Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

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Leesbro63
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Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by Leesbro63 » Sat Nov 07, 2015 5:20 pm

I'm looking to confirm my numbers: A friend, who is still working, wants to take SS next year when she turns age 62. Her husband is a professional, two years older, and plans to take SS at 66 or may wait until 70..he hasn't decided. They are an affluent couple. She wants "mad money". I am estimating that her benefit is about $1000, but there will be income tax and she'll lose some benefit for earning more than $15,000ish or whatever the number is.

I don't think that most of this is important for my "back of the napkin" point, which is, that by delaying the planned age 62 SS to age 66, she can effectively buy a 8.3% COLA'd annuity.

At 66 her benefit would be $1000. At 62 it's $750. So she'll be giving up $36,000 by not taking it at 62 ($750 per month x 48 months). But in return for that $36,000, she'll get an extra $3000 per year for the rest of her life, COLA'd. To my knowledge, there is nowhere on the planet, besides this, where one can buy an annuity with a payout of 8.3% straight...let alone with a cost of living rider. I'm trying to keep the analysis simple and not complicated it with taxes and penalty for working. Are my numbers correct? My suggestion is that if she wants "mad money" to do extra stuff that she's afraid she'll be too old to do later (her health is fine, but you never know), take $36,000 out of the bank over 48 months and leave the SS alone. Her answer is that she'll never spend the money, because she'll feel bad, but that the "free" SS is just "fun money". She's intelligent and laughed when I pointed out that the money doesn't know if it's fun money or serious money. She gets it in theory; but in reality she's segregating funds in her head in a manner that punishes honest mathematicians! Because the SS doesn't exist now, it's new and fun. Versus drawing down savings, which would be frivolously spending.

Anyway, I want to keep it simple and think that showing that she has an incredible opportunity to buy an 8.3% COLA'd annuity might help connect the dots. Are my numbers essentially right?

EDIT: This conversation is an outgrowth of my long post last month where we finally figured out that there is "no free lunch" for a lower earning spouse taking SS early. Even when she (or he) converts to a spousal benefit, that amount will be lower than would be the case if she (or he) had waited until FRA. Lower by the same amount that it's been reduced since age 62 for taking that portion at early (at 62).

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by MikeWillRetire » Sat Nov 07, 2015 6:29 pm

You say they are affluent. If so, then maybe it really doesn't matter.

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by Leesbro63 » Sat Nov 07, 2015 6:47 pm

MikeWillRetire wrote:You say they are affluent. If so, then maybe it really doesn't matter.
Making poor-value decisions always matters. Ask Warren Buffett.

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by BigFoot48 » Sat Nov 07, 2015 6:56 pm

Leesbro63 wrote:IAnyway, I want to keep it simple and think that showing that she has an incredible opportunity to buy an 8.3% COLA'd annuity might help connect the dots. Are my numbers essentially right?
Isn't it more accurate to say she'll get her COLA'd annuity and every year she waits until 70 it will be 8.3% higher than if she had taken it the previous year?
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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by jamacq » Sat Nov 07, 2015 7:08 pm

That's the simplest case I've seen made for delaying. Rather than calculating a break-even age, etc...this puts it in simple terms of an attractive price for a great annuity.

I just did the math for the similar case of waiting until age 70 using my benefit estimate. Based on my benefit estimate for age 66 and 8 months vs age 70, I calculate that it is the same as buying a cola'd annuity that returns 8.8%. Since my spouse would also get the stepped up annuity if I died, I believe this would be the equivalent a joint life annuity. A quick check on ImmediateAnnuities.com shows that a 70 year old man could get a non-cola'd annuity that pays only 6.05% today. Big difference in benefit.

Again, thanks for posting this. I hadn't thought of the decision in this way before.

Jeff

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by Tony Manero » Sat Nov 07, 2015 8:00 pm

(1) The 8% "deferral" Annuity isn't without risk. And that risk is understanding the break-even "year", which is 78 (your calculation).
By deferring from 62 to FRA 66, she forgoes $36,000 IMMEDIATELY, but gets it back from 66 to about 78 ($250/mo x 48 or $3,000/yr x 12 yrs). After the break-even age, she gets more cumulatively (so if she lives "average" 8 years, she receives $24,000 more, but it's a 20 year calculus).

In summary, she gives up sure money up front (@62-66), and takes risk to make money at the back-end (after 78).

It is still recommended to wait to FRA than starting at 62 as her expectancy to 78 is very good @62 and income is needed at the backend. Going to 70 from @62 and living beyond 78-81is more risky.

For the "average person", the stats are something like this: @65, expectancy of males=83, for females=86. 1 in 7 live to 90's, but I suppose 1 in 7 also die before 83/86.

(2) By deferring and stepping up, the survivor benefit also increases, but it's only valuable IF the survivor has a LOWER PIA. So if the husband's PIA benefit is higher than the wife's step up (deferring to FRA or to 70), it doesn't matter.

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by David Jay » Sat Nov 07, 2015 8:31 pm

I think annuity calculations are a great way to represent Social Security. For instance, my benefit at FRA will be the equivalent of about a $500,000 annuity (depending on my pay in the remaining work years).

I also use this as I think about asset allocation. SS adds a half million to fixed income portfolio
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by heyyou » Sat Nov 07, 2015 9:02 pm

The question is not about what is financially optimal (he starts SS at 70), it is about whether she wants to wait a few years to get more pocket money before his age 70, or she chooses immediate gratification. No reason to meddle unless her decision to draw very early influences his decision to draw at some age earlier than 70.

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by #Cruncher » Sun Nov 08, 2015 12:11 am

BigFoot48 in [url=https://www.bogleheads.org/forum/viewtopic.php?p=2681642#p2681642]this post[/url] wrote:Isn't it more accurate to say she'll get her COLA'd annuity and every year she waits until 70 it will be 8.3% higher than if she had taken it the previous year?
8.3% is the arithmetic average yearly increase from age 62 to age at 66 (for someone born 1943-1954). [1] But the year-to-year increase isn't constant; it varies as shown in the table below.

