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

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
User avatar
Cash is King
Posts: 578
Joined: Sun Dec 10, 2017 8:04 am

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

Post by Cash is King »

JoeRetire wrote: Fri Sep 17, 2021 8:18 pm
samsoes wrote: Fri Sep 17, 2021 3:36 pm It is my intention to get every dollar that was contributed by me and by my employers on my behalf out of Social Security. Just have to make sure I don't croak before I do so. So I plan to start at 62.
Be careful not to croak before 62!
Because then you would feel awful.
Be careful not to croak before 70. Based on your previous post, you would not feel awful but your wife may be disappointed.
JackoC
Posts: 4714
Joined: Sun Aug 12, 2018 11:14 am

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

Post by JackoC »

JoeRetire wrote: Fri Sep 17, 2021 8:14 pm
JackoC wrote: Fri Sep 17, 2021 9:36 am It's good that there's been some exchange of ideas about future cuts to SS. I think it's counterproductive to squelch that because so many people say it's a significant factor in their choice. But I view that likelihood as pretty much zero if even close to 62.
You do admit that future cuts across the board are exactly what the current laws require, right?
And that anything else is just speculation?
Across government policies there are provisions where policy (tax, benefit, regulation, what have you) would change significantly past date X (either specified or estimated) unless action is taken to change or extend the provision over what's currently written down. But in some cases it's overwhelmingly likely the provisions will be extended or changed to keep the underlying policy basically the same. This is the case IMO with public old age pension payments to existing recipients: the provisions will change if the alternative is the automatic electoral political suicide of cutting benefits to existing pensioners, in rich world democracy X, Y or Z. Or it's anyway among the very last things that would be cut in an unprecedented meltdown, in which case the scenario and likelihood is of that meltdown, not whether provisions written down right now are the best predictor of future policy. And every opinion of the future is speculation, so hard to see why anyone would think 'that's speculation' is a good argument against one particular opinion of the future over another. Though again if your or anyone else's opinion on the likelihood of SS cuts to existing recipients differs from mine, that's fine.
User avatar
JoeRetire
Posts: 15381
Joined: Tue Jan 16, 2018 1:44 pm

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

Post by JoeRetire »

Cash is King wrote: Fri Sep 17, 2021 8:30 pm
JoeRetire wrote: Fri Sep 17, 2021 8:18 pm
samsoes wrote: Fri Sep 17, 2021 3:36 pm It is my intention to get every dollar that was contributed by me and by my employers on my behalf out of Social Security. Just have to make sure I don't croak before I do so. So I plan to start at 62.
Be careful not to croak before 62!
Because then you would feel awful.
Be careful not to croak before 70. Based on your previous post, you would not feel awful but your wife may be disappointed.
That's my plan!
This isn't just my wallet. It's an organizer, a memory and an old friend.
User avatar
JoeRetire
Posts: 15381
Joined: Tue Jan 16, 2018 1:44 pm

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

Post by JoeRetire »

JackoC wrote: Sat Sep 18, 2021 8:33 am
JoeRetire wrote: Fri Sep 17, 2021 8:14 pm
JackoC wrote: Fri Sep 17, 2021 9:36 am It's good that there's been some exchange of ideas about future cuts to SS. I think it's counterproductive to squelch that because so many people say it's a significant factor in their choice. But I view that likelihood as pretty much zero if even close to 62.
You do admit that future cuts across the board are exactly what the current laws require, right?
And that anything else is just speculation?
Across government policies there are provisions where policy (tax, benefit, regulation, what have you) would change significantly past date X (either specified or estimated) unless action is taken to change or extend the provision over what's currently written down. But in some cases it's overwhelmingly likely the provisions will be extended or changed to keep the underlying policy basically the same. This is the case IMO with public old age pension payments to existing recipients: the provisions will change if the alternative is the automatic electoral political suicide of cutting benefits to existing pensioners, in rich world democracy X, Y or Z. Or it's anyway among the very last things that would be cut in an unprecedented meltdown, in which case the scenario and likelihood is of that meltdown, not whether provisions written down right now are the best predictor of future policy. And every opinion of the future is speculation, so hard to see why anyone would think 'that's speculation' is a good argument against one particular opinion of the future over another. Though again if your or anyone else's opinion on the likelihood of SS cuts to existing recipients differs from mine, that's fine.
Opinions and speculation are fun. If no action intervenes, the law is clear on what will happen to benefits once the trust fund is depleted. There are dozens of other possibilities if the government chooses to intervene. I wouldn't predict which changes might occur. And of course board rules prohibit discussion of pending/speculative legislation anyway.

