Is delaying Social Security a form of market timing?

[JPH]

It seems like a lot of Bogleheads plan to delay receiving SS until 70 years of age. I too fall into that group. I know there are instances where a person has good reason to believe that they will have a relatively short life, and for them it makes sense to begin SS early. But, as I understand it, the SS payout schedule is neutral with respect to the age of claiming. So, averaged over everyone, does it make any sense to try and time it? In the absense of any reliable information on your longevity isn't the decision of when to begin SS payments a form of market timing?

[hollowcave2]

IMHO, no, because you know exactly what you'll get for any action you take. There is no such guarantee with the markets.

As far as longevity is concerned, you don't have to worry about running out of funds because you get it for the rest of your life, whatever that is. And if the US defaults or goes under, then you have bigger problems.

[Cut-Throat]

It seems like a lot of Bogleheads plan to delay receiving SS until 70 years of age. I too fall into that group. I know there are instances where a person has good reason to believe that they will have a relatively short life, and for them it makes sense to begin SS early. But, as I understand it, the SS payout schedule is neutral with respect to the age of claiming. So, averaged over everyone, does it make any sense to try and time it? In the absense of any reliable information on your longevity isn't the decision of when to begin SS payments a form of market timing?

NO.....think of delaying SS. like a great paying annuity.....Or old age insurance.

[JPH]

IMHO, no, because you know exactly what you'll get for any action you take. There is no such guarantee with the markets.

Yes, that's a good point. You know what you will get if you live, so that side of it is different from the markets. But don't you still have to guestimate/time your death to be "successful"?

[momar]

IMHO, no, because you know exactly what you'll get for any action you take. There is no such guarantee with the markets.

Yes, that's a good point. You know what you will get if you live, so that side of it is different from the markets. But don't you still have to guestimate/time your death to be "successful"?

Yeah, but the average person has "inside" information about his/her health and can make an educated bet.

[earlyout]

If you're married, I would not consider delaying SS to be market timing. Not only are you buying an annuity but you may also be purchasing an insurance policy for your spouse. Furthermore, if you are close to the same age as your spouse, perhaps you can collect spousal benefits while collecting DRCs.

For a single person, some of these benefits are not possible so there a fewer advantages to waiting to collect. Whether you live past your break even age is a wager that must consider very carefully.

EO

[Cut-Throat]

Yes, that's a good point. You know what you will get if you live, so that side of it is different from the markets. But don't you still have to guestimate/time your death to be "successful"?

No!.....being successful is not outliving your money.......
If you die tomorrow you succeed and if you live to 100 you succeed.....either way, it's a win

[JPH]

These are all good points, and I see that my analogy is not holding up so well. But I do think that a lot of people probably overestimate the predictive value of family history or view that information selectively. Gambler that I am I will stick to my plan and wait. Thanks for helping me think through it.

[JW-Retired]

It seems like a lot of Bogleheads plan to delay receiving SS until 70 years of age. I too fall into that group. I know there are instances where a person has good reason to believe that they will have a relatively short life, and for them it makes sense to begin SS early. But, as I understand it, the SS payout schedule is neutral with respect to the age of claiming. So, averaged over everyone, does it make any sense to try and time it? In the absense of any reliable information on your longevity isn't the decision of when to begin SS payments a form of market timing?

But you do have "reliable" information about yourself compared to knowing nothing about yourself. You know if you are married, you know if you are in dire need of income ASAP, you know your sex (women live longer than men), you know how long you parents lived, you know if you smoke, you know if you can collect spousal based on spouse's earnings, ..........all this gives you inside information that you can take advantage of.
JW

[VictoriaF]

"Market timing" is not one specific shameful behavior. The essence of market timing is in facing the uncertain future and making a probabilistic guess on some outcomes. Some probabilities are known better than others, and the prudence of market timing varies accordingly.

For example, betting on an individual stock price and betting on the direction of the Total Stock Market (TSM) index are both attempts to time equity markets, but arguably there is less risk in timing the TSM. Betting on the tomorrow's price of TSM is more risky than betting that a year from now the value of TSM will be higher than it is today. A bet that with an eventual inflation bond yields will rise and prices of bonds will drop is likely to succeed, but picking the time frame for that eventuality may be tricky.

In comparison to timing stock and bond markets, timing the Social Security payments is close to certain, but not absolutely certain. Also, every option for the commencement of the Social Security is a timing decision, whether it is taking it at the earliest possible age, at the latest possible age, or at the nominal age.

Victoria

[rwm]

IMHO, yes, it is kind of like market timing in that you are attempting to predict the future...in this case primarily how long you will live. Unless you need the money, in which case you take SS early, it seems like an academic exercise to me, and if you don't need the money, what kind of satisfaction will you ultimately derive from maximizing your draw from the SS coffers?

[dcb]

But you do have "reliable" information about yourself compared to knowing nothing about yourself. You know if you are married, you know if you are in dire need of income ASAP, you know your sex (women live longer than men), you know how long you parents lived, you know if you smoke, you know if you can collect spousal based on spouse's earnings, ..........all this gives you inside information that you can take advantage of.
JW

+1 Nice summary of the decision making inputs for "timing" the start of SS benefits.

[ObliviousInvestor]

But, as I understand it, the SS payout schedule is neutral with respect to the age of claiming.

With regard to the actuarial neutrality as to when you claim, I'd encourage people to read this thread (especially the posts by bobcat2 and sscritic): http://www.bogleheads.org/forum/viewtopic.php?t=67808

It's only actuarially neutral when you use a discount rate that's much higher than what one could hope to achieve safely in today's environment.

[Midpack]

Yeah, but the average person has "inside" information about his/her health and can make an educated bet.

