Delay SS, but claim if market plunges

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MathWizard
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Delay SS, but claim if market plunges

Post by MathWizard » Tue May 16, 2017 9:38 pm

I am planning on delaying SS to 70 for longevity insurance for myself or my spouse.

This means that I will be depleting my portfolio faster initially.

Since the biggest threat to a portfolio is a bad sequence of returns early on in retirement,
my delaying SS to 70 would exacerbate such a bad sequence of returns.

I'm wondering whether a strategy would be to delay SS, but if the market has a large drop (e.g. 25% or more)
in the region between my retirement and 70, to take SS then.

In this way, the portfolio is under less pressure from withdrawals.

This strategy allows me to use SS as an insurance against the bad sequence of returns issue.

Thoughts?

JoinToday
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Re: Delay SS, but claim if market plunges

Post by JoinToday » Tue May 16, 2017 9:49 pm

That is an interesting idea, one I had not considered.

I think it all depends upon the stock:bond ratio, and withdrawal rate.

If the portfolio can manage it (meaning you have enough bonds and the withdrawal rate is low to medium, I would be tempted to withdraw from bonds only, and let my stock:bond ratio increase as bonds are reduced. But it is hard to say without looking at real numbers.

I still haven't decided if I will have the fortitude to rebalance from bonds to stock if there is a big drop in the stock market during my retirement.
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Re: Delay SS, but claim if market plunges

Post by Ron » Tue May 16, 2017 10:04 pm

You can look at it in that manner for your situation if you wish.

As for me? I retired in early 2007 at age 59. Within the next two years I took quite a hit (as most folks in the market at the time). I did not have the option to take SS at that time (too young). However, I did have 3+ years in cash that got me through the downturn without having to sell any equity/bond funds until things turned around.

Even if I was eligible for SS at the time, that decision would have reduced my income for the rest of my life. More importantly, it would have reduced my wife's future survivor SS assuming I would die first.

What you are stating is a short term solution that could affect you over the long term - possibly a few decades into the future.

As for me? Next Valentine's day will be quite sweet. It will be the date of my first age-70 SS deposit.

Just another view, based on a real life happening.

- Ron

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David Jay
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Re: Delay SS, but claim if market plunges

Post by David Jay » Tue May 16, 2017 10:10 pm

I will have the entire amount needed for living expenses from retirement (at age 62) to start of SS benefits in bond funds. I will be holding 2 years in short term bonds to cushion any price drop in my Intermediate fund.

That being said, I have a minimum portfolio amount at which I will take SS (earlier than planned). Start of SS takes no more than 90 days to get started, so this decision can be delayed on a month-to-month basis.
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Re: Delay SS, but claim if market plunges

Post by Lou354 » Wed May 17, 2017 5:10 am

That's an interesting way of looking at it. And a good reminder not to get fixated on just the two time points of FRA and age 70 for when to start SS benefits.

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djpeteski
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Re: Delay SS, but claim if market plunges

Post by djpeteski » Wed May 17, 2017 6:19 am

If you apply for SS benefits, you will receive them in the next month. I thought that was important to this discussion.

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EATaxGuy
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Re: Delay SS, but claim if market plunges

Post by EATaxGuy » Wed May 17, 2017 6:49 am

Or you could go back to work.

I wouldn't have any money I planned to spend in the next 3-5 years invested in stocks or bonds, that covers the entire period between FRA and 70 for me.

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The Wizard
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Re: Delay SS, but claim if market plunges

Post by The Wizard » Wed May 17, 2017 6:52 am

Claiming SS earlier than 70 was my Plan B when I retired four years ago at 63, for the reasons mentioned.
I say "was" because it's​ no longer needed with 34 months to go.
Also, I take my $3000/month "bridge" amount pro rata from my 403(b) accumulation, roughly 50/50 AA, no special bond account for me, since I'm not a Bucketeer...
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David Jay
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Re: Delay SS, but claim if market plunges

Post by David Jay » Wed May 17, 2017 7:15 am

The Wizard wrote:...no special bond account for me, since I'm not a Bucketeer...


No buckets for me either, but: (Bond Allocation) > (Living Expenses to SS).
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Re: Delay SS, but claim if market plunges

Post by livesoft » Wed May 17, 2017 7:21 am

You are just saying that if your portfolio starts to run out of money that you will go to another pocket to get money. Money is money.

I suspect that you would probably first reduce expenses if the market plunges rather than claim SS earlier than 70.
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Re: Delay SS, but claim if market plunges

Post by Ping Pong » Wed May 17, 2017 7:25 am

You should have a tips ladder with a rung maturing each year between your retirement date and age 70. The size of each rung should be equal to your expected annual age 70 SS benefit. There should be no need to claim early because you will have created your own SS-like stream.

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Re: Delay SS, but claim if market plunges

Post by hulburt1 » Wed May 17, 2017 7:53 am

That's kind of my plan. I have 2m but only need $60000. I'm at 64. What I'm doing now is taking out what my SS would be from my Ira. I'm also converting same amount to Roth. I like to have dividends put into money market then use that to convert and live on or reinvest. I'm not really working so I'm my own advice. I pay myself 10% at the end of the year from what I make over the year. This year could be $30000. I like making this a game. It's what you spend that gets you in trouble so I'm on a strict budget.

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Re: Delay SS, but claim if market plunges

Post by Frisco Kid » Wed May 17, 2017 8:02 am

I have also considered the same strategy and in an effort to avoid paralysis by analysis have concluded you won't know until you get there. While delaying to 70 will maximize your monthly SS benefit, there are no free lunches in covering the gap years. The bulk of our retirement nest egg is in tax advantaged accounts.

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Re: Delay SS, but claim if market plunges

Post by Watty » Wed May 17, 2017 8:17 am

MathWizard wrote:I'm wondering whether a strategy would be to delay SS, but if the market has a large drop (e.g. 25% or more)
in the region between my retirement and 70, to take SS then.
.....

Thoughts?


If you are worried about a 25%+ drop in your portfolio then you are invested too aggressively.

