Social Security Calculations - married, 10 years apart

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Hillview
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Social Security Calculations - married, 10 years apart

Post by Hillview » Sat Mar 10, 2018 4:56 pm

I am trying to get a rough handle on our SS benefits for retirement calculations. We would both request benefits at 70.5 (or whatever the max age is at the time). I understand that there is a lot of concern that SS will go away or massively change, that is not the focus right now.

Me: 47
Him: 57

Running our specific SS benefits at ssa.gov (using age 70.5 numbers$):
Me: $3700/mo
Him: $3300/mo

So I understand that it says from his age 70-80 he would get the $3300/mo. When he is 80, I turn 70 and am then eligible for $3700/mo but we don't get 3300+3700=7k a month I am guessing. How do I calculate this? Sorry if this is a stupid questions I have done a lot of searches and cannot seem to find this answer. Thank you!

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Epsilon Delta
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Re: Social Security Calculations - married, 10 years apart

Post by Epsilon Delta » Sat Mar 10, 2018 5:10 pm

If you each qualify for the $3,300 and $3,700 on your own work records then each of you gets the payment, so yes you do get $7000 between the pair of you.

You did not ask, but in your situation it probably maximizes your expected total SS payments if the older husband claims early. Some people would not do this because maximizing total payments is not the only possible goal here.

Hillview
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Re: Social Security Calculations - married, 10 years apart

Post by Hillview » Sat Mar 10, 2018 5:19 pm

Epsilon Delta wrote:
Sat Mar 10, 2018 5:10 pm
If you each qualify for the $3,300 and $3,700 on your own work records then each of you gets the payment, so yes you do get $7000 between the pair of you.

You did not ask, but in your situation it probably maximizes your expected total SS payments if the older husband claims early. Some people would not do this because maximizing total payments is not the only possible goal here.
Wow well that changes my calculations! Thanks for your reply. How would I go about determining the calculation for older husband claiming early? Total payments is the goal here! Thanks again!

mhalley
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Re: Social Security Calculations - married, 10 years apart

Post by mhalley » Sat Mar 10, 2018 5:44 pm

There are several social security calculators on the net that help determine the best way to file to get the most money. This of course requires knowing how long each person will live, so it is just a guess. Here is a review of some of the free ones out there. (looks like the bedrock capital one is defunct) Once you get close to actually claiming, it might be worthwhile to use one of the paid ones like maximize my ss by kotlikoff.
https://thefinancebuff.com/best-social- ... ators.html

vested1
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Re: Social Security Calculations - married, 10 years apart

Post by vested1 » Sat Mar 10, 2018 5:59 pm

Hillview wrote:
Sat Mar 10, 2018 5:19 pm
Epsilon Delta wrote:
Sat Mar 10, 2018 5:10 pm
If you each qualify for the $3,300 and $3,700 on your own work records then each of you gets the payment, so yes you do get $7000 between the pair of you.

You did not ask, but in your situation it probably maximizes your expected total SS payments if the older husband claims early. Some people would not do this because maximizing total payments is not the only possible goal here.
Wow well that changes my calculations! Thanks for your reply. How would I go about determining the calculation for older husband claiming early? Total payments is the goal here! Thanks again!
I'll assume that what Epsilon Data was referring to when he said "total payments" was cumulative payments until death. Many, myself included don't put any stock in a cumulative amount of benefits paid in a lifetime because SS benefits are income, not a lump sum.

Since he is 10 years older and you are the higher earner, there is something you need to be aware of. A man's life expectancy is about 3 years less than a woman's, on average. When he turns 70 you will turn 60, and at your age 62 (your first opportunity to file) he will be 72. If he should die at age 72, or even anytime before you reach your own FRA (Full Retirement Age) his age 80.5, it would be in your best interest to apply for a widow's benefit, which would be what he was receiving when he died. This would allow your own benefit to increase to the max (3700), while still collecting on his (3300).

If you both survive to a ripe old age your strategy to both wait as long as possible will reap the highest monthly benefits, both separate and combined.

Unfortunately, the rules have changed for someone your age, and that of your husband. You are "deemed" to be filing for both your own and your spouse's benefit when you apply for a spousal benefit, so other strategies that were previously available are lost to you. Who knows, that could change, but as you mentioned, there's no purpose in speculating on what might happen. If you don't need the money I would suggest you both delay as long as possible. Who knows, you might die at age 71, and if he were still alive he could switch to your higher benefit for the rest of his life.

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Epsilon Delta
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Re: Social Security Calculations - married, 10 years apart

Post by Epsilon Delta » Sat Mar 10, 2018 9:03 pm

mhalley wrote:
Sat Mar 10, 2018 5:44 pm
There are several social security calculators on the net that help determine the best way to file to get the most money. This of course requires knowing how long each person will live, so it is just a guess.
Maximizing expected value is not a guess. The actuaries and medical research types have a good handle on the distribution of mortality.

