Kotlikoff: When Should you Take Social Security?

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Kotlikoff: When Should you Take Social Security?

Post by Leeraar »

I was interested to see this in USA Today on Monday:

http://www.usatoday.com/story/money/201 ... /23518483/

Laurence Kotlikoff, a Professsor at Boston University, has a new book (co-authored with Philip Moeller and Paul Solmon), "Get What's Yours: The Secrets to Maxing Out Your Social Security".
"The benefits are there for the taking. You paid for them. And with a little effort, you can dramatically increase what you get."

Q: What is the biggest mistake people make with Social Security?
A: People take their benefits too soon, because they are worried about dying before they collect.
L.
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Re: Kotlikoff: When Should you Take Social Security?

Post by bobcat2 »

I see that Get What's Yours is currently the #1 Best Seller in Business & Money at Amazon and the hard copy edition is out of stock, which figures if it is the #1 seller. :)

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Re: Kotlikoff: When Should you Take Social Security?

Post by Levett »

I sure found Larry Kotlikoff's previous book, Spend 'Til The End, an enormously useful book. :thumbsup

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Re: Kotlikoff: When Should you Take Social Security?

Post by goodenyou »

I found his interview on MoneyTalk with Bob Brinker on Sunday to be very informative. I downloaded the book because of it. He also has written extensively on The Fiscal Gap and the fallicy of the $18 trillion debt. He also spoke about the Fiscal Gap in the interview. It was enlightening.
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Re: Kotlikoff: When Should you Take Social Security?

Post by Leif »

I was reading some of the pages in Amazon's book preview. Some of the best detail I've yet seen on WEP and GPO. For example, I did not know that you are not WEP'd or GPO'd (as the book calls it) until the pension actual starts. So, it might be best to delay the pension if allowed and in doing so the government pension will increase.
Last edited by Leif on Thu Feb 26, 2015 1:28 am, edited 2 times in total.
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Re: Kotlikoff: When Should you Take Social Security?

Post by mak »

As a single male, no heirs, age 56, already retired with no expectation of further earned income, I have run the calculation many times and come up with the opposite of typical planner advice. My assumptions are 2% COLAs, and expected return on invested capital of only 3% nominal (very conservative), yet I still come up with the best plan being to take it as early as possible despite the reductions. My crossover point is age 88-89 for either age 66 2/3 or 70, vs 62. Wharton online life expectancy calculator says average for me is only 78! And only a 25% chance that I would live beyond 84.

Life expectancy for men shorter than women, single shorter than married, family history not great, health history good but not great. I still come up with the decision to take it at 62.

Other factors are 1)I do not need any of the money to survive, 2)Already retired (if you continue to work, taking at 62 makes little sense for tax reasons), 3)tax on smaller benefits spread over more years is favorable to tax on larger benefits for fewer years, 4)extra money spent earlier in life perhaps more enjoyable than larger checks spent later in life with failing health.

A couple of things the calculator came up with also surprised me. I do not drink, the calculator says I could extend my life expectancy a year or so by taking 2-3 drinks a day! I get lots of sleep, too much in the calculator's opinion. If I reduced my sleep to only 7 hours per day, I could add 6 months to expectancy. The advice regarding exercise and diet was alas just as expected, and I doubt I'll follow it. But if you want to live a long time it says you should jog daily to a bar where you drink, then jog home and force yourself to stay up when sleepy.
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Re: Kotlikoff: When Should you Take Social Security?

Post by bcboy57 »

I read once, though cannot recall where, that if you're thinking about buying, or concerned about, long term care insurance, the best idea is to wait till 70 to claim Social Security. That's shaping by plans on when to take it out.
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Re: Kotlikoff: When Should you Take Social Security?

Post by Leeraar »

But if you want to live a long time it says you should jog daily to a bar where you drink, then jog home and force yourself to stay up when sleepy.
Jog to the bar and stay until closing time sounds like a plan to me!

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Re: Kotlikoff: When Should you Take Social Security?

Post by Independent »

mak wrote:As a single male, no heirs, age 56, already retired with no expectation of further earned income, I have run the calculation many times and come up with the opposite of typical planner advice. My assumptions are 2% COLAs, and expected return on invested capital of only 3% nominal (very conservative), yet I still come up with the best plan being to take it as early as possible despite the reductions. My crossover point is age 88-89 for either age 66 2/3 or 70, vs 62. Wharton online life expectancy calculator says average for me is only 78! And only a 25% chance that I would live beyond 84.

Life expectancy for men shorter than women, single shorter than married, family history not great, health history good but not great. I still come up with the decision to take it at 62.

Other factors are 1)I do not need any of the money to survive, 2)Already retired (if you continue to work, taking at 62 makes little sense for tax reasons), 3)tax on smaller benefits spread over more years is favorable to tax on larger benefits for fewer years, 4)extra money spent earlier in life perhaps more enjoyable than larger checks spent later in life with failing health.

A couple of things the calculator came up with also surprised me. I do not drink, the calculator says I could extend my life expectancy a year or so by taking 2-3 drinks a day! I get lots of sleep, too much in the calculator's opinion. If I reduced my sleep to only 7 hours per day, I could add 6 months to expectancy. The advice regarding exercise and diet was alas just as expected, and I doubt I'll follow it. But if you want to live a long time it says you should jog daily to a bar where you drink, then jog home and force yourself to stay up when sleepy.
"Best plan" is an interesting phrase. How do you determine that one plan is better than another? For people with heirs, it may be "I'm more likely to leave more money to my kids by starting SS at age ___ instead of age ___ ."