The Vanguard 2015 target date fund has an asset allocation of 50% stocks and a 50% bonds so for a stock market drop to cause a 25% decline in your portfolio the stock market would have to drop by 50% which would be as bad as in 2008 which hopefully was a pretty unique situation but it could happen again.

I retired when I was 59 two years ago so I have a gap until I start Social Security and Medicare and those will be my most expensive retirement years. Ignoring some complication in very rough numbers my investments will need to provide about $60,000 a year until I am 65 and about $30,000 a years after I am on medicare and Social Security. I will be 65 6 years years after I retired so I will need an extra $180K for my early retirement up until then.

This is a bit oversimplified but I basically considered the funds to be in two portfolio's
1) Money to provide an extra $30K a year in early retirement --- around $180K invested very conservatively.
2) Money to provide $30K a year for the rest of my life ---- the rest basically invested in a Target Date 2015 fund.

If there is a 50% market crash and my target date fund drops by 25% then I might need to reduce my spending by 25% of the $30K second portfolio, which would be $6,000 and I would need to live on $54K a year. I would need to cut out some extras from my retirement spending but I would still be more than convertible since I live in a relatively low cost of living area and have a paid off house.

When I get to 65 I will make a year by year decision about delaying Social Security until I am 70.

In a lot of ways if there is a market crash then it could make MORE sense to wait until you are 70 to start Social Security since it would be more important to you. If you are in dire straights then you might be forced to start it earlier but that could have long term consequences.

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Re: Delay SS, but claim if market plunges

Post by SGM » Wed May 17, 2017 8:25 am

I would plan to have some bond or cash available for such a scenario to avoid the permanent decrease in SS payout. Part of my plan was a 7 year savings annuity which paid 4% tax deferred and is currently paying about 3.5%. I never annuitized the account. Unfortunately rates have been lower since I stopped adding to that account, but I am happy with the rate I received. I could have taken out 10% per year without penalty after the 1st year. Fairly shortly I will be able to take all of it out and will have to figure out what is best to do with the account.
The other part of my plan was to depend on stock and bond dividends to spend and to sell what makes most sense if I needed extra money.

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Re: Delay SS, but claim if market plunges

Post by The Wizard » Wed May 17, 2017 8:28 am

David Jay wrote:
The Wizard wrote:...no special bond account for me, since I'm not a Bucketeer...


No buckets for me either, but: (Bond Allocation) > (Living Expenses to SS).

We'll, if I look just at the cost of delaying​ SS from age 63 to 70, then I have $3000/month * 12 months * 7 years = $252,000.
And with my 50/50 AA, I have way more than that on the bond side.
But as mentioned, the $3000/month comes out pro rata...
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Re: Delay SS, but claim if market plunges

Post by Pops1860 » Wed May 17, 2017 8:42 am

I wish I had thought about this perspective when I was discussing delaying SS to 70 with a relative, who had the resources to easily do it, without even touching 'retirement savings' $$.

The idea that "the decision to delay SS is not permanent, and can be changed at any time, so just try it for a while and see how you feel about it" is an argument that I wish I had used. The relative started SS at 62, but maybe this thought might have swayed the decision differently, at least initially.

Learned something today, will use this next time I get into a discussion on this topic 8-) .

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Re: Delay SS, but claim if market plunges

Post by magazinewriter » Wed May 17, 2017 9:14 am

Ron wrote:You can look at it in that manner for your situation if you wish.

As for me? I retired in early 2007 at age 59. Within the next two years I took quite a hit (as most folks in the market at the time). I did not have the option to take SS at that time (too young). However, I did have 3+ years in cash that got me through the downturn without having to sell any equity/bond funds until things turned around.

Even if I was eligible for SS at the time, that decision would have reduced my income for the rest of my life. More importantly, it would have reduced my wife's future survivor SS assuming I would die first.

What you are stating is a short term solution that could affect you over the long term - possibly a few decades into the future.

As for me? Next Valentine's day will be quite sweet. It will be the date of my first age-70 SS deposit.

Just another view, based on a real life happening.

- Ron


This is my strategy. I have 3+ years in cash so I'm not worried about a market downturn, which I expect is coming. I'm 62 and still plan to hold off until 70 for my SS because my small pension does not have a COLA. The only thing that would change my mind would be if I had health problems.

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Re: Delay SS, but claim if market plunges

Post by JW-Retired » Wed May 17, 2017 9:56 am

MathWizard wrote: Since the biggest threat to a portfolio is a bad sequence of returns early on in retirement,
my delaying SS to 70 would exacerbate such a bad sequence of returns.

I'm wondering whether a strategy would be to delay SS, but if the market has a large drop (e.g. 25% or more)
in the region between my retirement and 70, to take SS then.

The current delayed SS maximum of ~$42k/yr at 70 has an early age 62 amount of ~$24k/yr. On a big stock market drop, I would just spend another $24k/yr from my bond allocation in lieu of re-balancing into equities, and keep on delaying SS. Doing this for the worst possible 8 years only amounts to $192k. Unlikely bonds are going to drop 25%.

Higher SS has a bond-like flavor anyway. :P
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Re: Delay SS, but claim if market plunges

Post by Flobes » Wed May 17, 2017 10:11 am

Retired 9 years, I'm 66 and cruising on the "Delay to 70" highway (for both Social Security and small state pension).

I'll consider taking an exit ramp before 70 if:
* Inflation soars, and the 8% annual SS increase loses significance
* Public policy changes, and the 8% annual increase goes away or is greatly reduced
* Rules about the WEP change
* Personal longevity is markedly reduced

I'm asset allocated and mentally prepared so that a 50% market decline won't derail the plan.

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Re: Delay SS, but claim if market plunges

Post by curmudgeon » Wed May 17, 2017 11:34 am

I am currently planning to delay to age 70, but I do consider that there are non-trivial political risks to doing so, especially given the SS funding challenge that is visible down the road. It's not worth going off into the weeds with political speculation, but I keep it in mind, especially the point that those of us with higher benefits may get hit harder.