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BL
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Re: Social Security Calculations - married, 10 years apart

Post by BL » Sun Mar 11, 2018 1:35 am

I believe in your situation, you will each get your own no matter when you apply, except when there is a survivor. Here is a small book that will give you more details, updated after the last major changes:
Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less Paperback – February 20, 2017
by Mike Piper
(Mike has contributed to a lot of SS discussions after the law changed, so you might want to search for them.)

I believe at least the higher income person should wait to claim until age 70, when possible. This means that whoever is the survivor would get higher SS payment. Since you are so close, it is not quite as critical, but the extra amount is also increased by COLA.

The lower income person could make decision anywhere on the 62-70 spectrum. If working and under FRA, it might not make sense to collect SS. You might consider what funds you have to use while delaying SS, or if your life would be more comfortable drawing on at least one SS.

JoeRetire
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Re: Social Security Calculations - married, 10 years apart

Post by JoeRetire » Sun Mar 11, 2018 8:48 am

Hillview wrote:
Sat Mar 10, 2018 5:19 pm
We would both request benefits at 70.5
There is never a benefit to waiting beyond age 70 to claim. Your benefits will grow until 70, but no more.

Plan on claiming no later than 70.
How would I go about determining the calculation for older husband claiming early? Total payments is the goal here! Thanks again!
It depends on how accurate the calculation needs to be, and how much reading you want to do on your own.

One way is to read and understand the book "Get What's Yours: The Secrets to Maxing Out Your Social Security" by Lawrence Kotlikoff. He is a professor and researcher at Boston University. He also writes extensively on Social Security at Forbes.com. This book would allow you to answer your questions and come up with a claiming strategy that is optimal for you.

Another way is to go to https://maximizemysocialsecurity.com/. For $40, you can enter all the relevant data and have the system (developed by Lawrence Kotlikoff and associates), calculate an optimal strategy. It can also compare that strategy to other strategies like claiming early and show you the differences. It's very accurate.

No matter which approach you choose, you must estimate how long each of you will live. That is often the most difficult part. It pays to consider several scenarios - each with different lifespan assumptions.

TravelforFun
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Re: Social Security Calculations - married, 10 years apart

Post by TravelforFun » Sun Mar 11, 2018 9:22 am

How did you get age 70.5 benefit amounts on ssa.gov? Last time I checked it gave me three benefit amounts, one at age 62, one at full retirement age, and one at age 70.

TravelforFun

22twain
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Re: Social Security Calculations - married, 10 years apart

Post by 22twain » Sun Mar 11, 2018 10:38 am

Hillview wrote:
Sat Mar 10, 2018 4:56 pm
We would both request benefits at 70.5
I suspect that you're confusing the time when your Social Security benefits "max out" (the month in which you turn 70) with the time when you have to start taking RMDs from tax-deferred accounts (the year in which you turn 70.5).
My investing princiPLEs do not include absolutely preserving princiPAL.

JohnFiscal
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Re: Social Security Calculations - married, 10 years apart

Post by JohnFiscal » Sun Mar 11, 2018 11:29 am

I have gone through the sorts of scenarios that you are investigating now. My wife is 11 years younger than I am. We married late and she has no US work record (she is Canadian). I am 65 and she is 54.

Be aware that the SS site gives you benefits at ages beyond FRA but the fine print indicates that these are based on you continuing to work (and gain benefits) beyond FRA. At the moment, the FRA benefit is increased by 8% each year to age 70 (and the 8% is NOT compounded).

Prof. Kotlikoff (author of the Maximize My Social Security software), mentioned above, is fantastic. Check their website for his blogs on Social Security, he has been on television with his own show and on others, and has written regular Q&A columns for many media groups. His blog even describes interesting situations where he has taken up contacting the SSA for an applicant. The articles at the website (https://maximizemysocialsecurity.com/ask-larry) are awesome, highly recommended for reference.

The software is good too but has some provisos:

1 - Last summer I discovered a bug that made the software unusable for me until it's fixed (I thought they could fix it pretty quickly, being a web-based software) but I was told "next year" (2018). I haven't checked for the fix yet.

Specifically, this pertained to the situation of my "early death" and my wife's widow's benefits should she take her spousal benefit early (I think an important scenario to be considered by couples with large age difference) . The SSA rules dictate that if the spousal benefit is taken early and then the primary beneficiary dies before the spouse has reached her/his own FRA then the survivor's benefit is deemed to have been taken early as well (so the survivor benefit is reduced versus what it would have been at survivor's FRA). MMSS was then functioning such that I could have the spousal benefit end on my death, then the survivor's benefit commence when wife attained FRA. Yes, a specialized situation but one that I wanted to consider in my planning.