I, like you, speculate that changes will happen before then. But I always plan like they won't.
This isn't just my wallet. It's an organizer, a memory and an old friend.
JackoC
Posts: 4714
Joined: Sun Aug 12, 2018 11:14 am

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

Post by JackoC »

JoeRetire wrote: Sat Sep 18, 2021 10:00 am
JackoC wrote: Sat Sep 18, 2021 8:33 am
JoeRetire wrote: Fri Sep 17, 2021 8:14 pm
JackoC wrote: Fri Sep 17, 2021 9:36 am It's good that there's been some exchange of ideas about future cuts to SS. I think it's counterproductive to squelch that because so many people say it's a significant factor in their choice. But I view that likelihood as pretty much zero if even close to 62.
You do admit that future cuts across the board are exactly what the current laws require, right?
And that anything else is just speculation?
Across government policies there are provisions where policy (tax, benefit, regulation, what have you) would change significantly past date X (either specified or estimated) unless action is taken to change or extend the provision over what's currently written down. But in some cases it's overwhelmingly likely the provisions will be extended or changed to keep the underlying policy basically the same. This is the case IMO with public old age pension payments to existing recipients: the provisions will change if the alternative is the automatic electoral political suicide of cutting benefits to existing pensioners, in rich world democracy X, Y or Z. Or it's anyway among the very last things that would be cut in an unprecedented meltdown, in which case the scenario and likelihood is of that meltdown, not whether provisions written down right now are the best predictor of future policy. And every opinion of the future is speculation, so hard to see why anyone would think 'that's speculation' is a good argument against one particular opinion of the future over another. Though again if your or anyone else's opinion on the likelihood of SS cuts to existing recipients differs from mine, that's fine.
Opinions and speculation are fun. If no action intervenes, the law is clear on what will happen to benefits once the trust fund is depleted. There are dozens of other possibilities if the government chooses to intervene. I wouldn't predict which changes might occur. And of course board rules prohibit discussion of pending/speculative legislation anyway.

I, like you, speculate that changes will happen before then. But I always plan like they won't.
I think we'll agree to disagree. You are predicting no matter what you assume, not a matter of 'fun' but basic reality. And I'd go back to the example which underlines this issue. A poster said a person might choose to take SS earlier, sacrificing some of its use as a long term lifespan risk hedge, because they had a lot of SPIA's. But favoring SPIA's over SS as longevity insurance (aside from the CPI adjustment aspect which is also important) must include a comparative risk assessment of SPIA's and SS. If you assume cuts to existing SS recipients are a significant probability, SPIA's might have the advantage of greater certainty of payment (again aside from inflation risk). But I would say that's simply the wrong estimate and it's the other way around, SPIA's have the greater risk of not paying what's promised (though an acceptable risk IMO for highly rated insurers and with adequate diversification). You can't determine the answer to that by referring to a web forum's policy. You must use your best judgement.
User avatar
HomerJ
Posts: 21281
Joined: Fri Jun 06, 2008 12:50 pm

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

Post by HomerJ »

nigel_ht wrote: Fri Sep 17, 2021 5:00 pm I read the other threads.

I did my own analysis.

I read this thread.

My claim is SS is my hedge against SORR. If at any point between 62 and 70 the bottom falls out I’ll apply for SS. Currently I believe I get 12 months to change my mind so if it’s a rapid recovery a la 2020 I can cancel it if I pay everything back.

That would let me reduce our withdrawal rate in a deep downturn without cratering our spending in presumably our healthiest years…and allows me to peacefully rebalance into stocks even if things go all 2008 like or even 1929.

If the portfolio continues to rise (or at least keep pace with inflation) then drawing it down isn’t an issue for expenses.

We’re also keeping a cash budget for early retirement travel that isn’t EF or SORR shield but for YOLO experiences before we’re too old to want to bother. Things are going to have to be pretty dire to tap that for anything other than gleeful (but restrained) spending.

The reality is I punted and that simply sounds like a rational explanation to put into my IPS to make me sound smarter when I read it.
That's a pretty good idea.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
TN_Boy
Posts: 4134
Joined: Sat Jan 17, 2009 11:51 am

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

Post by TN_Boy »

samsoes wrote: Fri Sep 17, 2021 3:36 pm
TN_Boy wrote: Mon Sep 13, 2021 9:26 am
Claiming early so you will "get out of it what you paid in" is surely the worst reason to take it early. The money paid into SS over your working years is gone from your life forever.
Couldn't disagree more!

