Social Security -- Take it at 62, 67 or 70

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JoeRetire
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Re: Social Security -- Take it at 62, 67 or 70

Post by JoeRetire » Fri Aug 09, 2019 11:44 am

mancich wrote:
Fri Aug 09, 2019 7:14 am
What if one were to take the benefits starting at 62 (assuming they don't need the SS to live on), and invest it at a conservative rate of return (say 4%)? Would the combination of the lower payment invested for 8 years (age 62 through 69), plus the out years (age 70 to death, whenever that is) result in a higher overall amount, vs. waiting until 70 to start taking the money (and then using it or investing it)? Lot of variables to wrap one's head around...
Not likely.

see:
https://www.kitces.com/blog/how-delayin ... y-can-buy/

"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!"

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willthrill81
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Re: Social Security -- Take it at 62, 67 or 70

Post by willthrill81 » Fri Aug 09, 2019 11:45 am

JoeRetire wrote:
Fri Aug 09, 2019 11:36 am
celia wrote:
Thu Aug 08, 2019 10:11 pm
JoeRetire wrote:
Wed Aug 07, 2019 6:04 am
sixtyforty wrote:
Thu Aug 01, 2019 10:08 am
Seems like the absence or occurrence of a bear market early in retirement might affect the decision on taking SS. If one retires at 62, but plans on taking SS at 67 and a bear market hits at 63, taking SS at 63 may reduce the bad sequence of returns on a portfolio, which as we have all seen can significantly reduce that longevity of one's portfolio.
How does taking SS at 63 reduce the bad sequence of returns on a portfolio? The sequence happens without regard to SS.
If you take SS at 63 instead of spending from your portfolio, your portfolio has time to rebound. Let's assume you need $x per month for living expenses. If you take that from your portfolio while the markets are down, you have to sell more shares each month than you normally would. You will also be taking a larger percentage of your portfolio than you normally would. This is critical if 4% of your portfolio is now being withdrawn each year when you are 63, but not as important if your portfolio is large enough that you are only spending 1-2% of your portfolio.
So something bad about sequence of returns happens at 63, but not at seven years later? And you are willing to give up the extra income starting at 70, and perhaps more for a surviving spouse, so that you might need to spend a little less of "your money" now?

I'm not seeing that as a convincing argument for taking SS benefits early.

And remember, if somehow you see a "bad sequence of returns" starting at any point in time, you can always change your mind if your plan was to delay. You can't do the same if you start your benefits early while anticipating that a "bad sequence of returns" might occur.
I agree. There is potentially substantial value in the option of being able to claim SS benefits anywhere between age 62 and 70, depending on how your portfolio performs during that 8 year period. But if your portfolio performs very well from age 62 to 70, you're very likely to come out significantly ahead by deferring benefits to age 70. Exercising the option of claiming early preemptively appears to be very sub-optimal.
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JoeRetire
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Re: Social Security -- Take it at 62, 67 or 70

Post by JoeRetire » Fri Aug 09, 2019 11:50 am

tibbitts wrote:
Thu Aug 08, 2019 11:03 pm
To me, deciding to defer at 62 today is especially difficult because the benefit reductions already provided for in roughly 15 years seem like a best-case scenario.
You think that's a best case scenario?

You see no chance that Congress will once again revise the SS rules (as they always have) in order to avert reductions? You think it's more likely that reductions will be worse or sooner?

I'm not seeing it...

JoeRetire
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Re: Social Security -- Take it at 62, 67 or 70

Post by JoeRetire » Fri Aug 09, 2019 11:54 am

HomerJ wrote:
Fri Aug 09, 2019 8:50 am
But the government then covers you if an insurance company fails (under certain limits). There's another fall back plan, another layer of security with an insurance company.

It's true nothing is 100% risk-free.

But Congress can change the SS contract at any time.
So you are concerned that Congress can "change the SS contract at any time", but aren't worried that Congress could change the backing of failed insurance companies at any time?

Okay.

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willthrill81
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Re: Social Security -- Take it at 62, 67 or 70

Post by willthrill81 » Fri Aug 09, 2019 11:56 am

JoeRetire wrote:
Fri Aug 09, 2019 11:50 am
tibbitts wrote:
Thu Aug 08, 2019 11:03 pm
To me, deciding to defer at 62 today is especially difficult because the benefit reductions already provided for in roughly 15 years seem like a best-case scenario.
You think that's a best case scenario?

You see no chance that Congress will once again revise the SS rules (as they always have) in order to avert reductions? You think it's more likely that reductions will be worse or sooner?

I'm not seeing it...
Nonetheless, the fact that under current law benefits will be reduced by around 25% in ~15 years does impact the cost-benefit analysis of claiming benefits early. But how much it impacts that analysis involves conjecture about legislative changes, and such discussion is forbidden on the forum.
“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

JoeRetire
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Re: Social Security -- Take it at 62, 67 or 70

Post by JoeRetire » Fri Aug 09, 2019 11:57 am

orlandoman wrote:
Fri Aug 09, 2019 10:36 am
Your spouse now has $144,000 less assets for their use. Should you not consider this in your decision to postpone SS ... I have not seen anyone mention/address this possibility?
:confused

Virtually every thread about delaying benefits mentions/addresses this! And every tool addresses this!

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Re: Social Security -- Take it at 62, 67 or 70

Post by orlandoman » Fri Aug 09, 2019 12:01 pm

JoeRetire wrote:
Fri Aug 09, 2019 11:41 am
bltn wrote:
Fri Aug 09, 2019 5:31 am
2. Based on likelihood of health limitations as we age, most of us will be much more active and able to use added income in our 60 s than in our 70 s. For example, one is more likely to travel in his sixties. To limit our income during a period of increased vitality might be a mistake.
Why would anyone limit their income?

Wouldn't you be confident spending more now, knowing that you have a larger risk-free, inflation-protected income stream headed your way starting at 70 for the rest of your life? Particularly since you seem to assume you'll need less income in your 70's?
Risk free? With SS Trust Fund saying based on current trends, payments will need to be reduced by 20-25% around 2033-2034 if current trends continue without changes to current law.
"Don't Believe Everything You Think"

JoeRetire
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Re: Social Security -- Take it at 62, 67 or 70

Post by JoeRetire » Fri Aug 09, 2019 12:04 pm

willthrill81 wrote:
Fri Aug 09, 2019 11:56 am
Nonetheless, the fact that under current law benefits will be reduced by around 25% in ~15 years does impact the cost-benefit analysis of claiming benefits early. But how much it impacts that analysis involves conjecture about legislative changes, and such discussion is forbidden on the forum.
No forbidden conjecture is needed.

You can assume whatever reduction percent you like, starting at whatever date you like, using good tools like https://opensocialsecurity.com/ or https://maximizemysocialsecurity.com/ and do your cost-benefit analysis.

If you do, I suspect you'll see how little your analysis would change - even in the extremely unlikely scenario that Congress does nothing and watches across the board reductions happen per current rules.

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Re: Social Security -- Take it at 62, 67 or 70

Post by JoeRetire » Fri Aug 09, 2019 12:06 pm

orlandoman wrote:
Fri Aug 09, 2019 12:01 pm
JoeRetire wrote:
Fri Aug 09, 2019 11:41 am
bltn wrote:
Fri Aug 09, 2019 5:31 am
2. Based on likelihood of health limitations as we age, most of us will be much more active and able to use added income in our 60 s than in our 70 s. For example, one is more likely to travel in his sixties. To limit our income during a period of increased vitality might be a mistake.
Why would anyone limit their income?

Wouldn't you be confident spending more now, knowing that you have a larger risk-free, inflation-protected income stream headed your way starting at 70 for the rest of your life? Particularly since you seem to assume you'll need less income in your 70's?
Risk free? With SS Trust Fund saying based on current trends, payments will need to be reduced by 20-25% around 2033-2034 if current trends continue without changes to current law.
Yup. In the unlikely event that rules aren't changed, would you rather have a 20-25% reduction of a smaller amount for the rest of you and your spouse's lifetimes, or a 20-25% reduction of a larger amount for the rest of your life?