2 - bug notwithstanding, the support from MMMS was really good. I have dealt with them several times over a few years. In my bug case I noted that the software did not follow the SSA rules as described in a couple of the "Ask Larry" discussions.



Another issue to be aware of is that the IRS tables for RMDs on IRAs provide a benefit (well, a difference at least) if the spousal beneficiary is 10 years or more younger than the IRA owner...the RMDs are based on a different table that extends the duration over which the account is to be drawn down. This means that the RMDs are lower, which may be beneficial for your planning.

Back to SS benefits. As much as I like the idea of the MMSS software it seems to me to be a logical fallacy to "maximize" SS benefits without regard for other finances. The entire package of retirement finances needs to be considered and that in itself is what needs to be "maximized" or "optimized". Maximizing the potential SS benefits may lead to higher costs otherwise. For example, SS benefits might be maximized by delaying taking benefits until age 70 (at which point they do not increase any further), but if you retire at FRA, say, at 66 through 67, then there are 3-4 years of expenses to be supported without the benefit of the SS benefits. How will that be covered?

OTOH, taking that approach does provide one with the option to perform IRA-to-Roth conversions, which can lead to minimizing income taxes and maximizing income. Using the ORP software I find for my own situation that there is dubious benefit to the combination of delaying SS benefits, Roth conversions, and supporting expenses from FRA to 70 with my own savings. There is a slight benefit, theoretically about $1,000 per year (but then this $1000 annually is for the duration of my life). Still, it makes me wonder if this is really worthwhile. But then I view the SS benefit as longevity insurance for my wife/widow and then it may be beneficial.
Last edited by JohnFiscal on Sun Mar 11, 2018 12:04 pm, edited 3 times in total.

straws46
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Re: Social Security Calculations - married, 10 years apart

Post by straws46 » Sun Mar 11, 2018 11:37 am

About the same age difference as you. I am over 70 and claimed at age 66.5. When DW turns full retirement age, my life expectancy at that decision point would not justify her postponing until age 70 since half of my benefit (her survivor benefit) would still be greater than her increased benefit.

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Re: Social Security Calculations - married, 10 years apart

Post by JW-Retired » Sun Mar 11, 2018 12:10 pm

straws46 wrote:
Sun Mar 11, 2018 11:37 am
About the same age difference as you. I am over 70 and claimed at age 66.5. When DW turns full retirement age, my life expectancy at that decision point would not justify her postponing until age 70 since half of my benefit (her survivor benefit) would still be greater than her increased benefit.
You are confusing it with the spousal benefit. Her survivor benefit would be 100% of the benefit you were drawing when you died. Not half of it. This is the primary reason for the higher earner of a couple to their delay SS until 70.
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straws46
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Re: Social Security Calculations - married, 10 years apart

Post by straws46 » Sun Mar 11, 2018 12:34 pm

My mistake. 100% of mine will exceed hers even if she waits until 70 to claim so postponing almost four years of her benefits can't be justified since she will end up switching to mine, although I hope I defy the actuary. In the OPs case, since the younger person has the greater benefit, my situation doesn't really help.

Hillview
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Re: Social Security Calculations - married, 10 years apart

Post by Hillview » Sun Mar 11, 2018 3:19 pm

mhalley wrote:
Sat Mar 10, 2018 5:44 pm
There are several social security calculators on the net that help determine the best way to file to get the most money. This of course requires knowing how long each person will live, so it is just a guess. Here is a review of some of the free ones out there. (looks like the bedrock capital one is defunct) Once you get close to actually claiming, it might be worthwhile to use one of the paid ones like maximize my ss by kotlikoff.
https://thefinancebuff.com/best-social- ... ators.html
Thanks so much this is very helpful.
vested1 wrote:
Sat Mar 10, 2018 5:59 pm

I'll assume that what Epsilon Data was referring to when he said "total payments" was cumulative payments until death. Many, myself included don't put any stock in a cumulative amount of benefits paid in a lifetime because SS benefits are income, not a lump sum.

Since he is 10 years older and you are the higher earner, there is something you need to be aware of. A man's life expectancy is about 3 years less than a woman's, on average. When he turns 70 you will turn 60, and at your age 62 (your first opportunity to file) he will be 72. If he should die at age 72, or even anytime before you reach your own FRA (Full Retirement Age) his age 80.5, it would be in your best interest to apply for a widow's benefit, which would be what he was receiving when he died. This would allow your own benefit to increase to the max (3700), while still collecting on his (3300).

If you both survive to a ripe old age your strategy to both wait as long as possible will reap the highest monthly benefits, both separate and combined.

