Delaying Social Security: is the wisdom still relevant

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Tejfyy
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Delaying Social Security: is the wisdom still relevant

Post by Tejfyy »

It's generally considered the most economically sound approach: delaying SS as long as you can. 35 years ago I was convinced SSI wouldn't be around "when I get old" and there it is and I'm coming up on old (60). The world is more screwed up and predictably more unpredictable.

If I had to bet--and I'm not a gambler--on which "support system" would more likely work in my favor over the next 30 years, I'd bet on the market. Take SSI as soon as possible, i.e., get into that system now before [fill in the blank] and keep more of your chickens in the market.

It's not panic or doomsday thinking given "everything," I just think it's useful to revisit topics, though I know this one has been hashed out.

That the market is booming while everyday lives of everyday people are unraveling and that I believe we're entering a new era, I'm curious if anyone else is rethinking this.
Last edited by Tejfyy on Wed Jul 08, 2020 8:12 pm, edited 1 time in total.
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Monster99
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Re: Delaying SSi: is the wisdom still relevant

Post by Monster99 »

I think of SS as longevity insurance - for my DW. I am 64 and my brother will turn 72 this year and is the oldest living male in our family.
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FiveK
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Re: Delaying SSi: is the wisdom still relevant

Post by FiveK »

Assuming you mean regular Social Security, not Supplemental Security Income (SSI), see Does it really matter when you claim Social Security - Bogleheads.org for some recent thoughts.
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Re: Delaying SSi: is the wisdom still relevant

Post by RocketShipTech »

If you’ve been wrong for 35 years what makes you think you’re right now?
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warowits
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Re: Delaying SSi: is the wisdom still relevant

Post by warowits »

62 is and has been by far the most popular age to take social security. About 57% of people take it before full retirement age. I understand your reasoning, and it’s not necessarily a bad choice. However it seems like the people who really should wait (those with little to no retirement savings) are the first ones to file, thereby guaranteeing they can never really retire.
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Re: Delaying SSi: is the wisdom still relevant

Post by David Jay »

I think it is safe to say that if changes are made, it will be for future generations, not for current or soon-to-be retirees. Look at the current FRA age increases as an example: It affected those born in 1955 (turning 62 in 2017) and the change was implemented in 1983 when said individual was Age 32.
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rgs92
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Re: Delaying SSi: is the wisdom still relevant

Post by rgs92 »

I believe the 1983 changes pushed FRA to an older age for those born in 1954 too.
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Re: Delaying SSi: is the wisdom still relevant

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MathIsMyWayr
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Re: Delaying SSi: is the wisdom still relevant

Post by MathIsMyWayr »

Is OP confused SSI for SS?
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Re: Delaying SSi: is the wisdom still relevant

Post by grok87 »

according to the latest trustees report (will try to link later), social security retirement benefits are forecasted, under current law, to be cut 24% starting in 2034. i.e. you will only get 76% of your check. this may be something for some people to factor in.

for example if you are turning 62 in 2026 the math might look like this for a $10k a year "full retirement age benefit"- i.e. the benefit you would collect at age 67. i'll assume the person lives to age 80

claim at 62:
get 8 years at 7,000 then 10 years at $5,320 (=7000*76%) for a total of $109,200 over the 18 years.

claim at 70: get 10 years at $10,000* 124% * 76% = $9,424 = $94,240.

for each additional year of life beyond age 80 the "claim at 70" strategy catches up by $4,104. So the breakevn "age at death" is 83.7- i.e. at that point the "claim at 70' strategy becomes better.

according to latest stats, average life expectancy for a male is now 76.1 and for female 81.1

so generally speaking, factoring in forecasted social security cuts under current law, claiming at age 62 would be better for the average person turning 62 in 2026.

cheers,
grok
RIP Mr. Bogle.
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Re: Delaying SSi: is the wisdom still relevant

Post by TomatoTomahto »

RocketShipTech wrote: Tue Jul 07, 2020 8:58 pm If you’ve been wrong for 35 years what makes you think you’re right now?
+1
Okay, I get it; I won't be political or controversial. The Earth is flat.
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Re: Delaying SSi: is the wisdom still relevant

Post by dwickenh »

rgs92 wrote: Wed Jul 08, 2020 12:13 am I believe the 1983 changes pushed FRA to an older age for those born in 1954 too.
born 1954 = FRA 66

born 1955= FRA 66 + 2 months

born 1956= FRA 66 + 4 months
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Re: Delaying SSi: is the wisdom still relevant

Post by nisiprius »

1) I think the least impulsive, least "political," least ideological, most rational approach is a version of the "persistence prediction." The persistence prediction is simply "no change," and in the case of tomorrow's weather it's about 70% accurate. In the case of Social Security, for as long as I've been paying attention, the SSA has been saying things like
Unfortunately, the default plan in Washington is to do nothing. The do-nothing plan would lead to an immediate 22 percent across-the-board benefit cut for all current and future beneficiaries in 2037.
The year and the benefit cut amount keep changing, but by surprisingly little. So I think the "least assumption" would be "a benefit cut of 20-25% sometime in the 2030's."

2) The uncertainty of the imponderables greatly outweigh what can be calculated. I've been mumbling about this for a long time but I generally get shouted down by people who want to show their grasp of detail. Bobcat2, who is more knowledgeable than I has been fairly insistent in saying that analyses show it is better to delay even if you assume a cut like the one I mentioned.

3) People often lose sight of the goal, which is not "to be as bad for the government as possible," or "to maximize the present value of the discounted flow of future benefits adjusted for actuarial considerations," but to retire.

4) Because of all the moving parts in Social Security and its interaction with taxes, there can't be any "wisdom" that fits all circumstances, specially if it's a couple who both have worked. It all depends on the spousal benefit and the tax bracket and the IRA distributions and the gender of the older member of the couple and the FRA and the ARF and the PIA and the difference between CPI-U and CPI-W and CPI-E etc. In a way, that's my point. The balance between claiming early and claiming late is close enough to even that a long list of other things can tip it.