But, you don't have heirs. So that approach doesn't seem relevant.
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Re: Kotlikoff: When Should you Take Social Security?

Post by mak »

I suppose I should have said best plan for me, given that I'm unlikely to spend any of the money and since I have no human heirs my heir is a charity. Best plan means then it provides the largest net worth at death, also maximizes cash available during life in case it is needed, and if not maximizes money for charity.
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Re: Kotlikoff: When Should you Take Social Security?

Post by Leeraar »

You can get what you want, or you can just get old. (Billy Joel, "Vienna")
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Re: Kotlikoff: When Should you Take Social Security?

Post by Wildebeest »

Leeraar wrote:Kotlikoff on NPR yesterday.

http://hereandnow.wbur.org/2015/03/04/s ... hats-yours

L.
This 10 minutes segment is great and worthwhile info as well as entertaining to listen to.

The file and suspend so that the spouse get take spousal benefit is golden.

I did not realize that only 2 % of people wait to take social security till age 70.

His book is going to make a great Xmas present for friends and family,

I will wait till the paperback is out though.
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Re: Kotlikoff: When Should you Take Social Security?

Post by Sagenick48 »

Everyone is different. There is and can be no standard advice that is best for anyone.
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Re: Kotlikoff: When Should you Take Social Security?

Post by Leeraar »

Wildebeest wrote:This 10 minutes segment is great and worthwhile info as well as entertaining to listen to.
Yes, these Boston professors are very engaging fellows. I suggest you hunt down a Zvi Bodie video on YouTube. These guys are good!

https://www.youtube.com/watch?v=gj0oGwOJ2K8

L.
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Re: Kotlikoff: When Should you Take Social Security?

Post by Leeraar »

bobcat2 wrote:I see that Get What's Yours is currently the #1 Best Seller in Business & Money at Amazon and the hard copy edition is out of stock, which figures if it is the #1 seller. :)

BobK
It will be back in stock at Amazon on Wednesday. Be sure to buy through the Bogleheads' link.

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Re: Kotlikoff: When Should you Take Social Security?

Post by Professor Emeritus »

mak wrote: My assumptions are 2% COLAs, and expected return on invested capital of only 3% nominal (very conservative), yet I still come up with the best plan being to take it as early as possible despite the reductions. My crossover point is age 88-89 for either age 66 2/3 or 70, vs 62.
can you post the numbers?, I cant get the math to work at a 1% real rate of return (3% nominal 2% inflation)
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Re: Kotlikoff: When Should you Take Social Security?

Post by bobcat2 »

It's times like this I really miss sscritic. I'm sure that if he were to read the book and was still posting here, I would get a PM from an exasperated sscritic about how they screwed up some of the Social Security rules in the book. :)

Come back sscritic :!:

Why do I feel like I am channeling Shane in this post? :wink:

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Re: Kotlikoff: When Should you Take Social Security?

Post by Aptenodytes »

mak wrote:As a single male, no heirs, age 56, already retired with no expectation of further earned income, I have run the calculation many times and come up with the opposite of typical planner advice. My assumptions are 2% COLAs, and expected return on invested capital of only 3% nominal (very conservative), yet I still come up with the best plan being to take it as early as possible despite the reductions. My crossover point is age 88-89 for either age 66 2/3 or 70, vs 62. Wharton online life expectancy calculator says average for me is only 78! And only a 25% chance that I would live beyond 84.

Life expectancy for men shorter than women, single shorter than married, family history not great, health history good but not great. I still come up with the decision to take it at 62.

Other factors are 1)I do not need any of the money to survive, 2)Already retired (if you continue to work, taking at 62 makes little sense for tax reasons), 3)tax on smaller benefits spread over more years is favorable to tax on larger benefits for fewer years, 4)extra money spent earlier in life perhaps more enjoyable than larger checks spent later in life with failing health.

A couple of things the calculator came up with also surprised me. I do not drink, the calculator says I could extend my life expectancy a year or so by taking 2-3 drinks a day! I get lots of sleep, too much in the calculator's opinion. If I reduced my sleep to only 7 hours per day, I could add 6 months to expectancy. The advice regarding exercise and diet was alas just as expected, and I doubt I'll follow it. But if you want to live a long time it says you should jog daily to a bar where you drink, then jog home and force yourself to stay up when sleepy.
Something sounds off with those calculations. I suspect your results may be an artifact of the fact that you seem to be modeling inflation explicitly, rather than doing all calculations in real terms. The axiom that adding irrelevant details to a calculation should not affect the results tells us that all those other details you are throwing in shouldn't alter the core benefit of delaying SS.

Taxes are definitely relevant so if you are facing a big tax hit to delay SS then that could be decisive -- I don't know the details. But I do know that in general it is better not to model inflation explicitly because you have little basis for predicting it.

In any event, even if your "crossover point" is age 88, you could easily make a case for delaying SS.
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Re: Kotlikoff: When Should you Take Social Security?

