I’m Planning to Claim SS @62… Well, Why Not? ►Updated w/Funded Ratio

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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by grabiner »

iceport wrote: Sat Sep 25, 2021 1:05 pm Intuitively, it does make sense that larger early withdrawals from a portfolio needed with claiming SS late produces smaller ending portfolio balances. Mike's analysis apparently reaches the opposite conclusion.

:?
The reason this intuition is often wrong is that the total amount withdrawn is different. If you have the choice between withdrawing $20K this year or $20K in later years, you would rather withdraw later. If your investments match inflation and you have the choice between withdrawing $20K this year or $20K adjusted for inflation in later years, you will break even with either strategy. And it often happens with claiming SS one year later than you have the choice between withdrawing $20K this year or $30K adjusted for inflation in later years and thus that you would rather withdraw now.

For example, consider the choice between claiming $20K of SS at your FRA, or waiting one year and getting a benefit of $21,600. If you live 20 more years (19 years after taking the later benefit), the $1600 difference is worth $30,400 adjusted for inflation over those 19 years, so you will have an extra $10,400 plus inflation in your portfolio if your low-risk investments match inflation and you wait one year. By the same logic, if you live 13 years or less, you will die with a smaller portfolio if you wait.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by iceport »

grabiner wrote: Sat Sep 25, 2021 2:25 pm
iceport wrote: Sat Sep 25, 2021 1:05 pm Intuitively, it does make sense that larger early withdrawals from a portfolio needed with claiming SS late produces smaller ending portfolio balances. Mike's analysis apparently reaches the opposite conclusion.

:?
The reason this intuition is often wrong is that the total amount withdrawn is different. If you have the choice between withdrawing $20K this year or $20K in later years, you would rather withdraw later. If your investments match inflation and you have the choice between withdrawing $20K this year or $20K adjusted for inflation in later years, you will break even with either strategy. And it often happens with claiming SS one year later than you have the choice between withdrawing $20K this year or $30K adjusted for inflation in later years and thus that you would rather withdraw now.

For example, consider the choice between claiming $20K of SS at your FRA, or waiting one year and getting a benefit of $21,600. If you live 20 more years (19 years after taking the later benefit), the $1600 difference is worth $30,400 adjusted for inflation over those 19 years, so you will have an extra $10,400 plus inflation in your portfolio if your low-risk investments match inflation and you wait one year. By the same logic, if you live 13 years or less, you will die with a smaller portfolio if you wait.
David,

Thanks, this is a good point. I understand what you say here. I think my intuition was more focused on the possible effects of greater SORR with larger withdrawals earlier. After all, that's really the whole point in using historic data analyses like cFIREsim in the first place: to flush out the effects of SORR that are difficult to model in other ways. That's why I consider such analyses to be more realistic than many others, even though they use solely historic data.

I tried to remove the SORR element from the analysis by running a few simulations with the AA set to 100% cash, and then varying the fixed interest rate.

Sure enough, the results are what could be expected. For low rates of return over a 26 year horizon, claiming at 70 produces the higher portfolio balances. For higher rates of return, claiming at 62 produces the higher average ending portfolio balances. The breakeven (fixed) rate of return producing roughly comparable results was ~ 4.75% (nominal), though the median value was a bit higher in the claim at 70 scenario, and the SD was a bit lower.

So the question of whether delaying or claiming early results in larger portfolio balances really comes down to the assumptions made concerning the allocation of the funds remaining unspent in the claim early scenario.

In my case, I don't believe the conservative allocation assumption is at all valid. In real life, I wouldn't change my AA or method of withdrawals depending on the age I choose to claim SS. If that makes it an unfair comparison, so be it. I'd live with a somewhat riskier overall risk profile by claiming early, and I wouldn't adjust the AA. That's just a fact. No need to make any assumptions.

And as you note, mortality risk enters into this question as well.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by randomguy »

iceport wrote: Sat Sep 25, 2021 1:05 pm
bsteiner wrote: Sat Sep 25, 2021 9:59 am It depends on what interest rate you use to compare the choices. Do you discount the expected future payments to present value at a low interest rate because they're safe and they're indexed for inflation? Or do you use a higher rate because they're not not marketable (you can't sell your right to the future payments or borrow against them)?
We know what discount rate is being used in the Open Social Security calculations, and there is a logical reason for it.

However, when I run my combination of asset base and income streams through an historical database analysis like cFIREsim, I'm assuming the "discount rate" used in the analysis ends up being whatever the combined effects of inflation and market returns happened to actually produce, in real life, in the sequences analyzed.

So yes, the difference in assumed discount rates could be large.

But is there any reason to alter the analysis that uses historic data? The major appeal of that kind of analysis is that it is generally more realistic than many others. I think it models the circumstances appropriately. Is that a bad assumption?

Intuitively, it does make sense that larger early withdrawals from a portfolio needed with claiming SS late produces smaller ending portfolio balances. Mike's analysis apparently reaches the opposite conclusion.

:?
Market returns of any reasonable portfolio are higher than what SS generates for reasonable life spans (i.e. the odds of the two of you living to 105 is about zero). In exchange for that you are holding more risk. Realistically I think this matches how most people work. They are going to hold like 60/40 no matter if they take SS early or late. So taking SS early will result in more money when you are dead.

You can argue that this isn't fair and you would have a point. But while having a smaller SS check with a 60/40 portfolio and a bigger SS check with a 90/10 portfolio might have the same mathematical risk, I expect when the markets drop 30% they feel a lot different.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by iceport »

randomguy wrote: Sun Sep 26, 2021 1:05 pm
iceport wrote: Sat Sep 25, 2021 1:05 pm
bsteiner wrote: Sat Sep 25, 2021 9:59 am It depends on what interest rate you use to compare the choices. Do you discount the expected future payments to present value at a low interest rate because they're safe and they're indexed for inflation? Or do you use a higher rate because they're not not marketable (you can't sell your right to the future payments or borrow against them)?
We know what discount rate is being used in the Open Social Security calculations, and there is a logical reason for it.

However, when I run my combination of asset base and income streams through an historical database analysis like cFIREsim, I'm assuming the "discount rate" used in the analysis ends up being whatever the combined effects of inflation and market returns happened to actually produce, in real life, in the sequences analyzed.

So yes, the difference in assumed discount rates could be large.

But is there any reason to alter the analysis that uses historic data? The major appeal of that kind of analysis is that it is generally more realistic than many others. I think it models the circumstances appropriately. Is that a bad assumption?

Intuitively, it does make sense that larger early withdrawals from a portfolio needed with claiming SS late produces smaller ending portfolio balances. Mike's analysis apparently reaches the opposite conclusion.

:?
Market returns of any reasonable portfolio are higher than what SS generates for reasonable life spans (i.e. the odds of the two of you living to 105 is about zero). In exchange for that you are holding more risk. Realistically I think this matches how most people work. They are going to hold like 60/40 no matter if they take SS early or late. So taking SS early will result in more money when you are dead.

You can argue that this isn't fair and you would have a point. But while having a smaller SS check with a 60/40 portfolio and a bigger SS check with a 90/10 portfolio might have the same mathematical risk, I expect when the markets drop 30% they feel a lot different.
Thank you for this, randomguy. You are exactly correct!

I've got a 56/44 target AA that I plan to maintain permanently. I'm actually quite attached to it!

The thought of bumping up the equity allocation to offset any risk reduction from the larger SS checks by claiming later would have never occurred to me. And now that the thought has been introduced, while I comprehend the theory behind it, I reject it out of hand. It's not something I would ever realistically do.