5) Hey, I claimed at age 62. Why? Because I lost my job, didn't get a single interview for six months, and our unemployment benefits were about to end. It seemed convenient to turn on the spigot. (And then immediately afterwards I landed a consulting gig that blew way past the earned income limit, reducing my benefits to zero, but I didn't do anything about it because I understood--correctly, as it turned out--that benefits withheld before FRA because of excess earnings are gradually returned in the form of higher benefits when you reach FRA.) Anyway, I'm retired. I don't think any expert would say I followed the optimal claiming strategy. And I have no regret.

Say it's 2007. "Please tell me the optimum claiming strategy assuming I will lose my job next year, be out of work six months, then suddenly get a high-paying job, almost die in 2014, and assume a big tax cut in 2017 and a global pandemic in 2020." Sure.

On the other hand, an old acquaintance of mine was diagnosed with terminal cancer at age 73. He had been working continuously for decades but had just never gotten around to bothering to register with Social Security. I literally stood behind his chair at the computer and said "You are going to log in to the Social Security website and sign up now, and I am not going to move from where I am until you have completed it." It took about half an hour. In case people aren't clear, if you wait much past age 70, not only do benefits stop increasing, but you simply lose them, pure loss--IIRC he got a retroactive payment back to the beginning of the year but two whole years of benefits were just plain lost. Now, that is definitely not an optimal claiming strategy.
Last edited by nisiprius on Wed Jul 08, 2020 7:00 am, edited 4 times in total.
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Re: Delaying SSi: is the wisdom still relevant

Post by dodecahedron »

David Jay wrote: Tue Jul 07, 2020 9:19 pm I think it is safe to say that if changes are made, it will be for future generations, not for current or soon-to-be retirees. Look at the current FRA age increases as an example: It affected those born in 1955 (turning 62 in 2017) and the change was implemented in 1983 when said individual was Age 32.
The 1983 SS reforms affected everyone born after 1937. The oldest folks affected were age 45 at the time the change was enacted.

So in 1983, forty year olds were notified that their FRA was going to change from age 65 to 66. Nobody over 45 was affected by the change. Everyone under 45 was affected by the change, to varying extents described in the table below.

https://www.ssa.gov/benefits/retirement ... ction.html
Last edited by dodecahedron on Sun Jul 12, 2020 1:32 pm, edited 2 times in total.
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Re: Delaying SSi: is the wisdom still relevant

Post by smitcat »

grok87 wrote: Wed Jul 08, 2020 5:55 am according to the latest trustees report (will try to link later), social security retirement benefits are forecasted, under current law, to be cut 24% starting in 2034. i.e. you will only get 76% of your check. this may be something for some people to factor in.

for example if you are turning 62 in 2026 the math might look like this for a $10k a year "full retirement age benefit"- i.e. the benefit you would collect at age 67. i'll assume the person lives to age 80

claim at 62:
get 8 years at 7,000 then 10 years at $5,320 (=7000*76%) for a total of $109,200 over the 18 years.

claim at 70: get 10 years at $10,000* 124% * 76% = $9,424 = $94,240.

for each additional year of life beyond age 80 the "claim at 70" strategy catches up by $4,104. So the breakevn "age at death" is 83.7- i.e. at that point the "claim at 70' strategy becomes better.

according to latest stats, average life expectancy for a male is now 76.1 and for female 81.1

so generally speaking, factoring in forecasted social security cuts under current law, claiming at age 62 would be better for the average person turning 62 in 2026.

cheers,
grok
"so generally speaking, factoring in forecasted social security cuts under current law, claiming at age 62 would be better for the average person turning 62 in 2026."
That would be the math as long as you do not factor in any of these possible other issues:
- what it means for a couple as opposed to an individual
- what would happen if Roth conversions were involved
- what it means in 'spendable' dollars vs total dollars (after taxes applied)
- what it may mean to potential heirs or charities
- whether or not your couples health is 'average' at later ages
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Re: Delaying SSi: is the wisdom still relevant

Post by dodecahedron »

nisiprius wrote: Wed Jul 08, 2020 6:45 am 4) Because of all the moving parts in Social Security and its interaction with taxes, there can't be any "wisdom" that fits all circumstances, specially if it's a couple who both have worked. It all depends on the spousal benefit and the tax bracket and the IRA distributions and the gender of the older member of the couple and the FRA and the ARF and the PIA and the difference between CPI-U and CPI-W and CPI-E etc. In a way, that's my point. The balance between claiming early and claiming late is close enough to even that a long list of other things can tip it.
The above is a particularly important point for young widow[er]s.

Note that there is no point to waiting past FRA for surviving spouse benefits since they do not increase after that age. There are some options open ONLY to surviving spouses that can make it best (in some cases!) for the widow[er] to claim own retirement benefits at 62 and survivor benefits at FRA *or* survivor benefits at 60 and own retirement benefits at 70, for example.
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Re: Delaying SSi: is the wisdom still relevant

Post by petulant »

grok87 wrote: Wed Jul 08, 2020 5:55 am according to the latest trustees report (will try to link later), social security retirement benefits are forecasted, under current law, to be cut 24% starting in 2034. i.e. you will only get 76% of your check. this may be something for some people to factor in.

for example if you are turning 62 in 2026 the math might look like this for a $10k a year "full retirement age benefit"- i.e. the benefit you would collect at age 67. i'll assume the person lives to age 80

claim at 62:
get 8 years at 7,000 then 10 years at $5,320 (=7000*76%) for a total of $109,200 over the 18 years.

claim at 70: get 10 years at $10,000* 124% * 76% = $9,424 = $94,240.

for each additional year of life beyond age 80 the "claim at 70" strategy catches up by $4,104. So the breakevn "age at death" is 83.7- i.e. at that point the "claim at 70' strategy becomes better.

according to latest stats, average life expectancy for a male is now 76.1 and for female 81.1

so generally speaking, factoring in forecasted social security cuts under current law, claiming at age 62 would be better for the average person turning 62 in 2026.

cheers,
grok
Thanks for bringing this up. I think SS claiming strategy is going to get very complicated over the next few years due to this issue, and whatever strategy a person chooses will have a high risk of turning out to not be the best if political change happens closer to 2033.
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Re: Delaying SSi: is the wisdom still relevant

Post by David Jay »

dodecahedron wrote: Wed Jul 08, 2020 6:54 am
David Jay wrote: Tue Jul 07, 2020 9:19 pm I think it is safe to say that if changes are made, it will be for future generations, not for current or soon-to-be retirees. Look at the current FRA age increases as an example: It affected those born in 1955 (turning 62 in 2017) and the change was implemented in 1983 when said individual was Age 32.
The 1983 SS reforms affected everyone born in 1943 or later. The oldest folks affected were age 40 at the time the change was enacted.

