Interesting conversation with an alleged SS actuary

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chinto
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Interesting conversation with an alleged SS actuary

Postby chinto » Fri May 19, 2017 7:22 pm

I recently had an interesting conversation with someone who purported to be a retired SS Administration actuary. Drum roll:

What he stated was while the individual may be able to divine their longevity and benefit from delaying taking social security payments, it is, from an actuarial standpoint benefit neutral. In others words mathematically the expected benefit is the same without respect to when you claim your social security. If you, as a individual actually benefit from when you claim SS, it is only because you guessed right. The expected payout is the same regardless of age ad it is mandated to be that way.

Caveat, he said he is a retired SS actuary, and was handing out with a bunch of SOA actuaries, but I have no way of knowing if his comments were in earnest.

The point is, if true, it renders a lot of conversation about when to claim SS as moot, unless you have a very strong reason to feel certain about the year of your demise.

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Re: Interesting conversation with an alleged SS actuary

Postby joe8d » Fri May 19, 2017 7:26 pm

That's been my understanding for a single individual.
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Re: Interesting conversation with an alleged SS actuary

Postby student » Fri May 19, 2017 7:29 pm

I would think this is how it is designed to work.

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Re: Interesting conversation with an alleged SS actuary

Postby Dottie57 » Fri May 19, 2017 7:31 pm

I don't think the decision is moot for all people in all circumstances.

I want the years between 65 and 70 to convert at least part of my retirement accounts to Roth so no SS during those years, I want lower RMDs to lower Taxes pn SS.

I also want the higher SS amount in case I follow some of my relatives into long life (90's to 100). Insurance against living too long and running out of money.


If you are so meone who didn't save from r retirement, the the amt at 70 is going to be sgnificantly bigger and therefore better.

Lots to consider.

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Re: Interesting conversation with an alleged SS actuary

Postby David Jay » Fri May 19, 2017 7:31 pm

True, but only in aggregate. Females have a much longer average lifespan, so delay favors females.
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Re: Interesting conversation with an alleged SS actuary

Postby whaleknives » Fri May 19, 2017 7:31 pm

Mike Piper, ObliviousInvestor, on Social Security’s Actuarial Neutrality.
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Re: Interesting conversation with an alleged SS actuary

Postby David Jay » Fri May 19, 2017 7:32 pm

With survivor benefits, again it is not neutral
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Re: Interesting conversation with an alleged SS actuary

Postby sometimesinvestor » Fri May 19, 2017 7:35 pm

Yes sinsles have it easier as they just have to guess how long compared to average they will live.Longer than average means delay.Married have other problems and a variety of strategies but any strategy might not work out for the best .It may be married couples should take out insurance against living too long bu delaying and other strategies that will lead to the largest possible monthly check

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Re: Interesting conversation with an alleged SS actuary

Postby lack_ey » Fri May 19, 2017 7:36 pm

It's supposed to be actuarially neutral in terms of payout, but this is over the full population and doesn't address what makes sense for any given person, much less in the context of overall asset allocation / retirement spending / taxes / survivor benefits / other considerations.

First of all, mortality tables for the full cohort of men or women born a certain time do not take into consideration factors that are unique to you. It is very significant and well known that wealth is correlated with longevity, so everything else aside about health and all other information thrown away, this alone gives further information that the formula doesn't take into account, that can be used to make a better decision.

Secondly, even if the formula for you individually results in equivalent expected payouts throughout your lifetime (that is, averaged over probability) and we're examining the simplified case of a single person, that's not what matters. The longer you live, the more money you'll need to spend. So in general people should prefer the option that results in a higher payout when living longer. It better matches assets and liabilities, never mind being tail risk mitigation.

So many threads discuss all these points that I don't think it's necessary to go further; even the most basic sketch should be sufficient here.

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Re: Interesting conversation with an alleged SS actuary

Postby delamer » Fri May 19, 2017 7:37 pm

Well, if he wasn't actually a retired SSA actuary, he certainly understands the program.

The population as a whole drives actuarial calculations. What is optimal for an individual (or couple) isn't determined by the population.

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Re: Interesting conversation with an alleged SS actuary

Postby billfromct » Fri May 19, 2017 7:58 pm

It is my understanding that whether you take SS at 62 or 70 (or anywhere in between) & live to the average age for your sex, you will collect the same inflation adjusted total amount.

