Kotlikoff: When Should you Take Social Security?

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BahamaMan
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Re: Kotlikoff: When Should you Take Social Security?

Post by BahamaMan »

letsgobobby wrote:I enjoy all the behavioral explanations but think many are too clever by half.

Outside of the professional class, and sometimes even within it, the average American worker lives nearly paycheck to paycheck, has little cash on hand, and has at most a 5 figure retirement account.

They claim at 62 because they have to. The economy has shifted and their job skills are obsolete and their bodies are tired so they take the money. They'd take the money at 55 if they could. And if they can't wait til 62 they file for social security disability payments.

I fear it's not more prosaic than that.
Well you most certainly correct. However, this discussion is aimed at people that can afford to delay and are not doing so. Most of these people are incorrectly informed.
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plannerman
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Re: Kotlikoff: When Should you Take Social Security?

Post by plannerman »

BahamaMan wrote:
letsgobobby wrote:I enjoy all the behavioral explanations but think many are too clever by half.

Outside of the professional class, and sometimes even within it, the average American worker lives nearly paycheck to paycheck, has little cash on hand, and has at most a 5 figure retirement account.

They claim at 62 because they have to. The economy has shifted and their job skills are obsolete and their bodies are tired so they take the money. They'd take the money at 55 if they could. And if they can't wait til 62 they file for social security disability payments.

I fear it's not more prosaic than that.
Well you most certainly correct. However, this discussion is aimed at people that can afford to delay and are not doing so. Most of these people are incorrectly informed.


I think it's more than just ill informed. Just read the posts of the people on this board who choose to file early and the reason they sight for why.

plannerman
BahamaMan
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Re: Kotlikoff: When Should you Take Social Security?

Post by BahamaMan »

plannerman wrote:I think it's more than just ill informed. Just read the posts of the people on this board who choose to file early and the reason they sight for why.

plannerman
Yes, I did. That's where I am getting my information. But also, notice that I said 'Most are incorrectly informed', not 'All'.
nickfrank
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Re: Kotlikoff: When Should you Take Social Security?

Post by nickfrank »

My experience has been that the SS rep tries to persuade not to extend age for receiving SS. My wife went to the local SS office to apply for medicare when she turned 65 and they immediately printed out her SS payment benefit and told her how much it would be reduced for the medicare premium. I was with her at the time and told the rep that she was waiting for her fra which is 66 which the rep could not believe.
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Re: Kotlikoff: When Should you Take Social Security?

Post by randomguy »

DR wrote: I'm always amazed at people that have no interest in planning or learning how simple, in this case, no-cost decisions, could change their living standard for many, many years. In this case, it's 43 years of an inflation-adjusted $13,171 of annual extra household discretionary spending just by rearranging how I draw down my regular and retirement assets relative to Social Security. Hey, I would probably go to the "trouble" of doing this if it were just one year. But it's 43 years of an extra $13K per year with COLA adjustments! (Assuming I live til 100 . . . :) but you get my point I hope).
You are making planning based on something like a 1-2% event (i.e. a male living to 100. The odds of both of you making to 100 are much worse). If you get a more normal outcome (dying between 80-90) that vast difference shrinks way down.

I am planning to wait to 70 but I don't do it because I expect to make much more money (delaying does help married couples on average). It is mainly to reduce risk. If I was interested in making money, I would take the money at 62 and hope that I would get a an average market return which would drastically beat the return of SS. Obviously to take a risk like that you would need to be very financially secure (i.e. you don't care if you get SS or not).
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Re: Kotlikoff: When Should you Take Social Security?

Post by vested1 »

randomguy wrote:
You are making planning based on something like a 1-2% event (i.e. a male living to 100. The odds of both of you making to 100 are much worse). If you get a more normal outcome (dying between 80-90) that vast difference shrinks way down.

I am planning to wait to 70 but I don't do it because I expect to make much more money (delaying does help married couples on average). It is mainly to reduce risk. If I was interested in making money, I would take the money at 62 and hope that I would get a an average market return which would drastically beat the return of SS. Obviously to take a risk like that you would need to be very financially secure (i.e. you don't care if you get SS or not).
Like DR, I'm constantly amazed, but more so at statements such as these that assume either outstanding luck or talent at investing over an 8 year period. What do you consider "average market return"? I'm not saying you are one of those who claim this ability, as you used the word "hope" judiciously. I just grow tired sometimes of the argument that investing your SS benefits after taxes and Medicare deductions will always beat the gain experienced in delaying.
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DR
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Re: Kotlikoff: When Should you Take Social Security?

