Wait for Social Security - breakeven returns

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patrick013
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Wait for Social Security - breakeven returns

Post by patrick013 » Sat Nov 02, 2019 12:29 pm

Most people wait for Social Security at least a few years. Here's some figures based on rates of return.

The 1 Reason to Claim Social Security at 62
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Re: Wait for Social Security - breakeven returns

Post by RickBoglehead » Sat Nov 02, 2019 12:35 pm

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Re: Wait for Social Security - breakeven returns

Post by longinvest » Sat Nov 02, 2019 12:36 pm

patrick013 wrote:
Sat Nov 02, 2019 12:29 pm
Most people wait for Social Security at least a few years. Here's some figures based on rates of return.
...
Here's a classic post for those who "wish to spend more money in retirement and do not care about leaving an estate": Delay Social Security to age 70 and Spend more money at 62.
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Re: Wait for Social Security - breakeven returns

Post by bberris » Sat Nov 02, 2019 12:44 pm

This aptly named web article ignores:

Inflation indexing of SS
Risk free annuity of SS
Sequence of returns risk

So to paraphrase the article, if you remove all of the benefits of delaying social security, and the risks of investing, it is better to claim early.

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Re: Wait for Social Security - breakeven returns

Post by patrick013 » Sat Nov 02, 2019 12:59 pm

Well I'm waiting till 70. So my total benefits rec'd in aggregate will be more after I'm 80 all other things the same. The first graph clearly shows that. :)
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Re: Wait for Social Security - breakeven returns

Post by Big Dog » Sat Nov 02, 2019 1:02 pm

Most people wait for Social Security at least a few years.
The 'most' popular age for taking SS is 62 per SSA; approximately a third take it ASAP. But yes, that means 2/3rds take it later.

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Re: Wait for Social Security - breakeven returns

Post by neilpilot » Sat Nov 02, 2019 1:17 pm

Big Dog wrote:
Sat Nov 02, 2019 1:02 pm
Most people wait for Social Security at least a few years.
The 'most' popular age for taking SS is 62 per SSA; approximately a third take it ASAP. But yes, that means 2/3rds take it later.
Most popular, and also necessary for the large percentage of retirees who have little saved and need SS to complete their budget.

But do we really want to turn this into the 23,432th BH debate on take it now vs wait until later?

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Re: Wait for Social Security - breakeven returns

Post by smitcat » Sat Nov 02, 2019 1:36 pm

Big Dog wrote:
Sat Nov 02, 2019 1:02 pm
Most people wait for Social Security at least a few years.
The 'most' popular age for taking SS is 62 per SSA; approximately a third take it ASAP. But yes, that means 2/3rds take it later.
"But yes, that means 2/3rds take it later."
Or are on disability...
https://www.usatoday.com/story/money/pe ... /35928543/

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Re: Wait for Social Security - breakeven returns

Post by patrick013 » Sat Nov 02, 2019 1:38 pm

neilpilot wrote:
Sat Nov 02, 2019 1:17 pm

But do we really want to turn this into the 23,432th BH debate on take it now vs wait until later?
Anything but debate justa FYI thing. Flip a coin. Will anyone live over 80, the breakeven point.
Maybe it's a moot point. A little extra money in aggregate after 80 ? Why not take it sooner then. A picture tells a thousand stories.
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Re: Wait for Social Security - breakeven returns

Post by Shallowpockets » Sat Nov 02, 2019 1:41 pm

Anyone who waits until 70 for the extra money probably doesn’t need the extra money.

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Re: Wait for Social Security - breakeven returns

Post by smitcat » Sat Nov 02, 2019 1:47 pm

patrick013 wrote:
Sat Nov 02, 2019 1:38 pm
neilpilot wrote:
Sat Nov 02, 2019 1:17 pm

But do we really want to turn this into the 23,432th BH debate on take it now vs wait until later?
Anything but debate justa FYI thing. Flip a coin. Will anyone live over 80, the breakeven point.
Maybe it's a moot point. A little extra money in aggregate after 80 ? Why not take it sooner then. A picture tells a thousand stories.
"Why not take it sooner then."
- It may limit or eliminate valuable Roth conversions
- it may limit income for a surviving spouse

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Re: Wait for Social Security - breakeven returns

Post by JoeRetire » Sat Nov 02, 2019 1:50 pm

patrick013 wrote:
Sat Nov 02, 2019 12:29 pm
Most people wait for Social Security at least a few years. Here's some figures based on rates of return.

The 1 Reason to Claim Social Security at 62
I prefer Kitces over any fool (Motley or otherwise):

"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!"

see: https://www.kitces.com/blog/how-delayin ... y-can-buy/
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Re: Wait for Social Security - breakeven returns

Post by MotoTrojan » Sat Nov 02, 2019 2:04 pm

As noted, it ignores the risk-free increase to returns that SS enables, assuming a fixed lifespan. This could enable someone to hold a more risky, higher returning portfolio in the meantime and use the extra SS earned by deferring as a bond-proxy.

Model that with the assumption of 7% steady returns and you’ll even the playing field.

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Re: Wait for Social Security - breakeven returns

Post by patrick013 » Sat Nov 02, 2019 2:05 pm

Dialogue, dialogue, dialogue, the fact remains over 80 is the breakeven point, not discounted.

Depending on health is at least the major consideration. I guess taking it early is a godsend. But if you live till 88 you haven't lost the money either. I don't know then.
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Re: Wait for Social Security - breakeven returns

Post by JoeRetire » Sat Nov 02, 2019 2:23 pm

patrick013 wrote:
Sat Nov 02, 2019 2:05 pm
I guess taking it early is a godsend.
It is if you need it.
If not, then not so much.
Don't be a lemming.

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Re: Wait for Social Security - breakeven returns

Post by patrick013 » Sat Nov 02, 2019 2:29 pm

You win. I'll pay my rent. It's actually not that much.
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Re: Wait for Social Security - breakeven returns

Post by FrugalInvestor » Sat Nov 02, 2019 2:36 pm

My wife is younger than me and I was the primary earner so this quote from the article explains the reason that I'm waiting until my monthly benefit is maximized....
....delaying Social Security can be attractive, as it allows them to get larger monthly benefits later on, and in some cases pass those higher checks on to their loved ones in the form of survivor benefits.
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Re: Wait for Social Security - breakeven returns

Post by JoeRetire » Sat Nov 02, 2019 2:37 pm

patrick013 wrote:
Sat Nov 02, 2019 2:29 pm
You win. I'll pay my rent. It's actually not that much.
It's good to pay your rent.

I'm not sure that will affect your social security break even much, if at all, though. :wink:
Don't be a lemming.

