Should I continue to postpone Social Security?

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Cody
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Should I continue to postpone Social Security?

Post by Cody » Sun Dec 13, 2015 4:48 pm

I'm 67 in February, 2016 and had planned on continuing my postponement of SS. I recieve a "Restricted Application SS" based on my wife's record which covers roughly 25% of the "floor" of our expenses

The cost to delay: Because the Restricted App. covers 25% of our expenses we have to come up with the other 75% to make this postponement work on a yearly basis That 75% is expensive and comes from our portfolio. Roughtly $25K per year out of our pocket ($75k more for the next 3 years until age 70). (Of course we have spent $25K for this first year delay).

The reward for waiting: By delaying the first year we have gained about $2000 per year. If we delay a second year we gain $4000 per year. And in the end $8000/year for waiting until age 70. At a total cost of about $100k for our portfolio

The bottom line: So we would recieve $8000 more per year at age 70 at a cost to us go $100k. That is very roughly 20% or our entire portfolio. I figure it will take 12.5 years to "break even" - my age 82.5.

If I took SS now all sources of income would cover the "floor" of our expenses.

With just this information on the numbers does it look worth it to you? At this point don't think of other reasons why I should wait. Forget about: inflation, the free money of the Restricted App, the fact that my wifes small but helpful pension is with a Catholic entity and I suppose could disappear if things went south there, by waiting we can do some Roth conversions and we are in generally good health. My wife is 3 1/2 years younger and stand to take my SS at my death. I know all these are reasons to delay, or not, but I want to focus just on the dollars in front of you.

Are we smart to pay $25k per year to postpone SS and knowing what my numbers look like, how would you see it? I say its smart to continue to delay. My wife thinks not!

Thanks,
Cody

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noyopacific
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Re: Should I continue to postpone Social Security?

Post by noyopacific » Sun Dec 13, 2015 5:28 pm

Cody, I did an analysis a few years ago. I tried to identify how long I would have to live to come out ahead by waiting to take SS. I also assumed that if I took SS benefits earlier, that the amount of SS I collected would have otherwise been withdrawn from my IRA. I then figured the amount that were left on my IRA would grow at various rates and based on the rate of return, how long I would need to live to come out ahead by delaying my SS benefits. Here is what I got. (The calculated returns ignore inflation and possible inflation adjustments in SS benefits.)

At a 2% rate of return, it appears that I would need to live to be 87 years & 3 months old.
At 3%, it is 91 ½ years.
At 4%, I’d need to live to be 98.
At a 5%, it’s 111 years.
At a 6%, it’s 145 years.
At a 7%, it’s 535 years.
At an 8% rate of return, I would never come out ahead by waiting to collect Social Security at 70 rather than collecting at 66.

My decision was that I would wait until 70 unless there were a drop in my portfolio (60% equity, 40% bonds) of more than 30%. If my portfolio value drops by more than 30% I will then start taking SS to reduce the drain on the portfolio while the values are down.

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Re: Should I continue to postpone Social Security?

Post by bengal22 » Sun Dec 13, 2015 5:31 pm

It is your decision but I am not sure I would want to reduce my portfolio too much from where you currently are.
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Re: Should I continue to postpone Social Security?

Post by David Jay » Sun Dec 13, 2015 5:32 pm

Cody:

You can delay your decision one month at a time. I would keep an eye on your retirement portfolio and wait as long as you are comfortable with your balances.
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Re: Should I continue to postpone Social Security?

Post by SGM » Sun Dec 13, 2015 5:42 pm

This may not completely address your question, but is the way I look at the decision to delay. Looking at annuities via immediateannuities.com for a couple age 67 and 64 in 1 month with $25,000 would get $119 a month for a SPIA with no cost of living adjustment. That does not compare well to the $2000 per year you would get by spending the $25,000 on expenses. Delaying SS is the best annuity you can buy. If you could get excellent returns with a safe investment then delaying SS would not be the best strategy, but real rates for a safe investment approach 0%.

