Argument for taking social security before 70. Comments?

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ObliviousInvestor
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Re: Argument for taking social security before 70. Comments?

Post by ObliviousInvestor » Thu Sep 13, 2018 3:42 pm

galeno wrote:
Thu Sep 13, 2018 3:13 pm
I played around with this: https://opensocialsecurity.com/

1. Wife and I are 61. Assumed $2000 PIA for me and $1000 PIA for spouse. PIA for both is 66 years 6 months.

Advice: I take SS at 70 years 0 months. Wife takes SS at 62 years 1 month.

NPV of SS for both is $609,934.


2. Wife and I are 61. Assumed $2000 PIA for me and $0 PIA for spouse. PIA for me is 66 years 6 months.

Advice: I take SS at 68 years 6 months. Wife takes SS at 68 years 10 months.

NPV of SS for both is $570,272.
Yep, there's a big difference when the lower earner has no retirement benefit at all, because the cost of waiting is much higher for the higher earner.

About the only time I've seen it make sense for the high earner to claim ASAP at 62 is when the lower earner a) has no retirement benefit and b) is several years older. (For example if higher earner is 8 years younger, waiting until 70 would mean the lower earner can't claim spousal until 78, which is 11-12 years of full spousal benefits completely missed.)
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Re: Argument for taking social security before 70. Comments?

Post by f35phixer » Thu Sep 13, 2018 4:07 pm

lots of + and - on the taking of when and then :oops:

Here's my plan, take TSP monthly's until FRA 66/7 months. My FIDO rollover continues to grow and grow! We both have great pensions to live off. Really can live off them.... DW will take when SHE decides :D I married a sugar mama!

Here's the question, Ok you had parents that lived to 122 and if you took SS at 62 you'd lose SO much money.

So all you retired (70-90 yr old) people, honest answers, How much are your traveling, entertaining, going out to the theaters etc etc that you REALLY REALLY need that 3400 vise 2600 monthly check? Once you get old you start to slow down i get it, I plan to travel the world and see as much as i can, then age will take over and then its time to see the USofA.

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Re: Argument for taking social security before 70. Comments?

Post by #Cruncher » Thu Sep 13, 2018 4:36 pm

grabiner wrote:
Wed Sep 12, 2018 8:43 pm
Here's how I estimate the break-even. It's easiest to do one year at a time. Suppose that you have enough money to cover this year's Social Security. You can ... take Social Security now and buy a TIPS ladder which will cover the future years' payments. The break-even is the point where the TIPS ladder runs out.

If you are 66 and your benefit is $20,000, waiting one year will increase your benefit to $21,600 (all numbers growing with inflation). If you spend $20,000 to buy TIPS, ... Current yields on a TIPS portfolio with a 7-year duration are 0.85%, which is enough to make the ladder last 13.3 years, ... That is to age 80.
We can get David's result with the Excel NPER function:
13.3 = NPER(0.85%, 1600, -20000, 0, 0)

The following table uses this function to show the breakeven age for each of eight one year delays from 62 to 63, 63 to 64, …, & 69 to 70.

Code: Select all

Row   Col A        Col B     Col C
  1    Born         1952
  2     NRA       66.000
  3    Rate       0.850%    1 Year
  4  Spouse       0.000%     Delay
  5   Start      Pct PIA    BE Age
  6      62      75.000%
  7      63      80.000%      79.1
  8      64      86.667%      76.7
  9      65      93.333%      78.8
 10      66     100.000%      81.0
 11      67     108.000%      80.3 = 67 + 13.3
 12      68     116.000%      82.4
 13      69     124.000%      84.5
 14      70     132.000%      86.7 = 70 + 16.7
The table shows the results for a single person with a Normal Retirement Age (NRA) of 66 and a 0.85% discount rate. Do the following to see the results for a different NRA or discount rate or for a couple like the one in the original post with a fixed spousal benefit.
  • Select All, Copy, and Paste [ * ] the following at cell A1 of a blank Excel sheet.

