Leaving SS on the Table: Altig, Kotlikoff, and Ye

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Tdubs
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Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by Tdubs »

I'm a little surprised at how strongly they recommend that practically everyone should wait till 70--even for a planning horizon to the "unrealistically low maximum age of 85." A fair portion of those who would not benefit from a later claiming strategy only do so because they would lose other government aid, like food stamps. Most BHers, then, should wait.

https://www.nber.org/papers/w30675
Wrench
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by Wrench »

The trouble with these types of recommendations are that every individual's situation is different. If you are going to starve if you don't take social security at 62, then you probably should take it then. If you are single and are terminally ill at age 62, take it then. Sure, if you are healthy and do not need the income to live comfortably, no question about it, take it at 70. Fortunately, that's my situation. I'm waiting. So is my wife, despite what the programs say is "optimal". We are both planning to live well past age 100, and we'll want that extra income then! :happy

Wrench
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Tdubs
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by Tdubs »

Wrench wrote: Tue Nov 22, 2022 8:31 pm The trouble with these types of recommendations are that every individual's situation is different. If you are going to starve if you don't take social security at 62, then you probably should take it then. If you are single and are terminally ill at age 62, take it then. Sure, if you are healthy and do not need the income to live comfortably, no question about it, take it at 70. Fortunately, that's my situation. I'm waiting. So is my wife, despite what the programs say is "optimal". We are both planning to live well past age 100, and we'll want that extra income then! :happy

Wrench
I think they recognize those kinds of issues in their analysis. We are used to saying on BH that every situation is different, which I think makes DIY investing more complicated than it needs to be. The message in this article is, for SS, at least, "most situations are the same--wait till 70."
Wrench
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by Wrench »

Tdubs wrote: Tue Nov 22, 2022 8:41 pm
Wrench wrote: Tue Nov 22, 2022 8:31 pm The trouble with these types of recommendations are that every individual's situation is different. If you are going to starve if you don't take social security at 62, then you probably should take it then. If you are single and are terminally ill at age 62, take it then. Sure, if you are healthy and do not need the income to live comfortably, no question about it, take it at 70. Fortunately, that's my situation. I'm waiting. So is my wife, despite what the programs say is "optimal". We are both planning to live well past age 100, and we'll want that extra income then! :happy

Wrench
I think they recognize those kinds of issues in their analysis. We are used to saying on BH that every situation is different, which I think makes DIY investing more complicated than it needs to be. The message in this article is, for SS, at least, "most situations are the same--wait till 70."
Sure, they do. But I think they underestimate the situation of a large number of household in the U.S. today. I used to believe (and say!) everyone should wait to 70 for claiming. But then I look at articles like this:
https://www.fool.com/research/average-r ... t-savings/
that state that 25% of non-retirees have no retirement savings, and the average (not median!) retirement savings of American households is $65K. It makes me wonder how realistic that advice is for many, if not most, households in this country. It certainly is true for most BHs, who skew to the wealthier. But, according to:
https://www.cbpp.org/research/social-se ... l-security
1 in 4 depend on social security for 90% or more of their income, and for a majority, it is their primary source of income. Can these households afford to wait? It would be beneficial if they could, but I'm not so sure they are able to do so without dramatically affecting their living situations before they claim. Certainly some could and should (some of my own extended family members should have waited and didn't!), but 90%? That's hard for me to believe given the above statistics.

Wrench
Mike Scott
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by Mike Scott »

Someone else here has succinctly stated that those who cannot wait must take SS and for those who can wait it is almost always is a benefit to wait. By the calculators, the high earner in a married couple should almost always wait.
Anything in between the ends of the range are fiddly bits; especially when many people are not even asking the questions.
Always remember that you are in a pretty small information bubble at bogleheads.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by michaeljc70 »

1) I think we all know that a lot of Americans make decisions that aren't in their best financial interest. Immediate gratification is one of the top reasons and claiming SS early falls into that. I think a lot of people think they paid in their whole life and want to collect ASAP.

2) I skimmed the article but wasn't going to read 33 pages. What are they assuming as a rate of return on the early SS? For example, if I start collecting at 62 and invest it (or don't take money out of my investments for expenses) in my 70/30 portfolio until age 70, will I really come out behind? Obviously the performance of my portfolio and how long I live are factors that cannot be known.

Personally, if I collect at 62 and invest the money and live to the average male life expectancy of 77 I think I will come out ahead vs. collecting at 70. Obviously the longer you live the better it is to wait until 70. I am playing it by ear...but hoping to wait until 67-70 to collect.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by smitcat »

michaeljc70 wrote: Wed Nov 23, 2022 9:24 am 1) I think we all know that a lot of Americans make decisions that aren't in their best financial interest. Immediate gratification is one of the top reasons and claiming SS early falls into that. I think a lot of people think they paid in their whole life and want to collect ASAP.

2) I skimmed the article but wasn't going to read 33 pages. What are they assuming as a rate of return on the early SS? For example, if I start collecting at 62 and invest it (or don't take money out of my investments for expenses) in my 70/30 portfolio until age 70, will I really come out behind? Obviously the performance of my portfolio and how long I live are factors that cannot be known.