Code: Select all

                       ----- % Increase if Delay until Following Year ------
 Born          NRA      62     63     64     65     66     67     68     69
---------     ------   ----   ----   ----   ----   ----   ----   ----   ----
1943-1954     66.000   6.67   8.33   7.69   7.14   8.00   7.41   6.90   6.45
1955          66.167   6.74   8.07   7.79   7.23   7.87   7.50   6.98   6.52
1956          66.333   6.82   7.80   7.89   7.32   7.73   7.59   7.06   6.59
1957          66.500   6.90   7.53   8.00   7.41   7.59   7.69   7.14   6.67
1958          66.667   6.98   7.25   8.11   7.50   7.44   7.79   7.23   6.74
1959          66.833   7.06   6.96   8.22   7.59   7.29   7.89   7.32   6.82
1960 & later  67.000   7.14   6.67   8.33   7.69   7.14   8.00   7.41   6.90
For example someone born 1943-1954 will get a 6.67% larger benefit at age 63 than at age 62. But the increase for waiting another year to age 64 is 8.33%. These increases are based on the following table which shows the benefit each year as a percent of the benefit at Normal Retirement Age (NRA). [2]

Code: Select all

                      ------------ % of Normal Retirement Age (NRA) Benefit ------------
 Born          NRA     62     63     64     65      66      67      68      69      70
---------     ------  -----  -----  -----  -----  ------  ------  ------  ------  ------
1943-1954     66.000  75.00  80.00  86.67  93.33  100.00  108.00  116.00  124.00  132.00
1955          66.167  74.17  79.17  85.56  92.22   98.89  106.67  114.67  122.67  130.67
1956          66.333  73.33  78.33  84.44  91.11   97.78  105.33  113.33  121.33  129.33
1957          66.500  72.50  77.50  83.33  90.00   96.67  104.00  112.00  120.00  128.00
1958          66.667  71.67  76.67  82.22  88.89   95.56  102.67  110.67  118.67  126.67
1959          66.833  70.83  75.83  81.11  87.78   94.44  101.33  109.33  117.33  125.33
1960 & later  67.000  70.00  75.00  80.00  86.67   93.33  100.00  108.00  116.00  124.00
For example the person born 1943-1954 receives 75% of the NRA benefit at age 62. At age 63 she'd receive 80% which is 6.67% more. At age 64 she'd receive 86.67% of the NRA benefit which is 8.33% more than the benefit at age 63.

The year-to-year increases jump around because of the disparate formulas the Social Security Agency (SSA) uses. According to this web page:
  • Each month up to 36 before NRA reduces the benefit by 5/900 or 6/90 per year.
  • Each month over 36 before NRA reduces the benefit by 5/1200 or 5% per year.
  • Each month after NRA increases the benefit by 8/1200 or 8% per year (for anyone born after 1942).
  1. This assumes any earnings after age 62 do not increase the monthly average upon which the SS benefit is based.
  2. A single formula is used to compute all the percents. Assuming the ages 62:70 are in cells C1:K1 and the NRAs are in cells B2:B8, this is the top left formula in cell C2:

    Code: Select all

    75.00 =IF(C$1<=$B2, 1 - MIN(3,$B2-C$1)*(6/90) - MAX(0,$B2-C$1-3)*5%, 1 + (C$1-$B2)*8%)
    The formula can be copied down to row 8 and right to column K. A similar table is shown on this SSA web page.

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by itstoomuch » Sun Nov 08, 2015 1:39 am

It's all guess work and assumptions.
We took SS at first opportunities, (62 and 63) because we needed the money-cashflow. We are now 65/68
We turned in the cornor in 2013 when the unplanned Market had a big run-up which reset our deferred annuities at much higher levels and our trading accounts did well, too. :oops:

IMO, SS is a "political" beast and should be handled with extreme care. Assuming SS's future could be very dangerous. YMMV or rather your friend's MMV. :annoyed

GL to your friend.
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: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by john94549 » Sun Nov 08, 2015 3:58 am

As I explained to my wife, it's really neutral. Or, it's supposed to be. The payout, should you claim at 62 or 70, "should" be actuarially neutral. Actuarial tables calculate longevity. Stated another way, folks who begin collecting at 62 collect less per month longer. Folks who defer collecting to 70 collect more per month shorter.

By-and-large, the folks at the Social Security Administration had this all figured out long before you did.

The "kicker" of course, was spousal, which never made sense, never fit into the actuarial computations, was widely derided as free money, but was just "there". And, for those of us grandmothered in, it shall remain. We early boomers are no doubt the last beneficiaries of spousal.
Last edited by john94549 on Sun Nov 08, 2015 11:10 am, edited 1 time in total.

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by Quark » Sun Nov 08, 2015 6:47 am

Following up on john94549's post, it's supposed to be actuarially neutral, that is, the average person will be no better or worse off by taking early or late. Delaying, in effect, is a bet you'll live longer than average. I view delaying as insurance against living longer than average - you'll have more money when you're really old. Some people need the money sooner, so delaying is not a realistic option.

Social Security payouts are based on a number of assumptions and don't differentiate between men and women. On average women live longer than men, so delaying makes more sense for women. As I understand it, the timing of payouts were based on interest rates at the time they were designed. Interest rates matter because money received now is more valuable than the same amount received later. Current real interest rates are lower than when payouts were designed, so future payments have a larger discounted present value than if the system were currently actuarially neutral.

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by HoopDiddyDiddy » Sun Nov 08, 2015 9:03 am

Anyone recognize this quote??
But Social Security is intended to be "actuarially neutral." That's why I don't think there's too much point agonizing over claiming strategies, and so forth.

There probably are differences--to take the obvious one, Social Security, being unisex, favors women over men. And once you include taxes and 401(k)s and such the system has so many moving parts that academics are constantly discovering new and surprising features. I think most of the fuss about claiming strategies is people showing off their virtuosity in building models and number-crunching, and they all depend on insanely over-precise estimates of what the future holds. I won't quite say garbage in, garbage out, but insanely overprecise predictions in, insanely overprecise plans out.
I copied this from somewhere with no attribution and have it in my 'notes on SS file.' I have been cipherin' for ages on this very topic and that quote gives me peace :mrgreen:
My plan as of this minute is to just put off receiving SS as long as possible then take it if/when we need it early and try not to think about the higher monthly amount lost because I was unable to wait.

I think maybe there are no clear answers and it is just a matter of my own philosophy and preference.

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by joebh » Sun Nov 08, 2015 9:41 am

HoopDiddyDiddy wrote:Anyone recognize this quote??
But Social Security is intended to be "actuarially neutral." That's why I don't think there's too much point agonizing over claiming strategies, and so forth....
viewtopic.php?t=115247#p1676407

And remember that while Social Security is intended to be actuarially neutral, the increase in longevity over the years means that in today's world it isn't quite neutral. The Social Security Administration's actuaries haven't yet adjusted the benefits to match today's longevity values.

That said, I think your approach (delay unless you need it) is in most cases the correct approach.

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by jeffyscott » Sun Nov 08, 2015 10:10 am

I don't know what "8.3% COLA'd annuity" means, but I do know that the average benefit increase of 8.3% is not equivalent to earning an 8.3% return. Delaying a year means you are a year older and will collect the larger amount for 1 year less.

Using an annuity calculator: http://www.investopedia.com/calculator/annuitypv.aspx
$1000 for 30 years has PV of $19,600, $1083 for 29 years has PV of $20,781. That's about a 6% return.
Time is your friend; impulse is your enemy. - John C. Bogle

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by Jack FFR1846 » Sun Nov 08, 2015 10:15 am

Here's how I see it: She doesn't care about the math. Doing equations and calculations will be lost on her. She has more money than she'll ever spend but is so frugal that she can't bring herself to spend it. So moving forward, here are the choices I see for her:

1: Don't take SS at 62, live the frugal life and die with a huge pot of unused money and an empty batch of memories.

