FIRECalc - Take Social Security Benefits Early is Better?

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goGators
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FIRECalc - Take Social Security Benefits Early is Better?

Post by goGators »

Hello Bogleheads,
If my spouse (46) and I (49) were to retire this year (2015), FIRECalc seemed to indicate that it was better to take SS benefits early.

Code: Select all

				INPUTS											OUTPUTS (Portfolio Balance)	
======================================		====================================                        
Age	SS#1		Year		SS#2		Year			Minimum		Maximum		Average
62	$18,192	2028		$18,192	2031			$750,000		$5,222,942	$2,349,737
67	$26,196	2033		$26,196	2036			$669,795		$5,070,696	$2,186,074
70	$32,018	2036		$32,018	2039			$472,894		$4,896,380	$2,021,433
We used FIRECalc's default values for other fields (Spending = $30K, Portfolio=$750K, Years=30, etc...).
Does this make sense to you? :confused
Thank you.
Last edited by goGators on Sat Dec 19, 2015 3:52 pm, edited 1 time in total.
jeff1949
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by jeff1949 »

Makes perfect sense to me if you plan on only living until you are 70.

Try the data at age 80, 85 and 90.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by earlyout »

Are your estimates for SS benefits at the different ages from your SS statements? If so, you need to be aware that these values assume you will work until you reach your FRA with your present wages and that you will continue to contribute to Social Security. If you want to calculate what your benefits would be if you quit contributing now there are calculators at ssa.gov that will give you more accurate numbers.
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goGators
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by goGators »

...Makes perfect sense to me if you plan on only living until you are 70....
No, we plan to live longer than 70 :happy.
62, 67, and 70 were the ages to start social security benefits. We used FIRECalc's default 30 years for the simulations. We also tried 40 years (when we would be 86 and 89) and got similar result: early is better.
...Are your estimates for SS benefits at the different ages from your SS statements?...
No, from a calculator at ssa.gov

However, we think we might need to add COLA (~2.5%) to the benefit amounts at ages 67 and 70 but not sure how in FIRECalc.
Any idea?
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Svensk Anga
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by Svensk Anga »

The current advice to take SS at 70 is based on the assumption of 2.9% real interest rate in the calculation of delayed retirement credits. Current interest rates are nowhere near that high, so for now one gains some real return at low risk by waiting. Firecalc uses actual returns from history which are more like the SS 2.9% assumption than current rates. So you have to question whether history or the current rate is the better predictor of future bond returns. If low current rates, claim late. If high historical rates, claim early.

Also, Firecalc defaults to a 75% equity portfolio. They are assuming a lot of risk on the money you would leave in the portfolio by claiming early. You will want to over-ride that with lower percent equity if that is your style. It is strange that this higher risk did not show up in lower minimum for the claim at 62 case. I suspect you are using a low withdrawal rate. Claiming later may look better with a withdrawal rate that tests the historical limits, especially at advanced ages.

Bear in mind that Firecalc tells you only how likely it is that your portfolio crashes (if future returns look like history). You are also concerned with how much income you will have after a crash, however rare that might be.

It appears that Firecalc inflates your SS benefit from today's dollars to your claiming age if you have the right year on the "other income/spending" page.

You do have some time to sort this out and for some reversion to mean in the bond market to play out before claiming. :D
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by tennisplyr »

My wife (64) and I (66) started taking it early (62) as do the majority of Americans. Love my decision.
Those who move forward with a happy spirit will find that things always work out.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by Aptenodytes »

You just aren't looking out long enough. If you want to see the potential value of purchasing longevity insurance from the SSA, you have to look well beyond your life expectancy. Your first effort at 30 years didn't even require FireCalc to give you the answer -- you could have known ahead of time that longevity insurance will not "pay" if you die before your life expectancy. You tried again at 40 years but that just took you to the cusp of your life expectancy. If you are serious about considering purchasing longevity insurance you'd want to look far beyond that, at least 10 years I would think. A male age 46-49 is expected to live to age 82; a female to age 86. You delay SS to provide greater income beyond these ages, so you will only see evidence of such benefits if you look past these ages, e.g. out 50 years or more.