    Code: Select all

    Born	1952
    NRA	=MIN(67,66+MAX(0,B1-1954)/6)
    Rate	0.0085
    Spouse	0
    Start	Pct PIA	BE Age
    62	=IF($A6<B$2,1-(5/900)*MIN(36,(B$2-$A6)*12)-(5/1200)*MAX(0,(B$2-$A6)*12-36),1+(8/1200)*($A6-B$2)*12)+B$4
    63	=IF($A7<B$2,1-(5/900)*MIN(36,(B$2-$A7)*12)-(5/1200)*MAX(0,(B$2-$A7)*12-36),1+(8/1200)*($A7-B$2)*12)+B$4	=NPER((1+B$3)^(A7-A6)-1,B7-B6,-B6,0,0)*(A7-A6)+A7
    =2*A7-A6	=IF($A8<B$2,1-(5/900)*MIN(36,(B$2-$A8)*12)-(5/1200)*MAX(0,(B$2-$A8)*12-36),1+(8/1200)*($A8-B$2)*12)+B$4	=NPER((1+B$3)^(A8-A7)-1,B8-B7,-B7,0,0)*(A8-A7)+A8
  • Format for readability.
  • Copy row 8 down to row 14.
  • Enter birth year in cell B1 and discount rate in cell B3.
  • If the spouse will receive a fixed percent of the worker's PIA whenever the worker starts benefits (as in the original post), enter the percent in cell B4.

BigoteGato wrote:
Thu Sep 13, 2018 2:29 pm
Grabiner - I find your reasoning clear and compelling. Let's see how it may apply to the OP's situation of a high and a low wage earner. Assume the low wage earner would get $0 SS, the high would get $20K as in your example. If high earner files, then low earner can get $10K (spousal benefit). So your examples are modified to include buying $30K in TIPS, not $20K. Now your 66 yrs old's break-even age becomes 50% higher - 20.25 yrs, or 86.5. The 69 yr old's break-even age is pushed to 95.25.
That's not how the math works, BigoteGato. Apparently you're using Grabiner's case with a 0% rate of return. This simplifies the calculation considerably.

Code: Select all

BE Years = Forsaken amt / extra amt
   12.5  = 20000        / 1600       single 66 to 67
   15.5  = 24800        / 1600       single 69 to 70

   18.75 = 30000        / 1600       with spouse 66 to 67
   21.75 = 34800        / 1600       with spouse 69 to 70
This can also be seen in a modification of the table above:

Code: Select all

Row   Col A        Col B      Col C
  1    Born         1952
  2     NRA       66.000
  3    Rate       0.000%     1 Year
  4  Spouse      50.000%      Delay
  5   Start      Pct PIA     BE Age
  6      62     125.000%
  7      63     130.000%      88.00
  8      64     136.667%      83.50
  9      65     143.333%      85.50
 10      66     150.000%      87.50
 11      67     158.000%      85.75 = 18.75 + 67
 12      68     166.000%      87.75
 13      69     174.000%      89.75
 14      70     182.000%      91.75 = 21.75 + 70
* If you have problems pasting, try "Paste Special" and "Text".

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Re: Argument for taking social security before 70. Comments?

Post by ObliviousInvestor » Fri Sep 14, 2018 9:39 am

Somebody asked via email if I could try again to explain what I'm saying about life expectancy assumptions. So here's one more attempt. Apologies to anybody who's getting sick of this topic.

There is no problem with doing analyses that assume you (and your spouse, if married) die at a specific age.

The problem is with the following plan of action (which I see often -- you can even see it in this thread):
1) A married person looks up their life expectancy and their spouse's life expectancy from a credible source,
2) The person then performs an analysis (whether in an online calculator or a DIY spreadsheet) assuming that each person dies at their lie expectancy,
3) The person thinks that they have modeled the "expected outcome."

Steps 1 and 2 are fine. Step 3 is the problem, because what the person has modeled is significantly different from the expected outcome, even though they used accurate individual life expectancies. And, in many cases, that difference will be large enough to sway the recommended strategy quite a bit.

If you want to model the expected outcome, you must use joint life expectancies.* There's no other way. (But again, this doesn't mean that other analyses shouldn't be done. It is informative to also do the analysis using an assortment of death age assumptions.)