I was forced to contribute -- against my will -- my own money, and my employer matched that amount, to Social Security for my retirement. And guess what? In the event I croak early, none of it is inheritable! (I am single.)

It is my intention to get every dollar that was contributed by me and by my employers on my behalf out of Social Security. Just have to make sure I don't croak before I do so. So I plan to start at 62.
It's your money :sharebeer

And as this thread demonstrates (and most of us already knew) for a single filer, the "when" decision on taking SS is less critical than when you have a couple.

But I still say that doing the math is a better approach than just wanting to get paid in money back. That's a sunk cost; your retirement future doesn't care what you paid into SS or why. I only care what is happening in the future. And SS is actually a pretty good deal; hard to find COLAed pensions. A steady income stream like SS works nicely with an investment portfolio. I'm glad to have both.
User avatar
Topic Author
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

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

Post by iceport »

Nestegg_User wrote: Fri Sep 17, 2021 7:40 pm Iceport

when I examined my possible SS starting point {for the record: married, older, with PIA a bit below spouse} I looked at a number of possible years for my demise (most likely me as M and ~7 yrs older) to get a basic path on which timeframes make most sense. I used ages from 72-92 (approx 5 yr increments) and then looked at various claim ages, like 62, 65, FRA, and 70, to get a good idea of plausible differences. I also looked at the magnitude of the differences (much as you alluded), but didn't try to PV it out, as I've got pension and we've got enough savings to supplement (we use 3.5% as max). I also looked at those same conditions assuming the cuts actually hit at the time noted and at 25% hit, to see what the changes might be on "desired" claim age. While I initially thought of age 70 for me, and 70 for spouse for max... the differences weren't all that much apart. Further, upon my demise the pension is reduced to 50%, so there could be a need to supplement with existing savings (not likely, but "could"), so that pushed it toward FRA in the non-reduced SS case; when the factor of reduced SS at time X is included, this fortifies the decision to start around FRA {in fact, I'm looking at the Nov/Dec of year of FRA such that any mortality credits start in the new year rather than having them applied a year further out (as confirmed by SScritic in one of his much earlier posts). This allows for a significant SS, half of pension, and a somewhat better portfolio to be able to be used by surviving spouse. In the event that she only makes it short of 70, there would only be a slight bump for me (assuming she immediately prior to passing is able to start SS and hence I'd get a slightly higher survivors SS). [ I'd already had it in my IPS that if a significant drop in the market occured that I would claim earlier.]
Nestegg_User,

Thank you very much for your helpful comments, and for this detailed account of your thought process. You've raised SS strategizing to a fine art!

I have lots of general reactions to your methodology, but one of the strongest is just how complicated things get when factoring in a whole additional life! And I'm impressed by your tenacity in gaming out so many variables. Also, I'm surprised that, despite our circumstances being so different, I recognize how your efforts to make your plan fail-safe are roughly similar in magnitude to my own. We've chosen different methods to build in a factor of safety, but the end results are probably comparable. (My method is far more crude and simplistic: I just unrealistically inflate my spending assumptions. Maybe I should work on that more...)

Nestegg_User wrote: Fri Sep 17, 2021 7:40 pm As for your case, I'd agree with others that SS is the preferred form of annuity, even over your state pension (which you've already said is somewhat shaky vis-a-vis funding level) in that it gives a better inflation protection ("full CPI", at least now) so that it provides better long term purchasing power. It also has less taxation in its benefits, often at both the state and federal level. This means that deferment of SS as long as practicable is usually optimal. BUT, just as the case with SPIA's and pensions, there's often a need for "lumpy" expenses at some time...hence, you are correct that depletion of portfolio is unwise below some level (decided by the individual).
Agreed. On all counts. However, my current state does tax a portion of SS benefits, and 85% of SS will be taxed federally every year. There's no way around that with the pension. But I am glad to see someone else thoughtfully consider the interaction between SS claiming and the portfolio balance. That really gets to the heart of my dilemma.

Nestegg_User wrote: Fri Sep 17, 2021 7:40 pm So in your case, with what you describe as more limited funds, I can't see any reason to postpone to 70 to max SS but deplete your "reserves" and thus a claiming age between 62 and FRA seems appropriate.
Now see, here's where the biggest kink in my planning comes into play... (I keep debating whether I should just throw out the real-life round numbers, but I'm not ready yet.)

There's not really a huge risk of not being able to accommodate spending spikes. The portfolio is generally large enough, assuming a 4% WR, to independently generate a bit more than the annual pension amount. And I've been living off the pension alone for 4.5 years now. So just those two income sources add up to almost double my base level spending needs. That's the general order of magnitude of the portfolio.