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Re: Wait for Social Security - breakeven returns

Post by Cyclesafe » Sat Nov 02, 2019 4:52 pm

With Maximize My Social Security (two qualified SS histories; MFJ, both 65 y.o.) the break even for either was reaching age 87. We have an expectation that both of us will live at least to that age so we will delay taking to 70.
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Re: Wait for Social Security - breakeven returns

Post by Dandy » Sun Nov 03, 2019 7:32 am

If you and spouse are relatively healthy and in good financial shape you have an interesting decision of claiming Social Security. I think the break even point is a side issue of little concern to me. The keys to me are:

1. can you fund the wait to collect SS at age 70 without serious depletion of your investments?
2. can you fund the wait and still enjoy an acceptable life style while waiting to collect?
3. what will your projected drawdown % be once you collect SS at age 70?
4. how much do you value higher lifetime income from a sleep well/less worry standpoint?

If the above factors are at least likely, the great thing about the SS decision is you can plan to collect at age 70 but if things aren't working out -- you can change your mind and you still get somewhat higher SS payments.

Waiting to collect can have some other benefits.
1. Using TIRA withdrawals to fund the wait will reduce RMDs from age 70 on - could mean a lower tax bracket.
2. The lower income during the wait could be used for Roth conversions which would also lower RMDs.

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Re: Wait for Social Security - breakeven returns

Post by Jack FFR1846 » Sun Nov 03, 2019 7:44 am

There appear to be missing pieces when I compare it to my own predictions. There's no increase (the famous 8%) per year in waiting. There is also no accounting for the predicted drop of 21% of payments in 2034 when the trust fund drains to zero. For me, I'm already 62 and I'm still working, so taxes on payments now would need to be figured in. I think they assumed no taxes because the date of taking SS would match the retirement date. My own simple excel spread sheet shows that the crossover for me is at age 85.
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Re: Wait for Social Security - breakeven returns

Post by JoeRetire » Sun Nov 03, 2019 10:39 am

Jack FFR1846 wrote:
Sun Nov 03, 2019 7:44 am
There appear to be missing pieces when I compare it to my own predictions.
When you compare what to your own predictions?
There's no increase (the famous 8%) per year in waiting.
Whatever you are doing or using, is incorrect. If I understand you correctly, the "famous 8%" is simply the way delayed retirement credits work. If you delay past your Full Retirement Age, DRCs happen.
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Re: Wait for Social Security - breakeven returns

Post by willthrill81 » Sun Nov 03, 2019 10:55 am

JoeRetire wrote:
Sat Nov 02, 2019 1:50 pm
patrick013 wrote:
Sat Nov 02, 2019 12:29 pm
Most people wait for Social Security at least a few years. Here's some figures based on rates of return.

The 1 Reason to Claim Social Security at 62
I prefer Kitces over any fool (Motley or otherwise):

"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!"

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

Why the author of the MF post, Caplinger, even posted the results of a break-even analysis with 7% (presumably real) returns is a mystery to me. It should be obvious to anyone with even a tangential understanding of the time value of money that very high investment returns would favor this. But it is even more mysterious to me why he would compare the guaranteed higher payout from delaying SS to the highly variable returns of any instrument where 7% real returns are a plausible possibility (e.g. stocks). Stocks at least certainly haven't averaged 7% real returns for the last 20 years, U.S. or ex-U.S.

I agree with Kitces that delaying SS benefits is possibly the most 'anti-fragile' hedge available to most investors.
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Re: Wait for Social Security - breakeven returns

Post by JoeRetire » Sun Nov 03, 2019 11:04 am

willthrill81 wrote:
Sun Nov 03, 2019 10:55 am
Why the author of the MF post, Caplinger, even posted the results of a break-even analysis with 7% (presumably real) returns is a mystery to me. It should be obvious to anyone with even a tangential understanding of the time value of money that very high investment returns would favor this. But it is even more mysterious to me why he would compare the guaranteed higher payout from delaying SS to the highly variable returns of any instrument where 7% real returns are a plausible possibility (e.g. stocks). Stocks at least certainly haven't averaged 7% real returns for the last 20 years, U.S. or ex-U.S.
It certainly was an unusual set of assumptions. Can't say I've seen that combination in the context of a social security claiming strategy before. Perhaps the author was stretching to make a point.

Maybe if you really, really want to convince others that a "break-even analysis" is the right way to view the benefit claiming strategy, rather than "longevity insurance", you are tempted to use unusual numbers.
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Re: Wait for Social Security - breakeven returns

Post by patrick013 » Sun Nov 03, 2019 1:34 pm

My budget until 70 is set. My investment "budget" is also set. So if I needed the money sooner so be it. Waiting till after 70 is not quite twice the money monthly compared to if I took it at the earliest date. So paying taxes later or whatever isn't going to cause a higher tax bracket or major adverse changes in anything else. Basically it's just a boost to my cash budget for whatever extra expenditures may occur or can occur. I thought Motley Fool's breakeven at 80 a basic but practical idea. Waiting until 70, then after 80 total cash rec'd in aggregate starts to be greater with each year over taking it as soon as possible, in aggregate. Basic but true. No higher tax bracket here, extra cash rec'd helps with cash budget, and overall more cash is being rec'd and will just be spent.

Kitce's approach is interesting with IRR's and real returns etc. if your investment budget is a concern but the basic cash flow approach I'm using has the desired effect needed from 70 on out. Alot depends on the cash budget. It's easy to spend extra cash in aggregate without confusing other unknowns or investment AA in the decision.

The Motley Fool chart showing results with 7% returns would lead some people to rethink the decision investment-wise where claiming benefits later never catches up. If equity AA would be increased for SS rec'd.
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Re: Wait for Social Security - breakeven returns

Post by illumination » Sun Nov 03, 2019 2:02 pm

One point I don't think is brought up enough is you're not going to "care" when you're dead that you didn't "break even" on this gamble.
But you're definitely going to care if you withdrew earlier and are locked into that lower payment stream forever and you live a longer life.

Obviously, if you need the money for living expenses as at earlier than anticipated age, that's the answer to the question on what to do.

But if you can delay comfortably, I would not be worried with the "what if I die at age 79 and I get screwed because I delayed Social Security" question. It really seem it offers you a guaranteed return that you can't get anywhere else.

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Re: Wait for Social Security - breakeven returns

Post by Dandy » Sun Nov 03, 2019 2:09 pm

illumination wrote:
Sun Nov 03, 2019 2:02 pm
One point I don't think is brought up enough is you're not going to "care" when you're dead that you didn't "break even" on this gamble.
But you're definitely going to care if you withdrew earlier and are locked into that lower payment stream forever and you live a longer life.

Obviously, if you need the money for living expenses as at earlier than anticipated age, that's the answer to the question on what to do.