Personally, if I collect at 62 and invest the money and live to the average male life expectancy of 77 I think I will come out ahead vs. collecting at 70. Obviously the longer you live the better it is to wait until 70. I am playing it by ear...but hoping to wait until 67-70 to collect.
"Personally, if I collect at 62 and invest the money and live to the average male life expectancy of 77 I think I will come out ahead vs. collecting at 70."
Perhaps and maybe not...these calculations about SS should include the metric of how many 'spendable' dollars you have over your lifetime (after taxes). Most decisions like these are affected by many things including but not limited to: spousal benefits, ACA, charitable, Roth conversions, and heirs.
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MikeWillRetire
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by MikeWillRetire »

Wrench wrote: Wed Nov 23, 2022 8:39 am
Tdubs wrote: Tue Nov 22, 2022 8:41 pm
Wrench wrote: Tue Nov 22, 2022 8:31 pm The trouble with these types of recommendations are that every individual's situation is different. If you are going to starve if you don't take social security at 62, then you probably should take it then. If you are single and are terminally ill at age 62, take it then. Sure, if you are healthy and do not need the income to live comfortably, no question about it, take it at 70. Fortunately, that's my situation. I'm waiting. So is my wife, despite what the programs say is "optimal". We are both planning to live well past age 100, and we'll want that extra income then! :happy

Wrench
I think they recognize those kinds of issues in their analysis. We are used to saying on BH that every situation is different, which I think makes DIY investing more complicated than it needs to be. The message in this article is, for SS, at least, "most situations are the same--wait till 70."
Sure, they do. But I think they underestimate the situation of a large number of household in the U.S. today. I used to believe (and say!) everyone should wait to 70 for claiming. But then I look at articles like this:
https://www.fool.com/research/average-r ... t-savings/
that state that 25% of non-retirees have no retirement savings, and the average (not median!) retirement savings of American households is $65K. It makes me wonder how realistic that advice is for many, if not most, households in this country. It certainly is true for most BHs, who skew to the wealthier. But, according to:
https://www.cbpp.org/research/social-se ... l-security
1 in 4 depend on social security for 90% or more of their income, and for a majority, it is their primary source of income. Can these households afford to wait? It would be beneficial if they could, but I'm not so sure they are able to do so without dramatically affecting their living situations before they claim. Certainly some could and should (some of my own extended family members should have waited and didn't!), but 90%? That's hard for me to believe given the above statistics.

Wrench
The only way these people can postpone taking SS to age 70 is to also postpone retirement to age 70. Not everybody can do that.
michaeljc70
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by michaeljc70 »

smitcat wrote: Wed Nov 23, 2022 9:38 am
michaeljc70 wrote: Wed Nov 23, 2022 9:24 am 1) I think we all know that a lot of Americans make decisions that aren't in their best financial interest. Immediate gratification is one of the top reasons and claiming SS early falls into that. I think a lot of people think they paid in their whole life and want to collect ASAP.

2) I skimmed the article but wasn't going to read 33 pages. What are they assuming as a rate of return on the early SS? For example, if I start collecting at 62 and invest it (or don't take money out of my investments for expenses) in my 70/30 portfolio until age 70, will I really come out behind? Obviously the performance of my portfolio and how long I live are factors that cannot be known.

Personally, if I collect at 62 and invest the money and live to the average male life expectancy of 77 I think I will come out ahead vs. collecting at 70. Obviously the longer you live the better it is to wait until 70. I am playing it by ear...but hoping to wait until 67-70 to collect.
"Personally, if I collect at 62 and invest the money and live to the average male life expectancy of 77 I think I will come out ahead vs. collecting at 70."
Perhaps and maybe not...these calculations about SS should include the metric of how many 'spendable' dollars you have over your lifetime (after taxes). Most decisions like these are affected by many things including but not limited to: spousal benefits, ACA, charitable, Roth conversions, and heirs.
Yes, there are a lot of moving parts. I don't know if I'd even call it a calculation given you don't know how long you'll live, what inflation will be, what interest rates will be and how equities will perform in that period. You don't even know what tax brackets will be if you are planning in advance. You don't know what you'll have in terms of assets. I could get an inheritance before collecting SS. I could be divorced by the time I collect SS. Of course, some of those things will be better known when it comes closer to making the decision. I am 10 years away from 62....
Dandy
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by Dandy »

really it comes down to if you are reasonably healthy and can afford to wait without undo hardship - it is better to wait. This is especially so if you are married and are the much higher earner. The beauty is if during the wait your health or need for income changes - you can file and collect.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by smitcat »

michaeljc70 wrote: Wed Nov 23, 2022 9:51 am
smitcat wrote: Wed Nov 23, 2022 9:38 am
michaeljc70 wrote: Wed Nov 23, 2022 9:24 am 1) I think we all know that a lot of Americans make decisions that aren't in their best financial interest. Immediate gratification is one of the top reasons and claiming SS early falls into that. I think a lot of people think they paid in their whole life and want to collect ASAP.

2) I skimmed the article but wasn't going to read 33 pages. What are they assuming as a rate of return on the early SS? For example, if I start collecting at 62 and invest it (or don't take money out of my investments for expenses) in my 70/30 portfolio until age 70, will I really come out behind? Obviously the performance of my portfolio and how long I live are factors that cannot be known.