Unfortunately, the rules have changed for someone your age, and that of your husband. You are "deemed" to be filing for both your own and your spouse's benefit when you apply for a spousal benefit, so other strategies that were previously available are lost to you. Who knows, that could change, but as you mentioned, there's no purpose in speculating on what might happen. If you don't need the money I would suggest you both delay as long as possible. Who knows, you might die at age 71, and if he were still alive he could switch to your higher benefit for the rest of his life.
Thanks for this -- I agree it is a bit of a guessing game.
BL wrote:
Sun Mar 11, 2018 1:35 am
I believe in your situation, you will each get your own no matter when you apply, except when there is a survivor. Here is a small book that will give you more details, updated after the last major changes:
Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less Paperback – February 20, 2017
by Mike Piper
(Mike has contributed to a lot of SS discussions after the law changed, so you might want to search for them.)

I believe at least the higher income person should wait to claim until age 70, when possible. This means that whoever is the survivor would get higher SS payment. Since you are so close, it is not quite as critical, but the extra amount is also increased by COLA.

The lower income person could make decision anywhere on the 62-70 spectrum. If working and under FRA, it might not make sense to collect SS. You might consider what funds you have to use while delaying SS, or if your life would be more comfortable drawing on at least one SS.
Thank you -- I've ordered Mike's book from the library will read once done with "A Random Walk Down Wall Street"! One scenario I am looking at is investing his SS if he claims at say 62 and we don't "need" it til say closer to 70.
JoeRetire wrote:
Sun Mar 11, 2018 8:48 am
Hillview wrote:
Sat Mar 10, 2018 5:19 pm
We would both request benefits at 70.5
There is never a benefit to waiting beyond age 70 to claim. Your benefits will grow until 70, but no more.

Plan on claiming no later than 70.
How would I go about determining the calculation for older husband claiming early? Total payments is the goal here! Thanks again!
It depends on how accurate the calculation needs to be, and how much reading you want to do on your own.

One way is to read and understand the book "Get What's Yours: The Secrets to Maxing Out Your Social Security" by Lawrence Kotlikoff. He is a professor and researcher at Boston University. He also writes extensively on Social Security at Forbes.com. This book would allow you to answer your questions and come up with a claiming strategy that is optimal for you.

Another way is to go to https://maximizemysocialsecurity.com/. For $40, you can enter all the relevant data and have the system (developed by Lawrence Kotlikoff and associates), calculate an optimal strategy. It can also compare that strategy to other strategies like claiming early and show you the differences. It's very accurate.

No matter which approach you choose, you must estimate how long each of you will live. That is often the most difficult part. It pays to consider several scenarios - each with different lifespan assumptions.
Thank you -- I paid for the maximizemysocialsecurity and am having a field day with scenarios what a find! I assumed it was a slam dunk to wait til 70 but that is clearly not true depending on how our next 13 years play out (if we needed say extra cash for the kids to complete college him claiming early could avoid us drawing down on IRA money.
22twain wrote:
Sun Mar 11, 2018 10:38 am
Hillview wrote:
Sat Mar 10, 2018 4:56 pm
We would both request benefits at 70.5
I suspect that you're confusing the time when your Social Security benefits "max out" (the month in which you turn 70) with the time when you have to start taking RMDs from tax-deferred accounts (the year in which you turn 70.5).
Yes quite correct, my error.

delamer
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Re: Social Security Calculations - married, 10 years apart

Post by delamer » Sun Mar 11, 2018 3:36 pm

Don’t know if anyone else has mentioned this, but it is difficult to beat the 8% annual return (not compounded, admittedly) you get by delaying SS until 70.

So the notion that you can come out ahead by claiming at 62 and investing the money is highly questionnable.

TravelforFun
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Re: Social Security Calculations - married, 10 years apart

Post by TravelforFun » Sun Mar 11, 2018 4:08 pm

delamer wrote:
Sun Mar 11, 2018 3:36 pm
Don’t know if anyone else has mentioned this, but it is difficult to beat the 8% annual return (not compounded, admittedly) you get by delaying SS until 70.

So the notion that you can come out ahead by claiming at 62 and investing the money is highly questionnable.
Your investment would have to make the 8% annual return plus COLA to match delaying to 70, but this is only one factor when considering when you should draw your benefits.

TravelforFun

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Re: Social Security Calculations - married, 10 years apart

Post by JW-Retired » Mon Mar 12, 2018 8:46 am

delamer wrote:
Sun Mar 11, 2018 3:36 pm
Don’t know if anyone else has mentioned this, but it is difficult to beat the 8% annual return (not compounded, admittedly) you get by delaying SS until 70.