(That's not really what the term "risk-free" means in this context.)

orlandoman
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Re: Social Security -- Take it at 62, 67 or 70

Post by orlandoman » Fri Aug 09, 2019 12:09 pm

JoeRetire wrote:
Fri Aug 09, 2019 11:57 am
orlandoman wrote:
Fri Aug 09, 2019 10:36 am
Your spouse now has $144,000 less assets for their use. Should you not consider this in your decision to postpone SS ... I have not seen anyone mention/address this possibility?
:confused

Virtually every thread about delaying benefits mentions/addresses this! And every tool addresses this!
My point was that if you look at most of the discussion threads, including this one about the benefits of delaying claiming age, I do not remember it be widely brought up, nor do I remember a anyone suggesting how this potential loss should be figured into a claiming age decision (not how much more you may receve by waiting)?
"Don't Believe Everything You Think"

JoeRetire
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Re: Social Security -- Take it at 62, 67 or 70

Post by JoeRetire » Fri Aug 09, 2019 12:14 pm

orlandoman wrote:
Fri Aug 09, 2019 12:09 pm
JoeRetire wrote:
Fri Aug 09, 2019 11:57 am
orlandoman wrote:
Fri Aug 09, 2019 10:36 am
Your spouse now has $144,000 less assets for their use. Should you not consider this in your decision to postpone SS ... I have not seen anyone mention/address this possibility?
:confused

Virtually every thread about delaying benefits mentions/addresses this! And every tool addresses this!
My point was that if you look at most of the discussion threads, including this one about the benefits of delaying claiming age, I do not remember it be widely brought up, nor do I remember a anyone suggesting how this potential loss should be figured into a claiming age decision (not how much more you may receve by waiting)?
Sorry, I think you just need to dig in more and you will see it.

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HomerJ
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Re: Social Security -- Take it at 62, 67 or 70

Post by HomerJ » Fri Aug 09, 2019 12:30 pm

JoeRetire wrote:
Fri Aug 09, 2019 11:41 am
Wouldn't you be confident spending more now, knowing that you have a larger risk-free, inflation-protected income stream headed your way starting at 70 for the rest of your life?
Yes I would, if it actually was risk-free.

Are you going to pay me the money I'm supposed to get, if something changes?
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JoeRetire
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Re: Social Security -- Take it at 62, 67 or 70

Post by JoeRetire » Fri Aug 09, 2019 12:31 pm

HomerJ wrote:
Fri Aug 09, 2019 12:30 pm
JoeRetire wrote:
Fri Aug 09, 2019 11:41 am
Wouldn't you be confident spending more now, knowing that you have a larger risk-free, inflation-protected income stream headed your way starting at 70 for the rest of your life?
Yes I would, if it actually was risk-free.

Are you going to pay me the money I'm supposed to get, if something changes?
If it changes, it will change even if you claim now rather than delaying.

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Re: Social Security -- Take it at 62, 67 or 70

Post by FactualFran » Fri Aug 09, 2019 1:26 pm

mancich wrote:
Fri Aug 09, 2019 7:14 am
What if one were to take the benefits starting at 62 (assuming they don't need the SS to live on), and invest it at a conservative rate of return (say 4%)? Would the combination of the lower payment invested for 8 years (age 62 through 69), plus the out years (age 70 to death, whenever that is) result in a higher overall amount, vs. waiting until 70 to start taking the money (and then using it or investing it)? Lot of variables to wrap one's head around...
I have done that type of calculation. I have used inflation-adjusted rates or return because the Social Security retirement benefit is inflation-adjusted.

4% looks like a conservative nominal return rather than an inflation-adjusted return. A conservative inflation-adjusted return would be 2%. Using 2% as a constant rate of return, investing the age 62 benefit amount until age 70 would result in a balance from which withdrawals of the difference between age 70 and age 62 benefits amounts could be made for 13 years.

That is an optimistic result because the rate of return will almost certainly not be constant. A varying rate of return whose average is 2% can cause the withdrawals being supported for fewer years.

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Re: Social Security -- Take it at 62, 67 or 70

Post by RustyShackleford » Fri Aug 09, 2019 1:39 pm

Big Dog wrote:
Fri Aug 09, 2019 11:33 am
The question then becomes, what is the appropriate discount rate?
I was pleased to see that opensocialsecurity has this as an input (under "advanced"). What'd be super-cool would be if someone wrote a script to run OSS many times, varying several different inputs, to create graphs or matrices of results (vary discount rate and assumed age of death, for example). Though in reality, I found that my results were pretty insensitive to variations in many of these things.

Rus In Urbe
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Re: Social Security -- Take it at 62, 67 or 70

Post by Rus In Urbe » Fri Aug 09, 2019 1:44 pm

I'm retiring in Dec at age 64. I'd always assumed I'd go with conventional wisdom and wait until 70 to maximize---we don't "need" the money to live on.

However, yesterday I met with a terrific advisor (no fee and no he didn't sell me anything) and we spent an hour crunching numbers and looking over my individual situation (a few details in brief, my spouse on RMDs and SS; our SS is roughly equal; I have set aside five years of post-tax CDs to get me to RMD time).

Without getting too much into the weeds, it turns out the very best for us if I take SS at 65. Not what I was expecting at all.

Just goes to show you that every case is very individual. You have to do your own analysis, set your own goals, to figure out what will work for you.

Good luck all. :beer Rus
I'd like to live as a poor man with lots of money. ~Pablo Picasso

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Re: Social Security -- Take it at 62, 67 or 70

Post by willthrill81 » Fri Aug 09, 2019 1:50 pm

Rus In Urbe wrote:
Fri Aug 09, 2019 1:44 pm
I'm retiring in Dec at age 64. I'd always assumed I'd go with conventional wisdom and wait until 70 to maximize---we don't "need" the money to live on.

However, yesterday I met with a terrific advisor (no fee and no he didn't sell me anything) and we spent an hour crunching numbers and looking over my individual situation (a few details in brief, my spouse on RMDs and SS; our SS is roughly equal; I have set aside five years of post-tax CDs to get me to RMD time).

Without getting too much into the weeds, it turns out the very best for us if I take SS at 65. Not what I was expecting at all.

Just goes to show you that every case is very individual. You have to do your own analysis, set your own goals, to figure out what will work for you.

Good luck all. :beer Rus
I would strongly urge you to plug your numbers into https://opensocialsecurity.com to see what result it gives you. Granted, it's not taking RMDs into account, but deferring SS benefits can provide more room to make Roth conversions.
“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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HomerJ
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Re: Social Security -- Take it at 62, 67 or 70

Post by HomerJ » Fri Aug 09, 2019 1:50 pm

JoeRetire wrote:
Fri Aug 09, 2019 12:31 pm
HomerJ wrote:
Fri Aug 09, 2019 12:30 pm
JoeRetire wrote:
Fri Aug 09, 2019 11:41 am
Wouldn't you be confident spending more now, knowing that you have a larger risk-free, inflation-protected income stream headed your way starting at 70 for the rest of your life?
Yes I would, if it actually was risk-free.

Are you going to pay me the money I'm supposed to get, if something changes?
If it changes, it will change even if you claim now rather than delaying.
But I won't have spent down my OWN money in expectation of it not changing.

Look, I totally understand your guys position.... I don't know why mine is so hard...

Let's say we have a million dollars and we spend down an extra $350,000 of it from 62-70, because we expect to get that $350,000 back from our large SS payments from 70 on.*

But then the system changes, and we're just out the $350,000. That's a huge chunk of our nest egg.

That's a RISK. Maybe a tiny risk. But with a big impact. It's NOT risk-free.

*Calculations: Two people - we could file at 62 and get around $1800 a month each. That's around $350,000 over the 8 years. We still want to spend that money from 62-70, but if we wait to file, we have to take it from our savings (on TOP of our 4% withdrawals, which means we're taking a bigger risk for sequence of returns as well)
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willthrill81
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Re: Social Security -- Take it at 62, 67 or 70

Post by willthrill81 » Fri Aug 09, 2019 1:57 pm

HomerJ wrote:
Fri Aug 09, 2019 1:50 pm
JoeRetire wrote:
Fri Aug 09, 2019 12:31 pm
HomerJ wrote:
Fri Aug 09, 2019 12:30 pm
JoeRetire wrote:
Fri Aug 09, 2019 11:41 am
Wouldn't you be confident spending more now, knowing that you have a larger risk-free, inflation-protected income stream headed your way starting at 70 for the rest of your life?
Yes I would, if it actually was risk-free.