*And as stated up-thread, the first-to-die joint life expectancy is shorter than the shorter of the two individual life expectancies. And the second-to-die joint life expectancy is longer than the longer of the two individual life expectancies.
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Re: Argument for taking social security before 70. Comments?

Post by #Cruncher » Fri Sep 14, 2018 11:35 am

ObliviousInvestor wrote:
Fri Sep 14, 2018 9:39 am
The problem is with the following plan of action (which I see often -- you can even see it in this thread):
  1. A married person looks up their life expectancy and their spouse's life expectancy from a credible source,
  2. The person then performs an analysis (whether in an online calculator or a DIY spreadsheet) assuming that each person dies at their lie expectancy,
  3. The person thinks that they have modeled the "expected outcome."
Steps 1 and 2 are fine. Step 3 is the problem, because what the person has modeled is significantly different from the expected outcome, even though they used accurate individual life expectancies
This can be illustrated with an example.
  • Man and woman both exactly age 66 with mortality probabilities given by the SSA 2015 Period Life Table [1]. According to the table the man's life expectancy is 17.09 years and the woman's is 19.55.
  • Begin collecting SS at age 66, their Normal Retirement Age (NRA): $1,000 / mo for the man and $500 /mo spousal for the woman. So while both are alive, they'll collect $1,500; and while only one of them is alive, the survivor will collect $1,000.
  • For simplicity, assume a 0% discount rate.
If the man were single, we'd get the same estimated total value of the SS benefits whether we use his life expectancy or compute the survival weighted benefit (using my longevity estimator [2] [3]).
Single $1,000 / mo while alive

Code: Select all

$205,080 = 1000 * 12 * 17.09
$205,074 = actual survival weighted [2]
But for the married couple the survival weighted benefit is significantly more.
Married $1,500 / mo while both alive; $1,000 / mo while only one alive

Code: Select all

$307,620 = 1500 * 12 *  17.09
  29,520 = 1000 * 12 * (19.55 - 17.09)
--------
$337,140 = total
$359,515 = actual survival weighted [2]

  1. This is the default mortality table both for my longevity estimator and for ObliviousInvestor's Open Social Security Calculator.
  2. To see how the survival weighted benefit is calculated, download and open my longevity estimator; and then
    • Enter 66 in cells I3 & I4
    • Unhide row 8 to see life expectancies (male & female will be same as SSA table)
    • Unhide columns N:S to see present value section and enter following

      Code: Select all

      Row       Col N      Col O
        1      $1,000     $1,000   Single/Joint monthly - only Pers 1 alive
        2                 $1,000   Joint monthly - only Pers 2 alive
        3                 $1,500   Joint monthly - Both alive
        4           0%        0%   Discount rate
    • Read present values in cells N5 & O5:

      Code: Select all

        5     $205,074  $359,515    Present Value
  3. The Single values are the same only for a 0% discount rate. As shown in the table below higher discount rates depress the survival weighted present values more than they do the values based on life expectancy (for married as well as single).

    Code: Select all

    Both amount        1,500 
    Either amount      1,000 
    Man   Life Exp     17.09
    Woman Life Exp     19.55
    Discount            0%        1%        2%        3%
                     -------   -------   -------   -------
    Single  - LE     205,080   187,654   172,265   158,636 
    Single  - Wtd    205,074   185,032   167,967   153,341 
    Single  - Diff        (6)   (2,622)   (4,298)   (5,295)
    
    Married - LE     337,140   305,960   278,736   254,882 
    Married - Wtd    359,515   320,870   288,370   260,843 
    Married - Diff    22,375    14,910     9,634     5,961
    Example calculation based on life expectancy for 1% discount rate using Excel PV function:

    Code: Select all

    187,654 = -PV(1%, 17.09, 12 * 1000, 0, 0)
    305,960 = -PV(1%, 17.09, 12 * 1500, -PV(1%, 19.55 - 17.09, 12 * 1000, 0, 0), 0)
Edited 3:50 PM to add footnote 3
Edited 7:00 PM to simplify formula in footnote 3
Edited 11:20 AM 9/15/2018 to add the following:
ObliviousInvestor in same post wrote:If you want to model the expected outcome, you must use joint life expectancies.
From cells H8 and I8 on the Alive sheet of my longevity estimator for the couple age 66 I get the expectancy of both being alive as 13.369 years and either being alive as 23.275. Using these we do get the same present value as the survival weighted present value from the spreadsheet (at least for a 0% discount rate):