One thing that we may do is to have my wife claim her (small) benefit at age 62. While this will reduce the bump she would get when I claim and she becomes eligible for spousal, the net difference in estimated total benefits tends to be trivial in the calculators I've looked at, and the reduction in early drawdown could be helpful.

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Re: Delay SS, but claim if market plunges

Post by jabberwockOG » Wed May 17, 2017 12:18 pm

curmudgeon wrote:I am currently planning to delay to age 70, but I do consider that there are non-trivial political risks to doing so, especially given the SS funding challenge that is visible down the road. It's not worth going off into the weeds with political speculation, but I keep it in mind, especially the point that those of us with higher benefits may get hit harder.

One thing that we may do is to have my wife claim her (small) benefit at age 62. While this will reduce the bump she would get when I claim and she becomes eligible for spousal, the net difference in estimated total benefits tends to be trivial in the calculators I've looked at, and the reduction in early drawdown could be helpful.



I think the way it works now is that if your wife claims her or your social security before her FRA she will have a reduced SS income forever, even after she has taken your spousal amount it will also be reduced by the same percentage because she claimed her own early. If she waits to claim SS until she is FRA then there is no reduction when she takes over spousal from your delayed till 70 amount.

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Re: Delay SS, but claim if market plunges

Post by jabberwockOG » Wed May 17, 2017 12:20 pm

jabberwockOG wrote:
curmudgeon wrote:I am currently planning to delay to age 70, but I do consider that there are non-trivial political risks to doing so, especially given the SS funding challenge that is visible down the road. It's not worth going off into the weeds with political speculation, but I keep it in mind, especially the point that those of us with higher benefits may get hit harder.

One thing that we may do is to have my wife claim her (small) benefit at age 62. While this will reduce the bump she would get when I claim and she becomes eligible for spousal, the net difference in estimated total benefits tends to be trivial in the calculators I've looked at, and the reduction in early drawdown could be helpful.



I think the way it works now is that if your wife claims her or your social security before her FRA she will have a reduced SS income forever, even after she has taken your spousal amount it will also be reduced by the same percentage because she claimed her own early. If she waits to claim SS until she is FRA then there will be no % reduction when she takes over spousal from your delayed till 70 SS amount.

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Re: Delay SS, but claim if market plunges

Post by whaleknives » Wed May 17, 2017 12:45 pm

MathWizard wrote:. . . Since the biggest threat to a portfolio is a bad sequence of returns early on in retirement,
my delaying SS to 70 would exacerbate such a bad sequence of returns. I'm wondering whether a strategy would be to delay SS, but if the market has a large drop (e.g. 25% or more) in the region between my retirement and 70, to take SS then.

I retired in 2015 at 64-1/2, delaying SS until 70. Meanwhile I'm converting my 401(k) and tIRA to a Roth annually, to avoid a higher tax bracket with SS and RMDs.

Filing early is my backup plan as well, but I wanted a way to monitor my progress. FIRECalc not only informed me when I was able to retire, but also how my current porfolio balance compares to 5 worst cases during some truly bad times. So far, so good.

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Re: Delay SS, but claim if market plunges

Post by dave_k » Wed May 17, 2017 1:05 pm

Interesting plan. I was thinking we might have my wife start SS before 70 (as early as 62) since hers is lower, and in the scenarios I ran it didn't make much difference in the end (with me starting at 70), but helped with early sequence of returns risk.

I figured we'd just decide at the time, but I hadn't considered that the market being down could be a factor in that decision. It makes sense to me - if the market is down and the bond allocation is getting too low for comfort (assume drawing more from bonds while market is down), then start her SS early (and maybe even mine if it gets bad enough).

One concern based on what jabberwockOG said above: My wife would not claim a spousal benefit because hers will be more than half of mine, but if she claims early and I claim at 70, would she get my full (delayed to 70) amount upon my death after that?

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Re: Delay SS, but claim if market plunges

Post by David Jay » Wed May 17, 2017 1:30 pm

dave_k wrote:Interesting plan. I was thinking we might have my wife start SS before 70 (as early as 62) since hers is lower, and in the scenarios I ran it didn't make much difference in the end (with me starting at 70), but helped with early sequence of returns risk.

I figured we'd just decide at the time, but I hadn't considered that the market being down could be a factor in that decision. It makes sense to me - if the market is down and the bond allocation is getting too low for comfort (assume drawing more from bonds while market is down), then start her SS early (and maybe even mine if it gets bad enough).

One concern based on what jabberwockOG said above: My wife would not claim a spousal benefit because hers will be more than half of mine, but if she claims early and I claim at 70, would she get my full (delayed to 70) amount upon my death after that?


Yes, survivor's benefit (assuming the spouse with higher benefit dies) is not reduced by early claiming.
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David Jay
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Re: Delay SS, but claim if market plunges

Post by David Jay » Wed May 17, 2017 1:35 pm

Flobes wrote:Retired 9 years, I'm 66 and cruising on the "Delay to 70" highway (for both Social Security and small state pension).

I'll consider taking an exit ramp before 70 if:
* Inflation soars, and the 8% annual SS increase loses significance
* Public policy changes, and the 8% annual increase goes away or is greatly reduced
* Rules about the WEP change
* Personal longevity is markedly reduced

I'm asset allocated and mentally prepared so that a 50% market decline won't derail the plan.


You receive the SSA COLA for the entire period of your delay - your total COLA is the same as the person who began receiving their benefit at age 62. If inflation in your "year of 69" is 5% then you will get the 8% for delay and 5% for COLA for that year.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

MathWizard
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Re: Delay SS, but claim if market plunges

Post by MathWizard » Wed May 17, 2017 2:14 pm

Thanks guys.

This has been bouncing around my head for a while, and many variables over which
I have little control.

This isn't about worrying about a too aggressive AA, it is about dealing with the
"poor returns early on" issue. Going all bond is sub-optimal, so we all should have
some equity exposure, which means that we all have to deal with the "poor returns early on"
issue. I believe that I will be able to rebalance into equities in retirement, since I did so in
the large drops in 2001, 2003, 2008 and 2009.