Are you going to pay me the money I'm supposed to get, if something changes?
If it changes, it will change even if you claim now rather than delaying.
But I won't have spent down my OWN money in expectation of it not changing.

Look, I totally understand your guys position.... I don't know why mine is so hard...

Let's say we have a million dollars and we spend down an extra $350,000 of it from 62-70, because we expect to get that $400,000 back from our large SS payments from 70 on.*

But then the system changes, and we're just out the $350,000. That's a huge chunk of our nest egg.

That's a RISK. Maybe a tiny risk. But with a big impact. It's NOT risk-free.

*Calculations: Two people - we could file at 62 and get around $1800 a month each. That's around $350,000 over the 8 years. We still want to spend that money from 62-70, but if we wait to file, we have to take it from our savings (on TOP of our 4% withdrawals, which means we're taking a bigger risk for sequence of returns as well)
Are you suggesting that you might receive no SS benefits at all? If so, I have a hard time envisioning it being worthwhile to be concerned about that risk at all, but that's just me.

That being said, claiming at age 62 vs. 70, on average, does not seem to have that big of an impact one way or the other for a Boglehead with a seven figure portfolio.

On a side note, I cringe when I hear financial planners refer to the additional SS benefits you receive by deferring from age 66 to 70 as a 'return'.
“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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HomerJ
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Re: Social Security -- Take it at 62, 67 or 70

Post by HomerJ » Fri Aug 09, 2019 2:05 pm

Let's do the math...

$1 million - 4% withdrawals - $40,000 a year

2 people filing at 62 - $1800/yr each - $43,000 a year.

So if we file at 62, we should be able to spend $83,000 a year, inflation adjusted.

If we wait to file until 70, now we have to pull the $83,000 from the $1 million. That's a 8.3% withdrawal rate... Hope we don't see a huge bear market! But let's say everything goes well, and we make it to 70, and file.

Now we get $3000/yr each - $72,000 together.. We only need to pull $11,000 a year from our portfolio. As long as we have $275,000 left, we can easily pull $11,000 a year... And since it will likely be much larger, we'll have MORE money going forward.

So we get to spend the same money the first 8 years, and more money after that...

I totally get why you think that's a good smart plan to wait to file....

But what if SS changes, and we DON'T get the $72,000 a year? What happens when one spouse dies and the SS payment is cut?

I'd rather have the money in MY accounts... And not spend it down those first years. That seems like a better plan, or at least, an equally good plan.

I'd rather be pulling half from my money, and half from the government. Not spend a huge chunk of my money and depend on the government to keep paying for the next 30 years.

Another factor for keeping your portfolio intact is that the surviving spouse gets to keep pulling the full 4% from the investment accounts, even after one spouse dies. Social Security payments drop when one spouse dies.
Last edited by HomerJ on Fri Aug 09, 2019 2:10 pm, edited 1 time in total.
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Re: Social Security -- Take it at 62, 67 or 70

Post by HomerJ » Fri Aug 09, 2019 2:09 pm

willthrill81 wrote:
Fri Aug 09, 2019 1:57 pm
Are you suggesting that you might receive no SS benefits at all? If so, I have a hard time envisioning it being worthwhile to be concerned about that risk at all, but that's just me.
No, just being cut. Or means-tested...

Using my numbers above, say I was planning on getting $72,000 a year from SS at 70, and instead I only get $50,000.... Now I have to either cut back on my lifestyle, or pull more money from my ALREADY DEPLETED portfolio (depleted because I was spending far more than 4% because I was counting on that $72,000 SS check as being guaranteed).

This is not a non-zero risk. It may be a very small risk. But everyone does these calculations like there is zero risk of the SS program being changed (changed, not ended - I'm not that extreme).
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Re: Social Security -- Take it at 62, 67 or 70

Post by willthrill81 » Fri Aug 09, 2019 2:20 pm

HomerJ wrote:
Fri Aug 09, 2019 2:09 pm
willthrill81 wrote:
Fri Aug 09, 2019 1:57 pm
Are you suggesting that you might receive no SS benefits at all? If so, I have a hard time envisioning it being worthwhile to be concerned about that risk at all, but that's just me.
No, just being cut. Or means-tested...

Using my numbers above, say I was planning on getting $72,000 a year from SS at 70, and instead I only get $50,000.... Now I have to either cut back on my lifestyle, or pull more money from my ALREADY DEPLETED portfolio (depleted because I was spending far more than 4% because I was counting on that $72,000 SS check as being guaranteed).

This is not a non-zero risk. It may be a very small risk. But everyone does these calculations like there is zero risk of the SS program being changed (changed, not ended - I'm not that extreme).
That makes sense, and I agree with you. I can see justification for someone spending down their portfolio in anticipation of receiving a portion of their SS benefits but certainly not all of them since, at a minimum, those benefits will be reduced by 25% in ~15 years under current law.
“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: Social Security -- Take it at 62, 67 or 70

Post by MJS » Fri Aug 09, 2019 2:36 pm

mancich wrote:
Fri Aug 09, 2019 7:14 am
What if one were to take the benefits starting at 62 (assuming they don't need the SS to live on), and invest it at a conservative rate of return (say 4%)? Would the combination of the lower payment invested for 8 years (age 62 through 69), plus the out years (age 70 to death, whenever that is) result in a higher overall amount, vs. waiting until 70 to start taking the money (and then using it or investing it)? Lot of variables to wrap one's head around...
I see one situation where that would be reasonable:
1. Your lifetime savings are in a very safe, COLA pension or annuity, so you have guaranteed income but very little to leave as a legacy. If not safe or cost-of-living-adjusted, then the insurance value of SS is more important.
2. You strongly wish to leave a legacy.
Using Social Security to create a legacy, rather than as insurance, makes sense in that situation.

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Re: Social Security -- Take it at 62, 67 or 70

Post by Big Dog » Fri Aug 09, 2019 3:13 pm

willthrill81 wrote:
Fri Aug 09, 2019 1:50 pm
Rus In Urbe wrote:
Fri Aug 09, 2019 1:44 pm
I'm retiring in Dec at age 64. I'd always assumed I'd go with conventional wisdom and wait until 70 to maximize---we don't "need" the money to live on.

However, yesterday I met with a terrific advisor (no fee and no he didn't sell me anything) and we spent an hour crunching numbers and looking over my individual situation (a few details in brief, my spouse on RMDs and SS; our SS is roughly equal; I have set aside five years of post-tax CDs to get me to RMD time).

Without getting too much into the weeds, it turns out the very best for us if I take SS at 65. Not what I was expecting at all.

Just goes to show you that every case is very individual. You have to do your own analysis, set your own goals, to figure out what will work for you.

Good luck all. :beer Rus
I would strongly urge you to plug your numbers into https://opensocialsecurity.com to see what result it gives you. Granted, it's not taking RMDs into account, but deferring SS benefits can provide more room to make Roth conversions.
Ditto.

Delaying may also boost survivor benefits, which is another thing that opensocialsecurity does well. You can use the model to calculate the best PV and then put in your advisor's rec (age 65) to see what the PV delta is.

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Re: Social Security -- Take it at 62, 67 or 70

Post by JoeRetire » Fri Aug 09, 2019 6:36 pm

HomerJ wrote:
Fri Aug 09, 2019 1:50 pm
But then the system changes, and we're just out the $350,000. That's a huge chunk of our nest egg.
You are imagining some sort of change that would cause you to never get any additional benefits after 70? And that's what drives your worry about "risk"?

Why don't you imagine that your deferred credits are doubled from the the expected value? Seems just about as likely.

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Re: Social Security -- Take it at 62, 67 or 70

Post by JoeRetire » Fri Aug 09, 2019 6:42 pm

HomerJ wrote:
Fri Aug 09, 2019 2:09 pm
Using my numbers above, say I was planning on getting $72,000 a year from SS at 70, and instead I only get $50,000....
In this imaginary scenario, are you expecting to still keep your $43,000 per year that you started at 62? And in this imaginary scenario, are you expecting this change to occur exactly as you turn 70?