Personally, if I collect at 62 and invest the money and live to the average male life expectancy of 77 I think I will come out ahead vs. collecting at 70. Obviously the longer you live the better it is to wait until 70. I am playing it by ear...but hoping to wait until 67-70 to collect.
"Personally, if I collect at 62 and invest the money and live to the average male life expectancy of 77 I think I will come out ahead vs. collecting at 70."
Perhaps and maybe not...these calculations about SS should include the metric of how many 'spendable' dollars you have over your lifetime (after taxes). Most decisions like these are affected by many things including but not limited to: spousal benefits, ACA, charitable, Roth conversions, and heirs.
Yes, there are a lot of moving parts. I don't know if I'd even call it a calculation given you don't know how long you'll live, what inflation will be, what interest rates will be and how equities will perform in that period. You don't even know what tax brackets will be if you are planning in advance. You don't know what you'll have in terms of assets. I could get an inheritance before collecting SS. I could be divorced by the time I collect SS. Of course, some of those things will be better known when it comes closer to making the decision. I am 10 years away from 62....
"I don't know if I'd even call it a calculation given you don't know how long you'll live, what inflation will be, what interest rates will be and how equities will perform in that period."
It can be very eye opening to run baseline calculations with the variables set to the most likely future scenarios.
Then make as many additional 'less likely' runs and see what may happen and keep track of how significant those results/choices may be.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by IowaFarmBoy »

As several have said, everyone's situation is different. I've played with this in our situation and a big factor in making the best decision for us is how long DW and I live relative to each other. Our situation is that I am the high earner and she will be drawing the spousal benefit of half of my PIA. Her spousal benefit doesn't increase by my waiting past FRA. When I use the various online calculators (which I presume use average life expectancies), they say I should draw around 68 or 69. My spread sheets (with 3% COLA and 3% rate of return for fixed investments) indicate the crossover point is around age 90 and even at 100 the difference is less than 10% in total benefit.

So, for now (currently I am 64), I plan to wait at least till FRA and possibly age 70. I'll make a decision based on my projections (with updated COLA and return estimates), how we are doing on Roth conversions, and how our investments are doing overall.

I don't think there is really a right or wrong decision for us between FRA and 70 based on what we know at this point in time.
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Tdubs
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by Tdubs »

michaeljc70 wrote: Wed Nov 23, 2022 9:24 am 1) I think we all know that a lot of Americans make decisions that aren't in their best financial interest. Immediate gratification is one of the top reasons and claiming SS early falls into that. I think a lot of people think they paid in their whole life and want to collect ASAP.

2) I skimmed the article but wasn't going to read 33 pages. What are they assuming as a rate of return on the early SS? For example, if I start collecting at 62 and invest it (or don't take money out of my investments for expenses) in my 70/30 portfolio until age 70, will I really come out behind? Obviously the performance of my portfolio and how long I live are factors that cannot be known.

Personally, if I collect at 62 and invest the money and live to the average male life expectancy of 77 I think I will come out ahead vs. collecting at 70. Obviously the longer you live the better it is to wait until 70. I am playing it by ear...but hoping to wait until 67-70 to collect.
1) Immediate gratification is almost always the reason given by friends who explained to me their reason to take SS earlier.

2) Rate of return is based on TIPS.

I think most people collecting at 62 will come out ahead too . . . probably. But that is risk taking of which there is very little in SS, and as you noted in point #1, most people aren't thinking of investing at 62, they are spending.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by Watty »

I did not take the time to read the article but as interest rates get higher the discount rate that would be used in making the "when to start Social Security" question also raises.

A higher discount rate can make delaying starting Social Security less advantageous.

On the Open Social Security website a year or two ago when I entered my numbers it used to show that that pretty clearly I should delay starting SS until I was near 70. Now that the discount rate is higher when I compare the optimal stragety to starting at my full retirement age(FRA) there is only a very modest advantage in delaying starting SS past my FRA. There are other considerations like taxes which the Open Social Security website understandably does not take into account so I am going to start my SS at my FRA soon.

Part of what causes starting SS at my FRA to make sense for me is that the maximum spousal benefit is based on your PIA at your full retirement age. Delaying starting Social Security a year or more past your FRA does not increase the spousal benefit(adjusted for inflation) that your spouse can get based on your account. When I started looking at when to start Social Security I did not realize this. Since my wife has already started SS and will get a larger spousal benefit when I start SS that is a big factor for us.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by michaeljc70 »

Tdubs wrote: Wed Nov 23, 2022 10:04 am
michaeljc70 wrote: Wed Nov 23, 2022 9:24 am 1) I think we all know that a lot of Americans make decisions that aren't in their best financial interest. Immediate gratification is one of the top reasons and claiming SS early falls into that. I think a lot of people think they paid in their whole life and want to collect ASAP.

2) I skimmed the article but wasn't going to read 33 pages. What are they assuming as a rate of return on the early SS? For example, if I start collecting at 62 and invest it (or don't take money out of my investments for expenses) in my 70/30 portfolio until age 70, will I really come out behind? Obviously the performance of my portfolio and how long I live are factors that cannot be known.

Personally, if I collect at 62 and invest the money and live to the average male life expectancy of 77 I think I will come out ahead vs. collecting at 70. Obviously the longer you live the better it is to wait until 70. I am playing it by ear...but hoping to wait until 67-70 to collect.
1) Immediate gratification is almost always the reason given by friends who explained to me their reason to take SS earlier.

2) Rate of return is based on TIPS.

I think most people collecting at 62 will come out ahead too . . . probably. But that is risk taking of which there is very little in SS, and as you noted in point #1, most people aren't thinking of investing at 62, they are spending.
Thanks for the TIPS answer.

I have a good friend that retired in his 40s, did not need SS at 62 but collected anyway. His parents died young was his reasoning. On top of instant gratification I think there is a fair amount of FOMO if you get hit by a bus or whatever and die on the younger side even if it isn't totally rational.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by WestCoastPhan »

michaeljc70 wrote: Wed Nov 23, 2022 9:24 am 1) I think we all know that a lot of Americans make decisions that aren't in their best financial interest. Immediate gratification is one of the top reasons and claiming SS early falls into that. I think a lot of people think they paid in their whole life and want to collect ASAP.