Post by DR »

randomguy wrote:
DR wrote: I'm always amazed at people that have no interest in planning or learning how simple, in this case, no-cost decisions, could change their living standard for many, many years. In this case, it's 43 years of an inflation-adjusted $13,171 of annual extra household discretionary spending just by rearranging how I draw down my regular and retirement assets relative to Social Security. Hey, I would probably go to the "trouble" of doing this if it were just one year. But it's 43 years of an extra $13K per year with COLA adjustments! (Assuming I live til 100 . . . :) but you get my point I hope).
You are making planning based on something like a 1-2% event (i.e. a male living to 100. The odds of both of you making to 100 are much worse). If you get a more normal outcome (dying between 80-90) that vast difference shrinks way down.

I am planning to wait to 70 but I don't do it because I expect to make much more money (delaying does help married couples on average). It is mainly to reduce risk. If I was interested in making money, I would take the money at 62 and hope that I would get a an average market return which would drastically beat the return of SS. Obviously to take a risk like that you would need to be very financially secure (i.e. you don't care if you get SS or not).

You are also comparing a risk-free return (Social Return and Uncle Sam's best offer) with a high-risk return in the market. That's not how you make an apples-to-apples comparison. In my case I demonstrated above, I showed how the person could have a higher lifetime living standard both before and after the household turns 70 by spreading the future wealth back through the present. I guess I also would add that I'm talking about how we PLAN, not about imagining scenarios where things don't work out. I can imagine a scenario where my house never burns down and I laugh all the way to the bank as I deposit the money I saved on fire insurance premiums. But that's not how we plan. Or that's not how I plan. I believe we should plan for what is possible, not what is probable, and it's possible in my case and many cases that we'll live til 100. These decisions should be based on good planning principles.
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wander
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Maximize your Social Security benefits

Post by wander »

I find this article interesting. Although I am still far away from 9-5 duty, I think I should include them in my retirement planning.
7 ways to maximize your Social Security benefits

[duplicate thread merged here by admin alex]
itstoomuch
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Re: Kotlikoff: When Should you Take Social Security?

Post by itstoomuch »

No doubt that waiting is a strategy to max SS. Is maximimzing SS the end goal or Is maximizing your Total Income from all sources, the goal?
We looked at it when we annuitized our SS benefit. Maximizing our Total Income at RMD 70.5, with greatest amount of safety, was our goal. We are and will be far ahead of the delaying of SS.

1. Delaying SS meant that we had to utilize the IRA. In a declining market, you use up the IRA funds more rapidly and could take the IRA income at inopportune times on a RBD, week/month/year. This is OK if you believe in a lower future market but expensive in a future rising market. The dilemma that we faced in 2011 and 2012.
2. In either market direction, the choice becomes an option play. (see: covered call thread).
3. We already purchased GWIB deferred annuities for part of our future income (Known minimum -capped left tail. Unknown high side-uncapped but reduced right head side).
4. Delaying SS exposes, IMO, you to political risks.

YMMV and the conditions when we annuitized SS are different from today. :annoyed
GL :beer
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
BahamaMan
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Re: Kotlikoff: When Should you Take Social Security?

Post by BahamaMan »

itstoomuch wrote:No doubt that waiting is a strategy to max SS. Is maximimzing SS the end goal or Is maximizing your Total Income from all sources, the goal?
We looked at it when we annuitized our SS benefit. Maximizing our Total Income at RMD 70.5, with greatest amount of safety, was our goal. We are and will be far ahead of the delaying of SS.

1. Delaying SS meant that we had to utilize the IRA. In a declining market, you use up the IRA funds more rapidly and could take the IRA income at inopportune times on a RBD, week/month/year. This is OK if you believe in a lower future market but expensive in a future rising market. The dilemma that we faced in 2011 and 2012.
2. In either market direction, the choice becomes an option play. (see: covered call thread).
3. We already purchased GWIB deferred annuities for part of our future income (Known minimum -capped left tail. Unknown high side-uncapped but reduced right head side).
4. Delaying SS exposes, IMO, you to political risks.