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Re: Social Security -- Take it at 62, 67 or 70

Post by Patent Guru » Fri Aug 09, 2019 7:16 pm

pezblanco wrote:
Wed Jul 31, 2019 7:29 pm
MarkRLV wrote:
Wed Jul 31, 2019 5:12 pm
I have seen a lot of discussion about delaying taking Social Security until age 70. If you assume that you are going to live to be 85 or greater, the typical thing I have seen is to add up all your payments from 62 to 85 and compare that to all your payments from 70 to 85. Generally, taking it at 70 is going to be better using this approach.

The Retire Early Home Page (www.retireearlyhomepage.com) recently posted an article about this, which linked to this web site:
https://unitedincome.com/library/the-re ... lain-sight [link fixed by admin LadyGeek]

However, I would respectfully suggest that this is a flawed analysis. Without giving you my exact social security numbers, I determined my likely payments starting at both 62 and 70. For each year, I discounted that payment by (1+i)^n where i is some interest rate and n is the number of years away that payment is. For simplicity, I assumed I collected all the payments on the first day of the year. Having done this is a spreadsheet, I then changed the "i" variable until I found a value where the sum of the discounted payment is virtually the same. I found, for me, that "i" value was 3.35%.

So, if I were to get a $1,000 payment next year, the value of that to me is $1,000 / (1.0335)^1, or $967.59. A $1,000 payment two years into the future would be worth $936.22.

While everyone's will be slightly different, and you might change you life expectancy to make it to 80, 90, 95, 100 or some other value, it seems pretty clear to me that taking Social Security at age 62 is the better way to go. For each social security dollar I collect, that is one dollar I do not have to take out of my investment portfolio. If the average return on the market is anything above 3.35%, that dollar will continue to grow over the following 8 years (from age 62 to age 70). If I make a modest 6% in the market, that is way better than the extra 3.35% (effective rate) that I am going to get from Social Security.

Also, worst case scenario, I could die on my 70th birthday. Clearly then it would be better to take my payments from 62 to 70 since the sum of those payments, discounted or not, would be better than what I would get at age 70, which would be $0. Granted, if I do make it to 100, then I would get a greater number of larger payments. Interestingly, the "cross over" point is right about life expectancy in my family -- the mid-80's.

Wouldn't you say that considering the time value of money is critical when considering if you want one income stream starting earlier or a higher income stream starting later? As my finance professor told me -- there are only two rules about money. More is preferred to less and sooner is preferred to later. Finance is the study of the trade off between those two things. However, the way we were taught to consider two different streams is to discount the payments at some interest rate and add the sum of the discounted payments, not the sum of the "raw" payments.

Quicken Social Security Optimizer makes this error as well.

Your thoughts?
1) I'll bet that your finance professor also said that "Sure money is better than average money". I.e. Guaranteed real return from a TIPS or nominal like in a Treasury bond is better than on average return from a stochastic investment like a stock. This is especially true after retirement when you may not and don't know how if you have a long investment horizon ...

2) Perhaps you should think of the payments from SS as being in REAL dollars. They go up with inflation and so we can easily make that the base of our analysis. Your analysis then can be used but just reinterpret it .... you need your investment portfolio to beat 3.35% real return. So if inflation is 2% then you need a return of 5.35% nominal over the period of your retirement until you leave this vale of tears. Given high evaluations, I'm not sure that is a complete slam dunk.

3) Supposedly the SS payments for a single person are somewhat close to actuarily neutral. I.e. the SS administration is indifferent if you as a single recepient takes it at 62 or at 67 or at 70. (I've read that is not actually true and that with the years it is actually a little out of whack and that actually it is biased towards the greater benefit being at 70 ... ) If it were actuarily neutral, then the benefit would be to wait (if your circumstances allow it) and then view it as a free "old age insurance". If you live a greater than average life time, you will certainly benefit and if you live a less than average, it doesn't matter anyway, does it?

The payments from SS are supposed to be the same if you live to your actuarial date . Whether you start at 62, 65, or 70, the total payoff to your expected demise is estimated to be the same. When delaying makes sense is if you are married or plan to live past the date set by SS actuarial tables. This is what your analysis showed when you said the cross over was in your mid eighties.

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Re: Social Security -- Take it at 62, 67 or 70

Post by Patent Guru » Fri Aug 09, 2019 7:21 pm

pezblanco wrote:
Wed Jul 31, 2019 7:29 pm
MarkRLV wrote:
Wed Jul 31, 2019 5:12 pm
I have seen a lot of discussion about delaying taking Social Security until age 70. If you assume that you are going to live to be 85 or greater, the typical thing I have seen is to add up all your payments from 62 to 85 and compare that to all your payments from 70 to 85. Generally, taking it at 70 is going to be better using this approach.

The Retire Early Home Page (www.retireearlyhomepage.com) recently posted an article about this, which linked to this web site:
https://unitedincome.com/library/the-re ... lain-sight [link fixed by admin LadyGeek]

However, I would respectfully suggest that this is a flawed analysis. Without giving you my exact social security numbers, I determined my likely payments starting at both 62 and 70. For each year, I discounted that payment by (1+i)^n where i is some interest rate and n is the number of years away that payment is. For simplicity, I assumed I collected all the payments on the first day of the year. Having done this is a spreadsheet, I then changed the "i" variable until I found a value where the sum of the discounted payment is virtually the same. I found, for me, that "i" value was 3.35%.

So, if I were to get a $1,000 payment next year, the value of that to me is $1,000 / (1.0335)^1, or $967.59. A $1,000 payment two years into the future would be worth $936.22.

While everyone's will be slightly different, and you might change you life expectancy to make it to 80, 90, 95, 100 or some other value, it seems pretty clear to me that taking Social Security at age 62 is the better way to go. For each social security dollar I collect, that is one dollar I do not have to take out of my investment portfolio. If the average return on the market is anything above 3.35%, that dollar will continue to grow over the following 8 years (from age 62 to age 70). If I make a modest 6% in the market, that is way better than the extra 3.35% (effective rate) that I am going to get from Social Security.

Also, worst case scenario, I could die on my 70th birthday. Clearly then it would be better to take my payments from 62 to 70 since the sum of those payments, discounted or not, would be better than what I would get at age 70, which would be $0. Granted, if I do make it to 100, then I would get a greater number of larger payments. Interestingly, the "cross over" point is right about life expectancy in my family -- the mid-80's.

Wouldn't you say that considering the time value of money is critical when considering if you want one income stream starting earlier or a higher income stream starting later? As my finance professor told me -- there are only two rules about money. More is preferred to less and sooner is preferred to later. Finance is the study of the trade off between those two things. However, the way we were taught to consider two different streams is to discount the payments at some interest rate and add the sum of the discounted payments, not the sum of the "raw" payments.

Quicken Social Security Optimizer makes this error as well.

Your thoughts?
1) I'll bet that your finance professor also said that "Sure money is better than average money". I.e. Guaranteed real return from a TIPS or nominal like in a Treasury bond is better than on average return from a stochastic investment like a stock. This is especially true after retirement when you may not and don't know how if you have a long investment horizon ...

2) Perhaps you should think of the payments from SS as being in REAL dollars. They go up with inflation and so we can easily make that the base of our analysis. Your analysis then can be used but just reinterpret it .... you need your investment portfolio to beat 3.35% real return. So if inflation is 2% then you need a return of 5.35% nominal over the period of your retirement until you leave this vale of tears. Given high evaluations, I'm not sure that is a complete slam dunk.

3) Supposedly the SS payments for a single person are somewhat close to actuarily neutral. I.e. the SS administration is indifferent if you as a single recepient takes it at 62 or at 67 or at 70. (I've read that is not actually true and that with the years it is actually a little out of whack and that actually it is biased towards the greater benefit being at 70 ... ) If it were actuarily neutral, then the benefit would be to wait (if your circumstances allow it) and then view it as a free "old age insurance". If you live a greater than average life time, you will certainly benefit and if you live a less than average, it doesn't matter anyway, does it?