2) I skimmed the article but wasn't going to read 33 pages. What are they assuming as a rate of return on the early SS? For example, if I start collecting at 62 and invest it (or don't take money out of my investments for expenses) in my 70/30 portfolio until age 70, will I really come out behind? Obviously the performance of my portfolio and how long I live are factors that cannot be known.

Personally, if I collect at 62 and invest the money and live to the average male life expectancy of 77 I think I will come out ahead vs. collecting at 70. Obviously the longer you live the better it is to wait until 70. I am playing it by ear...but hoping to wait until 67-70 to collect.
Yes living longer really makes it pay off, but a 62 year old man has a life expectancy of just over 20 years, to 82 and change, not 77 (which perhaps is life expectancy at birth).
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by michaeljc70 »

WestCoastPhan wrote: Wed Nov 23, 2022 10:17 am
michaeljc70 wrote: Wed Nov 23, 2022 9:24 am 1) I think we all know that a lot of Americans make decisions that aren't in their best financial interest. Immediate gratification is one of the top reasons and claiming SS early falls into that. I think a lot of people think they paid in their whole life and want to collect ASAP.

2) I skimmed the article but wasn't going to read 33 pages. What are they assuming as a rate of return on the early SS? For example, if I start collecting at 62 and invest it (or don't take money out of my investments for expenses) in my 70/30 portfolio until age 70, will I really come out behind? Obviously the performance of my portfolio and how long I live are factors that cannot be known.

Personally, if I collect at 62 and invest the money and live to the average male life expectancy of 77 I think I will come out ahead vs. collecting at 70. Obviously the longer you live the better it is to wait until 70. I am playing it by ear...but hoping to wait until 67-70 to collect.
Yes living longer really makes it pay off, but a 62 year old man has a life expectancy of just over 20 years, to 82 and change, not 77 (which perhaps is life expectancy at birth).
Good point.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by vineviz »

Wrench wrote: Wed Nov 23, 2022 8:39 am Sure, they do. But I think they underestimate the situation of a large number of household in the U.S. today.
Providing advice is always hard, and writing it for a broad audience is even harder.

But the recommendation for the highest earner in a couple to delay Social Security until age 70 if they can is probably the most universally applicable (and true) rule of thumb in personal finance.

At the risk of being flippant, I think we can assume that virtually no one who CAN'T AFFORD to delay is going to starve themselves to delay. And anyone with a terminal illness is likely to be spending a lot of energy thinking about the ramifications of that illness and adjusting accordingly.

In other words, the people for whom the rule of thumb is a bad idea are likely to ignore it.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by secondopinion »

MikeWillRetire wrote: Wed Nov 23, 2022 9:41 am
Wrench wrote: Wed Nov 23, 2022 8:39 am
Tdubs wrote: Tue Nov 22, 2022 8:41 pm
Wrench wrote: Tue Nov 22, 2022 8:31 pm The trouble with these types of recommendations are that every individual's situation is different. If you are going to starve if you don't take social security at 62, then you probably should take it then. If you are single and are terminally ill at age 62, take it then. Sure, if you are healthy and do not need the income to live comfortably, no question about it, take it at 70. Fortunately, that's my situation. I'm waiting. So is my wife, despite what the programs say is "optimal". We are both planning to live well past age 100, and we'll want that extra income then! :happy

Wrench
I think they recognize those kinds of issues in their analysis. We are used to saying on BH that every situation is different, which I think makes DIY investing more complicated than it needs to be. The message in this article is, for SS, at least, "most situations are the same--wait till 70."
Sure, they do. But I think they underestimate the situation of a large number of household in the U.S. today. I used to believe (and say!) everyone should wait to 70 for claiming. But then I look at articles like this:
https://www.fool.com/research/average-r ... t-savings/
that state that 25% of non-retirees have no retirement savings, and the average (not median!) retirement savings of American households is $65K. It makes me wonder how realistic that advice is for many, if not most, households in this country. It certainly is true for most BHs, who skew to the wealthier. But, according to:
https://www.cbpp.org/research/social-se ... l-security
1 in 4 depend on social security for 90% or more of their income, and for a majority, it is their primary source of income. Can these households afford to wait? It would be beneficial if they could, but I'm not so sure they are able to do so without dramatically affecting their living situations before they claim. Certainly some could and should (some of my own extended family members should have waited and didn't!), but 90%? That's hard for me to believe given the above statistics.

Wrench
The only way these people can postpone taking SS to age 70 is to also postpone retirement to age 70. Not everybody can do that.
However, with SSDI in place, can that aid the blow until 67? What about unemployment benefits? There are quite a few things that can at least help delay SS for a little bit.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by bobcat2 »

Here is another link to the paper - https://kotlikoff.net/articles/
Abstract

Americans are notoriously bad savers. Large numbers are reaching old age too poor to finance
retirements that could last longer than they worked. This study uses the 2018 American Community
Survey to impute retirement ages for 2019 Survey of Consumer Finance (SCF) respondents. Next,
we run the SCF respondents through the Fiscal Analyzer (TFA) to measure the size and distribution
of forgone lifetime Social Security benefits. TFA is a life-cycle, consumption-smoothing research tool
that incorporates Social Security and all other major federal and state tax and benefit policies. The
program can optimize lifetime Social Security choices. We find that virtually all American workers
age 45 to 62 should wait beyond age 65 to collect. More than 90 percent should wait till age 70. Only
10.2 percent appear to do so. The median loss for this age group in the present value of household
lifetime discretionary spending is $182,370.
Optimizing would produce a 10.4 percent increase in
typical workers’ lifetime spending. For one in four, the lifetime spending gain exceeds 17 percent. For
one in ten, the gain exceeds 26 percent. Among the poorest fifth of 45 to 62 year-olds, the median
lifetime spending increase is 15.9 percent, with one in four gaining more than 27.4 percent.
BobK
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by michaeljc70 »

bobcat2 wrote: Wed Nov 23, 2022 10:47 am Here is another link to the paper - https://kotlikoff.net/articles/
Abstract