As for withdrawals, if I plan to withdraw from whatever assets are the furthest above their targets, I don't think the assumption of withdrawing from fixed income first to cover the missing SS checks is valid, either.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

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iceport wrote: Sun Sep 26, 2021 1:16 pmThe thought of bumping up the equity allocation to offset any risk reduction from the larger SS checks by claiming later would have never occurred to me. And now that the thought has been introduced, while I comprehend the theory behind it, I reject it out of hand. It's not something I would ever realistically do. As for withdrawals, if I plan to withdraw from whatever assets are the furthest above their targets, I don't think the assumption of withdrawing from fixed income first to cover the missing SS checks is valid, either.
Whew! Given this, iceport, I'm at a loss why you have accepted, during this entire thread, the default TIPS-based discount rate used both by Open Social Security and by most of my posts (here, here, here, and here). :?: Using that TIPS yield as the discount rate implicitly assumes that delaying SS is funded by withdrawing from, or reducing the addition to, only the bond portion of ones portfolio. ObliviousInvestor has tried to explain this in a couple posts in this thread: here and here.

He explains the reason for this assumption quite will I believe in this July 2020 post from another thread. Using only bonds to fund the SS delay will automatically shift your stock:bond allocation toward more stocks. [*] But at the same time it tends to keep your overall stock:fixed income allocation the same where "fixed income" includes the increase in expected value of future SS benefits.

* On a related note: If the delay is funded only from bonds, the stock portion of the portfolio is not affected and therefore the delay doesn't increase the sequence of returns risk (SORR) you've mentioned in other posts.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by PapaB »

It seems that far too many words are written about ideal SS retirement dates. I think the SSA has done a good job of running the numbers and has minimized its average costs. For individuals in then comes down to this. If you believe your health, especially in your later years, is below average, take an early SS retirement. On the other hand, if you believe your functional health (life expectancy in which money might matter) will be better than average, it pays to postpone your retirement. You almost certainly have better insight than the SSA or anyone else on your personal health and likely longevity. Normally you would add in similar considerations for those relying on your income, but it sounds as if there are no people in that category in your case.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by iceport »

#Cruncher wrote: Sun Sep 26, 2021 4:56 pm
iceport wrote: Sun Sep 26, 2021 1:16 pmThe thought of bumping up the equity allocation to offset any risk reduction from the larger SS checks by claiming later would have never occurred to me. And now that the thought has been introduced, while I comprehend the theory behind it, I reject it out of hand. It's not something I would ever realistically do. As for withdrawals, if I plan to withdraw from whatever assets are the furthest above their targets, I don't think the assumption of withdrawing from fixed income first to cover the missing SS checks is valid, either.
Whew! Given this, iceport, I'm at a loss why you have accepted, during this entire thread, the default TIPS-based discount rate used both by Open Social Security and by most of my posts (here, here, here, and here). :?: Using that TIPS yield as the discount rate implicitly assumes that delaying SS is funded by withdrawing from, or reducing the addition to, only the bond portion of ones portfolio. ObliviousInvestor has tried to explain this in a couple posts in this thread: here and here.

He explains the reason for this assumption quite will I believe in this July 2020 post from another thread. Using only bonds to fund the SS delay will automatically shift your stock:bond allocation toward more stocks. [*] But at the same time it tends to keep your overall stock:fixed income allocation the same where "fixed income" includes the increase in expected value of future SS benefits.

* On a related note: If the delay is funded only from bonds, the stock portion of the portfolio is not affected and therefore the delay doesn't increase the sequence of returns risk (SORR) you've mentioned in other posts.
#Cruncher,

I’m sorry if the pace of my comprehension is frustrating or disappointing you. I sense a little frustration from ObliviousInvestor as well. I truly am appreciative of both your efforts thus far. I’ve learned a great deal through the course of this thread, and the only cost to me has been the exposure of my ignorance. And yet it still seems like a good deal!

Yes, we’ve been assuming an ultra-low discount rate this whole time. And I spent enough time with the basic rationale of matching risk levels to feel comfortable with that assumption. I also knew it would favor claiming later, and I wanted to give that tactic the fairest chance possible, knowing that I favored claiming early. I was reluctant to start adjusting assumptions in the direction I already knew I wanted to go.

Plus, there is a whole separate question of how to conjure up an appropriate alternative rate of return to assume. Some kind of market return prediction? The return of my actual risk-free asset, probably above 2% for at least the next ten years in a good stable value fund? Something else? I tend to favor the simplicity of running the “aftcasting” types of analyses using historic data, but those analyses don’t generate a usable ROR assumption. (Interestingly, when I use my own actual estimated risk-free rate of return of 2%, your spreadsheet indicates the optimum claiming age for me is 66.)

In reality, it took that last explanation from July 10, 2020, which I read through a link posted a couple of days ago — and which you linked to directly above — to finally drive home the real-world implications that assumption had for me:

Absent any contributions or withdrawals from the portfolio, the assumption requires that I modify my portfolio risk level by shifting my AA towards a higher equity allocation.

Well, if indeed that’s the requirement for the assumption to be valid, it is not — at least not for me. It’s just not going to happen, sensible or not.



For my part, I must admit a little frustration that there’s been really no attempt to respond to my question that concerns mortality risk — living either much longer or much shorter than expected — as it relates to total lifetime income received from SS. Mike brushed off the question, saying lifetime SS income is an irrelevant metric. However, within the boundaries of the assumptions that validate using an ultra-low discount rate, Mike clearly confirmed that there is a direct relationship between total lifetime income from SS and ending portfolio balance.

It appears from your table that reaching for the maximum expected PV or FV (and thus, by extension, the maximum ending portfolio balance) by claiming at or near 70 simultaneously involves greater risk of ending up with very low PVs or FVs instead.

Why is that of zero interest? A much shorter life than expected is not an especially rare event.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by iceport »

On a somewhat different note, I just watched Wade Phau's discussion on Retirement Income Style Analysis (RISA) in a Bogleheads® Chapter Series YouTube video. I found it very interesting and, to a surprising extent, quite validating of my own preferences.

Wade seems non-judgemental and tolerant of various personal preferences when it comes to retirement income styles.
i do try to be agnostic and to say that any of these strategies are valid and viable it's just a matter of understanding who they're right for and the right approach for someone depends on their personal style and just because one strategy is right for you a different strategy might be right for someone else and there's more like flexibility out there for people to find the kind of strategy that will best resonate with their their personal preferences and personal style i mean it's just like when you pick a career there's not one kind of job that's superior for everyone

He describes the two primary distinguishing retirement income style preferences as 1) Probability vs. Safety First; and 2) Optionality vs. Commitment. The probability-based preference typically pairs well with an optionality preference (often associated with a total return approach), while a safety first preference typically pairs easily with a commitment-based preference (associated with a guaranteed income approach: annuities, SS, etc.).

My interest in preserving the portfolio balance over SS income can be seen as geared towards addressing liquidity risk by favoring "optionality" over a commitment-based approach. (The fact that an existing pension and any level of future SS income combine to form an effective income floor means that my overall strategy is a rare combination of "safety first" and "optionality" approaches, without needing a time-segmentation strategy.)

So my interest in favoring the portfolio balance over the guaranteed income of SS is a real thing. It's not an uncommon objective. It merely reflects my personal preferences — which are just as valid as anyone else's.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

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iceport wrote: Mon Sep 27, 2021 12:21 pm... I must admit a little frustration that there’s been really no attempt to respond to my question that concerns mortality risk — living either much longer or much shorter than expected — as it relates to total lifetime income received from SS. ... Why is that of zero interest? A much shorter life than expected is not an especially rare event.
I'm aware that you want to avoid the situation where one delays starting SS, say to age 70, and then dies early, say at age 71. The reason I didn't respond is that it's hard for me to consider this situation as an actual risk. If one's portfolio and/or other income is sufficient, delaying SS should not reduce one's spending. Apart from leaving a legacy, then, dying early with a smaller portfolio balance because one delayed starting SS isn't a real problem. After all, you won't be around.

