Social security. Take it at 62 [Motley Fool article]

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JoeRetire
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Re: Social security. Take it at 62 [Motley Fool article]

Post by JoeRetire »

CurlyDave wrote: Sun Oct 11, 2020 5:54 pmIf you can get 8% CAGR on your investments there is NO break even date.
If you can get 8% CAGR for the rest of your life on your investments there is NO break even date.

(fixed it for you)
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Re: Social security. Take it at 62 [Motley Fool article]

Post by calmaniac »

My view of Social Security is as a stable source of inflation indexed income that provides longevity insurance. Income is the name of the game in retirement. The whole "take at 62 and invest at 7%" is a fallacious comparison, investing in equities to get 7% is much higher risk than "investing in SS" by waiting to age 70.

For married couples, there is a very strong argument for the higher earner to wait to 70. That argument becomes even more persuasive when the higher earner is a man who is ≥7 years older than wife.
orlandoman wrote: Sun Oct 11, 2020 11:50 am Another issue, that may affect a timing decision, for married folks:

- Say for example you would get $20,000 at age 62
- you decide to wait until age 70
- 6 yrs later at age 68 you die
- your you/spouse loses $20,000 a year ($20k x 6 =$120,000)
- in addition, you my have depleted part of your savings by waiting to collect at age 70
The above argument is in my mind shortsighted. The important variable is not the longevity of the individual, but of the couple. Take the same couple above, where the spouse has a small SS payment of say $10,000 at age 62. So when the SS holder dies at age 68, he (it's usually a he) has now hobbled his spouse with an SS survivor benefit of $20,000/yr for life (no care to him, he's dead; but a big deal for her). If instead SS holder defers to 68 and then dies, the spouse will get a 48% larger benefit (≈$29,600/yr). If that spouse lives to 92 (assuming both were same age) they would receive a total of $710,400 using the "wait as long as possible approach", versus $600,000 with your approach. Lot's of online calculators to get more geeky with this.

As my father-in-law wisely preached, but did not practice: "Plan like you are going to live forever, live like you are going to die tomorrow"
63 yo,1y til go part-time. AA 70/30: 30% S&P, 16% value, 14% intl, 10% EM, 30% short/int govt bonds. My mil pension + DW's now ≈60% of expenses. Taking SS @age 70--> pension+SS ≈100% of expenses.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by pennywise »

Seasonal wrote: Sun Oct 11, 2020 12:03 pm My analysis: Do you need the money now?

1) Yes - then start now.

2) Not at all - wait.

3) Somewhere in the middle - use a good calculator to try to figure out how to maximize lifetime payout.
I never planned to start my Social Security draw at 62 YO. However, that's what I did and I offer another sincere thank you to Mike Piper whose calculator at opensocialsecurity.com gave us one of the recommendations mentioned on this discussion.

Though our PIA was almost identical if we each took SS at full retirement age, my husband is 4 years older and was born before January 1, 1954.

So once the calculator showed us the best maximized strategy, when we retired at 62/66 YO, I started taking Social Security and my husband is taking a spousal benefit on my account, thus allowing his benefit to grow till he is 70 YO. For us the longevity benefit is a huge consideration because it means a COLA source of income for life.

It comprises ~25% of our annual income so the value was worth it for us because with two SS benefits and our dual pensions we don't need to touch retirement IRAs or investments accounts.

The decision on when to take social security does indeed depend entirely on one's situation.
Last edited by pennywise on Sun Oct 11, 2020 8:37 pm, edited 3 times in total.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by aristotelian »

The one thing that the "take it at 62 articles" never mention is the potential impact on your tax bracket, which can have unintended consequences on ACA subsidy as well as pushing your RMD's into a higher bracket. I would say that likely negates any impact of the "time value of money" that is left out of the "take it at 70" articles.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by calmaniac »

CurlyDave wrote: Sun Oct 11, 2020 5:54 pm
bog007 wrote: Sun Oct 11, 2020 10:32 am Is it a bad idea to take social security at 62? This article seems to suggest to take it early


https://www.google.com/amp/s/www.fool.c ... hat-n.aspx
Everyone who said something without reading the article should go read it first before saying anything.

The analysis is exactly the same as the one I did for myself in 2007, when I claimed at 62. I spent the government's money, kept mine invested and have made much more than an 8% CAGR on my investments since 2007. So I have come out far, far ahead.

There is a knee-jerk reaction to anything but "wait until the last minute" to take SS around here. There can be very good reasons to take it early. If you can get 8% CAGR on your investments there is NO break even date. You could live to 1000 and you would be better off taking SS at 62.

The one valid point I saw in the comments was about spousal benefits, which can be higher if your spouse was a low earner or did not have much time in SS. But, it doesn't take much work time or salary for a spouse's own benefit to be higher than spousal benefits which changes the optimum right back to early claiming. And, there is nothing quite like a nice plump portfolio to ease the burden of a potential slightly lower SS spousal benefit.

In my case my spouse had more quarters of work history than I do and is actually getting a higher benefit than I am. She also claimed at 62.
As much as I disagree with it, I appreciate how you have laid out the logic.

I see Social Security as a steady stream of safe income. Thus, in the same way that I know I could earn more by shifting my fixed income assets into equities, I don't because I want that security of having stable value. I think the more correct comparison from the Motley Fool article was deploying the "claiming at 62" money into safe 2% CDs, which the article showed was not any better than waiting to 70.

Because our pensions and taking SS at 70 will cover most or all of our expenses, I can be more aggressive in my asset allocation as I won't need to take much from our holdings for living expenses. That money has a longer time horizon, for legacy (family & charitable causes). The "take it at 62" approach results in the need to be more cautious in your asset allocation, as you will have less safe income and will need to live off your investments.

I have a great U.S.gov't pension and am grateful for all of the flexibility and safe income it provides. Given that most people don't even have a pension, I think it is in their best interest to maximize their social security.
63 yo,1y til go part-time. AA 70/30: 30% S&P, 16% value, 14% intl, 10% EM, 30% short/int govt bonds. My mil pension + DW's now ≈60% of expenses. Taking SS @age 70--> pension+SS ≈100% of expenses.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by CurlyDave »

JoeRetire wrote: Sun Oct 11, 2020 6:45 pm
CurlyDave wrote: Sun Oct 11, 2020 5:54 pmIf you can get 8% CAGR on your investments there is NO break even date.
If you can get 8% CAGR for the rest of your life on your investments there is NO break even date.

(fixed it for you)
Lets look into the data behind that fix

My 2012 copy of Ibbotson SBBI, on page 30 tells me that the CAGR for large company stocks from 1925 to 2011 was 9.8%. On that very same page it says the CAGR for small company stocks was 11.9%. On 9/30/2020 the 10 year CAGR for SPY was 13.6%. Now, admitting that we have a year or so of overlap in 2011, I still have no problems at all with the math of just grafting those together and saying large company stocks were ~10% CAGR over the past 95 years.

Similarly if I use MDY as a proxy for Ibbotson's small company stocks, the 10 year CAGR was "only" 10.7%. But the 95 year geometric average is over 11%.

So there you have it, 95 years of outperformance by stocks. Which certainly exceeds my remaining life expectancy. I don't know how long you are planning to live after 62, but I am not going to make it for another 95 years.

Now someone is going to jump up and say "those aren't inflation adjusted". And I agree, but the Fool said we only had to get 7% to have a mathematically very uncertain break even date, and my results back in 2007 were just about the same as they get. So, lets read on a little further in Ibbotson. On page 31, he states: "The compound annual inflation rate over 1926-2011 was 3.0%." Inflation from 2012 to now has been less than 3.0%. But I can live with a 3% estimate for inflation.

