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

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You Know What I Mean
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by You Know What I Mean »

sailaway wrote: Wed Nov 23, 2022 4:20 pm I don't know anyone IRL who talks about delaying to 70. A handful have told me they couldn't make Medicare payments without claiming. Not that they personally couldn't afford to, but that it just isn't possible. Many more have made "get my money back while I can" type comments and/or are happy to live off that and have the free time as soon as they turn 62.
I did talk to a few people IRL about why I was waiting till 70. And I did wait.
"Well, she was just seventeen, You Know What I Mean, and the way she looked... was way beyond compare."
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vineviz
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by vineviz »

nisiprius wrote: Wed Nov 23, 2022 8:11 pm I think that by "talking about delaying to 70," sailaway means people who are actually making that decision for themselves (as distinct from recommending it to others). Of course, I don't know either your age or vineviz's, or whether either of you has claimed Social Security yet.
I'm many years from claiming personally.

The reason, IMHO, that repeating this "delay if you can" message is so important is the huge disconnect between the optimal strategy and the strategy that people actually pursue as illustrated by these authors.
We find that virtually all American workers age 45 to 62 should wait beyond age 65 to collect. More than 90 percent should wait till age 70. Only 10.2 percent appear to do so.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by smitcat »

sailaway wrote: Wed Nov 23, 2022 4:20 pm I don't know anyone IRL who talks about delaying to 70. A handful have told me they couldn't make Medicare payments without claiming. Not that they personally couldn't afford to, but that it just isn't possible. Many more have made "get my money back while I can" type comments and/or are happy to live off that and have the free time as soon as they turn 62.
"I don't know anyone IRL who talks about delaying to 70."
We have talked to numerous folks about waiting till later to claim - so far it has made no difference.

"A handful have told me they couldn't make Medicare payments without claiming. Not that they personally couldn't afford to, but that it just isn't possible."
It's easy really - just pay with CC, you get points.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by smitcat »

michaeljc70 wrote: Wed Nov 23, 2022 7:32 pm Open social security recommends my spouse (7 years younger than I am) claim before I do. I don't doubt the validity of it, it is just sort of ironic that my spouse that has a very low PIA should collect before I do. :shock:
Opensocialsecurity is a fabulous tool for maximizing your SS and for visualizing any other combinations with the interactive chart on that site. With that said maximizing SS is not the real goal for most folks as optimizing your overall plan of SS, incomes, and total portfolio is the real goal. For that you need something like RPM or Pralana.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by vested1 »

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

Just kidding, not really. At least you have 12 months from the onset of receiving benefits to change your mind and pay back what you received so far, not the optimal choice.

How has that 4 to 5% gain worked out for you this year? What will your gain or loss be next year and the year after that? What will your gain or loss be in 7 years at age 70? Unless you're primarily invested in TIPs, your nest egg may not have kept pace with inflation.

Then again, I'm a big fan of guaranteed income, especially if that income has a guaranteed COLA based currently on CPI, which for next year is 8.7% in addition to the amount guaranteed for delaying. More accurately, filing prior to FRA results in a penalty, rather than an increase, as everything is based on PIA. The penalty for filing early increases when further from FRA.

I'm not in your position, being currently married and having delayed until recently at age 70. Only you can decide when to file. The only thing that is almost universally certain is that everyone will defend their choice. Such is human nature.

However, even for a single person, delaying for as long as possible if you can afford it is definitely a defensible position, considering that filing at age 62 rather than at age 70 results in a 77% lower benefit at age 62 as compared to age 70. For life. Guaranteed (ignoring chicken little projections). There's that guaranteed word again! Maybe "assured", "insured", or "protected" would be more appropriate.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by JohnDoh »

vested1 wrote: Thu Nov 24, 2022 9:29 am
jnevada wrote: Wed Nov 23, 2022 10:54 am I just started taking social security this year at 63. I am single. Between that and my pension It covers all my expenses. I did this to let my 1.5 million dollar tax deferred nest egg grow for the next 10 years. I think I might get 4 to 5 % return. Not the 8% return from social security which is 2585/month. But making an extra 40 to 60 k a year on my nest eggs and taking Social Security now seems like a no brainer. Am I missing something?
Yes, you missed out on the opportunity to delay. :D

Just kidding, not really. At least you have 12 months from the onset of receiving benefits to change your mind and pay back what you received so far, not the optimal choice.

How has that 4 to 5% gain worked out for you this year? What will your gain or loss be next year and the year after that? What will your gain or loss be in 7 years at age 70? Unless you're primarily invested in TIPs, your nest egg may not have kept pace with inflation.

Then again, I'm a big fan of guaranteed income, especially if that income has a guaranteed COLA based currently on CPI, which for next year is 8.7% in addition to the amount guaranteed for delaying. More accurately, filing prior to FRA results in a penalty, rather than an increase, as everything is based on PIA. The penalty for filing early increases when further from FRA.