I would think that SS benefits would be adjusted by sex since women live longer; just like life insurance actuarial tables take sex into account for annuity payments, etc.

You have to take into account your chances if you think you will live longer than the average person of you sex.

Kind of like we are all better than average drivers & our kids are better than average students.

I'm waiting until age 70 to take SS since I'm still working & as others have mentioned, I see SS as inflation adjusted longevity insurance in case I do live longer than average. I'm also collecting survivor benefits, which I started at age 66, so that made it easier for me to be paid while I wait.

I think most people think they will live longer than average.

The SS Actuarial Life Table indicates a male my age will live until about age 83 while a female my age will live until age 85. I sure as heck think I will live past 83.

bill

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Re: Interesting conversation with an alleged SS actuary

Postby dodecahedron » Fri May 19, 2017 8:15 pm

joe8d wrote:That's been my understanding for a single individual.


The formula (of how much percent you get for waiting each year) was designed to be roughly actuarially neutral but it hasn't been updated for almost 20 years. Longevity is greater now and interest rates are lower now, so deferring is an actuarial better deal now than it was when the formula was determined.

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Re: Interesting conversation with an alleged SS actuary

Postby nisiprius » Fri May 19, 2017 8:27 pm

At a rough level, yes, it is supposed to be actuarially neutral. One frequently hears that it is beneficial to delay Social Security because that results in an increase in monthly benefits, as if that fact alone was compelling. (Worse, I've even heard it suggested that since delaying Social Security results in an increase in benefits of something in the neighborhood of 7%-8% per year of delay, it is somehow like "earning 7-8% on your money.")

To the extent that it's actuarially neutral, it means that to a rough first approximation, changes in claiming strategy shouldn't cause dramatic changes in the value of the payout. That that means to me is that it is perfectly rational shrug and do whatever comes naturally--to adjust your claiming strategy to whatever is most convenient and best fits your personal needs. A lot of what's written about Social Security sounds as if someone decided that your top priority should be to do whatever the government least wants you to do, i.e. to maximize the net present value of your payouts whether that happens to make any particular sense or not.

Which brings up another point: actuarially neutral means that good, bad, or indifferent, the people you talk to at Social Security are more or less neutral, too--they are not likely to be trying to trick you into doing anything unfavorable.
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Re: Interesting conversation with an alleged SS actuary

Postby One Ping » Fri May 19, 2017 10:53 pm

billfromct wrote:I would think that SS benefits would be adjusted by sex since women live longer; just like life insurance actuarial tables take sex into account for annuity payments, etc.

You might think that... but you would be wrong, benefits are not adjusted for sex.
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Re: Interesting conversation with an alleged SS actuary

Postby Watty » Fri May 19, 2017 11:34 pm

dodecahedron wrote:The formula (of how much percent you get for waiting each year) was designed to be roughly actuarially neutral but it hasn't been updated for almost 20 years. Longevity is greater now and interest rates are lower now, so deferring is an actuarial better deal now than it was when the formula was determined.


+1

You would think that it would be crazy to not update the formula and that would be costing the Social Security funds a fortune but that is not the case, in fact it is sort of "crazy like a fox" to not update them.

The reason is that over 40% of people start Social Security when they are 62 and only about 10% defer until after their full retirement age(FRA).

https://www.fool.com/retirement/general ... ng-so.aspx

When interest rates are low there would be less of a penalty for starting before your FRA and less of a bonus for delaying until after your FRAif you wanted to be neutral.

Some of the people that start relatively early have known health issues or a good claiming strategy based on a spouse's benefit so they are making an optimal choice but the vast majority of people are making a less than optimal choice.

If the Social Security benefit adjustment was changed to be actuarially neutral then the people who start before their FRA would get an increase and that would cost a lot more than the savings that would be gained but reducing the benefits of the 10% of people who start after their FRA.

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Re: Interesting conversation with an alleged SS actuary

Postby Big Dog » Fri May 19, 2017 11:38 pm

^^Its also not adjusted for race. Asian Americans live longest, on average nearly 10 years longer. African Americans have a life expectancy of ~3.5 years less than White Americans.

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Re: Interesting conversation with an alleged SS actuary

Postby Doc » Sat May 20, 2017 6:10 am

Dottie57 wrote:I want the years between 65 and 70 to convert at least part of my retirement accounts to Roth so no SS during those years, I want lower RMDs to lower Taxes pn SS

A counter argument to this idea is the risk factor. Pulling down your retirement money faster at the beginning risks running out of money later.

