Wait for Social Security - breakeven returns

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Johnnie
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Re: Wait for Social Security - breakeven returns

Post by Johnnie » Thu Nov 07, 2019 9:39 am

This is the point in the conversation when someone injects the two alternative approaches to Social Security. I'll do it, by quoting the relevant David Jay post from the last "file or wait?" thread:
David Jay wrote:
Wed Jul 31, 2019 8:43 pm
... It is not really about the math, it is about how you view the program:

View A (I call this the “ROI” view): I have been paying into SS my entire working life and I want to make every effort to recoup those funds. Since the date of my demise is unknown, the sooner I file the more likely it is that I can get most of my money back if I pass at a young age.

View B (I call this the “annuity” view): The date of my (“our”, if married) demise is unknown, I (one of us) may live to be 100. I want to assure the maximum income stream into my (our) golden years.

Again, neither view is “right”, but where you start determines where you end up.
I'm in the "annuity" camp, and I plan to use "Cut Thoat's Famous" method when I stop working at 66-ish.

One point I don't get is the emphasis on no inheritance with this method. I regard the method primarily as a "measuring device" to determine how much extra one would have to distribute from the portfolio to roughly equalize income before and after taking SS at 70.

In my case the total "Cut Throat distribution" when I stop working is around 10 percent of the portfolio (into a CD ladder or just a dodgy internet bank high yield savings account). My portfolio distribution plan at age 70 is a combination of fixed % of portfolio and Taylor's "withdraw more if your portfolio does well and less if it doesn't." I hope to leave enough at the end to fill family members with warm feelings but not necessarily change lives.

PS. My plan includes hefty Roth conversions in those waiting years. The bridge-fund money is coming out of taxable to make room under the next tax rate threshold.
Last edited by Johnnie on Thu Nov 07, 2019 10:26 am, edited 1 time in total.
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Re: Wait for Social Security - breakeven returns

Post by smitcat » Thu Nov 07, 2019 10:01 am

patrick013 wrote:
Thu Nov 07, 2019 9:16 am
I still like MF's 7% break even return chart with one addition. After tax numbers would be useful. Assuming the portfolio is strong enough to support withdrawals until 70, from stocks or bonds, it would show the actual value added to portfolio from mixing SS into the equity AA as a potential source of equity return, hopefully adding the estimated after tax return to the entire portfolio from this marginal investment plan for future withdrawal. A risky theory, has equity risk, but otherwise we have a variety of spreadsheets, cash break even, and other return calc's to use. So whatever plan used MF just wants to estimate the value potentially added to equity AA from one of the three choices. Life expectancy and after tax should be better exemplified in the article.
"I still like MF's 7% break even return chart with one addition. After tax numbers would be useful"
Yes - after tax numbers are all that should matter.
- what do you give up in Roth conversions when taking SS early
- what does deferring RMD's to later do to taxes
- what does a surviving spouse need to deal with in taxes

We have modeled these with the extended IORP and RPM then checked some results with tax software for varied inputs (investment earnings, SS variations, age of demise ,ect).
Most every one favors a delayed SS in our case for 'spendable' dollars - but each persons situation will be different.

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Re: Wait for Social Security - breakeven returns

Post by CurlyDave » Thu Nov 07, 2019 10:44 am

JoeRetire wrote:
Thu Nov 07, 2019 6:55 am
CurlyDave wrote:
Thu Nov 07, 2019 12:30 am
And, the elephant in the room few are talking about is the depletion of the SS Trust Fund -- this is not speculation the SS Trustees report on it every year. If someone is 62 today, depletion and its uncertainties will happen well before they reach breakeven. IMHO, the risks here make SORR about as scary as a Sunday School picnic.

For a group that has decided to take their retirement strategy into their own hands, this board is curiously passive about leaving SS to someone else. About the only way I have of wresting at least a little control back is to claim early.
Are you imagining that claiming early makes you immune from any benefit cuts, should that eventually happen?
No, but money that I have already collected and spent is going to be hard for Uncle to claw back from me.

This gets into an area that is perilously close to the board-forbidden speculation on future laws.

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Re: Wait for Social Security - breakeven returns

Post by CurlyDave » Thu Nov 07, 2019 12:05 pm

ObliviousInvestor wrote:
Thu Nov 07, 2019 7:52 am

...If your overall financial picture is already appropriate for your risk level, then the appropriate rate of return to use for NPV analysis or breakeven analysis is the rate of return from something roughly as risky as Social Security.
While that sounds about right, that little word "if" is crucial and there is another side to the coin.

If I desire a higher risk level, claiming early and investing in stock is how I get there. In that case the 7% assumption is almost too conservative.

For instance, the trailing 10 year return for SPY is 13.6% (VOO is 13.65%). With inflation running in the 2% to 2.5% range, 11% real is a low estimate of actual performance. Now I agree that no one knows what the future will bring, but my actual strategy of shifting SS to 100% investments in stock worked.

There are very few choices in SS risk. There are going to be some of us who find more risk appropriate.

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Re: Wait for Social Security - breakeven returns

Post by ObliviousInvestor » Thu Nov 07, 2019 12:15 pm

CurlyDave wrote:
Thu Nov 07, 2019 12:05 pm
ObliviousInvestor wrote:
Thu Nov 07, 2019 7:52 am

...If your overall financial picture is already appropriate for your risk level, then the appropriate rate of return to use for NPV analysis or breakeven analysis is the rate of return from something roughly as risky as Social Security.
While that sounds about right, that little word "if" is crucial and there is another side to the coin.

If I desire a higher risk level, claiming early and investing in stock is how I get there. In that case the 7% assumption is almost too conservative.

For instance, the trailing 10 year return for SPY is 13.6% (VOO is 13.65%). With inflation running in the 2% to 2.5% range, 11% real is a low estimate of actual performance. Now I agree that no one knows what the future will bring, but my actual strategy of shifting SS to 100% investments in stock worked.

There are very few choices in SS risk. There are going to be some of us who find more risk appropriate.
Sure. That's somewhat uncommon though, because it implies that you're already 100% stocks in the portfolio. (This is what Grabiner was getting at above.)
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Re: Wait for Social Security - breakeven returns

Post by surfstar » Thu Nov 07, 2019 12:34 pm

illumination wrote:
Sun Nov 03, 2019 2:02 pm
One point I don't think is brought up enough is you're not going to "care" when you're dead that you didn't "break even" on this gamble.
But you're definitely going to care if you withdrew earlier and are locked into that lower payment stream forever and you live a longer life.
I don't know about that.