[Actually, in an interesting quirk of the "aftcasting" analyses like cFIREsim is that my theoretical spending capacity works out to roughly the sum of the pension and the 4% portfolio WR, even though the scenarios I run include SS. In effect, the SS income basically just overcomes the loss to (historical) inflation of the pension income, assuming a fixed 2% COLA. And as I noted way up-thread, that theoretical spending capacity hardly changes no mater when I assume claiming SS. ]

My contortions here are largely borne from my own behavioral quirk, in that I'm having a difficult time coming to grips with the emotional reality of making portfolio withdrawals. It's irrational. And I realize it's only possible for me to remain so irrational because in real life — as opposed to in my conservative, fail-safe world — I can probably live a very comfortable existence without ever tapping the portfolio, except under extreme circumstances, like paying for LTC!

Given that additional data, I'm not sure your assessment of my claiming SS early would stay the same.

[OT comments removed by admin LadyGeek]

Your post has given me much to think about. Thanks again!
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
User avatar
Topic Author
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

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

Post by iceport »

nigel_ht wrote: Fri Sep 17, 2021 6:24 pm
iceport wrote: Fri Sep 17, 2021 5:14 pm
nigel_ht wrote: Fri Sep 17, 2021 5:00 pm I read the other threads.

I did my own analysis.

I read this thread.

My claim is SS is my hedge against SORR. If at any point between 62 and 70 the bottom falls out I’ll apply for SS. Currently I believe I get 12 months to change my mind so if it’s a rapid recovery a la 2020 I can cancel it if I pay everything back.

That would let me reduce our withdrawal rate in a deep downturn without cratering our spending in presumably our healthiest years…and allows me to peacefully rebalance into stocks even if things go all 2008 like or even 1929.

If the portfolio continues to rise (or at least keep pace with inflation) then drawing it down isn’t an issue for expenses.

We’re also keeping a cash budget for early retirement travel that isn’t EF or SORR shield but for YOLO experiences before we’re too old to want to bother. Things are going to have to be pretty dire to tap that for anything other than gleeful (but restrained) spending.

The reality is I punted and that simply sounds like a rational explanation to put into my IPS to make me sound smarter when I read it.
Well, maybe that's just a rationalization for punting, but it is a very interesting perspective on the decision! I don't think I've ever come across that line of reasoning before. But I like it.

Thank you very much for sharing!
At the end of the day I realized too many pieces were missing to make a truly informed decision today…so I looked from the perspective as to when would I take it even if I had already decided 70 and SORR was the reason.

Plus I had already been trying to figure out how to mitigate a 1929 scenario with 16 years until recovery…without having such a conservative stormy weather portfolio that would be hugely suboptimal for the most likely case.
Yeah, I get it. It's actually a great way to build in the reevaluation of the plan on an ongoing basis.

You know, reading through your post really drove home to me — and please don't take this as criticism, because we're all in the same boat whether we admit it or not — how much of this decision comes down to mental accounting, and finding a way to be comfortable, conceptually, with a plan that somehow works, even if it's sub-optimal. I feel like here in this exercise I'm exploring and favoring alternatives that either involve more risk, less overall wealth, or some combination of both, all in an effort to satisfy some behavioral quirks.

How much is peace of mind worth?

Apparently, in my case it's not nothing.
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
User avatar
Topic Author
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

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

Post by iceport »

wrongfunds wrote: Fri Sep 17, 2021 7:44 pm I don't believe it has anything to do with you. The reference was from another person, Jack I believe. I found that nugget clever and subtle. I liked it. It was my way of saying Thums Up.
Thanks. I still don't know what you're talking about, but don't need to, as long as it wasn't directed my way. I try to write coherently, but admittedly don't always succeed... :?
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
User avatar
LadyGeek
Site Admin
Posts: 95686
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

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

Post by LadyGeek »

With regards to some earlier posts conjecturing on depletion of the trust fund, Social Security is authorized under US law (legislation). Speculation about future legislation (what "might" happen) is prohibited by forum policy, see: Unacceptable Topics
Politics and Religion

In order to avoid the inevitable frictions that arise from these topics, political or religious posts and comments are prohibited. The only exceptions to this rule are:
  • Common religious expressions such as sending your prayers to an ailing member.
  • Usage of factual and non-derogatory political labels when necessary to the discussion at hand.
  • Discussions about enacted laws or regulations that affect the individual investor. Note that discussions of proposed legislation are prohibited.
  • Proposed regulations that are directly related to investing may be discussed if and when they are published for public comments.
This forum is focused on investing that is directly actionable to personal investors. We don't hold debates on conjecture.