And generally when one does care about a legacy, the recipients don't really need it. So it's no big deal if you die early and leave a smaller legacy. But you want to take the option that reduces the chance of this happening even though it reduces the likely size of the legacy. As I think about it, I can see that in some cases this might be the reasonable course. it could make sense if your heir would be seriously hurt by a smaller legacy. This might happen if your heir is unable to work and really needs the money.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by wrongfunds »

As I think about it, I can see that in some cases this might be the reasonable course. it could make sense if your heir would be seriously hurt by a smaller legacy. This might happen if your heir is unable to work and really needs the money.
Something just does NOT sound right with the above. If the heir needs the money right now, hopefully a better way than having to die should be investigated.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by bobcat2 »

#Cruncher wrote: Mon Sep 27, 2021 3:01 pm [ If one's portfolio and/or other income is sufficient, delaying SS should not reduce one's spending. Apart from leaving a legacy, then, dying early with a smaller portfolio balance because one delayed starting SS isn't a real problem. After all, you won't be around.
:thumbsup :thumbsup
Yes! Your annual income and spending in the early years are the same regardless of when you commence your SS benefits.

wrongfunds wrote: Mon Sep 27, 2021 3:16 pm If the heir needs the money right now, hopefully a better way than having to die should be investigated.
:thumbsup :thumbsup
Yes! If an heir needs money now, gifting is the answer. Not, well if I die early, I will have helped them. :oops:

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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by randomguy »

bobcat2 wrote: Wed Sep 29, 2021 9:19 am

If the heir needs the money right now, hopefully a better way than having to die should be investigated.
:thumbsup :thumbsup
Yes! If an heir needs money now, gifting is the answer. Not, well if I die early, I will have helped them. :oops:

BobK
[/quote]

What if the heir needs money after I die? Now if I take SS at 62 and die at 70, my portfolio has say 300k less than it could have. I assume a similar thing can happen with a spouse/so who both have similar sized SS checks and are of similar age. You are planning on 2 SS checks til cover spending and then one of you dies. Your income is cut in half but it is likely your expenses are only cut by 25%. So now to cover against my early death I need to buy life insurance to cover me fro 62-80 to replace my portfolio losses. Life is so much more complicated when you have to think of more people than just yourself....


The OP case is easy. They can do whatever they want and they will be fine given it is only them and the huge margin of error. If having a big income stream and a lower portfolio value lets them sleep at night, do that. Or the reverse if that lets them sleep better. Unless something crazy happens (you get scammed out of your portfolio by that housekeeper you hired), your end result is going to be very similar and your assumptions and preferences will affect what path you like. To me a lot would depend on how big my portfolio is. Dropping my portfolio from say 1 million to 700k to pay for the delay wouldn't seem like a big deal. Dropping it from say 500k to 200k might leave me less liquid than I would like to be.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

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#Cruncher wrote: Mon Sep 27, 2021 3:01 pm
iceport wrote: Mon Sep 27, 2021 12:21 pm... I must admit a little frustration that there’s been really no attempt to respond to my question that concerns mortality risk — living either much longer or much shorter than expected — as it relates to total lifetime income received from SS. ... Why is that of zero interest? A much shorter life than expected is not an especially rare event.
I'm aware that you want to avoid the situation where one delays starting SS, say to age 70, and then dies early, say at age 71. The reason I didn't respond is that it's hard for me to consider this situation as an actual risk. If one's portfolio and/or other income is sufficient, delaying SS should not reduce one's spending. Apart from leaving a legacy, then, dying early with a smaller portfolio balance because one delayed starting SS isn't a real problem. After all, you won't be around.

And generally when one does care about a legacy, the recipients don't really need it. So it's no big deal if you die early and leave a smaller legacy. But you want to take the option that reduces the chance of this happening even though it reduces the likely size of the legacy. As I think about it, I can see that in some cases this might be the reasonable course. it could make sense if your heir would be seriously hurt by a smaller legacy. This might happen if your heir is unable to work and really needs the money.
On this is where, in many cases, 'take early' and 'wait' people talk past each other I believe. Though I agree with you, the only actual risk, as the concept is understood in a rational modern finance framework, is not having as much money as I need in advanced old age far beyond life expectancy, because my check is smaller, because I started at 62. Getting less money in total because I died earlier than expected is not properly called a 'risk' in that framework. In my view rational analysis means a) calculate expected PV of 62 and 70 based on your own best information about your life expectancy prospects, again SSA has a detailed distribution of death probabilities but it's false precision if your own LE prospects are significantly better or worse than the whole US population and it's quite feasible to determine if that's the case b) add a risk premium for the actual risk, again in rational modern finance framework, aversion to inadequate income in the right tail of the distribution of lifespan. I don't recognize a valid concept of a risk premium added to outcomes in the left tail of the distribution: you're dead.

On bequest I agree with your point that at the margin this could be a factor. I also agree with two later comments that if the prospective heirs *really* needed the money the answer would be to give it to them, but it could have the same effect. Having given money to prospective heirs who really needed it, the giver might then not have enough money to meet the basic condition of not having to lower their standard of living to reach 70 without SS. Many times the discussion is supposedly about risk/return on 62 v 70 at a single assumed living standard, but it's actually being read by many as 'reduce your standard of living between 62 and 70 in order to wait' because that's what the reader would actually have to do or fears they might have to.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

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JackoC wrote: Wed Sep 29, 2021 10:14 am Many times the discussion is supposedly about risk/return on 62 v 70 at a single assumed living standard, but it's actually being read by many as 'reduce your standard of living between 62 and 70 in order to wait' because that's what the reader would actually have to do or fears they might have to.
Then many are reading it wrong. Typically a person shouldn't defer starting SS benefits so long as to reduce their standard of living while waiting. Once you get to the point of being forced to lower your living standard you take SS. Only those who have extreme longevity risk concerns should choose to lower their living standard while deferring SS.

There are those, however, who have an irrational fear of having to lower their living standard while deferring SS benefits. That's a behavioral economics problem.

For those wishing to greatly assist heirs financially, the big payoff options are gifting and/or dying early. Assets now are worth a lot more than an uncertain amount of assets received some uncertain time in the next 35 years.

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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by JackoC »

bobcat2 wrote: Wed Sep 29, 2021 12:13 pm
JackoC wrote: Wed Sep 29, 2021 10:14 am Many times the discussion is supposedly about risk/return on 62 v 70 at a single assumed living standard, but it's actually being read by many as 'reduce your standard of living between 62 and 70 in order to wait' because that's what the reader would actually have to do or fears they might have to.
Then many are reading it wrong. Typically a person shouldn't defer starting SS benefits so long as to reduce their standard of living while waiting. Once you get to the point of being forced to lower your living standard you take SS. Only those who have extreme longevity risk concerns should choose to lower their living standard while deferring SS.

There are those, however, who have an irrational fear of having to lower their living standard while deferring SS benefits. That's a behavioral economics problem.

For those wishing to greatly assist heirs financially, the big payoff options are gifting and/or dying early. Assets now are worth a lot more than an uncertain amount of assets received some uncertain time in the next 35 years.
All true but to me it's one explanation why the rational arguments for waiting (though waiting is again not *always* the answer) often seem to fall on deaf ears. I agree, if you really had to lower living standard in years 62-70 to wait, you'd need a very great concern about extremely long life to justify that. But I believe in many cases people kind of go along with a discussion that presupposes not reducing living standard while waiting, but might not really be able to do that themselves (the vast majority of Americans can't, it's the main reason mid 90%'s IIRC don't wait to 70) or like you say might be nervous about reducing 'the pile' of money in hand even if on paper it would seem they can afford it.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by bobcat2 »

Hi JackoC,

I do believe you've emphasized an important point that rarely gets discussed. Namely, you don't reduce your income and spending during early retirement in order to defer SS benefits. The point of deferring SS benefits is to keep consumption relatively smooth and high throughout all of retirement. Lowering income and spending early in retirement in order to defer SS benefits is consumption disruption - not the consumption smoothing in retirement that we are supposedly aiming for.