Ask an 87 year old - would you rather have already been dead, but had more money or would you rather keep living and have lower SS payments?

Are you really going to be disappointed that you are still alive, but have a lower SS payment?

Take SS at 62 - enjoy the "extra" money through your early 80s and figure if you live beyond the break-even point - GREAT! YOU'RE STILL ALIVE!!!

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Re: Wait for Social Security - breakeven returns

Post by illumination » Thu Nov 07, 2019 1:18 pm

surfstar wrote:
Thu Nov 07, 2019 12:34 pm


Ask an 87 year old - would you rather have already been dead, but had more money or would you rather keep living and have lower SS payments?

Are you really going to be disappointed that you are still alive, but have a lower SS payment?

The decision to delay though doesn't effect lifespan.

But I actually would be disappointed as an 87 year old with a lower payment if I started early, assuming that was then a hardship. That is a major problem for many people, their retirement outliving their nest egg.

Obviously, if you can't live a comfortable life without taking early SS, do it. Nobody should be eating cat food over this decision. If you have a "bucket list" that only SS will provide, that's a different issue that only you can decide.

What I was referring to is I think too many people are worried that they won't live long enough to see a full payment stream over their lifetime if they delay, so it's a financial concern. My point was saying is that's not a problem you will care about when it happens because you're dead.

But you will care though if you are locked into a lower payment for life and you outlive your nest egg. Assuming you have your mental faculties.

I just know there is basically no investment on Earth that has a guarantee like delaying SS, and it can also allow other strategies like Roth conversions with minimal taxes. But not everyone has those options.

If someone feels they won't have as full a life in their golden years unless they start SS early, by all means, start early. Just don't worry about checks you won't be able to collect once you're dead. :sharebeer

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Re: Wait for Social Security - breakeven returns

Post by surfstar » Thu Nov 07, 2019 1:59 pm

illumination wrote:
Thu Nov 07, 2019 1:18 pm
:sharebeer
:sharebeer
If we just knew when we were going to die, it'd be much easier to precisely calculate! Then we'd also know when to quit working too!
The calculators tell us to delay to 70, that's for sure. We'll just have to see how we feel and what our finances look like at 62 (20+ years away - hopefully SS still exists then)

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Re: Wait for Social Security - breakeven returns

Post by JoeRetire » Thu Nov 07, 2019 2:20 pm

CurlyDave wrote:
Thu Nov 07, 2019 10:44 am
JoeRetire wrote:
Thu Nov 07, 2019 6:55 am
CurlyDave wrote:
Thu Nov 07, 2019 12:30 am
And, the elephant in the room few are talking about is the depletion of the SS Trust Fund -- this is not speculation the SS Trustees report on it every year. If someone is 62 today, depletion and its uncertainties will happen well before they reach breakeven. IMHO, the risks here make SORR about as scary as a Sunday School picnic.

For a group that has decided to take their retirement strategy into their own hands, this board is curiously passive about leaving SS to someone else. About the only way I have of wresting at least a little control back is to claim early.
Are you imagining that claiming early makes you immune from any benefit cuts, should that eventually happen?
No, but money that I have already collected and spent is going to be hard for Uncle to claw back from me.

This gets into an area that is perilously close to the board-forbidden speculation on future laws.
I understand now. So you are "wresting control back" by hurrying to collect and spend some money as early as possible at the expense of future benefits, before the across-the-board cuts kick in (at which point your benefits will be cut the same as others'). Okay. We can agree to disagree if that is a good plan or not, but at least I understand your thinking now. Thanks.

There's no speculation involved. Unless Congress changes the rules or otherwise prevents the trust fund from running out, across-the-board cuts are exactly what will happen.
Don't be a lemming.

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Re: Wait for Social Security - breakeven returns

Post by CurlyDave » Thu Nov 07, 2019 3:03 pm

JoeRetire wrote:
Thu Nov 07, 2019 2:20 pm

I understand now. So you are "wresting control back" by hurrying to collect and spend some money as early as possible at the expense of future benefits, before the across-the-board cuts kick in (at which point your benefits will be cut the same as others'). Okay. We can agree to disagree if that is a good plan or not, but at least I understand your thinking now. Thanks.
Close. The significant difference is that I live on (spend) the government's money, while keeping my own money in my portfolio. This is exactly the opposite of the advice I frequently hear to spend down one's portfolio while waiting to claim SS, thereby maxing out the putative SS benefit.

Having my money in my brokerage account, to me is wresting control of that money back from the government. To the extent that my own money grows as fast, or faster than the promised benefits, the comment "at the expense of future benefits" may not be valid. 12 years in I am far ahead of the game.
Last edited by CurlyDave on Thu Nov 07, 2019 3:23 pm, edited 1 time in total.

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Re: Wait for Social Security - breakeven returns

Post by CurlyDave » Thu Nov 07, 2019 3:16 pm

ObliviousInvestor wrote:
Thu Nov 07, 2019 12:15 pm

Sure. That's somewhat uncommon though, because it implies that you're already 100% stocks in the portfolio. (This is what Grabiner was getting at above.)
I read Grabiner's comments. While he has certainly made a reasonable assertion that 100% stocks is unusual, I think it falls short of a proof of how unusual it is. While I have only anecdotal data, in the days before Bogleheads was on the internet, and before I retired, I was part of an informal group of investors who would have lunch together once or twice a week at work and discuss our investments. There were 5 or 6 of us, and we were all 100% stocks. I recognize this is not proof of 100% stocks being "usual", but there may be more people like me than is generally assumed.