YMMV and the conditions when we annuitized SS are different from today. :annoyed
GL :beer
Sounds like a Sure thing to me.
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Re: Kotlikoff: When Should you Take Social Security?

Post by itstoomuch »

No such thing as a "sure thing".
One can only control the risk exposure.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
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Re: Maximize your Social Security benefits

Post by vested1 »

wander wrote:I find this article interesting. Although I am still far away from 9-5 duty, I think I should include them in my retirement planning.
7 ways to maximize your Social Security benefits

[duplicate thread merged here by admin alex]
Did the book actually suggest #5 in the linked article? I can see how, if you were already divorced it may be beneficial to each claim a restricted application on the ex-spouse's benefit while each ex-spouse has their benefit increase until age 70, but even then it still seems like cheating somehow. After all, a married couple can't do that. If this is a common strategy for a committed couple to divorce 2 years before FRA to take advantage of this loophole I would like to see it eliminated.

BTW, when I suggested this SS filing strategy to my wife this morning she was less than amused. Maybe I should have left out the part about the live-in French maid. :twisted:
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Re: Kotlikoff: When Should you Take Social Security?

Post by Caduceus »

What was interesting to me was the suggestion that, if single, we should go out and marry another 80-year old single person because after 9 months of marriage, all sorts of wonderful benefits can be claimed. There are, in fact, pretty detailed examples of how someone could gain substantial benefits through a string of marriages, divorces, and re-marriages. And how long one needs to stay married to game the system.

I think there is a market out there for monetizing spousal/survivorship benefits, so that single retirees can extract the same value from their SS as married couples do, and those without too much SS can set the price at which they want to buy into those benefits. :sharebeer

I am 30% through the book and am enjoying it so far. I had no idea before reading this that same-sex couples were subject to so much discrimination in SS.
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Leeraar
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Re: Kotlikoff: When Should you Take Social Security?

Post by Leeraar »

Caduceus wrote:... if single, we should go out and marry another 80-year old single person because ...
I am 65 and amazed my wife puts up with me. At 80, I think there is little chance any woman will see a positive business case.

But, wait! Civil War widows!

http://usatoday30.usatoday.com/news/nat ... idow_x.htm

(In my own genealogy, not USA, I have an ancestor who remarried a 14-year old when he was 65. She was less than half the age of his eldest child, and she went on to bear six children by him, and then more when she remarried after his death.)

All in all, I don't think we want to be too concerned about 80-year olds gaming the system! :)

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

Post by Professor Emeritus »

itstoomuch wrote: 1. Delaying SS meant that we had to utilize the IRA. In a declining market, you use up the IRA funds more rapidly and could take the IRA income at inopportune times on a RBD, week/month/year.
Or you can convert stocks to bonds in the IRA at age 62 beginning and withdraw each year. That way you know exactly what the trade off is.
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Re: Kotlikoff: When Should you Take Social Security?

Post by itstoomuch »

^I personally view medium and short bonds as losers because there is virtually Zero yield, negative return with inflation, And reacts to every "utterrance" of the FRB chairperson and hiccup of international economies.
professor emeritus wrote:Or you can convert stocks to bonds in the IRA at age 62 beginning and withdraw each year. That way you know exactly what the trade off is.
If we had done so, we would have missed most of the runnup of the Equity Indexes while participating in lower bond improvements. :annoyed

SS is basically THE Government bond to hold, if you like bonds. :annoyed :mrgreen:
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
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Leeraar
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Re: Kotlikoff: When Should you Take Social Security?

Post by Leeraar »

Professor Emeritus wrote:
itstoomuch wrote: 1. Delaying SS meant that we had to utilize the IRA. In a declining market, you use up the IRA funds more rapidly and could take the IRA income at inopportune times on a RBD, week/month/year.
Or you can convert stocks to bonds in the IRA at age 62 beginning and withdraw each year. That way you know exactly what the trade off is.
Yes,

If you look at risk as the dispersion of possible future outcomes, using the IRA now to purchase future SS benefits is a MUCH safer strategy.