I always use age 105 as the end point in my scenarios which may be overkill but seems more prudent than using something like 85.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by ObliviousInvestor »

I do not have experience with FIRECalc, but I have been told that it ignores survivor benefits. (Can anybody confirm whether this is true or not?) If that is the case, then its information with regard to SS for married couples wouldn't be particularly helpful (aside from cases in which one spouse is ineligible for survivor benefits due to GPO).
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chickadee
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by chickadee »

You are using the "Years" field on the first page incorrectly. You need to put in the year you expect to die. OR, how many years from RIGHT NOW you want the plan to last. Same question, but it can accept the information in two different formats.

This is different question than "What year will you retire" under the "Not Retired?" tab.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by mlebuf »

From a macro perspective, Social Security is actuarially neutral. In reality, no one will know what the best strategy is for a particular person until after he/she is dead or likely well past age 70. Obviously, if you reach age 62 in poor health and need the money, take it at 62. If you are in great health at 62, have parents who lived well into their 80's and don't need the money, it likely makes sense to wait until full retirement age or age 70. A person who waits until 70 gets a great, inflation adjusted annuity but may have fewer years to collect. We opted to split the difference between taking it early and age 70 and took it at as soon as we reached full retirement age. My thinking was that in matters of risk, it's better to be 50 percent right than 100 percent wrong.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by jeffyscott »

Another consideration may be the expected returns from your investments compared to the increase in the value of the SS benefit with delay, at the time you must make this decision. With the elimination of the ability to game the system with complex strategies, this analysis is now much easier.

The increase in present value of SS benefit is not uniform based on my own analysis, for which I used my employer's joint life pension annuity factors (since mine is the higher benefit). I found that for us the increase would range from 7.1% for delay from 62-63 to 3.6% for delay from 69 to 70. So were I 62 and making that decision right now, I would delay from 62 to 63. But, if I had already reached 69, without taking it, I would not delay another year.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by randomguy »

goGators wrote:Hello Bogleheads,
If my spouse (46) and I (49) were to retire this year (2015), FIRECalc seemed to indicate that it was better to take SS benefits early.

Code: Select all

				INPUTS											OUTPUTS (Portfolio Balance)	
======================================		====================================                        
Age	SS#1		Year		SS#2		Year			Minimum		Maximum		Average
62	$18,192	2028		$18,192	2031			$750,000		$5,222,942	$2,349,737
67	$26,196	2033		$26,196	2036			$669,795		$5,070,696	$2,186,074
70	$32,018	2036		$32,018	2039			$472,894		$4,896,380	$2,021,433
We used FIRECalc's default values for other fields (Spending = $30K, Portfolio=$750K, Years=30, etc...).
Does this make sense to you? :confused
Thank you.
If you retire at 49 and have a 30 year life span, you are counting on being dead at 79. The break even point for delaying SS to 70 is more like 82-84. Up your years to 35-40, and you will get different result.

The other thing to think about is that taking SS early should be expected to give you better results. On average you will get more money from investing than from SS (the return is not 8%. It is more like 2-3% depending on your lifespan assumption). You are also taking on more risk. Now with SS paying 120% or so of your spending, you might as well take it early. You don't need more money to reduce your risk. It is already at zero.
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goGators
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by goGators »

YES! as jeff1949, Aptenodytes, and randomguy correctly pointed out, delaying SS works with longer lifespan.
Below are FIRECal results for 30, 40,45, and 50 year lifespans:

Code: Select all

          INPUTS                                    OUTPUTS (Portfolio Balance)   
======================================           ====================================                       
Age   SS#1      Year      SS#2      Year         Minimum      Maximum      Average
-----------------------------------------30 YEARS------------------------------------
62   $18,192   2028      $18,192   2031         $750,000      $5,222,942   $2,349,737 <= BEST AVG
67   $26,196   2033      $26,196   2036         $669,795      $5,070,696   $2,186,074     
70   $32,018   2036      $32,018   2039         $472,894      $4,896,380   $2,021,433
-----------------------------------------40 YEARS------------------------------------
62   $18,192   2028      $18,192   2031         $750,000      $12,254,782   $3,972,052 <= BEST AVG	
67   $26,196   2033      $26,196   2036         $750,000      $12,419,201   $3,958,526     
70   $32,018   2036      $32,018   2039         $750,000      $12,277,565   $3,843,375
-----------------------------------------45 YEARS------------------------------------
62   $18,192   2028      $18,192   2031         $750,000      $18,696,052   $5,236,714		
67   $26,196   2033      $26,196   2036         $750,000      $19,051,587   $5,362,981 <= BEST AVG	     
70   $32,018   2036      $32,018   2039         $750,000      $18,912,555   $5,316,715
-----------------------------------------50 YEARS------------------------------------
62   $18,192   2028      $18,192   2031         $750,000      $17,989,213   $6,967,779		
67   $26,196   2033      $26,196   2036         $750,000      $19,137,305   $7,259,706     
70   $32,018   2036      $32,018   2039         $750,000      $19,708,721   $7,307,426 <= BEST AVG
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by joebh »