So in 1983, forty year olds were notified that their FRA was going to change from age 65 to 66. Nobody over 40 was affected by the change. Everyone under 40 was affected by the change, to varying extents described in the table below.

https://www.ssa.gov/benefits/retirement ... ction.html
What you say is true. What I said is also true, note that I used the singular above.
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Re: Delaying SSi: is the wisdom still relevant

Post by vineviz »

grok87 wrote: Wed Jul 08, 2020 5:55 am according to the latest trustees report (will try to link later), social security retirement benefits are forecasted, under current law, to be cut 24% starting in 2034. i.e. you will only get 76% of your check. this may be something for some people to factor in.
Investors should realize that there is not actually any economic rationale for a forecast of benefit cuts. Any such cut would be a political event: Congress deciding they'd rather spend money on something besides providing income to retirees.

Bill Mitchell wrote an excellent blog post on this topic more than a decade ago, but it's still relevant.

I'll paste some heavily abridged excerpts below, but the whole blog post is worth a read for people interested in the topic.

http://bilbo.economicoutlook.net/blog/?p=749
Many readers have asked me to explain why social security and pension schemes run by national governments can never become insolvent. . .
National social security systems can never become insolvent if the government has sovereignty in its own currency. . .

Some might get confused by the the accounting structure that a particular government overlays on the spending and taxing flows that support a social security scheme. . .

The US system is referred to as pay-as-you-go system because employed workers pay into the funds during their working lives and retirees etc draw payments from the fund when eligible. . .

So while there are spending and taxation flows occurring, this accounting overlay creates an illusion that the two (the workers’ contributions and the social security payments) are causally related. They are not.

The contributions are just taxes that the US government levies. They don’t actually fund anything. . .

The fact that the fund might hold financial assets which seem to be bought with the excess receipts over outgoings is another source of illusion (and confusion). The financial assets it holds are purchased with US government spending, which of-course, is not revenue-constrained.

Additionally, the social security payments are just another type of US government spending. The spending comes from political decisions to provide a certain level of social welfare in the US and involves the Government crediting bank accounts of recipients on a regular basis in US dollars.

It is crucial, if you want to understand the underlying monetary economics involved, not to get seduced by the illusions created by the accounting structures which sit on top of the essential monetary operations.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Delaying SSi: is the wisdom still relevant

Post by petulant »

vineviz wrote: Wed Jul 08, 2020 9:41 am
grok87 wrote: Wed Jul 08, 2020 5:55 am according to the latest trustees report (will try to link later), social security retirement benefits are forecasted, under current law, to be cut 24% starting in 2034. i.e. you will only get 76% of your check. this may be something for some people to factor in.
Investors should realize that there is not actually any economic rationale for a forecast of benefit cuts. Any such cut would be a political event: Congress deciding they'd rather spend money on something besides providing income to retirees.

Bill Mitchell wrote an excellent blog post on this topic more than a decade ago, but it's still relevant.

I'll paste some heavily abridged excerpts below, but the whole blog post is worth a read for people interested in the topic.

http://bilbo.economicoutlook.net/blog/?p=749
Many readers have asked me to explain why social security and pension schemes run by national governments can never become insolvent. . .
National social security systems can never become insolvent if the government has sovereignty in its own currency. . .

Some might get confused by the the accounting structure that a particular government overlays on the spending and taxing flows that support a social security scheme. . .

The US system is referred to as pay-as-you-go system because employed workers pay into the funds during their working lives and retirees etc draw payments from the fund when eligible. . .

So while there are spending and taxation flows occurring, this accounting overlay creates an illusion that the two (the workers’ contributions and the social security payments) are causally related. They are not.

The contributions are just taxes that the US government levies. They don’t actually fund anything. . .

The fact that the fund might hold financial assets which seem to be bought with the excess receipts over outgoings is another source of illusion (and confusion). The financial assets it holds are purchased with US government spending, which of-course, is not revenue-constrained.

Additionally, the social security payments are just another type of US government spending. The spending comes from political decisions to provide a certain level of social welfare in the US and involves the Government crediting bank accounts of recipients on a regular basis in US dollars.

It is crucial, if you want to understand the underlying monetary economics involved, not to get seduced by the illusions created by the accounting structures which sit on top of the essential monetary operations.
Yes and no. For macroeconomic and political purposes, it's certainly possible to look at social security that way. However, the specific legal mechanism does matter. The funding system in place creates a status quo that Congress has to act to change. A legal status quo can be powerful to set the terms of political bargaining and always poses a risk of being what actually happens if Congress does not act to change it. It therefore doesn't matter if there's an "economic rationale" for the benefit cuts--there is a legal rationale for it. The benefit cut forecast is therefore relevant for investors, but they also need to be aware of a high degree of political variability as we approach 2033.
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Re: Delaying SSi: is the wisdom still relevant

Post by dodecahedron »

David Jay wrote: Wed Jul 08, 2020 9:41 am
dodecahedron wrote: Wed Jul 08, 2020 6:54 am
David Jay wrote: Tue Jul 07, 2020 9:19 pm I think it is safe to say that if changes are made, it will be for future generations, not for current or soon-to-be retirees. Look at the current FRA age increases as an example: It affected those born in 1955 (turning 62 in 2017) and the change was implemented in 1983 when said individual was Age 32.
The 1983 SS reforms affected everyone born in 1943 or later. The oldest folks affected were age 40 at the time the change was enacted.