You could look up annuities on Vanguard or Fidelity with 2% or more colas and the payouts start lower yet.

You will still have $400,000 in your portfolio after 4 years of delay. You might consider a SPIA later on. It would be a shame if you gave up the benefit of delaying SS and later took a SPIA that was not as good a deal. If I had mostly SS to live on and $500,000 in investments I would likely invest $100,000 of it in a SPIA at some point later on.

I have chosen to delay until 70 and I no longer look at the years to break even. I think the insurance of higher payments at 70 with colas and the benefit for a spouse with expected greater longevity too valuable.

I also made all Roth conversions prior to taking SS.

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Re: Should I continue to postpone Social Security?

Post by delamer » Sun Dec 13, 2015 5:54 pm

Split the difference -- with your wife -- and go for 68.5?

Does she feel that you (as a couple) are restricting your spending too much now due to fears of spending down your portfolio? It can be hard to balance keeping money available for care as you age or for providing an inheritance versus enjoying your money while you are still relatively young and healthy. Plus we never know when we are going to die.

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Re: Should I continue to postpone Social Security?

Post by joebh » Sun Dec 13, 2015 6:01 pm

Cody wrote:Are we smart to pay $25k per year to postpone SS and knowing what my numbers look like, how would you see it? I say its smart to continue to delay. My wife thinks not!
When do you plan to die? When does your wife plan to die?

Not to be crude, but without guesses as to longevity, there's no way to assess the financial benefit for delaying.
On the otherhand, if your wife is strongly opposed to delaying, it might be best to make her happy now and not worry about the long term.

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Re: Should I continue to postpone Social Security?

Post by joebh » Sun Dec 13, 2015 6:03 pm

noyopacific wrote:(The calculated returns ignore inflation and possible inflation adjustments in SS benefits.)
Why would you ignore inflation? Seems like an odd assumption to make here...

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Re: Should I continue to postpone Social Security?

Post by ObliviousInvestor » Sun Dec 13, 2015 6:05 pm

Cody wrote:The bottom line: So we would recieve $8000 more per year at age 70 at a cost to us go $100k. That is very roughly 20% or our entire portfolio. I figure it will take 12.5 years to "break even" - my age 82.5.
[...]
With just this information on the numbers does it look worth it to you?
Yes. You may be interested in this life expectancy probability calculator from Vanguard:
https://personal.vanguard.com/us/insigh ... ement-tool

Here's a screenshot, showing that there's an 89% probability that one of you will live until the breakeven point that you have calculated. (And this is using life expectancy data that's 15 years old even.)
Image
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Re: Should I continue to postpone Social Security?

Post by wolf359 » Sun Dec 13, 2015 6:08 pm

You're thinking of it in terms of return, such as how much money do you get for waiting and do you get it back before you die.

Another way to think consider Social Security as longevity insurance. The more devastating risk isn't that you die before you make your money back, but that you take the smaller amount now and outlive your savings. If you or your wife live beyond the life expectancy tables, would you want the payment to be as big as possible? If you pass, your wife will only get one Social Security check, not two. If yours is bigger, she'll get yours.

Delaying really makes sense when married, because the odds of either one of two people surviving to a given age are greater than the odds of any one person living to that same age.

A really good reason to not delay is if you actually need the money now. If you don't need the money, then waiting will help ensure that there will always be enough money later, since the larger payment continues for life. The benefit for waiting is for the surviving spouse. And the fact that she is 3 1/2 years younger really argues that she would benefit more from the delay, because she is much more likely to outlive you.

Statistically, people who live beyond the breakeven point and didn't wait, regret not waiting.

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Re: Should I continue to postpone Social Security?

Post by Dandy » Sun Dec 13, 2015 6:39 pm

Just keep in mind the higher SS at age 70 if for the longest surviving spouse and that SS is inflation adjusted (didn't work this year due to low inflation). Also, you would be less reliant on your portfolio going forward with a higher SS. If health and longevity genes for you both are at least average you might benefit with the wait till age 70.