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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by LadyGeek »

An explanation of consumption smoothing is in this wiki article: Life-cycle finance (Consumption smoothing)
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by iceport »

JackoC wrote: Wed Sep 29, 2021 1:11 pm But I believe in many cases people kind of go along with a discussion that presupposes not reducing living standard while waiting, but might not really be able to do that themselves (the vast majority of Americans can't, it's the main reason mid 90%'s IIRC don't wait to 70) or like you say might be nervous about reducing 'the pile' of money in hand even if on paper it would seem they can afford it.
You've hit the nail on the head, JackoC! This is exactly so with me.

When I started this thread, I figured behavioral issues would factor into the question in a significant way.
iceport, in the OP wrote: Sun Sep 12, 2021 2:39 pm (I might have an irrational aversion to spending down the portfolio if I don't need to...)
However, I'm beginning to realize that behavioral issues will probably end up being weighted somewhere in the vicinity of 80%, with purely financial considerations weighted at maybe 20% in the decision.

That overwhelming focus on behavioral concerns in my case is made possible because of the relative financial stability virtually any SS claiming strategy affords me. Yet even for those whose financial security depends more significantly upon an "optimum" (expected) claiming strategy, I'm starting to realize that behavioral considerations must still play a very prominent role.

The thing that I believe is lost in discussions like these is that adequately accounting for behavioral factors cannot be avoided, nor should it be avoided, nor should it be treated uniformly as some kind of failure of reason. We are, after all, all human. My own behavioral quirks, I'm sure, are rooted at some level in my background of financial scarcity. It serves no purpose to try to deny their existence or ignore them.

At some point, it really becomes a matter of balancing behavioral needs with financial needs. How much financial cost is there in pursuing a strategy that best fits one's personality quirks? It's not wholly unlike the trade-offs involved in choosing an appropriate AA. Just as risk tolerance is a real thing that must be accounted for when choosing an AA, retirement income preferences must be properly factored into any discussion of an appropriate retirement income strategy. And there should be no shame in acknowledging that.

No time to respond fully right now, but I appreciate this last bunch of thoughtful comments.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by wrongfunds »

I think somebody summarized this very succinctly in the past. At the one end of the scale, you need it at age xx to live with decent standard of living, you start taking it. At the other end, your portfolio dwarfs the meager SS monthly payment, it does NOT matter. You can afford to wait until 70 or you could "stick it to the man" and grab yours as early as you can and use it as walking around money and to be generous to the homeless people on your daily walk :-)

Now for the people, who are NOT at either end; which means they actually can afford to delay, and if so, they should for all the reasons which have been given here endlessly.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by HomerJ »

wrongfunds wrote: Wed Sep 29, 2021 4:26 pm Now for the people, who are NOT at either end; which means they actually can afford to delay, and if so, they should for all the reasons which have been given here endlessly.
Or not delay, for all the reasons which have also been given here endlessly. :)
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by ppro »

HomerJ wrote: Wed Sep 29, 2021 5:05 pm
wrongfunds wrote: Wed Sep 29, 2021 4:26 pm Now for the people, who are NOT at either end; which means they actually can afford to delay, and if so, they should for all the reasons which have been given here endlessly.
Or not delay, for all the reasons which have also been given here endlessly. :)
Thus the endless debate. Internal as well as external. As one NOT at either end, I have been, so far, successful at staying strong in favor of delaying. Having just turned 69, I still find myself turning to this forum for the confirmation bias that delaying is the right thing to do. Before I became aware of the spousal claiming strategy, again thanks to this forum, I was sure I would claim at FRA. One more year to go!
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by jello_nailer »

bobcat2 wrote: Wed Sep 29, 2021 12:13 pm
For those wishing to greatly assist heirs financially, the big payoff options are gifting and/or dying early. Assets now are worth a lot more than an uncertain amount of assets received some uncertain time in the next 35 years.

BobK
I don't have that urge. If I'm willing to take that risk for me I'm will to take the risk for the heirs.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by smitcat »

wrongfunds wrote: Wed Sep 29, 2021 4:26 pm I think somebody summarized this very succinctly in the past. At the one end of the scale, you need it at age xx to live with decent standard of living, you start taking it. At the other end, your portfolio dwarfs the meager SS monthly payment, it does NOT matter. You can afford to wait until 70 or you could "stick it to the man" and grab yours as early as you can and use it as walking around money and to be generous to the homeless people on your daily walk :-)

Now for the people, who are NOT at either end; which means they actually can afford to delay, and if so, they should for all the reasons which have been given here endlessly.
Great advice really - unless someone has unusual health of life issues.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by HIinvestor »

We had planned for me to wait until age 70 to claim SS but recently decided to start me collecting now because we want our disabled dependent daughter to be able to get benefits. She’s been disabled since before she turned 22 and has continued to be disabled.

Today, I got a letter from SS telling me I got the1st 2 months deposited (Aug & Sept) and in a few weeks I will get Oct’s payment deposited as well. Will probably be gifting it all to D for her living expenses.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by iceport »

JackoC wrote: Wed Sep 29, 2021 10:14 am
#Cruncher wrote: Mon Sep 27, 2021 3:01 pm
iceport wrote: Mon Sep 27, 2021 12:21 pm... I must admit a little frustration that there’s been really no attempt to respond to my question that concerns mortality risk — living either much longer or much shorter than expected — as it relates to total lifetime income received from SS. ... Why is that of zero interest? A much shorter life than expected is not an especially rare event.
I'm aware that you want to avoid the situation where one delays starting SS, say to age 70, and then dies early, say at age 71. The reason I didn't respond is that it's hard for me to consider this situation as an actual risk. If one's portfolio and/or other income is sufficient, delaying SS should not reduce one's spending. Apart from leaving a legacy, then, dying early with a smaller portfolio balance because one delayed starting SS isn't a real problem. After all, you won't be around.

And generally when one does care about a legacy, the recipients don't really need it. So it's no big deal if you die early and leave a smaller legacy. But you want to take the option that reduces the chance of this happening even though it reduces the likely size of the legacy. As I think about it, I can see that in some cases this might be the reasonable course. it could make sense if your heir would be seriously hurt by a smaller legacy. This might happen if your heir is unable to work and really needs the money.
On this is where, in many cases, 'take early' and 'wait' people talk past each other I believe. Though I agree with you, the only actual risk, as the concept is understood in a rational modern finance framework, is not having as much money as I need in advanced old age far beyond life expectancy, because my check is smaller, because I started at 62. Getting less money in total because I died earlier than expected is not properly called a 'risk' in that framework.
This is one point that cannot be emphasized enough: lots of folks seem to be "talking past each other" on this question. And it's happening on more levels than just the specific way outlined above.

It seems different people have completely different perspectives on retirement income generation, and completely different conceptions of what will provide the greatest sense of security. I really applaud Wade Pfau for his recent efforts to define and make sense of the full range of individual perspectives. Even before seeing Wade's approach compared to the Meyers-Briggs personality test, I was thinking about it in exactly that context. Say what you will about that test, when I took it in a class at work it really did help me to see a much broader range of the different ways people perceive and interact with the world, and it helped me take conflicts less personally and become more tolerant of others' behaviors. In other words, it had real value. It seems likely to me that Wade's work could be similarly valuable in the field of personal finance.

And we probably need to take these different individual perspectives into account more readily when considering SS claiming strategies. There could be more than one way to proceed, reasonably.

#Cruncher wrote: Mon Sep 27, 2021 3:01 pm
iceport wrote: Mon Sep 27, 2021 12:21 pm... I must admit a little frustration that there’s been really no attempt to respond to my question that concerns mortality risk — living either much longer or much shorter than expected — as it relates to total lifetime income received from SS. ... Why is that of zero interest? A much shorter life than expected is not an especially rare event.
I'm aware that you want to avoid the situation where one delays starting SS, say to age 70, and then dies early, say at age 71. The reason I didn't respond is that it's hard for me to consider this situation as an actual risk. If one's portfolio and/or other income is sufficient, delaying SS should not reduce one's spending. Apart from leaving a legacy, then, dying early with a smaller portfolio balance because one delayed starting SS isn't a real problem. After all, you won't be around.