The whole point of the policy is to (1) eliminate contentious disagreements that result from these discussions and (2) keep investors from making bad decisions. Proposed legislation changes many times between the time it's introduced and signed into law.

We do permit discussions which plan for reductions in Social Security, but not about the future of Social Security itself (political conjecture).
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
User avatar
Topic Author
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

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

Post by iceport »

samsoes wrote: Fri Sep 17, 2021 3:36 pm I was forced to contribute -- against my will -- my own money, and my employer matched that amount, to Social Security for my retirement. And guess what? In the event I croak early, none of it is inheritable! (I am single.)

It is my intention to get every dollar that was contributed by me and by my employers on my behalf out of Social Security. Just have to make sure I don't croak before I do so. So I plan to start at 62.
This is OT, but hopefully as the OP I've got some leeway.

What always amazes me is how small the actual dollar values are. The total taxes paid are estimated on our SS statements. I don't think they are inflation-adjusted. (Does anyone know?) But even so, it seems like we generally get back our personal contributions in just a handful of years.
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
Northern Flicker
Posts: 15363
Joined: Fri Apr 10, 2015 12:29 am

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

Post by Northern Flicker »

#Cruncher wrote: It's similar. But Open Social Security calculates the probable present value more accurately. Instead of assuming benefits 100% until life expectancy and then nothing, it weights every year by the probability of each person (or both people or either person) being alive that year.
The best calculation would be to calculate the expected present value of the cash flows. Both of the referenced calculations estimate that. The expected value of the present value as a random variable would be computed by calculating for each N the present value if the annuitant dies at year N and the probability of death in year N, then computing a weighted average of the present values calculated.
Last edited by Northern Flicker on Sat Sep 18, 2021 3:53 pm, edited 1 time in total.
User avatar
LadyGeek
Site Admin
Posts: 95686
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

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

Post by LadyGeek »

I removed some comments, a post, and a reply conjecturing on Social Security reform (proposed legislation). Please see my previous post.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
Northern Flicker
Posts: 15363
Joined: Fri Apr 10, 2015 12:29 am

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

Post by Northern Flicker »

iceport wrote: Fri Sep 17, 2021 10:35 am
Northern Flicker wrote: Thu Sep 16, 2021 11:05 pm I didn't read the whole thread, so apologies if this is redundant. If your pension covers day-to-day essentials, then your additional need is for unpredictable expenses, not for additional monthly income stream. This makes delaying SS a no-brainer.
JackoC wrote: Fri Sep 17, 2021 9:36 am But when a person starts by saying 'I don't need the money now but...', delaying becomes the default choice.
I hear you guys... but the question I have is this: "Why?"

Is it to better address longevity risk? Or is it simply due to a higher expected present value of the total payout?
SSA claims it is actuarially neutral. If so (though it probably isn't), this is across the pool of recipients. If you are likely to live longer than just to the age of expectancy, delaying increases expected present value of payout, but would decrease it if you are likely to live less long.

Delaying SS is equivalent to purchasing a COLA'd SPIA with the funds used to replace the benefit payout during the years it is delayed. A single person with no heirs under consideration may not care much about estate size-- an asymmetry that strongly favors annuitization. The caveat might be say someone getting a terminal medical diagnosis may want to greatly accelerate spending during the remaining time, though leaving a bequest to a charitable organization might deliver more meaning to those final years than hedonistic consumption.
User avatar
Topic Author
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

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

Post by iceport »

Northern Flicker wrote: Sat Sep 18, 2021 3:44 pm
iceport wrote: Fri Sep 17, 2021 10:35 am
Northern Flicker wrote: Thu Sep 16, 2021 11:05 pm I didn't read the whole thread, so apologies if this is redundant. If your pension covers day-to-day essentials, then your additional need is for unpredictable expenses, not for additional monthly income stream. This makes delaying SS a no-brainer.
JackoC wrote: Fri Sep 17, 2021 9:36 am But when a person starts by saying 'I don't need the money now but...', delaying becomes the default choice.
I hear you guys... but the question I have is this: "Why?"

Is it to better address longevity risk? Or is it simply due to a higher expected present value of the total payout?
SSA claims it is actuarially neutral. If so (though it probably isn't), this is across the pool of recipients. If you are likely to live longer than just to the age of expectancy, delaying increases expected present value of payout, but would decrease it if you are likely to live less long.