So in 1983, forty year olds were notified that their FRA was going to change from age 65 to 66. Nobody over 40 was affected by the change. Everyone under 40 was affected by the change, to varying extents described in the table below.

https://www.ssa.gov/benefits/retirement ... ction.html
What you say is true. What I said is also true, note that I used the singular above.
Yes, but the point of your particular example seemed to be that historical precedent suggested folks could expect 30 years of advance notice of adverse changes. In fact, folks affected by the 1983 SS reforms got as little as 22 years of advance notice of the FRA change. Still a substantial amount of notice, but not quite as much as your post suggested.

Fun fact: I personally know (as a former colleague) someone who was on the legal staff of the Greenspan Commission whose report led to those changes. I am confident that there was a lot of discussion about how much notice was reasonable.

Edited to add: the 1983 SSA Amendments included some other adverse provisions with even less notice, some of which affected folks who were already collecting SS benefits in 1983, e.g., a same-year one-time delay in the schedule for CPI adjustments.
Last edited by dodecahedron on Wed Jul 08, 2020 10:58 am, edited 1 time in total.
grok87
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Re: Delaying SSi: is the wisdom still relevant

Post by grok87 »

petulant wrote: Wed Jul 08, 2020 9:54 am
vineviz wrote: Wed Jul 08, 2020 9:41 am
grok87 wrote: Wed Jul 08, 2020 5:55 am according to the latest trustees report (will try to link later), social security retirement benefits are forecasted, under current law, to be cut 24% starting in 2034. i.e. you will only get 76% of your check. this may be something for some people to factor in.
Investors should realize that there is not actually any economic rationale for a forecast of benefit cuts. Any such cut would be a political event: Congress deciding they'd rather spend money on something besides providing income to retirees.

Bill Mitchell wrote an excellent blog post on this topic more than a decade ago, but it's still relevant.

I'll paste some heavily abridged excerpts below, but the whole blog post is worth a read for people interested in the topic.

http://bilbo.economicoutlook.net/blog/?p=749
Many readers have asked me to explain why social security and pension schemes run by national governments can never become insolvent. . .
National social security systems can never become insolvent if the government has sovereignty in its own currency. . .

Some might get confused by the the accounting structure that a particular government overlays on the spending and taxing flows that support a social security scheme. . .

The US system is referred to as pay-as-you-go system because employed workers pay into the funds during their working lives and retirees etc draw payments from the fund when eligible. . .

So while there are spending and taxation flows occurring, this accounting overlay creates an illusion that the two (the workers’ contributions and the social security payments) are causally related. They are not.

The contributions are just taxes that the US government levies. They don’t actually fund anything. . .

The fact that the fund might hold financial assets which seem to be bought with the excess receipts over outgoings is another source of illusion (and confusion). The financial assets it holds are purchased with US government spending, which of-course, is not revenue-constrained.

Additionally, the social security payments are just another type of US government spending. The spending comes from political decisions to provide a certain level of social welfare in the US and involves the Government crediting bank accounts of recipients on a regular basis in US dollars.

It is crucial, if you want to understand the underlying monetary economics involved, not to get seduced by the illusions created by the accounting structures which sit on top of the essential monetary operations.
Yes and no. For macroeconomic and political purposes, it's certainly possible to look at social security that way. However, the specific legal mechanism does matter. The funding system in place creates a status quo that Congress has to act to change. A legal status quo can be powerful to set the terms of political bargaining and always poses a risk of being what actually happens if Congress does not act to change it. It therefore doesn't matter if there's an "economic rationale" for the benefit cuts--there is a legal rationale for it. The benefit cut forecast is therefore relevant for investors, but they also need to be aware of a high degree of political variability as we approach 2033.
agree with petulant.

let's not get this thread locked by discussing politics or future legislative changes that might occur (both prohibited by forum).
my base case is that the law as it exists now will remain the same- i.e. no legislative changes to social security are made. the forecast of the 24% is done by the Social Security actuaries and is the base case. if i remember correctly there is a high and low scenario as well.
RIP Mr. Bogle.
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Re: Delaying SSi: is the wisdom still relevant

Post by grok87 »

smitcat wrote: Wed Jul 08, 2020 7:33 am
grok87 wrote: Wed Jul 08, 2020 5:55 am according to the latest trustees report (will try to link later), social security retirement benefits are forecasted, under current law, to be cut 24% starting in 2034. i.e. you will only get 76% of your check. this may be something for some people to factor in.

for example if you are turning 62 in 2026 the math might look like this for a $10k a year "full retirement age benefit"- i.e. the benefit you would collect at age 67. i'll assume the person lives to age 80

claim at 62:
get 8 years at 7,000 then 10 years at $5,320 (=7000*76%) for a total of $109,200 over the 18 years.

claim at 70: get 10 years at $10,000* 124% * 76% = $9,424 = $94,240.

for each additional year of life beyond age 80 the "claim at 70" strategy catches up by $4,104. So the breakevn "age at death" is 83.7- i.e. at that point the "claim at 70' strategy becomes better.

according to latest stats, average life expectancy for a male is now 76.1 and for female 81.1

so generally speaking, factoring in forecasted social security cuts under current law, claiming at age 62 would be better for the average person turning 62 in 2026.

cheers,
grok
"so generally speaking, factoring in forecasted social security cuts under current law, claiming at age 62 would be better for the average person turning 62 in 2026."
That would be the math as long as you do not factor in any of these possible other issues:
- what it means for a couple as opposed to an individual
- what would happen if Roth conversions were involved
- what it means in 'spendable' dollars vs total dollars (after taxes applied)
- what it may mean to potential heirs or charities
- whether or not your couples health is 'average' at later ages
i'll try and address your last point when i can as i think it is important.
RIP Mr. Bogle.
grok87
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Re: Delaying SSi: is the wisdom still relevant

Post by grok87 »

petulant wrote: Wed Jul 08, 2020 9:24 am
grok87 wrote: Wed Jul 08, 2020 5:55 am according to the latest trustees report (will try to link later), social security retirement benefits are forecasted, under current law, to be cut 24% starting in 2034. i.e. you will only get 76% of your check. this may be something for some people to factor in.