And generally when one does care about a legacy, the recipients don't really need it. So it's no big deal if you die early and leave a smaller legacy. But you want to take the option that reduces the chance of this happening even though it reduces the likely size of the legacy. As I think about it, I can see that in some cases this might be the reasonable course. it could make sense if your heir would be seriously hurt by a smaller legacy. This might happen if your heir is unable to work and really needs the money.
#Cruncher,

Thank you very much for attempting to answer my question. I do appreciate it. However, I don't fully understand it. It almost seems as though it's too difficult to set aside your own conceptions of the most sensible approach to the problem long enough to fairly and fully consider any others. Please don't take that criticism personally. It's just how I see it. But at least you did take a stab at it, and I am grateful.

The whole premise of the question was a desire for the largest legacy, assuming there is no concern about longevity risk. Your first paragraph reiterates your own perspective (and that of many others), but is non-responsive to my question. In the second paragraph, your first sentence confuses me. Where did the question of the needs of heirs come into the picture? I didn't raise it, and I don't see how it matters. The desire to maximize the legacy is my interest, nobody else's. I'll try to explain my perspective a bit more clearly, though I haven't even fully defined it for myself.

In some ways, the objective for a legacy is similar to how I viewed the pension. I came to see the pension as one way I converted my human capital into financial capital, in this case in the form of a retirement income stream. I stayed at the job longer than I probably would have otherwise in order to gain it, and I wanted to maximize its value, to get the most out of all the figurative blood, sweat and tears that went into it. One way I did that was to invoke a survivor option, which allowed me to choose a 50% or 100% survivor annuitant option with the beneficiary being anyone of my choosing, even though I'm not married. I chose the 50% annuitant option, naming a sibling as the beneficiary. Yes, I was thrilled to be able to provide that kind of potential assistance for a loved one who lacks the financial security I have. But it also indulged a slightly more selfish objective: it was a way to maximize the value of all the work and sacrifice that went into earning the pension. So I would have made that choice regardless of the financial needs of the beneficiary. (After the health scare last year, I regretted not choosing the 100% annuitant option.)

On some level, I tend to view the portfolio through a similar lens. It represents how well I've been able to convert all the effort and sacrifice during my working decades into wealth. And just like with the pension, I would like to maximize its value — and that clearly does not need to benefit me alone. So regardless of whether the beneficiaries need it or not (and that varies greatly), I'd still like to preserve and transfer as much wealth as possible.

Is that really such a crazy notion that folks can't wrap their heads around it?

When viewed from that perspective, yes, claiming at 70 and dying at 71 with a substantially sub-optimum portfolio balance is a risk. And I don't see how the relative needs of the beneficiaries enter into the question.

[In reality, it's more complicated and nuanced than that. And it involves other behavioral factors. So maximizing the legacy is partly a proxy for simply preserving and growing the portfolio to the greatest extent practicable. But we shouldn't need to get into those gnarly particulars just to consider the question I posed.]
Last edited by iceport on Sat Oct 02, 2021 3:00 pm, edited 1 time in total.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by Maverick3320 »

JoeRetire wrote: Sun Sep 12, 2021 6:52 pm
Monsterflockster wrote: Sun Sep 12, 2021 5:58 pm It’s morbid but they want you to claim later in hopes you die sooner than later and pay out less.
Interesting conspiracy theory.

Except that "they" don't care when you begin your benefits.
And except that on average, folks who claim later collect more in lifetime benefits.

Other than that...
"except that on average, folks who claim later collect more in lifetime benefits"

Correlation or causation?
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by namajones »

iceport wrote: Sat Oct 02, 2021 2:54 pm
On some level, I tend to view the portfolio through a similar lens. It represents how well I've been able to convert all the effort and sacrifice during my working decades into wealth. And just like with the pension, I would like to maximize its value — and that clearly does not need to benefit me alone. So regardless of whether the beneficiaries need it or not (and that varies greatly), I'd still like to preserve and transfer as much wealth as possible.

When viewed from that perspective, yes, claiming at 70 and dying at 71 with a substantially sub-optimum portfolio balance is a risk. And I don't see how the relative needs of the beneficiaries enter into the question.
I totally get this. Under many conditions, I would use SS as an income stream so as not to draw excessively from other income streams. Exactly when that occurs is not so critical in my current situation--probably when I decide to quit working or a couple of years thereafter. Certainly I'd wait until 70 only if I had (a) a younger spouse to worry about who (b) needed the most from my SS to get along or if (c) I wanted to use the SS as a kind of long term care policy (absent a real one).
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by JoeRetire »

marcopolo wrote: Tue Sep 21, 2021 8:01 pm I understand that for discussion in this forum, we have to assume current laws stay in place, and can not speculate on future changes.
But, for making your own plans, wouldn't it be prudent to either plan for what you think is the most likely outcome, or at least hedge towards that rather than simply go with what the current law says when you believe that will change?

In the famous words of Rush:
If you choose not to decide, you still have made a choice
(shrug)

I plan for the financially worse case, even though I believe in the better case.

I guess if you are confident enough in what you think is the most likely outcome you could plan only for that. Not what I would do. I know I have been surprised by political outcomes before.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by JoeRetire »

Maverick3320 wrote: Sat Oct 02, 2021 2:58 pm
JoeRetire wrote: Sun Sep 12, 2021 6:52 pm
Monsterflockster wrote: Sun Sep 12, 2021 5:58 pm It’s morbid but they want you to claim later in hopes you die sooner than later and pay out less.
Interesting conspiracy theory.

Except that "they" don't care when you begin your benefits.
And except that on average, folks who claim later collect more in lifetime benefits.

Other than that...
"except that on average, folks who claim later collect more in lifetime benefits"

Correlation or causation?
Math.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by marcopolo »

JoeRetire wrote: Sun Oct 03, 2021 2:29 pm
marcopolo wrote: Tue Sep 21, 2021 8:01 pm I understand that for discussion in this forum, we have to assume current laws stay in place, and can not speculate on future changes.
But, for making your own plans, wouldn't it be prudent to either plan for what you think is the most likely outcome, or at least hedge towards that rather than simply go with what the current law says when you believe that will change?

In the famous words of Rush:
If you choose not to decide, you still have made a choice
(shrug)

I plan for the financially worse case, even though I believe in the better case.

I guess if you are confident enough in what you think is the most likely outcome you could plan only for that. Not what I would do. I know I have been surprised by political outcomes before.
I plan for even steeper cuts than current laws, not because I think SS is going away, but because I think additional means testing is what is most likely to affect our situation.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by JoeRetire »

marcopolo wrote: Sun Oct 03, 2021 2:47 pm
JoeRetire wrote: Sun Oct 03, 2021 2:29 pm
marcopolo wrote: Tue Sep 21, 2021 8:01 pm I understand that for discussion in this forum, we have to assume current laws stay in place, and can not speculate on future changes.
But, for making your own plans, wouldn't it be prudent to either plan for what you think is the most likely outcome, or at least hedge towards that rather than simply go with what the current law says when you believe that will change?

In the famous words of Rush:
If you choose not to decide, you still have made a choice
(shrug)

I plan for the financially worse case, even though I believe in the better case.