tennisplyr wrote:My wife (64) and I (66) started taking it early (62) as do the majority of Americans. Love my decision.
I can't say I know anyone who doesn't love their decision - without regard to when they actually started collecting SS.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by BahamaMan »

joebh wrote:
tennisplyr wrote:My wife (64) and I (66) started taking it early (62) as do the majority of Americans. Love my decision.
I can't say I know anyone who doesn't love their decision - without regard to when they actually started collecting SS.
I have a friend of mine that is 75 years old. He took his S.S. at age 62 and regrets it immensely.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by joebh »

BahamaMan wrote:
joebh wrote:
tennisplyr wrote:My wife (64) and I (66) started taking it early (62) as do the majority of Americans. Love my decision.
I can't say I know anyone who doesn't love their decision - without regard to when they actually started collecting SS.
I have a friend of mine that is 75 years old. He took his S.S. at age 62 and regrets it deeply.
Apparently, I don't know your friend.

I have no doubts that there are people with regrets. I just personally don't know any. There's a strong confirmation bias toward believing you made the right decision, without regard to the data. In particular, delaying SS benefits until 70 is something that only pays off in the long run. Most people who are happy with their decision haven't yet reached the long run.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by ObliviousInvestor »

randomguy wrote:On average you will get more money from investing than from SS (the return is not 8%. It is more like 2-3% depending on your lifespan assumption). You are also taking on more risk. Now with SS paying 120% or so of your spending, you might as well take it early. You don't need more money to reduce your risk. It is already at zero.
The 2-3% inflation-adjusted return figure is the breakeven return when comparing claiming at 62 vs claiming at 70 for an unmarried person. For married people, however, it is going to be different (higher for the high-earner, lower for the low-earner, but the specific figures will vary depending on difference in ages and PIAs).
goGators wrote:YES! as jeff1949, Aptenodytes, and randomguy correctly pointed out, delaying SS works with longer lifespan.
Below are FIRECal results for 30, 40,45, and 50 year lifespans:
It should not be a surprise that delaying works out better with longer lifespans. But again, unless FIRECalc is appropriately including survivor benefits in the calculation, any information it provides in terms of results is going to be incorrect.
joebh wrote:
tennisplyr wrote:My wife (64) and I (66) started taking it early (62) as do the majority of Americans. Love my decision.
I can't say I know anyone who doesn't love their decision - without regard to when they actually started collecting SS.
Most people do indeed seem to be happy. You see it here on the forum all the time. They say what filling strategy they used and why it was a good idea -- despite the fact that much of the time it wasn't a very good idea and in many cases it was even a dominated strategy.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by joebh »

ObliviousInvestor wrote:
joebh wrote:
tennisplyr wrote:My wife (64) and I (66) started taking it early (62) as do the majority of Americans. Love my decision.
I can't say I know anyone who doesn't love their decision - without regard to when they actually started collecting SS.
Most people do indeed seem to be happy. You see it here on the forum all the time. They say what filling strategy they used and why it was a good idea -- despite the fact that much of the time it wasn't a very good idea and in many cases it was even a dominated strategy.
I view this phenomenon as a really good thing.
It's always better to be happy. It's okay to be happy even when you could have been happier with a different strategy.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by Aptenodytes »

ObliviousInvestor wrote: It should not be a surprise that delaying works out better with longer lifespans. But again, unless FIRECalc is appropriately including survivor benefits in the calculation, any information it provides in terms of results is going to be incorrect.
FireCalc does not model time of death at all, so there's no way it could incorporate survivor benefits into its scenarios. If you wanted to use FireCalc to explore the impact of survivor benefits, you'd have to alter the spending and income assumptions manually. Doing that thousands of times is not practical or worthwhile, but it might make sense to do a few marker scenarios to bound the effects a bit, in a tangible way.