But if you can delay comfortably, I would not be worried with the "what if I die at age 79 and I get screwed because I delayed Social Security" question. It really seem it offers you a guaranteed return that you can't get anywhere else.
I agree that if you are dead no care about break even. The keys are can you have an acceptable life style while you wait to collect at 70 and do you have the assets to fund the wait. Also, If you are the higher earner and are married your spouse might also appreciate the higher payments if you die first. That is a key benefit for those that are married it covers the one who lives the longest.

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Re: Wait for Social Security - breakeven returns

Post by Ron » Sun Nov 03, 2019 3:23 pm

It seems that we go around and around on one date that each of us has to live to in order to consider "I got mine" from SS benefits.

FIDO just published an article on this subject: https://www.fidelity.com/viewpoints/ret ... rity-myths in which it is shown (right or wrong) that a perceived break even date may be sooner than you may think (see the section "Social Security: Your contributions vs. potential benefits")

Using their logic of just working with the raw (not inflation adjusted) contributions vs. age 70 benefits, you actually reach a break even point much earlier than often discussed in this forum.

I did a simple spreadsheet showing my contributions along with contributions from my various employers over the years. I did the same with my wife's numbers.

As it turns out, I will reach my break even point at age 73, less than two years from now. My wife will do the same at age 74, less than three years from now.

As it is, we both claimed our respective age 70 benefits early last year based upon our own records. My wife received benefits based upon 50% of my FRA from ages 66-69. Being that she was claiming against me during that time, I included that SS benefit income against my total OASDI paid over many years.

Using a simple way of calculating payback works for me, since I'm a very simple person :mrgreen: ...

FWIW,

- Ron

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Re: Wait for Social Security - breakeven returns

Post by JoeRetire » Sun Nov 03, 2019 3:35 pm

Ron wrote:
Sun Nov 03, 2019 3:23 pm
Using their logic of just working with the raw (not inflation adjusted) contributions vs. age 70 benefits, you actually reach a break even point much earlier than often discussed in this forum.
Obviously, that's not what most folks mean when they talk about "break even" and social security claiming strategies. Deciding that you "break even" when your benefits equal your contributions is completely beside the point, and IMHO a silly way to choose when to start your benefits.
Using a simple way of calculating payback works for me, since I'm a very simple person
That's fine and all. It is simple. But how could that possibly help you choose a claiming strategy?

For pretty much everyone else, a "break even" analysis is comparing claiming early (and perhaps investing the monthly benefits) to claiming later.

Whatever you paid into the system is a sunk cost. Those contributions don't change if you claim early or claim late.
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Re: Wait for Social Security - breakeven returns

Post by #Cruncher » Mon Nov 04, 2019 12:43 pm

longinvest wrote:
Sat Nov 02, 2019 12:36 pm
Here's a classic post for those who "wish to spend more money in retirement and do not care about leaving an estate": Delay Social Security to age 70 and Spend more money at 62.
This 2012 post by Cut Throat is well worth reading. Thanks for referencing it. [1] Since that post takes an approach to SS claiming not generally discussed on this forum, I believe it warrants elaboration. (I'm posting here since that thread is, unfortunately, locked.) I've incorporated the concept in a spreadsheet to illustrate its results for various withdrawal rates and claiming delays:

Code: Select all

Row  Col A     Col B      Col C     Col D    Col E   Col F   Col G   Col H   Col I
  1  Year born             1954
  2  NRA                     66
  3  PIA                  2,164 
  4  Portfolio        1,000,000
  5  Set aside rate       0.00%             ----------- Withdrawal Rate ----------
  6  Withdrawal rate                         2.00%   3.00%   4.00%   5.00%   6.00%
     Start   Pct PIA    Benefit Set Aside   --- Spending & Additional Spending ---

Code: Select all

  8    62    75.000%     19,476             39,476  49,476  59,476  69,476  79,476 
  9    63    80.000%     20,774    20,774      883     675     467     259      52 
 10    64    86.667%     22,506    45,012    2,130   1,680   1,230     779     329 
 11    65    93.333%     24,237    72,711    3,307   2,580   1,853   1,125     398 
 12    66   100.000%     25,968   103,872    4,415   3,376   2,337   1,298     260 
 13    67   108.000%     28,045   140,225    5,765   4,362   2,960   1,558     156 
 14    68   116.000%     30,123   180,738    7,032   5,225   3,417   1,610    (197)
 15    69   124.000%     32,200   225,400    8,216   5,962   3,708   1,454    (800)
 16    70   132.000%     34,278   274,224    9,318   6,575   3,833   1,091  (1,651)
Here is how various assumptions affect the results:
  • Portfolio size: the dollar amount advantage is the same regardless of portfolio size as long as the portfolio is equal to or larger than the necessary "set aside".
  • SS base benefit size: the proportional benefit is independent of the recipient's basic benefit. For example, if the $2,164 Primary Insurance Amount (PIA) in the table is halved to $1,082, the size of all the advantages is also halved.
  • Withdrawal rate: the advantage is less the higher the withdrawal rate. In fact with a high enough withdrawal rate there may actually be a disadvantage to delaying. E.g., in the example with a 5% withdrawal rate, one can spend $1,091 more each year by delaying from 62 to 70, but $1,651 less if the withdrawal rate is 6%.
  • Real growth rate of the money set aside: the advantage is greater the higher the assumed growth rate. For simplicity and to agree with Cut Throat's post, the example sets it to 0%.
  • Years to delay claiming: in some cases the greatest advantage is to delay to an age earlier than 70. For example, with a 5% withdrawal rate there is a $1,091 advantage from delaying from age 62 to 70. But there would be a $1,610 advantage by only delaying to age 68.
To use the spreadsheet with other assumptions, follow these steps:
  • Select All, Copy, and Paste [2] the following at cell A1 of a blank Excel sheet:

    Code: Select all

    Year born		1954
    NRA		=MIN(67,66+MAX(0,C1-1954)/6)
    PIA		2164
    Portfolio		1000000
    Set aside rate		0
    Withdrawal rate				0.02	0.03	=2*F6-E6	=2*G6-F6	=2*H6-G6
    Start	Pct PIA	Benefit	Set Aside			---------- Spending & Additional Spending ----------
    62	=IF($A8<C$2,1-(5/900)*MIN(36,(C$2-$A8)*12)-(5/1200)*MAX(0,(C$2-$A8)*12-36),1+(8/1200)*($A8-C$2)*12)	=ROUND(12*C$3*B8,0)		=E$6*$C4+$C8
    =A8+1	=IF($A9<C$2,1-(5/900)*MIN(36,(C$2-$A9)*12)-(5/1200)*MAX(0,(C$2-$A9)*12-36),1+(8/1200)*($A9-C$2)*12)	=ROUND(12*C$3*B9,0)	=MIN(C$4,-PV(C$5,A9-A$8,C9,0,0))	=E$6*($C$4-$D9)+PMT($C$5,$A9-$A$8,-$D9,0,0)-E$8
  • Format for readability.
  • Copy cells C8:C9 E8:E9 right to column I. (Edited to correct cell reference.)
  • Copy cells A10:I10 A9:I9 down to row 16. (Edited to correct cell reference.)
  • To compare against another starting age than 62, enter it in cell A8 and ignore rows with age greater than 70.
Notes on the spreadsheet compared to Cut Throat examples:
  • He uses $19,476 as the annual age 62 benefit. By assuming a Normal Retirement Age (NRA) of 66 and a PIA of $2,164 I can match this. But using the PIA percentages for claiming at different ages (see this SSA web page), the closest I can get to his age 70 benefit is $34,278. If I overwrite cell C16 with his $34,092 then I do get the $3,706 advantage for a 4% withdrawal rate (apart from $1 rounding difference) and $6,434 for a 3% withdrawal rate from his post.
  • If I assume 3% inflation and a 0% nominal return by entering -2.913% (1 / 1.03 - 1) into cell C5 I also agree with the $2,126 advantage from this post (again overwriting cell C16 with $34,092). Note: to implement this calculation I use the Excel PV function in column D ("Set Aside") and the complementary PMT function in columns E:I ("Additional Spending").
  1. I've underlined the words "do not care about leaving an estate" in longinvest's quote. Understanding this is essential to understanding Cut Throat's approach.
  2. If you have trouble pasting, try "Paste Special" and "Text".
Last edited by #Cruncher on Mon Nov 04, 2019 4:39 pm, edited 1 time in total.

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Re: Wait for Social Security - breakeven returns

Post by smitcat » Mon Nov 04, 2019 1:04 pm

#Cruncher wrote:
Mon Nov 04, 2019 12:43 pm
longinvest wrote:
Sat Nov 02, 2019 12:36 pm
Here's a classic post for those who "wish to spend more money in retirement and do not care about leaving an estate": Delay Social Security to age 70 and Spend more money at 62.
This 2012 post by Cut Throat is well worth reading. Thanks for referencing it. [1] Since that post takes an approach to SS claiming not generally discussed on this forum, I believe it warrants elaboration. (I'm posting here since that thread is, unfortunately, locked.) I've incorporated the concept in a spreadsheet to illustrate its results for various withdrawal rates and claiming delays:

Code: Select all

Row  Col A     Col B      Col C     Col D    Col E   Col F   Col G   Col H   Col I
  1  Year born             1954
  2  NRA                     66
  3  PIA                  2,164 
  4  Portfolio        1,000,000
  5  Set aside rate       0.00%             ----------- Withdrawal Rate ----------
  6  Withdrawal rate                         2.00%   3.00%   4.00%   5.00%   6.00%
     Start   Pct PIA    Benefit Set Aside   --- Spending & Additional Spending ---

Code: Select all

  8    62    75.000%     19,476             39,476  49,476  59,476  69,476  79,476 
  9    63    80.000%     20,774    20,774      883     675     467     259      52 
 10    64    86.667%     22,506    45,012    2,130   1,680   1,230     779     329 
 11    65    93.333%     24,237    72,711    3,307   2,580   1,853   1,125     398 
 12    66   100.000%     25,968   103,872    4,415   3,376   2,337   1,298     260 
 13    67   108.000%     28,045   140,225    5,765   4,362   2,960   1,558     156 
 14    68   116.000%     30,123   180,738    7,032   5,225   3,417   1,610    (197)
 15    69   124.000%     32,200   225,400    8,216   5,962   3,708   1,454    (800)
 16    70   132.000%     34,278   274,224    9,318   6,575   3,833   1,091  (1,651)
Here is how various assumptions affect the results:
  • Portfolio size: the dollar amount advantage is the same regardless of portfolio size as long as the portfolio is equal to or larger than the necessary "set aside".
  • SS base benefit size: the proportional benefit is independent of the recipient's basic benefit. For example, if the $2,164 Primary Insurance Amount (PIA) in the table is halved to $1,082, the size of all the advantages is also halved.
  • Withdrawal rate: the advantage is less the higher the withdrawal rate. In fact with a high enough withdrawal rate there may actually be a disadvantage to delaying. E.g., in the example with a 5% withdrawal rate, one can spend $1,091 more each year by delaying from 62 to 70, but $1,651 less if the withdrawal rate is 6%.
  • Real growth rate of the money set aside: the advantage is greater the higher the assumed growth rate. For simplicity and to agree with Cut Throat's post, the example sets it to 0%.
  • Years to delay claiming: in some cases the greatest advantage is to delay to an age earlier than 70. For example, with a 5% withdrawal rate there is a $1,091 advantage from delaying from age 62 to 70. But there would be a $1,610 advantage by only delaying to age 68.
To use the spreadsheet with other assumptions, follow these steps:
  • Select All, Copy, and Paste [2] the following at cell A1 of a blank Excel sheet:

    Code: Select all

    Year born		1954
    NRA		=MIN(67,66+MAX(0,C1-1954)/6)
    PIA		2164
    Portfolio		1000000
    Set aside rate		0
    Withdrawal rate				0.02	0.03	=2*F6-E6	=2*G6-F6	=2*H6-G6
    Start	Pct PIA	Benefit	Set Aside			---------- Spending & Additional Spending ----------
    62	=IF($A8<C$2,1-(5/900)*MIN(36,(C$2-$A8)*12)-(5/1200)*MAX(0,(C$2-$A8)*12-36),1+(8/1200)*($A8-C$2)*12)	=ROUND(12*C$3*B8,0)		=E$6*$C4+$C8
    =A8+1	=IF($A9<C$2,1-(5/900)*MIN(36,(C$2-$A9)*12)-(5/1200)*MAX(0,(C$2-$A9)*12-36),1+(8/1200)*($A9-C$2)*12)	=ROUND(12*C$3*B9,0)	=MIN(C$4,-PV(C$5,A9-A$8,C9,0,0))	=E$6*($C$4-$D9)+PMT($C$5,$A9-$A$8,-$D9,0,0)-E$8
  • Format for readability.
  • Copy cells C8:C9 right to column I.
  • Copy cells A10:I10 down to row 16.
  • To compare against another starting age than 62, enter it in cell A8 and ignore rows with age greater than 70.
Notes on the spreadsheet compared to Cut Throat examples:
  • He uses $19,476 as the annual age 62 benefit. By assuming a Normal Retirement Age (NRA) of 66 and a PIA of $2,164 I can match this. But using the PIA percentages for claiming at different ages (see this SSA web page), the closest I can get to his age 70 benefit is $34,278. If I overwrite cell C16 with his $34,092 then I do get the $3,706 advantage for a 4% withdrawal rate (apart from $1 rounding difference) and $6,434 for a 3% withdrawal rate from his post.
  • If I assume 3% inflation and a 0% nominal return by entering -2.913% (1 / 1.03 - 1) into cell C5 I also agree with the $2,126 advantage from this post (again overwriting cell C16 with $34,092). Note: to implement this calculation I use the Excel PV function in column D ("Set Aside") and the complementary PMT function in columns E:I ("Additional Spending").
  1. I've underlined the words "do not care about leaving an estate" in longinvest's quote. Understanding this is essential to understanding Cut Throat's approach.
  2. If you have trouble pasting, try "Paste Special" and "Text".