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 Professor Emeritus »

itstoomuch wrote:^I personally view medium and short bonds as losers because there is virtually Zero yield, negative return with inflation, And reacts to every "utterrance" of the FRB chairperson and hiccup of international economies.
professor emeritus wrote:Or you can convert stocks to bonds in the IRA at age 62 beginning and withdraw each year. That way you know exactly what the trade off is.
If we had done so, we would have missed most of the runnup of the Equity Indexes while participating in lower bond improvements. :annoyed

SS is basically THE Government bond to hold, if you like bonds. :annoyed :mrgreen:
Of course if with are a Master of the Universe with a great crystal ball Your mileage may vary
itstoomuch
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Re: Kotlikoff: When Should you Take Social Security?

Post by itstoomuch »

Leeraar wrote:
Professor Emeritus wrote:
itstoomuch wrote: 1. Delaying SS meant that we had to utilize the IRA. In a declining market, you use up the IRA funds more rapidly and could take the IRA income at inopportune times on a RBD, week/month/year.
Or you can convert stocks to bonds in the IRA at age 62 beginning and withdraw each year. That way you know exactly what the trade off is.
Yes,

If you look at risk as the dispersion of possible future outcomes, using the IRA now to purchase future SS benefits is a MUCH safer strategy.

L.
At the time, I wasn't looking for a Safe strategy since I was trying very hard to Increase the IRA on the expectations that equities are better than SS guarantees (SPIA).
If I was to do this today, with a recovered portfolio, I would be foolish not to consider depleting the IRA's in favor of deferring SS to RMD ages for a higher guaranteed income. :annoyed
Currently, our GWIB's annuities are presenting me with this dilemna.

If I may quote from the thread, The Most Likey Portfolio Peril - Inflation or Deflation,
Boglegrapper wrote:snip...The Bernanke Doctrine would suggest that Warren Buffett's advice from a few letters ago is probably pretty good. It was that you should sidestep owning "promises" that are denominated in currencies, and instead own enterprises that did/made things that people were willing to buy with some of their daily wages, regardless of what the "currency" was that the wages were paid in.
:annoyed
:beer
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
BahamaMan
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Re: Kotlikoff: When Should you Take Social Security?

Post by BahamaMan »

itstoomuch wrote: At the time, I wasn't looking for a Safe strategy since I was trying very hard to Increase the IRA on the expectations that equities are better than SS guarantees (SPIA).
If I was to do this today, with a recovered portfolio, I would be foolish not to consider depleting the IRA's in favor of deferring SS to RMD ages for a higher guaranteed income. :annoyed
Currently, our GWIB's annuities are presenting me with this dilemna.
Yes, I am a pretty simple investor. I do not know how to time the markets as expertly as some here can do.
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Re: Kotlikoff: When Should you Take Social Security?

Post by Caduceus »

I am 65 and amazed my wife puts up with me. At 80, I think there is little chance any woman will see a positive business case.

All in all, I don't think we want to be too concerned about 80-year olds gaming the system! :)
But in this case, I think Kotlikoff's point would be that it would be the people who are marrying the 80-yr olds who are gaming the system. :D

He's pointing out some of the arbitrary distinctions SS makes - that people who are divorced and currently single can still claim benefits (so it's not the actual marital relationship that matters, but the history of having had one) - and offering some creative examples of how someone might game the system.

To be honest, the conversational tone of the book is a little off-putting to me. I think it would have been an easier read if it was written in a more structured and expository style. It doesn't take 5 paragraphs to say some of the things they want to convey, and the jokey asides are distracting.
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Re: Kotlikoff: When Should you Take Social Security?

Post by joebh »

chessmannextmove wrote:In conclusion, I see very little strength in the arguments for waiting.
For me, the most compelling argument for waiting is this "worst case scenarios" thought exercise:
- if I wait to claim, but die early, I will have claimed less SS money than I could have. That's unfortunate, but I'm dead anyway.
- if I claim early, but live a long time, I could be poor in my old age

I know which "worst case scenario" I'd prefer to insure against.

Everyone's situation is different. Everyone needs to make their own decision and live with the consequences.
rixer
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Re: Kotlikoff: When Should you Take Social Security?

Post by rixer »

In my case, I am delaying because which ever one of us survives, there will only be one SS benefit from there on forward. Delaying gives us a better chance for the lone survivor.
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Re: Kotlikoff: When Should you Take Social Security?

Post by FredL »

I am not expert, but all the experts are recommending take SS at 70 if possible. None of the opinion for taking SS as early as possible is from expert. I believe experts more than average Joe. I also think it is impossible for all experts to have wrong conclusions. You don't know when is the correct time to take the SS until it is too late. I would rather believe expert rather than layman.
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Leeraar
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Re: Kotlikoff: When Should you Take Social Security?