It is a tough decision when your financial assets are low but it is also a bit scary when assets are low relying on equity performance or interest rates going the way you want them. I guess I'd rather have a higher SS in most cases than a bit lower SS the covers the floor expenses now, but trust that my slightly bigger financial assets would cover the floor if one of us lives to age 90 or more and/or inflation heat up.

It is amazing how many tough decision we have to make in retirement. Good luck

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Re: Should I continue to postpone Social Security?

Post by noyopacific » Sun Dec 13, 2015 7:33 pm

joebh wrote:
noyopacific wrote:(The calculated returns ignore inflation and possible inflation adjustments in SS benefits.)
Why would you ignore inflation? Seems like an odd assumption to make here...
Adding an unknown variable to the equation results in a result that is difficult to compute or for me to make much sense of. I suppose I could have inserted the word "real" into the returns but it wouldn't change the fact that inflation would still be an unknown variable. Perhaps someone with better algebra skills than I have could do it.
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Re: Should I continue to postpone Social Security?

Post by Peter Foley » Sun Dec 13, 2015 8:16 pm

If I understand your conundrum correctly, delaying until age 70 will cost you 20% of your portfolio. If you were to take SS today, SS + pension would cover the floor of your expenses.
Because the higher potential SS benefit at age 70 would likely cover your floor expenses plus some additional spending, I would be inclined to continue to delay. At age 70, your withdraw rate might drop to as low a 1% (depending on your maintaining your current lifestyle). That is pretty good longevity insurance. Two reasons not to do it would be: 1. poor health 2. having to put your life on hold while you are relatively young and healthy.

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Re: Should I continue to postpone Social Security?

Post by Peter Foley » Sun Dec 13, 2015 8:16 pm

Deleted duplicate post.

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Re: Should I continue to postpone Social Security?

Post by Watty » Sun Dec 13, 2015 8:49 pm

Be sure to look at the after tax numbers since Social Security is sometimes taxed less than ordinary income or not taxed at all.

You can get a quick estimate of your taxes either way here.

https://turbotax.intuit.com/tax-tools/c ... taxcaster/

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Re: Should I continue to postpone Social Security?

Post by grabiner » Sun Dec 13, 2015 9:44 pm

noyopacific wrote:Cody, I did an analysis a few years ago. I tried to identify how long I would have to live to come out ahead by waiting to take SS. I also assumed that if I took SS benefits earlier, that the amount of SS I collected would have otherwise been withdrawn from my IRA. I then figured the amount that were left on my IRA would grow at various rates and based on the rate of return, how long I would need to live to come out ahead by delaying my SS benefits. Here is what I got. (The calculated returns ignore inflation and possible inflation adjustments in SS benefits.)

At a 2% rate of return, it appears that I would need to live to be 87 years & 3 months old.
At 3%, it is 91 ½ years.
At 4%, I’d need to live to be 98.
At a 5%, it’s 111 years.
At a 6%, it’s 145 years.
At a 7%, it’s 535 years.
At an 8% rate of return, I would never come out ahead by waiting to collect Social Security at 70 rather than collecting at 66.
Note that these are all risk-free returns. If you buy TIPS in your IRA, you can earn about 1% above inflation risk-free, so that is a more fair comparison. You could buy stock in your IRA and expect to earn 5% above inflation (with the possibility of losing half the value in one year, as happened in 2007-2009), but you could do this even if you postpone SS, by selling some of your TIPS and other low-risk bonds to buy more stock.
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Re: Should I continue to postpone Social Security?

Post by LadyGeek » Sun Dec 13, 2015 9:54 pm

This thread is now in the Personal Finance (Not Investing) forum (Social Security planning).
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celia
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Re: Should I continue to postpone Social Security?