So the notion that you can come out ahead by claiming at 62 and investing the money is highly questionnable.
Yes, and on top of that, one is apt to be trading away lightly taxed SS income for heavier taxed investment income. :oops:
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deikel
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Re: Social Security Calculations - married, 10 years apart

Post by deikel » Mon Mar 12, 2018 5:01 pm

delamer wrote:
Sun Mar 11, 2018 3:36 pm
Don’t know if anyone else has mentioned this, but it is difficult to beat the 8% annual return (not compounded, admittedly) you get by delaying SS until 70.

So the notion that you can come out ahead by claiming at 62 and investing the money is highly questionnable.
Average annualized CAGR of the S+P 500 from 2009 till 2017: 15.29%

There are most certainly times in the market where drawing SS early would make much more sense (to protect principal AND/OR invest the early draw) - the question would be how to detect them (and not just after the fact) since the SS decision is a singular one and stays permanent
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immidiatly and destroy any copy or remembrance of it.

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Re: Social Security Calculations - married, 10 years apart

Post by deikel » Mon Mar 12, 2018 5:05 pm

JW-Retired wrote:
Mon Mar 12, 2018 8:46 am
delamer wrote:
Sun Mar 11, 2018 3:36 pm
Don’t know if anyone else has mentioned this, but it is difficult to beat the 8% annual return (not compounded, admittedly) you get by delaying SS until 70.

So the notion that you can come out ahead by claiming at 62 and investing the money is highly questionnable.
Yes, and on top of that, one is apt to be trading away lightly taxed SS income for heavier taxed investment income. :oops:
JW
That may apply for the average 'richer' boglehead, but the majority of the population is mostly in the tax free zone/income tax tax bracket for taxable investments
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immidiatly and destroy any copy or remembrance of it.

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Epsilon Delta
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Re: Social Security Calculations - married, 10 years apart

Post by Epsilon Delta » Mon Mar 12, 2018 5:22 pm

deikel wrote:
Mon Mar 12, 2018 5:01 pm
delamer wrote:
Sun Mar 11, 2018 3:36 pm
Don’t know if anyone else has mentioned this, but it is difficult to beat the 8% annual return (not compounded, admittedly) you get by delaying SS until 70.

So the notion that you can come out ahead by claiming at 62 and investing the money is highly questionnable.
Average annualized CAGR of the S+P 500 from 2009 till 2017: 15.29%

There are most certainly times in the market where drawing SS early would make much more sense (to protect principal AND/OR invest the early draw) - the question would be how to detect them (and not just after the fact) since the SS decision is a singular one and stays permanent
Cherry picking.
Average annualized CAGR of S+P 500 from 2000 till 2008 -1.67%

You should rephrase that as.

There have most certainly been times in the market when perfect foresight would have made taking SS early the sensible thing to do.

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Re: Social Security Calculations - married, 10 years apart

Post by deikel » Mon Mar 12, 2018 5:40 pm

Epsilon Delta wrote:
Mon Mar 12, 2018 5:22 pm
deikel wrote:
Mon Mar 12, 2018 5:01 pm
delamer wrote:
Sun Mar 11, 2018 3:36 pm
Don’t know if anyone else has mentioned this, but it is difficult to beat the 8% annual return (not compounded, admittedly) you get by delaying SS until 70.

So the notion that you can come out ahead by claiming at 62 and investing the money is highly questionnable.
Average annualized CAGR of the S+P 500 from 2009 till 2017: 15.29%

There are most certainly times in the market where drawing SS early would make much more sense (to protect principal AND/OR invest the early draw) - the question would be how to detect them (and not just after the fact) since the SS decision is a singular one and stays permanent
Cherry picking.
Average annualized CAGR of S+P 500 from 2000 till 2008 -1.67%

You should rephrase that as.

There have most certainly been times in the market when perfect foresight would have made taking SS early the sensible thing to do.
Yes, but the beauty lies in the fact that you can decide anytime (within 62 to 70) when to start drawing SS, whereas you can not un-sell your investments.

What I am trying to say is that the generalized '8% is always better than any other investment', hence always take SS at 70 is a bit too radical for my taste (let alone impractical for the majority of folks SS is a key ingredient in their retirement) and was clearly not smart in and after the last recession. Which might not have been known in 2008 or 2009, but certainly in 2010 we knew we were in a recession and it would take a while to dig out. SS allows you to take it in a flexible manner with regards to the start date, so that's a real opportunity for risk reduction that can be planned for.
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immidiatly and destroy any copy or remembrance of it.