At age 57 (with spouse same age as me), I have to say this question of survivor benefits isn't anything I've given any thought to. It seems that upon the death of a spouse some costs go down (especially medical expenses) but other costs go up (things the deceased spouse used to do now have to be paid for). I suppose I should play around with a couple planning scenarios just to be informed.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by ObliviousInvestor »

joebh wrote:
ObliviousInvestor wrote:
joebh wrote:
tennisplyr wrote:My wife (64) and I (66) started taking it early (62) as do the majority of Americans. Love my decision.
I can't say I know anyone who doesn't love their decision - without regard to when they actually started collecting SS.
Most people do indeed seem to be happy. You see it here on the forum all the time. They say what filling strategy they used and why it was a good idea -- despite the fact that much of the time it wasn't a very good idea and in many cases it was even a dominated strategy.
I view this phenomenon as a really good thing.
It's always better to be happy. It's okay to be happy even when you could have been happier with a different strategy.
I agree that it's a good thing that people are happy. The problem occurs when when people then go and give poor advice to other people who haven't yet settled on a strategy. And you can see that happen week after week just here on the forum.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by ObliviousInvestor »

Thank you for the information about FIRECalc, Aptenodytes.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by joebh »

ObliviousInvestor wrote:
joebh wrote:
ObliviousInvestor wrote:
joebh wrote:
tennisplyr wrote:My wife (64) and I (66) started taking it early (62) as do the majority of Americans. Love my decision.
I can't say I know anyone who doesn't love their decision - without regard to when they actually started collecting SS.
Most people do indeed seem to be happy. You see it here on the forum all the time. They say what filling strategy they used and why it was a good idea -- despite the fact that much of the time it wasn't a very good idea and in many cases it was even a dominated strategy.
I view this phenomenon as a really good thing.
It's always better to be happy. It's okay to be happy even when you could have been happier with a different strategy.
I agree that it's a good thing that people are happy. The problem occurs when when people then go and give poor advice to other people who haven't yet settled on a strategy. And you can see that happen week after week just here on the forum.
I think we are in complete agreement.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by randomguy »

ObliviousInvestor wrote:
randomguy wrote:On average you will get more money from investing than from SS (the return is not 8%. It is more like 2-3% depending on your lifespan assumption). You are also taking on more risk. Now with SS paying 120% or so of your spending, you might as well take it early. You don't need more money to reduce your risk. It is already at zero.
The 2-3% inflation-adjusted return figure is the breakeven return when comparing claiming at 62 vs claiming at 70 for an unmarried person. For married people, however, it is going to be different (higher for the high-earner, lower for the low-earner, but the specific figures will vary depending on difference in ages and PIAs).
Being married mainly increases the chance of someone getting to 90. The return doesn't really change much. The point is that someone holding a 50/50 portfolio is looking at something historical real returns of around 5-6%. You are going to end up with more money when you invest it at 6% versus 2-3%. Obviously that ignores the sequence of risk issues that investing has. On average taking SS at 62 and investing is going to give you more money. But in the bottom ~10% case you end up with less. Delaying til 70 reduces that tail end which is what most people are after. But if you don't need the money, that isn't an issue and you can take the money early.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by dbr »

I also agree that posting "I invested in or did xxx and I'm happy with the results." is a meaningless statement that does not help someone else make decisions about what to do. It would also often be meaningless to say that one did something and that one was unhappy with the results.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by Spirit Rider »

And now I drag my tired bones to yet another case of urinating into the air pressure differential.