for example if you are turning 62 in 2026 the math might look like this for a $10k a year "full retirement age benefit"- i.e. the benefit you would collect at age 67. i'll assume the person lives to age 80

claim at 62:
get 8 years at 7,000 then 10 years at $5,320 (=7000*76%) for a total of $109,200 over the 18 years.

claim at 70: get 10 years at $10,000* 124% * 76% = $9,424 = $94,240.

for each additional year of life beyond age 80 the "claim at 70" strategy catches up by $4,104. So the breakevn "age at death" is 83.7- i.e. at that point the "claim at 70' strategy becomes better.

according to latest stats, average life expectancy for a male is now 76.1 and for female 81.1

so generally speaking, factoring in forecasted social security cuts under current law, claiming at age 62 would be better for the average person turning 62 in 2026.

cheers,
grok
Thanks for bringing this up. I think SS claiming strategy is going to get very complicated over the next few years due to this issue, and whatever strategy a person chooses will have a high risk of turning out to not be the best if political change happens closer to 2033.
agree
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Re: Delaying SSi: is the wisdom still relevant

Post by smitcat »

grok87 wrote: Wed Jul 08, 2020 10:47 am
smitcat wrote: Wed Jul 08, 2020 7:33 am
grok87 wrote: Wed Jul 08, 2020 5:55 am according to the latest trustees report (will try to link later), social security retirement benefits are forecasted, under current law, to be cut 24% starting in 2034. i.e. you will only get 76% of your check. this may be something for some people to factor in.

for example if you are turning 62 in 2026 the math might look like this for a $10k a year "full retirement age benefit"- i.e. the benefit you would collect at age 67. i'll assume the person lives to age 80

claim at 62:
get 8 years at 7,000 then 10 years at $5,320 (=7000*76%) for a total of $109,200 over the 18 years.

claim at 70: get 10 years at $10,000* 124% * 76% = $9,424 = $94,240.

for each additional year of life beyond age 80 the "claim at 70" strategy catches up by $4,104. So the breakevn "age at death" is 83.7- i.e. at that point the "claim at 70' strategy becomes better.

according to latest stats, average life expectancy for a male is now 76.1 and for female 81.1

so generally speaking, factoring in forecasted social security cuts under current law, claiming at age 62 would be better for the average person turning 62 in 2026.

cheers,
grok
"so generally speaking, factoring in forecasted social security cuts under current law, claiming at age 62 would be better for the average person turning 62 in 2026."
That would be the math as long as you do not factor in any of these possible other issues:
- what it means for a couple as opposed to an individual
- what would happen if Roth conversions were involved
- what it means in 'spendable' dollars vs total dollars (after taxes applied)
- what it may mean to potential heirs or charities
- whether or not your couples health is 'average' at later ages
i'll try and address your last point when i can as i think it is important.
Interesting - they all affect us and they all play a reasonably significant role in the potential outcomes.
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Re: Delaying SSi: is the wisdom still relevant

Post by rgs92 »

FiveK wrote: Wed Jul 08, 2020 12:31 am See History Of Social Security Full Retirement Age if interested in details.
Thanks for that! Very clear and concise.
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Re: Delaying SSi: is the wisdom still relevant

Post by Pomegranate »

Tejfyy wrote: Tue Jul 07, 2020 8:46 pm It's generally considered the most economically sound approach: delaying SSI as long as you can. 35 years ago I was convinced SSI wouldn't be around "when I get old" and there it is and I'm coming up on old (60). The world is more screwed up and predictably more unpredictable.

If I had to bet--and I'm not a gambler--on which "support system" would more likely work in my favor over the next 30 years, I'd bet on the market. Take SSI as soon as possible, i.e., get into that system now before [fill in the blank] and keep more of your chickens in the market.

It's not panic or doomsday thinking given "everything," I just think it's useful to revisit topics, though I know this one has been hashed out.

That the market is booming while everyday lives of everyday people are unraveling and that I believe we're entering a new era, I'm curious if anyone else is rethinking this.
Quick question - when are you planning to die :sharebeer ?
It'd really help you to answer your question 8-)
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Re: Delaying SSi: is the wisdom still relevant

Post by rgs92 »

I read in this thread (and elsewhere) that a factor in deciding when to start SS benefits is a couple's combined situation. What about a couple who are roughly equal in age and also roughly equal in earnings history, so each individual would never take anything beyond their own individual benefits?

I thought that it was always best for both to wait until age 70 no matter what, as it simply serves to maximize longevity insurance, period.

(This assumes they are young enough to not be eligible for the file-and-suspend technique where you must have been born before 1954 to use it.)
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Re: Delaying SSi: is the wisdom still relevant

Post by dodecahedron »

dodecahedron wrote: Wed Jul 08, 2020 6:54 am
David Jay wrote: Tue Jul 07, 2020 9:19 pm I think it is safe to say that if changes are made, it will be for future generations, not for current or soon-to-be retirees. Look at the current FRA age increases as an example: It affected those born in 1955 (turning 62 in 2017) and the change was implemented in 1983 when said individual was Age 32.
The 1983 SS reforms affected everyone born in 1938 or later. The oldest folks affected were age 45 at the time the change was enacted, just 17 years away from their early retirement age.

So in 1983, forty five year olds were notified that their FRA was going to increase. Nobody over 45 in 1983 was affected by the change. Everyone under 45 in 1983 was affected by the change, to varying extents described in the document below.

https://fas.org/sgp/crs/misc/R44670.pdf
Edited to correct my previous incorrect statement and my correction actually strengthens the point I was trying to make.
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Re: Delaying SSi: is the wisdom still relevant

Post by LadyGeek »

grok87 wrote: Wed Jul 08, 2020 10:46 am
petulant wrote: Wed Jul 08, 2020 9:54 am ...Yes and no. For macroeconomic and political purposes, it's certainly possible to look at social security that way. However, the specific legal mechanism does matter. The funding system in place creates a status quo that Congress has to act to change. A legal status quo can be powerful to set the terms of political bargaining and always poses a risk of being what actually happens if Congress does not act to change it. It therefore doesn't matter if there's an "economic rationale" for the benefit cuts--there is a legal rationale for it. The benefit cut forecast is therefore relevant for investors, but they also need to be aware of a high degree of political variability as we approach 2033.
agree with petulant.

let's not get this thread locked by discussing politics or future legislative changes that might occur (both prohibited by forum).
my base case is that the law as it exists now will remain the same- i.e. no legislative changes to social security are made. the forecast of the 24% is done by the Social Security actuaries and is the base case. if i remember correctly there is a high and low scenario as well.
Changing Social Security requires changes in US law - a political process. From: Political comments and proposed tax plan remain off-topic
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This forum is focused on investing that is directly actionable to personal investors. We don't hold debates on conjecture.