I'm not in your position, being currently married and having delayed until recently at age 70. Only you can decide when to file. The only thing that is almost universally certain is that everyone will defend their choice. Such is human nature.

However, even for a single person, delaying for as long as possible if you can afford it is definitely a defensible position, considering that filing at age 62 rather than at age 70 results in a 77% lower benefit at age 62 as compared to age 70. For life. Guaranteed (ignoring chicken little projections). There's that guaranteed word again! Maybe "assured", "insured", or "protected" would be more appropriate.
Also, if your tax-deferred is truly "-deferred" not "-free" -- i.e. it's in 401k, tIRA, etc. ultimately subject to RMD -- the usual advice would be to use the years between age 62-70 to do ROTH conversions to the extent possible. That, of course, means you have something to live off of, e.g. something in your taxable account that you can spend down. If not, then perhaps it's a different ball game.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by sailaway »

smitcat wrote: Thu Nov 24, 2022 9:10 am
sailaway wrote: Wed Nov 23, 2022 4:20 pm I don't know anyone IRL who talks about delaying to 70. A handful have told me they couldn't make Medicare payments without claiming. Not that they personally couldn't afford to, but that it just isn't possible. Many more have made "get my money back while I can" type comments and/or are happy to live off that and have the free time as soon as they turn 62.
"I don't know anyone IRL who talks about delaying to 70."
We have talked to numerous folks about waiting till later to claim - so far it has made no difference.

"A handful have told me they couldn't make Medicare payments without claiming. Not that they personally couldn't afford to, but that it just isn't possible."
It's easy really - just pay with CC, you get points.
Yes, well, one of these people also tried to tell me that ibonds have a $10k lifetime limit, to keep the misinformation on a financial footing.

I just turned 50 and my husband is even younger. Retirees of traditional age are not generally open to discussing these concepts with us; they want to lecture us. So we hear what family and our many older friends have done or plan to do, but are basically told "just wait until you are this age" if we try to interact.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by michaeljc70 »

vested1 wrote: Thu Nov 24, 2022 9:29 am
jnevada wrote: Wed Nov 23, 2022 10:54 am I just started taking social security this year at 63. I am single. Between that and my pension It covers all my expenses. I did this to let my 1.5 million dollar tax deferred nest egg grow for the next 10 years. I think I might get 4 to 5 % return. Not the 8% return from social security which is 2585/month. But making an extra 40 to 60 k a year on my nest eggs and taking Social Security now seems like a no brainer. Am I missing something?
Yes, you missed out on the opportunity to delay. :D

Just kidding, not really. At least you have 12 months from the onset of receiving benefits to change your mind and pay back what you received so far, not the optimal choice.

How has that 4 to 5% gain worked out for you this year? What will your gain or loss be next year and the year after that? What will your gain or loss be in 7 years at age 70? Unless you're primarily invested in TIPs, your nest egg may not have kept pace with inflation.

Then again, I'm a big fan of guaranteed income, especially if that income has a guaranteed COLA based currently on CPI, which for next year is 8.7% in addition to the amount guaranteed for delaying. More accurately, filing prior to FRA results in a penalty, rather than an increase, as everything is based on PIA. The penalty for filing early increases when further from FRA.

I'm not in your position, being currently married and having delayed until recently at age 70. Only you can decide when to file. The only thing that is almost universally certain is that everyone will defend their choice. Such is human nature.

However, even for a single person, delaying for as long as possible if you can afford it is definitely a defensible position, considering that filing at age 62 rather than at age 70 results in a 77% lower benefit at age 62 as compared to age 70. For life. Guaranteed (ignoring chicken little projections). There's that guaranteed word again! Maybe "assured", "insured", or "protected" would be more appropriate.
The official social security website does not show that for me. It is more like 45% lower.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by michaeljc70 »

In these forums we always talk about risk. Most of us don't buy leveraged high risk investments to try and make the most money. If you wait until 70 there is a risk you may not get any benefits or smaller benefits if you kick the bucket young. It is not riskless to wait to 70. Since no one knows when they will die, I don't think there is a wrong answer. If your family tends to live longer and you can afford to wait until FRA or 70, I think that is a good plan.

SSA has a Longevity Visualizer program you can download from their website. A 62 yo male has a 94% chance of living to 70 and 88% chance of living to 75. So, the odds of not making it to those ages is low. But depending on what discount rate you use, you might need to make it to 85 to break even and the odds of that for the same 62 yo male is 66%.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by smitcat »

michaeljc70 wrote: Thu Nov 24, 2022 9:56 am
vested1 wrote: Thu Nov 24, 2022 9:29 am
jnevada wrote: Wed Nov 23, 2022 10:54 am I just started taking social security this year at 63. I am single. Between that and my pension It covers all my expenses. I did this to let my 1.5 million dollar tax deferred nest egg grow for the next 10 years. I think I might get 4 to 5 % return. Not the 8% return from social security which is 2585/month. But making an extra 40 to 60 k a year on my nest eggs and taking Social Security now seems like a no brainer. Am I missing something?
Yes, you missed out on the opportunity to delay. :D

Just kidding, not really. At least you have 12 months from the onset of receiving benefits to change your mind and pay back what you received so far, not the optimal choice.