This is more of an argument that delaying makes even more sense because by not claiming,
you maintain a potential "Plan B". That is a year by year, or even month by month decision.
(In the past, you could claim early, and still have a do-over, paying back the benefits you had
already gotten, then claiming at a later age. I believe that is no longer an option.)

By far the majority of the people I know have claimed, or plan to claim either at 62 or at FRA.
Only two have said that they plan to wait until 70, and one of those is on the fence between FRA and 70.

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Re: Delay SS, but claim if market plunges

Post by curmudgeon » Wed May 17, 2017 3:12 pm

jabberwockOG wrote:
curmudgeon wrote:I am currently planning to delay to age 70, but I do consider that there are non-trivial political risks to doing so, especially given the SS funding challenge that is visible down the road. It's not worth going off into the weeds with political speculation, but I keep it in mind, especially the point that those of us with higher benefits may get hit harder.

One thing that we may do is to have my wife claim her (small) benefit at age 62. While this will reduce the bump she would get when I claim and she becomes eligible for spousal, the net difference in estimated total benefits tends to be trivial in the calculators I've looked at, and the reduction in early drawdown could be helpful.



I think the way it works now is that if your wife claims her or your social security before her FRA she will have a reduced SS income forever, even after she has taken your spousal amount it will also be reduced by the same percentage because she claimed her own early. If she waits to claim SS until she is FRA then there is no reduction when she takes over spousal from your delayed till 70 amount.


Yes, it is true that our joint age 70 total benefit would be reduced, at least until I die and she gets my benefit as a survivor. The specifics of the reduction are fairly obscure; there was some discussion about this a couple of years ago which was a little inconclusive. My take was that the reduction to the spousal benefit was actually the amount of the reduction she had by taking her own before FRA, rather than applying the % multiplier against the spousal amount, though in our case the difference isn't huge. We would definitely take her benefit by her FRA; since the spousal is larger than her standard benefit, there is no practical point in waiting longer.

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Re: Delay SS, but claim if market plunges

Post by wolf359 » Wed May 17, 2017 4:28 pm

MathWizard wrote:I am planning on delaying SS to 70 for longevity insurance for myself or my spouse.

This means that I will be depleting my portfolio faster initially.

Since the biggest threat to a portfolio is a bad sequence of returns early on in retirement,
my delaying SS to 70 would exacerbate such a bad sequence of returns.

I'm wondering whether a strategy would be to delay SS, but if the market has a large drop (e.g. 25% or more)
in the region between my retirement and 70, to take SS then.

In this way, the portfolio is under less pressure from withdrawals.

This strategy allows me to use SS as an insurance against the bad sequence of returns issue.

Thoughts?


This makes no sense to me. I don't see a circumstance that the following options wouldn't resolve, especially if you're starting between ages 62 (when you're first eligible to claim) and 70, a period of only 8 years.

The bad sequence of returns early in retirement that would impact you negatively is a large, sustained drop, in which you continued to withdraw from equities (selling low) over an extended period of time. A one-time trigger event wouldn't do it. You have to see if it is sustained. In addition, you have other tools at your disposal. You could:

1) Not increase your spending for inflation that year.
2) Reduce your expenses temporarily.
3) Sell from your bond portfolio that year, each year until the market recovers.
4) Consider having your lower-paid spouse claim early.
5) Consider converting your bond portfolio to a SPIA, which provides money to live from and helps ensure you'll have enough when you start Social Security.
6) Consider getting a part-time job to supplement your income. That reduces your need to draw on your portfolio.

If after the first decade your portfolio is between 50-100% of your starting point, you may have suffered a serious sequence of returns event. However, if you're then switching to an enlarged Social Security supplemented by a SPIA to meet all your expenses, that by itself may recover you from that bad sequence of returns. If you also have a paid off house, sell it, and move to a lower cost of living area, you may have the means to replenish your portfolio. The 4% Rule made assumptions that you don't have to follow, and thus can give you more flexibility.

Keep backup plans, and backups for your backup plans.

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Re: Delay SS, but claim if market plunges

Post by MathWizard » Wed May 17, 2017 5:25 pm

wolf359 wrote:
MathWizard wrote:I am planning on delaying SS to 70 for longevity insurance for myself or my spouse.

This means that I will be depleting my portfolio faster initially.

Since the biggest threat to a portfolio is a bad sequence of returns early on in retirement,
my delaying SS to 70 would exacerbate such a bad sequence of returns.

I'm wondering whether a strategy would be to delay SS, but if the market has a large drop (e.g. 25% or more)
in the region between my retirement and 70, to take SS then.

In this way, the portfolio is under less pressure from withdrawals.

This strategy allows me to use SS as an insurance against the bad sequence of returns issue.

Thoughts?


This makes no sense to me. I don't see a circumstance that the following options wouldn't resolve, especially if you're starting between ages 62 (when you're first eligible to claim) and 70, a period of only 8 years.

The bad sequence of returns early in retirement that would impact you negatively is a large, sustained drop, in which you continued to withdraw from equities (selling low) over an extended period of time. A one-time trigger event wouldn't do it. You have to see if it is sustained. In addition, you have other tools at your disposal. You could:

1) Not increase your spending for inflation that year.
2) Reduce your expenses temporarily.
3) Sell from your bond portfolio that year, each year until the market recovers.
4) Consider having your lower-paid spouse claim early.
5) Consider converting your bond portfolio to a SPIA, which provides money to live from and helps ensure you'll have enough when you start Social Security.
6) Consider getting a part-time job to supplement your income. That reduces your need to draw on your portfolio.

If after the first decade your portfolio is between 50-100% of your starting point, you may have suffered a serious sequence of returns event. However, if you're then switching to an enlarged Social Security supplemented by a SPIA to meet all your expenses, that by itself may recover you from that bad sequence of returns. If you also have a paid off house, sell it, and move to a lower cost of living area, you may have the means to replenish your portfolio. The 4% Rule made assumptions that you don't have to follow, and thus can give you more flexibility.