The whole point of the policy is to (1) eliminate contentious disagreements that result from these discussions and (2) keep investors from making bad decisions. Proposed legislation changes many times between the time it's introduced and signed into law.
Feel free to plan, but conjecture on future benefits (or political comments) are off-topic.

This thread is now in the Personal Finance (Not Investing) forum (Social Security).
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Re: Delaying SSi: is the wisdom still relevant

Post by ObliviousInvestor »

rgs92 wrote: Wed Jul 08, 2020 11:20 am I read in this thread (and elsewhere) that a factor in deciding when to start SS benefits is a couple's combined situation. What about a couple who are roughly equal in age and also roughly equal in earnings history, so each individual would never take anything beyond their own individual benefits?

I thought that it was always best for both to wait until age 70 no matter what, as it simply serves to maximize longevity insurance, period.

(This assumes they are young enough to not be eligible for the file-and-suspend technique where you must have been born before 1954 to use it.)
First a brief note: the 1/2/1954 DoB has to do with restricted application (deemed filing) rules, not file and suspend rules.

The rough draft plan from an actuarial standpoint is for the lower earner to file early and for the higher earner to wait until 70. It is uncommon for it to make actuarial sense for the lower earner to delay -- though it can make sense from a risk reduction standpoint or from a tax planning standpoint. Conversely it can make sense from a cash flow standpoint in some cases for the higher earner to file before 70.

When both spouses have similar earnings history and similar age, then the rough draft plan is still the same as for any couple (i.e., one at 70, the other early), and it should be the spouse who is most likely to survive to age 70 who waits. Though again the various other factors still apply.
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Re: Delaying SSi: is the wisdom still relevant

Post by smitcat »

rgs92 wrote: Wed Jul 08, 2020 11:20 am I read in this thread (and elsewhere) that a factor in deciding when to start SS benefits is a couple's combined situation. What about a couple who are roughly equal in age and also roughly equal in earnings history, so each individual would never take anything beyond their own individual benefits?

I thought that it was always best for both to wait until age 70 no matter what, as it simply serves to maximize longevity insurance, period.

(This assumes they are young enough to not be eligible for the file-and-suspend technique where you must have been born before 1954 to use it.)
"What about a couple who are roughly equal in age and also roughly equal in earnings history, so each individual would never take anything beyond their own individual benefits?"
If you are attempting to solve for SS alone then its likely an easier solution but if you are trying to solve for the best approach for gaining the most future 'spendable' (after tax dollars) for you and your heirs it would be more complicated.
It would depend on a lot of other factors including but not limited to:
- total portfolio and where located (Roth, 401K after tax etc)
- SS benefit level
- portfolio returns
- Potential Roth conversions
- amount of draw planned
- goals for funds after demise
- tax situation and state of residence
- tax status of heirs
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Re: Delaying SSi: is the wisdom still relevant

Post by David Jay »

dodecahedron wrote: Wed Jul 08, 2020 10:04 am
David Jay wrote: Wed Jul 08, 2020 9:41 am
dodecahedron wrote: Wed Jul 08, 2020 6:54 am
David Jay wrote: Tue Jul 07, 2020 9:19 pm I think it is safe to say that if changes are made, it will be for future generations, not for current or soon-to-be retirees. Look at the current FRA age increases as an example: It affected those born in 1955 (turning 62 in 2017) and the change was implemented in 1983 when said individual was Age 32.
The 1983 SS reforms affected everyone born in 1943 or later. The oldest folks affected were age 40 at the time the change was enacted.

So in 1983, forty year olds were notified that their FRA was going to change from age 65 to 66. Nobody over 40 was affected by the change. Everyone under 40 was affected by the change, to varying extents described in the table below.

https://www.ssa.gov/benefits/retirement ... ction.html
What you say is true. What I said is also true, note that I used the singular above.
Yes, but the point of your particular example seemed to be that historical precedent suggested folks could expect 30 years of advance notice of adverse changes. In fact, folks affected by the 1983 SS reforms got as little as 22 years of advance notice of the FRA change. Still a substantial amount of notice, but not quite as much as your post suggested.

Fun fact: I personally know (as a former colleague) someone who was on the legal staff of the Greenspan Commission whose report led to those changes. I am confident that there was a lot of discussion about how much notice was reasonable.

Edited to add: the 1983 SSA Amendments included some other adverse provisions with even less notice, some of which affected folks who were already collecting SS benefits in 1983, e.g., a same-year one-time delay in the schedule for CPI adjustments.
The OP is age 60. And is concerned that waiting past age 62 to claim may threaten the benefits.
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Re: Delaying SSi: is the wisdom still relevant

Post by Tejfyy »

Thank you to those for clarification. I mean regular social security not supplemental (SSI). And I've known since the 80s that 67 is my full retirement age, b 1960.
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Re: Delaying Social Security: is the wisdom still relevant

Post by antiqueman »

To many unknowns when 2034 rolls around. I plan to take SS at FRA. Bird in hand etc. Otherwise you are betting on status quo. Rules concerning file and suspended have recently been changed to restrict its availability. Who know what will happen in 2034.
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Re: Delaying SSi: is the wisdom still relevant

Post by #Cruncher »

ObliviousInvestor wrote: Wed Jul 08, 2020 11:47 am
rgs92 wrote: Wed Jul 08, 2020 11:20 am... What about a couple who are roughly equal in age and also roughly equal in earnings history, ...? I thought that it was always best for both to wait until age 70 no matter what, as it simply serves to maximize longevity insurance, period. ...
... When both spouses have similar earnings history and similar age, then the rough draft plan is still the same as for any couple (i.e., one at 70, the other early), ...
The reason for this is that one of the identical benefits will continue while either spouse lives, but the other will continue only while both live. And naturally the survival probability after any number of years is less for both living than for either. Since there will therefore likely be fewer years of the extra benefits from delaying, it is less likely they will offset the benefits forgone by delaying.