I guess if you are confident enough in what you think is the most likely outcome you could plan only for that. Not what I would do. I know I have been surprised by political outcomes before.
I plan for even steeper cuts than current laws, not because I think SS is going away, but because I think additional means testing is what is most likely to affect our situation.
We are each free to privately speculate on potential legislation and act accordingly.
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Re: I’m Planning to Claim SS @62… Well, Why Not? ►Updated w/Funded Ratio

Post by iceport »

Intrigued by the Retirement Income Style Awareness® Profile developed by Wade Pfau, Alex Murguia and Bob French at RetirementResearcher.com, I looked for a way to take the RISA questionnaire (described here). I was hoping it could better define some of the behavioral quirks leading me to want to claim Social Security early. Unfortunately, the questionnaire was not available to the general public, but the site said they'd keep me informed of any future availability. As luck would have it, within a week or two, the next Retirement Income Challenge was announced, and I signed up for it, free of charge. The 4-day challenge took place this week.

The RISA Profile was very interesting, and it seemed to have me accurately pegged to a surprisingly degree. (Strong preference for safety-first, together with a strong preference to preserve spending flexibility, or optionality.)

But what became even more interesting was the opportunity to play around with their Funded Ratio tool for a few days. Though I have nothing to compare it to, the funded ratio analysis at RetirementResearcher.com seems outstanding. It's capable of handling a wide range of circumstances, and it seems accurate. I didn't test the tax accounting, but from what I saw, it seemed very reasonable. So I took the opportunity to test out various Social Security claiming ages, to see how it would affect the bottom line funded ratio. I was absolutely amazed at how consistent the quantitative funded ratio analysis was to the general direction this thread was headed.

As I looked past my thumb and squinted into the distance, I estimated that my essential expenses would just about be covered by SS and the pension, but that it might be close. It seemed as though waiting until at least 65 to claim would improve the likelihood of meeting all essential expenses with a reliable income stream. That's exactly what the funded ratio analysis revealed!

Code: Select all

SS Claiming Age          62      64      65      66      67      70
Overall Funded Ratio    113%    114%    115%    116%    117%    120%  (PV of Assets/PV of Liabilities)

Code: Select all

Essential Expense        98%     99%    101%    102%    103%    108% (PV of (SS+Pension)/PV of Essential Expenses)
Funded Ratio

Percent of Essential     31%     33%     35%     36%     37%     42% (PV of SS Only/PV of Essential Expenses)
Expenses Covered by SS

Discretionary &         138%    138%    138%    138%    138%    138% (Current Portfolio/PV of Discretionary Expenses)
Legacy Funded Ratio

Contingency Funded      217%    217%    217%    217%    217%    217% (PV of Reserves/PV of Contingency expenses)
Ratio
Assumptions:
Plan to Age 95 (~35 Years)
2% Nominal Return
2% Inflation
0% Real Discount Rate
Withdrawal Order: Taxable, Tax-deferred, Tax-free
Current tax brackets persist
100% of tax liabilities added to Essential Expenses category
Retirement Researcher Overall Funded Ratio Breakpoints:
FR<95% = “Underfunded”
95%<FR<105% = “Stressed”
105%<FR<115% = “Constrained”
115%<FR = “Excess Funding”

It probably looks like I played around with the inputs until I got the results I hoped for, but that's not how it went at all! My expenses are very well defined by now, and I used the same total of essential + discretionary expenses throughout, only shifting $5k from "essential" to "discretionary" after the first run. But the "essential expenses" are still comfortably padded. They basically include all normal expenses plus all envisioned big ticket expenses, like cars, major home repairs, etc. About the only thing the "discretionary expenses" need to cover is a big vacation/recreation budget, one that I honestly doubt I'll ever come close to using. The runs above included a $100k Home Improvement in 1 year (discretionary expense) and 3 years of LTC Expenses added at the end (contingency expense).

Then I stress-tested the above base scenario with the following concurrent risks:
— 20% drop in portfolio (corresponding to a roughly 31% equity market drop)
— 20% drop in pension income
— Additional $25k/yr. added to LTC contingency expenses

The results were not as good, but not nearly as terrible as I expected:

Code: Select all

SS Claiming Age          62      65      67      70
Overall Funded Ratio     99%    101%    103%    105% (PV of Assets/PV of Liabilities)

Essential Expense        90%     93%     96%     99% (PV of (SS+Pension)/PV of Essential Expenses)
Funded Ratio

Percent of Essential     33%     37%     40%     44%   (PV of SS Only/PV of Essential Expenses)
Expenses Covered by SS


I realize there could be a wide range of interpretations of the above funded ratio analysis, but to me it provides further confirmation through an objective metric that claiming Social Security at 65 or 66 would be a reasonable course of action for me, financially. And it accommodates my behavioral quirks way better than waiting longer.

Any other thoughts about how to interpret the above analyses? Would you still recommend a bigger factor of safety by waiting longer to claim Social Security?
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
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Re: I’m Planning to Claim SS @62… Well, Why Not? ►Updated w/Funded Ratio

Post by smitcat »

iceport wrote: Fri Nov 05, 2021 6:28 pm Intrigued by the Retirement Income Style Awareness® Profile developed by Wade Pfau, Alex Murguia and Bob French at RetirementResearcher.com, I looked for a way to take the RISA questionnaire (described here). I was hoping it could better define some of the behavioral quirks leading me to want to claim Social Security early. Unfortunately, the questionnaire was not available to the general public, but the site said they'd keep me informed of any future availability. As luck would have it, within a week or two, the next Retirement Income Challenge was announced, and I signed up for it, free of charge. The 4-day challenge took place this week.

The RISA Profile was very interesting, and it seemed to have me accurately pegged to a surprisingly degree. (Strong preference for safety-first, together with a strong preference to preserve spending flexibility, or optionality.)

But what became even more interesting was the opportunity to play around with their Funded Ratio tool for a few days. Though I have nothing to compare it to, the funded ratio analysis at RetirementResearcher.com seems outstanding. It's capable of handling a wide range of circumstances, and it seems accurate. I didn't test the tax accounting, but from what I saw, it seemed very reasonable. So I took the opportunity to test out various Social Security claiming ages, to see how it would affect the bottom line funded ratio. I was absolutely amazed at how consistent the quantitative funded ratio analysis was to the general direction this thread was headed.

As I looked past my thumb and squinted into the distance, I estimated that my essential expenses would just about be covered by SS and the pension, but that it might be close. It seemed as though waiting until at least 65 to claim would improve the likelihood of meeting all essential expenses with a reliable income stream. That's exactly what the funded ratio analysis revealed!

Code: Select all

SS Claiming Age          62      64      65      66      67      70
Overall Funded Ratio    113%    114%    115%    116%    117%    120%  (PV of Assets/PV of Liabilities)

Code: Select all

Essential Expense        98%     99%    101%    102%    103%    108% (PV of (SS+Pension)/PV of Essential Expenses)
Funded Ratio

Percent of Essential     31%     33%     35%     36%     37%     42% (PV of SS Only/PV of Essential Expenses)
Expenses Covered by SS

Discretionary &         138%    138%    138%    138%    138%    138% (Current Portfolio/PV of Discretionary Expenses)
Legacy Funded Ratio

Contingency Funded      217%    217%    217%    217%    217%    217% (PV of Reserves/PV of Contingency expenses)
Ratio
Assumptions:
Plan to Age 95 (~35 Years)
2% Nominal Return
2% Inflation
0% Real Discount Rate
Withdrawal Order: Taxable, Tax-deferred, Tax-free
Current tax brackets persist
100% of tax liabilities added to Essential Expenses category
Retirement Researcher Overall Funded Ratio Breakpoints:
FR<95% = “Underfunded”
95%<FR<105% = “Stressed”
105%<FR<115% = “Constrained”
115%<FR = “Excess Funding”

It probably looks like I played around with the inputs until I got the results I hoped for, but that's not how it went at all! My expenses are very well defined by now, and I used the same total of essential + discretionary expenses throughout, only shifting $5k from "essential" to "discretionary" after the first run. But the "essential expenses" are still comfortably padded. They basically include all normal expenses plus all envisioned big ticket expenses, like cars, major home repairs, etc. About the only thing the "discretionary expenses" need to cover is a big vacation/recreation budget, one that I honestly doubt I'll ever come close to using. The runs above included a $100k Home Improvement in 1 year (discretionary expense) and 3 years of LTC Expenses added at the end (contingency expense).