Subtract that from nominal stock return rates and we get to the conclusion that, for investors with a substantial portfolio, there really isn't much difference between claiming SS at 62 vs. at 70. And it is certainly not the slam dunk that is stated so often here.

* * * * * * * * * * * * * * *
Why is my SBBI Yearbook so old? Am I really still using a 2012 version?

The answer is that I am a cheapskate. Data from the past 25 or 30 years is widely available free on the internet. Older data is harder to come by. I understand the math of how to graft new data onto old data, and a new version of the SBBI Yearbook is $250 for the book or $325 for the book plus a read only digital version. (And it is no longer published by Ibbotson -- Duff and Phelps has taken it over.)

So, I spent $15 on Amazon for a used, but never even opened, 2012 version that I can easily update with free data. You guys should be proud of my frugality.
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Re: Social security. Take it at 62

Post by Ben Mathew »

vitaflo wrote: Sun Oct 11, 2020 5:29 pm
Ben Mathew wrote: Sun Oct 11, 2020 4:45 pm
Wannaretireearly wrote: Sun Oct 11, 2020 4:35 pm
Normchad wrote: Sun Oct 11, 2020 10:56 am I’m planning on taking mine at 62. That’s the plan.

Now, if things are going swimmingly when I get to be that age, I might change my mind.

But listen to JoMoney. There is no one size fits every situation answer. Although people make those proclamations.

Taking it as early as possible is probably never a terrible decision. And waiting is probably never a terrible decision.
This. Bird in the hand...plus the marginal utility will be higher the earlier I take the money. Imo...
Delaying social security does not require delaying consumption. You can fund the pre-SS years with portfolio withdrawals. If the net return to waiting to collect is positive (which it often is), then you should be able to obtain a higher consumption across all your retirement years--both before and after starting SS.
This recalls a great old post by Cut-Throat on this issue: viewtopic.php?t=102609

I keep it bookmarked for a reason.
Nice post on the exact same point. I would quibble a bit on the details of the calculation, but he gets the point across well.

The way Cut-Throat sets it up, delaying SS pays out more throughout. Worth noting too that it will also be safer since the portfolio is relied upon for a smaller fraction of consumption. And it offers more longevity insurance. Good value, all told.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by Ben Mathew »

CurlyDave wrote: Sun Oct 11, 2020 8:40 pm
JoeRetire wrote: Sun Oct 11, 2020 6:45 pm
CurlyDave wrote: Sun Oct 11, 2020 5:54 pmIf you can get 8% CAGR on your investments there is NO break even date.
If you can get 8% CAGR for the rest of your life on your investments there is NO break even date.

(fixed it for you)
Lets look into the data behind that fix

My 2012 copy of Ibbotson SBBI, on page 30 tells me that the CAGR for large company stocks from 1925 to 2011 was 9.8%. On that very same page it says the CAGR for small company stocks was 11.9%. On 9/30/2020 the 10 year CAGR for SPY was 13.6%. Now, admitting that we have a year or so of overlap in 2011, I still have no problems at all with the math of just grafting those together and saying large company stocks were ~10% CAGR over the past 95 years.

Similarly if I use MDY as a proxy for Ibbotson's small company stocks, the 10 year CAGR was "only" 10.7%. But the 95 year geometric average is over 11%.

So there you have it, 95 years of outperformance by stocks. Which certainly exceeds my remaining life expectancy. I don't know how long you are planning to live after 62, but I am not going to make it for another 95 years.

Now someone is going to jump up and say "those aren't inflation adjusted". And I agree, but the Fool said we only had to get 7% to have a mathematically very uncertain break even date, and my results back in 2007 were just about the same as they get. So, lets read on a little further in Ibbotson. On page 31, he states: "The compound annual inflation rate over 1926-2011 was 3.0%." Inflation from 2012 to now has been less than 3.0%. But I can live with a 3% estimate for inflation.

Subtract that from nominal stock return rates and we get to the conclusion that, for investors with a substantial portfolio, there really isn't much difference between claiming SS at 62 vs. at 70. And it is certainly not the slam dunk that is stated so often here.

* * * * * * * * * * * * * * *
Why is my SBBI Yearbook so old? Am I really still using a 2012 version?

The answer is that I am a cheapskate. Data from the past 25 or 30 years is widely available free on the internet. Older data is harder to come by. I understand the math of how to graft new data onto old data, and a new version of the SBBI Yearbook is $250 for the book or $325 for the book plus a read only digital version. (And it is no longer published by Ibbotson -- Duff and Phelps has taken it over.)

So, I spent $15 on Amazon for a used, but never even opened, 2012 version that I can easily update with free data. You guys should be proud of my frugality.
Wouldn't this reasoning also argue against any bond allocation since bond returns are much lower than the stock return estimates cited above?
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Re: Social security. Take it at 62 [Motley Fool article]

Post by ObliviousInvestor »

Ben Mathew wrote: Sun Oct 11, 2020 8:56 pm
CurlyDave wrote: Sun Oct 11, 2020 8:40 pm
JoeRetire wrote: Sun Oct 11, 2020 6:45 pm
CurlyDave wrote: Sun Oct 11, 2020 5:54 pmIf you can get 8% CAGR on your investments there is NO break even date.
If you can get 8% CAGR for the rest of your life on your investments there is NO break even date.

(fixed it for you)
Lets look into the data behind that fix

My 2012 copy of Ibbotson SBBI, on page 30 tells me that the CAGR for large company stocks from 1925 to 2011 was 9.8%. On that very same page it says the CAGR for small company stocks was 11.9%. On 9/30/2020 the 10 year CAGR for SPY was 13.6%. Now, admitting that we have a year or so of overlap in 2011, I still have no problems at all with the math of just grafting those together and saying large company stocks were ~10% CAGR over the past 95 years.

Similarly if I use MDY as a proxy for Ibbotson's small company stocks, the 10 year CAGR was "only" 10.7%. But the 95 year geometric average is over 11%.

So there you have it, 95 years of outperformance by stocks. Which certainly exceeds my remaining life expectancy. I don't know how long you are planning to live after 62, but I am not going to make it for another 95 years.

Now someone is going to jump up and say "those aren't inflation adjusted". And I agree, but the Fool said we only had to get 7% to have a mathematically very uncertain break even date, and my results back in 2007 were just about the same as they get. So, lets read on a little further in Ibbotson. On page 31, he states: "The compound annual inflation rate over 1926-2011 was 3.0%." Inflation from 2012 to now has been less than 3.0%. But I can live with a 3% estimate for inflation.

Subtract that from nominal stock return rates and we get to the conclusion that, for investors with a substantial portfolio, there really isn't much difference between claiming SS at 62 vs. at 70. And it is certainly not the slam dunk that is stated so often here.

* * * * * * * * * * * * * * *
Why is my SBBI Yearbook so old? Am I really still using a 2012 version?

The answer is that I am a cheapskate. Data from the past 25 or 30 years is widely available free on the internet. Older data is harder to come by. I understand the math of how to graft new data onto old data, and a new version of the SBBI Yearbook is $250 for the book or $325 for the book plus a read only digital version. (And it is no longer published by Ibbotson -- Duff and Phelps has taken it over.)