#Cruncher - pretty amazing that you can do this and do it so fast, I have enjoyed many of your calculations that have helped us ,thank you.

Question - this says 'spend more in retirement' but we are interested in maximizing how to 'spend more after taxes' in retirement which we have found is not the likely the same solution for many folks.
With the variations of Roth conversions, RMD's, and variable taxes on SS in addition to when you take SS is there any method to determine what the 'breakeven' is with all of those variables considered?

heyyou
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Re: Wait for Social Security - breakeven returns

Post by heyyou » Tue Nov 05, 2019 6:42 am

The caveats at the end of the article note the assumption that you save all of the income from SS. Consider what the returns would be on that investment. Would you put it in bonds for safety or just have a larger market portfolio, think of the differences in those two over the last decade, if you were retired.

We viewed SS as income insurance, so of course, waiting had a small cost while not not waiting added some risk into our distant futures. That is a familiar scenario for those who do save for retirement during their work years. What suited us may not calculate as the optimal investment option, but it works well as our preferred conservative choice. Others are welcome to do whatever suits them.

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Re: Wait for Social Security - breakeven returns

Post by dcabler » Tue Nov 05, 2019 9:27 am

#Cruncher wrote:
Mon Nov 04, 2019 12:43 pm
longinvest wrote:
Sat Nov 02, 2019 12:36 pm
Here's a classic post for those who "wish to spend more money in retirement and do not care about leaving an estate": Delay Social Security to age 70 and Spend more money at 62.
This 2012 post by Cut Throat is well worth reading. Thanks for referencing it. [1] Since that post takes an approach to SS claiming not generally discussed on this forum, I believe it warrants elaboration. (I'm posting here since that thread is, unfortunately, locked.) I've incorporated the concept in a spreadsheet to illustrate its results for various withdrawal rates and claiming delays:

Code: Select all

Row  Col A     Col B      Col C     Col D    Col E   Col F   Col G   Col H   Col I
  1  Year born             1954
  2  NRA                     66
  3  PIA                  2,164 
  4  Portfolio        1,000,000
  5  Set aside rate       0.00%             ----------- Withdrawal Rate ----------
  6  Withdrawal rate                         2.00%   3.00%   4.00%   5.00%   6.00%
     Start   Pct PIA    Benefit Set Aside   --- Spending & Additional Spending ---

Code: Select all

  8    62    75.000%     19,476             39,476  49,476  59,476  69,476  79,476 
  9    63    80.000%     20,774    20,774      883     675     467     259      52 
 10    64    86.667%     22,506    45,012    2,130   1,680   1,230     779     329 
 11    65    93.333%     24,237    72,711    3,307   2,580   1,853   1,125     398 
 12    66   100.000%     25,968   103,872    4,415   3,376   2,337   1,298     260 
 13    67   108.000%     28,045   140,225    5,765   4,362   2,960   1,558     156 
 14    68   116.000%     30,123   180,738    7,032   5,225   3,417   1,610    (197)
 15    69   124.000%     32,200   225,400    8,216   5,962   3,708   1,454    (800)
 16    70   132.000%     34,278   274,224    9,318   6,575   3,833   1,091  (1,651)
Here is how various assumptions affect the results:
  • Portfolio size: the dollar amount advantage is the same regardless of portfolio size as long as the portfolio is equal to or larger than the necessary "set aside".
  • SS base benefit size: the proportional benefit is independent of the recipient's basic benefit. For example, if the $2,164 Primary Insurance Amount (PIA) in the table is halved to $1,082, the size of all the advantages is also halved.
  • Withdrawal rate: the advantage is less the higher the withdrawal rate. In fact with a high enough withdrawal rate there may actually be a disadvantage to delaying. E.g., in the example with a 5% withdrawal rate, one can spend $1,091 more each year by delaying from 62 to 70, but $1,651 less if the withdrawal rate is 6%.
  • Real growth rate of the money set aside: the advantage is greater the higher the assumed growth rate. For simplicity and to agree with Cut Throat's post, the example sets it to 0%.
  • Years to delay claiming: in some cases the greatest advantage is to delay to an age earlier than 70. For example, with a 5% withdrawal rate there is a $1,091 advantage from delaying from age 62 to 70. But there would be a $1,610 advantage by only delaying to age 68.
To use the spreadsheet with other assumptions, follow these steps:
  • Select All, Copy, and Paste [2] the following at cell A1 of a blank Excel sheet:

    Code: Select all

    Year born		1954
    NRA		=MIN(67,66+MAX(0,C1-1954)/6)
    PIA		2164
    Portfolio		1000000
    Set aside rate		0
    Withdrawal rate				0.02	0.03	=2*F6-E6	=2*G6-F6	=2*H6-G6
    Start	Pct PIA	Benefit	Set Aside			---------- Spending & Additional Spending ----------
    62	=IF($A8<C$2,1-(5/900)*MIN(36,(C$2-$A8)*12)-(5/1200)*MAX(0,(C$2-$A8)*12-36),1+(8/1200)*($A8-C$2)*12)	=ROUND(12*C$3*B8,0)		=E$6*$C4+$C8
    =A8+1	=IF($A9<C$2,1-(5/900)*MIN(36,(C$2-$A9)*12)-(5/1200)*MAX(0,(C$2-$A9)*12-36),1+(8/1200)*($A9-C$2)*12)	=ROUND(12*C$3*B9,0)	=MIN(C$4,-PV(C$5,A9-A$8,C9,0,0))	=E$6*($C$4-$D9)+PMT($C$5,$A9-$A$8,-$D9,0,0)-E$8
  • Format for readability.
  • Copy cells C8:C9 E8:E9 right to column I. (Edited to correct cell reference.)
  • Copy cells A10:I10 A9:I9 down to row 16. (Edited to correct cell reference.)
  • To compare against another starting age than 62, enter it in cell A8 and ignore rows with age greater than 70.
Notes on the spreadsheet compared to Cut Throat examples:
  • He uses $19,476 as the annual age 62 benefit. By assuming a Normal Retirement Age (NRA) of 66 and a PIA of $2,164 I can match this. But using the PIA percentages for claiming at different ages (see this SSA web page), the closest I can get to his age 70 benefit is $34,278. If I overwrite cell C16 with his $34,092 then I do get the $3,706 advantage for a 4% withdrawal rate (apart from $1 rounding difference) and $6,434 for a 3% withdrawal rate from his post.
  • If I assume 3% inflation and a 0% nominal return by entering -2.913% (1 / 1.03 - 1) into cell C5 I also agree with the $2,126 advantage from this post (again overwriting cell C16 with $34,092). Note: to implement this calculation I use the Excel PV function in column D ("Set Aside") and the complementary PMT function in columns E:I ("Additional Spending").
  1. I've underlined the words "do not care about leaving an estate" in longinvest's quote. Understanding this is essential to understanding Cut Throat's approach.
  2. If you have trouble pasting, try "Paste Special" and "Text".
Interesting - the idea is somewhat similar to the idea in the "time value of money" thread that showed up in the last year or so. One poster in cut-throat's thread suggested simply withdrawing the extra amount from your portfolio instead of setting it aside in a special account. I suspect that the use of a special low volatility account, perhaps with inflation adjusted assets, might be more appealing for both a sleep-at-night factor or for someone whose SS is a large part of total spending.