2: Take SS now, where she'll see the money as "free" to spend in ways that she otherwise would never have done, perhaps taking trips or doing things she always wanted to do. You say they're affluent. She'll still die leaving a pot full of money but will have lived far happier with a retirement full of good memories.

It's not always about the money.
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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by jeffyscott » Sun Nov 08, 2015 10:28 am

Leesbro63 wrote:EDIT: This conversation is an outgrowth of my long post last month where we finally figured out that there is "no free lunch" for a lower earning spouse taking SS early. Even when she (or he) converts to a spousal benefit, that amount will be lower than would be the case if she (or he) had waited until FRA. Lower by the same amount that it's been reduced since age 62 for taking that portion at early (at 62).
But the lower earning spouse's benefit is still only paid until the first of them dies, while the larger is until the second dies.

I think, due to this, it usually makes sense for the lower earning spouse to take at 62 and the higher earner to delay.
Time is your friend; impulse is your enemy. - John C. Bogle

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by Leesbro63 » Sun Nov 08, 2015 10:31 am

jeffyscott wrote:
Leesbro63 wrote:EDIT: This conversation is an outgrowth of my long post last month where we finally figured out that there is "no free lunch" for a lower earning spouse taking SS early. Even when she (or he) converts to a spousal benefit, that amount will be lower than would be the case if she (or he) had waited until FRA. Lower by the same amount that it's been reduced since age 62 for taking that portion at early (at 62).
But the lower earning spouse's benefit is still only paid until the first of them dies, while the larger is until the second dies.

I think, due to this, it usually makes sense for the lower earning spouse to take at 62 and the higher earner to delay.
Agreed that the survivor benefit changes the equation if you expect the larger earning spouse to have a short life expectancy. In this case both spouses are close in age and had parents who lived well into their 80s.

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by jeffyscott » Sun Nov 08, 2015 10:38 am

A 64 year old man has life expectancy of about 20 years. So her benefit has an expected duration of 20 years, or make it 22 based on health and family history.

Using that time frame the return for delay drops to 4.7% (using same assumptions as prior post, except 22 and 21 years for duration of the annuity).
Time is your friend; impulse is your enemy. - John C. Bogle

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by #Cruncher » Sun Nov 08, 2015 11:13 am

Quark in [url=https://www.bogleheads.org/forum/viewtopic.php?p=2681962#p2681962]this post[/url] wrote:Social Security payouts are based on a number of assumptions and don't differentiate between men and women. On average women live longer than men, so delaying makes more sense for women.
I made the following two tables to illustrate this. Both show the present value (PV) of SS benefits for someone born 1943-1954 assuming life expectancies shown on the SSA 2011 Period Life Table. The Primary Insurance Amount (PIA) at Normal Retirement Age (NRA) is assumed to be $1 per month and the discount rate is a small 2% reflecting the fact that SS benefits are CPI-indexed. The first table is for females and the second is for males. [*]

Female @ 2% discount rate

Code: Select all

                     ----------------- Age Begin Collecting and % of PIA ------------------     
Age   Life Expect      62      63      64      65      66      67      68      69      70   Best
Now   Years Mnths    75.0%   80.0%   86.7%   93.3%  100.0%  108.0%  116.0%  124.0%  132.0%   Age
---   ----- -----    -----   -----   -----   -----  ------  ------  ------  ------  ------  ----
 62   22.68   272     164     165     169     171     172     174     175     174     171    68
 63   21.85   262      -      170     174     176     177     179     180     179     177    68
 64   21.03   252      -       -      178     181     182     184     185     184     182    68
 65   20.22   243      -       -       -      186     188     190     191     190     188    68
 66   19.42   233      -       -       -       -      193     196     197     196     194    68
 67   18.63   224      -       -       -       -       -      202     203     202     201    68
 68   17.85   214      -       -       -       -       -       -      209     208     206    68
 69   17.09   205      -       -       -       -       -       -       -      215     213    69
 70   16.33   196      -       -       -       -       -       -       -       -      221
A woman aged 62 is expected to live 22.68 years or 272 months. She gets the largest PV ($175) by not starting benefits until she is age 68. If she starts collecting benefits at age 62, the PV would be only $164. If she waits until age 70 it is $171. The difference between the largest and smallest PV is $11 ($175 - $164).

Male @ 2% discount rate

Code: Select all

                     ----------------- Age Begin Collecting and % of PIA ------------------     
Age   Life Expect      62      63      64      65      66      67      68      69      70   Best
Now   Years Mnths    75.0%   80.0%   86.7%   93.3%  100.0%  108.0%  116.0%  124.0%  132.0%   Age
---   ----- -----    -----   -----   -----   -----  ------  ------  ------  ------  ------  ----
 62   19.90   239     148     148     150     151     151     151     150     147     143    65
 63   19.15   230      -      153     155     156     156     156     155     153     149    67
 64   18.40   221      -       -      160     161     161     162     161     158     154    67
 65   17.66   212      -       -       -      167     167     167     167     164     160    67
 66   16.93   203      -       -       -       -      172     173     172     170     166    67
 67   16.21   195      -       -       -       -       -      180     179     177     174    67
 68   15.51   186      -       -       -       -       -       -      185     183     180    68
 69   14.81   178      -       -       -       -       -       -       -      191     187    69
 70   14.13   170      -       -       -       -       -       -       -       -      195
Because of his shorter 19.90 year life expectancy, the maximum PV for a man aged 62 occurs if he waits until age 65-67 ($151). This compares to a $148 PV if he starts at age 62 or $143 if he waits until age 70. The difference between the largest and smallest PV is $8 ($151 - $143).

* All the present values are calculated with one formula that is copied from the top-left corner to the bottom-right corner.

Code: Select all

148 =IF(D$3<$A5, 0, PV($B$2/12,12*(D$3-$A5),0, PV($B$2/12,$C5-12*(D$3-$A5),$B$1*D$4,0,0), 0))
This assumes
  • Cell B1: Monthly PIA (1)
  • Cell B2: Annual discount rate (2%)
  • Cells D3:L3: Age begin benefits (62 - 70)
  • Cells D4:L4: % of PIA (75% - 132%)
  • Cells A5:A13: Age Now (62 - 70)
  • Cells C5:C13: Life expectancy in months (272 - 196 female / 239 - 170 male)
The formula first computes the PV of the annuity at the age benefits begin. It then discounts that PV back to the age now. For example the $143 PV of a 62 year old male delaying until age 70 is calculated as follows with the Excel PV function:

Code: Select all

168 =PV(2% / 12, 239 - 96, -1.32,   0,       0)
143 =PV(2% / 12, 96,        0,     -168,     0)
Edit 11/09/2015: Decided better to show results for $1 per month PIA instead of $1,000 since latter gives false sense of precision.
Last edited by #Cruncher on Mon Nov 09, 2015 8:21 am, edited 1 time in total.

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by praxis » Sun Nov 08, 2015 11:21 am

HoopDiddyDiddy wrote:Anyone recognize this quote??
But Social Security is intended to be "actuarially neutral." That's why I don't think there's too much point agonizing over claiming strategies, and so forth.