So, I spent $15 on Amazon for a used, but never even opened, 2012 version that I can easily update with free data. You guys should be proud of my frugality.
Wouldn't this reasoning also argue against any bond allocation since bond returns are much lower than the stock return estimates cited above?
Yes, the argument (for using a stock-like expected return for a Social Security analysis) only makes sense if you're already at 100% stocks and are still willing to take on additional risk (i.e., exchange potential Social Security for more stocks).

CurlyDave has stated elsewhere that that is, in fact, the case for him. But of course it is not the case for most people age 62+.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by Ben Mathew »

ObliviousInvestor wrote: Sun Oct 11, 2020 9:08 pm
Ben Mathew wrote: Sun Oct 11, 2020 8:56 pm
CurlyDave wrote: Sun Oct 11, 2020 8:40 pm
JoeRetire wrote: Sun Oct 11, 2020 6:45 pm
CurlyDave wrote: Sun Oct 11, 2020 5:54 pmIf you can get 8% CAGR on your investments there is NO break even date.
If you can get 8% CAGR for the rest of your life on your investments there is NO break even date.

(fixed it for you)
Lets look into the data behind that fix

My 2012 copy of Ibbotson SBBI, on page 30 tells me that the CAGR for large company stocks from 1925 to 2011 was 9.8%. On that very same page it says the CAGR for small company stocks was 11.9%. On 9/30/2020 the 10 year CAGR for SPY was 13.6%. Now, admitting that we have a year or so of overlap in 2011, I still have no problems at all with the math of just grafting those together and saying large company stocks were ~10% CAGR over the past 95 years.

Similarly if I use MDY as a proxy for Ibbotson's small company stocks, the 10 year CAGR was "only" 10.7%. But the 95 year geometric average is over 11%.

So there you have it, 95 years of outperformance by stocks. Which certainly exceeds my remaining life expectancy. I don't know how long you are planning to live after 62, but I am not going to make it for another 95 years.

Now someone is going to jump up and say "those aren't inflation adjusted". And I agree, but the Fool said we only had to get 7% to have a mathematically very uncertain break even date, and my results back in 2007 were just about the same as they get. So, lets read on a little further in Ibbotson. On page 31, he states: "The compound annual inflation rate over 1926-2011 was 3.0%." Inflation from 2012 to now has been less than 3.0%. But I can live with a 3% estimate for inflation.

Subtract that from nominal stock return rates and we get to the conclusion that, for investors with a substantial portfolio, there really isn't much difference between claiming SS at 62 vs. at 70. And it is certainly not the slam dunk that is stated so often here.

* * * * * * * * * * * * * * *
Why is my SBBI Yearbook so old? Am I really still using a 2012 version?

The answer is that I am a cheapskate. Data from the past 25 or 30 years is widely available free on the internet. Older data is harder to come by. I understand the math of how to graft new data onto old data, and a new version of the SBBI Yearbook is $250 for the book or $325 for the book plus a read only digital version. (And it is no longer published by Ibbotson -- Duff and Phelps has taken it over.)

So, I spent $15 on Amazon for a used, but never even opened, 2012 version that I can easily update with free data. You guys should be proud of my frugality.
Wouldn't this reasoning also argue against any bond allocation since bond returns are much lower than the stock return estimates cited above?
Yes, the argument (for using a stock-like expected return for a Social Security analysis) only makes sense if you're already at 100% stocks and are still willing to take on additional risk (i.e., exchange potential Social Security for more stocks).

CurlyDave has stated elsewhere that that is, in fact, the case for him. But of course it is not the case for most people age 62+.
Ah, CurlyDave's choice makes sense in light of that.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by orlandoman »

smitcat wrote: Sun Oct 11, 2020 1:22 pm
orlandoman wrote: Sun Oct 11, 2020 11:50 am Another issue, that may affect a timing decision, for married folks:

- Say for example you would get $20,000 at age 62
- you decide to wait until age 70
- 6 yrs later at age 68 you die
- your you/spouse loses $20,000 a year ($20k x 6 =$120,000)
- in addition, you my have depleted part of your savings by waiting to collect at age 70
Depends on how old your spouse is and how much lower his/her SS will be by not waiting for at least FRA.
Yes, I should have said, something to consider for married folks whose SS payments are roughly equal.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by spdoublebass »

orlandoman wrote: Sun Oct 11, 2020 9:18 pm
smitcat wrote: Sun Oct 11, 2020 1:22 pm
orlandoman wrote: Sun Oct 11, 2020 11:50 am Another issue, that may affect a timing decision, for married folks:

- Say for example you would get $20,000 at age 62
- you decide to wait until age 70
- 6 yrs later at age 68 you die
- your you/spouse loses $20,000 a year ($20k x 6 =$120,000)
- in addition, you my have depleted part of your savings by waiting to collect at age 70
Depends on how old your spouse is and how much lower his/her SS will be by not waiting for at least FRA.
Yes, I should have said, something to consider for married folks whose SS payments are roughly equal.
You are also assuming the person claiming at 62 is not working. I would not claim early if I plan on working before FRA, the penalty is pretty steep in my opinion.

https://www.moneytalksnews.com/working- ... s%20strict.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by Trader Joe »

bog007 wrote: Sun Oct 11, 2020 10:32 am Is it a bad idea to take social security at 62? This article seems to suggest to take it early


https://www.google.com/amp/s/www.fool.c ... hat-n.aspx
Yes, taking social security at age 62 is the right answer.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by CurlyDave »

ObliviousInvestor wrote: Sun Oct 11, 2020 9:08 pm
Ben Mathew wrote: Sun Oct 11, 2020 8:56 pm
...Wouldn't this reasoning also argue against any bond allocation since bond returns are much lower than the stock return estimates cited above?
Yes, the argument (for using a stock-like expected return for a Social Security analysis) only makes sense if you're already at 100% stocks and are still willing to take on additional risk (i.e., exchange potential Social Security for more stocks).

CurlyDave has stated elsewhere that that is, in fact, the case for him. But of course it is not the case for most people age 62+.
Just so we all know what deck we are playing from, I will introduce a concept called "phantom bonds" which is widely disliked on this board, even though Jack Bogle himself recommended it. I am also a proponent of this idea for determining asset allocation.

Essentially one considers the income from entitlements, income streams one does not have to work for and which can not be taken away, as coming from a bond which would produce the same income stream. If the income is less than 100% safe, the phantom bond value is discounted to reflect the risk.

The Curly Family Greater Portfolio in reality consists of our stock and real bond portfolio (which I sometimes call the Curly Family Portfolio), real estate, and entitlements in the form of pensions and Social Security.

If I elect to treat the pensions and SS as phantom bonds, I divide the annual income from these entitlements by today's bond returns, something on the order of 0.01.

Now there is not a 100% equivalence between phantom bonds and real bonds, but for purposes of determining a reasonable AA it can produce some interesting results. During a working career future entitlements mean that I should be 100% in stocks, except when interest rates are very high. I have done this and it has worked out well for us. Remember the quote about not taking too much or too little risk. Completely ignoring future entitlements distorts one's portfolio in what I feel is a negative way. It moves portfolios into the "too little risk" category.

If one believes at all in the phantom bonds concept, future SS and pensions push one to 100% stocks in the portion of his portfolio that he can control.

Reading this board for a few years has convinced me that this is not appropriate for a retirement portfolio, and at the age of 73, I went to about 20% bonds. ICSH, ultra short term bonds. The reason is that if there were to be a market decline I would need cash and time to adjust my spending to new circumstances. But I am still 80% stocks, mostly QQQ.