Post by Leeraar »

FredL wrote:I am not expert, but all the experts are recommending take SS at 70 if possible. None of the opinion for taking SS as early as possible is from expert. I believe experts more than average Joe. I also think it is impossible for all experts to have wrong conclusions. You don't know when is the correct time to take the SS until it is too late. I would rather believe expert rather than layman.
FredL,

You are correct. Ten years ago, there was very little discussion about delaying a claim on SS as long as possible.

There are still some good reasons to claim SS earlier, they include poor health and family members with a disability. But yes, the best default choice for most people seems to have changed.

As Kotlikoff points out, the way the choices are presented in terms of "full retirement age" and "reduced benefits" are not very helpful for most people.

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 montanagirl »

I started getting spousal last month, but still don't know if it's the right thing for me. Does anyone know of a calculator that takes spousal into consideration? there was no place for it in i-orp so I used the earned income field. Also it doesn't handle age gaps for spouses.
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Re: Kotlikoff: When Should you Take Social Security?

Post by Leeraar »

montanagirl wrote:I started getting spousal last month, but still don't know if it's the right thing for me. Does anyone know of a calculator that takes spousal into consideration? there was no place for it in i-orp so I used the earned income field. Also it doesn't handle age gaps for spouses.
Kotlikoff has a comprehensive calculator that costs $40. I bought it, but have not yet used it.

Also try the Center for Retirement Research at Boston college.

Keith
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Re: Kotlikoff: When Should you Take Social Security?

Post by TomatoTomahto »

Leeraar wrote:
montanagirl wrote:I started getting spousal last month, but still don't know if it's the right thing for me. Does anyone know of a calculator that takes spousal into consideration? there was no place for it in i-orp so I used the earned income field. Also it doesn't handle age gaps for spouses.
Kotlikoff has a comprehensive calculator that costs $40. I bought it, but have not yet used it.

Also try the Center for Retirement Research at Boston college.

Keith
Kotlikoff's calculator takes spousal age, actual salary history, minor children, and probably a hundred other things into account. Btw, it lets you copy and paste your salary history from the SS web site, which saves on a lot of data entry :D
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Re: Kotlikoff: When Should you Take Social Security?

Post by drawpoker »

joebh wrote:... most compelling argument for waiting is this "worst case scenarios" thought exercise:
- if I wait to claim, but die early, I will have claimed less SS money than I could have. That's unfortunate, but I'm dead anyway.
- if I claim early, but live a long time, I could be poor in my old age
Exactly!

Couldn't have been said any better than that.
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Leeraar
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Re: Kotlikoff: When Should you Take Social Security?

Post by Leeraar »

Miriam2 wrote:Leeraar!
What happened to your Dutch master avatar? You can't just spring new things on us old folks :shock: How will we find you among all the posts?
What is that - a crab eating a fly?
Miriam2,

I think the new avatar is pretty distinctive. My wife complained about the old one, so I went looking for a change of pace.

The old one is reputed to be of Erasmus, the Dutch scholar. "Leeraar" is the Dutch word for scholar or teacher, so that's where that came from.

Image

The new one is something called a Julia set, based on work I did 30 years ago. It is very much like a Mandelbrot set. Gaston Julia was a French mathematician and teacher of Benoit Mandelbrot.

http://en.wikipedia.org/wiki/Julia_set

Let me just say the picture is a visualization of solving some algebraic polynomial equations.

Best wishes,

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

Post by Miriam2 »

Thank you! BTW - Your new avatar is very pretty - we'll find you!

(my earlier post deleted - I need to learn how to post better)
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Re: Kotlikoff: When Should you Take Social Security?

Post by dodecahedron »

Leeraar, your old avatar of Erasmus (one of my favorite historical figures--I once taught a Sunday school lesson on him) seems very fitting to the civilized, thoughtful, and intelligent discourse you contribute to this forum, on this as well as many other topics, but I can understand why your wife didn't like it. The new one is lovely. I am very fond of fractals (as you might guess from my avatar. :D )
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Re: Kotlikoff: When Should you Take Social Security?