There probably are differences--to take the obvious one, Social Security, being unisex, favors women over men. And once you include taxes and 401(k)s and such the system has so many moving parts that academics are constantly discovering new and surprising features. I think most of the fuss about claiming strategies is people showing off their virtuosity in building models and number-crunching, and they all depend on insanely over-precise estimates of what the future holds. I won't quite say garbage in, garbage out, but insanely overprecise predictions in, insanely overprecise plans out.
I copied this from somewhere with no attribution and have it in my 'notes on SS file.' I have been cipherin' for ages on this very topic and that quote gives me peace :mrgreen:
My plan as of this minute is to just put off receiving SS as long as possible then take it if/when we need it early and try not to think about the higher monthly amount lost because I was unable to wait.

I think maybe there are no clear answers and it is just a matter of my own philosophy and preference.
The calculations won't matter to the OP's friend as much as spending time pondering her evolving relationship with spending/saving. If they're financially secure, it's a no-brainer to wait to file. You said she wants "mad money". She just needs to spend some of her nest egg and let her SS grow. I'm still working on my own mind set and I'm 10 years into retirement. It's been a challenge learning to spend after a lifetime saving.

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by Independent » Sun Nov 08, 2015 11:34 am

Quark wrote:Following up on john94549's post, it's supposed to be actuarially neutral, that is, the average person will be no better or worse off by taking early or late. Delaying, in effect, is a bet you'll live longer than average. I view delaying as insurance against living longer than average - you'll have more money when you're really old. Some people need the money sooner, so delaying is not a realistic option.

Social Security payouts are based on a number of assumptions and don't differentiate between men and women. On average women live longer than men, so delaying makes more sense for women. As I understand it, the timing of payouts were based on interest rates at the time they were designed. Interest rates matter because money received now is more valuable than the same amount received later. Current real interest rates are lower than when payouts were designed, so future payments have a larger discounted present value than if the system were currently actuarially neutral.
+1

I finally looked this up. The reduction for the first three years is 5/9 of a percent for each month. So 36 months = 20%, which was the reduction for 62 vs. 65, and is still the reduction for 63 vs. 66.

The 5/9 factor was originally developed in 1956, when women were first eligible for early retirement benefits. (Men would have to wait until 1961.) According to Rober Myers, longtime chief SS actuary, this was "... close to actuarial basis, but not quite as much, because -- from a political standpoint, too large a reduction would have resulted".

The the reduction wasn't quite big enough for women in 1956. The 1983 act increased the NRA so it had to add another year of reduction factors.

It would be surprising indeed, if the factors originally developed in 1956 happen to be exactly right in 2015.
Last edited by Independent on Sun Nov 08, 2015 11:39 am, edited 2 times in total.

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by JW-Retired » Sun Nov 08, 2015 11:36 am

Leesbro63 wrote:I'm looking to confirm my numbers: A friend, who is still working, wants to take SS next year when she turns age 62. Her husband is a professional, two years older, and plans to take SS at 66 or may wait until 70..he hasn't decided. They are an affluent couple. She wants "mad money". I am estimating that her benefit is about $1000, but there will be income tax and she'll lose some benefit for earning more than $15,000ish or whatever the number is.

I don't think that most of this is important for my "back of the napkin" point, which is, that by delaying the planned age 62 SS to age 66, she can effectively buy a 8.3% COLA'd annuity.

At 66 her benefit would be $1000. At 62 it's $750.
If the annuity comparison isn't getting through maybe a tax argument would be more effective?

Since they, or at least the husband, are going to continue working her mad money SS payment is going to get pretty highly taxed now. Will they have oodles of retirement income besides SS once they both retire too, or is SS going to be the major part of their income so taxes on it would be very low? If she is going to be "prepaying" taxes on SS at 85% of her current marginal rate at age 62, instead of later at a much much lower rate on the grown SS amount, would that get her attention?

It's probably much more important for the presumably higher earner & older husband to delay as long as possible.
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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by jeffyscott » Sun Nov 08, 2015 12:21 pm

#cruncher - For a couple there will be a shift, for example I'm 4 years older than spouse and also the higher earner, so my benefit expected term would actually be somewhat longer than her life expectancy, while the expected term of her's will be somewhat shorter than my life expectancy.
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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by Enkidu » Sun Nov 08, 2015 12:44 pm

Leesbro63 wrote:I'm looking to confirm my numbers: A friend, who is still working, wants to take SS next year when she turns age 62. Her husband is a professional, two years older, and plans to take SS at 66 or may wait until 70..he hasn't decided. They are an affluent couple. She wants "mad money". I am estimating that her benefit is about $1000, but there will be income tax and she'll lose some benefit for earning more than $15,000ish or whatever the number is.
Personally, you think that you are way overselling this. The lower earning spouse in a married couple actually has a "first to die annuity". This is worth less than the annuity of a single person because it stops when the first spouse dies.

The higher earning spouse can file a restricted application for spousal benefits at his FRA (66), when she is 64. Therefore she should delay no longer than his FRA to maximize expected benefits for both of them. If you assume average life expectancy for both of them, there is no gain from her delaying from 62 to 64. If you assume that they both have a higher than average life expectancy because they are high income white collar earners, then the gain from delaying from 62 to 64 is positive but minor in the big scheme of things.

From my perspective, there is no large advantage for her to delay, and certainly not past 64. Let her have her "mad money".

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by scone » Sun Nov 08, 2015 1:50 pm

I don't think she's stupid.

1. If she spends down the cash, she loses the optionality of that cash-- and that option has a value. I'm not sure how you would calculate that value, but I know from experience that "stuff happens" both good and bad, and it's great to have a very healthy wad of cash lying around "not earning anything." For example, during the recent unpleasantness, I was able to take advantage of a great buying opportunity, essentially a distressed asset, because I had cash on hand. (Heck, if you really hate to spend money, you could combine the cash and SS, and invest the whole wad.) Some finance people, like Dr. Bernstein, and even Warren Buffett for that matter, would agree with this approach, and I don't think they're stupid.

1a. Spending down the cash, to the extent it makes her more dependent on her husband's income, might give her pause, even if the marriage is stable. Keeping the cash, if it's in her own name, and taking SS allows her to keep some modicum of financial independence, or even increase it. I can understand that attitude perfectly.

2. To state the obvious, Social Security is a matter of law, and laws are made by Congress. These laws can change at any time, in fact we are seeing one loophole being closed this year. You might be able to wait five years and get more money, or you might wait and find the system has been altered, maybe even enough to eliminate any advantage you got by waiting. IMO the typical Boglehead assumption that "of course you will get the money, and we know how much it will be," is simply pretending these risks do not exist.

3. You could die at 69.9 years. More fool you.

4. Money today is worth more than money tomorrow, period. The "use value" of money today versus money tomorrow may not be easy to calculate until you actually spend it (see optionality above), but it's not zero, and the "regret cost" of foregoing opportunities is not zero.

