D  Col E  Col F  Col G  Col H  Col I  Col J

Code: Select all

  6    62    70.00    86.8   88.8   86.4   86.6  [87.4]  87.4   88.1  [89.0]
  7    63    75.00           91.1   86.3   86.5   87.6   87.6   88.2   89.2
  8    64    80.00                  83.3   85.0   86.8   87.0   87.9   89.0
  9    65    86.67                         86.9   88.7   88.3   89.0   90.2

 10    66    93.33                                90.8   88.9   89.7   91.1
 11    67   100.00                                       87.5   89.3  [91.2]
 12    68   108.00                                              91.3   93.2
 13    69   116.00                                                     95.4
  1. 89 is approximately the joint life expectancy of a man / woman couple both age 62 according to the SSA 2017 Period Life Table as computed by my Longevity Estimator Excel workbook (88.91 = 62 + 26.91 shown in cell I8 on the Alive sheet).
  2. The SSA webpage, Effect of Early or Delayed Retirement on Retirement Benefits shows that someone born in 1960 or later has an NRA of 67. If this person claims benefits at age 67, he'll get his Primary Insurance Amount (PIA). But if he claims early at age 62, he'll get only 70% of the PIA. On the other hand, if he delays claiming until age 70, he'll get 124%.
  3. See my 2018 post, Re: Delaying SS? How Long It Will Take for It to Pay Off? for more examples of the spreadsheet table and instructions for creating it.
tibbitts
Posts: 11947
Joined: Tue Feb 27, 2007 6:50 pm

Re: Should I start social security at 62 to invest it?

Post by tibbitts »

bluquark wrote: Tue Jul 28, 2020 11:54 pm From my POV it makes more sense to take lots of risk if you have a backstop to catch you if things go really wrong.
...
From a satisficing point of view, waiting longer for SS is a no-brainer.
Thanks to politics, social security is like a baseball backstop that has softball-sized holes in the netting.
User avatar
ObliviousInvestor
Posts: 3781
Joined: Tue Mar 17, 2009 9:32 am
Contact:

Re: Should I start social security at 62 to invest it?

Post by ObliviousInvestor »

Thanks for the independent verification, #Cruncher!
Mike Piper | Roth is a name, not an acronym.
Patzer
Posts: 302
Joined: Wed Jun 10, 2015 10:56 am

Re: Should I start social security at 62 to invest it?

Post by Patzer »

I am 85% stocks, 5% gold, 5% bonds, 5% cash.... so clearly I am not risk adverse either.

Longevity (living longer than you expect) is one of the biggest risks to those who are retired.
Social security is the cheapest longevity insurance in the world.
Look at the cost of inflation adjusted annuities for a comparison of the value of your social security, not stocks.
I think you will find Social Security is worth a lot more than you think.

If you don't need the money, you should defer social security as long as you can.
User avatar
gr7070
Posts: 1472
Joined: Fri Oct 28, 2011 10:39 am

Re: Should I start social security at 62 to invest it?

Post by gr7070 »

climbingFool wrote: Tue Jul 28, 2020 12:26 am I also think some are way too negative on individual stocks. A big part of it is keeping the brain alert in retirement. ...
That kept me very active and engaged - I think it helps the brain stay active.
That's some confirmation bias; especially the brain part. Physical exercise is what's best for your brain's health. That month hiking in Nepal is what's doing it; not the stock market research.

https://www.google.com/amp/s/amp.iflsci ... lzheimers/
Post Reply