The bottom line is that ObliviousInvestor is right. I felt that more risk was appropriate for my portfolio when I retired. I will add that this was the correct decision for me. And the Fool article points out that this is a strategy for those with larger portfolios. The way to get to a larger portfolio is by taking the right amount of risk. Saying "I am not going to look at these huge, very safe assets when determining my AA" is going to lead to a lower result.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by Ben Mathew »

CurlyDave wrote: Sun Oct 11, 2020 10:19 pm
ObliviousInvestor wrote: Sun Oct 11, 2020 9:08 pm
Ben Mathew wrote: Sun Oct 11, 2020 8:56 pm
...Wouldn't this reasoning also argue against any bond allocation since bond returns are much lower than the stock return estimates cited above?
Yes, the argument (for using a stock-like expected return for a Social Security analysis) only makes sense if you're already at 100% stocks and are still willing to take on additional risk (i.e., exchange potential Social Security for more stocks).

CurlyDave has stated elsewhere that that is, in fact, the case for him. But of course it is not the case for most people age 62+.
Just so we all know what deck we are playing from, I will introduce a concept called "phantom bonds" which is widely disliked on this board, even though Jack Bogle himself recommended it. I am also a proponent of this idea for determining asset allocation.

Essentially one considers the income from entitlements, income streams one does not have to work for and which can not be taken away, as coming from a bond which would produce the same income stream. If the income is less than 100% safe, the phantom bond value is discounted to reflect the risk.

The Curly Family Greater Portfolio in reality consists of our stock and real bond portfolio (which I sometimes call the Curly Family Portfolio), real estate, and entitlements in the form of pensions and Social Security.

If I elect to treat the pensions and SS as phantom bonds, I divide the annual income from these entitlements by today's bond returns, something on the order of 0.01.

Now there is not a 100% equivalence between phantom bonds and real bonds, but for purposes of determining a reasonable AA it can produce some interesting results. During a working career future entitlements mean that I should be 100% in stocks, except when interest rates are very high. I have done this and it has worked out well for us. Remember the quote about not taking too much or too little risk. Completely ignoring future entitlements distorts one's portfolio in what I feel is a negative way. It moves portfolios into the "too little risk" category.

If one believes at all in the phantom bonds concept, future SS and pensions push one to 100% stocks in the portion of his portfolio that he can control.
CurlyDave wrote: Sun Oct 11, 2020 10:19 pm Saying "I am not going to look at these huge, very safe assets when determining my AA" is going to lead to a lower result.
Fully agree with the phantom bonds concept--that future entitlements should be counted as bonds and included in the overall AA calculation. (Lifecycle investing takes this one step further and includes future wages as well in the bond count, leading to very high stock allocations on the visible portfolio when young.)

But I remain unconvinced that after counting SS and pensions as bonds, most retirees would need to be at 100% stocks on the remaining portfolio. It depends on their risk tolerance. From a macro market clearing perspective, if older people shouldn't be buying bonds, then that leaves only younger people, who are even less suitable candidates for bonds. It doesn't add up from that perspective.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by JoeRetire »

CurlyDave wrote: Sun Oct 11, 2020 8:40 pmMy 2012 copy of Ibbotson SBBI, on page 30 tells me that the CAGR for large company stocks from 1925 to 2011 was 9.8%. On that very same page it says the CAGR for small company stocks was 11.9%. On 9/30/2020 the 10 year CAGR for SPY was 13.6%. Now, admitting that we have a year or so of overlap in 2011, I still have no problems at all with the math of just grafting those together and saying large company stocks were ~10% CAGR over the past 95 years.

Similarly if I use MDY as a proxy for Ibbotson's small company stocks, the 10 year CAGR was "only" 10.7%. But the 95 year geometric average is over 11%.

So there you have it, 95 years of outperformance by stocks.
Past performance is no guarantee... etc, etc.

"Nonetheless, the decision to delay Social Security can be evaluated based on the implicit rate of return it creates by choosing to delay, and over longer time horizons – when clients may “need the money most” as they have more years of retirement expenses to cover in the first place – the return of the Social Security delay becomes quite compelling. In fact, the return is generally far superior to any risk-adjusted returns that can be achieved over comparable time periods by the available alternatives, whether investing in risk-free bonds, growth equities, or buying a commercially available annuity. And because the system is indexed to inflation, its real returns will be maintained even if inflation rises, and will only become better if longevity continues to increase as well. In fact, ultimately the decision to delay Social Security delivers the best results when there is either unexpected inflation, unusually long longevity, or especially bad market returns, which are the exact three scenarios that traditional portfolios are the least effective at managing, making the decision to delay Social Security the ultimate form of “anti-fragile” triple hedge!"

https://www.kitces.com/blog/how-delayin ... y-can-buy/
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Re: Social security. Take it at 62 [Motley Fool article]

Post by smitcat »

CurlyDave wrote: Sun Oct 11, 2020 5:54 pm
bog007 wrote: Sun Oct 11, 2020 10:32 am Is it a bad idea to take social security at 62? This article seems to suggest to take it early


https://www.google.com/amp/s/www.fool.c ... hat-n.aspx
Everyone who said something without reading the article should go read it first before saying anything.

The analysis is exactly the same as the one I did for myself in 2007, when I claimed at 62. I spent the government's money, kept mine invested and have made much more than an 8% CAGR on my investments since 2007. So I have come out far, far ahead.

There is a knee-jerk reaction to anything but "wait until the last minute" to take SS around here. There can be very good reasons to take it early. If you can get 8% CAGR on your investments there is NO break even date. You could live to 1000 and you would be better off taking SS at 62.

The one valid point I saw in the comments was about spousal benefits, which can be higher if your spouse was a low earner or did not have much time in SS. But, it doesn't take much work time or salary for a spouse's own benefit to be higher than spousal benefits which changes the optimum right back to early claiming. And, there is nothing quite like a nice plump portfolio to ease the burden of a potential slightly lower SS spousal benefit.

In my case my spouse had more quarters of work history than I do and is actually getting a higher benefit than I am. She also claimed at 62.

I am guessing there was also not a lot of opportunity to take advantage of Roth conversions while delaying.
Our goal is to end up with the most money that we can spend after taxes so Roths are a key consideration as well.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by #Cruncher »

calmaniac wrote: Sun Oct 11, 2020 8:12 pm
orlandoman wrote: Sun Oct 11, 2020 11:50 am ... - Say for example you would get $20,000 at age 62
- you decide to wait until age 70
- 6 yrs later at age 68 you die ...
... If instead SS holder defers to 68 and then dies, the spouse will get a 48% larger benefit (≈$29,600/yr).
Delaying from 62 to 68 increases the benefit about 54.5%, not 48%. This is shown on row 26 of the following table:

Code: Select all

Row      Col A     Col B    Col C    Col D      Col E    Col F    Col G    Col H
  1       Born      1954     1955     1956       1957     1958     1959     1960
  2        NRA    66.000   66.167   66.333     66.500   66.667   66.833   67.000
     Claim Age    ---------- Percent of Primary Insurance Amount (PIA)----------

Code: Select all

  3         62    75.000   74.167   73.333     72.500   71.667   70.833   70.000
  4         63    80.000   79.167   78.333     77.500   76.667   75.833   75.000
  5         64    86.667   85.556   84.444     83.333   82.222   81.111   80.000
  6         65    93.333   92.222   91.111     90.000   88.889   87.778   86.667
  7         66   100.000   98.889   97.778     96.667   95.556   94.444   93.333
  8         67   108.000  106.667  105.333    104.000  102.667  101.333  100.000
  9         68   116.000  114.667  113.333    112.000  110.667  109.333  108.000
 10         69   124.000  122.667  121.333    120.000  118.667  117.333  116.000
 11         70   132.000  130.667  129.333    128.000  126.667  125.333  124.000
 