( It also can be hard to explain to darling spouse.)

I made the bet that congress would fix the lack of inflation correction to the taxable SS phaseout limits. Ha ha. Wishful thinking.

edit: taxable thanks Wizard
Last edited by Doc on Sat May 20, 2017 9:18 am, edited 1 time in total.
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Re: Interesting conversation with an alleged SS actuary

Postby The Wizard » Sat May 20, 2017 6:42 am

Doc wrote:...I made the bet that congress would fix the lack of inflation correction to the SS phaseout limits. Ha ha. Wishful thinking.

I'm not aware of any phase-out limits.
You must be referring to Federal taxation of SS benefits, since the income dollar amounts beyond which more of your benefit is taxed haven't been updated since they were imposed.
In some decades, almost everyone will have 85% of their benefit included in their AGI.
This $$$ funnels back from the IRS to the SS trust fund, so it's important to get everyone paying tax on it ASAP...
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Re: Interesting conversation with an alleged SS actuary

Postby hulburt1 » Sat May 20, 2017 7:06 am

If you think about it. If you die at 73. All that waiting and 7% you made on ss will go to someone who might not have saved but will get ss while you had spent your Ira that could have made 8% for you your family and you. Plus You don't pay state tax and you do it you take out of your Ira.

Lets face it if you have money because you saved and went without keep your Ira money and spend your SS.
In Oregon we have a 10% tax. So if I take out $4000 a month I'm sending the state $400 and fed $800. or I take ss pay very little in tax's While I'm taking SS I can move more into My Roth and use the SS for living. In the lasts 10 years I've made 13% on my investments that's a lot better then waiting for SS and eating up my Ira. mom and dad gone by 73. My wife will take SS at 70 her parent live for ever.

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Re: Interesting conversation with an alleged SS actuary

Postby #Cruncher » Sat May 20, 2017 8:00 am

chinto in original post wrote:[the retired actuary] stated ... mathematically the expected benefit is the same without respect to when you claim your social security.
I don't believe this is true today. To see, I used this longevity estimator with the SSA 2013 Period Life Table and a 1% discount rate to approximate what would be actuarially neutral. [*] These are shown in the table below along with the official percents from this SSA web page for someone with a Normal Retirement Age (NRA) of 66

Code: Select all

                  --- 2013 Period Life ---
Age  Official      Male    Female    Joint
---  --------     ------   ------    -----
 62     75.00      78.51    80.74    81.04
 63     80.00      83.15    84.95    85.18
 64     86.67      88.24    89.53    89.70
 65     93.33      93.83    94.50    94.62
 66    100.00     100.00   100.00   100.00
 67    108.00     106.83   106.01   105.92
 68    116.00     114.51   112.65   112.45
 69    124.00     123.01   119.96   119.65
 70    132.00     132.67   128.12   127.68
For example, the following scenarios all produce the same present value for a population of males aged 62:
  • Getting $78.51 per month starting immediately.
  • Getting $100.00 per month starting in 4 years.
  • Getting $132.67 per month starting in 8 years.
Likewise the following all produce the same present value for a population of male/female couples both age 62 where the benefit is 50% higher while both are alive:
  • $81.04 per month starting immediately.
  • $100.00 per month starting in 4 years.
  • $127.68 per month starting in 8 years.
By paying only 75% of the NRA benefit to those claiming at age 62, the government is paying out less than what it would with a more neutral percent. On the other hand, it is paying out more to females and couples who delay claiming until age 70. That many recipients choose to start SS at age 62, but few choose to start at 70 (see Watty's post above), may explain why the SSA hasn't revised the percents for many years: It would cost money. :!:

* While I believe my method is sufficient for disproving the neutrality of the official percents, it is crude compared to what a real actuary would do. For one thing, I apply the same 1% discount rate to survival-weighted benefits for all years. A more accurate method would use different discount rates for different years corresponding the the Real Yield Curve

Edit to add two following tables based on the same results as the table above:

Code: Select all

               ----- PV $100 / mo -----    ---- Versus Age 66 -----
Age    % PIA    Male    Female    Joint     Male    Female    Joint
---   ------   ------   ------   ------    ------   ------   ------
 62    75.00   15,980   18,030   27,500    (4.5%)   (7.1%)   (7.4%)
 63    80.00   16,100   18,280   27,900    (3.8%)   (5.8%)   (6.1%)
 64    86.67   16,430   18,790   28,700    (1.8%)   (3.2%)   (3.4%)
 65    93.33   16,640   19,170   29,310    (0.5%)   (1.2%)   (1.3%)
 66   100.00   16,730   19,410   29,710     0.0%     0.0%     0.0%
 67   108.00   16,910   19,770   30,290     1.1%     1.9%     2.0%
 68   116.00   16,950   19,990   30,650     1.3%     3.0%     3.2%
 69   124.00   16,860   20,060   30,790     0.8%     3.3%     3.6%
 70   132.00   16,650   20,000   30,720    (0.5%)    3.0%     3.4%
Lowest present values (PV) are when claim at age 62 whether male, female, or joint. Highest is 68 for male and 69 for female or joint.

Now with the percents for an NRA of 67 instead of 66:

Code: Select all

               ----- PV $100 / mo -----    ---- Versus Age 66 -----
Age    % PIA    Male    Female    Joint     Male    Female    Joint
---   ------   ------   ------   ------    ------   ------   ------
 62    70.00   14,920   16,830   25,660    (4.4%)   (7.1%)   (7.5%)
 63    75.00   15,090   17,140   26,160    (3.3%)   (5.4%)   (5.7%)
 64    80.00   15,170   17,340   26,500    (2.8%)   (4.3%)   (4.4%)
 65    86.67   15,450   17,800   27,210    (1.0%)   (1.8%)   (1.9%)
 66    93.33   15,610   18,120   27,730     0.0%     0.0%     0.0%
 67   100.00   15,660   18,310   28,050     0.3%     1.0%     1.2%
 68   108.00   15,780   18,610   28,530     1.1%     2.7%     2.9%
 69   116.00   15,780   18,770   28,800     1.1%     3.6%     3.9%
 70   124.00   15,640   18,790   28,850     0.2%     3.7%     4.0%
Age 62 is still the lowest for all three. But age 70 is now the highest for female and joint.
Last edited by #Cruncher on Sat May 20, 2017 8:41 pm, edited 2 times in total.

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Re: Interesting conversation with an alleged SS actuary

Postby bobcat2 » Sat May 20, 2017 8:31 am

That SS is actuarially neutral has been debunked numerous times at Bogleheads. There are many reasons it is not actuarially neutral. Here are some of them.

- It is unisex. If it were actuarially neutral for single people it would need to differentiate between men and women since on average women live longer. No life annuities are sold on a unisex basis.

- With the special rules for married couples it cannot be actuarially neutral. It also treats married couples where both work differently than married couples where one work. That too is not neutral.

- The longevity table haven't been updated recently. So if they were neutral, they are not neutral now.

- This is a bigee. SS implicitly assumes a real LT interest rate of about 2.9%, which is close to the very LT average interest rate. When prevailing real LT interest rates are well below that, as they are now, there is a large advantage in delay. When LT real interest rates are significantly above that, the advantage of delay diminishes and for some groups, such as single men, delay becomes disadvantageous.

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Last edited by bobcat2 on Sat May 20, 2017 8:33 am, edited 1 time in total.
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Re: Interesting conversation with an alleged SS actuary

Postby Valuethinker » Sat May 20, 2017 8:32 am

nisiprius wrote:At a rough level, yes, it is supposed to be actuarially neutral. One frequently hears that it is beneficial to delay Social Security because that results in an increase in monthly benefits, as if that fact alone was compelling. (Worse, I've even heard it suggested that since delaying Social Security results in an increase in benefits of something in the neighborhood of 7%-8% per year of delay, it is somehow like "earning 7-8% on your money.")

To the extent that it's actuarially neutral, it means that to a rough first approximation, changes in claiming strategy shouldn't cause dramatic changes in the value of the payout. That that means to me is that it is perfectly rational shrug and do whatever comes naturally--to adjust your claiming strategy to whatever is most convenient and best fits your personal needs. A lot of what's written about Social Security sounds as if someone decided that your top priority should be to do whatever the government least wants you to do, i.e. to maximize the net present value of your payouts whether that happens to make any particular sense or not.

Which brings up another point: actuarially neutral means that good, bad, or indifferent, the people you talk to at Social Security are more or less neutral, too--they are not likely to be trying to trick you into doing anything unfavorable.