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Re: Wait for Social Security - breakeven returns

Post by ObliviousInvestor » Thu Nov 07, 2019 3:55 pm

CurlyDave wrote:
Thu Nov 07, 2019 3:16 pm
ObliviousInvestor wrote:
Thu Nov 07, 2019 12:15 pm

Sure. That's somewhat uncommon though, because it implies that you're already 100% stocks in the portfolio. (This is what Grabiner was getting at above.)
I read Grabiner's comments. While he has certainly made a reasonable assertion that 100% stocks is unusual, I think it falls short of a proof of how unusual it is. While I have only anecdotal data, in the days before Bogleheads was on the internet, and before I retired, I was part of an informal group of investors who would have lunch together once or twice a week at work and discuss our investments. There were 5 or 6 of us, and we were all 100% stocks. I recognize this is not proof of 100% stocks being "usual", but there may be more people like me than is generally assumed.
Granted "usual" or "unusual" are not very specific terms. Here are two data points that may be of interest:
One in 10 participants have taken an extreme position, holding either 100% in equities (6% of participants) or no equities (3% of participants).
https://institutional.vanguard.com/iam/pdf/HAS2019.pdf

According to the 2019 ICI Fact Book (p169), 19% of 401(k) participants in their sixties have an equity allocation greater than 80%. Surely some portion of that 19% has an asset allocation that is still below 100%-stock.
https://static1.squarespace.com/static/ ... 04/ICI.pdf

And with regard to each of the data points above, that's just looking at the person's 401(k) balance. Somebody could show up as 100%-stock there, because they've decided to allocate that account to stock to counterbalance some other account that includes fixed-income.

Though of course there's a counterpoint that perhaps these surveys have some sort of sampling bias. (That is, how do the overall allocations held by people without 401(k) plans compare to the allocations held by people with 401(k) plans? I genuinely have no idea. I could see a bias existing in either direction.)
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Re: Wait for Social Security - breakeven returns

Post by JoeRetire » Thu Nov 07, 2019 4:07 pm

CurlyDave wrote:
Thu Nov 07, 2019 3:03 pm
JoeRetire wrote:
Thu Nov 07, 2019 2:20 pm

I understand now. So you are "wresting control back" by hurrying to collect and spend some money as early as possible at the expense of future benefits, before the across-the-board cuts kick in (at which point your benefits will be cut the same as others'). Okay. We can agree to disagree if that is a good plan or not, but at least I understand your thinking now. Thanks.
Close. The significant difference is that I live on (spend) the government's money, while keeping my own money in my portfolio.

Yup. Lots of folks like to spend "their" money while holding on to "mine".
Having my money in my brokerage account, to me is wresting control of that money back from the government. To the extent that my own money grows as fast, or faster than the promised benefits, the comment "at the expense of future benefits" may not be valid. 12 years in I am far ahead of the game.
Okay. Pretty much everyone ends up happy with their choice, no matter what claiming strategy they end up with.

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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Re: Wait for Social Security - breakeven returns

Post by mptfan » Thu Nov 07, 2019 4:14 pm

surfstar wrote:
Thu Nov 07, 2019 12:34 pm
Are you really going to be disappointed that you are still alive, but have a lower SS payment?
I think so, yes. If I took reduced SS at 62 and I lived to be 87, I would probably be disappointed at myself for making that decision.

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Re: Wait for Social Security - breakeven returns

Post by surfstar » Thu Nov 07, 2019 4:21 pm

mptfan wrote:
Thu Nov 07, 2019 4:14 pm
surfstar wrote:
Thu Nov 07, 2019 12:34 pm
Are you really going to be disappointed that you are still alive, but have a lower SS payment?
I think so, yes. If I took reduced SS at 62 and I lived to be 87, I would probably be disappointed at myself for making that decision.
My argument is that is you are that lucid and healthy at age 87 - great! Be happy that you're still alive and healthy. Don't be mad at your wild and crazy spendthrift 62 year old self - that was a quarter of a century ago! You lived it up while you were young! Rejoice! ;)

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Re: Wait for Social Security - breakeven returns

Post by CurlyDave » Thu Nov 07, 2019 4:28 pm

JoeRetire wrote:
Thu Nov 07, 2019 4:07 pm
...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...
The problem here is that every time I see the term "risk-adjusted" serious alarm bells go off in my brain.

The reason is that the usual way returns are risk-adjusted is by using volatility as a proxy for risk. It is not obvious that this is correct, as intuitive as it may seem.

If a stock is very volatile, but has a strong long-term upward trend, it may not be risky at all.

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Re: Wait for Social Security - breakeven returns

Post by mptfan » Thu Nov 07, 2019 4:31 pm

surfstar wrote:
Thu Nov 07, 2019 4:21 pm
mptfan wrote:
Thu Nov 07, 2019 4:14 pm
surfstar wrote:
Thu Nov 07, 2019 12:34 pm
Are you really going to be disappointed that you are still alive, but have a lower SS payment?
I think so, yes. If I took reduced SS at 62 and I lived to be 87, I would probably be disappointed at myself for making that decision.
My argument is that is you are that lucid and healthy at age 87 - great! Be happy that you're still alive and healthy. Don't be mad at your wild and crazy spendthrift 62 year old self - that was a quarter of a century ago! You lived it up while you were young! Rejoice! ;)
I could be equally happy that I am still alive and healthy at 87 and live it up while I'm young and yet still choose not to start getting social security at 62.

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Re: Wait for Social Security - breakeven returns

Post by longinvest » Thu Nov 07, 2019 4:38 pm

The point of Cut-Throat's approach is to safely spend more at age 62 by delaying Social Security to age 70. The ones who bear a negative impact, in case of early demise, are the heirs who'll get a smaller inheritance.

Delaying Social Security to age 70 and using Cut-Throat's simple bridging approach provides a win/win situation for the retiree: more money to spend in the earlier days of retirement retirement and more guaranteed income in old age.
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Re: Wait for Social Security - breakeven returns

Post by JoeRetire » Thu Nov 07, 2019 5:11 pm

CurlyDave wrote:
Thu Nov 07, 2019 4:28 pm
JoeRetire wrote:
Thu Nov 07, 2019 4:07 pm
...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...
The problem here is that every time I see the term "risk-adjusted" serious alarm bells go off in my brain.

The reason is that the usual way returns are risk-adjusted is by using volatility as a proxy for risk. It is not obvious that this is correct, as intuitive as it may seem.

If a stock is very volatile, but has a strong long-term upward trend, it may not be risky at all.
Uhm, okay. I don't think we are talking about any one particular stock.
Don't be a lemming.

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Re: Wait for Social Security - breakeven returns

Post by CurlyDave » Thu Nov 07, 2019 5:41 pm

JoeRetire wrote:
Thu Nov 07, 2019 5:11 pm
CurlyDave wrote:
Thu Nov 07, 2019 4:28 pm
JoeRetire wrote:
Thu Nov 07, 2019 4:07 pm
...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...
The problem here is that every time I see the term "risk-adjusted" serious alarm bells go off in my brain.

The reason is that the usual way returns are risk-adjusted is by using volatility as a proxy for risk. It is not obvious that this is correct, as intuitive as it may seem.