      --------------------- Increase from Delaying One Year --------------------
 12   62 to 63      6.7%     6.7%     6.8%       6.9%     7.0%     7.1%     7.1%
 13   63 to 64      8.3%     8.1%     7.8%       7.5%     7.2%     7.0%     6.7%
 14   64 to 65      7.7%     7.8%     7.9%       8.0%     8.1%     8.2%     8.3%
 15   65 to 66      7.1%     7.2%     7.3%       7.4%     7.5%     7.6%     7.7%
 16   66 to 67      8.0%     7.9%     7.7%       7.6%     7.4%     7.3%     7.1%
 17   67 to 68      7.4%     7.5%     7.6%       7.7%     7.8%     7.9%     8.0%
 18   68 to 69      6.9%     7.0%     7.1%       7.1%     7.2%     7.3%     7.4%
 19   69 to 70      6.5%     6.5%     6.6%       6.7%     6.7%     6.8%     6.9%
 20   8 yr avg      7.3%     7.3%     7.3%       7.4%     7.4%     7.4%     7.4%

      ------------------ Increase versus Claiming at Age 62 --------------------
 21   62 to 63      6.7%     6.7%     6.8%       6.9%     7.0%     7.1%     7.1%
 22   62 to 64     15.6%    15.4%    15.2%      14.9%    14.7%    14.5%    14.3%
 23   62 to 65     24.4%    24.3%    24.2%      24.1%    24.0%    23.9%    23.8%
 24   62 to 66     33.3%    33.3%    33.3%      33.3%    33.3%    33.3%    33.3%
 25   62 to 67     44.0%    43.8%    43.6%      43.4%    43.3%    43.1%    42.9%
 26   62 to 68 ==> 54.7%    54.6%    54.5%      54.5%    54.4%    54.4%    54.3% <==
 27   62 to 69     65.3%    65.4%    65.5%      65.5%    65.6%    65.6%    65.7%
 28   62 to 70     76.0%    76.2%    76.4%      76.6%    76.7%    76.9%    77.1%
Percent of PIA is determined as follows:
  • It's based on how many months before or after Normal Retirement Age (NRA) that benefits are claimed.
  • NRA is 66 for those born 1943-1954 and 67 for those born 1960 or later. For those born 1955-1959 it increases two months per year. Here is the formula in cell B2 that is copied right to column H:
    66 =MIN(67,66+MAX(0,B1-1954)/6)
  • Claiming up to 36 months before NRA reduces the benefit 5/9% per month. Claiming earlier than that reduces it an additional 5/12% per month. Claiming after NRA increases the benefit 8/12% per month (8% per year). Here is the formula in cell B3 that is copied right to column H and down to row 11.
    75 =100*IF($A3<B$2,1-(5/900)*MIN(36,(B$2-$A3)*12)-(5/1200)*MAX(0,(B$2-$A3)*12-36),1+(8/1200)*($A3-B$2)*12)
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Re: Social security. Take it at 62 [Motley Fool article]

Post by antiqueman »

Timely question.

I will be 66 Wednesday., my FRA.

I have not taken SS. I am wrestling with what to do. I do not need the money now. But I would definitely save it if I took it. I would not be one of those who spend it.

But for my wife who is 3.5 years younger than me I would take it now. But because of her I am considering not taking it now at FRA.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by FactualFran »

CurlyDave wrote: Sun Oct 11, 2020 8:40 pm My 2012 copy of Ibbotson SBBI, on page 30 tells me that the CAGR for large company stocks from 1925 to 2011 was 9.8%. On that very same page it says the CAGR for small company stocks was 11.9%. On 9/30/2020 the 10 year CAGR for SPY was 13.6%. Now, admitting that we have a year or so of overlap in 2011, I still have no problems at all with the math of just grafting those together and saying large company stocks were ~10% CAGR over the past 95 years.
The CAGR of large company stocks for the 87 year period from 1925 to 2011, or of SPY for a single 10-year period, is not useful to determine whether to delay starting Social Security benefits for up to 8 years (from age 62 to age 70). By delaying, the benefit amount would be increase about 8% a year adjusted for inflation. With the 8-year rolling periods since the inception year of the S&P 500, 1957, the inflation-adjusted return has been less than 8.00% for 33 of the 56 periods.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by DesertDiva »

bog007 wrote: Sun Oct 11, 2020 11:58 am
orlandoman wrote: Sun Oct 11, 2020 11:50 am Another issue, that may affect a timing decision, for married folks:

- Say for example you would get $20,000 at age 62
- you decide to wait until age 70
- 6 yrs later at age 68 you die
- your you/spouse loses $20,000 a year ($20k x 6 =$120,000)
- in addition, you my have depleted part of your savings by waiting to collect at age 70
thats the way I see it. what if I die at close to 70.
When you die you won’t need social security at all.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by chipperd »

I'm taking at 62. Bird in the hand....
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Re: Social security. Take it at 62 [Motley Fool article]

Post by Harry Livermore »

sport wrote: Sun Oct 11, 2020 1:43 pm There are also other situations that can affect this decision. DW has a government pension that would completely offset any SS benefit while I am alive and also offset any survivor benefit. So, even though we are married and she is younger than I, our situation is different from most other married couples. So, I started my SS benefit at 62. I did this because there can be no benefit to her and the actuary calculation used by SS is gender neutral. So, since men have shorter life expectancies than women, there seemed to be a small advantage to taking the benefit early.
This. My wife is 4 years younger than me, and the "survivor benefit" will be slashed by the GPO to the tune of 40% (she is a teacher)
I am strongly considering taking it early so that we get as much of it as possible ASAP.
Still a ways away so I have time to think about it.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by JoeRetire »

antiqueman wrote: Mon Oct 12, 2020 3:38 pm Timely question.

I will be 66 Wednesday., my FRA.

I have not taken SS. I am wrestling with what to do. I do not need the money now. But I would definitely save it if I took it. I would not be one of those who spend it.

But for my wife who is 3.5 years younger than me I would take it now. But because of her I am considering not taking it now at FRA.
Happy birthday!

The calculus is clearly different for folks with spouses, particularly younger spouses who were the lower earners.

Play around with https://opensocialsecurity.com/
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Re: Social security. Take it at 62 [Motley Fool article]

Post by CurlyDave »

FactualFran wrote: Mon Oct 12, 2020 5:07 pm
CurlyDave wrote: Sun Oct 11, 2020 8:40 pm My 2012 copy of Ibbotson SBBI, on page 30 tells me that the CAGR for large company stocks from 1925 to 2011 was 9.8%. On that very same page it says the CAGR for small company stocks was 11.9%. On 9/30/2020 the 10 year CAGR for SPY was 13.6%. Now, admitting that we have a year or so of overlap in 2011, I still have no problems at all with the math of just grafting those together and saying large company stocks were ~10% CAGR over the past 95 years.
The CAGR of large company stocks for the 87 year period from 1925 to 2011, or of SPY for a single 10-year period, is not useful to determine whether to delay starting Social Security benefits for up to 8 years (from age 62 to age 70). By delaying, the benefit amount would be increase about 8% a year adjusted for inflation. With the 8-year rolling periods since the inception year of the S&P 500, 1957, the inflation-adjusted return has been less than 8.00% for 33 of the 56 periods.
I am not certain what analysis you are doing, or not doing here. Did you read the original Motley Fool article? It explains things very well.