Delaying SS is equivalent to purchasing a COLA'd SPIA with the funds used to replace the benefit payout during the years it is delayed. A single person with no heirs under consideration may not care much about estate size-- an asymmetry that strongly favors annuitization. The caveat might be say someone getting a terminal medical diagnosis may want to greatly accelerate spending during the remaining time, though leaving a bequest to a charitable organization might deliver more meaning to those final years than hedonistic consumption.
Thanks for the explanation. It does come across as a bit more nuanced than the "no-brainer" described in your earlier post. I'll just say that, given my interest in portfolio preservation, as irrational as it might be, the choice sure as heck doesn't feel like a no-brainer to me. And even in terms of objective measures of the differences, it doesn't seem as though claiming at the two extreme options, age 62 or 70, produces results that are worlds apart.

So far, at this point, I'm strongly inclined to claim sometime between ages 62 and 67, inclusive.

(If only #Cruncher didn't illustrate how valuable delaying one more year from 66 to 67 would be! :annoyed 8-) )
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
Northern Flicker
Posts: 15363
Joined: Fri Apr 10, 2015 12:29 am

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

Post by Northern Flicker »

I believe my posting suggested that you don't need to make a decision on your 62nd birthday on when you will take it. You are only making a decision for age 62. As I mentioned, the decision to delay is not cast in stone. In any given month, you can file. You can re-evaluate the decision twice a year.

I think we all have a tendency to see our retirement portfolio balance as a monument to a successful career. This can bias the analysis toward preserving that monument.

Lifespan is not the only variable-- investment returns are another.
User avatar
grabiner
Advisory Board
Posts: 35307
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

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

Post by grabiner »

Northern Flicker wrote: Sat Sep 18, 2021 3:44 pm SSA claims it is actuarially neutral. If so (though it probably isn't), this is across the pool of recipients. If you are likely to live longer than just to the age of expectancy, delaying increases expected present value of payout, but would decrease it if you are likely to live less long.

Delaying SS is equivalent to purchasing a COLA'd SPIA with the funds used to replace the benefit payout during the years it is delayed. A single person with no heirs under consideration may not care much about estate size-- an asymmetry that strongly favors annuitization. The caveat might be say someone getting a terminal medical diagnosis may want to greatly accelerate spending during the remaining time, though leaving a bequest to a charitable organization might deliver more meaning to those final years than hedonistic consumption.
The SS formula may have been originally designed to be approximately actuarially neutral when it was created. But as life expectancies have increased, it is no longer actuarially neutral. Delaying by one year at full retirement age to get an 8% increase in benefits is actuarially neutral if your life expectancy at that age is 13.5 years; after 13.5 years, you get 12.5 years of $10,800 adjusted for inflation, rather than 13.5 years of $10,000 adjusted for inflation.

In addition, because the formula is simplified, it cannot be actuarially neutral over the full range. The break-even life expectancy for delaying one year from FRA is 13.5 years; for a second year is 14.5 (because the 8% increase is 8% of the FRA benefit, not the FRA+1 benefit); for a third year is 15.5; and for a fourth year is 16.5. For an actuarially neutral formula, the break-even life expectancy would have to decrease, not increase, for each year.

The net effect is that SS is currently close to actuarially neutral for a single man with average life expectancy delaying from 68 to 69, and actuarially negative from 69 to 70. (However, single men who are 69 and are considering delaying another year are likely to have an above-average life expectancy and come out ahead waiting until 70.) It is actuarially favorable for a single woman, or the higher earner in any couple, to wait until 70.
Wiki David Grabiner
namajones
Posts: 778
Joined: Sat Aug 08, 2020 12:41 pm

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

Post by namajones »

It's interesting. I bet someone could start one of these "when to claim SS" threads every day, and each one would go on for 6+ pages.

:shock:

At some point we all have to ask ourselves, "don't we have anything better to do?"

Check this out:

https://www.google.com/search?sitesearc ... l+security
mary1492
Posts: 716
Joined: Thu Oct 17, 2019 3:02 am

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

Post by mary1492 »

.....
Last edited by mary1492 on Thu Sep 29, 2022 8:09 am, edited 1 time in total.
randomguy
Posts: 11295
Joined: Wed Sep 17, 2014 9:00 am

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

Post by randomguy »

iceport wrote: Sat Sep 18, 2021 2:33 pm This is OT, but hopefully as the OP I've got some leeway.