If a stock is very volatile, but has a strong long-term upward trend, it may not be risky at all.
Uhm, okay. I don't think we are talking about any one particular stock.
Or an index. The math is the same. Risk is very, very difficult to actually define. Volatility is easy to measure, and the math they do is the stuff of Nobel Prizes, but I worked in a different field where we examined risk carefully.

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Re: Wait for Social Security - breakeven returns

Post by smitcat » Thu Nov 07, 2019 6:05 pm

CurlyDave wrote:
Thu Nov 07, 2019 3:03 pm
JoeRetire wrote:
Thu Nov 07, 2019 2:20 pm

I understand now. So you are "wresting control back" by hurrying to collect and spend some money as early as possible at the expense of future benefits, before the across-the-board cuts kick in (at which point your benefits will be cut the same as others'). Okay. We can agree to disagree if that is a good plan or not, but at least I understand your thinking now. Thanks.
Close. The significant difference is that I live on (spend) the government's money, while keeping my own money in my portfolio. This is exactly the opposite of the advice I frequently hear to spend down one's portfolio while waiting to claim SS, thereby maxing out the putative SS benefit.

Having my money in my brokerage account, to me is wresting control of that money back from the government. To the extent that my own money grows as fast, or faster than the promised benefits, the comment "at the expense of future benefits" may not be valid. 12 years in I am far ahead of the game.
"Having my money in my brokerage account, to me is wresting control of that money back from the government. To the extent that my own money grows as fast, or faster than the promised benefits, the comment "at the expense of future benefits" may not be valid. 12 years in I am far ahead of the game."

Perhaps you have calculated the additional tax ramifications of a few of the more likely outcomes for your specific situation and it still works well for you ….but that is not the case with other folk's differing parameters.

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Re: Wait for Social Security - breakeven returns

Post by smitcat » Thu Nov 07, 2019 6:06 pm

mptfan wrote:
Thu Nov 07, 2019 4:31 pm
surfstar wrote:
Thu Nov 07, 2019 4:21 pm
mptfan wrote:
Thu Nov 07, 2019 4:14 pm
surfstar wrote:
Thu Nov 07, 2019 12:34 pm
Are you really going to be disappointed that you are still alive, but have a lower SS payment?
I think so, yes. If I took reduced SS at 62 and I lived to be 87, I would probably be disappointed at myself for making that decision.
My argument is that is you are that lucid and healthy at age 87 - great! Be happy that you're still alive and healthy. Don't be mad at your wild and crazy spendthrift 62 year old self - that was a quarter of a century ago! You lived it up while you were young! Rejoice! ;)
I could be equally happy that I am still alive and healthy at 87 and live it up while I'm young and yet still choose not to start getting social security at 62.
mptfan - I like your solution and it is the one we are using as well.

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Re: Wait for Social Security - breakeven returns

Post by CurlyDave » Thu Nov 07, 2019 6:55 pm

smitcat wrote:
Thu Nov 07, 2019 6:05 pm

Perhaps you have calculated the additional tax ramifications of a few of the more likely outcomes for your specific situation and it still works well for you ….but that is not the case with other folk's differing parameters.
I have both calculated the tax consequences and even paid them. Essentially I am in a tax bracket where 85% of my SS is taxable as ordinary income.

This claiming strategy might not work for everyone, but based on actual results it has been very beneficial for DW and I.

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Re: Wait for Social Security - breakeven returns

Post by smitcat » Thu Nov 07, 2019 7:03 pm

CurlyDave wrote:
Thu Nov 07, 2019 6:55 pm
smitcat wrote:
Thu Nov 07, 2019 6:05 pm

Perhaps you have calculated the additional tax ramifications of a few of the more likely outcomes for your specific situation and it still works well for you ….but that is not the case with other folk's differing parameters.
I have both calculated the tax consequences and even paid them. Essentially I am in a tax bracket where 85% of my SS is taxable as ordinary income.

This claiming strategy might not work for everyone, but based on actual results it has been very beneficial for DW and I.
"I have both calculated the tax consequences and even paid them. Essentially I am in a tax bracket where 85% of my SS is taxable as ordinary income."
How severely did your claiming early affect Roth conversions and those taxes?

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Re: Wait for Social Security - breakeven returns

Post by CurlyDave » Thu Nov 07, 2019 7:32 pm

smitcat wrote:
Thu Nov 07, 2019 7:03 pm

"I have both calculated the tax consequences and even paid them. Essentially I am in a tax bracket where 85% of my SS is taxable as ordinary income."
How severely did your claiming early affect Roth conversions and those taxes?
Our income is too high to make Roth contributions both with and without SS.

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Re: Wait for Social Security - breakeven returns

Post by smitcat » Thu Nov 07, 2019 7:40 pm

CurlyDave wrote:
Thu Nov 07, 2019 7:32 pm
smitcat wrote:
Thu Nov 07, 2019 7:03 pm

"I have both calculated the tax consequences and even paid them. Essentially I am in a tax bracket where 85% of my SS is taxable as ordinary income."
How severely did your claiming early affect Roth conversions and those taxes?
Our income is too high to make Roth contributions both with and without SS.
I meant before taking SS but after you had income from a job and/or work.

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Re: Wait for Social Security - breakeven returns

Post by willthrill81 » Thu Nov 07, 2019 7:57 pm

mptfan wrote:
Thu Nov 07, 2019 4:31 pm
surfstar wrote:
Thu Nov 07, 2019 4:21 pm
mptfan wrote:
Thu Nov 07, 2019 4:14 pm
surfstar wrote:
Thu Nov 07, 2019 12:34 pm
Are you really going to be disappointed that you are still alive, but have a lower SS payment?
I think so, yes. If I took reduced SS at 62 and I lived to be 87, I would probably be disappointed at myself for making that decision.
My argument is that is you are that lucid and healthy at age 87 - great! Be happy that you're still alive and healthy. Don't be mad at your wild and crazy spendthrift 62 year old self - that was a quarter of a century ago! You lived it up while you were young! Rejoice! ;)
I could be equally happy that I am still alive and healthy at 87 and live it up while I'm young and yet still choose not to start getting social security at 62.
I agree. For us, SS is longevity insurance, so deferring for as long as possible is the best way to achieve that goal. Plus, the range of my life expectancy alone, let alone my wife's, is 92 to 100, so deferring seems to be optimal in every scenario except those that assume high investment returns.
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Re: Wait for Social Security - breakeven returns