Post by Leeraar »

TomatoTomahto wrote:
Leeraar wrote:
montanagirl wrote:I started getting spousal last month, but still don't know if it's the right thing for me. Does anyone know of a calculator that takes spousal into consideration? there was no place for it in i-orp so I used the earned income field. Also it doesn't handle age gaps for spouses.
Kotlikoff has a comprehensive calculator that costs $40. I bought it, but have not yet used it.

Also try the Center for Retirement Research at Boston college.

Keith
Kotlikoff's calculator takes spousal age, actual salary history, minor children, and probably a hundred other things into account. Btw, it lets you copy and paste your salary history from the SS web site, which saves on a lot of data entry :D
In the book, Kotlikoff reviews a number of calculators, including those from the SSA, AARP, Financial Engines, and the annual SS Benefits Statement. He points out some warts, and does not seem to really endorse any of them.

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 PaFromFL »

I have used several SocSec claiming strategy calculators, but they seem to be based on the assumption that nothing will change in the future and do not take into account the effect on tax brackets. Most if not all of them do not take into account that

1. Larger payments may bump you into a higher tax bracket so that you may take a hit of 10%, 3%, 5%, 2%, or 4.6% (may change in the future),
2. The breakeven age is about 20 years down the road [OT comments removed by admin LadyGeek]
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Re: Kotlikoff: When Should you Take Social Security?

Post by LadyGeek »

Discussions related to the future of Social Security or means-testing require changes in legislation - which are political comments and off-topic in this forum. As a reminder, see: Forum Policy
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Leeraar
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Re: Kotlikoff: When Should you Take Social Security?

Post by Leeraar »

In the book, Kotlikoff says, this book is about claiming what is yours, not about what is wrong with the system, or how to fix it.

Let's keep that in mind with this thread.

Thank you,

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

Post by PaFromFL »

It is an easy academic exercise (at least for me and Kotlikoff) to calculate the number of after-tax Social Security dollars I will receive when employing the many combinations of claiming strategies, assuming current cost-of-living and inflation rates, RMD fractions, various Roth conversion strategies, and no changes to the system. Unfortunately, when I introduce relatively minor changes into my simulation, they can quickly wipe out any benefits gained by fine-tuning the claiming strategy. Because my interest is more financial than academic, I am hedging my claiming strategy instead of relying on simple Social Security calculators.
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Re: Kotlikoff: When Should you Take Social Security?

Post by BahamaMan »

PaFromFL wrote:Because my interest is more financial than academic, I am hedging my claiming strategy instead of relying on simple Social Security calculators.
This may make you feel better, but it is nothing more than guessing. The calculators will more than likely give you a more accurate prediction. If you really want to 'hedge' and be 'safe', just don't include S.S. or any pension (Which may fail) in any of your planning!
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Re: Kotlikoff: When Should you Take Social Security?

Post by JDCarpenter »

BahamaMan wrote:
PaFromFL wrote:Because my interest is more financial than academic, I am hedging my claiming strategy instead of relying on simple Social Security calculators.
This may make you feel better, but it is nothing more than guessing. The calculators will more than likely give you a more accurate prediction. If you really want to 'hedge' and be 'safe', just don't include S.S. or any pension (Which may fail) in any of your planning!
Yep. We've plugged the same social security number into our planning since we first started long range planning in the 1980s: "0"

Maybe we'll be pleasantly surprised, but better safe than sorry. :-) (Exploring the claiming strategies and playing with our PIAs, however, shows that if things aren't changed, it will not be an insignificant amount of money.)
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Re: Kotlikoff: When Should you Take Social Security?

Post by bobcat2 »

JDCarpenter wrote:
BahamaMan wrote:
PaFromFL wrote:Because my interest is more financial than academic, I am hedging my claiming strategy instead of relying on simple Social Security calculators.
This may make you feel better, but it is nothing more than guessing. The calculators will more than likely give you a more accurate prediction. If you really want to 'hedge' and be 'safe', just don't include S.S. or any pension (Which may fail) in any of your planning!
Yep. We've plugged the same social security number into our planning since we first started long range planning in the 1980s: "0"

Maybe we'll be pleasantly surprised, but better safe than sorry. :-) (Exploring the claiming strategies and playing with our PIAs, however, shows that if things aren't changed, it will not be an insignificant amount of money.)
The financial position of Medicare is much worse than the financial condition of Social Security. So to be consistent you should also plan for "0" Medicare benefits. The present value of lifetime benefits of Medicare for a couple both age 64 today is about $440,000. The estimate for the present value of lifetime Medicare benefits for a couple age 65 in 2030 (in today's dollars) is $664,000. You have two very big holes to fill if you assume "0" for both Social Security and Medicare. :wink:

Also in continuing the theme of being safe, you should probably plug in 2.7% as the real annual return on stocks going forward. That is the average actual real return on the combined Vanguard US Total Stock Fund and the Vanguard Total Intl. Stock Fund over the last 15 years, according to the latest Morningstar data.