It is significantly more complex than an "increase about 8% a year adjusted for inflation" because you must forgo any payments at all for the first 8 years to get this increase in benefits. The analysis is usually done with a discounted cash flow, in Excel this is the IRR function.

With the 8-year rolling periods since the inception year of the S&P 500, 1957, the inflation-adjusted return has been less than 8.00% for 33 of the 56 periods. I am not sure what the point is here. We usually project over a 30 year retirement. The absolutely mathematically necessary corollary to the statement you make is that returns have been greater than 8% in the remaining periods. What are the CAGRs for 30 year rolling periods? And why stop in 1957? If you don't feel that Ibbotson's "large company stocks" and SPY are very good proxies for each other what is the reasoning?

If my situation is such that I have both a pension and SS, I may feel that waiting for FRA to claim SS decreases the risk of my combined portfolio to an inappropriately low level. One of the ways to increase the risk, and therefore the potential return, of my portfolio is simply to claim as early as possible. This way I spend the government's money and keep mine invested in my preferred risk profile. Of course merely increasing risk alone is foolish. But, increasing risk for the purpose of increasing potential return is right there in the Wiki as part of the Boglehead philosophy.

You have the right to choose a lower risk path than I choose.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by FactualFran »

CurlyDave wrote: Mon Oct 12, 2020 10:21 pm I am not certain what analysis you are doing, or not doing here. Did you read the original Motley Fool article? It explains things very well.
I posted that "With the 8-year rolling periods since the inception year of the S&P 500, 1957, the inflation-adjusted return has been less than 8.00% for 33 of the 56 periods." For example, the inflation-adjusted CAGR for the eight years from 1957 to 1964 was 9.56%, but was -0.16% for 1966 to 1973.

I did not read the Motley Fool article. I posted a response to a post that used CAGR of Ibbotson SBBI large company returns between a single 87-years period (1925 to 2011). The discussion here has been about delaying starting Social Security benefits. I think is not useful to use the CAGR over a single period, or a few periods, to decide whether to delay starting Social Security benefits for up to 8 years. I think it is useful to use the 8-year rolling returns rather than assuming that the nominal CAGR will be a certain number, be it 9.8%, 13.6%, or 7%.

As to some questions in the post this is a reply to, but are not repeated here.

The CAGRs for 30-year rolling periods are not relevant in this context, which is delaying for up to 8 years.

I started with 1957, because of that was the inception year of the S&P 500. There is return data labeled as being for the S&P 500 prior to then, but the data are for an index of 90 stocks. Including the data back to 1926, 47 of the 86 8-year periods had inflation-adjusted CAGRs less than 8% that would have been obtained by delaying starting Social Security benefits.

I don't have any feeling about data that I do not have, such as the Ibbotson large company stock returns or the SPY returns.

I feel that using the CAGR over only one period is not useful in this context. In the article in which William Bengen reported the maximum safe withdrawal rate as 4%, he gave a motivating example that the average inflation-adjusted return of a 60% stocks and 40% bonds portfolio had been almost 5.1%. Based on that average over only one period, one could conclude that an initial withdrawal rate of 5%, with later withdrawal adjusted for inflation, would always have been sustainable. However, it was not.
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Re: Social security. Take it at 62

Post by HomerJ »

Ben Mathew wrote: Sun Oct 11, 2020 8:46 pm
vitaflo wrote: Sun Oct 11, 2020 5:29 pm
Ben Mathew wrote: Sun Oct 11, 2020 4:45 pm
Wannaretireearly wrote: Sun Oct 11, 2020 4:35 pm
Normchad wrote: Sun Oct 11, 2020 10:56 am I’m planning on taking mine at 62. That’s the plan.

Now, if things are going swimmingly when I get to be that age, I might change my mind.

But listen to JoMoney. There is no one size fits every situation answer. Although people make those proclamations.

Taking it as early as possible is probably never a terrible decision. And waiting is probably never a terrible decision.
This. Bird in the hand...plus the marginal utility will be higher the earlier I take the money. Imo...
Delaying social security does not require delaying consumption. You can fund the pre-SS years with portfolio withdrawals. If the net return to waiting to collect is positive (which it often is), then you should be able to obtain a higher consumption across all your retirement years--both before and after starting SS.
This recalls a great old post by Cut-Throat on this issue: viewtopic.php?t=102609

I keep it bookmarked for a reason.
Nice post on the exact same point. I would quibble a bit on the details of the calculation, but he gets the point across well.

The way Cut-Throat sets it up, delaying SS pays out more throughout. Worth noting too that it will also be safer since the portfolio is relied upon for a smaller fraction of consumption. And it offers more longevity insurance. Good value, all told.
It's a good post, and a good plan... but you're all making a big assumption... that no changes will be made to SS over your lifetime.

Means-testing, benefit cuts, etc. are not impossible.

My wife is 8 years older than me, and will take it as soon as she can. It will certainly make it easier for me to retire with that extra money coming in...

8 years later, we'll decide if I should take it too, or wait... I'm guessing I'll take it immediately, so we can spend it before she gets too old.

Or maybe we'll use Cut-Throat's plan above... it's a good one... Instead of me taking SS and spending it, maybe we'll spend more from our investments, and actually get to spend MORE during those 8 years while I wait to get to 70.

But we'll have to see... I'll want a huge buffer before spending down my OWN money assuming that nothing will change for SS
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Re: Social security. Take it at 62 [Motley Fool article]

Post by CurlyDave »

FactualFran wrote: Tue Oct 13, 2020 6:10 pm
...The CAGRs for 30-year rolling periods are not relevant in this context, which is delaying for up to 8 years...
I do not think this is the correct analysis. While it is certainly true that the difference between the first possible age to claim SS and the last is 8 years, the SS payments (higher or lower as the case may be) extend over one's entire remaining life. Therefore the analysis must take that entire period into consideration.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by tennisplyr »

My wife and I have been taking SS since 62, not looking back. Sometimes life isn't about crunching numbers :happy
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Re: Social security. Take it at 62 [Motley Fool article]

Post by spdoublebass »

I’m not trying to sound like a broken record, I know I already chimed In up thread.

For the people who are saying they claimed at 62, are you still working? I ask only because I want to know if I’m missing something.

The one thing stopping me from claiming at 62 is the penalty for working. I want to work if I can, so there is no point of me claiming at 62. I would consider claiming at FRA instead of 70 because the penalty for working is lessened at FRA.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by ObliviousInvestor »

The 8% annual increase from delaying Social Security is not a rate of return, nor even an expected rate of return.

For an unmarried male in average health, the expected ROI from delaying from 62 all the way until 70 works out to about 1.7% real. For an unmarried female, it's about 2.9% real.

For married people, it varies dramatically depending on the difference in PIAs and ages. I provided a bit of data in a prior thread:
viewtopic.php?p=5398243#p5398243
ObliviousInvestor wrote: Tue Jul 28, 2020 8:53 am Spurred by this thread, I spent some time yesterday reworking the code from Open Social Security to calculate a breakeven ROI for various sets of inputs for married couples -- then output it all to a spreadsheet.

Here's the data dump for anybody curious:
https://articles.opensocialsecurity.com ... 7/ROI.xlsx

You'll find that the necessary ROI is often in the 4-5% (real) range for the higher earner in a couple. Or said differently, the expected rate of return from delaying from 62 to 70 is often roughly 4-5% real, for the higher earner in a married couple. Of course there are plenty of caveats.