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Re: Social Security Calculations - married, 10 years apart

Post by David Jay » Mon Mar 12, 2018 5:53 pm

deikel wrote:
Mon Mar 12, 2018 5:40 pm
SS allows you to take it in a flexible manner with regards to the start date, so that's a real opportunity for risk reduction that can be planned for.
This is worth re-stating for “Hillview” - people so often talk about “62” versus ”70” but Social Security does the benefit calculation month by month. If you wait an additional month (any time after your reach FRA), you will get 8/12 of 1% more than if you had claimed the previous month.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: Social Security Calculations - married, 10 years apart

Post by delamer » Mon Mar 12, 2018 7:29 pm

deikel wrote:
Mon Mar 12, 2018 5:40 pm
Epsilon Delta wrote:
Mon Mar 12, 2018 5:22 pm
deikel wrote:
Mon Mar 12, 2018 5:01 pm
delamer wrote:
Sun Mar 11, 2018 3:36 pm
Don’t know if anyone else has mentioned this, but it is difficult to beat the 8% annual return (not compounded, admittedly) you get by delaying SS until 70.

So the notion that you can come out ahead by claiming at 62 and investing the money is highly questionnable.
Average annualized CAGR of the S+P 500 from 2009 till 2017: 15.29%

There are most certainly times in the market where drawing SS early would make much more sense (to protect principal AND/OR invest the early draw) - the question would be how to detect them (and not just after the fact) since the SS decision is a singular one and stays permanent
Cherry picking.
Average annualized CAGR of S+P 500 from 2000 till 2008 -1.67%

You should rephrase that as.

There have most certainly been times in the market when perfect foresight would have made taking SS early the sensible thing to do.
Yes, but the beauty lies in the fact that you can decide anytime (within 62 to 70) when to start drawing SS, whereas you can not un-sell your investments.

What I am trying to say is that the generalized '8% is always better than any other investment', hence always take SS at 70 is a bit too radical for my taste (let alone impractical for the majority of folks SS is a key ingredient in their retirement) and was clearly not smart in and after the last recession. Which might not have been known in 2008 or 2009, but certainly in 2010 we knew we were in a recession and it would take a while to dig out. SS allows you to take it in a flexible manner with regards to the start date, so that's a real opportunity for risk reduction that can be planned for.
Note that I never said that, even in a “generalized” way, that “8% is always better than other investment”. I said it is difficult to beat.

I also said that it is questionable that an individual will come out ahead by claiming early and investing the money. This, of course, depends not just the return on the invested money but the increased benefit collected at 70 and later.

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Re: Social Security Calculations - married, 10 years apart

Post by afan » Fri May 25, 2018 7:21 am

You cannot compare the returns to a risky investment like stocks to the SS benefit increase from waiting to claim. Ignoring for the moment the depletion of the trust fund, the SS increase is about as certain as anything can get. The returns to stocks are highly risky and can be negative.

The question therefore is not what is the maximum or average returns to stocks. One should be interested in returns to an alternative investment whose risk is comparable to delaying SS.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

The Wizard
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Re: Social Security Calculations - married, 10 years apart

Post by The Wizard » Fri May 25, 2018 8:16 am

JW-Retired wrote:
Mon Mar 12, 2018 8:46 am
delamer wrote:
Sun Mar 11, 2018 3:36 pm
Don’t know if anyone else has mentioned this, but it is difficult to beat the 8% annual return (not compounded, admittedly) you get by delaying SS until 70.

So the notion that you can come out ahead by claiming at 62 and investing the money is highly questionnable.
Yes, and on top of that, one is apt to be trading away lightly taxed SS income for heavier taxed investment income. :oops:
JW
That's going to vary.
My investment income is taxed at 15% whereas my SS income is taxed at 0.85 * 22% = 18.7%, so roughly comparable...
Attempted new signature...

smitcat
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Re: Social Security Calculations - married, 10 years apart

Post by smitcat » Fri May 25, 2018 8:48 am

Hillview wrote:
Sat Mar 10, 2018 5:19 pm
Epsilon Delta wrote:
Sat Mar 10, 2018 5:10 pm
If you each qualify for the $3,300 and $3,700 on your own work records then each of you gets the payment, so yes you do get $7000 between the pair of you.