Americans are notoriously bad savers. Large numbers are reaching old age too poor to finance
retirements that could last longer than they worked. This study uses the 2018 American Community
Survey to impute retirement ages for 2019 Survey of Consumer Finance (SCF) respondents. Next,
we run the SCF respondents through the Fiscal Analyzer (TFA) to measure the size and distribution
of forgone lifetime Social Security benefits. TFA is a life-cycle, consumption-smoothing research tool
that incorporates Social Security and all other major federal and state tax and benefit policies. The
program can optimize lifetime Social Security choices. We find that virtually all American workers
age 45 to 62 should wait beyond age 65 to collect. More than 90 percent should wait till age 70. Only
10.2 percent appear to do so. The median loss for this age group in the present value of household
lifetime discretionary spending is $182,370.
Optimizing would produce a 10.4 percent increase in
typical workers’ lifetime spending. For one in four, the lifetime spending gain exceeds 17 percent. For
one in ten, the gain exceeds 26 percent. Among the poorest fifth of 45 to 62 year-olds, the median
lifetime spending increase is 15.9 percent, with one in four gaining more than 27.4 percent.
BobK
Can someone clarify...when they say lifetime spending, I don't think they mean lifetime spending. I think they mean spending in retirement. I find it hard to believe that delaying SS until age 70 would increase my spending over my entire life by 10%.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by jnevada »

I just started taking social security this year at 63. I am single. Between that and my pension It covers all my expenses. I did this to let my 1.5 million dollar tax deferred nest egg grow for the next 10 years. I think I might get 4 to 5 % return. Not the 8% return from social security which is 2585/month. But making an extra 40 to 60 k a year on my nest eggs and taking Social Security now seems like a no brainer. Am I missing something?
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by vineviz »

michaeljc70 wrote: Wed Nov 23, 2022 10:51 am
Can someone clarify...when they say lifetime spending, I don't think they mean lifetime spending. I think they mean spending in retirement. I find it hard to believe that delaying SS until age 70 would increase my spending over my entire life by 10%.
I haven't replicated their numbers, but it does appear that when they say "lifetime spending" that's what they mean.

Keep in mind that the percentage increase is, by far, largest for the lowest income workers. If you are in the top quintile for what they call "total lifetime resources" (but probably correlates with income) the median lifetime spending gain is more like 2%. If you are in the bottom quintile, it's more like 16%.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by enad »

Tdubs wrote: Tue Nov 22, 2022 8:06 pm I'm a little surprised at how strongly they recommend that practically everyone should wait till 70--even for a planning horizon to the "unrealistically low maximum age of 85." A fair portion of those who would not benefit from a later claiming strategy only do so because they would lose other government aid, like food stamps. Most BHers, then, should wait.

https://www.nber.org/papers/w30675
No two people have exactly the same situation, so take these kind of recommendations with a grain of salt. One's health & finances play a major factor in when to take SS benefits.
What Goes Up Must come down -- David Clayton-Thomas (1968), BST
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by bobcat2 »

michaeljc70 wrote: Wed Nov 23, 2022 10:51 am Can someone clarify...when they say lifetime spending, I don't think they mean lifetime spending. I think they mean spending in retirement. I find it hard to believe that delaying SS until age 70 would increase my spending over my entire life by 10%.
They mean lifetime spending.
Table 11 and table 12 report absolute and percentage increases in LB from SS optimization. The
results are strikingly large. Consider, for example, workers age 55 to 62. Their median lifetime benefit
increase is $181,623. And the 75th percentile value is $312,690. The corresponding median percentage
increases are 14.7 and 22.9, respectively. As discussed below, higher-resource households have larger
absolute LB gains, but far smaller percentage gains than lower-resource households. This explains
why the household with the median absolute LB gain has a relatively small percentage LB gain.

Tables 13 and 14 show absolute and percentage increases in LDS from SS optimization at different
percentile values of the increase. Clearly some households benefit far more than others, at least in
absolute terms. For example, the age 55-62, 75th-percentile gain is $256,091 – more than five times
the still quite large $51,678 gain for those experiencing the 25th largest increase. For those with the
99th percent highest gain, the amount is huge – $557,852. As for those who are retired or close to
retiring – the 63 to 69 year olds – the gains range from $20,697 at the 25th percentile to a massive
$398,213 at the 95th.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by bobcat2 »

jnevada wrote: Wed Nov 23, 2022 10:54 am I just started taking social security this year at 63. I am single. Between that and my pension It covers all my expenses. I did this to let my 1.5 million dollar tax deferred nest egg grow for the next 10 years. I think I might get 4 to 5 % return. Not the 8% return from social security which is 2585/month. But making an extra 40 to 60 k a year on my nest eggs and taking Social Security now seems like a no brainer. Am I missing something?
Yes.

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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by jnevada »

In your opinion what am I missing. I am not an absolutist. Maybe u can give me insight to why this may not work. I read and listened and researched for about a year before making this decision
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by Absolutely! »

IowaFarmBoy wrote: Wed Nov 23, 2022 10:04 am As several have said, everyone's situation is different. I've played with this in our situation and a big factor in making the best decision for us is how long DW and I live relative to each other. Our situation is that I am the high earner and she will be drawing the spousal benefit of half of my PIA. Her spousal benefit doesn't increase by my waiting past FRA. When I use the various online calculators (which I presume use average life expectancies), they say I should draw around 68 or 69. My spread sheets (with 3% COLA and 3% rate of return for fixed investments) indicate the crossover point is around age 90 and even at 100 the difference is less than 10% in total benefit.