What always amazes me is how small the actual dollar values are. The total taxes paid are estimated on our SS statements. I don't think they are inflation-adjusted. (Does anyone know?) But even so, it seems like we generally get back our personal contributions in just a handful of years.
Now factor in the employers contribution (i.e. that is part of your compensation) and then for real fun think about 40 years of compounding does:) There is a reason why the SS more or less works (yes we will have a short fall for a bit due to demographics in a decade but then it goes back in balance. ) out. The people doing the math knew what they were doing.:)
User avatar
Topic Author
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

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

Post by iceport »

namajones wrote: Sat Sep 18, 2021 5:12 pm It's interesting. I bet someone could start one of these "when to claim SS" threads every day, and each one would go on for 6+ pages.

:shock:

At some point we all have to ask ourselves, "don't we have anything better to do?"

Check this out:

https://www.google.com/search?sitesearc ... l+security
It might be hard to believe, but I have honestly been practically 100% oblivious to all these other long threads on SS strategies! There are just so many active topics here, all I typically do is scan the subject lines and only click on the topics of immediate interest. This has not been a particularly interesting topic for me — until now. So I am sorry for all the repetition.

Funny thing is, in doing some brief surfing through the google search results, I came across a 2014 article by John F. Wasik in the NYT which included this little nugget:
Yet another approach — if you don’t mind locking in a lower payment — is to take Social Security at age 62 and let your nest egg grow as long as possible before withdrawing funds. That’s assuming Social Security and other savings, if available, could cover your daily living expenses. To make that determination, you would need to prepare a cash-flow analysis showing how much you and your partner or spouse need to cover your weekly expenses, then run a calculation showing how your savings could grow under certain assumptions like rate of return, additional contributions and employer match.
So apparently my favored, um, "Let It Grow" strategy is a real thing!

And I don't even need a cash-flow analysis to know if it's feasible. I've been living it.
Let it grow, let it grow, greatly yield.
What shall we say, shall we call it by a name,
As well to count the angels dancing on a pin.
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
User avatar
#Cruncher
Posts: 3977
Joined: Fri May 14, 2010 2:33 am
Location: New York City
Contact:

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

Post by #Cruncher »

iceport wrote: Thu Sep 16, 2021 2:45 pm... the magnitude of the uncertainty, or risk, [of when we'll die] dwarfs the overall difference in present values between claiming at 62 vs. 70. With Mike Piper's calculator set to use a specified year of death, a 1 year change in the year of death, for example, changes the expected present value very nearly as much as the total estimated difference in present values for the entire lifespan. So it takes hardly any deviation at all from the expected age of death to wipe out the entire difference in present values of the two different scenarios.
I'm not sure what you're saying here, iceport. At a certain die age, the value of claiming at 62 or at 70 will be about the same, i.e., the breakeven age. [*] Since the difference is close to zero, it will naturally be much smaller than the effect on value of living one year more or less than that breakeven age. But this is obvious, so I doubt that's what you meant. Maybe you meant that the optimum age to claim (i.e., the age that produces the largest value) varies for small changes in life expectancy. This is correct. The following table illustrates this for the assumptions from my earlier post.

Code: Select all

 Born    1962
  NRA      67  (Normal Retirement Age)
  PIA   2,500  (Primary Insurance Amount)
 Rate  -0.57%
Claim                         62       63       64        65       66       67        68       69       70
% PIA                      70.00%   75.00%   80.00%    86.67%   93.33%  100.00%   108.00%  116.00%  124.00%
  Amt                      21,000   22,500   24,000    26,000   28,000   30,000    32,400   34,800   37,200
 Incr                                1,500    1,500     2,000    2,000    2,000     2,400    2,400    2,400
        --- Optimum ---
  Die   Claim   Fut Val    -----------==--------- Difference vs Optimum Future Value ----------------------

Code: Select all

   71      62   184,748        -     8,298   19,593    30,954   46,335   65,770    88,101  115,346  147,548
   72      62   204,695        -     6,751   16,482    25,777   39,070   56,395    76,198  100,889  130,507
   73      62   224,528        -     5,212   13,388    20,630   31,848   47,073    64,364   86,513  113,563
   74      62   244,248        -     3,682   10,311    15,513   24,666   37,805    52,597   72,220   96,715
   75      62   263,856        -     2,162    7,253    10,424   17,526   28,590    40,897   58,009   79,964

   76      62   283,352        -       649    4,211     5,365   10,426   19,427    29,264   43,878   63,308
   77      63   303,591       855       -     2,042     1,189    4,221   11,170    18,552   30,682   47,602
   78      65   326,679     4,667    2,318    2,848        -     1,015    5,925    10,864   20,525   34,949
   79      66   351,808    10,632    6,796    5,823       991       -     2,882     5,393   12,600   24,540
   80 [*]  66   377,802    17,571   12,257    9,790     2,986       -       866       963    5,728   15,201