I believe there are some calculations within SS which are set by law. They may not be "actuarially fair" in that sense.

In particular non-working women (spouses?) whose partners die. And those under SS disability?

In addition, SS is inflation indexed. Other types of investments are generally not.

This, by delaying SS you increase the amount of inflation protection in your portfolio (you have a larger benefit that is CPI indexed).

This is my understanding, at any rate.

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Re: Interesting conversation with an alleged SS actuary

Postby Valuethinker » Sat May 20, 2017 8:32 am

bobcat2 wrote:That SS is actuarially neutral has been debunked numerous times at Bogleheads. There are many reasons it is not actuarially neutral. Here are some of them.
- It is unisex. If it were actuarially neutral for single people it would need to differentiate between men and women since on average women live longer. No life annuities are sold on a unisex basis.

- With the special rules for married couples it cannot be actuarially neutral. It also treats married couples where both work differently than married couples where one work. That too is not neutral.

- The longevity table haven't been updated recently. So if they were neutral, they are not neutral now.

- This is a bigee. SS implicitly assumes a real LT interest rate of about 2.9%, which is close to the very LT average interest rate. When prevailing real LT interest rates are well below that, as they are now, there is a large advantage in delay. When LT real interest rates are significantly above that, the advantage of delay diminishes and for some groups, such as single men, delay becomes disadvantageous.

BobK


Thank you!

A good reiteration.

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Re: Interesting conversation with an alleged SS actuary

Postby dodecahedron » Sat May 20, 2017 8:40 am

I agree with almost everything BobK wrote above except:

BobK wrote:No life annuities are sold on a unisex basis.


In fact, group insurance products marketed in the workplace, including life annuities, are generally unisex for reasons described below.

http://www.rgare.com/knowledge-center/m ... tes-unisex

Edited to add: in the European Union, all insurance products (including non-group individual annuities) have been unisex since 2012.
Last edited by dodecahedron on Sat May 20, 2017 8:48 am, edited 1 time in total.

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Re: Interesting conversation with an alleged SS actuary

Postby Big Dog » Sat May 20, 2017 8:43 am

If you die at 73. All that waiting and 7%...


Correct. Waiting is a bet that you/your spouse will make it to 80+. Many will not.

Plus You don't pay state tax and you do it you take out of your Ira.


~13 states tax SS.

In Oregon we have a 10% tax. So if I take out $4000 a month I'm sending the state $400...


I am in high tax state and have moved my "emergency fund" intos into tax-free municipals, where it will stay until I retire (early), so I can withdraw it tax free.

Obviously, everyone's situation is different. But, I would rather bet (and hope?) I make it to 82, and the extra cash that comes with it, then be 90 and be worrying about having to depend on my kids. But that is just me.

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Re: Interesting conversation with an alleged SS actuary

Postby bobcat2 » Sat May 20, 2017 8:45 am

OK, to be precise, no life annuities sold to individuals or couples is unisex. 8-)

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Re: Interesting conversation with an alleged SS actuary

Postby dodecahedron » Sat May 20, 2017 8:50 am

bobcat2 wrote:OK, to be precise, no life annuities sold to individuals or couples is unisex. 8-)

BobK :wink:


Not true in the EU:

http://ec.europa.eu/justice/newsroom/ge ... 220_en.htm

http://www.telegraph.co.uk/finance/pers ... eared.html
Last edited by dodecahedron on Sat May 20, 2017 8:53 am, edited 1 time in total.

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Re: Interesting conversation with an alleged SS actuary

Postby Ketawa » Sat May 20, 2017 8:51 am

Delaying SS (for a single person) is like buying an inflation-adjusted SPIA with the following payout each year. This is for people born 1960 or later.

Code: Select all

Wait 5 years before FRA to 4 years before FRA   7.1%
Wait 4 years before FRA to 3 years before FRA   6.7%
Wait 5 years before FRA to 2 years before FRA   8.3%
Wait 5 years before FRA to 1 year before FRA    7.7%
Wait 1 year before FRA to FRA                   7.1%
Wait FRA to 1 year after FRA                    8.0%
Wait 1 year after FRA to 2 years after FRA      7.4%
Wait 2 years after FRA to 3 years after FRA     6.9%
Wait 3 years after FRA to 4 years after FRA     6.5%


Like others have pointed out, these are very good rates compared to what is available on the market for many reasons (longevity has not been updated, market interest rates are lower, etc).
Last edited by Ketawa on Sat May 20, 2017 9:02 am, edited 1 time in total.