Post by mak »

Aptenodytes wrote:In any event, even if your "crossover point" is age 88, you could easily make a case for delaying SS.
Give me an example how this works, assuming the Wharton model is somewhat close, and I die mid 80's, beating their estimate by 5-10 years. Why would it be better to delay with a crossover point higher than 5-10 years beyond your expected lifespan?

I'll look at redoing the calcs, of course doing it in real terms I suppose I would say COLA=Inflation (CPI-W at least), and my expected real return would be perhaps 0%.
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Re: Kotlikoff: When Should you Take Social Security?

Post by Aptenodytes »

mak wrote:
Aptenodytes wrote:In any event, even if your "crossover point" is age 88, you could easily make a case for delaying SS.
Give me an example how this works, assuming the Wharton model is somewhat close, and I die mid 80's, beating their estimate by 5-10 years. Why would it be better to delay with a crossover point higher than 5-10 years beyond your expected lifespan?

I'll look at redoing the calcs, of course doing it in real terms I suppose I would say COLA=Inflation (CPI-W at least), and my expected real return would be perhaps 0%.
If you know when you will die then you can pick the SS strategy that brings you the greatest benefits. But if you don't know, and if the implications for living to a very old age are financially problematic, then delaying SS as a form of longevity insurance can be sensible. This could be so even if your longevity risk doesn't start kicking in until after age 88.

If you don't need longevity insurance because the financial implications of old age are not a big deal, then good for you. My point is simply the one that Kotlikoff, Shiller, and many others have been making for a while -- whether or not to delay SS is for most people not a function of when they are most likely to die, but rather a function of the financial risks associated with living a long life.
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Re: Kotlikoff: When Should you Take Social Security?

Post by saladdin »

Don't care what the articles say. Lifespan in my family is shorter then "average".
The morning I am eligible for any SS I will be camping out in front of the office to sign up.
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Re: Kotlikoff: When Should you Take Social Security?

Post by Ron »

Aptenodytes wrote:<snip...> My point is simply the one that Kotlikoff, Shiller, and many others have been making for a while -- whether or not to delay SS is for most people not a function of when they are most likely to die, but rather a function of the financial risks associated with living a long life.
Yup (yes).

Like I've always said, I'd rather die with money than live without it...

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Re: Kotlikoff: When Should you Take Social Security?

Post by Harbormaster »

Helping you navigate through the social security maze is one of several good reasons to purchase Dr. Kotlikoff's financial planning software ESPlanner (ESPlanner.com). I have been using it for nearly ten years and it has saved me a small fortune. When it came time to file and suspend I walked into the social security office with a well thought out plan backed up by solid documentation on what was possible. The staff, including the supervisor, was not aware of the steps I was asking them to take. But once I showed them the documentation and the rationale behind my requests they processed my filing and thanked me for the education. I'm now about to turn 70 and begin collecting full benefits. My spouse has been collecting spousal benefits ever since I filed and suspended. Thanks again to Dr. Kotlikoff.
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Re: Kotlikoff: When Should you Take Social Security?

Post by mak »

Professor Emeritus wrote:can you post the numbers?, I cant get the math to work at a 1% real rate of return (3% nominal 2% inflation)
Sure, maybe there is a problem with the formulas. Assume all the money is invested in an account, none spent. Assume the monthly benefit increases 2% each year. Assume the account earns 3% each year. And keep summing the money so it is calculating the future "balance" of a hypothetical account into which every SS check is deposited, which earns 3%.

Benefits used are $1263 at age 62, $1752 at age 66 2/3, $2219 at age 70. These come from SS's own report. (The relatively small benefits are caused by my retirement at age 40, so of the 35 years' highest earnings used to compute SS benefits many of those squares contain zero for me.)

Here's the table I generated with Excel:

Social Security Early Benefits Worksheet

3% Estimated return can earn on invested capital

2% COLA

Year Age Yr Benefit Balance
2020 62 $15,156 $15,156
2021 63 $15,459 $31,070
2022 64 $15,768 $47,770
2023 65 $16,084 $65,287
2024 66 $16,405 $83,651 Yr Benefit Balance
2025 67 $16,733 $102,894 $21,024 $21,024
2026 68 $17,068 $123,049 $21,444 $43,099
2027 69 $17,409 $144,150 $21,873 $66,266 Yr Benefit Balance
2028 70 $17,758 $166,232 $22,311 $90,564 $26,628 $26,628
2029 71 $18,113 $189,332 $22,757 $116,038 $27,161 $54,587
2030 72 $18,475 $213,487 $23,212 $142,732 $27,704 $83,929
2031 73 $18,845 $238,736 $23,676 $170,690 $28,258 $114,705
2032 74 $19,221 $265,119 $24,150 $199,961 $28,823 $146,969
2033 75 $19,606 $292,679 $24,633 $230,593 $29,399 $180,777
2034 76 $19,998 $321,457 $25,126 $262,636 $29,987 $216,188
2035 77 $20,398 $351,499 $25,628 $296,143 $30,587 $253,261
2036 78 $20,806 $382,850 $26,141 $331,168 $31,199 $292,058
2037 79 $21,222 $415,558 $26,664 $367,767 $31,823 $332,642
2038 80 $21,647 $449,671 $27,197 $405,996 $32,459 $375,081
2039 81 $22,079 $485,240 $27,741 $445,917 $33,109 $419,442
2040 82 $22,521 $522,319 $28,296 $487,590 $33,771 $465,796
2041 83 $22,971 $560,960 $28,861 $531,079 $34,446 $514,216
2042 84 $23,431 $601,219 $29,439 $576,450 $35,135 $564,777
2043 85 $23,899 $643,155 $30,027 $623,771 $35,838 $617,559
2044 86 $24,377 $686,827 $30,628 $673,112 $36,555 $672,640
2045 87 $24,865 $732,297 $31,241 $724,546 $37,286 $730,105
2046 88 $25,362 $779,628 $31,865 $778,148 $38,031 $790,039
2047 89 $25,870 $828,887 $32,503 $833,995 $38,792 $852,532
2048 90 $26,387 $880,140 $33,153 $892,168 $39,568 $917,676
2049 91 $26,915 $933,459 $33,816 $952,749 $40,359 $985,565
2050 92 $27,453 $988,916 $34,492 $1,015,823 $41,166 $1,056,299
2051 93 $28,002 $1,046,586 $35,182 $1,081,480 $41,990 $1,129,977
2052 94 $28,562 $1,106,545 $35,886 $1,149,810 $42,829 $1,206,706
2053 95 $29,133 $1,168,875 $36,603 $1,220,907 $43,686 $1,286,593
2054 96 $29,716 $1,233,657 $37,335 $1,294,870 $44,560 $1,369,751
2055 97 $30,310 $1,300,977 $38,082 $1,371,798 $45,451 $1,456,295
2056 98 $30,917 $1,370,923 $38,844 $1,451,796 $46,360 $1,546,343
2057 99 $31,535 $1,443,586 $39,621 $1,534,970 $47,287 $1,640,021
2058 100 $32,166 $1,519,059 $40,413 $1,621,432 $48,233 $1,737,454

So we are comparing the balance of the account in column 4 (value of account starting at age 62), to column 6 (starting at age 67), to column 8 (starting at age 70), and seeing at which point the balance is higher by having waited.
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Re: Kotlikoff: When Should you Take Social Security?

Post by vested1 »

mak wrote:
Professor Emeritus wrote:can you post the numbers?, I cant get the math to work at a 1% real rate of return (3% nominal 2% inflation)
Sure, maybe there is a problem with the formulas. Assume all the money is invested in an account, none spent. Assume the monthly benefit increases 2% each year. Assume the account earns 3% each year. And keep summing the money so it is calculating the future "balance" of a hypothetical account into which every SS check is deposited, which earns 3%.

Benefits used are $1263 at age 62, $1752 at age 66 2/3, $2219 at age 70. These come from SS's own report. (The relatively small benefits are caused by my retirement at age 40, so of the 35 years' highest earnings used to compute SS benefits many of those squares contain zero for me.)

Here's the table I generated with Excel:

Social Security Early Benefits Worksheet

3% Estimated return can earn on invested capital

2% COLA

Year Age Yr Benefit Balance
2020 62 $15,156 $15,156
2021 63 $15,459 $31,070
2022 64 $15,768 $47,770
2023 65 $16,084 $65,287
2024 66 $16,405 $83,651 Yr Benefit Balance
2025 67 $16,733 $102,894 $21,024 $21,024
2026 68 $17,068 $123,049 $21,444 $43,099
2027 69 $17,409 $144,150 $21,873 $66,266 Yr Benefit Balance
2028 70 $17,758 $166,232 $22,311 $90,564 $26,628 $26,628
2029 71 $18,113 $189,332 $22,757 $116,038 $27,161 $54,587
2030 72 $18,475 $213,487 $23,212 $142,732 $27,704 $83,929
2031 73 $18,845 $238,736 $23,676 $170,690 $28,258 $114,705
2032 74 $19,221 $265,119 $24,150 $199,961 $28,823 $146,969
2033 75 $19,606 $292,679 $24,633 $230,593 $29,399 $180,777
2034 76 $19,998 $321,457 $25,126 $262,636 $29,987 $216,188
2035 77 $20,398 $351,499 $25,628 $296,143 $30,587 $253,261
2036 78 $20,806 $382,850 $26,141 $331,168 $31,199 $292,058
2037 79 $21,222 $415,558 $26,664 $367,767 $31,823 $332,642
2038 80 $21,647 $449,671 $27,197 $405,996 $32,459 $375,081
2039 81 $22,079 $485,240 $27,741 $445,917 $33,109 $419,442
2040 82 $22,521 $522,319 $28,296 $487,590 $33,771 $465,796
2041 83 $22,971 $560,960 $28,861 $531,079 $34,446 $514,216
2042 84 $23,431 $601,219 $29,439 $576,450 $35,135 $564,777
2043 85 $23,899 $643,155 $30,027 $623,771 $35,838 $617,559
2044 86 $24,377 $686,827 $30,628 $673,112 $36,555 $672,640
2045 87 $24,865 $732,297 $31,241 $724,546 $37,286 $730,105
2046 88 $25,362 $779,628 $31,865 $778,148 $38,031 $790,039
2047 89 $25,870 $828,887 $32,503 $833,995 $38,792 $852,532
2048 90 $26,387 $880,140 $33,153 $892,168 $39,568 $917,676
2049 91 $26,915 $933,459 $33,816 $952,749 $40,359 $985,565
2050 92 $27,453 $988,916 $34,492 $1,015,823 $41,166 $1,056,299
2051 93 $28,002 $1,046,586 $35,182 $1,081,480 $41,990 $1,129,977
2052 94 $28,562 $1,106,545 $35,886 $1,149,810 $42,829 $1,206,706
2053 95 $29,133 $1,168,875 $36,603 $1,220,907 $43,686 $1,286,593
2054 96 $29,716 $1,233,657 $37,335 $1,294,870 $44,560 $1,369,751
2055 97 $30,310 $1,300,977 $38,082 $1,371,798 $45,451 $1,456,295
2056 98 $30,917 $1,370,923 $38,844 $1,451,796 $46,360 $1,546,343
2057 99 $31,535 $1,443,586 $39,621 $1,534,970 $47,287 $1,640,021
2058 100 $32,166 $1,519,059 $40,413 $1,621,432 $48,233 $1,737,454