Points of note:
1) The calculation uses the most recent SSA (2017) period life table. Many people here have longer life expectancies, which would push the expected ROI upward.
2) The calculation assumes no cuts to benefits. Obviously if a cut occurs and it applies to you, that would push the expected ROI downward.
3) All ROI figures are real (inflation-adjusted).
4) For the sake of minimizing the calculation time, I cut it off whenever a negative return got to -5%. So any -5.01% return figure is actually worse than stated. (These are basically for people waiting 67-70 when they'd be getting a spousal benefit which doesn't increase beyond FRA. So no surprise that it's not desirable to wait!)
5) "You" are assumed to be age 60 as of today. (Just went with 1960 year of birth so that FRA is 67.)
6) The calculations assume no complicating factors -- no government pension (so no WEP/GPO to worry about), no minor or adult disabled children, etc.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by vested1 »

spdoublebass wrote: Wed Oct 14, 2020 7:08 am I’m not trying to sound like a broken record, I know I already chimed In up thread.

For the people who are saying they claimed at 62, are you still working? I ask only because I want to know if I’m missing something.

The one thing stopping me from claiming at 62 is the penalty for working. I want to work if I can, so there is no point of me claiming at 62. I would consider claiming at FRA instead of 70 because the penalty for working is lessened eliminated at FRA.
Fixed that for you.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by gr7070 »

One item that often does not get addressed in break even discussions is risk and reward.

We talk like once one exceeds the break even date they've won! However, they've risked plenty upfront, guaranteed loss to win one day, and then one year of return and *hopefully* more.

One really needs to exceed the break even date significantly to justify the considerable risk.

So, while living to age 81ish means delaying was the right choice on a balance, they did risk 8 years of lost income for a relatively small amount of added income.

Much like a mortgage refi. If ones break even is 4 years and the closing costs are 4,000 they're risking 4k to win >$1 if there's a chance they move in less than 5 years. I'm not risking $4k guaranteed to win a few hundred or even a couple thousand after, say 6 years!
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Re: Social security. Take it at 62 [Motley Fool article]

Post by ObliviousInvestor »

gr7070 wrote: Wed Oct 14, 2020 8:22 am One item that often does not get addressed in break even discussions is risk and reward.
Indeed.

For many (not all) people, this is a compelling point in favor of delaying. That is, the scenarios in which delaying works out well happen to be the financially scary scenarios (i.e., those in which you live a long time -- a longer retirement). The scenarios in which delaying does not work out well (i.e., scenarios in which you die relatively early -- a shorter retirement) are those in which you are unlikely to have run out of money.

That said, relative to the population at large, Bogleheads tend to be higher earners and often spend frugally in comparison to their income. So many Bogleheads are not particularly exposed to longevity risk in the first place (i.e., they're extremely unlikely to run out of money in retirement, regardless of what Social Security decisions they make). For such people, the risk reduction that comes from delaying is not particularly relevant.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by JackoC »

ObliviousInvestor wrote: Wed Oct 14, 2020 8:26 am
gr7070 wrote: Wed Oct 14, 2020 8:22 am One item that often does not get addressed in break even discussions is risk and reward.
Indeed.

For many (not all) people, this is a compelling point in favor of delaying. That is, the scenarios in which delaying works out well happen to be the financially scary scenarios (i.e., those in which you live a long time -- a longer retirement). The scenarios in which delaying does not work out well (i.e., scenarios in which you die relatively early -- a shorter retirement) are those in which you are unlikely to have run out of money.

That said, relative to the population at large, Bogleheads tend to be higher earners and often spend frugally in comparison to their income. So many Bogleheads are not particularly exposed to longevity risk in the first place (i.e., they're extremely unlikely to run out of money in retirement, regardless of what Social Security decisions they make). For such people, the risk reduction that comes from delaying is not particularly relevant.
I agree but I think the post you responded to was saying 'risk/reward' was in favor of *not* delaying. Which maybe you realized, but again I agree with you. The 'risk' of delaying is in a kind of game playing sense, under the reasonable assumption the person has the financial means to live as they choose from 62 or FRA to 70 without SS. It's just setting up a strawman to say that people who would be in bad financial shape, relying on relatives or charity or public poverty programs from 62/FRA to 70 if they delayed SS should not delay it. Of course they shouldn't, and don't: the main reason only mid single digit % of people delay to 70 is most people can't afford to. But *if* you can afford it, the 'risk' of delaying is a game playing kind of risk. In real life people who took SS at 70 aren't sad to get a terminal diagnosis at age 71 because they lost the SS game, but because they don't want to die. Likewise the real life downside of living longer, besides possibly suffering in bad health or losing your mental faculties, is possibly outliving your other assets and non-inflation adjusted income streams. Waiting to 70 for SS helps hedge that ugly possibility. It's a 100% no brainer for us.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by Stef »

nisiprius wrote: Sun Oct 11, 2020 4:29 pm The main takeaway is that despite the barrels of ink spilled over Social Security claiming strategies, the analyses are sufficiently fragile that they can be tipped either way by changes in assumptions and projections.

It's not terribly interesting to me to know what would be the optimum claiming strategy if you knew accurately what bond interest rates, stock market returns, inflation, differences between CPI-U and CPI-W, personal life expectancy, tax brackets, solvency of Social Security and possible changes in the PIA, FRA, ARF, and FOO.
With so many assumptions, what would be the rational thing to do?
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Re: Social security. Take it at 62 [Motley Fool article]

Post by tibbitts »

Stef wrote: Wed Oct 14, 2020 10:56 am With so many assumptions, what would be the rational thing to do?
There really isn't a rational thing to do. It's like the threads going on with Roth conversions we're seeing now (which of course interact with SS and Medicare and RMDs: there are too many variables, so you just have to hope whatever path you take works out. There are of course some choices that would be just wrong, but there are a wide range of reasonable/rational choices.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by ObliviousInvestor »

Stef wrote: Wed Oct 14, 2020 10:56 am With so many assumptions, what would be the rational thing to do?
The way I see it:

1) You ultimately have to choose something.
2) No one choice is more difficult than any other choice. (It's no harder or easier to file for benefits at 67 and 3 months than at 63 and 7 months.)
3) A basic analysis doesn't take very long and is freely available.

So why not do that basic analysis?

What most people will find is that there is a range of options that are pretty decent -- in the broad ballpark where, as nisiprius has written, they're effectively as good as each other (i.e., the uncertainty involved overwhelms the difference in expected outcomes between the options in question).

They will also find that there are some options that are clearly not as good. That is, some options that, under any reasonable set of assumptions, have a considerably worse expected outcome. And the uncertainty involved isn't really all that great. (That is, in order for these options to better than the options in the above category, you need a decidedly unexpected outcome to occur.)