I had looked at just withdrawing the equivalent SS amount from my portfolio on top of my regular withdrawal a few years ago before I saw cut-throat's thread, mainly as a way of not having a big step function in income when SS hits, when using a VPW-like withdrawal method. Main difference is that with the "time value of money" method, it's more of a ramp-up to the final SS amount over the years until SS kicks in, but it also avoids the big step function as well. "time value of money" is my current plan, but I haven't gone back to see how much a difference in overall year-on-year spending changes occur with the assumption of starting SS at 62 vs. 67 vs. 70. It's on the "to do list". That's more interesting to me than a break even date.

HoosierJim
Posts: 700
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Re: Wait for Social Security - breakeven returns

Post by HoosierJim » Tue Nov 05, 2019 10:04 am

if the retiree has to provide health insurance, ACA subsidies would play a big part between 62 and 65.

RubyTuesday
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Re: Wait for Social Security - breakeven returns

Post by RubyTuesday » Tue Nov 05, 2019 10:52 am

#Cruncher wrote:
Mon Nov 04, 2019 12:43 pm
thanks Cruncher!

I have replicated your spreadsheet and have it all working for me.

question:
1. is it reasonable to add DW’s and my PIA amounts (same age) to look at both delaying? we have similar PIA values FWIW.
2. why do you (and presumably Cut-throat) use the increased age 70 benefits to determine the “set aside”? I would assume if you are delaying from age 62, you only need to set aside an amount equal to age 62 benefits for that year’s spending, inflation adjusted for remaining years.

thanks again.

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Portfolio7
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Re: Wait for Social Security - breakeven returns

Post by Portfolio7 » Tue Nov 05, 2019 11:56 am

Yes, the Motley Fool article is right, as far as it goes. This same result came out of my own personal modelling, and it surprised me. I posted on a Kitces blog and he was kind enough to respond to me to both confirm the math and point out the several other issues at play (all of which have been mentioned in this thread, as well as links provided to some of his posts.)

As a result, I'm not dead averse to claiming early, just 95% averse. I realize that claiming earlier may not be a huge impact on our retirement, but that claiming later provides additional insurance against several risks.
"An investment in knowledge pays the best interest" - Benjamin Franklin

Nowizard
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Re: Wait for Social Security - breakeven returns

Post by Nowizard » Tue Nov 05, 2019 12:41 pm

A significant factor affecting when to take SS is one that seems to be infrequently discussed. It led us to take SS at FRA because of two conditions being met:
1. The additional income from SS had minimal impact on our marginal tax rate.
2. We had sufficient assets where we could invest rather than spend the amount received from SS.
Based on a predicted rate of 6% return on the invested assets, it would have been year 88 before equalizing returns in my case. Invested amounts returned 9.6% between FRA and age 70, pushing the equalization time up further, though we have never taken the time to figure the exact amount. An additional advantage is that the extra income is available should huge, unexpected expenses occur. The more common statements recommend the exact opposite of delaying SS if the income is not needed.

Tim

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Re: Wait for Social Security - breakeven returns

Post by #Cruncher » Tue Nov 05, 2019 12:58 pm

smitcat wrote:
Mon Nov 04, 2019 1:04 pm
... this [Cut Throat's post] says 'spend more in retirement' but we are interested in maximizing how to 'spend more after taxes' in retirement which we have found is not the likely the same solution for many folks. With the variations of Roth conversions, RMD's, and variable taxes on SS in addition to when you take SS is there any method to determine what the 'breakeven' is with all of those variables considered?
Cut Throat's approach definitely does not attempt to determine a "breakeven" -- it is an alternative to it. But it would be exceedingly difficult to do either approach on after tax basis given the variables you propose, smitcat. Contemplating it makes my head hurt. What investigation I have done and read makes me think that, if delaying SS is beneficial when income taxes are ignored, it is probably more beneficial if they are factored in.
RubyTuesday wrote:
Tue Nov 05, 2019 10:52 am
I have replicated your spreadsheet [based on Cut Throat's post] and have it all working for me. ...
1. is it reasonable to add DW’s and my PIA amounts (same age) to look at both delaying? we have similar PIA values FWIW.
2. why do you (and presumably Cut-throat) use the increased age 70 benefits to determine the “set aside”? I would assume if you are delaying from age 62, you only need to set aside an amount equal to age 62 benefits for that year’s spending, inflation adjusted for remaining years.
  1. A good question. If you accept Cut Throat's premise (i.e., do not care about a legacy and want to maximize spending based on a withdrawal rate) I think the answer is "yes". But if you're at all concerned about maximizing probable present value of SS benefits (e.g., as done by Mike Piper's opensocialsecurity.com), then I'd say "no". Following that approach it's generally best for the higher earner (or just one if they're equal earners) to delay until 70 and the other to start at 62.
  2. My spreadsheet elaborated on Cut Throat's approach by calculating the additional amount that could be spent by delaying to any age, not just to 70. For example, with a 4% withdrawal rate, my example shows one can spend $2,337 more each year by delaying from age 62 to 66. To do this, ones sets aside 4X the $25,968 age 66 benefit, reducing the portfolio by $103,872. Then each year from 62 thru 65 one can withdraw an amount equal to the age 66 benefit.

    Code: Select all

                                 Start at 62      Start at 66
                                  From 62 +     62 - 65    66 +
                                  ---------     -------  -------
    Portfolio                     1,000,000     896,128  896,128
    4% of portfolio                  40,000      35,845   35,845
    SS benefit                       19,476           0   25,968
    withdrawal from set aside             0      25,968        0
    Total spending                   59,476      61,813   61,813
    Additional spending                           2,337    2,337
    If one set aside only 4X the age 62 benefit, then -- because the portfolio is smaller -- the total spending age 62-65 would be less, not more, than if one started SS at 62.