So we are comparing the balance of the account in column 4 (value of account starting at age 62), to column 6 (starting at age 67), to column 8 (starting at age 70), and seeing at which point the balance is higher by having waited.
Not judging your choice, just a comment on your numbers. I suppose this assumes no other income that would push your SS federal taxation higher and that there is no State tax on your benefit. The amount received would be reduced by taxes either when taken or before April 15th, thus reducing the amount available to invest. Delayed SS is of course non-taxable. Most who use the investment of SS as an argument ignore the taxes, although you did state that a larger amount later would be taxed to a greater extent. They also tend to ignore the guaranteed gain by delaying, which is never less than 5% a year increasing to a fixed 8% a year after FRA, as compared to an estimated gain on investment.

You would also need to reduce the number available to invest in the year 2025 and beyond when Medicare and supplemental insurance starts to be deducted from your monthly amount. The person who delays also has to pay for Medicare but the amount deducted from the total benefit is less of a percentage at FRA or later.
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Re: Kotlikoff: When Should you Take Social Security?

Post by ObliviousInvestor »

mak,

Your figures do not appear to apply a COLA until the person starts receiving retirement benefits. This would bias the conclusion in favor of claiming early.
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Re: Kotlikoff: When Should you Take Social Security?

Post by Epsilon Delta »

ObliviousInvestor wrote:mak,

Your figures do not appear to apply a COLA until the person starts receiving retirement benefits. This would bias the conclusion in favor of claiming early.
+1
This is a common error.
The values in the retire at 67 columns are about 10% low. Those in the retire at 70 columns about 17% low. If you do it correctly the break even age is 80 or 81 not the 88 you get from the original.
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Re: Kotlikoff: When Should you Take Social Security?

Post by mak »

Thanks for the replies, and I did not know that my starting figures for ages 66 2/3 and 70 need to be increased by COLA during the years while waiting, so I need to make some adjustments. When I get another table I will post it.

It is also true that I neglected taxes, mostly because I wanted to keep it simple and I presumed I would stay in the same bracket whether taking SS or not. I need to think about these items. I have a very tax efficient asset mix. Real estate rentals with depreciation and no debt. Zero coupon munis. Oh yes and I live in a no income tax state. Tax deferred accounts contain things which throw off ordinary income like reits. Taxable contain things like index funds which throw off qualified divs, on which I pay either 0% or 10% under current rules. I pay very low income taxes. I need to adjust this a bit for RMDs which will start at 70 1/2. Also need to recognize that accrued zero cpn muni bond int while not taxable will affect MAGI which determines how much of a SS benefit gets taxed. The calculations can become as detailed as one wants, my goal was to do a fairly simple analysis that got close to reality.

BTW my current draw rate against investment portfolio is 0.7% per year, and that pays all my living expenses, before SS. So portfolio grows over time if I earn nominal over that. After SS turns on I would expect to stop all withdrawals from portfolio, thus since money is fungible my simple model that all SS will be invested to compound with none spent.

Thanks for the ideas, I'm going to tweak the calculations.
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Re: Kotlikoff: When Should you Take Social Security?

Post by Professor Emeritus »

Epsilon Delta wrote:
ObliviousInvestor wrote:mak,

Your figures do not appear to apply a COLA until the person starts receiving retirement benefits. This would bias the conclusion in favor of claiming early.
+1
This is a common error.
The values in the retire at 67 columns are about 10% low. Those in the retire at 70 columns about 17% low. If you do it correctly the break even age is 80 or 81 not the 88 you get from the original.
that is about the result I got . If a safe investment has no return above inflation breakeven for a 70 year old is 81 years old.
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Re: Kotlikoff: When Should you Take Social Security?

Post by mak »

OK simple tweak applies 2% compound COLA to starting monthly benefit provided on PEBES report, for 0 years if start at 62, 5 years if start at 67 (66 2/3), 8 years if start at 70.

As predicted, this moves the crossover to age 81 for both waiting to age 66 2/3 or 70. I need to reconsider my plan.