Post by abuss368 » Thu Nov 07, 2019 8:05 pm

CurlyDave wrote:
Thu Nov 07, 2019 7:32 pm
smitcat wrote:
Thu Nov 07, 2019 7:03 pm

"I have both calculated the tax consequences and even paid them. Essentially I am in a tax bracket where 85% of my SS is taxable as ordinary income."
How severely did your claiming early affect Roth conversions and those taxes?
Our income is too high to make Roth contributions both with and without SS.
What about a backdoor Roth IRA?
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Re: Wait for Social Security - breakeven returns

Post by grabiner » Fri Nov 08, 2019 10:44 pm

ObliviousInvestor wrote:
Thu Nov 07, 2019 3:55 pm
Sure. That's somewhat uncommon though, because it implies that you're already 100% stocks in the portfolio. (This is what Grabiner was getting at above.)
One in 10 participants have taken an extreme position, holding either 100% in equities (6% of participants) or no equities (3% of participants).
https://institutional.vanguard.com/iam/pdf/HAS2019.pdf
And even that overstates the number of investors who are 100% stock, because people have multiple accounts; some investors have stock in their 401(k)s and bonds in their IRAs or taxable accounts. (I am the other way around; my employer plan holds all my bonds, while my HSA, Roth IRA, and taxable account are 100% stock.)
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Re: Wait for Social Security - breakeven returns

Post by Leroy Jones » Sat Nov 09, 2019 10:01 am

Here is our plan. The wife took SS at FRA plus two months. I took spousal at full retirement age which meant we both started the same month. By taking spousal of the DW FRA SS I figured it lowered our breakeven point to late 70's, if I take my SS on my record at 70. Is my math correct? By getting 50 % of her benefit and since I was the higher earner, it seemed prudent for me to wait for 70.
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Re: Wait for Social Security - breakeven returns

Post by JoeRetire » Sat Nov 09, 2019 2:24 pm

Leroy Jones wrote:
Sat Nov 09, 2019 10:01 am
By getting 50 % of her benefit and since I was the higher earner, it seemed prudent for me to wait for 70.
So you were born before Jan. 2, 1954. Nice. I missed out on that opportunity by a few months.

Seems prudent to me.
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Re: Wait for Social Security - breakeven returns

Post by bberris » Sun Nov 10, 2019 9:32 am

CurlyDave wrote:
Thu Nov 07, 2019 3:03 pm
JoeRetire wrote:
Thu Nov 07, 2019 2:20 pm

I understand now. So you are "wresting control back" by hurrying to collect and spend some money as early as possible at the expense of future benefits, before the across-the-board cuts kick in (at which point your benefits will be cut the same as others'). Okay. We can agree to disagree if that is a good plan or not, but at least I understand your thinking now. Thanks.
Close. The significant difference is that I live on (spend) the government's money, while keeping my own money in my portfolio. This is exactly the opposite of the advice I frequently hear to spend down one's portfolio while waiting to claim SS, thereby maxing out the putative SS benefit.

Having my money in my brokerage account, to me is wresting control of that money back from the government. To the extent that my own money grows as fast, or faster than the promised benefits, the comment "at the expense of future benefits" may not be valid. 12 years in I am far ahead of the game.
You may be overestimating the degree of control over your own money. The government can change taxes and rules on retirement account withdrawals, and sales taxes, just as they can change the taxation and benefits of social security receipts. You don't know if you've won the game until you've actually withdrawn and spent the money.

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Re: Wait for Social Security - breakeven returns

Post by CurlyDave » Sun Nov 10, 2019 10:29 am

bberris wrote:
Sun Nov 10, 2019 9:32 am

You may be overestimating the degree of control over your own money. The government can change taxes and rules on retirement account withdrawals, and sales taxes, just as they can change the taxation and benefits of social security receipts. You don't know if you've won the game until you've actually withdrawn and spent the money.
Maybe, maybe not. But exploration of these issues gets into the board-forbidden area of speculation on future laws.

on edit

Based on current law and SS Trustees Reports, my strategy has the greatest expected value for me.

If there are future changes in the law, I will fight back as best I can. Beats the heck out of spending down my portfolio and counting on the tender mercies of SS for my future.

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Re: Wait for Social Security - breakeven returns

Post by smitcat » Sun Nov 10, 2019 1:32 pm

CurlyDave wrote:
Sun Nov 10, 2019 10:29 am
bberris wrote:
Sun Nov 10, 2019 9:32 am

You may be overestimating the degree of control over your own money. The government can change taxes and rules on retirement account withdrawals, and sales taxes, just as they can change the taxation and benefits of social security receipts. You don't know if you've won the game until you've actually withdrawn and spent the money.
Maybe, maybe not. But exploration of these issues gets into the board-forbidden area of speculation on future laws.

on edit

Based on current law and SS Trustees Reports, my strategy has the greatest expected value for me.

If there are future changes in the law, I will fight back as best I can. Beats the heck out of spending down my portfolio and counting on the tender mercies of SS for my future.
Interesting - based upon current law almost all of our future possible versions show the opposite.

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Re: Wait for Social Security - breakeven returns

Post by Lalamimi » Sun Nov 10, 2019 1:44 pm

Leroy Jones wrote:
Sat Nov 09, 2019 10:01 am
Here is our plan. The wife took SS at FRA plus two months. I took spousal at full retirement age which meant we both started the same month. By taking spousal of the DW FRA SS I figured it lowered our breakeven point to late 70's, if I take my SS on my record at 70. Is my math correct? By getting 50 % of her benefit and since I was the higher earner, it seemed prudent for me to wait for 70.
Leroy Jones :sharebeer
We are about to do the same thing - plan is to start DH's SS next month ( 2 yrs 3 months after FRA) and I will take spousal same time as I reach my FRA Dec 30. (first time my holiday birthday is paying off). (IF we can get an appointment with SS office). I will draw for 4 years, then start my higher SS Jan 2024. But, just realized in doing RMD projections, not only will he have his RMD that year, but I will increase SS AND have to take 2 RMDs that year. We are making his first Roth Conversion this month, trying to stay at top of 12% bracket, or just a bit over into the 22% in attempt to ease our taxes over the next few years. Then make smaller Roth conversions 3 more years from his IRA, which is larger than mine, and takes us up to 2024.