Post by celia » Mon Dec 14, 2015 2:03 am

Cody, I think there may be inaccurate or conflicting data presented in your original post. Or maybe I'm misinterpreting something, so here are my comments:
Cody wrote:I'm 67 in February, 2016 and had planned on continuing my postponement of SS. I recieve a "Restricted Application SS" based on my wife's record which covers roughly 25% of the "floor" of our expenses
You have already started taking 1/2 of your spouse's Social Security and it covers 25% of your minimum living expenses. This implies her SS covers 50% of minimum living expenses. Together, that would cover 75% of your minimum living expenses. Since this conflicts with the next paragraph, possibly the total of SS for both of you would be $25,000 ($8,333 for you and 16,666 for wife).
The cost to delay: Because the Restricted App. covers 25% of our expenses we have to come up with the other 75% to make this postponement work on a yearly basis That 75% is expensive and comes from our portfolio. Roughtly $25K per year out of our pocket ($75k more for the next 3 years until age 70). (Of course we have spent $25K for this first year delay).
You say you can pay the remaining 75% of living expenses by pulling $25,000 out of investments each year. This implies your total minimum living expenses are about $33,333 a year and 25% of it ($8,333) would be paid from your spousal SS benefit. Why isn't your wife's 16,666 SS included here? Did she file and suspend?
The reward for waiting: By delaying the first year we have gained about $2000 per year. If we delay a second year we gain $4000 per year. And in the end $8000/year for waiting until age 70. At a total cost of about $100k for our portfolio
Makes sense. Your SS at age 66 would have been $25,000 since 8% of that is $2,000 per year for delaying.
The bottom line: So we would recieve $8000 more per year at age 70 at a cost to us go $100k. That is very roughly 20% or our entire portfolio. I figure it will take 12.5 years to "break even" - my age 82.5.
During those 12.5 years, your portfolio will continue to grow and re-gain a lot of the spent money. At age 70, your benefit will max out at $33,000 (plus inflation add-ons). This alone will cover your minimum living expenses and nothing else needs to be withdrawn from investments. This does not include your wife's SS or her pension.
If I took SS now all sources of income would cover the "floor" of our expenses.
If you started collecting on your own record now, you would receive $25,000+2,000. Since your minimum living expenses are $33,333 a year, as long as you have $6,333 in other income, you will be able to meet MINIMUM living expenses. Since your wife appears to collect $16,666, it appears you have it covered.
With just this information on the numbers does it look worth it to you? At this point don't think of other reasons why I should wait. Forget about: inflation, the free money of the Restricted App, the fact that my wifes small but helpful pension is with a Catholic entity and I suppose could disappear if things went south there, by waiting we can do some Roth conversions and we are in generally good health. My wife is 3 1/2 years younger and stand to take my SS at my death. I know all these are reasons to delay, or not, but I want to focus just on the dollars in front of you.
I want to emphasize that of all these considerations, whoever outlives the other will need to continue living his/her life on only one of the SS benefits. That alone is reason enough to max yours out as long as possible.
Are we smart to pay $25k per year to postpone SS and knowing what my numbers look like, how would you see it? I say its smart to continue to delay. My wife thinks not!
As in most things, there are pros and cons to each side. But I am confused as to why her SS is not discussed above. If she started it at age 62, that is a good reason for you to delay as long as possible, ie., "diversify" your income streams.

Also look to see what would happen after one of you dies. I'd guess since only one person would need to be fed, clothed, and get medical care, the living expenses would drop to $27,000-$29,000. What would the income streams total? Since odds are that she will outlive you (being female and younger), she should want to feel secure financially. Maximizing your benefit is what I would want. SS is also guaranteed to increase with the cost of living, so even she outlives you by 20 years, it should keep up with the cost of living. As an earlier poster said, if the $100,000 that is being spent over 4 years was used to purchase a fixed annuity instead, it would come nowhere near what SS would pay out if you just delay to age 70!

