(11-29-2018, 12:17 PM)Maco Wrote: what if you invested your money in the lost decade under Bush 43, Social security gives you a sure thing. What if your wife divorces you, getting an 8% guaranteed return is impossible to beat in todays world. Given the higher divorce rate in older couples over 65 among baby boomers, delaying still seem like a good option with 8% guaranteed return. There have been too many time periods when the market returned 0%, i.e. the Bush43, years
I think you are misunderstanding the "8% return". Your benefit amount goes up 8% a year for the next 4 years, but that doesn't increase the total amount you will receive in your lifetime (assuming you die "on time"). Think about it this way ... you have earned a certain amount of dollars (call it $X) due to your work history. If you claim your benefits at age 66 and the actuary table says you will die at age 84, the IRS will divide $X by 18 and that will be your annual SS benefit. But if you wait until age 70 to claim, they will divide $X by 14 and that will be your annual benefit. The only way you can come out ahead by delaying benefits is if you live past 82 (in this case). But the break-even age of 82 does not take into account the lost earnings you could have made on the initial 4 years of benefits that you didn't take between age 66 and 70. So if those first four years of benefits kept you from pulling comparable money out of your retirement investments, you hopefully made some earnings on those and that will push your break-even age even higher than 82.
In my case, my wife's spousal benefits do not increase after age 66 so our total benefit does not increase 8% a year between 66 and 70. It only increases 5% a year. This pushes our break-even age to 88. And again, that doesn't take into account the earnings I would have lost if I had lived totally on our retirement investments between 66 and 70. My calculations showed that if I only made 2% return, my break-even age would be 94. That age is a little optimistic even for me.
I am too stupid to understand the importance of getting an investment return on social security. Most people would, and everyone else should, treat the benefit as the first money you need to spend to live on, so there is nothing to invest. I do agree that there is little difference between taking the benefit at 66 rather than 70 other than your personal health and longevity situation. I suppose a person who has the "luxury" of trying to figure out whether to take it at 66 or wait until 70 is a person who theoretically can invest the benefits received for 4 years, but at least some of those people have to pay taxes on the social security, not to mention also pay for Medicare B and or D, so how much can you really invest?.
I pondered this a few years before I was even eligible and came to the same conclusion, take it as early as you can and start ROTH conversions EARLY enough so your MRD's in retirement don't foul your income tax situation. Even parking it in US Treasury's these days gives you more than 2% if you are highly risk adverse.
My wife and I have decided that one of us will take a spousal benefit at age 66, and later both of us will take our individual benefits at age 70. That this is an optimal strategy for us is borne out by our own spreadsheet models, the online model of a reputable financial planning firm, and the sophisticated retirement planning software which clearly shows that our smoothed lifetime spending is maximized (actually increased by over $15,000 per year) by pursuing this strategy.
Which leads me to ask a few things:
1. Not knowing your background, do you really trust yourself to make complex financial calculations without letting subtle errors slip in?
2. Outcomes in calculations like this are very sensitive to changes in assumptions about inflation, rates of return, the degree to which COLAs reflect the real increases in cost of living, so you can actually make the results turn out any way you want, whether consciously or subconsciously, by setting these parameters a certain way.
3. The main bread winner often doesn't realize the degree to which he (usually) shortchanges his spouse's survivor benefit by taking his benefit at an early age rather than waiting until age 70. You say you looked at this and found little effect, but I've done the same and found a large effect, so I again have to question your model.
Anyway, good luck sorting all this out. It's a difficult decision with many inputs that are unknowable.
Took SS at 62 (13 years ago). According to Fid performance I've averaged 12.21% per year since I started my Fid IRA in 2003 so I figured I've done much better by taking early SS.
Very interesting post indeed - but for me, the key phrase was: Everyone is different and “your mileage may vary” ...
I certainly found the information about spousal benefits not increasing after FRA interesting - but since I happen to be single, this doesn't affect me.
I am also fortunate enough to have a work pension that covers about two-thirds of my minimum annual costs. The rest comes out of my (regular) IRA. When I take SS, I will finally be nicely cash-flow positive, and the later I take it, the more 'cushion' I have against long-term inflation - along with the ability to start growing my investment accounts instead of shrinking them.
I take a rather conservative position with my financial planning assumptions, so I have simply never bothered to look at 'break-even' ages. I simply plan for 'living indefinitely' (at least until 90+), and having funds for emergencies, things like house repairs, and the potential for inflation to overtake my pension + SS income. That will become the role of my investments over the longer term. I am also 'self-insured' regarding long-term care, so am relying on my investments and my house to cover that should I end up needing it!
I did my own set of financial planning spreadsheets back in 2010, and the most important thing I noticed was how steeply the marginal tax rate shoots up when you start taking RMDs from a regular IRA - because more of SS gets taxed as your other income increases. So, my plan is to draw down my regular IRA and/or convert to Roth as tax effectively as possible before taking SS.
In summary: I like having as much 'guaranteed' income as possible for the long-term, regardless of whether I might or might not break even. I don't regard investment returns as reliable enough (although I am definitely getting better at managing them) to take the risk of relying on them for anything other than a 'backup plan'. YMMV ;-)
I did the math too, and filed at age 63. Naturally, you need to make some assumptions, such as how long you believe you will live -- does your family have long life lines ? are you have any serious health issues ? what is your projected tax situation when you reach the age for minimum required distributions ? and what do you believe is the future for inflation (the feds rip SS beneficiaries off by not increasing annual benefits appropriately) ? and others.
I prepared a what-if Excel spreadsheet to understand how each variable would impact me.
In my case, it was clear I had the advantage by taking my benefit early along with the 25% reduction in my monthly benefit amount, so I did. Don't listen to the hype about how it is advantageous to wait to take your benefit -- even when the financial pundits keep pounding the table. Do your own math to answer the question tailored to you and your situation.
My wife's father lived to 100 years and 10 months, so we deferred her benefits as long as possible. My parents died quite young, so I retired at 63.
I'm not sure I understand the strategy stated in your first sentence. The only way one of you can take spousal benefit at age 66 is for the other of you to file for benefits at 66 also. The one with spousal benefits could defer until 70 before claiming on their own work record. But the one that filed for age 66 benefits is stuck with 66 benefits when they turn 70. What did I misunderstand?
1. I'm pretty sure of my calculations but the whole point of my post was to elicit conformation.
2. If my calculations are correct, I've got a pretty big buffer for misjudging returns. And since the total lifetime benefit is the same regardless of when you claim (assuming you die "on time"), I think I would rather start the income stream early if it caused no other consequences.
3. I agree this seems counterintuitive, but the numbers bear it out in my case. Remember that my wife has no significant work record of her own so spousal benefits are all she has. Even though she will be left with my lower age 66 benefit after I die, she still comes out ahead until age 94 because of the first four years between 66 and 70.
Interestingly, I did the same a few weeks ago. I have 4 years to go before the magic 66 yr and 2 mo. I still work, but don't need to, I enjoy it. I'm even thinking of going for a third degree for the challenge and fun. Weird.
Anyway, I did a spread sheet as well. One of my degrees is in Statistics and Mathematical modeling, I said weird remember!
Mine came out the same.... Take it a 66+2mo. I was surprised as well. My BEP was late 80's or so. While I think I can live past 88 and I hope to only if I have quality of life (otherwise I pull the pin, boom), who knows... a lot of **** can happen over the next 26 years. Thus my new target is 66+2mo.
And I may still be working. Or a lot of fishing at Padre Island and golf in Phoenix. :-)
Good post. It is always good to do the math and validate.
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