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Re: Interesting conversation with an alleged SS actuary

Postby NiceUnparticularMan » Sat May 20, 2017 8:58 am

hulburt1 wrote:If you think about it. If you die at 73. All that waiting and 7% you made on ss will go to someone who might not have saved but will get ss while you had spent your Ira that could have made 8% for you your family and you.


Of course that's how insurance works in general--if you end up not needing it, someone else in the risk pool ends up benefiting at your expense.

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unclescrooge
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Re: Interesting conversation with an alleged SS actuary

Postby unclescrooge » Sat May 20, 2017 9:02 am

chinto wrote:I recently had an interesting conversation with someone who purported to be a retired SS Administration actuary. Drum roll:

What he stated was while the individual may be able to divine their longevity and benefit from delaying taking social security payments, it is, from an actuarial standpoint benefit neutral. In others words mathematically the expected benefit is the same without respect to when you claim your social security. If you, as a individual actually benefit from when you claim SS, it is only because you guessed right. The expected payout is the same regardless of age ad it is mandated to be that way.

Caveat, he said he is a retired SS actuary, and was handing out with a bunch of SOA actuaries, but I have no way of knowing if his comments were in earnest.

The point is, if true, it renders a lot of conversation about when to claim SS as moot, unless you have a very strong reason to feel certain about the year of your demise.


Did you ask when he started claiming his SS benefits?

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Re: Interesting conversation with an alleged SS actuary

Postby dodecahedron » Sat May 20, 2017 9:10 am

unclescrooge wrote:
Did you ask when he started claiming his SS benefits?


If the retired SS actuary started working for the government before 1984, he might not have even chosen to be an SS participant. His decision on that would also be an interesting thing to know.

https://www.ssa.gov/planners/retire/fedgovees.html

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Re: Interesting conversation with an alleged SS actuary

Postby fishandgolf » Sat May 20, 2017 9:17 am

Now.....this is sound advice about when to take SS......:D

#1). If you need the money.....take it!

#2). If you don't need the money but want it...........take it!

#3). If you don't need it or want it early.......delay it!

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Re: Interesting conversation with an alleged SS actuary

Postby Doc » Sat May 20, 2017 9:24 am

@The Wizard
The Wizard wrote:You must be referring to Federal taxation of SS benefits

Thanks, added "taxable".
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Re: Interesting conversation with an alleged SS actuary

Postby unclescrooge » Sat May 20, 2017 9:49 am

dodecahedron wrote:
unclescrooge wrote:
Did you ask when he started claiming his SS benefits?


If the retired SS actuary started working for the government before 1984, he might not have even chosen to be an SS participant. His decision on that would also be an interesting thing to know.

https://www.ssa.gov/planners/retire/fedgovees.html


:shock:
What ever happened to eating your own dog food?

Oh wait, that doesn't apply to the government!

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Re: Interesting conversation with an alleged SS actuary

Postby dm200 » Sat May 20, 2017 10:17 am

My guess is that he is correct (within a certain degree of tolerance). For most individuals, though, it is probably not. Just two big examples:

1. Since SS retirement benefits are paid equally to men and women, and women have (on average) a longer life expectancy, then women get more benefits.

2. Since race/ethnicity background do not receive different benefits, and because (on average) some race/ethnic backgrounds have very different life expectancies, this is not neutral for that.

On a health basis, all those who are obese at age 65 vs those with ideal weights, are not neutral either.

However, someone of race/ethnicity with shorter lifespan, male and obese - still could live a long life and collect more.

The part of the question that I do not know is how significant a factor is "adverse selection" in this neutrality? I also suspect that, because of various changes (such as smoking rates, drug use, obesity, etc.) the numbers change over time. So, perhaps, what was Netutral 25 years ago might not be today.

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Re: Interesting conversation with an alleged SS actuary

Postby midareff » Sat May 20, 2017 10:18 am

My retirement strategy would really come into focus if I knew when I was going to die.

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dm200
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Re: Interesting conversation with an alleged SS actuary

Postby dm200 » Sat May 20, 2017 10:23 am

midareff wrote:My retirement strategy would really come into focus if I knew when I was going to die.


Yes!