The payments from SS are supposed to be the same if you live to your actuarial date . Whether you start at 62, 65, or 70, the total payoff to your expected demise is estimated to be the same. When delaying makes sense is if you are married or plan to live past the date set by SS actuarial tables. This is what your analysis showed when you said the cross over was in your mid eighties.

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Re: Social Security -- Take it at 62, 67 or 70

Post by tibbitts » Fri Aug 09, 2019 7:46 pm

JoeRetire wrote:
Fri Aug 09, 2019 11:50 am
tibbitts wrote:
Thu Aug 08, 2019 11:03 pm
To me, deciding to defer at 62 today is especially difficult because the benefit reductions already provided for in roughly 15 years seem like a best-case scenario.
You think that's a best case scenario?

You see no chance that Congress will once again revise the SS rules (as they always have) in order to avert reductions? You think it's more likely that reductions will be worse or sooner?

I'm not seeing it...
I believe that for a typical Boglehead, or even a below-average Boglehead like me, the current provision for benefit reduction is a best-case scenario. Meaning that it's more likely than not that we will experience the reduction current law provides for, if not a greater reduction. Other people may experience less, or even no, reduction in benefits.

However I'm surprised that the open social security calculator show that the difference between assuming a reduction or not is only 14 months in my case. That is, it recommends claiming at 68yrs 9mo with no reduction, and 67yrs 7mo assuming the recently-estimated reduction. However, the difference between claiming with a PV of $403,911 at 62, vs. $418,895 at 67.7, hardly seems worth waiting.

My biggest complaint is that we are forced to speculate on whether the current law will be carried out as written or differently, which adds yet another variable to the mix beside our unknown remaining lifetime and all the others. When the last "fix" was applied and for a while after that, people could make their claiming decision based on relatively likely benefit levels. Today, we can't.

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Re: Social Security -- Take it at 62, 67 or 70

Post by 3-20Characters » Fri Aug 09, 2019 8:10 pm

The comments about any reduction to SS and how they might be handled are purely speculative. Why not speculate that to make up the shortfall, taxes on income (RMDs) will increase, or RMDs are increased, or both? This will leave early claimants (who now have larger retirement savings as a result) in a worse position than those who delayed—and possibly did Roth conversions as well. I can imagine other scenarios as well but it’s all speculation.

Claiming early is a short term game. One is weighting the advantages before early eighties and discounting advantages to be had in late eighties and beyond. SS for bogleheads (who have savings) is longevity insurance. Betting that neither spouse will live into late eighties or beyond, or that cuts will happen when you’re 70 that allow you to keep your claimed money while new claimants take the entire haircut is a short term bet and you only win if you’re dead (both husband and wife in case of couples)—and then the only one who benefits is your heirs.

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Re: Social Security -- Take it at 62, 67 or 70

Post by Big Dog » Fri Aug 09, 2019 8:26 pm

The comments about any reduction to SS and how they might be handled are purely speculative. Why not speculate that to make up the shortfall, taxes on income (RMDs) will increase, or RMDs are increased, or both?
Or, perhaps speculate that Roth conversions will be disallowed (with no other 'income')?

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Re: Social Security -- Take it at 62, 67 or 70

Post by 3-20Characters » Fri Aug 09, 2019 8:32 pm

Big Dog wrote:
Fri Aug 09, 2019 8:26 pm
The comments about any reduction to SS and how they might be handled are purely speculative. Why not speculate that to make up the shortfall, taxes on income (RMDs) will increase, or RMDs are increased, or both?
Or, perhaps speculate that Roth conversions will be disallowed?
Disallowed? Do you mean Roth accounts taxed? Yes, but more speculation. Place your bets but don’t call it a strategy because it’s not. It’s based on pure conjecture.

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Re: Social Security -- Take it at 62, 67 or 70

Post by tibbitts » Fri Aug 09, 2019 8:50 pm

3-20Characters wrote:
Fri Aug 09, 2019 8:10 pm
The comments about any reduction to SS and how they might be handled are purely speculative. Why not speculate that to make up the shortfall, taxes on income (RMDs) will increase, or RMDs are increased, or both? This will leave early claimants (who now have larger retirement savings as a result) in a worse position than those who delayed—and possibly did Roth conversions as well. I can imagine other scenarios as well but it’s all speculation.

Claiming early is a short term game. One is weighting the advantages before early eighties and discounting advantages to be had in late eighties and beyond. SS for bogleheads (who have savings) is longevity insurance. Betting that neither spouse will live into late eighties or beyond, or that cuts will happen when you’re 70 that allow you to keep your claimed money while new claimants take the entire haircut is a short term bet and you only win if you’re dead (both husband and wife in case of couples)—and then the only one who benefits is your heirs.
The future reduction to social security is established law - only the precise date and amount is subject to speculation, and even then only within a relatively small range of reasonable possibilities. It's correct that further reductions or changes in tax law are speculative.

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Re: Social Security -- Take it at 62, 67 or 70

Post by JoeRetire » Sat Aug 10, 2019 6:33 am

tibbitts wrote:
Fri Aug 09, 2019 7:46 pm
However, the difference between claiming with a PV of $403,911 at 62, vs. $418,895 at 67.7, hardly seems worth waiting.
We all get to decide if $15,000 means anything to us or not.
My biggest complaint is that we are forced to speculate on whether the current law will be carried out as written or differently, which adds yet another variable to the mix beside our unknown remaining lifetime and all the others. When the last "fix" was applied and for a while after that, people could make their claiming decision based on relatively likely benefit levels. Today, we can't.
Nothing has changed. Every day, everyone needs to decide if you think the current laws will remain the same or not. Then you decide what you will do about your assumptions.

If you are complaining about potential changes in Social Security 15 years or so down the road, then you must also be complaining about potential changes in retirement account laws, educational account laws, income tax laws, estate tax laws, sales tax laws, real estate taxes, etc, etc. The potential for changes that could happen are endless. Some of those changes could be personally negative. Others could be personally helpful.

Or, you could choose to focus on things are they are, rather than the vast possibilities of what they might be.

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Re: Social Security -- Take it at 62, 67 or 70

Post by JoeRetire » Sat Aug 10, 2019 6:45 am

tibbitts wrote:
Fri Aug 09, 2019 8:50 pm
The future reduction to social security is established law - only the precise date and amount is subject to speculation, and even then only within a relatively small range of reasonable possibilities. It's correct that further reductions or changes in tax law are speculative.
That's true.

And if you have decided that you must do all your personal retirement planning based solely on existing law, then you can use calculators like https://opensocialsecurity.com/ , speculate on the date and the amount of the future reduction, and stick to whatever the calculator suggests you should do.

Or, you could look at the entire history of Social Security, realize that Congress has never let these reductions actually take effect, speculate that the planned reductions will not occur, and plan accordingly.

I know which scenario seems far more likely to me. You get to choose your own path.

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Re: Social Security -- Take it at 62, 67 or 70

Post by 3-20Characters » Sat Aug 10, 2019 7:06 am

JoeRetire wrote:
Sat Aug 10, 2019 6:45 am
tibbitts wrote:
Fri Aug 09, 2019 8:50 pm
The future reduction to social security is established law - only the precise date and amount is subject to speculation, and even then only within a relatively small range of reasonable possibilities. It's correct that further reductions or changes in tax law are speculative.
That's true.

And if you have decided that you must do all your personal retirement planning based solely on existing law, then you can use calculators like https://opensocialsecurity.com/ , speculate on the date and the amount of the future reduction, and stick to whatever the calculator suggests you should do.

Or, you could look at the entire history of Social Security, realize that Congress has never let these reductions actually take effect, speculate that the planned reductions will not occur, and plan accordingly.

I know which scenario seems far more likely to me. You get to choose your own path.
:beer

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Re: Social Security -- Take it at 62, 67 or 70

Post by DecumulatorDoc » Sat Aug 10, 2019 7:15 am

willthrill81 wrote:
Fri Aug 09, 2019 1:50 pm
Rus In Urbe wrote:
Fri Aug 09, 2019 1:44 pm
I'm retiring in Dec at age 64. I'd always assumed I'd go with conventional wisdom and wait until 70 to maximize---we don't "need" the money to live on.