Keep backup plans, and backups for your backup plans.


Yes, I have backup plans to my backup plans.

Honestly, this is about 5rd in my backup plan, after having a small SPIA, foregoing inflationary increases,
rebalancing in on a drop, then drawing down bonds, so it would have to be a sustained downturn. My next to last
resort would be downsizing or a reverse mortgage, since I have a no debt.

Going back to work is not really in my plans. By the time it is that drastic, my earning potential will
be quite low. Worst comes to worst, as the last fallback we can depend on our kids. Both our parents took
care of their parents, as did we, so they have seen that behavior modeled. In our case it is very unlikely, though.

I'm actually more in danger of not spending enough, than vice-versa, but I make lots of
contingency plans, as you can tell.

101
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Re: Delay SS, but claim if market plunges

Post by 101 » Wed May 17, 2017 6:46 pm

What you're basically saying is that at an e.g. 100k portfolio you would prefer to delay SS, but if you had a 75k portfolio, you would prefer to take SS earlier.

Your first sentence says you chose to delay SS to provide longevity insurance; this effect of delaying SS seems to be equally true for the 75k portfolio as it was for the 100k portfolio, so it's unclear what's changed to make you change your preferences. Your tax situation might have changed now that the portfolio has a lower value though, which could make it preferable to take SS earlier.

If your portfolio dropped from 100k to 75k you will of course have to spend less because you have 25k fewer dollars, but this will be true regardless of when you choose to take SS.

Delaying SS and withdrawing from the portfolio to make up the shortfall during the years you delay does front-load your portfolio withdrawals and therefore decreases the average time horizon for the portfolio though, which would suggest that the portfolio should be less risky in this case.

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Re: Delay SS, but claim if market plunges

Post by protagonist » Wed May 17, 2017 6:55 pm

The decision is easy.

A huge mistake I humbly believe that many people make on this site is equating "maximum wealth" with "happiness" and "better life"...the latter is much more correlated with peace of mind. In that context, deciding when to start benefits is easy.

Consider the fate of two retirees, Rich and Delores. Both retire at age 62....let's say they were both laid off and cannot find additional work.

At time of retirement, Rich has $1,000,000 in financial assets. Delores has $10,000. Both would receive $20K/year from SS if they started benefits at age 62 and $30K/yr if they wait to age 70.

Delores' decision is simple. She needs to start benefits at 62 for survival.

Rich's decision is also simple. He should definitely wait until 70. Rich has plenty of savings to fund his early retirement. His concern is whether, due to unexpected financial reversal or whatever, he will still have enough money to live comfortably when and if he makes it to 85 or 90 or 95. If Rich dies suddenly at 71, he loses out big time on "overall benefits" by waiting until 70, but he dies happily with a happy retirement and peace of mind. If he runs out of money before he dies, he can still live much more comfortably on $30K/year than on $20K/year. So no matter when he dies or what the "break even point" is, he has way more peace of mind by deferring and a happier retirement.

If you have enough money to fund your early retirement, defer SS as long as possible. If not, start taking it whenever you feel you really need it to avoid significant immediate lifestyle compromise. It's that simple. Forget about break even ages, maximizing benefits in an unknown world, etc. What you should care about is minimizing lifestyle compromise and worry. This is a point that I think is crucial in much financial decision-making and is lost on many people who simply rely on the math.

He who dies with the most toys does not always win. He who dies happily and in peace does.

I posted this previously in a similar thread. To which Silk McCue added: "Interesting post. Rich implements a financial plan that will allow him to have peace of mind, make the most of his retirement, and not be a burden on others. By failing to live out that plan and dying too young he has foolishly implemented a plan that leaves less money to his non dependent heirs. Exactly who was going to take care of Rich if he chose the other plan to take SS at 62 and runs out of other income sources at age 92 on his way to 100. Are those "some people" referred to going to write him a monthly check as eagerly as they would have received their inheritance if he had died at 71? "

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Re: Delay SS, but claim if market plunges

Post by hawkfan55 » Thu May 18, 2017 11:18 am

This is an interesting post and the OPs plan seems to be a good one. I am retired and planning to hold off on taking SS at least until FRA and, assuming financial and health remains strong, hopefully till 70. Having options is great and gives peace of mind.

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Re: Delay SS, but claim if market plunges

Post by onthecusp » Thu May 18, 2017 3:43 pm

I feel like this strategy is attractive, but also that it is market timing. If a plunge happens, now what? Will it recover right away? Then the delay plan should be preserved for the longevity insurance benefit. So I let it go farther, now the benefit is eliminated as a delay of another X months eats away at my portfolio.

So, for planning purposes, if I work another year(s) to have plenty to carry me through I'm just back to delay as the optimum strategy.

What is a trigger value that makes this an actionable plan?

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Re: Delay SS, but claim if market plunges

Post by cody69 » Thu May 18, 2017 9:30 pm

MathWizard, am glad you posted this as I have the same plan in mind and wanted to post it as you did for feedback. I am considering this as a plan B in case of a bad sequence of returns, same as you.

Hoping for additional input to stress test the concept and surface any flaws in the logic.

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Re: Delay SS, but claim if market plunges

Post by rgs92 » Thu May 18, 2017 9:59 pm

Isn't this the equivalent of withdrawing from your fixed income part of your portfolio when you "think" the market is low?
And isn't this basically market timing?
I thought you were supposed to take withdrawals that reflect your current asset allocation at the time, regardless of the market conditions.

For instance, let's say you avoid taking a withdrawal from your portfolio because the stock market is down 20%. But then the market drops yet another 20% (or worse). You then suffer a bigger loss than if you had just been consistent and not tried to call the market "low."