So waiting until 70 essentially means taking on some risks, playing the odds, and you may not be able to accurately assess the risks or what they might cost you-- but it is costing you something. Under these circumstances, taking SS at 66 strikes me as a perfectly reasonable alternative, and hardly an insult to mathematics. IMO assuming that delaying is always the best decision because you're "bound" to get more money later, is a case of oversimplifying your equation by ignoring or pooh-poohing risks, just to get some sort of quantified "answer," when the problem is a bit more complex and multi-dimensional.
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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by dbr » Sun Nov 08, 2015 2:56 pm

scone wrote:I don't think she's stupid.

1. If she spends down the cash, she loses the optionality of that cash--

In general you don't give up all your liquid assets in favor of an annuity. If you have to do that you can't afford to delay SS. Lot's of people need the money now and take SS at age 62. I had the impression that insurance companies are not supposed to sell annuities to people that contemplate placing over 50% of their net worth in an annuity. Maybe that is a myth of just someone's rule of thumb.


1a. Spending down the cash, to the extent it makes her more dependent on her husband's income, might give her pause, even if the marriage is stable. Keeping the cash, if it's in her own name, and taking SS allows her to keep some modicum of financial independence, or even increase it. I can understand that attitude perfectly.

2. To state the obvious, Social Security is a matter of law, and laws are made by Congress. These laws can change at any time, in fact we are seeing one loophole being closed this year. You might be able to wait five years and get more money, or you might wait and find the system has been altered, maybe even enough to eliminate any advantage you got by waiting. IMO the typical Boglehead assumption that "of course you will get the money, and we know how much it will be," is simply pretending these risks do not exist.

All income streams should be diversified to manage risk. If the end results is most of a person's income in SS that would not be wise.

3. You could die at 69.9 years. More fool you.

The point is that an annuity, including SS, is insurance and like all insurance is not avoided on the argument that if you don't actually experience the risk then the insurance was wasted.

4. Money today is worth more than money tomorrow, period. The "use value" of money today versus money tomorrow may not be easy to calculate until you actually spend it (see optionality above), but it's not zero, and the "regret cost" of foregoing opportunities is not zero.

Indeed. If a person is actually foregoing valuable opportunities, they should think twice. It is not necessarily irrational to front load one's spending, which is what would happen here. Of course when one is 90 and eating Bernstein's Yummy Brand Dog Food one may have a different assessment of regret.

So waiting until 70 essentially means taking on some risks, playing the odds, and you may not be able to accurately assess the risks or what they might cost you-- but it is costing you something. Under these circumstances, taking SS at 66 strikes me as a perfectly reasonable alternative, and hardly an insult to mathematics. IMO assuming that delaying is always the best decision because you're "bound" to get more money later, is a case of oversimplifying your equation by ignoring or pooh-poohing risks, just to get some sort of quantified "answer," when the problem is a bit more complex and multi-dimensional.

The essence of delaying SS is that it is a tremendous bargain in the purchase of longevity insurance. If a person is not interested in that proposition or does not see consequences of that risk as being large compared to alternative, then delaying SS may appear less attractive. This choice should not be positioned as an investment proposition.

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by john94549 » Sun Nov 08, 2015 11:50 pm

For the female in a two-earner marriage, especially if both are roughly the same age and she is the higher earner (even if but by a smidgen), it's hard to imagine a scenario (other than an early demise) where she should not defer to 70, unless she absolutely, positively, needs the money earlier. Insurance companies figured out long ago that women live longer than men, and priced annuities accordingly. The folks at the SSA never got the memo.

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by scone » Mon Nov 09, 2015 7:46 am

From the OP:

"They are an affluent couple. She wants "mad money". I am estimating that her benefit is about $1000, but there will be income tax and she'll lose some benefit for earning more than $15,000ish or whatever the number is."

So let's assume this couple has enough to retire and meet all their other financial needs. If that's the case, then taking the cash now in order to have fun should be perfectly fine, from a financial POV, because this money isn't needed for any other reason.

Look, why do we defer gratification? Why do we try to maximize the value of the annuity? Answer: Because we must. We need that money in the future, and we are compelled to sacrifice now in order to get the money we need later. We do not defer gratification because it is an economic good in itself, unless you define hoarding behavior as a good, which isn't standard economics. We certainly do not defer gratification simply because "the math says so," that's illogical.

Maybe it will help to take off the math hat and think about this differently.

Imagine you are a five year old child, and eagerly looking forward to your birthday party, and the presents. Shortly before the big day, Mom and Dad come to you with this offer: they will cancel the party, and every other party, for the next five years. But the following year, they will give you a really huge party, with 8.3% more presents!

How do you think a normal child would react to that deal? I think the response would be unprintable.

The point is, provided the money isn't needed sometime in the future, there's no reason not to use it now. Yes, you might make more money by waiting. That's true of saving in general. But if you take that to an extreme, you can keep waiting all your life, never spend, and deny yourself all pleasures and comforts, until you drop dead.

Although you do have the pleasure of staring at your ever-increasing pile of cash. And while cash is certainly nice to have (see optionality), obsessive compulsive money hoarding disorder is a mental illness. Let's not use mathematics to rationalize irrationality.
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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by Leesbro63 » Mon Nov 09, 2015 8:09 am

scone wrote:From the OP:

"They are an affluent couple. She wants "mad money". I am estimating that her benefit is about $1000, but there will be income tax and she'll lose some benefit for earning more than $15,000ish or whatever the number is."

So let's assume this couple has enough to retire and meet all their other financial needs. If that's the case, then taking the cash now in order to have fun should be perfectly fine, from a financial POV, because this money isn't needed for any other reason.

Look, why do we defer gratification? Why do we try to maximize the value of the annuity? Answer: Because we must. We need that money in the future, and we are compelled to sacrifice now in order to get the money we need later. We do not defer gratification because it is an economic good in itself, unless you define hoarding behavior as a good, which isn't standard economics. We certainly do not defer gratification simply because "the math says so," that's illogical.

Maybe it will help to take off the math hat and think about this differently.

Imagine you are a five year old child, and eagerly looking forward to your birthday party, and the presents. Shortly before the big day, Mom and Dad come to you with this offer: they will cancel the party, and every other party, for the next five years. But the following year, they will give you a really huge party, with 8.3% more presents!

How do you think a normal child would react to that deal? I think the response would be unprintable.

The point is, provided the money isn't needed sometime in the future, there's no reason not to use it now. Yes, you might make more money by waiting. That's true of saving in general. But if you take that to an extreme, you can keep waiting all your life, never spend, and deny yourself all pleasures and comforts, until you drop dead.

Although you do have the pleasure of staring at your ever-increasing pile of cash. And while cash is certainly nice to have (see optionality), obsessive compulsive money hoarding disorder is a mental illness. Let's not use mathematics to rationalize irrationality.