And some people will find that there's an option that's so much better than any other option, that there's really no question. (For instance when a restricted application is available, it's often the case that taking advantage of that option is a very clear, significant improvement over any strategy that does not involve a restricted application.)
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Re: Social security. Take it at 62 [Motley Fool article]

Post by fyre4ce »

I only suggest taking SS at 62 if either (a) you’re in below-average health, or (b) you have a financial need that can’t be met any other way. Most likely, being in (b) situation is the result of poor planning. The value of waiting until 70 isn’t just the expected payout- it’s also the more protection against running out of money in retirement. Like an insurance policy, the benefit comes from expected utility rather than expected value. But, for BH’s who, I assume, have above-average health, the expected value is there too.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by Ben Mathew »

fyre4ce wrote: Wed Oct 14, 2020 11:55 am The value of waiting until 70 isn’t just the expected payout- it’s also the more protection against running out of money in retirement.
This is a very important benefit. Delaying social security is the only way we can purchase an inflation adjusted life annuity. And the rates are very good for people with average and greater life expectancies.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by tibbitts »

fyre4ce wrote: Wed Oct 14, 2020 11:55 am ...for BH’s who, I assume, have above-average health, the expected value is there too.
Well of course... Bogleheads are above-average in every respect; just ask them and they'll tell you.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by Ben Mathew »

ObliviousInvestor wrote: Wed Oct 14, 2020 11:23 am
Stef wrote: Wed Oct 14, 2020 10:56 am With so many assumptions, what would be the rational thing to do?
The way I see it:

1) You ultimately have to choose something.
2) No one choice is more difficult than any other choice. (It's no harder or easier to file for benefits at 67 and 3 months than at 63 and 7 months.)
3) A basic analysis doesn't take very long and is freely available.

So why not do that basic analysis?

What most people will find is that there is a range of options that are pretty decent -- in the broad ballpark where, as nisiprius has written, they're effectively as good as each other (i.e., the uncertainty involved overwhelms the difference in expected outcomes between the options in question).

They will also find that there are some options that are clearly not as good. That is, some options that, under any reasonable set of assumptions, have a considerably worse expected outcome. And the uncertainty involved isn't really all that great. (That is, in order for these options to better than the options in the above category, you need a decidedly unexpected outcome to occur.)

And some people will find that there's an option that's so much better than any other option, that there's really no question. (For instance when a restricted application is available, it's often the case that taking advantage of that option is a very clear, significant improvement over any strategy that does not involve a restricted application.)
I agree with this approach. Making assumptions and calculating the answer leads to better decisions than guessing at the answer without any inputs or models.

The physicist Fermi was famous for finding approximate answers quickly for problems that takes a long time to solve exactly. According to him, approximations using imprecise inputs work better than expected even because mistakes can cancel each other. We might overestimate one thing, but underestimate something else.

I think this is relevant to financial modeling. The assumptions are almost always wrong. But some errors will cancel. You are more likely to be in the middle (overestimating some things and underestimating others) than on the ends (overestimating everything or underestimating everything).
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Re: Social security. Take it at 62 [Motley Fool article]

Post by phxjcc »

chipperd wrote: Mon Oct 12, 2020 5:25 pm I'm taking at 62. Bird in the hand....
Agreed.
It all seems very academically correct, until one receives THE diagnosis.

What these academicians don't quite appreciate is that there is a real, VERY REAL, reason that the actuaries are able to calculate that giving people who wait to 70 such a large return.

That reason: many of them WILL NOT MAKE IT TO THAT AGE.

It is math, not emotion, not theory, not politics, just math--that determines the break even point.

For a group so emotionally invested in guaranteed returns, I am amazed at the amount of rhetoric that is weighted towards "wait until 70".

And then I realized...we have not heard from the ones that WERE WAITING, but are no longer able to post that it was a mistake.

So, once again, confirmation bias rears its ugly head.

:oops:
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Re: Social security. Take it at 62 [Motley Fool article]

Post by tibbitts »

Ben Mathew wrote: Wed Oct 14, 2020 12:45 pm I agree with this approach. Making assumptions and calculating the answer leads to better decisions than guessing at the answer without any inputs or models.
I don't think anyone has or would suggest not estimating using various assumptions, if only to verify that some choices are almost certainly less likely to be successful. I just think Bogleheads struggle with the lack of precision and the degree to which success will depend on luck.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by tibbitts »

phxjcc wrote: Wed Oct 14, 2020 12:59 pm
chipperd wrote: Mon Oct 12, 2020 5:25 pm I'm taking at 62. Bird in the hand....
Agreed.
It all seems very academically correct, until one receives THE diagnosis.

What these academicians don't quite appreciate is that there is a real, VERY REAL, reason that the actuaries are able to calculate that giving people who wait to 70 such a large return.

That reason: many of them WILL NOT MAKE IT TO THAT AGE.

It is math, not emotion, not theory, not politics, just math--that determines the break even point.

For a group so emotionally invested in guaranteed returns, I am amazed at the amount of rhetoric that is weighted towards "wait until 70".

And then I realized...we have not heard from the ones that WERE WAITING, but are no longer able to post that it was a mistake.

So, once again, confirmation bias rears its ugly head.

:oops:
This is a valid point and there is undeniably survival bias here (and in general.) For a single person the math you refer to is generally even simpler than for married couples. But what mitigates claiming early for many people is that they may have ample income from other sources, and have tax incentives to spend down or convert and pay taxes on deferred balances. So the net amounts and from taking distributions earlier or later may not be as linear as the gross amounts would suggest.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by FactualFran »

CurlyDave wrote: Wed Oct 14, 2020 1:34 am I do not think this is the correct analysis. While it is certainly true that the difference between the first possible age to claim SS and the last is 8 years, the SS payments (higher or lower as the case may be) extend over one's entire remaining life. Therefore the analysis must take that entire period into consideration.
Using the return over 8 years is correct for an analysis of the two alternatives:
  • delay until age 70
  • start at age 62, until age 70 invest the benefits in an account, at age 70 make withdrawals from the investment account for the difference between the actual benefit amount and what the amount would have been by delaying until age 70.

The periodic amounts taken at age 70 need to be the same for both alternatives.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by spdoublebass »

vested1 wrote: Wed Oct 14, 2020 8:07 am
spdoublebass wrote: Wed Oct 14, 2020 7:08 am I’m not trying to sound like a broken record, I know I already chimed In up thread.

For the people who are saying they claimed at 62, are you still working? I ask only because I want to know if I’m missing something.

The one thing stopping me from claiming at 62 is the penalty for working. I want to work if I can, so there is no point of me claiming at 62. I would consider claiming at FRA instead of 70 because the penalty for working is lessened eliminated at FRA.
Fixed that for you.
Very true. Thanks!
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Re: Social security. Take it at 62 [Motley Fool article]

Post by jgman »

Eventhough I can wait, Im taking it at 62 while Im healthy and able to enjoy it.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by Tom_T »

orlandoman wrote: Sun Oct 11, 2020 11:50 am Another issue, that may affect a timing decision, for married folks:

- Say for example you would get $20,000 at age 62
- you decide to wait until age 70
- 6 yrs later at age 68 you die
- your you/spouse loses $20,000 a year ($20k x 6 =$120,000)
- in addition, you my have depleted part of your savings by waiting to collect at age 70
Yes, but... spouse would get survivor benefits, and if she's at FRA if I die at 68, she gets 100% of my age-68 benefit.

Also, if I don't take it at 62, your example doesn't take into account whether I continue to work while waiting for age 70 to arrive. That changes the analysis.

Finally, if you have life insurance covering the years up to 70, and there's no other huge expense to swallow it up (like paying off the mortgage), then that helps mitigate the risk of dying before 70. Your spouse gets all the "lost" money, plus now has a better benefit than if I claimed at 62.
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Re: Social security. Take it at 62 [Motley Fool article]

Post by willthrill81 »

Seasonal wrote: Sun Oct 11, 2020 12:03 pm My analysis: Do you need the money now?

1) Yes - then start now.

2) Not at all - wait.

3) Somewhere in the middle - use a good calculator to try to figure out how to maximize lifetime payout.
That's my take as well. The only addition is that if the investor already has more than enough saved at 62 and believes that there is a high likelihood that their portfolio will have a high return, taking SS at 62 can be justified.
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