This can be seen from the following two tables taken from the SS sheet of my longevity estimator Excel workbook using the SSA 2017 Period Life Table with a -0.47% [*] discount rate. Both tables show the probable present value (PV) of a $1,000 Primary Insurance Amount (PIA) taken at any of the nine ages 62 to 70 for someone with a Normal Retirement Age of 67. The first weights the benefit by the odds that either one of a same age man / woman couple live. The second weights the benefit by the odds that both live.
While Either Lives:

Code: Select all

Claim age             62       63       64       65       66       67       68       69       70
Monthly benefit   700.00   750.00   800.00   866.67   933.33 1,000.00 1,080.00 1,160.00 1,240.00
Present value    242,140  250,415  257,444  268,383  277,659  285,267  294,844  302,422  308,000
Less than best    65,860   57,585   50,556   39,617   30,341   22,733   13,156    5,578         
Percent less       21.4%    18.7%    16.4%    12.9%     9.9%     7.4%     4.3%     1.8%
The highest probable PV occurs when SS is started at age 70, and it is much less when started at an earlier age. E.g., the PV is 21.4% less if SS is started at age 62.

While Both Live:

Code: Select all

Claim age             62       63       64       65       66       67       68       69       70
Monthly benefit   700.00   750.00   800.00   866.67   933.33 1,000.00 1,080.00 1,160.00 1,240.00
Present value    141,651  142,843  143,009  144,979  145,636  145,042  145,055  143,680  141,007
Less than best     3,985    2,793    2,627      657               594      581    1,956    4,629
Percent less        2.7%     1.9%     1.8%     0.5%              0.4%     0.4%     1.3%     3.2%
The highest probable PV occurs when SS is started at age 66, but starting at another age makes much less difference than in the previous table. E.g., the PV is only 2.7% less if started at age 62 and 3.2% less if started at age 70.

* -0.47% is the current default discount rate used by ObliviousInvestor's excellent Open Social Security calculator. By the way for an equal age man / woman couple with the same PIA it concludes (when using default parameters) that the optimum age for one spouse to start is 70 and is 65 + 1 month for the other.
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Re: Delaying Social Security: is the wisdom still relevant

Post by tibbitts »

Tejfyy wrote: Tue Jul 07, 2020 8:46 pm It's generally considered the most economically sound approach: delaying SS as long as you can. 35 years ago I was convinced SSI wouldn't be around "when I get old" and there it is and I'm coming up on old (60). The world is more screwed up and predictably more unpredictable.

If I had to bet--and I'm not a gambler--on which "support system" would more likely work in my favor over the next 30 years, I'd bet on the market. Take SSI as soon as possible, i.e., get into that system now before [fill in the blank] and keep more of your chickens in the market.

It's not panic or doomsday thinking given "everything," I just think it's useful to revisit topics, though I know this one has been hashed out.

That the market is booming while everyday lives of everyday people are unraveling and that I believe we're entering a new era, I'm curious if anyone else is rethinking this.
First many markets are definitely not booming. A very few individual stocks that have grown to be a huge percentage of some index funds are booming, most other investments have been performing at or below average for a while now. If you got burned by the nifty fifty or later the tech bust, you might be inclined to be under-represented in the only segments of "the market" that have been doing well.

I'd say he chances of things not ending well for most of us are roughly equal (and pretty substantial) in both "the market" and in social security.

So my guess is that your bet is misplaced.

It's just generational bad luck that we (ages 50s-60s) face more uncertainty than, for example, the folks who reached the same age right after the last social security "fix", which largely removed the uncertainty for them.
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Re: Delaying Social Security: is the wisdom still relevant

Post by Tejfyy »

tibbitts wrote: Thu Jul 09, 2020 8:58 am
It's just generational bad luck that we (ages 50s-60s) face more uncertainty than, for example, the folks who reached the same age right after the last social security "fix", which largely removed the uncertainty for them.
Good point. That's comparing retrospectively though which reminds me of elders saying, "When I was your age [fill in something about things being better], a reality I too can now attest to.

Uncertainty is in imho part and parcel of the human condition. But in practical terms, yes I do see some people in the 70s and 80s living with relative predictability, I have never relied on. On the other hand, for those in the 20s, 30s and 40s the game is entirely different, arguable worse, if uncertainty and neoliberal western ideals of progress and accumulation are the primary measures.
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Re: Delaying Social Security: is the wisdom still relevant

Post by jerrysmith »

The day I'm eligible I'm taking it.
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Re: Delaying Social Security: is the wisdom still relevant

Post by New Providence »

Best to be contrarian.

I'm not worry about Social Security because most people are worry and for decades have been saying that SS won't be around.

I will begin to worry about SS the day that most people stop worrying about it.
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Re: Delaying Social Security: is the wisdom still relevant

Post by rgs92 »

Thank you #Cruncher. That was fascinating. I never thought of it like that. Best to you for that analysis.
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Re: Delaying Social Security: is the wisdom still relevant

Post by tibbitts »

New Providence wrote: Thu Jul 09, 2020 6:53 pm Best to be contrarian.

I'm not worry about Social Security because most people are worry and for decades have been saying that SS won't be around.

I will begin to worry about SS the day that most people stop worrying about it.
I disagree. Someone becoming eligible for social security immediately following the passing of the 1986 reforms had a reasonably high degree of certainty of what to expect from Social Security for the rest of their lifetimes. They might have worried about it before the reforms, but they could make their claiming decisions relatively fully informed, while people becoming eligible between now and the early 2030s can't.
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Re: Delaying Social Security: is the wisdom still relevant

Post by afan »

to maximize the present value of the discounted flow of future benefits adjusted for actuarial considerations
That is exactly what I am trying to do. We treat this like other financial decisions.
So far, the answer for us seems to be to delay until 70. That is the same answer whether we assume magic happens and there are no benefits reductions or if we assume that the expected reductions take place as projected.