The sole focus on breakeven analysis so as not to leave a single penny on the table, totally misses the longevity insurance aspect.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by ObliviousInvestor »

randomguy wrote:
ObliviousInvestor wrote:
randomguy wrote:On average you will get more money from investing than from SS (the return is not 8%. It is more like 2-3% depending on your lifespan assumption). You are also taking on more risk. Now with SS paying 120% or so of your spending, you might as well take it early. You don't need more money to reduce your risk. It is already at zero.
The 2-3% inflation-adjusted return figure is the breakeven return when comparing claiming at 62 vs claiming at 70 for an unmarried person. For married people, however, it is going to be different (higher for the high-earner, lower for the low-earner, but the specific figures will vary depending on difference in ages and PIAs).
Being married mainly increases the chance of someone getting to 90. The return doesn't really change much. The point is that someone holding a 50/50 portfolio is looking at something historical real returns of around 5-6%. You are going to end up with more money when you invest it at 6% versus 2-3%. Obviously that ignores the sequence of risk issues that investing has. On average taking SS at 62 and investing is going to give you more money. But in the bottom ~10% case you end up with less. Delaying til 70 reduces that tail end which is what most people are after. But if you don't need the money, that isn't an issue and you can take the money early.
It depends on the circumstances. In a case in which the high earner is much older and the other spouse has a very small PIA or no PIA, the expected return for this higher earning spouse delaying is going to be quite decent. And given the risk profile of that return (i.e., generally low risk and uncorrelated to other financial assets), it still turns out to be pretty attractive, even if the protection against longevity is not needed.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by jeffyscott »

How are you getting 2-3%, inflation adjusted?

I am using my FRA of 67 and for a benefit of $1000 per month at 62, with annuity factors I am using, I get a PV of about $161,000. At 63 the benefit would increase to (inflation adjusted) $1086 and PV of about $171,000, with the annuity factors I am using. This gives a real increase of 6.2%. Other years do have smaller increases than the 62-63 one, though.

Perhaps the age 63 benefit should be adjusted based on odds of actually surviving that year, which is about 98.8% for a male according to SS tables? If that is an appropriate adjustment the $1086 becomes $1073 (based on a 1.2% chance of getting $0), reducing the PV to about $169K and the return to 5.1%. At later ages the death rates are higher and the increases are a smaller percentage, so maybe with those factors the 2-3% figure ends up being the average?
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by randomguy »

jeffyscott wrote:How are you getting 2-3%, inflation adjusted?

I am using my FRA of 67 and for a benefit of $1000 per month at 62, with annuity factors I am using, I get a PV of about $161,000. At 63 the benefit would increase to (inflation adjusted) $1086 and PV of about $171,000, with the annuity factors I am using. This gives a real increase of 6.2%. Other years do have smaller increases than the 62-63 one, though.

Perhaps the age 63 benefit should be adjusted based on odds of actually surviving that year, which is about 98.8% for a male according to SS tables? If that is an appropriate adjustment the $1086 becomes $1073 (based on a 1.2% chance of getting $0), reducing the PV to about $169K and the return to 5.1%. At later ages the death rates are higher and the increases are a smaller percentage, so maybe with those factors the 2-3% figure ends up being the average?
Lets compare them at 63:
The person who took SS at 62 has 12k dollars AND 161k PV
The person who took SS at 63 has 0 dollars and 171k PV

Last I checked 173k is more than 171k:) Over time the delayer will catch up and pull ahead but it tends to be 10+ years. From memory the real returns go something like 0% at 80, 3% at 90 and 5% at 100.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by Flobes »

The calculus for taking Social Security early has been seriously altered by subsidies and cost-sharing under the ACA.

All SS income is included in the MAGI that determines these Obamacare benefits.

I've enjoyed @$18,000 each year of subsidy and cost-sharing benefits (at ages 62, 63, 64). These would not be garnered had I taken Social Security early. This is real money!
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by Epsilon Delta »

jeffyscott wrote:Perhaps the age 63 benefit should be adjusted based on odds of actually surviving that year, which is about 98.8% for a male according to SS tables?
Yes, you should make that correction. Assuming the $171,000 is the value of the SS payments given you are alive at age 63.
randomguy wrote:
Lets compare them at 63:
The person who took SS at 62 has 12k dollars AND 161k PV
The person who took SS at 63 has 0 dollars and 171k PV
This is not correct. At age 63 the first case gets $1000 per month for life and the second gets $1086 per month for life. The PV at that time must have the same ratio. So perhaps 157.5k to 171k.

The PV of an annuity is always conditional on you being alive at a particular age, usually the age you start the annuity. You have to be very careful when comparing calculations starting at different ages.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by tennisplyr »

I would never tell anyone what to do. I do often tell others what my experience has been and let others decide on their own.....just another piece of information. All I know is that since taking SS early I've not had to go deeply into my portfolio.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by jeffyscott »

Thanks Epsilon Delta and randomguy. I now have a better idea of corrections that would be needed to my analysis.