[ I think onthecusp just above is saying the same thing, but differently. ]

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Re: Delay SS, but claim if market plunges

Post by #Cruncher » Fri May 19, 2017 8:36 am

MathWizard in original post wrote:I'm wondering whether a strategy would be to delay SS, but if the market has a large drop (e.g. 25% or more) in the region between my retirement and 70, to take SS then. In this way, the portfolio is under less pressure from withdrawals.
There may be cases where this is a good strategy. But there are also some where it would not be. Consider the following assumptions:

Code: Select all

Row          Col A                       Col B
  1   Portfolio balance age 62 (000)   $1,500.0
  2   Annual spending (000)               $60.0
  3   SS benefit at NRA (PIA) (000)       $30.0
  4   Endure negative growth of           (7.0%)
  5   Until age                              70
  6   Then have positive growth of         3.0%
At age 66, after four years of -7% negative growth, the cumulative return is -25% (1 - 0.93 ^ 4). If one has not yet started collecting SS (columns "66" - "70" below), one's initial $1,500,000 has declined to $906,000. At this time, the strategy in the original post would call for starting SS. Assume Normal Retirement Age (NRA) is 66 so that one can begin collecting 100% of the Primary Insurance Amount (PIA) at that age. [1] The resulting portfolio balance is shown in the "66" column below. The "70" column shows the result if one delays starting SS four more years and starts collecting 132% of the PIA at age 70.

Code: Select all

Row     Col A          Col B    Col C    Col D    Col E    Col F    Col G    Col H    Col I    Col J
  7     Start SS -->      62       63       64       65       66       67       68       69       70
  8   Pct of PIA -->   75.00%   80.00%   86.67%   93.33%  100.00%  108.00%  116.00%  124.00%  132.00%
  9   Age / SS $ -->    22.5     24.0     26.0     28.0     30.0     32.4     34.8     37.2     39.6

Code: Select all

 10   62             1,500.0  1,500.0  1,500.0  1,500.0  1,500.0  1,500.0  1,500.0  1,500.0  1,500.0 
 11   63             1,357.5  1,335.0  1,335.0  1,335.0  1,335.0  1,335.0  1,335.0  1,335.0  1,335.0
 12   64             1,225.0  1,205.6  1,181.6  1,181.6  1,181.6  1,181.6  1,181.6  1,181.6  1,181.6
 13   65             1,101.7  1,085.2  1,064.8  1,038.8  1,038.8  1,038.8  1,038.8  1,038.8  1,038.8
 14   66  --------->   987.1    973.2    956.3    934.1    906.1    906.1    906.1    906.1    906.1
 15   67               880.5    869.1    855.4    836.7    812.7    782.7    782.7    782.7    782.7
 16   68               781.4    772.2    761.5    746.2    725.8    700.3    667.9    667.9    667.9
 17   69               689.2    682.2    674.2    661.9    645.0    623.7    596.0    561.2    561.2
 18   70  --------->   603.4    598.4    593.0    583.6    569.8    552.4    529.0    499.1    461.9
 19   71               584.0    580.4    576.8    569.1    556.9    541.4    519.7    491.2    455.3
 20   72               564.1    561.8    560.1    554.2    543.7    530.0    510.1    483.2    448.6
 21   73               543.5    542.6    542.9    538.8    530.0    518.3    500.2    474.9    441.6
 22   74               522.3    522.9    525.2    523.0    515.9    506.3    490.0    466.3    434.5
 23   75               500.5    502.6    506.9    506.7    501.3    493.9    479.5    457.5    427.1
 24   76               478.0    481.7    488.1    489.9    486.4    481.1    468.7    448.4    419.5
 25   77               454.8    460.1    468.8    472.6    471.0    467.9    457.6    439.1    411.7
 26   78               431.0    438.0    448.8    454.7    455.1    454.4    446.1    429.5    403.7
 27   79               406.4    415.1    428.3    436.4    438.8    440.4    434.3    419.5    395.4
 28   80               381.1    391.5    407.2    417.5    421.9    426.0    422.1    409.3    386.9
 29   81               355.0    367.3    385.4    398.0    404.6    411.2    409.6    398.8    378.1
 30   82               328.2    342.3    362.9    377.9    386.7    395.9    396.6    388.0    369.0
 31   83               300.5    316.6    339.8    357.3    368.3    380.2    383.3    376.8    359.7
 32   84  --------->   272.0    290.1    316.0    336.0    349.4    364.0    369.6    365.3    350.1
 33   85               242.7    262.8    291.5    314.1    329.8    347.3    355.5    353.5    340.2
 34   86               212.5    234.7    266.2    291.5    309.7    330.2    341.0    341.3    330.0
 35   87               181.3    205.7    240.2    268.2    289.0    312.5    326.0    328.7    319.5
 36   88               149.3    175.9    213.4    244.3    267.7    294.2    310.6    315.8    308.7
 37   89               116.2    145.1    185.8    219.6    245.7    275.5    294.7    302.5    297.5
 38   90                82.2    113.5    157.4    194.2    223.1    256.1    278.4    288.7    286.0
 39   91                47.2     80.9    128.1    168.0    199.8    236.2    261.5    274.6    274.2
 40   92                11.1     47.3     98.0    141.1    175.8    215.7    244.2    260.0    262.0
 41   93               (26.1)    12.8     66.9    113.3    151.1    194.6    226.3    245.0    249.5
 42   94               (64.3)   (22.9)    34.9     84.7    125.6    172.8    207.9    229.6    236.6
 43   95              (103.8)   (59.6)     2.0     55.2     99.4    150.4    188.9    213.7    223.3
 44   96              (144.4)   (97.3)   (32.0)    24.9     72.3    127.3    169.4    197.3    209.6
 45   97              (186.2)  (136.3)   (66.9)    (6.4)    44.5    103.5    149.3    180.4    195.5
 46   98              (229.3)  (176.3)  (102.9)   (38.6)    15.8     79.0    128.5    163.0    180.9
 47   99              (273.7)  (217.6)  (140.0)   (71.7)   (13.7)    53.8    107.2    145.1    166.0
 48  100              (319.4)  (260.2)  (178.2)  (105.9)   (44.1)    27.8     85.2    126.7    150.5
By starting SS at age 66 one's portfolio balance at age 70 is $108,000 more than if one delays four more years ($570,000 vs $462,000). However, by age 84 the portfolio balances are about equal ($349,000 vs $350,000).