I'm the OP and I'm just not buying this. The 61 year old woman is not a 5 year old child. And it does boil down to simple math. She can spend down a bit of savings now and not defer any gratification. And for that price she'll get a longevity annuity that will allow even more spending later. This is a simple case of irrationally not feeling comfortable with "volatility of savings". Yeah, by the end of 4 years her savings will be down $36,000ish. But over the long term it's guaranteed to come back and then some (or she'll be dead and it won't matter).

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by praxis » Mon Nov 09, 2015 8:37 am

So she is not using a common justification for early filing of: her heirs can inherit her savings but if she dies, the SS stream stops

I like scone's explanation of how to justify early filing.

When I met with our local SS office to get a feel for our own options from their perspective, the lady told me her personal experience was that almost everyone files at 62. Of course, there are some people that never file and she doesn't see them. And those that die before they file would not show up in her sample either. And we live in a somewhat less prosperous part of the country, so that might tilt her sample.

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by Leesbro63 » Mon Nov 09, 2015 8:58 am

If she's that worried about her adult kids (heirs), then why ignore the odds that she'll live long like her parents and need money later? There's a greater chance that the kids will be burdened with an older and poorer mother than if she dies young and has $36,000 less to leave them

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by scone » Mon Nov 09, 2015 9:58 am

"I'm the OP and I'm just not buying this. The 61 year old woman is not a 5 year old child. And it does boil down to simple math. She can spend down a bit of savings now and not defer any gratification. And for that price she'll get a longevity annuity that will allow even more spending later. This is a simple case of irrationally not feeling comfortable with "volatility of savings". Yeah, by the end of 4 years her savings will be down $36,000ish. But over the long term it's guaranteed to come back and then some (or she'll be dead and it won't matter)."

First, it does not "boil down to simple math." Again, providing she already has enough savings for her future, deferring more gratification than she already has done, for no better reason than "the math says so," is not rational. The math says we would be better off financially if we lived in a tent, had no children, just enough clothing to avoid arrest, and just enough calories to stay alive. But most of us would consider that crazy. "The math says so" is not a sufficient reason to do anything-- a financial decision should make sense in the total context of one's life. Sometimes a decision will be mathematically sub-optimal. That's life.

Second, "over the long term it's guaranteed to come back" is simply wrong. AFAIK, SS is not guaranteed by the Constitution. You are placing a bet that the money will "come back," but since you can't know the future or how SS rules might change, you're just assuming. You might win that bet, or not. Five years is a long time in politics, anything can happen. But in the meantime, if you don't take SS, you either spend from cash, or you don't spend at all. That would certainly make me uncomfortable.

Third, if she spends down her cash and then dies before 70, she's lost the SS deferral "gamble" and she's got less to leave behind. In my book, that is the least best scenario. I, for one, want to minimize my deathbed regrets. I don't want to think, if only I had taken SS, I could have done various fun things and still left my cash alone! Or, if I had taken SS, I could have used my cash to purchase the (insert expenditure of choice, e.g.,world cruise, painting, daughter's dream wedding, etc.). But I didn't take SS, couldn't bring myself to spend cash, and now it's too late. Heck, that would really matter to me!

Forth, I'm sure she can understand what an annuity means. It's not that hard. So what if she is uncomfortable with "volatility of savings?" We save money in order to make ourselves comfortable. That's what it is for. In psychological terms, we try to maximize pleasure and minimize pain. So if taking the SS now minimizes pain for her, at a price that she is willing to pay (the higher, later payout) then that is sufficiently rational behavior and it's not for you to say otherwise, because you're not party to the bet.

In the real world, reasonably rational people make "mathematically sub-optimal" decisions all.the.time. I just bought a house when "the math says" we should be renting a small apartment. But my husband hates renting. I went along with this because we can afford it, and it makes him happy. That makes me happy. My attitude is, if the math says I should make my husband unhappy, then to hell with the math.

Fifth, I really hope this is not the case, but I'm detecting an acrid whiff of condescending sexism permeating this thread. If this woman has gotten to the age of 61, saved sufficiently, and shows no signs of dementia, then one has to presume she's not stupid or incapable. If she wants to take that surplus SS check and fritter it away at Las Vegas, give it to the poor, or buy designer shoes, then that has to be o.k.-- she's earned the right to do whatever she wants, whether it's "mathematically optimal" or not, and no one has the right to gainsay that or treat her as if she is an idiot.
Last edited by scone on Mon Nov 09, 2015 10:33 am, edited 1 time in total.
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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by bengal22 » Mon Nov 09, 2015 10:21 am

I am in a similar situation. I am 2 years older than my spouse and her FRA is about 33% of mine. Our strategy is the following:

A. Spouse files at 62
B. I do a restricted application at 66 and draw my spousal benefit
C. I file at 69 for my benefit
D. Spouse files same time as C and gets her spousal benefit

That worked out the best for us. Of course the year we die changes strategy but this works best for us.
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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by praxis » Mon Nov 09, 2015 10:45 am

bengal22 wrote:I am in a similar situation. I am 2 years older than my spouse and her FRA is about 33% of mine. Our strategy is the following:

A. Spouse files at 62
B. I do a restricted application at 66 and draw my spousal benefit
C. I file at 69 for my benefit
D. Spouse files same time as C and gets her spousal benefit

That worked out the best for us. Of course the year we die changes strategy but this works best for us.
bengal22, that sounds sweet. Are you certain it is available as you state it? Have you read this thread that is currently live on the forum?

viewtopic.php?f=2&t=176706&newpost=2683035

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by Leesbro63 » Mon Nov 09, 2015 10:55 am

Reply to Scone, three above (without quoting-reposting that long thread): There's nothing sexist. To me it's about giving up an otherwise unheard of opportunity to lock in a lifetime COLA'd annuity at a price you can't get anywhere else. Your argument about living frugally doesn't apply...I'm stipulating that she can and should have and spend "mad money"...but that the cheaper source of it would be to draw savings. $36,000 spent in 4 years won't change her life or security.

I do agree that laws could change and the "guarantee" isn't as iron clad as in earlier eras where SS wasn't burdened with zillions of retiring baby boomers. But laws could change, too, that eat into the $36,000 nest egg pile. It's all about playing the odds. And the odds are that someone approaching SS will get what is promised. And at the very least if there is some sort of haircut, having a higher remaining amount (by delaying SS to age 66) will be a better outcome than having a lower "haircutted" amount. I could argue that the law could change on survivor's benefits too (which would hurt her). You have to deal with what we know now and play the odds. And yeah she could die young, but the fact that she spent $36,000 won't be her problem.
Last edited by Leesbro63 on Mon Nov 09, 2015 11:11 am, edited 2 times in total.