I discovered a free Kotlikoff site with a stripped down planner which is helpful.
http://basic.esplanner.com/

I recognize risks, there are many. Long lifespan equals wait. Short lifespan is a risk too, the risk being that money is left on the table. For example, my mother planned to retire at 65 and take benefits. About age 64 while still working she was unexpectedly diagnosed with stage 3 endometrial cancer. We processed emergency retirement turning on pensions and SS. She had received only about 1.5 years of benefits when she passed at age 66. Similar situation, the money wasn't needed to retire it was to pile up in investment accounts. She did not enjoy her work much and would have benefited from early retirement at age 62 through more years in retirement, and arguably a higher net worth at death which could be left to charity or heirs.

Other risks are the rules can be changed although I think that is unlikely to affect people already near or post FRA, there will be some grandfathering for people who have planned by current rules and congress won't suddenly change the rules to pull the rug out from under them. Taxation of benefits can change, there are many things.

It seems though that if someone contemplates purchase of longevity insurance or a life annuity to prevent 'running out of money', waiting is a very efficient way to 'purchase' that annuity.

Here's the modified spreadsheet, and it still ignores taxes for simplicity.



Social Security Early Benefits Worksheet

3% Estimated return can earn on invested capital

2% COLA estimate, applies also to base benefit amounts if taken after age 62

SS Monthly per PEBES $1,263 $1,752 $2,219
# Years COLA Before Start $- $5 $8
Adj for COLA $1,263 $1,934 $2,600


Year Age Yearly Benefit Acct Balance Yearly Benefit Acct Balance Yearly Benefit Acct Balance
2020 62 $15,156 $15,156
2021 63 $15,459 $31,070
2022 64 $15,768 $47,770
2023 65 $16,084 $65,287
2024 66 $16,405 $83,651
2025 67 $16,733 $102,894 $23,212 $23,212
2026 68 $17,068 $123,049 $23,676 $47,585
2027 69 $17,409 $144,150 $24,150 $73,163
2028 70 $17,758 $166,232 $24,633 $99,990 $31,199 $31,199
2029 71 $18,113 $189,332 $25,126 $128,116 $31,823 $63,958
2030 72 $18,475 $213,487 $25,628 $157,587 $32,459 $98,336
2031 73 $18,845 $238,736 $26,141 $188,456 $33,109 $134,395
2032 74 $19,221 $265,119 $26,664 $220,773 $33,771 $172,197
2033 75 $19,606 $292,679 $27,197 $254,593 $34,446 $211,809
2034 76 $19,998 $321,457 $27,741 $289,971 $35,135 $253,299
2035 77 $20,398 $351,499 $28,296 $326,966 $35,838 $296,735
2036 78 $20,806 $382,850 $28,861 $365,636 $36,555 $342,192
2037 79 $21,222 $415,558 $29,439 $406,044 $37,286 $389,743
2038 80 $21,647 $449,671 $30,027 $448,253 $38,031 $439,467
2039 81 $22,079 $485,240 $30,628 $492,329 $38,792 $491,443
2040 82 $22,521 $522,319 $31,241 $538,339 $39,568 $545,754
2041 83 $22,971 $560,960 $31,865 $586,354 $40,359 $602,486
2042 84 $23,431 $601,219 $32,503 $636,448 $41,166 $661,727
2043 85 $23,899 $643,155 $33,153 $688,694 $41,990 $723,568
2044 86 $24,377 $686,827 $33,816 $743,171 $42,829 $788,105
2045 87 $24,865 $732,297 $34,492 $799,958 $43,686 $855,434
2046 88 $25,362 $779,628 $35,182 $859,138 $44,560 $925,657
2047 89 $25,870 $828,887 $35,886 $920,798 $45,451 $998,877
2048 90 $26,387 $880,140 $36,603 $985,025 $46,360 $1,075,204
2049 91 $26,915 $933,459 $37,335 $1,051,912 $47,287 $1,154,747
2050 92 $27,453 $988,916 $38,082 $1,121,551 $48,233 $1,237,622
2051 93 $28,002 $1,046,586 $38,844 $1,194,041 $49,198 $1,323,949
2052 94 $28,562 $1,106,545 $39,621 $1,269,483 $50,182 $1,413,849
2053 95 $29,133 $1,168,875 $40,413 $1,347,980 $51,185 $1,507,449
2054 96 $29,716 $1,233,657 $41,221 $1,429,641 $52,209 $1,604,882
2055 97 $30,310 $1,300,977 $42,046 $1,514,576 $53,253 $1,706,281
2056 98 $30,917 $1,370,923 $42,887 $1,602,900 $54,318 $1,811,788
2057 99 $31,535 $1,443,586 $43,744 $1,694,731 $55,404 $1,921,546
2058 100 $32,166 $1,519,059 $44,619 $1,790,192 $56,513 $2,035,705
john94549
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Re: Kotlikoff: When Should you Take Social Security?

Post by john94549 »

I do agree strongly with one point in the article: the SSA does little to nothing to educate folks prior to age 62 about the various options. Why is a puzzle. Contrast "Medicare and You", received well prior to our turning 65. As comprehensive as the SSA.gov website is, I found it impossible to find an answer to what I assumed a simple question, e.g., would my wife's spousal be 1/2 of what I was "getting" (as I claimed at 62) or 1/2 of what I would have gotten had I waited until my FRA. Turns out the latter (of course), but I was flummoxed. SSCritic cleared it up for me.