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Re: Interesting conversation with an alleged SS actuary

Postby NotWhoYouThink » Sat May 20, 2017 10:26 am

What he stated was while the individual may be able to divine their longevity and benefit from delaying taking social security payments, it is, from an actuarial standpoint benefit neutral.


Wait....if I delay taking SS payments I can know my longevity? That is surprising!

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Re: Interesting conversation with an alleged SS actuary

Postby The Wizard » Sat May 20, 2017 10:54 am

bobcat2 wrote:OK, to be precise, no life annuities sold to individuals or couples is unisex. 8-)

BobK :wink:

Except for TIAA...
Attempted new signature...

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Re: Interesting conversation with an alleged SS actuary

Postby avalpert » Sat May 20, 2017 11:21 am

chinto wrote:I recently had an interesting conversation with someone who purported to be a retired SS Administration actuary. Drum roll:

What he stated was while the individual may be able to divine their longevity and benefit from delaying taking social security payments, it is, from an actuarial standpoint benefit neutral. In others words mathematically the expected benefit is the same without respect to when you claim your social security. If you, as a individual actually benefit from when you claim SS, it is only because you guessed right. The expected payout is the same regardless of age ad it is mandated to be that way.

Caveat, he said he is a retired SS actuary, and was handing out with a bunch of SOA actuaries, but I have no way of knowing if his comments were in earnest.

The point is, if true, it renders a lot of conversation about when to claim SS as moot, unless you have a very strong reason to feel certain about the year of your demise.


He is right actuarialy - but that doesn't make the conversation moot at all. People don't live actuarial lives, they live single event lives and the payoff function for 'guessing right' on each side of the equation is not the same.

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Re: Interesting conversation with an alleged SS actuary

Postby avalpert » Sat May 20, 2017 11:23 am

fishandgolf wrote:Now.....this is sound advice about when to take SS......:D

#1). If you need the money.....take it!

#2). If you don't need the money but want it...........take it!

#3). If you don't need it or want it early.......delay it!

#1 and #3 are sound advice - #2 isn't any more than 'if you don't need the million dollar house but want it, buy it' is.

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Re: Interesting conversation with an alleged SS actuary

Postby avalpert » Sat May 20, 2017 11:28 am

bobcat2 wrote:That SS is actuarially neutral has been debunked numerous times at Bogleheads. There are many reasons it is not actuarially neutral. Here are some of them.

- It is unisex. If it were actuarially neutral for single people it would need to differentiate between men and women since on average women live longer. No life annuities are sold on a unisex basis.

- With the special rules for married couples it cannot be actuarially neutral. It also treats married couples where both work differently than married couples where one work. That too is not neutral.

I don't understand why that would make it not actuarially neutral for the group population? It treats cancer patients and non-cancer patients the same even though individually they have very different life expectancy - but for the population it can still be neutral, can't it?

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Re: Interesting conversation with an alleged SS actuary

Postby Valuethinker » Sat May 20, 2017 11:58 am

unclescrooge wrote:
dodecahedron wrote:
unclescrooge wrote:
Did you ask when he started claiming his SS benefits?


If the retired SS actuary started working for the government before 1984, he might not have even chosen to be an SS participant. His decision on that would also be an interesting thing to know.

https://www.ssa.gov/planners/retire/fedgovees.html


:shock:
What ever happened to eating your own dog food?

Oh wait, that doesn't apply to the government!


President Reagan significantly changed the US Federal government pension plan. Before that, it was exceptionally generous in my understanding.

Post, it's not particularly so, although it does have a Defined Benefit component. And CPI protection, AFAIK.

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Re: Interesting conversation with an alleged SS actuary

Postby Valuethinker » Sat May 20, 2017 12:00 pm

avalpert wrote:
bobcat2 wrote:That SS is actuarially neutral has been debunked numerous times at Bogleheads. There are many reasons it is not actuarially neutral. Here are some of them.

- It is unisex. If it were actuarially neutral for single people it would need to differentiate between men and women since on average women live longer. No life annuities are sold on a unisex basis.

- With the special rules for married couples it cannot be actuarially neutral. It also treats married couples where both work differently than married couples where one work. That too is not neutral.

I don't understand why that would make it not actuarially neutral for the group population? It treats cancer patients and non-cancer patients the same even though individually they have very different life expectancy - but for the population it can still be neutral, can't it?