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Re: Wait for Social Security - breakeven returns

Post by CurlyDave » Sun Nov 10, 2019 3:46 pm

smitcat wrote:
Sun Nov 10, 2019 1:32 pm
CurlyDave wrote:
Sun Nov 10, 2019 10:29 am
Based on current law and SS Trustees Reports, my strategy has the greatest expected value for me.

If there are future changes in the law, I will fight back as best I can. Beats the heck out of spending down my portfolio and counting on the tender mercies of SS for my future.
Interesting - based upon current law almost all of our future possible versions show the opposite.
As the article linked by the OP shows, it really depends on the return you assume on the money that stays in your portfolio as a result of claiming early and living on benefits instead of portfolio withdrawals. Somewhere around 7% real there is no break even point -- one could live to 1000 and claiming early would be a superior strategy.

In real life, I retired in 2007, invested the money 100% in stocks and enjoyed a substantial return. If instead you choose to model investing the money in bonds, or in T-bills, the return will be much lower and delaying claiming will appear superior. You will still need to contend with the risk associated with SS Trust Fund depletion. I have no idea how to model that, but ignoring it is almost certainly the wrong approach.

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Re: Wait for Social Security - breakeven returns

Post by willthrill81 » Sun Nov 10, 2019 4:01 pm

CurlyDave wrote:
Sun Nov 10, 2019 3:46 pm
If instead you choose to model investing the money in bonds, or in T-bills, the return will be much lower and delaying claiming will appear superior. You will still need to contend with the risk associated with SS Trust Fund depletion. I have no idea how to model that, but ignoring it is almost certainly the wrong approach.
I'm not sure that depletion of the SS trust fund will impact the decision at all under current law because everyone's benefits, regardless of when they started claiming benefits, would be reduced by the same amount, about 21% IIRC based on the SSA's current estimates.
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Re: Wait for Social Security - breakeven returns

Post by JoeRetire » Sun Nov 10, 2019 4:09 pm

willthrill81 wrote:
Sun Nov 10, 2019 4:01 pm
CurlyDave wrote:
Sun Nov 10, 2019 3:46 pm
If instead you choose to model investing the money in bonds, or in T-bills, the return will be much lower and delaying claiming will appear superior. You will still need to contend with the risk associated with SS Trust Fund depletion. I have no idea how to model that, but ignoring it is almost certainly the wrong approach.
I'm not sure that depletion of the SS trust fund will impact the decision at all under current law because everyone's benefits, regardless of when they started claiming benefits, would be reduced by the same amount, about 21% IIRC based on the SSA's current estimates.
In most cases, it would extend the "break even" point out a few years, for those fans of break even analysis (rather than the longevity insurance point of view). That's unlikely to be a deciding factor for anyone.
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Re: Wait for Social Security - breakeven returns

Post by CurlyDave » Sun Nov 10, 2019 4:27 pm

willthrill81 wrote:
Sun Nov 10, 2019 4:01 pm

I'm not sure that depletion of the SS trust fund will impact the decision at all under current law because everyone's benefits, regardless of when they started claiming benefits, would be reduced by the same amount, about 21% IIRC based on the SSA's current estimates.
Even if there is a 21% across the board reduction, at some magic date, that definitely would impact the decision for potential claims that straddle that magic date. An early claim before the magic date would enjoy full current benefits up to that date, followed by 21% less after that date. This would certainly have an effect on the break-even time. Especially if the claim for maximum monthly benefit date happened to be after the magic date.

I agree that if first eligibility is after the magic date, there is no difference.

OTOH since the life expectancy of everyone hitting age 62 between now and SS Trust Fund depletion is greater than it is going to take to hit fund depletion every person who retires between now and when a permanent solution is created (even if that solution is "do nothing"), is faced with a problem with no answer.

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Re: Wait for Social Security - breakeven returns

Post by smitcat » Sun Nov 10, 2019 5:26 pm

CurlyDave wrote:
Sun Nov 10, 2019 3:46 pm
smitcat wrote:
Sun Nov 10, 2019 1:32 pm
CurlyDave wrote:
Sun Nov 10, 2019 10:29 am
Based on current law and SS Trustees Reports, my strategy has the greatest expected value for me.

If there are future changes in the law, I will fight back as best I can. Beats the heck out of spending down my portfolio and counting on the tender mercies of SS for my future.
Interesting - based upon current law almost all of our future possible versions show the opposite.
As the article linked by the OP shows, it really depends on the return you assume on the money that stays in your portfolio as a result of claiming early and living on benefits instead of portfolio withdrawals. Somewhere around 7% real there is no break even point -- one could live to 1000 and claiming early would be a superior strategy.

In real life, I retired in 2007, invested the money 100% in stocks and enjoyed a substantial return. If instead you choose to model investing the money in bonds, or in T-bills, the return will be much lower and delaying claiming will appear superior. You will still need to contend with the risk associated with SS Trust Fund depletion. I have no idea how to model that, but ignoring it is almost certainly the wrong approach.
"As the article linked by the OP shows, it really depends on the return you assume on the money that stays in your portfolio as a result of claiming early and living on benefits instead of portfolio withdrawals. Somewhere around 7% real there is no break even point -- one could live to 1000 and claiming early would be a superior strategy."l
For us …large advantages come from taxes due to Roth conversions that would be blocked if we took it early. Plus the 15% taxes that are not paid on the larger SS later on - all that is fairly easily modeled.

'You will still need to contend with the risk associated with SS Trust Fund depletion. I have no idea how to model that, but ignoring it is almost certainly the wrong approach."
I would look to the past data that is available including but not limited to:
- how the US SS was 'saved' in the past
- how other countries dealt with these same issues
- and research the 12 or so methods likely to be used singly or in groups to affect the needed corrections

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Re: Wait for Social Security - breakeven returns

Post by celia » Sun Nov 10, 2019 6:19 pm

CurlyDave wrote:
Thu Nov 07, 2019 3:03 pm
. . .I live on (spend) the government's money, while keeping my own money in my portfolio. This is exactly the opposite of the advice I frequently hear to spend down one's portfolio while waiting to claim SS, thereby maxing out the putative SS benefit.

Having my money in my brokerage account, to me is wresting control of that money back from the government. To the extent that my own money grows as fast, or faster than the promised benefits, the comment "at the expense of future benefits" may not be valid. 12 years in I am far ahead of the game.
If your money is in a tax-deferred account (401K, 403b, traditional IRA), it is NOT all your money. It belongs to you, Uncle Sam, and possibly your state (because the taxes have been deferred). To "wrestle" control of that money back, you would first have to convert it to Roth or withdraw it, either of which incur taxes be paid, making the value of that account(s) be less, in effect. [See my signature line.]