I ran across a more general analysis, which concludes that real returns of delaying Social Security benefits from 62 to 70 are: 3.58% for men, 4.57% for women and 5.24% for the last spouse to die.

http://www.investmentnews.com/article/2 ... l-security
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by munemaker »

tennisplyr wrote:My wife (64) and I (66) started taking it early (62) as do the majority of Americans. Love my decision.
I love the decision that maximizes my wealth. That wouldn't be it.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by munemaker »

tennisplyr wrote:I would never tell anyone what to do. I do often tell others what my experience has been and let others decide on their own.....just another piece of information. All I know is that since taking SS early I've not had to go deeply into my portfolio.
If that's all you know, you don't know enough.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by randomguy »

jeffyscott wrote:Thanks Epsilon Delta and randomguy. I now have a better idea of corrections that would be needed to my analysis.

I ran across a more general analysis, which concludes that real returns of delaying Social Security benefits from 62 to 70 are: 3.58% for men, 4.57% for women and 5.24% for the last spouse to die.

http://www.investmentnews.com/article/2 ... l-security
I can't read that article but you need to look at the assumptions they use to get there. For example are they giving the returns of men who live to 84 or the average return (i.e. including the ones that die before 70 and live to 100). Depending on what you are looking for either can be useful way of looking at the problem.

But in the end those numbers show why deferring SS isn't a big win. Getting 5.24% sounds great. But it below on average what you get from a 50/50 (I think firecalcs default is more like 70/30) portfolio over the top 75% or so of cases. Deferring isn't going to make you rich. It might help you sleep at night.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by jeffyscott »

Strange, it didn't ask me to log in or register before and now does.

Use this and just click on the first link:

https://www.google.com/search?q=Rate-of ... l+Security

I'd certainly not expect 5.24% real from 50/50, or even from 100% stocks, so it does sound like a great guaranteed return to me. In any case, any other source of comparable returns would come with far higher risk.

For the lower earning spouse the return would likely be something quite a bit less than the 3.58% real for a single man, I imagine. Particularly if the higher earner is male and older.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by randomguy »

jeffyscott wrote:Strange, it didn't ask me to log in or register before and now does.

Use this and just click on the first link:

https://www.google.com/search?q=Rate-of ... l+Security

I'd certainly not expect 5.24% real from 50/50, or even from 100% stocks, so it does sound like a great guaranteed return to me. In any case, any other source of comparable returns would come with far higher risk.

For the lower earning spouse the return would likely be something quite a bit less than the 3.58% real for a single man, I imagine. Particularly if the higher earner is male and older.
It isn't a guaranteed return. If you and your spouse both die at 86, you don't get the 5.24%. You get 3.58. Those numbers are inline with what I have seen. He just upped the average death age by several years to make them look better. If you have the guys dying at 83 instead of 86, the returns drop a bit. If you normalize across everyone (include the people that die at 65 and those that live to 105), the rate drops to below 1% for males (couples do a bit better).
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by Peter Foley »

mulbuf wrote:
We opted to split the difference between taking it early and age 70 and took it at as soon as we reached full retirement age. My thinking was that in matters of risk, it's better to be 50 percent right than 100 percent wrong.
I'm thinking along the same lines that you are. I have a September birthday so I will probably take SS benefits starting the January after I turn 67 or 68. My decision will be based on health, projected RMDs, and Roth conversion opportunities. (If there is a significant drop in the market and it makes sense for me to convert a lot of shares while the market is down I would do so - and thus delay taking SS for another year.)
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by Watty »

I didn't try to follow all the math but it looks like it is missing the taxation of your Social security. In my case if I spend live on my savings and spend it down while delaying Social Security until I am 70 then very little of my social security would be taxed. If I start it at 62 then a lot of it will be taxed.

It also looked like you were focused on the ending balance. Firecalc also shows you the failure rate which might be more important.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by ObliviousInvestor »

As with the purchase of an annuity, there is no way to know the rate of return earned by delaying Social Security until you know your date of death (or the date of death of your spouse, in some cases). But we can calculate expected rates of return.