See this link for estimates of the lifetime values of SS and Medicare benefits.

http://www.urban.org/sites/default/file ... Update.PDF

BobK
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Re: Kotlikoff: When Should you Take Social Security?

Post by BahamaMan »

bobcat2 wrote:The financial position of Medicare is much worse than the financial condition of Social Security. So to be consistent you should also plan for "0" Medicare benefits. The present value of lifetime benefits of Medicare for a couple both age 64 today is about $440,000. The estimate for the present value of lifetime Medicare benefits for a couple age 65 in 2030 (in today's dollars) is $664,000. You have two very big holes to fill if you assume "0" for both Social Security and Medicare. :wink:

Also in continuing the theme of being safe, you should probably plug in 2.7% as the real annual return on stocks going forward. That is the average actual real return on the combined Vanguard US Total Stock Fund and the Vanguard Total Intl. Stock Fund over the last 15 years, according to the latest Morningstar data.

See this link for estimates of the lifetime values of SS and Medicare benefits.

http://www.urban.org/sites/default/file ... Update.PDF

BobK
Correct, and I was being mostly facetious! When you start 'Hedging your Bets' against future disasters, where does it end? The Dollar collapsing to nothing? , Nuclear war ? The sun Burning out... Where does it end?

Do your planning with the cards we currently have on the table and forget trying to project on what may or may not change or happen!
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Re: Kotlikoff: When Should you Take Social Security?

Post by JDCarpenter »

bobcat2 wrote:
JDCarpenter wrote:
BahamaMan wrote:
PaFromFL wrote:Because my interest is more financial than academic, I am hedging my claiming strategy instead of relying on simple Social Security calculators.
This may make you feel better, but it is nothing more than guessing. The calculators will more than likely give you a more accurate prediction. If you really want to 'hedge' and be 'safe', just don't include S.S. or any pension (Which may fail) in any of your planning!
Yep. We've plugged the same social security number into our planning since we first started long range planning in the 1980s: "0"

Maybe we'll be pleasantly surprised, but better safe than sorry. :-) (Exploring the claiming strategies and playing with our PIAs, however, shows that if things aren't changed, it will not be an insignificant amount of money.)
The financial position of Medicare is much worse than the financial condition of Social Security. So to be consistent you should also plan for "0" Medicare benefits. The present value of lifetime benefits of Medicare for a couple both age 64 today is about $440,000. The estimate for the present value of lifetime Medicare benefits for a couple age 65 in 2030 (in today's dollars) is $664,000. You have two very big holes to fill if you assume "0" for both Social Security and Medicare. :wink:

Also in continuing the theme of being safe, you should probably plug in 2.7% as the real annual return on stocks going forward. That is the average actual real return on the combined Vanguard US Total Stock Fund and the Vanguard Total Intl. Stock Fund over the last 15 years, according to the latest Morningstar data.

See this link for estimates of the lifetime values of SS and Medicare benefits.

http://www.urban.org/sites/default/file ... Update.PDF

BobK
I agree on both counts, which is why we haven't retired quite yet. We also assume no inheritance and DW living to 105. Margins of safety are important and, fortunately, we are in a position to recognize that fact. You can't hedge for everything, but at the cost of a few more working years in one's 50's, better safe than sorry.
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Re: Kotlikoff: When Should you Take Social Security?

Post by PaFromFL »

BahamaMan wrote:
PaFromFL wrote:Because my interest is more financial than academic, I am hedging my claiming strategy instead of relying on simple Social Security calculators.
This may make you feel better, but it is nothing more than guessing. The calculators will more than likely give you a more accurate prediction. If you really want to 'hedge' and be 'safe', just don't include S.S. or any pension (Which may fail) in any of your planning!
My career involves modeling very complex physics and engineering systems, so I can assure you that my simple models closely match the online calculators. The online calculators assume nothing will change and (to my knowledge) do not take into account tax brackets and the effect of RMDs. My point was that small policy and economic changes can drastically change the optimum claiming strategy.