However, yesterday I met with a terrific advisor (no fee and no he didn't sell me anything) and we spent an hour crunching numbers and looking over my individual situation (a few details in brief, my spouse on RMDs and SS; our SS is roughly equal; I have set aside five years of post-tax CDs to get me to RMD time).

Without getting too much into the weeds, it turns out the very best for us if I take SS at 65. Not what I was expecting at all.

Just goes to show you that every case is very individual. You have to do your own analysis, set your own goals, to figure out what will work for you.

Good luck all. :beer Rus
I would strongly urge you to plug your numbers into https://opensocialsecurity.com to see what result it gives you. Granted, it's not taking RMDs into account, but deferring SS benefits can provide more room to make Roth conversions.
Agree you need to check the numbers yourself. Be aware of the inherent conflict of interest for a financial planner especially when billing based on AUM: you file early, your portolio sees less drawdawn and they make more. Same conflict of interest when FA advises you not to pay off mortage early.

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Re: Social Security -- Take it at 62, 67 or 70

Post by SGM » Sat Aug 10, 2019 8:29 am

HomerJ wrote:
Fri Aug 09, 2019 8:50 am
SGM wrote:
Fri Aug 09, 2019 4:09 am
HomerJ wrote:
Thu Aug 08, 2019 8:57 am
SGM wrote:
Thu Aug 08, 2019 4:06 am
We look at SS as longevity insurance. While delaying my SS until 70 we used the extra space for Roth conversions. There is no federal tax on 15% of my SS. SS is also a better annuity than one can buy on the open market. Higher non-portfolio income means less need to spend from our portfolio.
See I totally understand this plan. It makes total sense.

EXCEPT.... The contract you have with Social Security can be changed. At any time.

So it's not quite as a good as an annuity contract with an insurance company, in that regard.
Hello Homer. There is some danger that an insurance company will not be able to pay its obligation. There are varying insurance guarantees that vary by state. If the limit in your state of residency is $100k then you may need to buy contracts from several insurance companies. I do have plans to annuitize a bit of my portfolio at a later date on top of my delay of SS. Currently the Oblivious Investor has a reference to a paper by Joe Tomlinson on annuitizing portfolios. I think Joe is very sharp. I am unaware of any more recent papers by him since he moved to England.
But the government then covers you if an insurance company fails (under certain limits). There's another fall back plan, another layer of security with an insurance company.

It's true nothing is 100% risk-free.

But Congress can change the SS contract at any time. People are making calculations above assuming that won't happen.

That's not unreasonable, but I think there is a real non-zero chance of means-testing being implemented someday. We're talking about 30 years of retirement spending. That's a long time to assume no changes at all.

I don't like the idea of depleting my OWN money faster in my 60s assuming that SS will not change in my 70s.
My understanding is that the state government does not cover insurance company failure. A consortium of insurance companies put money aside to cover insurance company failure. Each state has their own limits of coverage but it is not the government that will make the payout. I could imagine a situation where the insurance companies of a state could not fully cover the annuity payouts of a failed company.

Your situation is different than mine in that I started collecting at 70 already.. Certainly you need to reassess the SS situation when you are in your 60s. Already the government is using means testing in terms of additional Medicare premiums. Those additional premiums comes directly out of my SS payment every month.

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Re: Social Security -- Take it at 62, 67 or 70

Post by Spirit Rider » Sat Aug 10, 2019 12:46 pm

SGM wrote:
Sat Aug 10, 2019 8:29 am
My understanding is that the state government does not cover insurance company failure. A consortium of insurance companies put money aside to cover insurance company failure. Each state has their own limits of coverage but it is not the government that will make the payout. I could imagine a situation where the insurance companies of a state could not fully cover the annuity payouts of a failed company.
This is correct. They are nothing like FDIC and NCUA which are insurance programs that have significant pools of cash reserves and are backed by the the "full faith and credit" of the U.S. government.

They are state guarantee associations, but a "guarantee" they do not provide. They are simply a "promise" by association members to make policy holders whole. To date, they have worked well because it has been a very small number of insurance companies fail, but they still retained considerable assets. There were limited unfunded liabilities to be picked up member insurers. Who knows what would happen if there was a serious contagion.

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Re: Social Security -- Take it at 62, 67 or 70

Post by celia » Sat Aug 10, 2019 1:26 pm

bltn wrote:
Fri Aug 09, 2019 5:31 am
2. Based on likelihood of health limitations as we age, most of us will be much more active and able to use added income in our 60 s than in our 70 s. For example, one is more likely to travel in his sixties. To limit our income during a period of increased vitality might be a mistake.
A good compromise might be to wait until somewhere around full retirement age to start receiving benefits.
I would think you still need the same income in your 70s as in your 60s. Your 60s may involve more travel while your 70s might have less travel but possibly higher medical needs. And as you get older, you're more likely to pay someone to do things you used to be able to do for yourself.
Last edited by celia on Sat Aug 10, 2019 1:39 pm, edited 1 time in total.

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Re: Social Security -- Take it at 62, 67 or 70

Post by tibbitts » Sat Aug 10, 2019 1:37 pm

JoeRetire wrote:
Sat Aug 10, 2019 6:33 am
tibbitts wrote:
Fri Aug 09, 2019 7:46 pm
However, the difference between claiming with a PV of $403,911 at 62, vs. $418,895 at 67.7, hardly seems worth waiting.
We all get to decide if $15,000 means anything to us or not.
My biggest complaint is that we are forced to speculate on whether the current law will be carried out as written or differently, which adds yet another variable to the mix beside our unknown remaining lifetime and all the others. When the last "fix" was applied and for a while after that, people could make their claiming decision based on relatively likely benefit levels. Today, we can't.
Nothing has changed. Every day, everyone needs to decide if you think the current laws will remain the same or not. Then you decide what you will do about your assumptions.

If you are complaining about potential changes in Social Security 15 years or so down the road, then you must also be complaining about potential changes in retirement account laws, educational account laws, income tax laws, estate tax laws, sales tax laws, real estate taxes, etc, etc. The potential for changes that could happen are endless. Some of those changes could be personally negative. Others could be personally helpful.

Or, you could choose to focus on things are they are, rather than the vast possibilities of what they might be.
It's not a guaranteed $15k, like the choice of buying an FDIC-insured CD at one bank or another for the same term at a $15k difference in earnings. It's entirely based on your lifetime turning out to be "average" - otherwise it could be more or less.

So you are saying that you would not delay claiming until 70; instead you would claim at 68, which provides the highest calculated PV assuming no change to the SS formula, correct?

While all laws have a theoretically uncertain future, I assume everyone would agree that the odds of major changes to SS were less likely to occur in the 15 years beginning with the last major changes in 1983, than they are for the fifteen years or so beginning now... ?

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Re: Social Security -- Take it at 62, 67 or 70

Post by celia » Sat Aug 10, 2019 1:43 pm

Rus In Urbe wrote:
Fri Aug 09, 2019 1:44 pm
I'm retiring in Dec at age 64. I'd always assumed I'd go with conventional wisdom and wait until 70 to maximize---we don't "need" the money to live on.

However, yesterday I met with a terrific advisor (no fee and no he didn't sell me anything) and we spent an hour crunching numbers and looking over my individual situation (a few details in brief, my spouse on RMDs and SS; our SS is roughly equal; I have set aside five years of post-tax CDs to get me to RMD time).

Without getting too much into the weeds, it turns out the very best for us if I take SS at 65. Not what I was expecting at all.
Did the advisor consider doing Roth conversions before you start SS? The time between when you stop working and when you take SS is an ideal time to do conversions as it give you more space in your usual tax bracket.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

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Re: Social Security -- Take it at 62, 67 or 70

Post by tibbitts » Sat Aug 10, 2019 2:10 pm

celia wrote:
Sat Aug 10, 2019 1:43 pm
Rus In Urbe wrote:
Fri Aug 09, 2019 1:44 pm
I'm retiring in Dec at age 64. I'd always assumed I'd go with conventional wisdom and wait until 70 to maximize---we don't "need" the money to live on.