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by dodecahedron » Mon Nov 09, 2015 10:59 am

praxis wrote:
bengal22 wrote:I am in a similar situation. I am 2 years older than my spouse and her FRA is about 33% of mine. Our strategy is the following:

A. Spouse files at 62
B. I do a restricted application at 66 and draw my spousal benefit Under the new law, this will only work if you will turn age 62 by 1/1/16.
C. I file at 69 for my benefit
D. Spouse files same time as C and gets her spousal benefit

That worked out the best for us. Of course the year we die changes strategy but this works best for us.
bengal22, that sounds sweet. Are you certain it is available as you state it? Have you read this thread that is currently live on the forum?

viewtopic.php?f=2&t=176706&newpost=2683035

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by bengal22 » Mon Nov 09, 2015 11:05 am

praxis wrote:
bengal22 wrote:I am in a similar situation. I am 2 years older than my spouse and her FRA is about 33% of mine. Our strategy is the following:

A. Spouse files at 62
B. I do a restricted application at 66 and draw my spousal benefit
C. I file at 69 for my benefit
D. Spouse files same time as C and gets her spousal benefit

That worked out the best for us. Of course the year we die changes strategy but this works best for us.
bengal22, that sounds sweet. Are you certain it is available as you state it? Have you read this thread that is currently live on the forum?

viewtopic.php?f=2&t=176706&newpost=2683035
I am 63 and spouse will be 62 by end of year
Last edited by bengal22 on Mon Nov 09, 2015 1:41 pm, edited 1 time in total.
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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by bengal22 » Mon Nov 09, 2015 11:06 am

dodecahedron wrote:
praxis wrote:
bengal22 wrote:I am in a similar situation. I am 2 years older than my spouse and her FRA is about 33% of mine. Our strategy is the following:

A. Spouse files at 62
B. I do a restricted application at 66 and draw my spousal benefit Under the new law, this will only work if you will turn age 62 by 1/1/16.
C. I file at 69 for my benefit
D. Spouse files same time as C and gets her spousal benefit

That worked out the best for us. Of course the year we die changes strategy but this works best for us.
bengal22, that sounds sweet. Are you certain it is available as you state it? Have you read this thread that is currently live on the forum?

viewtopic.php?f=2&t=176706&newpost=2683035
I am and I have
Last edited by bengal22 on Mon Nov 09, 2015 11:07 am, edited 1 time in total.
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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by praxis » Mon Nov 09, 2015 11:07 am

scone wrote: Fifth, I really hope this is not the case, but I'm detecting an acrid whiff of condescending sexism permeating this thread. If this woman has gotten to the age of 61, saved sufficiently, and shows no signs of dementia, then one has to presume she's not stupid or incapable. If she wants to take that surplus SS check and fritter it away at Las Vegas, give it to the poor, or buy designer shoes, then that has to be o.k.-- she's earned the right to do whatever she wants, whether it's "mathematically optimal" or not, and no one has the right to gainsay that or treat her as if she is an idiot.
scone, I don't think that is the case, after re-reading this thread. I liked your example of offering a 5-year-old more party later if she waited. And I don't believe using that metaphor types your comments as condescending ageism or sexism. The posters using math to back up their opinions that disagree with taking SS early have the right to do what they want, too. I can't find that their reasoning includes sexism here, at least.

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by scone » Mon Nov 09, 2015 11:16 am

^^ Leesbro, you don't have to explain the math, I get it, I do. What I'm saying is that the ultimate purpose of the money is to maximize happiness, comfort, emotional security, whatever you want to call it. The purpose of money is not to get more money.

Consider this. Let's say you wanted to maximize your investments. The math says you should be 90% - 100% in stocks. What's that? You say it makes you uncomfotable? Stressed out? You don't like it, and you don't want to do it? But that's irrational! It's mathematically sub-optimal! You should have almost all your money in stocks! What do you mean, you're not going to do that? What's wrong with you?

So if a less than 100% stock allocation is sub-optimal, then a lot of Bogleheads are sub-optimal. Are they crazy? :D

^^ praxis, you got it, the little kid example is a metaphor about what it really means to defer gratification-- the emotional impact it has on one's life. And I have no trouble with people using math to present an argument, not at all. In fact my husband is a math major, and he went along with the mathematically sub-optimal decision to buy a house, because he thought it would increase his happiness. It was an emotional decision, and that's good enough reasoning for me. What I'm saying is that our money should serve all our needs, even our irrational, emotional needs where appropriate. The goal is happiness, or at least the pursuit of happiness.

BTW, this is what Wikipedia says about one's "right" to that SS check (my added emphasis):

The Supreme Court has established that no one has any legal right to Social Security benefits. The Court decided, in Flemming v. Nestor (1960), that "entitlement to Social Security benefits is not a contractual right". In that case, Ephram Nestor, a Bulgarian immigrant to the United States who made contributions for covered wages for the statutorily required "quarters of coverage" was nonetheless denied benefits after being deported in 1956 for being a member of the Communist party.

The case specifically held:
2. A person covered by the Social Security Act has not such a right in old-age benefit payments as would make every defeasance of "accrued" interests violative of the Due Process Clause of the Fifth Amendment. Pp. 608–611. (a) The noncontractual interest of an employee covered by the Act cannot be soundly analogized to that of the holder of an annuity, whose right to benefits are based on his contractual premium payments. Pp. 608–610. (b) To engraft upon the Social Security System a concept of "accrued property rights" would deprive it of the flexibility and [363 U.S. 603, 604] boldness in adjustment to ever-changing conditions which it demands and which Congress probably had in mind when it expressly reserved the right to alter, amend or repeal any provision of the Act. Pp. 610–611. 3. Section 202 (n) of the Act cannot be condemned as so lacking in rational justification as to offend due process. Pp. 611–612. 4. Termination of appellee's benefits under 202 (n) does not amount to punishing him without a trial, in violation of Art. III, 2, cl. 3, of the Constitution or the Sixth Amendment; nor is 202 (n) a bill of attainder or ex post facto law, since its purpose is not punitive. Pp. 612–621.[65]

https://en.wikipedia.org/wiki/History_o ... l_Security
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore

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Leesbro63
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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by Leesbro63 » Mon Nov 09, 2015 12:06 pm

In the real world everyone who has paid in via the rules gets Social Security. It's unlikely that the Supreme Court is going to rule that a 62 year old upper middle class grandma, who worked for 40 years and was more or less a pillar of society, can't have her $1000 per month Soc Sec check.

scone
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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by scone » Mon Nov 09, 2015 12:43 pm

Leesbro63 wrote:In the real world everyone who has paid in via the rules gets Social Security. It's unlikely that the Supreme Court is going to rule that a 62 year old upper middle class grandma, who worked for 40 years and was more or less a pillar of society, can't have her $1000 per month Soc Sec check.
My husband is a foreign national who has many unpopular opinions and is also a pillar of society. The two things are hardly mutually exclusive. Just sayin'.

In the real world a fairly ordinary person was deported and deprived of his SS check simply because of his affiliations. This event didn't bring down the stock and bond markets, or otherwise disrupt the system. The government got away with it, and most people still got a check. But because the law says you have no property rights to SS benefits, it's not a contractual obligation, no individual can be really certain of getting the check. You might be one of the unlucky few who get skrood, for whatever reason the government thinks up-- you might just get caught in some weird regulatory glitch, who knows? However, AFAIK the moment that SS check is paid into your account, it becomes your property, and stealing property is something you can fight in court. So there is a certain legal logic in grabbing the check while the grabbing is good.