Also, if one delays from age 66 to 70, one has in effect purchased an inflation-indexed annuity of $9,600 per year, the difference ($39,600 - $30,000) between the SS benefit at ages 70 and 66. Assuming one lived 14 more years [2], this has a present value of $117,000 when discounted at 2% [3]. Adding this to column "70's" $462,000 portfolio balance at age 70 totals $579,000, slightly more than the $570,000 in column "66". So one can argue that taking SS at age 66 didn't really result in a higher portfolio balance after all.

If one wants to run this model with different assumptions, here is the main formula in cell B11 which is copied down and right to cell J48:

Code: Select all

B11: 1,357.5 = B10 * (1 + IF($A11 <= $B$5, $B$4, $B$6)) - $B$2 + IF($A11 > B$7, B$9)

  1. NRA for different years of birth and the resulting percents of PIA at different ages shown on the table on this SSA web page.
  2. According to the 2013 SSA Period Life Table a 70 year old male has a life expectancy of 14.24 years.
  3. Computed with the Excel PV function:

    Code: Select all

    117,000 = -PV(2% / 12, 12 * 14, 9600 / 12, 0, 0)

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Re: Delay SS, but claim if market plunges

Post by ryman554 » Fri May 19, 2017 8:59 am

onthecusp wrote:I feel like this strategy is attractive, but also that it is market timing. If a plunge happens, now what? Will it recover right away? Then the delay plan should be preserved for the longevity insurance benefit. So I let it go farther, now the benefit is eliminated as a delay of another X months eats away at my portfolio.

So, for planning purposes, if I work another year(s) to have plenty to carry me through I'm just back to delay as the optimum strategy.

What is a trigger value that makes this an actionable plan?


Can't you "pay back" your social security and reset your clock? My father did then when he went back to work, I honestly don't know if it's still a possibility. Also, you could always suspend and start collecting credits again, so the impact would be somewhat muted in this case.

On these same lines, can you backdate your social security start date as well in case the market does not bounce back?

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Re: Delay SS, but claim if market plunges

Post by simplesimon » Fri May 19, 2017 9:01 am

ryman554 wrote:Can't you "pay back" your social security and reset your clock? My father did then when he went back to work, I honestly don't know if it's still a possibility. Also, you could always suspend and start collecting credits again, so the impact would be somewhat muted in this case.

On these same lines, can you backdate your social security start date as well in case the market does not bounce back?


I think these strategies have been eliminated for people born after 1954.

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Re: Delay SS, but claim if market plunges

Post by wolf359 » Fri May 19, 2017 9:35 am

simplesimon wrote:
ryman554 wrote:Can't you "pay back" your social security and reset your clock? My father did then when he went back to work, I honestly don't know if it's still a possibility. Also, you could always suspend and start collecting credits again, so the impact would be somewhat muted in this case.

On these same lines, can you backdate your social security start date as well in case the market does not bounce back?


I think these strategies have been eliminated for people born after 1954.


Actually, the payback option was eliminated for everybody as of December, 2010.
http://www.kiplinger.com/article/retire ... ption.html

Suspend still works, but nobody can claim on your record while you're suspended (so file-and-suspend to allow a spouse to claim is now pointless). (This is the strategy that may still be applicable to people with a certain birthday or earlier.)

Retroactive pay only works after full retirement age is reached, and then is limited to only 6 months of payments. If you're FRA + 6 months, it's better to take the increased payment from that point on instead of a restricted one-time lump sum, then getting normal SS payments for the rest of your life.

https://secure.ssa.gov/poms.nsf/lnx/0200204030

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Re: Delay SS, but claim if market plunges

Post by whaleknives » Fri May 19, 2017 9:45 am

simplesimon wrote:
ryman554 wrote:Can't you "pay back" your social security and reset your clock? My father did then when he went back to work, I honestly don't know if it's still a possibility. Also, you could always suspend and start collecting credits again, so the impact would be somewhat muted in this case.
On these same lines, can you backdate your social security start date as well in case the market does not bounce back?

I think these strategies have been eliminated for people born after 1954.

Voluntary suspension hasn't changed; only the ability to receive other benefits during suspension:

    "How is the law changing? Under the new law, you can still voluntarily suspend benefit payments at your full retirement age (currently 66) in order to earn higher benefits for delaying. But during a voluntary suspension, other benefits payable on your record, such as benefits to your spouse, are also suspended. And, if you have suspended your benefits, you cannot continue receiving other benefits (such as spousal benefits) on another person’s record.

    There are some exceptions. If you are a divorced spouse, you can continue receiving a divorced spousal benefit even if your ex-spouse voluntarily suspends his or her retirement benefit."
    Retirement Planner: Recent Social Security Claiming Changes
And while the "deemed filing" (restricted application) changes start for those born on 1/2/1954 or after, the voluntary suspension changes start for all requests "on or after April 30, 2016".
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Re: Delay SS, but claim if market plunges

Post by BolderBoy » Fri May 19, 2017 10:03 am

MathWizard wrote:This strategy allows me to use SS as an insurance against the bad sequence of returns issue.

This was my exact Plan B plan when I retired as well. I still don't see anything wrong with it.
“Where you stand, depends on where you sit” - Rufus Miles | "Never underestimate one's capacity to overestimate one's abilities"

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Re: Delay SS, but claim if market plunges

Post by wolf359 » Fri May 19, 2017 10:30 am

BolderBoy wrote:
MathWizard wrote:This strategy allows me to use SS as an insurance against the bad sequence of returns issue.

This was my exact Plan B plan when I retired as well. I still don't see anything wrong with it.


I think of the entire concept of delaying Social Security in order to get the larger benefit as the insurance policy against the bad sequence of returns issue. If your retirement gets compromised, the larger payment bails you out by requiring your portfolio to do less heavy lifting.