I applaud the online calculators for successfully applying a simple model to a wide range of situations. My model includes "what-if" scenarios based on my particular financial situation and future investment plans, and would be very hard to generalize for all possible situations. My hedged approach is based on a wide universe of proposed changes, and avoids claiming strategies that are extremely sensitive to changes (such as claiming very early or very late). It does assume that Social Security will only suffer occasional tweaks that are not overly controversial or abrupt for the majority of voters. I'm giving up the chance to win big to reduce the chance of losing big.

While it is true that a physical, political, or economic disaster can ruin everyone's plans, they are hard to predict and insure against. If you conservatively save too much money (> $1.5 M) in an IRA, you probably will suffer what feels like a tax disaster after age 70.5.
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Re: Kotlikoff: When Should you Take Social Security?

Post by hawkfan55 »

mak wrote: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.
I agree. No one is going to be totally happy with what it will take to assure SS is solvent for future generations. For one, as an Independent Business Owner (I am the only employee), I pay both the Employer and Employee shares of FICA and Medicare taxes, also called self employment taxes. I won't be happy paying a higher rate of self employment taxes, along with state and federal income taxes. I also travel in my business so increases in gas and hotel taxes also take a chunk. It might be the "straw" that pushes me to finally retire. There is a point where it is just not worth the effort. Fortunately, we have saved enough to retire comfortably.
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Re: Kotlikoff: When Should you Take Social Security?

Post by Leeraar »

I think it's worth noting that Mike Piper has reservations about Kotlikoff's advice:

viewtopic.php?p=2509872#p2509872

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

Post by KATNYC »

It's different for everyone based on personal circumstances. My dad is waiting. He's already at full retirement age but still working full-time.
He said today that he will get a higher benefit by waiting and he can keep working and earn as much as he wants. I didn't research it but he said there was a limit on earned income (like $17,000) if retiring earlier.
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Re: Kotlikoff: When Should you Take Social Security?

Post by Miriam2 »

LadyGeek wrote:^^^ This thread is now in the wiki: Social Security ("External links")

Wiki editors are always welcome to add threads to articles.
In view of the changes to Social Security since the publication of this Kotlikoff book, and of the dubious accuracy of parts of this book due to the Social Security changes, I wonder if it would be a good idea to remove the external link to this Kotlikoff thread in the Forum Discussions section of our Wiki.
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Re: Kotlikoff: When Should you Take Social Security?

Post by LadyGeek »

^^^ Thanks I removed the link to this thread. See: Social Security

FYI - A member was kind enough to report the post to flag a wiki editor. That'll work, thanks.

Other ways to get the attention of a wiki editor are on the wiki home page under "Contributing to the wiki".
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Re: Kotlikoff: When Should you Take Social Security?

Post by JW-Retired »

KATNYC wrote:It's different for everyone based on personal circumstances. My dad is waiting. He's already at full retirement age but still working full-time.
He said today that he will get a higher benefit by waiting and he can keep working and earn as much as he wants. I didn't research it but he said there was a limit on earned income (like $17,000) if retiring earlier.
I think waiting to age 70 is very probably the right thing for him to do if he continues working,.....but not for that reason. Once he is full retirement age he can earn an unlimited amount without any effect on his SS benefit (other than paying higher taxes on it).
JW
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Re: Kotlikoff: When Should you Take Social Security?

Post by KATNYC »

JW-Retired wrote:
KATNYC wrote:It's different for everyone based on personal circumstances. My dad is waiting. He's already at full retirement age but still working full-time.
He said today that he will get a higher benefit by waiting and he can keep working and earn as much as he wants. I didn't research it but he said there was a limit on earned income (like $17,000) if retiring earlier.
I think waiting to age 70 is very probably the right thing for him to do if he continues working,.....but not for that reason. Once he is full retirement age he can earn an unlimited amount without any effect on his SS benefit (other than paying higher taxes on it).
JW
That's his motivation....he won't be limited to how much he can earn at work.
He works 6 days a week, always has. We may have to drag him away from his job when he's 100.
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