How has that 4 to 5% gain worked out for you this year? What will your gain or loss be next year and the year after that? What will your gain or loss be in 7 years at age 70? Unless you're primarily invested in TIPs, your nest egg may not have kept pace with inflation.

Then again, I'm a big fan of guaranteed income, especially if that income has a guaranteed COLA based currently on CPI, which for next year is 8.7% in addition to the amount guaranteed for delaying. More accurately, filing prior to FRA results in a penalty, rather than an increase, as everything is based on PIA. The penalty for filing early increases when further from FRA.

I'm not in your position, being currently married and having delayed until recently at age 70. Only you can decide when to file. The only thing that is almost universally certain is that everyone will defend their choice. Such is human nature.

However, even for a single person, delaying for as long as possible if you can afford it is definitely a defensible position, considering that filing at age 62 rather than at age 70 results in a 77% lower benefit at age 62 as compared to age 70. For life. Guaranteed (ignoring chicken little projections). There's that guaranteed word again! Maybe "assured", "insured", or "protected" would be more appropriate.
The official social security website does not show that for me. It is more like 45% lower.
I believe that is what happens when you invert the numbers when doing the %. (X/Y instead of Y/X)
What does opensocialsecurity say?
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by smitcat »

michaeljc70 wrote: Thu Nov 24, 2022 9:56 am In these forums we always talk about risk. Most of us don't buy leveraged high risk investments to try and make the most money. If you wait until 70 there is a risk you may not get any benefits or smaller benefits if you kick the bucket young. It is not riskless to wait to 70. Since no one knows when they will die, I don't think there is a wrong answer. If your family tends to live longer and you can afford to wait until FRA or 70, I think that is a good plan.

SSA has a Longevity Visualizer program you can download from their website. A 62 yo male has a 94% chance of living to 70 and 88% chance of living to 75. So, the odds of not making it to those ages is low. But depending on what discount rate you use, you might need to make it to 85 to break even and the odds of that for the same 62 yo male is 66%.
"A 62 yo male has a 94% chance of living to 70"
Much better to use longevity tables for your cohort rather than a national average - you know your own health better than going to a national average.
If you are a non-smoker with no serious medical issues and have access to good health care those averages will be much higher than an overall population.

"But depending on what discount rate you use, you might need to make it to 85 to break even and the odds of that for the same 62 yo male is 66%."
Breakeven would need to be calculated on your entire portfolio plus any SS decisions. Required to model all of the plan including potential Roth converts and all incomes and spending for 'after tax' spendable dollars and not just gross SS income dollars.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by michaeljc70 »

smitcat wrote: Thu Nov 24, 2022 10:01 am
michaeljc70 wrote: Thu Nov 24, 2022 9:56 am
vested1 wrote: Thu Nov 24, 2022 9:29 am
jnevada wrote: Wed Nov 23, 2022 10:54 am I just started taking social security this year at 63. I am single. Between that and my pension It covers all my expenses. I did this to let my 1.5 million dollar tax deferred nest egg grow for the next 10 years. I think I might get 4 to 5 % return. Not the 8% return from social security which is 2585/month. But making an extra 40 to 60 k a year on my nest eggs and taking Social Security now seems like a no brainer. Am I missing something?
Yes, you missed out on the opportunity to delay. :D

Just kidding, not really. At least you have 12 months from the onset of receiving benefits to change your mind and pay back what you received so far, not the optimal choice.

How has that 4 to 5% gain worked out for you this year? What will your gain or loss be next year and the year after that? What will your gain or loss be in 7 years at age 70? Unless you're primarily invested in TIPs, your nest egg may not have kept pace with inflation.

Then again, I'm a big fan of guaranteed income, especially if that income has a guaranteed COLA based currently on CPI, which for next year is 8.7% in addition to the amount guaranteed for delaying. More accurately, filing prior to FRA results in a penalty, rather than an increase, as everything is based on PIA. The penalty for filing early increases when further from FRA.

I'm not in your position, being currently married and having delayed until recently at age 70. Only you can decide when to file. The only thing that is almost universally certain is that everyone will defend their choice. Such is human nature.

However, even for a single person, delaying for as long as possible if you can afford it is definitely a defensible position, considering that filing at age 62 rather than at age 70 results in a 77% lower benefit at age 62 as compared to age 70. For life. Guaranteed (ignoring chicken little projections). There's that guaranteed word again! Maybe "assured", "insured", or "protected" would be more appropriate.
The official social security website does not show that for me. It is more like 45% lower.
I believe that is what happens when you invert the numbers when doing the %. (X/Y instead of Y/X)
What does opensocialsecurity say?
I don't see that on Open Social Security. I just see the difference in the PV.