However, yesterday I met with a terrific advisor (no fee and no he didn't sell me anything) and we spent an hour crunching numbers and looking over my individual situation (a few details in brief, my spouse on RMDs and SS; our SS is roughly equal; I have set aside five years of post-tax CDs to get me to RMD time).

Without getting too much into the weeds, it turns out the very best for us if I take SS at 65. Not what I was expecting at all.
Did the advisor consider doing Roth conversions before you start SS? The time between when you stop working and when you take SS is an ideal time to do conversions as it give you more space in your usual tax bracket.
Well, sort of, but realistically most people are going to be converting at 22% or 24% federal. The only way you can get at all excited about converting is if ... here it comes ... you believe that current law will apply and tax rates will revert to higher levels (maybe even higher levels than before.) So, you can't simultaneously get excited about converting and then assume your SS payments won't be cut in 15 years or so. And if you do believe that SS will be cut, then you're likely to claim SS sooner and maybe as a result be able to convert less.

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Re: Social Security -- Take it at 62, 67 or 70

Post by JoeRetire » Sat Aug 10, 2019 2:21 pm

tibbitts wrote:
Sat Aug 10, 2019 1:37 pm
So you are saying that you would not delay claiming until 70; instead you would claim at 68, which provides the highest calculated PV assuming no change to the SS formula, correct?
No, I am not saying that. I'm saying that people need to decide what is important to them specifically and act on that.
While all laws have a theoretically uncertain future, I assume everyone would agree that the odds of major changes to SS were less likely to occur in the 15 years beginning with the last major changes in 1983, than they are for the fifteen years or so beginning now... ?
I also would assume that right after a resetting of Social Security laws is the time when additional changes are less likely.

But I think major changes in benefits are unlikely going forward as well. We are all free to decide how "major" any "major changes" would need to be before we would abandon our current claiming plans.

For example, a few years back, Social Security changes were enacted that my calculations tell me have cost us around $40k. Oh well. We adjust and move on. If I had known these changes were coming, it still wouldn't have changed any of our plans.

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Re: Social Security -- Take it at 62, 67 or 70

Post by willthrill81 » Sat Aug 10, 2019 2:28 pm

tibbitts wrote:
Sat Aug 10, 2019 2:10 pm
celia wrote:
Sat Aug 10, 2019 1:43 pm
Rus In Urbe wrote:
Fri Aug 09, 2019 1:44 pm
I'm retiring in Dec at age 64. I'd always assumed I'd go with conventional wisdom and wait until 70 to maximize---we don't "need" the money to live on.

However, yesterday I met with a terrific advisor (no fee and no he didn't sell me anything) and we spent an hour crunching numbers and looking over my individual situation (a few details in brief, my spouse on RMDs and SS; our SS is roughly equal; I have set aside five years of post-tax CDs to get me to RMD time).

Without getting too much into the weeds, it turns out the very best for us if I take SS at 65. Not what I was expecting at all.
Did the advisor consider doing Roth conversions before you start SS? The time between when you stop working and when you take SS is an ideal time to do conversions as it give you more space in your usual tax bracket.
Well, sort of, but realistically most people are going to be converting at 22% or 24% federal. The only way you can get at all excited about converting is if ... here it comes ... you believe that current law will apply and tax rates will revert to higher levels (maybe even higher levels than before.) So, you can't simultaneously get excited about converting and then assume your SS payments won't be cut in 15 years or so. And if you do believe that SS will be cut, then you're likely to claim SS sooner and maybe as a result be able to convert less.
The other factor that is frequently overlooked is the widow(er) potentially being suddenly thrust into a higher tax bracket due to RMDs. This could be especially pronounced if one spouse is significantly older than the other and even more so if the older spouse also has a reduced life expectancy (e.g. an older man and a younger woman). The widow(er) could be pushed into a significantly higher tax bracket for many years with little recourse other than QCDs. As such, doing Roth conversions in the 24% bracket while expecting them to be taxed at 22% if MFJ could easily come out ahead in the end.
“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: Social Security -- Take it at 62, 67 or 70

Post by #Cruncher » Sat Aug 10, 2019 5:00 pm

Barkingsparrow wrote:
Thu Aug 01, 2019 8:43 pm
palaheel wrote:
Thu Aug 01, 2019 6:33 pm
At https://opensocialsecurity.com, play with decreasing the payout in 2034 a bit. Even a modest decrease or 6% changed my optimal retirement date significantly.
I did the same - and the strategy was amazingly different. For example, it had me take it at age 64 and 10 months, rather that at age 70.
In addition to knowing what is the optimal retirement age, it's good to know how much difference it makes. I've developed a little spreadsheet that does this. For example, the following two tables show that with no benefit reduction, for someone born in 1960 with a $1,000 PIA, starting Social Security at age 70 produces -- when discounted at 1% -- a present value (PV) $3,078 higher by age 82 than would starting at age 62. But if benefits were to be cut 23% in 2034, starting at 70 would produce a PV $8,365 lower at the same age. I.e., the PV effect of the 23% reduction would be about $11,000.

With no reduction in benefits

Code: Select all

Row  ColA                 Col B    Col C     Col D     Col E     Col F     Col G 
  1  Born                  1960
  2  Normal Retire Age   67.000
  3  PIA                  1,000
  4  Reduction year        2034
  5  Reduction percent    0.00%   <-----
  6  Discount rate        1.00%
  7  Age begin SS                     62        70
  9  Percent of PIA               70.00%   124.00%
 10  Benefit < 2034                8,400    14,880
 11  Benefit >= 2034               8,400    14,880
                                   -- Cash Flow --   ------ Present Value ------
     Year                   Age      62        70        62        70      Diff

Code: Select all

 14  2023                    63    8,400               8,317              (8,317)
 15  2024                    64    8,400              16,551             (16,551)
 16  2025                    65    8,400              24,704             (24,704)
 17  2026                    66    8,400              32,777             (32,777)
 18  2027                    67    8,400              40,769             (40,769)
 19  2028                    68    8,400              48,682             (48,682)
 20  2029                    69    8,400              56,517             (56,517)
 21  2030                    70    8,400              64,274             (64,274)
 22  2031                    71    8,400    14,880    71,955    13,605   (58,349)
 23  2032                    72    8,400    14,880    79,559    27,076   (52,483)
 24  2033                    73    8,400    14,880    87,088    40,413   (46,675)
 25  2034                    74    8,400    14,880    94,543    53,619   (40,924)
 26  2035                    75    8,400    14,880   101,923    66,693   (35,230)
 27  2036                    76    8,400    14,880   109,231    79,638   (29,593)
 28  2037                    77    8,400    14,880   116,466    92,455   (24,011)
 29  2038                    78    8,400    14,880   123,630   105,145   (18,485)
 30  2039                    79    8,400    14,880   130,723   117,709   (13,014)
 31  2040                    80    8,400    14,880   137,745   130,149    (7,596)
 32  2041                    81    8,400    14,880   144,698   142,466    (2,232)
 33  2042                    82    8,400    14,880   151,583   154,661     3,078  <===
 34  2043                    83    8,400    14,880   158,399   166,735     8,336 
 35  2044                    84    8,400    14,880   165,147   178,689    13,542 
 36  2045                    85    8,400    14,880   171,829   190,526    18,697 
 37  2046                    86    8,400    14,880   178,444   202,245    23,800 
 38  2047                    87    8,400    14,880   184,995   213,848    28,853 
 39  2048                    88    8,400    14,880   191,480   225,336    33,856 
 40  2049                    89    8,400    14,880   197,901   236,710    38,809 
 41  2050                    90    8,400    14,880   204,258   247,972    43,714 
 42  2051                    91    8,400    14,880   210,553   259,122    48,569 
 43  2052                    92    8,400    14,880   216,785   270,162    53,377 
 44  2053                    93    8,400    14,880   222,955   281,092    58,137 
 45  2054                    94    8,400    14,880   229,065   291,915    62,850 
 46  2055                    95    8,400    14,880   235,113   302,630    67,516 
 47  2056                    96    8,400    14,880   241,102   313,239    72,136 
 48  2057                    97    8,400    14,880   247,032   323,743    76,711 
 49  2058                    98    8,400    14,880   252,903   334,143    81,240 
 50  2059                    99    8,400    14,880   258,716   344,440    85,724 
 51  2060                   100    8,400    14,880   264,471   354,635    90,164 
With a 23% reduction in 2034