I see no reason why the SSA couldn't come out with some equivalent to "Medicare and You" which could have various options and claiming examples similar to the taxation examples so commonly found in IRS Publications.
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Re: Kotlikoff: When Should you Take Social Security?

Post by ObliviousInvestor »

john94549 wrote:I do agree strongly with one point in the article: the SSA does little to nothing to educate folks prior to age 62 about the various options. Why is a puzzle. Contrast "Medicare and You", received well prior to our turning 65. As comprehensive as the SSA.gov website is, I found it impossible to find an answer to what I assumed a simple question, e.g., would my wife's spousal be 1/2 of what I was "getting" (as I claimed at 62) or 1/2 of what I would have gotten had I waited until my FRA. Turns out the latter (of course), but I was flummoxed. SSCritic cleared it up for me.

I see no reason why the SSA couldn't come out with some equivalent to "Medicare and You" which could have various options and claiming examples similar to the taxation examples so commonly found in IRS Publications.
The Social Security Handbook is the SSA's attempt at doing so:
http://ssa.gov/OP_Home/handbook/handbook-toc.html
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Re: Kotlikoff: When Should you Take Social Security?

Post by obgyn65 »

I have read quite a few posts about when to take SS. I guess the summary is to take SS early when you are not healthy, and postpone it to 70 if you are healthy - in order to maximize benefits. I plan to take it at 70.
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Re: Kotlikoff: When Should you Take Social Security?

Post by john94549 »

Mike, this is what I found in the Handbook (your link):

"1503. Individuals Nearing Retirement Age

1503.1 Why should you contact us before you turn 62?

If you are a worker who is considering early retirement, you should get in touch with a Social Security office several months before turning 62 because age 62 is the earliest month possible for benefits to begin. We will give you the information you need so you can decide whether or not to file an application for reduced retirement benefits at that time."

That's all I could find.
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Re: Kotlikoff: When Should you Take Social Security?

Post by Jack FFR1846 »

All of these calculations assume ss will not be reduced or the rules changed. [OT comments removed by admin LadyGeek]

I'll take it at 62 so I get something out of it
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Re: Kotlikoff: When Should you Take Social Security?

Post by BahamaMan »

It is amusing to me that the advocates of 'Take S.S. at 62' are usually planning to Die before the Break-Even Age'; But if someone came to this forum and said that they were creating a Financial Plan with a Lifespan ending at 81, they would be told in short order that they were a fool. :?
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Re: Kotlikoff: When Should you Take Social Security?

Post by truenorth418 »

I am 50, retired early, and planning to take SS at 70.

1. Guaranteed higher SS benefits in later years means I can spend more out of the portfolio when I'm younger (won't go into the specific math here but this point was covered in Jonathan Clements' most recent column)
2. Better insurance against living beyond breakeven age and need more $ for long term care considerations, again, guaranteed
3. While I say it is guaranteed, who knows what the politicians will do in the future? I can imagine them moving the age requirements older and/or reducing benefit levels. Either way, better to aim for highest benefit at an older age just in case.
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Re: Kotlikoff: When Should you Take Social Security?

Post by Wildebeest »

bobcat2 wrote:It's times like this I really miss sscritic. I'm sure that if he were to read the book and was still posting here, I would get a PM from an exasperated sscritic about how they screwed up some of the Social Security rules in the book. :)

Come back sscritic :!:

Why do I feel like I am channeling Shane in this post? :wink:

http://www.ign.com/top/movie-moments/77


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I really miss sscritic's posts as well.
I did get a PM not too long ago.
If you want him to PM you, just post something dumb.
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Re: Kotlikoff: When Should you Take Social Security?

Post by mak »

Rule changes don't happen overnight. If you were in the post 62 phase planning to take at whatever age makes sense for you, and a rule change was being considered by congress, you would have ample time to consider the effects and go in and turn benefits on if desired.
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Re: Kotlikoff: When Should you Take Social Security?

Post by Crow Hunter »

Wildebeest wrote:If you want him to PM you, just post something dumb.
That explains why I have gotten several from him. :mrgreen:
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Re: Kotlikoff: When Should you Take Social Security?

Post by Leif »

Jack FFR1846 wrote:All of these calculations assume ss will not be reduced or the rules changed. Do you believe that? I don't. Ask a millenial (I asked my son) how much they expect from ss. My son just laughs and expects nothing.

I'll take it at 62 so I get something out of it
You never know. I recall saying the same thing when I was around 30. I told many people do not rely on SS. Now approaching SS time it seems not much has changed.

I may be wrong, but I do believe if there are significant changes made to SS it will not apply to someone over an age nearing SS (perhaps 50).
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Re: Kotlikoff: When Should you Take Social Security?

Post by Leeraar »

There are two memorable quotes (which I paraphrase) from Winston Churchill:

"It's the worst solution, except for all the others."

"Americans will always do the right thing, but only after exhausting all the alternatives."

L.
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Re: Kotlikoff: When Should you Take Social Security?

Post by itstoomuch »

Four reasons, in order of predominance. YMMV. :(
We needed the cash flow(money) @ 64 (2010)and @ 62 (2013).
Pulling cash from retirement accounts which was growing faster than deferred SS growth was not wise.
Don't trust the people who make the SS law.
Ask any Millennium if they get believe SS will be there for them. The Mllenniums will be the future majority electorate.
:annoyed :oops:
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Re: Kotlikoff: When Should you Take Social Security?