Also, are you aware that each year you delay starting SS benefits from your Full Retirement Age (FRA) to age 70, your monthly benefit will grow 8% for each year you wait (and the higher benefit will benefit you/your spouse for the rest of your life)? Can you guarantee that you can get those returns on "your own money"?
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: Wait for Social Security - breakeven returns

Post by protagonist » Sun Nov 10, 2019 6:36 pm

"Breakeven returns" should be irrelevant.

Reposting a previous post of mine re: A similar question....

A huge mistake I humbly believe that many people make on this site is equating "maximum wealth" with "happiness" and "better life"...the latter is much more correlated with peace of mind. In that context, deciding when to start benefits is easy.

Consider the fate of two retirees, Rich and Delores. Both retire at age 62....let's say they were both laid off and cannot find additional work.

At time of retirement, Rich has $1,000,000 in financial assets. Delores has $10,000. Both would receive $20K/year from SS if they started benefits at age 62 and $30K/yr if they wait to age 70.

Delores' decision is simple. She needs to start benefits at 62 for survival.

Rich's decision is also simple. He should definitely wait until 70. Rich has plenty of savings to fund his early retirement. His concern is whether, due to unexpected financial reversal or whatever, he will still have enough money to live comfortably when and if he makes it to 85 or 90 or 95. If Rich dies suddenly at 71, he loses out big time on "overall benefits" by waiting until 70, but he dies happily with a happy retirement and peace of mind. On the other hand, if he lives a long time and if he runs out of money before he dies, he can still live much more comfortably on $30K/year than on $20K/year. So no matter when he dies or what the "break even point" is, he has way more peace of mind by deferring and a happier retirement.

If you have enough money to fund your early retirement, defer SS as long as possible. If not, start taking it whenever you feel you really need it to avoid significant immediate lifestyle compromise. It's that simple. Forget about break even ages, maximizing benefits in an unknown world, etc. What you should care about is minimizing lifestyle compromise and worry. This is a point that I think is crucial in much financial decision-making and is lost on many people who simply rely on the math.

He who dies with the most toys does not always win. He who dies happily and in peace does.

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Re: Wait for Social Security - breakeven returns

Post by grabiner » Sun Nov 10, 2019 6:40 pm

celia wrote:
Sun Nov 10, 2019 6:19 pm
Also, are you aware that each year you delay starting SS benefits from your Full Retirement Age (FRA) to age 70, your monthly benefit will grow 8% for each year you wait (and the higher benefit will benefit you/your spouse for the rest of your life)? Can you guarantee that you can get those returns on "your own money"?
The return is not 8%, because the correct comparison is to annuity rates, not investment yields. If your normal benefit is $20,000 at age 66, you can give up that $20,000 to get an extra $1600 per year starting at age 67. A true 8% investment would pay $1600 every year starting at 66, and would give you back $20,000 at the end of your term. Instead, you are buying a one-year-deferred life annuity with a payout rate of 8% above inflation. (I worked out earlier in the thread that a single man delaying from 69 to 70 with an average life expectancy would get a better expected return by buying TIPS.)

It's still a good deal. If you are going to buy an annuity, delaying SS is a better deal than you can get at retail.
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Re: Wait for Social Security - breakeven returns

Post by willthrill81 » Sun Nov 10, 2019 6:45 pm

CurlyDave wrote:
Sun Nov 10, 2019 4:27 pm
willthrill81 wrote:
Sun Nov 10, 2019 4:01 pm

I'm not sure that depletion of the SS trust fund will impact the decision at all under current law because everyone's benefits, regardless of when they started claiming benefits, would be reduced by the same amount, about 21% IIRC based on the SSA's current estimates.
Even if there is a 21% across the board reduction, at some magic date, that definitely would impact the decision for potential claims that straddle that magic date. An early claim before the magic date would enjoy full current benefits up to that date, followed by 21% less after that date. This would certainly have an effect on the break-even time. Especially if the claim for maximum monthly benefit date happened to be after the magic date.

I agree that if first eligibility is after the magic date, there is no difference.

OTOH since the life expectancy of everyone hitting age 62 between now and SS Trust Fund depletion is greater than it is going to take to hit fund depletion every person who retires between now and when a permanent solution is created (even if that solution is "do nothing"), is faced with a problem with no answer.
I agree with you entirely. I'm glad that I won't be eligible to claim benefits until well after the expected 'magic date' just to simplify the decision, although I would probably still defer to age 70 if only to increase the survivor's benefit.
“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: Wait for Social Security - breakeven returns

Post by willthrill81 » Sun Nov 10, 2019 6:47 pm

grabiner wrote:
Sun Nov 10, 2019 6:40 pm
celia wrote:
Sun Nov 10, 2019 6:19 pm
Also, are you aware that each year you delay starting SS benefits from your Full Retirement Age (FRA) to age 70, your monthly benefit will grow 8% for each year you wait (and the higher benefit will benefit you/your spouse for the rest of your life)? Can you guarantee that you can get those returns on "your own money"?
The return is not 8%, because the correct comparison is to annuity rates, not investment yields. If your normal benefit is $20,000 at age 66, you can give up that $20,000 to get an extra $1600 per year starting at age 67. A true 8% investment would pay $1600 every year starting at 66, and would give you back $20,000 at the end of your term. Instead, you are buying a one-year-deferred life annuity with a payout rate of 8% above inflation. (I worked out earlier in the thread that a single man delaying from 69 to 70 with an average life expectancy would get a better expected return by buying TIPS.)

It's still a good deal. If you are going to buy an annuity, delaying SS is a better deal than you can get at retail.
:thumbsup
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Re: Wait for Social Security - breakeven returns

Post by smitcat » Sun Nov 10, 2019 7:02 pm

CurlyDave wrote:
Sun Nov 10, 2019 3:46 pm
smitcat wrote:
Sun Nov 10, 2019 1:32 pm
CurlyDave wrote:
Sun Nov 10, 2019 10:29 am
Based on current law and SS Trustees Reports, my strategy has the greatest expected value for me.