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JoeRetire
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Re: Wait for Social Security - breakeven returns

Post by JoeRetire » Tue Nov 05, 2019 2:19 pm

Nowizard wrote:
Tue Nov 05, 2019 12:41 pm
An additional advantage is that the extra income is available should huge, unexpected expenses occur.
How is this an advantage?

If you plan to delay, and some huge, unexpected expenses occur, you could get the extra income by starting your benefits at that point, right?
Don't be a lemming.

rich126
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Re: Wait for Social Security - breakeven returns

Post by rich126 » Tue Nov 05, 2019 2:26 pm

longinvest wrote:
Sat Nov 02, 2019 12:36 pm
patrick013 wrote:
Sat Nov 02, 2019 12:29 pm
Most people wait for Social Security at least a few years. Here's some figures based on rates of return.
...
Here's a classic post for those who "wish to spend more money in retirement and do not care about leaving an estate": Delay Social Security to age 70 and Spend more money at 62.
I stumbled upon that post a couple of weeks ago and found it interesting. It is kind of obvious but I think many miss it. Definitely a good one to read.
And basically apply the same concept to pensions in cases where you may retire at 60 but don't receive the pension until 65. Just move some money into another bucket and cover those 5 years.

And many people can't wait to collect it because they need it ASAP and don't have much else to live off of (zero 401K money).

RubyTuesday
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Re: Wait for Social Security - breakeven returns

Post by RubyTuesday » Tue Nov 05, 2019 4:15 pm

#Cruncher wrote:
Tue Nov 05, 2019 12:58 pm
If one set aside only 4X the age 62 benefit, then -- because the portfolio is smaller -- the total spending age 62-65 would be less, not more, than if one started SS at 62.[/list]
ok, that makes sense. The 4% of the portfolio (deminished by the set aside) doesn’t cover the set aside, so spending would be less in those years, though the portfolio would be larger.

I guess if you wanted you could solve for the set aside that provides the same spending in the age 62-70 (not set aside quite as much), providing for a larger portfolio / margin of safety. This doesn’t change the concept of delaying, just a different model based on equivalent spending.

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Re: Wait for Social Security - breakeven returns

Post by grabiner » Wed Nov 06, 2019 9:15 pm

Few 62-year-olds have 100% of their investments in stock. If you hold any bonds, then you can increase your expected returns by selling bonds to buy stock, but you chose not to do this because the risk isn't worth taking. And by the same logic, you can increase your expected returns by taking risk-free SS and investing in risky stock; is that a risk worth taking?

For a fair comparison, consider taking SS and investing in risk-free TIPS, since these give the same type of return as SS. If your full retirement age is 66 and your benefit would be $20K, you can get $16K at 63, or $15K at 62. So if you take at age 62 and invest $15K in TIPS, then withdraw $1K plus inflation every year starting at 63, your break-even would be sixteen years if the TIPS match inflation. At current yields of 0.12% on a TIPS portfolio with an 8-year duration, your break-even is just over sixteen years. And that is much less than the average life expectancy at 62, so it's worth waiting until 63 unless you are in poor health.

You can then repeat the decision to wait one year at age 63, 64, and so on. At 69, you can get $24,800, and at 70, you can get $26,400. The same argument as above says that the break-even for waiting from age 69 to 70 is 17.5 years at a zero yield, and 18 years at current yields. The average life expectancy at age 69 is 17 years for a man and 20 for a woman, so a man in average health optimizes expected value by claiming at 69, while a woman should wait until 70.

I normally recommend that even a man wait until 70, for two reasons. Most men who have a below-average life expectancy know this, because they have medical conditions such as cancer or heart disease. Therefore, if you are in good health, your life expectancy is more than the average. In addition, if you are spending the money, it is better to have more money when you have a long life and more years to spend it, and less when you die young and don't need the money.
Wiki David Grabiner

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Re: Wait for Social Security - breakeven returns

Post by CurlyDave » Thu Nov 07, 2019 12:30 am

Portfolio7 wrote:
Tue Nov 05, 2019 11:56 am
Yes, the Motley Fool article is right, as far as it goes. This same result came out of my own personal modelling, and it surprised me. I posted on a Kitces blog and he was kind enough to respond to me to both confirm the math and point out the several other issues at play (all of which have been mentioned in this thread, as well as links provided to some of his posts.)

As a result, I'm not dead averse to claiming early, just 95% averse. I realize that claiming earlier may not be a huge impact on our retirement, but that claiming later provides additional insurance against several risks.
My personal modeling also came to the same conclusion back in 2008 when I retired.

Rather than dealing with the complexities of setting up a separate account and saving the SS payments, I claimed at 62 and used the payments for living expenses. I just let the portfolio ride untouched.

Our portfolio was large enough that we could stay with a 100% stock AA and just weather the slings and arrows of whatever the market threw at us.

Since we have over a century of ~10% CAGR history, I do not feel that a 7% real return assumption is out of line, especially if one has sufficient resources to weather a few bad years. Sure, people are predicting a lower real return going forward, but these same people have been predicting this since 2011, and it just hasn't happened.

If I were 62 again today, I would make the same early claiming choice.

And, the elephant in the room few are talking about is the depletion of the SS Trust Fund -- this is not speculation the SS Trustees report on it every year. If someone is 62 today, depletion and its uncertainties will happen well before they reach breakeven. IMHO, the risks here make SORR about as scary as a Sunday School picnic.

For a group that has decided to take their retirement strategy into their own hands, this board is curiously passive about leaving SS to someone else. About the only way I have of wresting at least a little control back is to claim early.

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Re: Wait for Social Security - breakeven returns

Post by Portfolio7 » Thu Nov 07, 2019 2:41 am

CurlyDave wrote:
Thu Nov 07, 2019 12:30 am
For a group that has decided to take their retirement strategy into their own hands, this board is curiously passive about leaving SS to someone else. About the only way I have of wresting at least a little control back is to claim early.
This is true, and I have considered that as well. For now, I am assuming that I will have little control over the resolution of this issue, and that claiming age will yield the same basic trade-offs. Even if this is not true, my FRA claiming date would be almost precisely when SS is at it's nadir with respect to funding shortfalls. I figure it makes much more sense to plan for current trade-offs, but check that in ten years, the year before my earliest possible claim date.