Then I stress-tested the above base scenario with the following concurrent risks:
— 20% drop in portfolio (corresponding to a roughly 31% equity market drop)
— 20% drop in pension income
— Additional $25k/yr. added to LTC contingency expenses

The results were not as good, but not nearly as terrible as I expected:

Code: Select all

SS Claiming Age          62      65      67      70
Overall Funded Ratio     99%    101%    103%    105% (PV of Assets/PV of Liabilities)

Essential Expense        90%     93%     96%     99% (PV of (SS+Pension)/PV of Essential Expenses)
Funded Ratio

Percent of Essential     33%     37%     40%     44%   (PV of SS Only/PV of Essential Expenses)
Expenses Covered by SS


I realize there could be a wide range of interpretations of the above funded ratio analysis, but to me it provides further confirmation through an objective metric that claiming Social Security at 65 or 66 would be a reasonable course of action for me, financially. And it accommodates my behavioral quirks way better than waiting longer.

Any other thoughts about how to interpret the above analyses? Would you still recommend a bigger factor of safety by waiting longer to claim Social Security?
It is unclear whether the above calculations include figuring taxes for each possibility and year.
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Re: I’m Planning to Claim SS @62… Well, Why Not? ►Updated w/Funded Ratio

Post by iceport »

smitcat wrote: Fri Nov 05, 2021 7:36 pm It is unclear whether the above calculations include figuring taxes for each possibility and year.
Yes, all taxes are calculated by the funded ratio tool. As the inputs vary while holding expenses constant, the PV of expenses changes slightly, corresponding to changing tax liabilities. (Higher income from SS leads to higher taxes, which are then assigned to the essential expense category, for example.) There's a cash flow chart in the report, and the tax effects of RMDs show up, also. So the tool is used by inputting the gross income amounts, but only the net expenses, excluding taxes. The program figures all taxes. Bob French said the tax computations took something like 80% of the effort. For state taxes, it seems to (conservatively) put everyone in the top state bracket. Federal tax computations are more detailed. I don't know how accurate the property tax assumptions are for others, but based on the percentage used for my state and the value of my home, it seems like the program would assume a property tax that almost exactly matches my real-life property tax bill.
Last edited by iceport on Fri Nov 05, 2021 7:58 pm, edited 2 times in total.
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Re: I’m Planning to Claim SS @62… Well, Why Not? ►Updated w/Funded Ratio

Post by rockstar »

If I knew I wasn't going to live much past 70, I'd take it early. I think, it really boils down to your health. I have no idea what my health is going to look like at 62.
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JoeRetire
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Re: I’m Planning to Claim SS @62… Well, Why Not? ►Updated w/Funded Ratio

Post by JoeRetire »

iceport wrote: Fri Nov 05, 2021 6:28 pmI realize there could be a wide range of interpretations of the above funded ratio analysis, but to me it provides further confirmation through an objective metric that claiming Social Security at 65 or 66 would be a reasonable course of action for me, financially. And it accommodates my behavioral quirks way better than waiting longer.
Claiming your benefits at any age that pleases you is "reasonable". No need to justify your choice through a convoluted search for approval.

I'm not seeing the "way better than waiting longer" part.
Would you still recommend a bigger factor of safety by waiting longer to claim Social Security?
Yes. But it's simply not going to matter all that much. Do what makes you happy - 62, 65, 70 whatever.
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Re: I’m Planning to Claim SS @62… Well, Why Not?

Post by nigel_ht »

JoeRetire wrote: Sun Oct 03, 2021 2:31 pm
Maverick3320 wrote: Sat Oct 02, 2021 2:58 pm
JoeRetire wrote: Sun Sep 12, 2021 6:52 pm
Monsterflockster wrote: Sun Sep 12, 2021 5:58 pm It’s morbid but they want you to claim later in hopes you die sooner than later and pay out less.
Interesting conspiracy theory.

Except that "they" don't care when you begin your benefits.
And except that on average, folks who claim later collect more in lifetime benefits.

Other than that...
"except that on average, folks who claim later collect more in lifetime benefits"

Correlation or causation?
Math.
Or perhaps folks with poorer health are generally guided not to wait. I guess it depends on the data.
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Re: I’m Planning to Claim SS @62… Well, Why Not? ►Updated w/Funded Ratio

Post by iceport »

JoeRetire wrote: Sat Nov 06, 2021 7:37 am
Would you still recommend a bigger factor of safety by waiting longer to claim Social Security?
Yes. But it's simply not going to matter all that much.
Well, it might if you'd care to be a little more detailed in your reasoning.

The post you responded to included a funded ratio analysis that attempts to isolate the effects of claiming Social Security at various ages. It seems to me to be an excellent way to strip away other distracting parameters and focus squarely on the effect varying the claiming ages has on the bottom line financial security of the overall retirement plan. It even allowed me to account for things like a long term care contingency expenses and the cost in the next couple of years of a major home improvement effort. I never would have had the motivation, or really even the ability, to attempt my own funded ratio analysis, but having access to the new funded ratio tool at RetirementResearcher.com has been a wonderful, if unexpected, opportunity. It's not a precise analysis, but it does seem powerful.

As it relates to your position on the claiming age, do you not consider a funded ratio to be a useful metric?

Is it not an effective way to isolate the effects of various claiming ages on the financial security of the plan?

Is the model not conservative enough, in your opinion?

Do you think I'm "gaming" the analysis in some way, rendering it misleading?

The analysis — which I actually think includes layers of conservative assumptions — shows an overall funded ratio of 115% if I claim Social Security at 65. Would your answer be any different if that number was 125% funded? Same answer if the result was 150% funded?

I'm just trying to understand... thanks!



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Re: I’m Planning to Claim SS @62… Well, Why Not? ►Updated w/Funded Ratio

Post by thursdaysd »

It represents how well I've been able to convert all the effort and sacrifice during my working decades into wealth. And just like with the pension, I would like to maximize its value — and that clearly does not need to benefit me alone. So regardless of whether the beneficiaries need it or not (and that varies greatly), I'd still like to preserve and transfer as much wealth as possible.
[In reality, it's more complicated and nuanced than that. And it involves other behavioral factors. So maximizing the legacy is partly a proxy for simply preserving and growing the portfolio to the greatest extent practicable. But we shouldn't need to get into those gnarly particulars just to consider the question I posed.]
I haven't read the whole thread, just the last page, but I was struck by this. It really underlines just how person-specific this decision is. I am divorced, with no biological children. It is a matter of complete indifference to me whether I leave a legacy or not (although I have specified beneficiaries). It is a matter of complete indifference to me how large my portfolio is when I die, provided it was large enough, when combined with my pension and SS, to allow me to live out my life in reasonable comfort. It sounds like the poster is using the portfolio to keep score. FWIW I waited until 70, but thanks to my pension and a spousal benefit I made few demands on my portfolio while I was waiting.
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Re: I’m Planning to Claim SS @62… Well, Why Not? ►Updated w/Funded Ratio

Post by JoeRetire »

I'm glad you found whatever you needed to come to your conclusion.

I've found that pretty much everyone is happy enough with their claiming strategy, no matter what that strategy ends up being. I'm sure you'll be happy too, no matter how you arrived at it.
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Re: I’m Planning to Claim SS @62… Well, Why Not? ►Updated w/Funded Ratio

Post by iceport »

JoeRetire wrote: Sat Nov 06, 2021 7:37 am
iceport wrote: Fri Nov 05, 2021 6:28 pmI realize there could be a wide range of interpretations of the above funded ratio analysis, but to me it provides further confirmation through an objective metric that claiming Social Security at 65 or 66 would be a reasonable course of action for me, financially. And it accommodates my behavioral quirks way better than waiting longer.
Claiming your benefits at any age that pleases you is "reasonable". No need to justify your choice through a convoluted search for approval.
Just revisiting this comment, I tend to agree with you if you are applying it to my case, specifically. If this was intended as a general comment, I tend to disagree.