Now, if the government really wanted to mess with SS in a more subtle way, they would simply close filing loopholes, raise FRA, talk about raising taxes, or who knows what. Oh, wait...

BTW, are you 100% stock? Just asking. :happy
Last edited by scone on Mon Nov 09, 2015 1:13 pm, edited 2 times in total.
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore

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munemaker
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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by munemaker » Mon Nov 09, 2015 12:55 pm

BigFoot48 wrote:
Leesbro63 wrote:IAnyway, I want to keep it simple and think that showing that she has an incredible opportunity to buy an 8.3% COLA'd annuity might help connect the dots. Are my numbers essentially right?
Isn't it more accurate to say she'll get her COLA'd annuity and every year she waits until 70 it will be 8.3% higher than if she had taken it the previous year?
Since she will be collecting a higher amount for a shorter period of time, the benefit really depends on how long she lives. While almost no one knows when they will die, some people have insight into their life expectancy through family history and personal health.

Often the media presents waiting as "getting a 8.3% raise" or similar language. It really is not more money. It is the same present value taken over a shorter time period.

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by Christine_NM » Mon Nov 09, 2015 1:01 pm

Leesbro63 wrote:In the real world everyone who has paid in via the rules gets Social Security. It's unlikely that the Supreme Court is going to rule that a 62 year old upper middle class grandma, who worked for 40 years and was more or less a pillar of society, can't have her $1000 per month Soc Sec check.
We can't predict future decisions or laws any more than we can predict the markets. That said, I'd bet it is exactly the upper middle class old enough to have assets who will be most affected by future changes in SS. SS was never meant to be only for the poor, yet it was started in 1936 when the line between "everyone" and "the poor" was indistinct at best. We are in the process of adapting SS to a more affluent society. For heaven's sake, if she wants to take her benefit at 62 let her alone.

Using push-button words like grandma and pillar of society and worked 40 years doesn't cut much ice with SCOTUS.
Last edited by Christine_NM on Mon Nov 09, 2015 1:05 pm, edited 1 time in total.
16% cash 48% stock 36% bond. Retired, w/d rate 2.85%

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munemaker
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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by munemaker » Mon Nov 09, 2015 1:04 pm

john94549 wrote:As I explained to my wife, it's really neutral. Or, it's supposed to be. The payout, should you claim at 62 or 70, "should" be actuarially neutral. Actuarial tables calculate longevity. Stated another way, folks who begin collecting at 62 collect less per month longer. Folks who defer collecting to 70 collect more per month shorter.

By-and-large, the folks at the Social Security Administration had this all figured out long before you did.

The "kicker" of course, was spousal, which never made sense, never fit into the actuarial computations, was widely derided as free money, but was just "there". And, for those of us grandmothered in, it shall remain. We early boomers are no doubt the last beneficiaries of spousal.
Regarding spousal, times have changed. When I was a child, almost all mothers stayed home with their children and performed duties of homemakers. The spousal arrangement was included in social security to recognize the circumatances of the time. Today, more women than men attend college. Most women work outside the home and some are primary earners. I suspect that over time, the number of people who benefit from "spousal" benefits will greatly diminish. The situation will probably take care of itself, regardless of whether the law changes.

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by JGoneRiding » Mon Nov 09, 2015 1:35 pm

Since no one else has. I will give you super simple.math. As long as she is still working, and if.she wants mad money I would think she is, then for every dollar over 15k she makes ss takes back 0.5 AND if you are actively collecting it doesn't increase your future payout. So fine collect when you quit but fir gods sack don't try to collect at 62 and work!

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by OutInThirteen » Mon Nov 09, 2015 1:45 pm

munemaker wrote:
john94549 wrote:As I explained to my wife, it's really neutral. Or, it's supposed to be. The payout, should you claim at 62 or 70, "should" be actuarially neutral. Actuarial tables calculate longevity. Stated another way, folks who begin collecting at 62 collect less per month longer. Folks who defer collecting to 70 collect more per month shorter.

By-and-large, the folks at the Social Security Administration had this all figured out long before you did.

The "kicker" of course, was spousal, which never made sense, never fit into the actuarial computations, was widely derided as free money, but was just "there". And, for those of us grandmothered in, it shall remain. We early boomers are no doubt the last beneficiaries of spousal.
Regarding spousal, times have changed. When I was a child, almost all mothers stayed home with their children and performed duties of homemakers. The spousal arrangement was included in social security to recognize the circumatances of the time. Today, more women than men attend college. Most women work outside the home and some are primary earners. I suspect that over time, the number of people who benefit from "spousal" benefits will greatly diminish. The situation will probably take care of itself, regardless of whether the law changes.
My spouse worked in jobs that were subject to FICA withholding, but only enough to earn 38 credits. Including employer contributions, nearly $15,000 in FICA was put into the system. Another strong case supporting spousal benefits.

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by Independent » Mon Nov 09, 2015 2:47 pm

JGoneRiding wrote:Since no one else has. I will give you super simple.math. As long as she is still working, and if.she wants mad money I would think she is, then for every dollar over 15k she makes ss takes back 0.5 AND if you are actively collecting it doesn't increase your future payout. So fine collect when you quit but fir gods sack don't try to collect at 62 and work!
I'm not sure what you mean by the phrase I underlined. These facts about ss seem relevant:
The amount that your benefits are reduced, however, isn’t truly lost. Your benefit will be increased at your full retirement age to account for benefits withheld due to earlier earnings.
As an example, let’s say you claim retirement benefits upon turning 62 in 2015, and your payment is $750 per month. Then, you return to work and have 12 months of benefits withheld. We would recalculate your benefit at your full retirement age of 66 and pay you $800 per month (in today’s dollars).
https://www.google.com/url?sa=t&rct=j&q ... 3889,d.dmo

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Re: Waiting to 66 For SS Equals 8.3% COLA'd Annuity?

Post by Independent » Mon Nov 09, 2015 3:15 pm

munemaker wrote: Regarding spousal, times have changed. When I was a child, almost all mothers stayed home with their children and performed duties of homemakers. The spousal arrangement was included in social security to recognize the circumatances of the time. Today, more women than men attend college. Most women work outside the home and some are primary earners. I suspect that over time, the number of people who benefit from "spousal" benefits will greatly diminish. The situation will probably take care of itself, regardless of whether the law changes.
I agree. This is partially due to the skewed benefit formula.

Suppose A and B are married, and B's highest 35 years' earnings are at least 35% of A's highest 35 years' earnings.
Then B's Social Security PIA will be at least 50% of A's PIA, so B will not get any spousal benefit.

If B's earnings were only 25% of A's, B's PIA will still be at least 43% of A's benefit, so the maximum additional benefit will be just 7% of A's PIA.

I'm sure that we have more couples every year with "closer" earnings records, so spousal benefits become less important to SS finances and SS beneficiaries.

(Of course, the survivor benefit can still be significant, especially for couples where the higher income worker happens to die quite a bit sooner than the lower income worker.)

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