Code: Select all

Both amount        1,500 
Either amount      1,000 
Both Life Exp     13.369
Either Life Exp   23.275
Discount rate       0%        1%        2%        3%
                 -------   -------   -------   -------
Married - LE     359,514   322,813   291,352   264,251 
Married - Wtd    359,515   320,870   288,370   260,843 
Married - Diff         1    (1,943)   (2,982)   (3,408)
Example calculation with 0% and 1% discount rate:

Code: Select all

359,514 =  12 * 1500 * 13.369 + 12 * 1000 * (23.275 - 13.369)
322,813 = -PV(1%, 13.369, 12 * 1500, -PV(1%, 23.275 - 13.369, 12 * 1000, 0, 0), 0)
Last edited by #Cruncher on Sat Sep 15, 2018 10:20 am, edited 4 times in total.

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Re: Argument for taking social security before 70. Comments?

Post by letsgobobby » Fri Sep 14, 2018 1:21 pm

We're less interested in squeezing every dollar out of the SSA, and more interested in using the longevity insurance feature of the program. Thus it makes sense for me as the much higher earner to delay my benefit as long as I am in average or better health, and for my spouse to take hers somewhere between 62 and 67. This approach might also maximize our total dollars from SS, but that would be a byproduct, not the goal of the strategy.

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Re: Argument for taking social security before 70. Comments?

Post by willthrill81 » Fri Sep 14, 2018 3:23 pm

letsgobobby wrote:
Fri Sep 14, 2018 1:21 pm
We're less interested in squeezing every dollar out of the SSA, and more interested in using the longevity insurance feature of the program. Thus it makes sense for me as the much higher earner to delay my benefit as long as I am in average or better health, and for my spouse to take hers somewhere between 62 and 67. This approach might also maximize our total dollars from SS, but that would be a byproduct, not the goal of the strategy.
That's our approach as well (i.e. SS as longevity insurance), which seems even more important for us than most since I plan on retiring no later than age 55. If we encounter a really poor SoR, we may be very thankful that SS benefits, even if reduced by the projected 25%, at age 70 for me and 69 for my DW would likely cover our essential spending needs, apart from some unforeseen major expense like LTC.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Argument for taking social security before 70. Comments?

Post by BigoteGato » Mon Sep 17, 2018 4:46 pm

#Cruncher wrote:
Thu Sep 13, 2018 4:36 pm
BigoteGato wrote:
Thu Sep 13, 2018 2:29 pm
Grabiner - I find your reasoning clear and compelling. Let's see how it may apply to the OP's situation of a high and a low wage earner. Assume the low wage earner would get $0 SS, the high would get $20K as in your example. If high earner files, then low earner can get $10K (spousal benefit). So your examples are modified to include buying $30K in TIPS, not $20K. Now your 66 yrs old's break-even age becomes 50% higher - 20.25 yrs, or 86.5. The 69 yr old's break-even age is pushed to 95.25.
That's not how the math works, BigoteGato. Apparently you're using Grabiner's case with a 0% rate of return. This simplifies the calculation considerably.
Cruncher - I wasn't using a spreadsheet, just simply pointing out that in Grabiner's example, if instead of investing $20K in TIPS one invested 50% more, the break even would extend out by 50% as well. But I will look at your code to understand your point.
BG

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Re: Argument for taking social security before 70. Comments?