There are behavioral needs (or desires or preferences), and there are financial needs. When the means of achieving both are in agreement, the path ahead is fairly clear. When they are in conflict, the choices become more difficult and fraught with uncomfortable compromises. The risk is that satisfying behavioral needs could come at the expense of financial security.

There are plenty of folks for whom this choice is a crucial element of their financial plan. For those whose goals are barely funded, or underfunded, electing to claim SS at 62 might very well be "unreasonable" in that it makes a marginal or inadequate plan even worse.

Contrary to the characterization of this thread as a search for approval, at its core, the central question is whether satisfying my behavioral need to claim SS early would be financially irresponsible. To the best of my estimation it is not — for me. The main question has been: Am I missing something? What if I'm wrong?

Through the course of the discussion, I've come to the conclusion that claiming SS at 62 would not be the most prudent choice for me, primarily due to a smaller than desired estimated factor of safety in meeting all essential expenses with reliable income streams. But it also did not appear that waiting until 70 to claim would be required to produce the desired level of financial security.

Now the recent results of a surprisingly robust — and appropriately conservative — Funded Ratio analysis has provided objective confirmation that claiming early could be a financially sound choice for me. But there are no bright lines between "financially sound" and "financially imprudent." The differences exist on a continuum. Assuming longevity happens, the funded ratio analysis also clearly shows that the later I claim, the less risky the plan becomes.

So the choice is by no means over and done! The funded ratio is but a snapshot in time. I envision reassessing the input parameters again at 62, comparing circumstances then to what they are now. If claiming at 65 still looks promising, the plan would remain. But before actually filing the paperwork, I'll probably want to run another funded ratio analysis one last time with current numbers. If it means coughing up the $500, or whatever it's up to by then, to access the RetirementResearcher.com funded ratio tool again, so be it. I think it would be worth it. Their calculator really is outstanding, IMHO.

In fact, I think the funded ratio analysis would be an invaluable tool for virtually anyone grappling with the question of when to claim Social Security. The results are illuminating.

BobK, who stopped by here earlier, made a similar observation in an earlier thread: An Advantage of including PV of SS in Funding Ratio Calculation
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Re: I’m Planning to Claim SS @62… Well, Why Not? ►Updated w/Funded Ratio

Post by JoeRetire »

iceport wrote: Mon Nov 08, 2021 11:09 am Just revisiting this comment, I tend to agree with you if you are applying it to my case, specifically. If this was intended as a general comment, I tend to disagree.
Okay, we'll agree to disagree. Perhaps it's a matter of what "unreasonable" means to each of us.
So the choice is by no means over and done! The funded ratio is but a snapshot in time. I envision reassessing the input parameters again at 62, comparing circumstances then to what they are now. If claiming at 65 still looks promising, the plan would remain. But before actually filing the paperwork, I'll probably want to run another funded ratio analysis one last time with current numbers. If it means coughing up the $500, or whatever it's up to by then, to access the RetirementResearcher.com funded ratio tool again, so be it. I think it would be worth it.
Good luck.
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Re: I’m Planning to Claim SS @62… Well, Why Not? ►Updated w/Funded Ratio

Post by goblue100 »

iceport wrote: Mon Nov 08, 2021 11:09 am
Contrary to the characterization of this thread as a search for approval, at its core, the central question is whether satisfying my behavioral need to claim SS early would be financially irresponsible. To the best of my estimation it is not — for me. The main question has been: Am I missing something? What if I'm wrong?
I would say at this point you are not missing anything. I think Joe's main point (does anyone else read everything Joe writes in George Costanza voice?) is that people who claim early are seldom dissatisfied with their choice. As well as people who wait, so in the end does it really matter? Even when I look at your funded ratio, it is a difference between being 98% fully funded or 101% fully funded. Hardly seems like a disaster if we have to fund 2% of our retirement. I bet I can cut back on cable TV or turn down the thermostat and save 2%.
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Re: I’m Planning to Claim SS @62… Well, Why Not? ►Updated w/Funded Ratio

Post by JoeRetire »

goblue100 wrote: Wed Nov 10, 2021 9:53 am
iceport wrote: Mon Nov 08, 2021 11:09 am
Contrary to the characterization of this thread as a search for approval, at its core, the central question is whether satisfying my behavioral need to claim SS early would be financially irresponsible. To the best of my estimation it is not — for me. The main question has been: Am I missing something? What if I'm wrong?
I would say at this point you are not missing anything. I think Joe's main point (does anyone else read everything Joe writes in George Costanza voice?) is that people who claim early are seldom dissatisfied with their choice. As well as people who wait, so in the end does it really matter? Even when I look at your funded ratio, it is a difference between being 98% fully funded or 101% fully funded. Hardly seems like a disaster if we have to fund 2% of our retirement. I bet I can cut back on cable TV or turn down the thermostat and save 2%.
You get it.
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Re: I’m Planning to Claim SS @62… Well, Why Not? ►Updated w/Funded Ratio

Post by vanbogle59 »

goblue100 wrote: Wed Nov 10, 2021 9:53 am (does anyone else read everything Joe writes in George Costanza voice?)
Not just the voice.
I find myself wanting to go full KRAMER on that damn finger he keeps pointing at me.
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Re: I’m Planning to Claim SS @62… Well, Why Not? ►Updated w/Funded Ratio

Post by beernutz »

vanbogle59 wrote: Wed Nov 10, 2021 3:51 pm
goblue100 wrote: Wed Nov 10, 2021 9:53 am (does anyone else read everything Joe writes in George Costanza voice?)
Not just the voice.
I find myself wanting to go full KRAMER on that damn finger he keeps pointing at me.
I believe that is a thumbs up that George was known for.
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Re: I’m Planning to Claim SS @62… Well, Why Not? ►Updated w/Funded Ratio

Post by vanbogle59 »

beernutz wrote: Wed Nov 10, 2021 4:33 pm
vanbogle59 wrote: Wed Nov 10, 2021 3:51 pm
goblue100 wrote: Wed Nov 10, 2021 9:53 am (does anyone else read everything Joe writes in George Costanza voice?)
Not just the voice.
I find myself wanting to go full KRAMER on that damn finger he keeps pointing at me.
I believe that is a thumbs up that George was known for.
OMG! You're right! That completely changes the tone of every post I've read :oops:
ROTFL at myself!!!
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Re: I’m Planning to Claim SS @62… Well, Why Not? ►Updated w/Funded Ratio

Post by N.Y.Cab »

You can revisit this question again as you get closer to the date. If real discount rate revert back to pre-pandemic level above 0.7% then Opensocialsecurity will likely be in favor of the claiming early strategy.
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Re: I’m Planning to Claim SS @62… Well, Why Not? ►Updated w/Funded Ratio

Post by JoeRetire »

N.Y.Cab wrote: Thu Nov 11, 2021 11:22 am You can revisit this question again as you get closer to the date. If real discount rate revert back to pre-pandemic level above 0.7% then Opensocialsecurity will likely be in favor of the claiming early strategy.
OpenSocialSecurity lets you override the default discount rate. So you can try it today.
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Re: I’m Planning to Claim SS @62… Well, Why Not? ►Updated w/Funded Ratio

Post by JoeRetire »

vanbogle59 wrote: Wed Nov 10, 2021 3:51 pm
goblue100 wrote: Wed Nov 10, 2021 9:53 am (does anyone else read everything Joe writes in George Costanza voice?)
Not just the voice.
I find myself wanting to go full KRAMER on that damn finger he keeps pointing at me.
Giddy up!
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