This is the right answer IMHO. My parents have both just turned 90 and I haven't had any health problems after 57 years, so I am betting I will live past the Soc Sec breakeven age (mid 70's IIRC). I plan to take Soc Sec when I am 70, but I have lots of time to change my mind...

[E-M-H]

Yes, because your deferral choice is making a decision about the return at a particular time of one asset allocation, given specific facts at the time, compared to another asset allocation.

[lws6772]

I would say it is like market timing, but much harder market timing. Market timing with a good system and very good information is a little dicey. But I couldn't tell you what my SS will be 10 years from now, other than lower.

[Cut-Throat]

This is the right answer IMHO. My parents have both just turned 90 and I haven't had any health problems after 57 years, so I am betting I will live past the Soc Sec breakeven age (mid 70's IIRC). I plan to take Soc Sec when I am 70, but I have lots of time to change my mind...

The 'breakeven age" is the wrong way to think about it. Delaying SS to age 70 allows you to spend more in your 60s, because you know you have more money coming in....in your 70s....It's Old age insurance. You have to PLAN to live past age 90, even if you've got bad genes. As soon as you quit thinking about how much money you can extract from the government, you'll be able to understand it's not how much you get, it's how much you get to spend......Get it?

[dm200]

No, I do not believe delaying the beginning of SS retirement benefits is market timing at all. Things in the market will not affect your return by waiting or loss of return by starting earl

The return is a known and fixed number. It is not just a prediction (or bet) on life expectancy, but balancing other financial factors to determing whether or not to delay.

[Midpack]

This is the right answer IMHO. My parents have both just turned 90 and I haven't had any health problems after 57 years, so I am betting I will live past the Soc Sec breakeven age (mid 70's IIRC). I plan to take Soc Sec when I am 70, but I have lots of time to change my mind...

The 'breakeven age" is the wrong way to think about it. Delaying SS to age 70 allows you to spend more in your 60s, because you know you have more money coming in....in your 70s....It's Old age insurance. You have to PLAN to live past age 90, even if you've got bad genes. As soon as you quit thinking about how much money you can extract from the government, you'll be able to understand it's not how much you get, it's how much you get to spend......Get it?

No I don't agree, but no biggie...

[Tom_T]

IMHO, yes, it is kind of like market timing in that you are attempting to predict the future...in this case primarily how long you will live.

Actuarial tables are pretty good at determining how long we'll live, as a group. I think of them as representing the "total market" of lifespans. So, I hope to at least earn the market return.

[Parthenon]

If you're married, I would not consider delaying SS to be market timing. Not only are you buying an annuity but you may also be purchasing an insurance policy for your spouse. Furthermore, if you are close to the same age as your spouse, perhaps you can collect spousal benefits while collecting DRCs.EO

In addition, for those of us who are filling up their 15% marginal tax bracket by moving Traditional IRA money into a Roth to minimize the impact of the required minimum distribution when one reaches 70 1/2, it makes sense to minimize your taxable income until reaching 70 1/2.

[Cut-Throat]

In addition, for those of us who are filling up their 15% marginal tax bracket by moving Traditional IRA money into a Roth to minimize the impact of the required minimum distribution when one reaches 70 1/2, it makes sense to minimize your taxable income until reaching 70 1/2.

Exactly !.......If people do not understand the facts, they say cannot agree with them.

[Alan S.]

IMHO, yes, it is kind of like market timing in that you are attempting to predict the future...in this case primarily how long you will live.

Actuarial tables are pretty good at determining how long we'll live, as a group. I think of them as representing the "total market" of lifespans. So, I hope to at least earn the market return.

Primarily, how long you will live.
Secondarily, political will to means test, restrict COLAs or otherwise limit future benefits. Here, we might get a primer from observing what forms of austerity are adopted in Europe. What they do over there will have some influence on what we do if we follow them down the debt hole.

[Cut-Throat]

Primarily, how long you will live.
Secondarily, political will to means test, restrict COLAs or otherwise limit future benefits. Here, we might get a primer from observing what forms of austerity are adopted in Europe. What they do over there will have some influence on what we do if we follow them down the debt hole.

What always ends up happening is the austerity measures are adopted on the young.....they aren't paying attention and hence the people applying the measures won't suffer politically.

[umfundi]

It seems like a lot of Bogleheads plan to delay receiving SS until 70 years of age. I too fall into that group. I know there are instances where a person has good reason to believe that they will have a relatively short life, and for them it makes sense to begin SS early. But, as I understand it, the SS payout schedule is neutral with respect to the age of claiming. So, averaged over everyone, does it make any sense to try and time it? In the absense of any reliable information on your longevity isn't the decision of when to begin SS payments a form of market timing?

Delaying SS is not market timing, but it is a prediction. Here is a simplification:

The crossover point for SS payouts is about 80 years old. Your choice is to start payments from age 62 up to age 70. Whichever you choose, your total inflation-adjusted payments by about age 80 will be the same.

The rub is, your age expectancy is greater than 80 years. So the longer you delay your start of SS, the greater your benefit after age 80.

Your prediction is how long you will live, and how SS will change.

That's not market timing. By the way, I do not believe SS will change for those close to or already retired.

Keith

[Bongleur]

What about a strategy of using the start of SS to mitigate a series of bad returns during the first years of retirement

For instance, starting SS if the last X years have underperformed your benchmark by Y%, in order to recapture some of that excess drawdown.

[umfundi]

What about a strategy of using the start of SS to mitigate a series of bad returns during the first years of retirement

For instance, starting SS if the last X years have underperformed your benchmark by Y%, in order to recapture some of that excess drawdown.

Yes, that would be market timing.

Keith