In 2035 or so, the baby boomlet will start the tax tide rising again, and so whatever damage is done beforehand will likely be determined before I have the opportunity to make any kind of decision, but maybe not. Since I cannot possibly know what the timing or resultant trade-offs will be, I shall wait.
"An investment in knowledge pays the best interest" - Benjamin Franklin

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Re: Wait for Social Security - breakeven returns

Post by JoeRetire » Thu Nov 07, 2019 6:55 am

CurlyDave wrote:
Thu Nov 07, 2019 12:30 am
And, the elephant in the room few are talking about is the depletion of the SS Trust Fund -- this is not speculation the SS Trustees report on it every year. If someone is 62 today, depletion and its uncertainties will happen well before they reach breakeven. IMHO, the risks here make SORR about as scary as a Sunday School picnic.

For a group that has decided to take their retirement strategy into their own hands, this board is curiously passive about leaving SS to someone else. About the only way I have of wresting at least a little control back is to claim early.
Are you imagining that claiming early makes you immune from any benefit cuts, should that eventually happen?
Don't be a lemming.

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Re: Wait for Social Security - breakeven returns

Post by smitcat » Thu Nov 07, 2019 7:22 am

CurlyDave wrote:
Thu Nov 07, 2019 12:30 am
Portfolio7 wrote:
Tue Nov 05, 2019 11:56 am
Yes, the Motley Fool article is right, as far as it goes. This same result came out of my own personal modelling, and it surprised me. I posted on a Kitces blog and he was kind enough to respond to me to both confirm the math and point out the several other issues at play (all of which have been mentioned in this thread, as well as links provided to some of his posts.)

As a result, I'm not dead averse to claiming early, just 95% averse. I realize that claiming earlier may not be a huge impact on our retirement, but that claiming later provides additional insurance against several risks.
My personal modeling also came to the same conclusion back in 2008 when I retired.

Rather than dealing with the complexities of setting up a separate account and saving the SS payments, I claimed at 62 and used the payments for living expenses. I just let the portfolio ride untouched.

Our portfolio was large enough that we could stay with a 100% stock AA and just weather the slings and arrows of whatever the market threw at us.

Since we have over a century of ~10% CAGR history, I do not feel that a 7% real return assumption is out of line, especially if one has sufficient resources to weather a few bad years. Sure, people are predicting a lower real return going forward, but these same people have been predicting this since 2011, and it just hasn't happened.

If I were 62 again today, I would make the same early claiming choice.

And, the elephant in the room few are talking about is the depletion of the SS Trust Fund -- this is not speculation the SS Trustees report on it every year. If someone is 62 today, depletion and its uncertainties will happen well before they reach breakeven. IMHO, the risks here make SORR about as scary as a Sunday School picnic.

For a group that has decided to take their retirement strategy into their own hands, this board is curiously passive about leaving SS to someone else. About the only way I have of wresting at least a little control back is to claim early.
"For a group that has decided to take their retirement strategy into their own hands, this board is curiously passive about leaving SS to someone else. About the only way I have of wresting at least a little control back is to claim early."
- Claiming early adversely affects our ability for Roth conversions
- Claiming early adversely affects the "after tax" dollars received all along our retirement spectrum
We are not interested in how large our portfolio is or how much we can withdraw and/or leave as an inheritance. We are very interested in how much we can spend after taxes and how much our inheritance will be after tax considerations.

Rus In Urbe
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Re: Wait for Social Security - breakeven returns

Post by Rus In Urbe » Thu Nov 07, 2019 7:43 am

An often overlooked aspect of when to take SS is the line that appears on your SS statement:

Total family benefits cannot be more than....

I'm retiring at 64.8 years. My FRA is 66 and 10 months. But since my spouse is already taking SS, if I take it now we are already exceeding the total by a few hundred a month. There is no point in waiting and leaving money on the table.

Sign me up.

But everyone's situation is different.

Cheers. Rus :beer
I'd like to live as a poor man with lots of money. ~Pablo Picasso

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ObliviousInvestor
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Re: Wait for Social Security - breakeven returns

Post by ObliviousInvestor » Thu Nov 07, 2019 7:46 am

Rus In Urbe wrote:
Thu Nov 07, 2019 7:43 am
An often overlooked aspect of when to take SS is the line that appears on your SS statement:

Total family benefits cannot be more than....

I'm retiring at 64.8 years. My FRA is 66 and 10 months. But since my spouse is already taking SS, if I take it now we are already exceeding the total by a few hundred a month. There is no point in waiting and leaving money on the table.

Sign me up.

But everyone's situation is different.

Cheers. Rus :beer
You are likely misunderstanding the total family maximum rule, unless there are relevant facts not provided here (e.g., an adult disabled child in your family). Two people claiming on their own work records cannot run into the family maximum. The limit is a limit to the amount that can be received on one person's work record.

And as a separate point, when calculating the amount left over for the rest of the family under the family maximum, you only count the worker's own PIA toward the maximum, regardless of when they file. (For example if the family maximum based on a particular person's work record works out to be 175% of their PIA, for the purpose of how much is determining the amount available for the rest of the family, we assume that the person is receiving 100% of their PIA, even if they are receiving more or less than their PIA. So the amount left over for everybody else would be 75%, regardless of whether the worker in question filed early or late.)
Mike Piper, author/blogger

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Re: Wait for Social Security - breakeven returns

Post by ObliviousInvestor » Thu Nov 07, 2019 7:52 am

grabiner wrote:
Wed Nov 06, 2019 9:15 pm
Few 62-year-olds have 100% of their investments in stock. If you hold any bonds, then you can increase your expected returns by selling bonds to buy stock, but you chose not to do this because the risk isn't worth taking. And by the same logic, you can increase your expected returns by taking risk-free SS and investing in risky stock; is that a risk worth taking?
So many people misunderstand this point.

If your overall financial picture is already appropriate for your risk level, then the appropriate rate of return to use for NPV analysis or breakeven analysis is the rate of return from something roughly as risky as Social Security.

(And in fact in most actual financial planning, when delaying Social Security, it does indeed make sense to spend down those assets that are most similar in risk level to Social Security in order to fund the additional spending that is necessary in the pre-claiming years.)
Mike Piper, author/blogger

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patrick013
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Re: Wait for Social Security - breakeven returns

Post by patrick013 » Thu Nov 07, 2019 9:16 am

I still like MF's 7% break even return chart with one addition. After tax numbers would be useful. Assuming the portfolio is strong enough to support withdrawals until 70, from stocks or bonds, it would show the actual value added to portfolio from mixing SS into the equity AA as a potential source of equity return, hopefully adding the estimated after tax return to the entire portfolio from this marginal investment plan for future withdrawal. A risky theory, has equity risk, but otherwise we have a variety of spreadsheets, cash break even, and other return calc's to use. So whatever plan used MF just wants to estimate the value potentially added to equity AA from one of the three choices. Life expectancy and after tax should be better exemplified in the article.
age in bonds, buy-and-hold, 10 year business cycle

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