What would YOU want if you were the survivor? Then discuss with her what SHE wants. Hopefully it is the same.
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Re: Should I continue to postpone Social Security?

Post by basspond » Mon Dec 14, 2015 5:21 am

What's is your main factual point to delay and what is you wife's? Then look at what are your emotional points? You will need to come to a consensus but remember do you want to live with someone you are trying to prove she is wrong and she the same? I would look at something in between.

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Re: Should I continue to postpone Social Security?

Post by trasmuss » Mon Dec 14, 2015 8:43 am

The odds are that your wife will benefit most by delaying the highest earners social security because she will likely outlive you by quite a few years (statistically). From a pure dollars standpoint you will likely be ahead by delaying the highest earner's social security (yes, the free money of a restricted application enters into it).

With that said if your wife understands how it works and how it could affect her income after your death I would be inclined to listen closely to what she says and why she favors it. For example, does she favor taking it now because she feels you could enjoy a higher living standard now? Are you cutting corners because you are dipping too much into your portfolio for comfort? How strongly she feels and why she feels it would help me make my decision.

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Re: Should I continue to postpone Social Security?

Post by ObliviousInvestor » Mon Dec 14, 2015 9:39 am

celia wrote:Cody, I think there may be inaccurate or conflicting data presented in your original post. Or maybe I'm misinterpreting something, so here are my comments:
Cody wrote:I'm 67 in February, 2016 and had planned on continuing my postponement of SS. I recieve a "Restricted Application SS" based on my wife's record which covers roughly 25% of the "floor" of our expenses
You have already started taking 1/2 of your spouse's Social Security and it covers 25% of your minimum living expenses. This implies her SS covers 50% of minimum living expenses. Together, that would cover 75% of your minimum living expenses. Since this conflicts with the next paragraph, possibly the total of SS for both of you would be $25,000 ($8,333 for you and 16,666 for wife).
He is getting 50% of her PIA, but since she started before her FRA, she is not getting 100% of her PIA. In other words, her current retirement benefit will be less than twice his benefit as her spouse.
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Re: Should I continue to postpone Social Security?

Post by joebh » Mon Dec 14, 2015 9:43 am

noyopacific wrote:
joebh wrote:
noyopacific wrote:(The calculated returns ignore inflation and possible inflation adjustments in SS benefits.)
Why would you ignore inflation? Seems like an odd assumption to make here...
Adding an unknown variable to the equation results in a result that is difficult to compute or for me to make much sense of. I suppose I could have inserted the word "real" into the returns but it wouldn't change the fact that inflation would still be an unknown variable. Perhaps someone with better algebra skills than I have could do it.
You already have plenty of unknowns baked into your equation. For example, the classic variable with regard to Social Security delay has to do with longevity.

Most people would state an assumption about inflation. That way, it isn't a variable and doesn't complicate your magic formula.

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Re: Should I continue to postpone Social Security?

Post by pennywise » Mon Dec 14, 2015 10:07 am

wolf359 wrote: Another way to think consider Social Security as longevity insurance.

If you pass, your wife will only get one Social Security check, not two. If yours is bigger, she'll get yours.

Delaying really makes sense when married, because the odds of either one of two people surviving to a given age are greater than the odds of any one person living to that same age.

The benefit for waiting is for the surviving spouse. And the fact that she is 3 1/2 years younger really argues that she would benefit more from the delay, because she is much more likely to outlive you.
This. We are planning on this same strategy; the Social Security payment being larger and inflation indexed may not be as important right now, but statistically women are far more likely to outlive their husbands, and are also statistically much more likely to have fewer and lower sources of income in retirement. So unless the financial situation is dire enough that it's not an option, waiting to start the larger benefit to maximize future income *for the life of the surviving spouse* makes it a a no-brainer in terms of 'buying' future ease of mind at least for this situation and many/most married couples.

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Re: Should I continue to postpone Social Security?