Of note, however, those expected rates of return vary quite significantly depending on whether you're married or unmarried. And if you are married, the expected rate of return is strongly affected by:
1) whether you're the higher earner or the lower earner,
2) the difference between your PIAs,
3) the difference in ages, and
4) whether you're affected by the new deemed filing rules and/or the new voluntary suspension rules.

In other words, for married people, there's simply no way to make broadly applicable statements. My best attempt at doing so would be to say that the expected rate of return for the higher-PIA spouse is often (though not always) quite a bit higher than the expected return on investments of a similar level of risk. So even in cases in which the longevity protection is not needed, it often makes sense to spend down the safe part of the portfolio somewhat in order to delay Social Security, thereby increasing either a) the expected level of spending throughout retirement or b) the expected bequest to heirs.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by Leeraar »

If you are retiring at ages 46 and 49, your SS decision is at least 13 years away.

It seems to me that optimizing SS is more or less irrelevant to your current decision.

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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by randomguy »

Watty wrote:I didn't try to follow all the math but it looks like it is missing the taxation of your Social security. In my case if I spend live on my savings and spend it down while delaying Social Security until I am 70 then very little of my social security would be taxed. If I start it at 62 then a lot of it will be taxed.

It also looked like you were focused on the ending balance. Firecalc also shows you the failure rate which might be more important.
Failure rate is going to be 0 when you are spending 30k and have 36k of SS and you just need the portfolio to last 13-16 years:)

Taxes can go either way depending on your exact situation. Getting returns as stocks (LTGC) versus SS (OI with some twists) is a win for a lot of people but there are various twists in there that make it hard to make generalizations.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by steve roy »

Regarding Social Security, here's the rule of thumb I follow:

If your Mom and Dad, aunts and uncles have a habit of going to their rewards at 67 to 73, take Social Security as soon as you can.

If everybody lives into their nineties, take it at 70. You want to play the odds here. I had an assistant at work who was overweight, had suffered a stroke, didn't have parents who'd lived into their seventies. I urged him to take Social Security as soon as he could, which he did. Obviously there's a chance he'll live to be very old, but knowing his history, I think it was wise that he took it early.

My thinking on this subject, anyway.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by lawman3966 »

goGators wrote: Does this make sense to you? :confused
Thank you.
I noticed the same thing, and consequently enter my SS numbers starting at age 65, when using Firecalc. The great thing about SS, is that you can plan to start taking benefits at age 70, but later modify that decision should circumstances warrant.

Here's what I think is going on regarding the SS starting age and Firecalc results.
Assuming that you live beyond age 82, starting SS benefits at age 70 optimizes the total amount of money received from SS.
However, in between 62 and 82, the lower income from SS (and, in fact, zero income between age 62 and 70 if starting benefits at age 70) may result in certain runs (i.e. calculated outcomes for a defined retirement period) of Firecalc showing the retiree's net worth hitting zero during this period. In other words, if you were somehow able to weather some bad return sequences, the later SS starting age would yield more total income. But, the rigid structure of Firecalc can cause one's net worth to hit zero if there's no spending flexibility.
In contrast, starting SS benefits earlier bolsters the retiree's net worth at various points within the 62-82 age range, quite possibly preventing a zero-net-worth event during the relevant period. The downside of starting SS earlier is that the retiree is stuck with the lower income from that point onward.
Thus, starting SS earlier seems to "smooth out" the Firecalc outcomes: less chance of a net worth "zero" between 62 and 82; and lower "leftover" net worth at the end date.

There may be various ways of responding to this, some of which are incorporated into the withdrawal options in various retirement calculators. One way is to employ a safety margin that has you spending less than Firecalc says you can. Another is to adjust one's spending downward in the event of particularly bad equity returns.

Yet another is to plan to take SS at 70, but to leave open the option to take it earlier than that if absolutely necessary. No doubt, many other spending algorithms exist that could address this issue, one of which is make greater use of annuities to obtain a still greater smoothing of net worth outcomes.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by itstoomuch »

lawman3966 wrote:
goGators wrote: Does this make sense to you? :confused
Thank you.
I noticed the same thing, and consequently enter my SS numbers starting at age 65, when using Firecalc. The great thing about SS, is that you can plan to start taking benefits at age 70, but later modify that decision should circumstances warrant.