Post by randomguy » Mon Sep 17, 2018 7:09 pm

willthrill81 wrote:
Fri Sep 14, 2018 3:23 pm
letsgobobby wrote:
Fri Sep 14, 2018 1:21 pm
We're less interested in squeezing every dollar out of the SSA, and more interested in using the longevity insurance feature of the program. Thus it makes sense for me as the much higher earner to delay my benefit as long as I am in average or better health, and for my spouse to take hers somewhere between 62 and 67. This approach might also maximize our total dollars from SS, but that would be a byproduct, not the goal of the strategy.
That's our approach as well (i.e. SS as longevity insurance), which seems even more important for us than most since I plan on retiring no later than age 55. If we encounter a really poor SoR, we may be very thankful that SS benefits, even if reduced by the projected 25%, at age 70 for me and 69 for my DW would likely cover our essential spending needs, apart from some unforeseen major expense like LTC.
You could make the reverse arguement. Taking SS lowers your SWR and reduces your SOR since you need less money from the portfolio over those critical first years.

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Re: Argument for taking social security before 70. Comments?

Post by willthrill81 » Mon Sep 17, 2018 8:41 pm

randomguy wrote:
Mon Sep 17, 2018 7:09 pm
willthrill81 wrote:
Fri Sep 14, 2018 3:23 pm
letsgobobby wrote:
Fri Sep 14, 2018 1:21 pm
We're less interested in squeezing every dollar out of the SSA, and more interested in using the longevity insurance feature of the program. Thus it makes sense for me as the much higher earner to delay my benefit as long as I am in average or better health, and for my spouse to take hers somewhere between 62 and 67. This approach might also maximize our total dollars from SS, but that would be a byproduct, not the goal of the strategy.
That's our approach as well (i.e. SS as longevity insurance), which seems even more important for us than most since I plan on retiring no later than age 55. If we encounter a really poor SoR, we may be very thankful that SS benefits, even if reduced by the projected 25%, at age 70 for me and 69 for my DW would likely cover our essential spending needs, apart from some unforeseen major expense like LTC.
You could make the reverse arguement. Taking SS lowers your SWR and reduces your SOR since you need less money from the portfolio over those critical first years.
True, but being able to cover all of our essential spending from SS at age 70 pretty much makes SoR a nonissue for us.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Argument for taking social security before 70. Comments?

Post by smitcat » Tue Sep 18, 2018 8:31 am

randomguy wrote:
Mon Sep 17, 2018 7:09 pm
willthrill81 wrote:
Fri Sep 14, 2018 3:23 pm
letsgobobby wrote:
Fri Sep 14, 2018 1:21 pm
We're less interested in squeezing every dollar out of the SSA, and more interested in using the longevity insurance feature of the program. Thus it makes sense for me as the much higher earner to delay my benefit as long as I am in average or better health, and for my spouse to take hers somewhere between 62 and 67. This approach might also maximize our total dollars from SS, but that would be a byproduct, not the goal of the strategy.
That's our approach as well (i.e. SS as longevity insurance), which seems even more important for us than most since I plan on retiring no later than age 55. If we encounter a really poor SoR, we may be very thankful that SS benefits, even if reduced by the projected 25%, at age 70 for me and 69 for my DW would likely cover our essential spending needs, apart from some unforeseen major expense like LTC.
You could make the reverse arguement. Taking SS lowers your SWR and reduces your SOR since you need less money from the portfolio over those critical first years.
Taking SS early causes a number of issiues not directly related to the funds recieved when you take them early:
- limiting Roth conversions
- limiting survivor benifits (especially valuable with age differences)
- Ability to lower taxes after 70
- Ability to lower taxes as a single filer later on
- value of estate (if any) for heirs

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Re: Argument for taking social security before 70. Comments?

Post by JW-Retired » Tue Sep 18, 2018 10:42 am

smitcat wrote:
Tue Sep 18, 2018 8:31 am
Taking SS early causes a number of issues not directly related to the funds received when you take them early:
- limiting Roth conversions
- limiting survivor benifits (especially valuable with age differences)
- Ability to lower taxes after 70
- Ability to lower taxes as a single filer later on
- value of estate (if any) for heirs
I would add one more issue to this. SS is a monthly stipend that you can't burn up to nothing by foolish spending.
Some folks who retire on a large nest egg just can't limit their spending to something that will last. Now they or the survivor are trying to get by on minimal early SS.

Even with the long bull market this seems to be pretty common.
JW
Retired at Last

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