So, for now (currently I am 64), I plan to wait at least till FRA and possibly age 70. I'll make a decision based on my projections (with updated COLA and return estimates), how we are doing on Roth conversions, and how our investments are doing overall.

I don't think there is really a right or wrong decision for us between FRA and 70 based on what we know at this point in time.
Spousal benefits are capped at half up to FRA benefit, but my understanding is survivor benefits are up to 100% of deceased SS benefit depending on age when survivor files. If surviving spouse is FRA and deceased spouse waited to 70 to file, surviving spouse would receive 100% of deceased SS. In that situation, if deceased was the higher earner, waiting past FRA to file matters.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by Watty »

jnevada wrote: Wed Nov 23, 2022 10:54 am I just started taking social security this year at 63. I am single. Between that and my pension It covers all my expenses. I did this to let my 1.5 million dollar tax deferred nest egg grow for the next 10 years. I think I might get 4 to 5 % return. Not the 8% return from social security which is 2585/month. But making an extra 40 to 60 k a year on my nest eggs and taking Social Security now seems like a no brainer. Am I missing something?
Your gender makes a big difference since the SS calculations are gender neutral but statistically a 62 year old female will likely live a lot longer than a 62 year old male.

If you play with the Open Social Security website you can see what it suggests then compare that to an alternate stragety. If you are male then starting it early might not have that big of a cost. If you are female then you might want to reconsider and look into the current rules for suspending SS then restarting it later.

With the pension and SS covering your expenses then realistically you can expect to leave a large inheritance someday so you also need to consider what the financial implications will mean to whoever will inherit the money if that is important to you.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by michaeljc70 »

jnevada wrote: Wed Nov 23, 2022 11:21 am In your opinion what am I missing. I am not an absolutist. Maybe u can give me insight to why this may not work. I read and listened and researched for about a year before making this decision
If you live past ~80 (this is subjective depending on how you calculate it) you likely would have been better off waiting to claim. In my case, at age 62 I would get around $22k/yr and at 70 I will get $37k/yr. That is a huge difference...especially if I live to my 90s like most of my grandparents. Ultimately it is a crap shoot since nobody knows when they are going to die.

As others pointed out, there can be spousal factors that don't apply to you since you are single. Taxes can be a fairly big factor too as can be the ACA.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by MikeWillRetire »

jnevada wrote: Wed Nov 23, 2022 10:54 am I just started taking social security this year at 63. I am single. Between that and my pension It covers all my expenses. I did this to let my 1.5 million dollar tax deferred nest egg grow for the next 10 years. I think I might get 4 to 5 % return. Not the 8% return from social security which is 2585/month. But making an extra 40 to 60 k a year on my nest eggs and taking Social Security now seems like a no brainer. Am I missing something?
If it covers all of your expenses, then your decision is fine. Deferring to age 70 may be optimal, but like you said, it comes at the expense of having to spend down a portion of your savings from 63 to 70.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by bsteiner »

Each case is different, but my guess is that more people should wait until 70 than do.

Ignoring spouse benefits, the tables are from a while ago, and they're based on the general population which includes smokers and persons who already have medical conditions that affect life expectancy, so someone not in either of those categories has an advantage over the general population.

Someone likely to have a lower-earning surviving spouse may want to consider the benefit to the spouse after his/her death if he/she waits.

Finally, like an annuity, but with inflation protection and without the transaction costs of a commercial annuity, waiting provides some protection against living a long time and running out of money and against having to live too meagerly for fear of running out of money.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by bobcat2 »

My (somewhat educated) guess is that the highest spending increases occur in states with a state income tax but the state does not Soc Sec benefits - I believe that's a majority of states.

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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by bobcat2 »

jnevada wrote: Wed Nov 23, 2022 11:21 am In your opinion what am I missing. I am not an absolutist. Maybe u can give me insight to why this may not work. I read and listened and researched for about a year before making this decision.
You could start by furthering your research by reading this paper. You can skip thru the sections about how they did it (how many interdependent dynamic programs they iterated across, what smoothing algorithms they used, blah blah blah). This will eliminate about half of the pages in the paper. :happy
Our bottom line? Social Security lifetime benefit optimization represents a clear means of improving the welfare of retirees. High-income retirees have the most in absolute terms to gain from maximizing their lifetime benefits. But low-income retirees can raise their living standards by a far higher percentage. Whether rich, middle-class, or poor, what’s required is simply patience – waiting to apply for the right benefits at the right time.
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Last edited by bobcat2 on Wed Nov 23, 2022 12:38 pm, edited 1 time in total.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by VanGar+Goyle »

Tdubs wrote: Tue Nov 22, 2022 8:41 pm But then I look at articles like this: https://www.fool.com/research/average-r ... t-savings/
that state that 25% of non-retirees have no retirement savings, and the average (not median!) retirement savings of American households is $65K. It makes me wonder how realistic that advice is for many, if not most, households in this country.
I always wonder how these average numbers compare to people who are age 62 or 66, who actually could start Social Security retirement benefits?
I would not expect kids under the age of 30 to have much saved up for retirement. In 2019, the median savings for households 65-75 was $266,400.
https://www.federalreserve.gov/publicat ... scf20.pdf

Also some reports only count savings accounts, or only count IRAs, or only count 401(k) accounts, or less frequently only pensions or hard assets.
The decision on when to start Social Security benefits early may depend on ALL your assets and income
( and expected lifespan, marital status, great expectations, ... ).
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by Watty »

Absolutely! wrote: Wed Nov 23, 2022 11:23 am Spousal benefits are capped at half up to FRA benefit, but my understanding is survivor benefits are up to 100% of deceased SS benefit depending on age when survivor files. If surviving spouse is FRA and deceased spouse waited to 70 to file, surviving spouse would receive 100% of deceased SS. In that situation, if deceased was the higher earner, waiting past FRA to file matters.
As I understand it that is correct.