You did not ask, but in your situation it probably maximizes your expected total SS payments if the older husband claims early. Some people would not do this because maximizing total payments is not the only possible goal here.
Wow well that changes my calculations! Thanks for your reply. How would I go about determining the calculation for older husband claiming early? Total payments is the goal here! Thanks again!
You are zeroing in on total largest estimated payments for SS here. We did that for about a year and spent all kinds of time figuring our best SS payments and what that meant in distant years and if one of us passed away earlier. (we are 7 yrs apart in age).
Similar to you our SS max is not that different between the two of us - yours at 3300 vs 3700.
I believe from your other posts that you also have a healthy savings separate from SS in various types of accounts.
Once we began to look at the entire picture of SS, RMD's , savings drawdown, early retire and the tax implication the maximizing of SS was no longer a priority. Remembering that spendable dollars is the goal and not total account balances at any one point in time.
We then varied inputs of those in both IORP and RPM and found that in most of the reasonably probable cases we would be best served by having the older spouse wait till 70 while doing Roth conversions - in almost no case was it preferable to have ther younger spouse wait till 70.
The problem with sharing these soalutions no matter who it comes from is that your situation, inputs and future forecats will differ from all of the posters here on Boggle so you will not be getting a correct answer for yourself but rather a correct answer from the poster.
So if I remember your situation correctly - healthy accounts, age difference, one or both retire early your best fir solution would likely require a total look through IORP and RPM and not just SS.
Good luck hope this helps

gilgamesh
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Re: Social Security Calculations - married, 10 years apart

Post by gilgamesh » Fri May 25, 2018 9:10 am

When OP’s DH turns 77, why would the wife not apply for spousal benefit? (She’ll be at FRA) Isn’t that a no brainer? So total SS benefit will be 1.5X DH’s SS benefit. Then when OP turns 70, she gets her own. I don’t know about this, just asking.

Also, keep in mind if one passes away before the other. Benefits will only be of the survivor and you may jump to a higher tax bracket.

Spewin
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Re: Social Security Calculations - married, 10 years apart

Post by Spewin » Fri May 25, 2018 10:03 am

gilgamesh wrote:
Fri May 25, 2018 9:10 am
When OP’s DH turns 77, why would the wife not apply for spousal benefit? (She’ll be at FRA) Isn’t that a no brainer? So total SS benefit will be 1.5X DH’s SS benefit. Then when OP turns 70, she gets her own. I don’t know about this, just asking.
Because that option is no longer available. There was a law change in ~2014 and few people who had not already claimed were grandfathered in. Now, when you apply for benefits, you must apply for all you may be entitled to.

gilgamesh
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Re: Social Security Calculations - married, 10 years apart

Post by gilgamesh » Fri May 25, 2018 10:09 am

Spewin wrote:
Fri May 25, 2018 10:03 am
gilgamesh wrote:
Fri May 25, 2018 9:10 am
When OP’s DH turns 77, why would the wife not apply for spousal benefit? (She’ll be at FRA) Isn’t that a no brainer? So total SS benefit will be 1.5X DH’s SS benefit. Then when OP turns 70, she gets her own. I don’t know about this, just asking.
Because that option is no longer available. There was a law change in ~2014 and few people who had not already claimed were grandfathered in. Now, when you apply for benefits, you must apply for all you may be entitled to.
Wasn’t that file and suspend? I’m not talking about that. The husband is drawing SS and wife gets spousal benefit (50%) after FRA. Then at age 70 wife stops spousal benefit and apply for her own.

P.S: Oh ok, now I see...so when you apply, you have to apply for your full benefit...got it! Thanks

afan
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Re: Social Security Calculations - married, 10 years apart

Post by afan » Fri May 25, 2018 10:17 am

smitcat wrote:
Fri May 25, 2018 8:48 am

Once we began to look at the entire picture of SS, RMD's , savings drawdown, early retire and the tax implication the maximizing of SS was no longer a priority. Remembering that spendable dollars is the goal and not total account balances at any one point in time.
I don't follow this. If real spending is constant then maximizing SS would lead to maximizing total account balances at life expectancy. Or am I missing something? Assuming that higher SS would lead to higher spending?

Or is it that a strategy that maximizes SS could lead to higher taxes and hence lower networth at death?

My assumptions:
Work full time past age 70
No consideration of taking SS before full retirement age, since it would be reduced to zero because I would be working full time.
No drawdowns on savings before retirement.
Delay RMDs past age 70.5, to actual retirement age.
No Roth conversions while working.
Possible Roth conversions once retired, but will depend on tax laws then.
Once retired, live on SS and RMDs, probably saving some of the after tax income from those sources.

Not spend income from taxable investments unless their is such a severe market downturn or high inflation that SS and RMDs are not enough. Seems relatively unlikely given the expected value of SS and RMDs and knowing our lifestyle.

Not draw on taxable principal unless things go even worse than enough to start drawing on income from taxable accounts. Seems even more unlikely.

Net saver, on average, throughout retirement.

Expect that any increase in SS would lead to more money directed to savings, or in worst case, less money spent from taxable income.

So maximizing SS would mean maximizing networth, at least at life expectancy. It is possible that maximizing at life expectancy would not maximize at earlier times but, I think, the NPV of delaying to 70 would be higher than NPV of taking during ages 66-70 for a sizeable range of survival between break even and life expectancy.

For those reasons, I think that maximizing SS does maximize long term wealth, which is my goal.