If your benefit at 70 is 3500 (which is close to what mine is) and you reduce that by 77% that is a .77*3500 reduction. Which is $2695. $3500-$2695=$805 which is not correct. Unless I am doing the math wrong.

OSS tells me, if I pretend I am single, to claim at 68 and 2 months. I'm really not sure why that is better than 70.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by JackoC »

vineviz wrote: Wed Nov 23, 2022 10:28 am
Wrench wrote: Wed Nov 23, 2022 8:39 am Sure, they do. But I think they underestimate the situation of a large number of household in the U.S. today.
Providing advice is always hard, and writing it for a broad audience is even harder.

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

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

In other words, the people for whom the rule of thumb is a bad idea are likely to ignore it.
I agree, look at the rule in terms of who would even ask the question. I recall very few posts on any thread on this topic where people said they were not waiting because they personally could not afford to, or due to their existing health issues. Whereas I've never heard a convincing argument against waiting by people arguing who claim they could afford to wait and haven't spelled out health issues, rather than just referring to 'other people'. This also ties into to using the SSA actuarial table to quantify the issue. That table is by definition pulled down by people who are already in poor health in their 60's, and the people who can't financially afford to wait have generally lower life expectancy also (has a strong correlation to socio-economic status). Once you remove people for whom 'don't wait' is the obvious and only answer, and also exclude them from the actuarial table, the rule of thumb is the right answer for a very high % of the people who'd ask the question.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by Ben Mathew »

michaeljc70 wrote: Thu Nov 24, 2022 9:56 am In these forums we always talk about risk. Most of us don't buy leveraged high risk investments to try and make the most money. If you wait until 70 there is a risk you may not get any benefits or smaller benefits if you kick the bucket young. It is not riskless to wait to 70. Since no one knows when they will die, I don't think there is a wrong answer. If your family tends to live longer and you can afford to wait until FRA or 70, I think that is a good plan.
It's useful to separate out two cases:

1. Planning till a relatively low age (say age 75) due to known health problems.
2. Planning till a relatively high age (say age 95), but dying earlier than expected (say age 75).

Taking SS early and spending more makes sense in scenario 1. But it does not increase retirement spending in scenario 2. The payments from SS in the 60s will be less than what's needed to offset, on a risk-adjusted basis, the reduced spending from the portfolio that now has to fund a larger share of spending after age 70. In other words, SS may be paying $20,000 a year in the 60s, but portfolio expenses may need to be cut $25,000 in anticipation of the lower SS payouts after age 70. Dying earlier than expected at age 75 does not increase retirement spending in the 60s because it was unforeseen and could not be relied on for planning. It just causes more money to be left behind in the estate.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by smitcat »

michaeljc70 wrote: Thu Nov 24, 2022 10:20 am
smitcat wrote: Thu Nov 24, 2022 10:01 am
michaeljc70 wrote: Thu Nov 24, 2022 9:56 am
vested1 wrote: Thu Nov 24, 2022 9:29 am
jnevada wrote: Wed Nov 23, 2022 10:54 am I just started taking social security this year at 63. I am single. Between that and my pension It covers all my expenses. I did this to let my 1.5 million dollar tax deferred nest egg grow for the next 10 years. I think I might get 4 to 5 % return. Not the 8% return from social security which is 2585/month. But making an extra 40 to 60 k a year on my nest eggs and taking Social Security now seems like a no brainer. Am I missing something?
Yes, you missed out on the opportunity to delay. :D

Just kidding, not really. At least you have 12 months from the onset of receiving benefits to change your mind and pay back what you received so far, not the optimal choice.

How has that 4 to 5% gain worked out for you this year? What will your gain or loss be next year and the year after that? What will your gain or loss be in 7 years at age 70? Unless you're primarily invested in TIPs, your nest egg may not have kept pace with inflation.

Then again, I'm a big fan of guaranteed income, especially if that income has a guaranteed COLA based currently on CPI, which for next year is 8.7% in addition to the amount guaranteed for delaying. More accurately, filing prior to FRA results in a penalty, rather than an increase, as everything is based on PIA. The penalty for filing early increases when further from FRA.

I'm not in your position, being currently married and having delayed until recently at age 70. Only you can decide when to file. The only thing that is almost universally certain is that everyone will defend their choice. Such is human nature.

However, even for a single person, delaying for as long as possible if you can afford it is definitely a defensible position, considering that filing at age 62 rather than at age 70 results in a 77% lower benefit at age 62 as compared to age 70. For life. Guaranteed (ignoring chicken little projections). There's that guaranteed word again! Maybe "assured", "insured", or "protected" would be more appropriate.
The official social security website does not show that for me. It is more like 45% lower.
I believe that is what happens when you invert the numbers when doing the %. (X/Y instead of Y/X)
What does opensocialsecurity say?
I don't see that on Open Social Security. I just see the difference in the PV.