In our case starting my starting SS at my FRA will result in us getting over $100K more in SS by the time I am 70. That will be $100K that I will not need to withdraw from my IRA and can be invested and it will take a long time to

According to the Open Social Security website my starting at my FRA will get me 98.6% of their optimal stragety and lower the expected discounted value by about $11K. At that point there can be lots of factors which and could make different starting dates a reasonable choice.

The question is not only what the optimal choice is but also what the cost is of different choice.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by smitcat »

Watty wrote: Wed Nov 23, 2022 12:35 pm
Absolutely! wrote: Wed Nov 23, 2022 11:23 am Spousal benefits are capped at half up to FRA benefit, but my understanding is survivor benefits are up to 100% of deceased SS benefit depending on age when survivor files. If surviving spouse is FRA and deceased spouse waited to 70 to file, surviving spouse would receive 100% of deceased SS. In that situation, if deceased was the higher earner, waiting past FRA to file matters.
As I understand it that is correct.

In our case starting my starting SS at my FRA will result in us getting over $100K more in SS by the time I am 70. That will be $100K that I will not need to withdraw from my IRA and can be invested and it will take a long time to

According to the Open Social Security website my starting at my FRA will get me 98.6% of their optimal stragety and lower the expected discounted value by about $11K. At that point there can be lots of factors which and could make different starting dates a reasonable choice.

The question is not only what the optimal choice is but also what the cost is of different choice.
The question is not what you get, but rather what you get to 'keep' and spend.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by nisiprius »

1) I read a bunch of stuff and did some calculations once and I just don't believe the benefits of waiting are large enough to make it out of the noise of uncertainty. Everything gets lost in assumptions of longevity, the future of the Social Security program, tax laws, gender, what annuities insurance companies are offering, what portfolio you would be drawing on if you were not receiving benefits, and how much you would be withdrawing from it, and all of the uncertainty squared if you are part of a couple.

2) Laurence Kotlikoff is involved in books and business enterprises based on calculating optimal claiming strategies, and is not a disinterested person in the discussion. He tends to be shrill about anything he is advocating, and I would not gauge the importance of anything based on how shrill he is about it.

3) Don't be like my late friend, whom I visited at age 72 or 73, when he had terminal cancer, and found out he had never gotten around to filing for Social Security. He was a college professor, intensely focussed on his students and his terraria, and somewhat otherworldly about these things. He vaguely assumed, without ever checking, that he wasn't eligible for Social Security because he was "a teacher." (It was a private college and he had a 403(b) plan, he might have been confusing something he'd heard about some public school teachers getting a state pension in lieu of Social Security). I literally stood behind his chair at his desk said I would not leave until he had logged onto the Social Security website and signed up. All of his stuff was already there from taxes and so forth. It took less than half an hour. It would have taken less than fifteen minutes if he hadn't need to call his wife to get some life details he had forgotten.

That is not an optimal claiming strategy, even though they did sent him a lump-sum retroactive payment for six months, back to start of calendar year or maybe his last birthday.

More than half seriously, even if you plan to claim later, I would not let it go until the last minute.

4) Personally, I claimed at 62 because I had lost my job, had gone six months without getting an interview--not even a civil letter of rejection--and my unemployment benefits had just run out.

5) I can't find the posting, but the late Lee Marshall, a CLU and insurance expert, who used to post in the forum under the name "mephistophles"[sic], said "Claim it when you need it."
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by billaster »

The mistake is to assume that you want to maximize lifetime spending when what you should want to maximize is lifetime utility or satisfaction.

Having the money to take a lifetime vacation at 65 might have a lot more value than an extra $10,000 when you are 90 and too infirm to enjoy a vacation. People talk a lot about delayed gratification as a virtue but when you are in your 60's "delayed" might mean "never."

For some people winning the game by collecting the most amount of money over their lifetime is their primary satisfaction and that seems rather sad.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by smitcat »

billaster wrote: Wed Nov 23, 2022 1:09 pm The mistake is to assume that you want to maximize lifetime spending when what you should want to maximize is lifetime utility or satisfaction.

Having the money to take a lifetime vacation at 65 might have a lot more value than an extra $10,000 when you are 90 and too infirm to enjoy a vacation. People talk a lot about delayed gratification as a virtue but when you are in your 60's "delayed" might mean "never."

For some people winning the game by collecting the most amount of money over their lifetime is their primary satisfaction and that seems rather sad.
You can take that vacation of a lifetime at 65 now .... because you know you have more funds coming in later from SS.
No need to delay gratification at all.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by jnevada »

Nisprius the health issue weighed heavily into taking Social Security at 63 for me. I was a health care professional my entire career. Between the ages of early 60's and beyond I saw lot of people who did not necessarily die but had ailments that slowed them down to the point they could not do the things they planned on doing at 70. I will use my social security to do things with my children when we r in good health so far and let my nest egg grow for several years. But I concede this is my plan and is not for everyone for all the variables you listed. Thanks Joe
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by trinc »

billaster wrote: Wed Nov 23, 2022 1:09 pm The mistake is to assume that you want to maximize lifetime spending when what you should want to maximize is lifetime utility or satisfaction.