Or is there more to it that I should consider?
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

smitcat
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Re: Social Security Calculations - married, 10 years apart

Post by smitcat » Fri May 25, 2018 10:33 am

afan wrote:
Fri May 25, 2018 10:17 am
smitcat wrote:
Fri May 25, 2018 8:48 am

Once we began to look at the entire picture of SS, RMD's , savings drawdown, early retire and the tax implication the maximizing of SS was no longer a priority. Remembering that spendable dollars is the goal and not total account balances at any one point in time.
I don't follow this. If real spending is constant then maximizing SS would lead to maximizing total account balances at life expectancy. Or am I missing something? Assuming that higher SS would lead to higher spending?

Or is it that a strategy that maximizes SS could lead to higher taxes and hence lower networth at death?

My assumptions:
Work full time past age 70
No consideration of taking SS before full retirement age, since it would be reduced to zero because I would be working full time.
No drawdowns on savings before retirement.
Delay RMDs past age 70.5, to actual retirement age.
No Roth conversions while working.
Possible Roth conversions once retired, but will depend on tax laws then.
Once retired, live on SS and RMDs, probably saving some of the after tax income from those sources.

Not spend income from taxable investments unless their is such a severe market downturn or high inflation that SS and RMDs are not enough. Seems relatively unlikely given the expected value of SS and RMDs and knowing our lifestyle.

Not draw on taxable principal unless things go even worse than enough to start drawing on income from taxable accounts. Seems even more unlikely.

Net saver, on average, throughout retirement.

Expect that any increase in SS would lead to more money directed to savings, or in worst case, less money spent from taxable income.

So maximizing SS would mean maximizing networth, at least at life expectancy. It is possible that maximizing at life expectancy would not maximize at earlier times but, I think, the NPV of delaying to 70 would be higher than NPV of taking during ages 66-70 for a sizeable range of survival between break even and life expectancy.

For those reasons, I think that maximizing SS does maximize long term wealth, which is my goal.

Or is there more to it that I should consider?

"Or is it that a strategy that maximizes SS could lead to higher taxes and hence lower networth at death?"
I believe the answer is that it always varies dependent upon your exact situation and inputs.
I would run one of the calculators that take it all in and see what these variations do....
- are you maiximizing SS to the detrement of Roth conversions
- if preserving wealth for heirs is it the most tax friendly to them
- are the results the same with the future proposed SS reduction
- are the after tax results the same with varied marjet returns

I am forgetting a few others but this will give the idea. If yuo have not run one of the 'entire parts' calculators neither you or I can speculate what your results would be.

afan
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Re: Social Security Calculations - married, 10 years apart

Post by afan » Fri May 25, 2018 12:28 pm

Future SS payments are unknowable. If the future payments are reduced when the trust fund is empty (as opposed to some national solution that preserves the payments) then taking early might end up generating a higher NPV. But that also requires knowing how they will handle benefits for people who have started vs those who have not. No way to predict what will happen.

Currently I don't see an option that makes Roth conversions a good idea at any time. There is a good chance I will never retire. This would happen if I remain able to work, with demand for my services, until I die.

Odds are greater that I will lose the ability to work full time before I die. If that happens it might create a period of lower income. But by delaying RMDs the total amount in retirement accounts will be greater and the annual percent required to take out will be higher. That would mean larger amounts in RMDs and therefore higher taxes. For these reasons, I am not sure my tax bracket would leave much room for Roth conversions or that my bracket will be lower than that of my heirs at that point.

Considering that the heirs can recognize the income gradually via stretched RMDs rather than in larger lumps, at higher tax rates, if I were to do conversions, they may well be better off optimizing their withdrawals based on their tax status as they move through their careers. If I do conversions then the money is gone and they don't get to optimize based on their then-current marginal rates or expected income trajectories. Conversions also would destroy the different options that may be optimal for heirs with different incomes.

I have tried IORP and it does not begin to address these issues. Only designed for maximizing spending and, according to the creator, misbehaves if one tries to set a spending figure and save the rest. Does not consider heirs' income tax rates. Does not consider state inheritance taxes. Does not consider heirs stretching RMDs from inherited retirement accounts.

I have not tried RPM or Maxfi. Does anyone know whether they include these issues? Or some other program?
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

afan
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Re: Social Security Calculations - married, 10 years apart

Post by afan » Fri May 25, 2018 5:39 pm

I looked at the RPM spreadsheet and it does not come close to addressing these issues.
Has anyone used MaxFi for these sorts of scenarios? Not just optimizing to maximize SS, but optimizing taking into account income and state and federal estate taxes, ability of heirs to stretch their RMDs, and income tax rates over time for heirs?

If not MaxFi, then does anyone know a program that does this?
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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