If your benefit at 70 is 3500 (which is close to what mine is) and you reduce that by 77% that is a .77*3500 reduction. Which is $2695. $3500-$2695=$805 which is not correct. Unless I am doing the math wrong.

OSS tells me, if I pretend I am single, to claim at 68 and 2 months. I'm really not sure why that is better than 70.
"If your benefit at 70 is 3500 (which is close to what mine is) and you reduce that by 77% that is a .77*3500 reduction. Which is $2695. $3500-$2695=$805 which is not correct. Unless I am doing the math wrong"
If your benefits at 70 are $3500 then your benefits at 62 might be close to $1950.
If you take $1950 and multiply it by 1.77 you get $3450.

"OSS tells me, if I pretend I am single, to claim at 68 and 2 months. I'm really not sure why that is better than 70."
OSS is giving you the best solution for SS filing only if you live exactly as long as the current average and at the calculator's currently set discount rate.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by jnevada »

Many replies from my original post on this topic. Not sure if you saw my subsequent post. It talked about quality of life and my children.Michaeljc wrote about guarentees with Social Security. I took one in the form of a pension that guarentees approximately 6.5% return for my lifetime. In all the calculations of age/money/returns i dont know of any that calculate the importance of a relationship and experience with children and family. That was my driving force for taking Social Security at 63. It makes things more possible now in these relationships. We are all in good health so far. I believe you have to strike when the fire is hot. I suspect there are people on this board that would agree with my reasoning but its a very personal decision.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by nisiprius »

vineviz wrote: Thu Nov 24, 2022 9:00 am
nisiprius wrote: Wed Nov 23, 2022 8:11 pm I think that by "talking about delaying to 70," sailaway means people who are actually making that decision for themselves (as distinct from recommending it to others). Of course, I don't know either your age or vineviz's, or whether either of you has claimed Social Security yet.
I'm many years from claiming personally.

The reason, IMHO, that repeating this "delay if you can" message is so important is the huge disconnect between the optimal strategy and the strategy that people actually pursue as illustrated by these authors.
We find that virtually all American workers age 45 to 62 should wait beyond age 65 to collect. More than 90 percent should wait till age 70. Only 10.2 percent appear to do so.
Yes, but almost every chart in the article is accompanied by a comment that the individual points that they averaged together have "remarkable" dispersion.

That's their own chosen descriptive word: "remarkable."
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by nisiprius »

Correct me if I'm wrong, I've only I've only skimmed the article, but I believe they are assuming that the current benefit schedule will be maintained. I did some text searches on "cut" and "reduction" and "trust fund" and didn't find any discussion of this at all.

What is the appropriate default planning assumption? In order to maintain current benefits, Congress will need to take some special action to shore up the trust fund. As described by CNBC,
Social Security’s combined trust funds are now projected to be able to pay scheduled benefits until 2035, a full year later than was projected last year. But if nothing is done to shore up the program, just 80% of benefits will be payable at that time.
Which is the least assumption? What should be taken as the default for planning?

a) Benefits will continue without change, or
b) Congress will continue not to act?

It seems reasonable to consider both the case of no changes, and a benefits cut of about -20% in about 2035.

So if the point is what you should do going forward, rather than what recipients should have done in the past, they should at least rerun the numbers for the 20%-cut-in-2035 "what-if."

I believe some years ago Bobcat2 indicated that "even if," it is still favorable to wait. But I'm pretty sure it was less favorable.
Last edited by nisiprius on Thu Nov 24, 2022 8:59 pm, edited 2 times in total.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by vineviz »

nisiprius wrote: Thu Nov 24, 2022 12:37 pm Yes, but almost every chart in the article is accompanied by a comment that the individual points that they averaged together have "remarkable" dispersion.
If by "almost every chart" you mean "two charts", then yes.

The word "remarkable" appears in the paper exactly twice, and it's important (I think) to consider the context. The dispersion in outcomes is, indeed, wide but only because it delaying generates outcomes which range from signifcantly-positive to overwehlemingly-positive.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by vineviz »

nisiprius wrote: Thu Nov 24, 2022 12:55 pm What is the appropriate default planning assumption? In order to maintain current benefits, Congress will need to take some special action to shore up the trust fund. Without that action, estimates made by SSA that have been very consistent over the past couple of decades are that the trust fund will be exhausted in the mid-2030s, forcing a benefits cut of roughly -20%.
[Unnecessary comment removed by moderator Kendall.], it's important to note that a cut of benefits can not be "forced. Not without an affirmative action by Congress to cut them.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by smitcat »

jnevada wrote: Thu Nov 24, 2022 12:32 pm Many replies from my original post on this topic. Not sure if you saw my subsequent post. It talked about quality of life and my children.Michaeljc wrote about guarentees with Social Security. I took one in the form of a pension that guarentees approximately 6.5% return for my lifetime. In all the calculations of age/money/returns i dont know of any that calculate the importance of a relationship and experience with children and family. That was my driving force for taking Social Security at 63. It makes things more possible now in these relationships. We are all in good health so far. I believe you have to strike when the fire is hot. I suspect there are people on this board that would agree with my reasoning but its a very personal decision.
There is no reason to change a spending plan whether you take SS early or later. Unless you need the SS for basic income prior to age 70 or whatever delayed date is in the comparison.
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CAsage
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by CAsage »