Having the money to take a lifetime vacation at 65 might have a lot more value than an extra $10,000 when you are 90 and too infirm to enjoy a vacation. People talk a lot about delayed gratification as a virtue but when you are in your 60's "delayed" might mean "never."

For some people winning the game by collecting the most amount of money over their lifetime is their primary satisfaction and that seems rather sad.
This is going to be a part of my calculation of when to file. My early retirement years will be expensive ( travel ), but will greatly taper as I'm less able to fully enjoy the outdoors.

Tim
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by safari »

billaster wrote: Wed Nov 23, 2022 1:09 pm The mistake is to assume that you want to maximize lifetime spending when what you should want to maximize is lifetime utility or satisfaction.

Having the money to take a lifetime vacation at 65 might have a lot more value than an extra $10,000 when you are 90 and too infirm to enjoy a vacation. People talk a lot about delayed gratification as a virtue but when you are in your 60's "delayed" might mean "never."

For some people winning the game by collecting the most amount of money over their lifetime is their primary satisfaction and that seems rather sad.
Very well said, I completely agree with everything you wrote. To me money is not the goal by the means. I want to have money when I need it to make the most of my life, as opposed to trying to collect the most possible amount over my lifetime and then die with millions in my bank account.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by Tdubs »

For an alternative view, Brian Alleva takes a somewhat critical view of the default assumption that TIPS is THE reasonable discount rate for claiming decisions.

https://www.ssa.gov/policy/docs/ssb/v76n2/v76n2p1.html
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by theorist »

Wrench wrote: Wed Nov 23, 2022 8:39 am
Tdubs wrote: Tue Nov 22, 2022 8:41 pm
Wrench wrote: Tue Nov 22, 2022 8:31 pm The trouble with these types of recommendations are that every individual's situation is different. If you are going to starve if you don't take social security at 62, then you probably should take it then. If you are single and are terminally ill at age 62, take it then. Sure, if you are healthy and do not need the income to live comfortably, no question about it, take it at 70. Fortunately, that's my situation. I'm waiting. So is my wife, despite what the programs say is "optimal". We are both planning to live well past age 100, and we'll want that extra income then! :happy

Wrench
I think they recognize those kinds of issues in their analysis. We are used to saying on BH that every situation is different, which I think makes DIY investing more complicated than it needs to be. The message in this article is, for SS, at least, "most situations are the same--wait till 70."
Sure, they do. But I think they underestimate the situation of a large number of household in the U.S. today. I used to believe (and say!) everyone should wait to 70 for claiming. But then I look at articles like this:
https://www.fool.com/research/average-r ... t-savings/
that state that 25% of non-retirees have no retirement savings, and the average (not median!) retirement savings of American households is $65K. It makes me wonder how realistic that advice is for many, if not most, households in this country. It certainly is true for most BHs, who skew to the wealthier. But, according to:
https://www.cbpp.org/research/social-se ... l-security
1 in 4 depend on social security for 90% or more of their income, and for a majority, it is their primary source of income. Can these households afford to wait? It would be beneficial if they could, but I'm not so sure they are able to do so without dramatically affecting their living situations before they claim. Certainly some could and should (some of my own extended family members should have waited and didn't!), but 90%? That's hard for me to believe given the above statistics.

Wrench
The situation isn’t quite this bad! If you scroll down in that Motley Fool article you linked, you’ll see it was unclearly worded early on. The * average * was over 250k in 2019, skewed up by higher earners. The * median * was 65k.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by bobcat2 »

vineviz wrote: Wed Nov 23, 2022 10:28 am the recommendation for the highest earner in a couple to delay Social Security until age 70 if they can is probably the most universally applicable (and true) rule of thumb in personal finance.
I agree. :beer

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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by sailaway »

I don't know anyone IRL who talks about delaying to 70. A handful have told me they couldn't make Medicare payments without claiming. Not that they personally couldn't afford to, but that it just isn't possible. Many more have made "get my money back while I can" type comments and/or are happy to live off that and have the free time as soon as they turn 62.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by bobcat2 »

sailaway wrote: Wed Nov 23, 2022 4:20 pm I don't know anyone IRL who talks about delaying to 70.
vineviz wrote: Wed Nov 23, 2022 10:28 am Providing advice is always hard, and writing it for a broad audience is even harder.

But the recommendation for the highest earner in a couple to delay Social Security until age 70 if they can is probably the most universally applicable (and true) rule of thumb in personal finance.
vineviz is a financial planner

BobK :wink:
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by michaeljc70 »

Open social security recommends my spouse (7 years younger than I am) claim before I do. I don't doubt the validity of it, it is just sort of ironic that my spouse that has a very low PIA should collect before I do. :shock:
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by nisiprius »

bobcat2 wrote: Wed Nov 23, 2022 6:17 pm
sailaway wrote: Wed Nov 23, 2022 4:20 pm I don't know anyone IRL who talks about delaying to 70.
vineviz wrote: Wed Nov 23, 2022 10:28 am Providing advice is always hard, and writing it for a broad audience is even harder.

But the recommendation for the highest earner in a couple to delay Social Security until age 70 if they can is probably the most universally applicable (and true) rule of thumb in personal finance.
vineviz is a financial planner

BobK :wink:
I think that by "talking about delaying to 70," sailaway means people who are actually making that decision for themselves (as distinct from recommending it to others). Of course, I don't know either your age or vineviz's, or whether either of you has claimed Social Security yet.

Wikipedia reports "Laurence Kotlikoff: Born January 30, 1951 (age 71)" but I don't know when he claimed.
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