"Claiming if the market plunges" is the part that doesn't make sense. A market downturn doesn't compromise your retirement. It's an EXTENDED market downturn where you're consuming your equity at lower valuations that will do it.

A Social Security delay between FRA and 70 is only 4 years or less. Even if you count from the earliest you can claim, at 62, your window is only 8 years. If you have a 60/40 portfolio, you have enough bonds to sustain you for more than 10 years. You'll never run into the sequence of returns issue. By claiming early, all you can do is reduce your SS payment. If you partially annuitize, cut your expenses, and/or don't adjust for inflation, you should never get to the point of needing to claim early.

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Re: Delay SS, but claim if market plunges

Post by BolderBoy » Fri May 19, 2017 11:18 am

wolf359 wrote:
BolderBoy wrote:
MathWizard wrote:This strategy allows me to use SS as an insurance against the bad sequence of returns issue.

This was my exact Plan B plan when I retired as well. I still don't see anything wrong with it.


I think of the entire concept of delaying Social Security in order to get the larger benefit as the insurance policy against the bad sequence of returns issue. If your retirement gets compromised, the larger payment bails you out by requiring your portfolio to do less heavy lifting.

"Claiming if the market plunges" is the part that doesn't make sense. A market downturn doesn't compromise your retirement. It's an EXTENDED market downturn where you're consuming your equity at lower valuations that will do it.

So you were thinking that if a May 17-type "plunge" occurred that I'd run right out and apply for SS?

I didn't.

Of course it is the EXTENDED downturn for which taking SS before ideal would be insurance.
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Re: Delay SS, but claim if market plunges

Post by wolf359 » Fri May 19, 2017 5:31 pm

BolderBoy wrote:
wolf359 wrote:
BolderBoy wrote:
MathWizard wrote:This strategy allows me to use SS as an insurance against the bad sequence of returns issue.

This was my exact Plan B plan when I retired as well. I still don't see anything wrong with it.


I think of the entire concept of delaying Social Security in order to get the larger benefit as the insurance policy against the bad sequence of returns issue. If your retirement gets compromised, the larger payment bails you out by requiring your portfolio to do less heavy lifting.

"Claiming if the market plunges" is the part that doesn't make sense. A market downturn doesn't compromise your retirement. It's an EXTENDED market downturn where you're consuming your equity at lower valuations that will do it.

So you were thinking that if a May 17-type "plunge" occurred that I'd run right out and apply for SS?

I didn't.

Of course it is the EXTENDED downturn for which taking SS before ideal would be insurance.


What I'm saying is that there's not enough time for the downturn to become extended before you hit age 70. The other reasonable safety measures more than take you over the hump. If a January-March 2016 (19%) downturn occurred, I wouldn't expect you to take SS. It didn't last long enough. Even in 2008, the downturn was 2-3 years. If you have a reasonable bond position, you'd still be living off that, and then the market would recover.

The entire strategy doesn't make sense because it's never needed. In fact, waiting for the bigger check provides a better backstop than taking it early.

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Re: Delay SS, but claim if market plunges

Post by Aptenodytes » Sat May 20, 2017 4:33 am

If you use up your longevity-risk mitigation doing sequence-of-returns mitigation, then you no longer have something you thought was important to have.

Better to have separate strategies for the two risks, I think.

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Re: Delay SS, but claim if market plunges

Post by rennale » Sat May 20, 2017 4:58 am

Apologies for topic drift but earlier, Watty mentioned:

> The Vanguard 2015 target date fund has an asset allocation of 50% stocks and a 50% bonds so ......

The Fidelity 2015 target date fund is the same and I'm curious about it. Presumably the typical investor in these funds is now 67 or thereabouts. So why are these funds not even close to an age-in-bonds AA?

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Re: Delay SS, but claim if market plunges

Post by whaleknives » Sat May 20, 2017 11:24 am

rennale wrote:Apologies for topic drift but earlier, Watty mentioned:
> The Vanguard 2015 target date fund has an asset allocation of 50% stocks and a 50% bonds so ......
The Fidelity 2015 target date fund is the same and I'm curious about it. Presumably the typical investor in these funds is now 67 or thereabouts. So why are these funds not even close to an age-in-bonds AA?

John Bogle had fixed limits for age in bonds:

    "For example, my highest recommended target allocation for stocks would be 80% for younger investors accumulating assets over a long time frame. My lowest target stock allocation, 50%, would apply to older investors in the distribution phase. These investors must give greater weight to the short-run consequences of their actions."
    Bogle on Mutual Funds, 1994
"I'm an indexer. I own the market. And I'm happy." (John Bogle, "BusinessWeek", 8/17/07) ☕ Maritime signal flag W - Whiskey: "I require medical assistance."

itstoomuch
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Joined: Mon Dec 15, 2014 12:17 pm

Re: Delay SS, but claim if market plunges

Post by itstoomuch » Sat May 20, 2017 11:46 am

YMMV
We took early SS at ages 64 & 62, (2010 & 2012) to preserve investments and hopes that the GR recovery will be strong.
We had established a floor in late 2008 in the form of GLWB annuities (straddle option) and with the expectation that we would have a minimum income regardless of Markets. The annuities act as a deferred pension plan (SS) and as such, I almost want a Market Correction. Regardless of direction of the Market, our Income will continue to grow until 2020 when we take the 2nd RMD ( I have not included Discretionary Roth & taxables).

Most of our deferred annuities have a strike date in 2018.
In OP scenario, he is proposing exercisng the SS call option, ITM.
IF OP is more than ~10 years from retirement/exercise, the proposal is illusionary.

Specifically, I had entertained your proposal, at our time, and decided that we desperately needed the current income that SS would provide.
IMO, the scenario, is feasible.
YMMV
4 buckets: SS+pension;dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rental. Do OK any 2 bkts. LTCi. Own, not asset. Tax 25%. Early SS. FundingRatio (FR) >1.1 Age 67/70

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