Post by Not Law » Mon Dec 14, 2015 11:01 am

Delay until 70.
1. Gets highest survivor benefit.
2. Allows for Roth conversions to reduce RMDs, which could:
a. make SS totally non-taxable.
b. keep survivor from getting bumped into a higher tax bracket.

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Re: Should I continue to postpone Social Security?

Post by celia » Mon Dec 14, 2015 12:52 pm

joebh wrote:
noyopacific wrote:(The calculated returns ignore inflation and possible inflation adjustments in SS benefits.)
Why would you ignore inflation? Seems like an odd assumption to make here...
Since the SS benefits go up the same as inflation (theoretically), the increased cost of living and the increased benefit will cancel each other out. So I wouldn't worry about inflation.
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Re: Should I continue to postpone Social Security?

Post by vested1 » Mon Dec 14, 2015 8:53 pm

celia wrote:
joebh wrote:
noyopacific wrote:(The calculated returns ignore inflation and possible inflation adjustments in SS benefits.)
Why would you ignore inflation? Seems like an odd assumption to make here...
Since the SS benefits go up the same as inflation (theoretically), the increased cost of living and the increased benefit will cancel each other out. So I wouldn't worry about inflation.
Yes, inflation is a factor unless all other sources of retirement are COLA protected like SS is (in theory). nyopacific's assumption is for a zero % inflation adjustment over the remaining 3 years of delay in the OP's case. That assumption is unrealistic. Other safe sources of income will likely suffer more loss in purchasing power than will SS during the ensuing 3 years. Inflation isn't a deciding factor for me, nor it is a huge factor for the OP, but it is a factor that isn't negligible for those making the decision at age 62.

I would urge patience as well, especially with the OP being male and 3 years older for survivor benefit considerations. It's a tough pill to swallow thinking of that potential income passing you by. On the flip side that restricted application money should be considered a reward for patience, and an accidental advantage due to fitting inside a window most will not be able to occupy. I wonder if the OP factored in the cumulative amount of the restricted application between his FRA and his filing at age 70 when calculating the break-even age. Most don't, although break-even is non-consequential in my opinion.

To Celia's query about whether the OP's wife filed and suspended; since she is 3 years younger at 64 she is too young to file and suspend. Since she won't be FRA by April 2016 filing and suspending would be a useless endeavor if even possible at her FRA.

A larger base of COLA protected income that is subject to less tax makes the decision much easier if other factors such as the ability to meet expenses are the same.

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Re: Should I continue to postpone Social Security?

Post by rimfire » Mon Dec 14, 2015 10:10 pm

Your making a longevity bet by postponing SS past 70 . Not Law has it right.
How many 85 to 90 year olds do you know? How many of them are enjoying life as much as they did at 65 to 75. Probably not many but there may be a few. I have a 90 year old friend who thinks like a 50 year old. Just bought a $250,000 swather and is still actively farming with no family to take over. He is shear pleasure to be around for the life he brings to life. He will die with his boots on.
There is a lot of common sense in old sayings. "A bird in the hand is worth two in the bush."
The extra you get from social security will probably make little difference in your life when/if you get to 85/90

Thanks jb.

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Re: Should I continue to postpone Social Security?

Post by Cody » Tue Dec 15, 2015 10:11 am

I wonder if the OP factored in the cumulative amount of the restricted application between his FRA and his filing at age 70 when calculating the break-even age. Most don't, although break-even is non-consequential in my opinion.
Vested 1: I did indeed count the restricted app dollars as part of the plan (current income). I do feel very fortunate to recieve that. Without it I have to probably pull the triger and take SS soon.

The discussion on inflation is certainly relevant here. Of the main sources of income we have: 2 pensions and 2 SS only the SS is "fully" inflation hedged. That plus the fact that my wife's small pension is always a bit suspect due to the Archdiose of St. Paul controlling it. They reassure us of its strenght but one never knows. Lots of law suits there and I'm not really sure how that affects solvency.

Thanks,
Cody

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