In our case, we will keep working past age 70, so there will be no low income years for Roth conversions and no ACA considerations.

If we were to be forced out of the job market before age 70, we might reconsider. Most likely, we would then use that time to do Roth conversions and still wait to 70 for SS.
This is in part based on one of us having a family history of extremely long lives.

Note a minor quibble. Above someone quotes the life expectancy for men and women as inputs into this decision. The more appropriate values would be the expectancies for men and women who are at the age of the person making the decision. Since they have survived to, say, 62, the probabilities of death before this age do not apply. The life expectancies are a few years longer because of this.

Then try to adjust this expectancy up or down based on current health and family history. Still a guess, but a better educated guess.
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Re: Delaying Social Security: is the wisdom still relevant

Post by New Providence »

tibbitts wrote: Thu Jul 09, 2020 7:04 pm
New Providence wrote: Thu Jul 09, 2020 6:53 pm Best to be contrarian.

I'm not worry about Social Security because most people are worry and for decades have been saying that SS won't be around.

I will begin to worry about SS the day that most people stop worrying about it.
I disagree. Someone becoming eligible for social security immediately following the passing of the 1986 reforms had a reasonably high degree of certainty of what to expect from Social Security for the rest of their lifetimes. They might have worried about it before the reforms, but they could make their claiming decisions relatively fully informed, while people becoming eligible between now and the early 2030s can't.
why is that?
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Re: Delaying Social Security: is the wisdom still relevant

Post by petulant »

New Providence wrote: Fri Jul 10, 2020 8:59 am
tibbitts wrote: Thu Jul 09, 2020 7:04 pm
New Providence wrote: Thu Jul 09, 2020 6:53 pm Best to be contrarian.

I'm not worry about Social Security because most people are worry and for decades have been saying that SS won't be around.

I will begin to worry about SS the day that most people stop worrying about it.
I disagree. Someone becoming eligible for social security immediately following the passing of the 1986 reforms had a reasonably high degree of certainty of what to expect from Social Security for the rest of their lifetimes. They might have worried about it before the reforms, but they could make their claiming decisions relatively fully informed, while people becoming eligible between now and the early 2030s can't.
why is that?
I think the theory is that SS only gets touched to put it on sound actuarial footing, so if there's a major reform like that, one can expect limited tinkering until the next actuarial problem. As we approach the next actuarial problem, the probability of tinkering goes up, so existing law is less reliable.
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Re: Delaying SSi: is the wisdom still relevant

Post by Alaric »

grok87 wrote: Wed Jul 08, 2020 10:46 am my base case is that the law as it exists now will remain the same- i.e. no legislative changes to social security are made. the forecast of the 24% is done by the Social Security actuaries and is the base case. if i remember correctly there is a high and low scenario as well.
I too noticed that when I was going through The 2020 OASDI Trustees Report. On page 67, Table IV.B4.—Trust Fund Ratios shows that in the Intermediate cost projection, the OASI trust fund reserves become depleted in 2034, after which benefits would be payable at only 76% of scheduled benefits. That ratio would almost be sustainable, although it would gradually fall to 71% by 2094. This all assumes no changes in the law by 2034 or even 2094, which may seem unlikely but is the way the SSA is required to do their projections and the way that is legit to discuss here.

The Intermediate projection is the one that makes it into the report's Overview section and the one that news stories on the OASI trust fund always focus on. And it may be the most likely scenario. But the table also includes Low-cost and High-cost scenarios. In the Low-cost scenario, the OASI trust fund maintains a positive reserve until 2043, at which point payable benefits would only have to be cut to 90% of scheduled benefits, and that ratio would slowly improve, reaching 98% by 2094.

In the High-cost scenario, the OASI reserve becomes depleted in 2031, at which point payable benefits would have to be cut to 69% of scheduled benefits, and that ratio would continue to deteriorate, reaching 50% by 2094.

The 2020 report also advises that:
The projections and analysis in this report do not reflect the potential effects of the COVID-19 pandemic on the Social Security and Medicare programs. Given the uncertainty associated with these impacts, the Trustees believe that it is not possible to adjust their estimates accurately at this time.
I will await the 2021 report with considerable interest.
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Re: Delaying Social Security: is the wisdom still relevant

Post by flyingaway »

If you have retired and are financially independent without the social security, it is probably better to delay it as a longevity insurance.

If you are not yet retired, working for an additional month will probably (dependent upon your salary) give your more money than the differences between claiming at any different ages.
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Re: Delaying Social Security: is the wisdom still relevant

Post by sleepysurf »

FYI, the current The Long View podcast from Morningstar is Mary Beth Franklin: To Fix Social Security, 'Everybody Is Going to Have to Be Unhappy' and addresses various scenarios, including the political roadblocks...
https://www.morningstar.com/podcasts/the-long-view/64

It's a great interview and discussion!
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Re: Delaying Social Security: is the wisdom still relevant

Post by smitcat »

flyingaway wrote: Fri Jul 10, 2020 11:15 am If you have retired and are financially independent without the social security, it is probably better to delay it as a longevity insurance.

If you are not yet retired, working for an additional month will probably (dependent upon your salary) give your more money than the differences between claiming at any different ages.
Or you could model the most likely scenarios and see the potential results of each one while varying some of these. Of course you always want to rate these results by the amount of funds you can spend and not what they represent pre taxes.
- SS age election
- Roth conversions
- Portfolio performance
- age of demise
- what the after tax placement would mean for heirs
When we do this for ourselves the difference in delaying SS is much larger than working one more month. Huge really.
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Re: Delaying Social Security: is the wisdom still relevant

Post by Alaric »

sleepysurf wrote: Fri Jul 10, 2020 11:18 am FYI, the current The Long View podcast from Morningstar is Mary Beth Franklin: To Fix Social Security, 'Everybody Is Going to Have to Be Unhappy' and addresses various scenarios, including the political roadblocks...
https://www.morningstar.com/podcasts/the-long-view/64

It's a great interview and discussion!
Thank you! That was indeed informative. And for those who don't want to sit through a 55-minute podcast, there is a transcript posted there too.
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