Here's what I think is going on regarding the SS starting age and Firecalc results.
Assuming that you live beyond age 82, starting SS benefits at age 70 optimizes the total amount of money received from SS.
However, in between 62 and 82, the lower income from SS (and, in fact, zero income between age 62 and 70 if starting benefits at age 70) may result in certain runs (i.e. calculated outcomes for a defined retirement period) of Firecalc showing the retiree's net worth hitting zero during this period. In other words, if you were somehow able to weather some bad return sequences, the later SS starting age would yield more total income. But, the rigid structure of Firecalc can cause one's net worth to hit zero if there's no spending flexibility.
In contrast, starting SS benefits earlier bolsters the retiree's net worth at various points within the 62-82 age range, quite possibly preventing a zero-net-worth event during the relevant period. The downside of starting SS earlier is that the retiree is stuck with the lower income from that point onward.
Thus, starting SS earlier seems to "smooth out" the Firecalc outcomes: less chance of a net worth "zero" between 62 and 82; and lower "leftover" net worth at the end date.

There may be various ways of responding to this, some of which are incorporated into the withdrawal options in various retirement calculators. One way is to employ a safety margin that has you spending less than Firecalc says you can. Another is to adjust one's spending downward in the event of particularly bad equity returns.

Yet another is to plan to take SS at 70, but to leave open the option to take it earlier than that if absolutely necessary. No doubt, many other spending algorithms exist that could address this issue, one of which is make greater use of annuities to obtain a still greater smoothing of net worth outcomes.

I came to the conclusions several years ago when I was looking at early SS. Guessed this in 2008-09 when our IRA s were seriously down and did scenarios of taking early SS or delaying and living off IRA s. I like you explanation. :beer
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by SGM »

If you compare SS delay to obtaining a 6% return certain then delaying loses out. However, we chose to compare it to a safe investment. In the final analysis we liked the idea of the longevity insurance of delaying my higher SS benefit. A break even analysis is not the most important thing for us. We have several parents who have lived to be over 100. So longevity planning and insurance is an issue.

The idea of having a fixed income stream with a 32% higher benefit than taking SS at 66 is also appealing because of the higher cola basis. We also converted tIRAs during this this time and lowered are taxes as well. One of us will shortly take a restricted spousal benefit at FRA.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by Quark »

ObliviousInvestor wrote:I do not have experience with FIRECalc, but I have been told that it ignores survivor benefits. (Can anybody confirm whether this is true or not?) If that is the case, then its information with regard to SS for married couples wouldn't be particularly helpful (aside from cases in which one spouse is ineligible for survivor benefits due to GPO).
For a married couple, survivors benefits would help only if the spouse with lower benefits survived, allowing them to increase their benefits to what the higher earner was collecting?
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by BahamaMan »

Spirit Rider wrote:And now I drag my tired bones to yet another case of urinating into the air pressure differential.

The sole focus on breakeven analysis so as not to leave a single penny on the table, totally misses the longevity insurance aspect.
Correct ! - As well as most people focus on 'Building up the Pile', rather than what you actually get to spend. If you are not interested in leaving your Pile for someone else to spend, delaying SS will allow you to spend more in your 60s, because you have more income in your 70s and beyond.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by joebh »

Flobes wrote:The calculus for taking Social Security early has been seriously altered by subsidies and cost-sharing under the ACA.

All SS income is included in the MAGI that determines these Obamacare benefits.

I've enjoyed @$18,000 each year of subsidy and cost-sharing benefits (at ages 62, 63, 64). These would not be garnered had I taken Social Security early. This is real money!
This is a great point that (unfortunately) few bother to consider.
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Re: FIRECalc - Take Social Security Benefits Early is Better?

Post by dbr »

Flobes wrote:The calculus for taking Social Security early has been seriously altered by subsidies and cost-sharing under the ACA.

All SS income is included in the MAGI that determines these Obamacare benefits.

I've enjoyed @$18,000 each year of subsidy and cost-sharing benefits (at ages 62, 63, 64). These would not be garnered had I taken Social Security early. This is real money!
How is that possible? I do not spend more than about one third that amount per year for the grand total of all health insurance costs and out of pocket health care expenses and I have full Medicare plans A,B, and D, a gold plated Medigap plan, and dental insurance.
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