jnevada wrote: Wed Nov 23, 2022 10:54 am I just started taking social security this year at 63. I am single. Between that and my pension It covers all my expenses. I did this to let my 1.5 million dollar tax deferred nest egg grow for the next 10 years. I think I might get 4 to 5 % return. Not the 8% return from social security which is 2585/month. But making an extra 40 to 60 k a year on my nest eggs and taking Social Security now seems like a no brainer. Am I missing something?
Several responses to your posts did not (I think) specifically address taxes. When you start taking that IRA RMD (in 10 years), you will likely have a big jump in your taxable income. When you die, that total amount must be withdrawn and taxed by your heirs in 10 years, likely at higher tax rate than you or them now (something to think through). Kotlikoff has an excellent book on smoothing lifetime consumption and taxes, which I would suggest reading. Many people on this forum recommend delaying Social Security at least a few years to do Roth conversions, and also living off some of that IRA to reduce future RMD. There are models for this, but it's wise to at least take a pencil to plan to "smooth" your income and taxes, but converting IRA to Roth up to the top of whatever tax bracket you expect.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by jnevada »

I have done multiple simulations for roth conversions. Actually just a few minutes ago. Almost none make sense. I am using the schwab conversion calculator most of the time. But have used others also. I have gone from a 36% tax bracket to a 22% tax bracket in retirement. Maybe this is the reason the conversions only save me less than 1000 dollars on conversions. I have used many different assumptions. I was really hoping the conversions would help. Even with projected large RMD's at 72 my tax bracket for almost all of my income is at 24%. But I will consult a tax professional before I give up on this.
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CAsage
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by CAsage »

jnevada wrote: Thu Nov 24, 2022 1:51 pm I have done multiple simulations for roth conversions. Actually just a few minutes ago. Almost none make sense. I am using the schwab conversion calculator most of the time. But have used others also. I have gone from a 36% tax bracket to a 22% tax bracket in retirement. Maybe this is the reason the conversions only save me less than 1000 dollars on conversions. I have used many different assumptions. I was really hoping the conversions would help. Even with projected large RMD's at 72 my tax bracket for almost all of my income is at 24%. But I will consult a tax professional before I give up on this.
If you contributed pretax IRA at 36% and are drawing out at 22~24%, then you totally worked the front end well! Though I would still convert up to the max of the 24% bracket each year, as that money will grow tax free. Tax brackets might get worse, and that's a big IRA for a single person. I just use Excel and rough numbers, I'm sure there are other (google this site) fun Roth conversion (tons of threads)... Think of the heirs. And look into the IRMAA cliffs, you might want to convert before those apply (age 65 Medicare).
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by jnevada »

Thanks for your input CAsage. I will factor all that in and run the numbers again on what you suggested.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by nisiprius »

vineviz wrote: Thu Nov 24, 2022 1:05 pm
nisiprius wrote: Thu Nov 24, 2022 12:55 pm What is the appropriate default planning assumption? In order to maintain current benefits, Congress will need to take some special action to shore up the trust fund. Without that action, estimates made by SSA that have been very consistent over the past couple of decades are that the trust fund will be exhausted in the mid-2030s, forcing a benefits cut of roughly -20%.
At the risk of further derailing this thread into the abyss of speculation which accompanies every other discussion of this topic, it's important to note that a cut of benefits can not be "forced. Not without an affirmative action by Congress to cut them.
I stand corrected and have replaced my language with language from a news organization.

For years the SSA itself has been including somewhat similar language in benefits statements issued by the SSA directly to retirees, so I feel that the SSA is advising that it be included among the contingencies considered in retirement planning.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by JackoC »

nisiprius wrote: Thu Nov 24, 2022 8:52 pm
vineviz wrote: Thu Nov 24, 2022 1:05 pm
nisiprius wrote: Thu Nov 24, 2022 12:55 pm What is the appropriate default planning assumption? In order to maintain current benefits, Congress will need to take some special action to shore up the trust fund. Without that action, estimates made by SSA that have been very consistent over the past couple of decades are that the trust fund will be exhausted in the mid-2030s, forcing a benefits cut of roughly -20%.
At the risk of further derailing this thread into the abyss of speculation which accompanies every other discussion of this topic, it's important to note that a cut of benefits can not be "forced. Not without an affirmative action by Congress to cut them.
I stand corrected and have replaced my language with language from a news organization.