By definition, if you take the whole population, it will be actuarially neutral *unless* payouts significantly exceed or are less than benefits (depending on your year of birth, that shifts*).

However the question here is actuarially neutral for the individual. And the answer is: much of SS is, but there are some quite specific exceptions.

* and is tantamount to the question of what discount rate is used-- that's oversimplifying but it works to a point.

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Re: Interesting conversation with an alleged SS actuary

Postby dm200 » Sat May 20, 2017 12:13 pm

President Reagan significantly changed the US Federal government pension plan. Before that, it was exceptionally generous in my understanding.
Post, it's not particularly so, although it does have a Defined Benefit component. And CPI protection, AFAIK.


I would not credit or blame President Reagan. It was done in his administration, as part of many changes. The federal employee defined benefit pension plan was reduced (but still quite good) and then current employees could keep the old plan. Until then, Federal employees did not pay SS retiement, but this was changed so they paid SS retirement and could collect (making up to a degree for the reduction in defined benefit). It was at this time that members of Congress were also made subject to paying SS retirement taxes.

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Re: Interesting conversation with an alleged SS actuary

Postby aristotelian » Sat May 20, 2017 12:26 pm

midareff wrote:My retirement strategy would really come into focus if I knew when I was going to die.


There is a thread for that...
viewtopic.php?t=215124

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Re: Interesting conversation with an alleged SS actuary

Postby R2D2 » Sat May 20, 2017 12:31 pm

Sorry if I'm missing something, but I'm not sure it makes sense to say that the two SS payout options are equivalent, unless you specify the discount rate that's used. In other words, of course the two SS payout options are actuarially equivalent at some discount rate; the important question is, what is that rate?

I thought I had once read that the implied discount rate was something really high, like 7-8% (for the average retiree). So, putting aside differences among individual situations, are you guys claiming that the implied discount rate is actually only 2.9%?

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Re: Interesting conversation with an alleged SS actuary

Postby Christine_NM » Sat May 20, 2017 12:40 pm

bobcat2 wrote:OK, to be precise, no life annuities sold to individuals or couples is unisex. 8-)

BobK :wink:


Charitable gift annuity rates are unisex. They are based on "a 50/50 blended rate of male and female mortality" according to http://acga-web.org .

I know you mean commercial products, but blanket statements about annuities are probably best avoided.
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Re: Interesting conversation with an alleged SS actuary

Postby dbr » Sat May 20, 2017 12:50 pm

chinto wrote:I recently had an interesting conversation with someone who purported to be a retired SS Administration actuary. Drum roll:

What he stated was while the individual may be able to divine their longevity and benefit from delaying taking social security payments, it is, from an actuarial standpoint benefit neutral. In others words mathematically the expected benefit is the same without respect to when you claim your social security. If you, as a individual actually benefit from when you claim SS, it is only because you guessed right. The expected payout is the same regardless of age ad it is mandated to be that way.

Caveat, he said he is a retired SS actuary, and was handing out with a bunch of SOA actuaries, but I have no way of knowing if his comments were in earnest.

The point is, if true, it renders a lot of conversation about when to claim SS as moot, unless you have a very strong reason to feel certain about the year of your demise.


This is all well known and all the comments above apply.

The point in delaying SS is to acquire a larger insurance policy against longevity risk in what today stands as the best deal going to do that. If you don't want any of that kind of insurance, then don't buy it. SS and its actuaries don't care what choices individuals make regarding how much insurance to carry.

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Re: Interesting conversation with an alleged SS actuary

Postby Oblivious » Sat May 20, 2017 12:56 pm

Am an actuary.

We do care what choice people make. I would easily believe that it was designed to be that way and they would want to implement it to act like that. What usually gets in the way is politics preventing it from being neutral. Overall I would probably believe that they rebalance things and over time it is neutral.

Most of the comments in this thread are applying this at an individual level, this is not how actuaries go about thinking of things. The statements were made talking on a macro level. The statements that they made don't apply on an individual level. There's a lot of misinformation floating around in this thread.

Kind of find it funny that a lot of people think that they do things on a unisex basis, but don't account for how the population has shifted between sex, race, etc.. Yet we're on a bogglehead site where people invest in indexes that constantly adjust to be reflecting the overall market.

Think of unisex being an index on the population, where the factors making up that overall number adjust.We adjust the overall number to reflect the individual stocks making it up. Just replace stocks with people.


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