If there are future changes in the law, I will fight back as best I can. Beats the heck out of spending down my portfolio and counting on the tender mercies of SS for my future.
Interesting - based upon current law almost all of our future possible versions show the opposite.
As the article linked by the OP shows, it really depends on the return you assume on the money that stays in your portfolio as a result of claiming early and living on benefits instead of portfolio withdrawals. Somewhere around 7% real there is no break even point -- one could live to 1000 and claiming early would be a superior strategy.

In real life, I retired in 2007, invested the money 100% in stocks and enjoyed a substantial return. If instead you choose to model investing the money in bonds, or in T-bills, the return will be much lower and delaying claiming will appear superior. You will still need to contend with the risk associated with SS Trust Fund depletion. I have no idea how to model that, but ignoring it is almost certainly the wrong approach.

"In real life, I retired in 2007, invested the money 100% in stocks and enjoyed a substantial return. If instead you choose to model investing the money in bonds, or in T-bills, the return will be much lower and delaying claiming will appear superior."
Additionally - I would never model the difference by comparing the early SS with stock returns unless maybe my target AA was 100% stocks.
That would certainly be comparing apples to oranges - you could also just move more money to stocks and still delay SS with a superior result..

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Re: Wait for Social Security - breakeven returns

Post by smitcat » Sun Nov 10, 2019 7:06 pm

protagonist wrote:
Sun Nov 10, 2019 6:36 pm
"Breakeven returns" should be irrelevant.

Reposting a previous post of mine re: A similar question....

A huge mistake I humbly believe that many people make on this site is equating "maximum wealth" with "happiness" and "better life"...the latter is much more correlated with peace of mind. In that context, deciding when to start benefits is easy.

Consider the fate of two retirees, Rich and Delores. Both retire at age 62....let's say they were both laid off and cannot find additional work.

At time of retirement, Rich has $1,000,000 in financial assets. Delores has $10,000. Both would receive $20K/year from SS if they started benefits at age 62 and $30K/yr if they wait to age 70.

Delores' decision is simple. She needs to start benefits at 62 for survival.

Rich's decision is also simple. He should definitely wait until 70. Rich has plenty of savings to fund his early retirement. His concern is whether, due to unexpected financial reversal or whatever, he will still have enough money to live comfortably when and if he makes it to 85 or 90 or 95. If Rich dies suddenly at 71, he loses out big time on "overall benefits" by waiting until 70, but he dies happily with a happy retirement and peace of mind. On the other hand, if he lives a long time and if he runs out of money before he dies, he can still live much more comfortably on $30K/year than on $20K/year. So no matter when he dies or what the "break even point" is, he has way more peace of mind by deferring and a happier retirement.

If you have enough money to fund your early retirement, defer SS as long as possible. If not, start taking it whenever you feel you really need it to avoid significant immediate lifestyle compromise. It's that simple. Forget about break even ages, maximizing benefits in an unknown world, etc. What you should care about is minimizing lifestyle compromise and worry. This is a point that I think is crucial in much financial decision-making and is lost on many people who simply rely on the math.

He who dies with the most toys does not always win. He who dies happily and in peace does.
"This is a point that I think is crucial in much financial decision-making and is lost on many people who simply rely on the math."
I prefer to make decision utilizing math and history as best we can - that in fact minimizes worry and makes decisions easier.

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Re: Wait for Social Security - breakeven returns

Post by CurlyDave » Sun Nov 10, 2019 9:19 pm

smitcat wrote:
Sun Nov 10, 2019 7:02 pm

Additionally - I would never model the difference by comparing the early SS with stock returns unless maybe my target AA was 100% stocks.
That would certainly be comparing apples to oranges - you could also just move more money to stocks and still delay SS with a superior result..
My actual AA was 100% stocks, so for me that is the correct comparison.

you could also just move more money to stocks and still delay SS with a superior result..

Where would that money have come from? I don't think that "superior result" is available.

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Re: Wait for Social Security - breakeven returns

Post by CurlyDave » Sun Nov 10, 2019 10:05 pm

grabiner wrote:
Fri Nov 08, 2019 10:44 pm
ObliviousInvestor wrote:
Thu Nov 07, 2019 3:55 pm
Sure. That's somewhat uncommon though, because it implies that you're already 100% stocks in the portfolio. (This is what Grabiner was getting at above.)
One in 10 participants have taken an extreme position, holding either 100% in equities (6% of participants) or no equities (3% of participants).
https://institutional.vanguard.com/iam/pdf/HAS2019.pdf
And even that overstates the number of investors who are 100% stock, because people have multiple accounts; some investors have stock in their 401(k)s and bonds in their IRAs or taxable accounts. (I am the other way around; my employer plan holds all my bonds, while my HSA, Roth IRA, and taxable account are 100% stock.)
I did not realize that my 100% stock allocation put my in such an elite crowd. :D

I do want to point out that for the purposes of this discussion, a 100% stock allocation is not necessary to make early claiming beneficial. All that is necessary is that the SS payments are accumulated in a portfolio (or sub-portfolio) where the real combined average return is greater than 7%.

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Re: Wait for Social Security - breakeven returns

Post by ObliviousInvestor » Sun Nov 10, 2019 10:32 pm

CurlyDave wrote:
Sun Nov 10, 2019 10:05 pm
I do want to point out that for the purposes of this discussion, a 100% stock allocation is not necessary to make early claiming beneficial. All that is necessary is that the SS payments are accumulated in a portfolio (or sub-portfolio) where the real combined average return is greater than 7%.
This is incorrect. That is not all that is necessary.

Imagine a person who:
1) Has a portfolio that is 60% stocks, 40% TIPS, and
2) Is currently planning on taking Social Security at their FRA.

And let's also grant without argument, for the sake of making this point, that stocks have an expected real return of 7%.

Let's say the person's Social Security at FRA of 67 would be $1,000/month. So at 62 it would be $700/month.

So they can file at 62 and put that $700/month into stocks.

Or they can wait until FRA, and starting at 62 start moving $700/month from TIPS into stocks.

When you compare those two, you will find that the second strategy comes out ahead, for a single person with an average life expectancy. (And in fact waiting beyond FRA, with a similar strategy, would on average be useful.)

Point being, if a single person:
a) wants more risk, and
b) has some bonds in their portfolio...
It's usually more efficient to transfer from bonds to stocks (and still wait to claim Social Security) than it is to claim Social Security early and use that money to fund the additional stock purchases.

For a married person the analysis is more complicated of course.
Mike Piper, author/blogger

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