For years the SSA itself has been including somewhat similar language in benefits statements issued by the SSA directly to retirees, so I feel that the SSA is advising that it be included among the contingencies considered in retirement planning.
I wouldn't consider it much, because this issue does not turn on anything SSA has any special insight into. [Off-topic comments removed by moderator Kendall.]
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by vineviz »

JackoC wrote: Fri Nov 25, 2022 11:30 am
nisiprius wrote: Thu Nov 24, 2022 8:52 pm
For years the SSA itself has been including somewhat similar language in benefits statements issued by the SSA directly to retirees, so I feel that the SSA is advising that it be included among the contingencies considered in retirement planning.
I wouldn't consider it much, because this issue does not turn on anything SSA has any special insight into. It turns on basic political science of rich society representative government. Trying to avoid 'politics' by pretending it's an SSA technocratic issue...it's not.
I agree.

The limit of the SSA's board of trustees influence will be to make a suggestion to Congress about potential changes. That board should not be expected to have any special information about what Congress will or will not be prepared to do when considering amendments to the law.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by afan »

vineviz wrote: Thu Nov 24, 2022 1:05 pm
nisiprius wrote: Thu Nov 24, 2022 12:55 pm What is the appropriate default planning assumption? In order to maintain current benefits, Congress will need to take some special action to shore up the trust fund. Without that action, estimates made by SSA that have been very consistent over the past couple of decades are that the trust fund will be exhausted in the mid-2030s, forcing a benefits cut of roughly -20%.
[Unnecessary comment removed by moderator Kendall.], it's important to note that a cut of benefits can not be "forced. Not without an affirmative action by Congress to cut them.
Not according to the Congressional Research Service. In their review of the issue, they concluded that exhaustion of the trust fund would result in a drop in payments, since there would be no other money available to cover the difference.

Of course, one could argue that your "benefits" have not been cut but that your "payments" have been. Which, I gather, is what would happen.
The Social Security Act does not specify what would happen to benefits if the trust funds became insolvent. However, it is clear that full Social Security benefits could not be paid on time because the Antideficiency Act prohibits government spending in excess of available funds. After
insolvency, Social Security would continue to receive tax income, from which approximately 75% of benefits could be paid. Either full benefit checks would be paid on a delayed schedule or reduced benefits would be paid on time. In either case, Social Security beneficiaries and
qualifying applicants would remain legally entitled to full benefits and could take legal action to claim the balance of their benefits.
Note that taking legal action is not the same as receiving money.
Legal Background on Trust Fund Insolvency

The Antideficiency Act

The Social Security Act specifies that benefit payments shall be made only from the trust funds (i.e., accumulated trust fund assets).18 Another law, the Antideficiency Act, prohibits government spending in excess of available funds.19 Consequently, if the Social Security trust funds become
insolvent—that is, if current tax income and accumulated assets are not sufficient to pay the benefits to which people are entitled—the law effectively prohibits full Social Security benefits from being paid on time.
https://www.google.com/url?sa=t&source= ... ayRRXGS9gP

Interesting reading.
Last edited by afan on Fri Nov 25, 2022 1:53 pm, edited 2 times in total.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by afan »

I think the OSS method is the right approach, as far as it goes. Estimate the likelihood of collecting each cash flow apply a discount rate, and do an NPV.

The problem is that this solves for the highest NPV of the cash coming from the SSA. What an individual wants to know is the highest NPV of after tax cash flows. Some of those payments will be taxed. The tax rate could well change. Someone who takes benefits before 70 while working may pay a higher tax rate on those early benefits than they would on benefits once retired. At the same time, they will have reduced their payments throughout their lives. Depending on the tax rates and longevity, this could be an important effect.

The OSS approach also ignores the effect of income on Medicare premiums and ACA subsidies for those affected.

One cannot ignore these effects and assume they will get the "right" answer.
If someone were confident that their personal tax rates would not change and the amount of money at stake would not change their health care premiums, then the OSS approach is all you need. For many people, tax rates and premiums will change as a function of age and income. For those people OSS is just a starting point

Completely agree that the ex post right strategy will depend on how long one ends up living. Or for a married couple how long each of them lives. No one knows that. Pulled out of the air notions of being in "better than average health" for age requires a lot of information that few have. Provided one does not have a severe illness that definitely shortens life expectancy, how many here know what "average" health would be for a 65 year old? That is, know in some quantitative terms that could be used in a calculation?

If you want an expert opinion of how long you are likely to live, apply for life insurance and go through underwriting. The company will tell you how they rate you. Then use that table for OSS.

Keep in mind that the life insurance company is not betting that it knows how long you personally will live. It is betting that it knows how long a cohort of people with similar risk will live, on average. That is all they care about but it is not what you care about.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by afan »

Not speculating on how the law might change. All of the above concerns CURRENT law.

[Off-topic comment removed by moderator Kendall.]
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by michaeljc70 »

afan wrote: Fri Nov 25, 2022 1:41 pm I think the OSS method is the right approach, as far as it goes. Estimate the likelihood of collecting each cash flow apply a discount rate, and do an NPV.