Post by Leeraar »

itstoomuch wrote: The Mllenniums will be the future majority electorate.
:annoyed :oops:
Yes, but they'll be voting for their own piece of the pie, and we'll be grandfathered in. (To coin a phrase.)

L. :D :D
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
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Re: Kotlikoff: When Should you Take Social Security?

Post by mak »

The whole binary idea that SS will either be like the good old days or totally eradicated makes no sense. Of course for the younger people who will perhaps live to 100 routinely it will have to be tweaked. It was never intended to be a full retirement finance source, but due to human nature some will never plan, never save, be disinterested in their own futures, and have to make due with SS.

A combination of tweaks to: FICA tax rate, cap on wages to which it applies, full retirement age, early retirement eligibility age (might be raised from 62 to 64 for example) will no doubt be made and phased in for younger people in the system to keep it solvent and take into account both people living longer and fewer wage earners supporting a bubble of baby boom retirees moving though the system to their deaths. But the idea that it simply will disappear is nonsense, or worse, reactionary politically motivated fear mongering.
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Re: Kotlikoff: When Should you Take Social Security?

Post by Leeraar »

This thread is about Laurence Kotlikoff's new book and how to understand and optimize your choices for your circumstances under the current rules for Social Security.

Please do not get off track with posts about what Social Security might, could, or should be. Or even, about what other people should do.

Thank you,

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
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Re: Kotlikoff: When Should you Take Social Security?

Post by chessmannextmove »

this is one of the few areas on which i disagree with the common consensus held here (and that's ok)

Life expectancy is a weighted average.
A man in the usa is expected to live to about 77. So a sizable chunk don't make it to 77.
Mortality rates grow quickly after 70.
Deferring ss till 70 is probably a terrible decision for most men (not women) once you factor in the opportunity cost of foregone income and its growth.
breakeven analysis gives an age of about 78 to 80 for a man (taking ss at 62 vs 70).

For a woman it makes a bit more sense to delay because life expectancy is about 83.
For married couples it is somewhere in between. Almost a coin flip with odds only slightly in favor of waiting.

But this is not even close to a slam dunk "for sure wait"... No way. It almost doesn't even matter because unless you live into the mid 90s the difference is immaterial in many scenarios.

So... For the...
Poor... Can't afford to wait
Rich... Don't need to wait
The middle... Almost a coin flip in terms of total value at death

In conclusion, I see very little strength in the arguments for waiting.
And if you let ur mind wonder off away from logic... You can speculate why is it so popular to advise people to wait? conspiracies are so much fun!
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Re: Kotlikoff: When Should you Take Social Security?

Post by Leeraar »

chessmannextmove wrote:this is one of the few areas on which i disagree with the common consensus held here (and that's ok)

Life expectancy is a weighted average.
A man in the usa is expected to live to about 77. So a sizable chunk don't make it to 77.
Mortality rates grow quickly after 70.
Deferring ss till 70 is probably a terrible decision for most men (not women) once you factor in the opportunity cost of foregone income and its growth.
breakeven analysis gives an age of about 78 to 80 for a man (taking ss at 62 vs 70).

For a woman it makes a bit more sense to delay because life expectancy is about 83.
For married couples it is somewhere in between. Almost a coin flip with odds only slightly in favor of waiting.

But this is not even close to a slam dunk "for sure wait"... No way. It almost doesn't even matter because unless you live into the mid 90s the difference is immaterial in many scenarios.

So... For the...
Poor... Can't afford to wait
Rich... Don't need to wait
The middle... Almost a coin flip in terms of total value at death

In conclusion, I see very little strength in the arguments for waiting.
And if you let ur mind wonder off away from logic... You can speculate why is it so popular to advise people to wait? conspiracies are so much fun!
Not quite. Life expectancy at birth is not the question.

Life expectancy at age 62 (if you reach it) is about 83. SS says 82, so there's a little in your favor already.

The decision to delay claiming (or not) is a complicated one. Money now, or more money later.

I have friends who claimed early to get benefits for a disabled child. It's not just about maximizing the money you think you personally might get.

In my own case, it's not really about maximizing SS. It's that delaying SS is by far the cheapest way to ensure cash flow to live on in our 70s. It's a good deal even if we don't live to 82 or 83. Is my opinion.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
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Re: Kotlikoff: When Should you Take Social Security?

Post by chessmannextmove »

Leeraar wrote: Life expectancy at age 62 (if you reach it) is about 83.
ah yes, conditional expectation, oh the horror. :sharebeer
The difference between 83 and the break even point is still a small reward (in most scenarios) for the income-foregoing risk taken. The point remains intact, the upside is immaterial. The decision doesn't matter much and the arguments for waiting are weak.

Just 2 cents. Good luck either way.
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Re: Kotlikoff: When Should you Take Social Security?

Post by BahamaMan »

chessmannextmove wrote: The difference between 83 and the break even point is still a small reward (in most scenarios) for the income-foregoing risk taken. The point remains intact, the upside is immaterial. The decision doesn't matter much and the arguments for waiting are weak.
Except this is wrong.
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