Code: Select all

Row  ColA                 Col B    Col C     Col D     Col E     Col F     Col G 
  1  Born                  1960
  2  Normal Retire Age   67.000
  3  PIA                  1,000
  4  Reduction year        2034
  5  Reduction percent   23.00%   <-----
  6  Discount rate        1.00%
  7  Age begin SS                     62        70
  9  Percent of PIA               70.00%   124.00%
 10  Benefit < 2034                8,400    14,880
 11  Benefit >= 2034               6,468    11,458
                                   -- Cash Flow --   ------ Present Value ------
     Year                   Age      62        70        62        70      Diff

Code: Select all

 14  2023                    63    8,400               8,317              (8,317)
 15  2024                    64    8,400              16,551             (16,551)
 16  2025                    65    8,400              24,704             (24,704)
 17  2026                    66    8,400              32,777             (32,777)
 18  2027                    67    8,400              40,769             (40,769)
 19  2028                    68    8,400              48,682             (48,682)
 20  2029                    69    8,400              56,517             (56,517)
 21  2030                    70    8,400              64,274             (64,274)
 22  2031                    71    8,400    14,880    71,955    13,605   (58,349)
 23  2032                    72    8,400    14,880    79,559    27,076   (52,483)
 24  2033                    73    8,400    14,880    87,088    40,413   (46,675)
 25  2034                    74    6,468    11,458    92,828    50,581   (42,247)
 26  2035                    75    6,468    11,458    98,511    60,649   (37,863)
 27  2036                    76    6,468    11,458   104,138    70,616   (33,522)
 28  2037                    77    6,468    11,458   109,709    80,485   (29,224)
 29  2038                    78    6,468    11,458   115,225    90,257   (24,969)
 30  2039                    79    6,468    11,458   120,687    99,931   (20,756)
 31  2040                    80    6,468    11,458   126,094   109,510   (16,584)
 32  2041                    81    6,468    11,458   131,448   118,994   (12,454)
 33  2042                    82    6,468    11,458   136,749   128,384    (8,365) <===
 34  2043                    83    6,468    11,458   141,997   137,681    (4,316)
 35  2044                    84    6,468    11,458   147,194   146,886      (308)
 36  2045                    85    6,468    11,458   152,339   156,000     3,661 
 37  2046                    86    6,468    11,458   157,432   165,023     7,591 
 38  2047                    87    6,468    11,458   162,476   173,958    11,482 
 39  2048                    88    6,468    11,458   167,470   182,804    15,334 
 40  2049                    89    6,468    11,458   172,414   191,562    19,148 
 41  2050                    90    6,468    11,458   177,309   200,233    22,924 
 42  2051                    91    6,468    11,458   182,156   208,819    26,663 
 43  2052                    92    6,468    11,458   186,955   217,320    30,365 
 44  2053                    93    6,468    11,458   191,706   225,736    34,030 
 45  2054                    94    6,468    11,458   196,410   234,069    37,659 
 46  2055                    95    6,468    11,458   201,068   242,320    41,252 
 47  2056                    96    6,468    11,458   205,679   250,489    44,810 
 48  2057                    97    6,468    11,458   210,245   258,577    48,332 
 49  2058                    98    6,468    11,458   214,766   266,585    51,819 
 50  2059                    99    6,468    11,458   219,241   274,514    55,272 
 51  2060                   100    6,468    11,458   223,673   282,364    58,691 
With a 23% benefit reduction in 2034, the recipient would need to collect benefits about two years longer to age 84 for the PV from starting at 70 to match that from starting at 62. To run this analysis with different assumptions follow these steps:
  • Select All, Copy, and Paste [ * ] the following at cell A1 of a blank Excel sheet:

    Code: Select all

    Born	1960
    Normal Retire Age	=MIN(67,66+MAX(0,B1-1954)/6)
    PIA	1000
    Reduction year	2034
    Reduction percent	0.23
    Discount rate	0.01
    Age begin SS		62	70
    Year begin SS		=$B1+C7	=$B1+D7
    Percent of PIA		=IF(C7<$B2,1-(5/900)*MIN(36,($B2-C7)*12)-(5/1200)*MAX(0,($B2-C7)*12-36),1+(8/1200)*(C7-$B2)*12)	=IF(D7<$B2,1-(5/900)*MIN(36,($B2-D7)*12)-(5/1200)*MAX(0,($B2-D7)*12-36),1+(8/1200)*(D7-$B2)*12)
    ="Benefit < "&B4		=12*$B3*C9	=12*$B3*D9
    ="Benefit >= "&B4		=C10*(1-$B5)	=D10*(1-$B5)
    		----- Cash Flow ----		------- Present Value -------
    Year	Age	=C7	=D7	=C7	=D7	Diff
    =B1+63	63	=IF(C$7>=$B14,0,IF($A14<$B$4,C$10,C$11))	=IF(D$7>=$B14,0,IF($A14<$B$4,D$10,D$11))	=NPV($B$6,C$14:C14)	=NPV($B$6,D$14:D14)	=F14-E14
    =A14+1	=B14+1	=IF(C$7>=$B15,0,IF($A15<$B$4,C$10,C$11))	=IF(D$7>=$B15,0,IF($A15<$B$4,D$10,D$11))	=NPV($B$6,C$14:C15)	=NPV($B$6,D$14:D15)	=F15-E15
  • Format for readability.
  • Copy cells A15:G15 down to row 51.
  • Revise assumptions as desired in cells B1, B3:B6, and C7:D7,
* If you have trouble pasting, try "Paste Special" and "Text".

Barkingsparrow
Posts: 94
Joined: Tue Jun 13, 2017 6:09 pm

Re: Social Security -- Take it at 62, 67 or 70

Post by Barkingsparrow » Sat Aug 10, 2019 5:34 pm

Thanks #Cruncher. I loaded your formulas and got the same result - age 84.

3-20Characters
Posts: 614
Joined: Tue Jun 19, 2018 2:20 pm

Re: Social Security -- Take it at 62, 67 or 70

Post by 3-20Characters » Sat Aug 10, 2019 5:44 pm

Barkingsparrow wrote:
Sat Aug 10, 2019 5:34 pm
Thanks #Cruncher. I loaded your formulas and got the same result - age 84.
Ditto! Thanks for the dummy version of this math! :beer

Dregob
Posts: 19
Joined: Wed Sep 26, 2018 9:45 pm

Re: Social Security -- Take it at 62, 67 or 70

Post by Dregob » Sat Aug 10, 2019 5:55 pm

"Also, worst case scenario, I could die on my 70th birthday"
I'd say the worst case scenario is to :oops: die today!

cbeck
Posts: 267
Joined: Sun Jun 24, 2012 1:28 am

Re: Social Security -- Take it at 62, 67 or 70

Post by cbeck » Sat Aug 10, 2019 7:19 pm

willthrill81 wrote:
Fri Aug 09, 2019 11:56 am
JoeRetire wrote:
Fri Aug 09, 2019 11:50 am
tibbitts wrote:
Thu Aug 08, 2019 11:03 pm
To me, deciding to defer at 62 today is especially difficult because the benefit reductions already provided for in roughly 15 years seem like a best-case scenario.
You think that's a best case scenario?

You see no chance that Congress will once again revise the SS rules (as they always have) in order to avert reductions? You think it's more likely that reductions will be worse or sooner?

I'm not seeing it...
Nonetheless, the fact that under current law benefits will be reduced by around 25% in ~15 years does impact the cost-benefit analysis of claiming benefits early. But how much it impacts that analysis involves conjecture about legislative changes, and such discussion is forbidden on the forum.
What happens to SS in 2035 is certainly not a fact. In 2018 the expected date for the exhaustion of the OASDI Trust Fund moved one year forward from 2034 to 2035. The number that you cite as a "fact" is in fact only a projection. Whatever happens will depend on actual GDP, wage growth, and other factors. There are a variety of fixes that could be applied to eliminate any shortfall.

A future reduction is a risk, but very far from a done deal.

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