The problem is that this solves for the highest NPV of the cash coming from the SSA. What an individual wants to know is the highest NPV of after tax cash flows. Some of those payments will be taxed. The tax rate could well change. Someone who takes benefits before 70 while working may pay a higher tax rate on those early benefits than they would on benefits once retired. At the same time, they will have reduced their payments throughout their lives. Depending on the tax rates and longevity, this could be an important effect.

The OSS approach also ignores the effect of income on Medicare premiums and ACA subsidies for those affected.

One cannot ignore these effects and assume they will get the "right" answer.
If someone were confident that their personal tax rates would not change and the amount of money at stake would not change their health care premiums, then the OSS approach is all you need. For many people, tax rates and premiums will change as a function of age and income. For those people OSS is just a starting point

Completely agree that the ex post right strategy will depend on how long one ends up living. Or for a married couple how long each of them lives. No one knows that. Pulled out of the air notions of being in "better than average health" for age requires a lot of information that few have. Provided one does not have a severe illness that definitely shortens life expectancy, how many here know what "average" health would be for a 65 year old? That is, know in some quantitative terms that could be used in a calculation?

If you want an expert opinion of how long you are likely to live, apply for life insurance and go through underwriting. The company will tell you how they rate you. Then use that table for OSS.

Keep in mind that the life insurance company is not betting that it knows how long you personally will live. It is betting that it knows how long a cohort of people with similar risk will live, on average. That is all they care about but it is not what you care about.
Though it isn't easy to exactly quantify it, you could start by looking at leading causes of death and assess whether they are hereditary and run in your family and where you stand by looking at things like blood work and other tests (EKG and similar). I don't think you need to really look at much- your doctor should be telling you what is a problem or could become one. I know I have high blood pressure which is under control with medication and that I am pre-diabetic and it runs in my family on one side. Properly treated, those shouldn't shorten my life by much and haven't shortened family members'lives that had the same conditions (well...if it did shorten it to 92 or 96 years..doubt it is relevant).

Basically, you aren't going to know you are going to live 17.2 years past 62 but I think we all probably know some people that are in terrible health and some people that are in good health and some people in between and can make a broad assumption.
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by vineviz »

afan wrote: Fri Nov 25, 2022 1:25 pm
vineviz wrote: Thu Nov 24, 2022 1:05 pm
nisiprius wrote: Thu Nov 24, 2022 12:55 pm What is the appropriate default planning assumption? In order to maintain current benefits, Congress will need to take some special action to shore up the trust fund. Without that action, estimates made by SSA that have been very consistent over the past couple of decades are that the trust fund will be exhausted in the mid-2030s, forcing a benefits cut of roughly -20%.
At the risk of further derailing this thread into the abyss of speculation which accompanies every other discussion of this topic, it's important to note that a cut of benefits can not be "forced. Not without an affirmative action by Congress to cut them.
Not according to the Congressional Research Service. In their review of the issue, they concluded that exhaustion of the trust fund would result in a drop in payments, since there would be no other money available to cover the difference.

Of course, one could argue that your "benefits" have not been cut but that your "payments" have been. Which, I gather, is what would happen.
The Social Security Act does not specify what would happen to benefits if the trust funds became insolvent. However, it is clear that full Social Security benefits could not be paid on time because the Antideficiency Act prohibits government spending in excess of available funds. After
insolvency, Social Security would continue to receive tax income, from which approximately 75% of benefits could be paid. Either full benefit checks would be paid on a delayed schedule or reduced benefits would be paid on time. In either case, Social Security beneficiaries and
qualifying applicants would remain legally entitled to full benefits and could take legal action to claim the balance of their benefits.
Note that taking legal action is not the same as receiving money.
Legal Background on Trust Fund Insolvency

The Antideficiency Act

The Social Security Act specifies that benefit payments shall be made only from the trust funds (i.e., accumulated trust fund assets).18 Another law, the Antideficiency Act, prohibits government spending in excess of available funds.19 Consequently, if the Social Security trust funds become
insolvent—that is, if current tax income and accumulated assets are not sufficient to pay the benefits to which people are entitled—the law effectively prohibits full Social Security benefits from being paid on time.
https://www.google.com/url?sa=t&source= ... ayRRXGS9gP

Interesting reading.
This ground has been covered ad nauseum, but only a misreading of the CRS report can lead to a conclusion that either calculated benefits or payments can be legally cut without an amendment to the law being enacted.

In current law there is simply no authority given to the Treasury to withhold benefits EVEN THOUGH they also don’t have authority to make payments if the trust fund is depleted.

In short,they are required to do something they are prevented from doing UNLESS the law is changed.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Leaving SS on the Table: Altig, Kotlikoff, and Ye

Post by Kendall »

This thread is locked (political discussion; the personal financial planning angle is exhausted).

As mentioned upthread, discussion of the default scenario for personal planning purposes (no change to the Social Security Act) is allowed. Thus, we do permit discussions which plan for reductions in Social Security, but not about the future of Social Security itself (political conjecture). Comments that speculate on political intervention are not permitted. See: Unacceptable Topics
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