   81      68   407,092    27,914   21,130   17,177     8,411    3,443    2,303        -     2,338    9,357
   82      69   437,247    39,230   30,985   25,554    14,839    7,899    4,766        75       -     4,579
   83      69   469,554    52,807   43,108   36,209    23,554   14,654    9,539     2,475       -     2,153
   84      70   501,937    66,565   55,422   47,062    32,479   21,630   14,544     5,120      260       - 
   85      70   536,276    82,386   69,806   59,993    43,494   30,706   21,661     9,891    2,658       - 

   86      70   570,420    98,116   84,108   72,851    54,446   39,731   28,737    14,635    5,043       - 
   87      70   604,368   113,757   98,329   85,636    65,336   48,705   35,774    19,351    7,414       - 
   88      70   638,123   129,309  112,468   98,348    76,164   57,627   42,770    24,041    9,772       - 
   89      70   671,686   144,772  126,527  110,988    86,930   66,499   49,726    28,704   12,116       - 
   90      70   705,057   160,146  140,506  123,555    97,634   75,320   56,642    33,340   14,447       -
The table shows that the optimum age to claim is quite sensitive to longevity. For instance living one more year to one's 78th birthday increases the best age to claim from 63 to 65. And living one more year to one's 81st birthday increases it from age 66 to 68. (With an NRA of 67 and a -0.57% real growth rate there is no integer die age for which claiming at 64 or 67 is optimum.)

* Example calculation for die age of 80 -- the approximate breakeven age for claiming at 62 or 70 -- using Excel FV function. (I'm here using future value instead of present value because it's simpler in this case and gives the same optimum claiming ages.)

Code: Select all

Claim  Value    Formula
----- -------   ---------------------------------
  62: 360,231 = FV(-0.57%, 80 - 62, -21000, 0, 0) = 17,571 worse
  66: 377,802 = FV(-0.57%, 80 - 66, -28000, 0, 0) = optimum
  70: 362,602 = FV(-0.57%, 80 - 70, -37200, 0, 0) = 15,201 worse
User avatar
Topic Author
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

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

Post by iceport »

#Cruncher wrote: Sat Sep 18, 2021 7:48 pm
iceport wrote: Thu Sep 16, 2021 2:45 pm... the magnitude of the uncertainty, or risk, [of when we'll die] dwarfs the overall difference in present values between claiming at 62 vs. 70. With Mike Piper's calculator set to use a specified year of death, a 1 year change in the year of death, for example, changes the expected present value very nearly as much as the total estimated difference in present values for the entire lifespan. So it takes hardly any deviation at all from the expected age of death to wipe out the entire difference in present values of the two different scenarios.
I'm not sure what you're saying here, iceport.
There's a good reason for that. I'm not sure I know where I was going with that line of reasoning, either. I picked up on your emphasis on what's expected. I was basically mentally taking the difference in PV of claiming at 62 vs. 70 with death at 82, and then comparing that number to the difference in PV between dying at 81 vs. 82 if claimed at 70. Not a particularly useful comparison, upon further reflection, but it seemed like it at the time.

However, your amazing table has really helped me to wrap my head around the full scope of potential outcomes. I can't thank you enough, #Cruncher, for taking the trouble to help shed light on this problem. I find that table so useful that I revised it (by hand) using estimated *future* *present* values from the Open Social Security calculator and my numbers. With that visual aid, I see clearly what my preference is! (Hint: it's sub-optimal in theory, but it avoids the worst of the shortfalls in present values.)

First, a word on life expectancy.

The way I see it, life expectancy for me is a wild guess. I feel like a living, breathing bundle of conflicting mortality factors. I eat right, exercise and maintain a healthy weight, but don't sleep nearly enough. I have no known chronic or acute health conditions and need no meds, but had a major health scare last year and underwent major (elective) surgery. Surgeon gives me a clean bill of health, but monitoring continues. I don't envision any kind of typical distribution for my life expectancy probabilities, but something more like a uniform distribution. Anytime between 70 and 90 is probably as likely as any other! So trying to narrow down a realistic range for the likely age of death feels a little like trying to pick next year's market return. Sure, there might be an *expected* value, but good luck in real life getting actually anywhere close to it!

So it's with that perspective that I scan the table showing the distribution of various shortfalls in present value compared to the optimum, for a range of death ages and claiming ages. As I scan the table, the biggest numbers in the upper right and the lower left start concerning me. I'd like to avoid them all! But I'm assuming that I have no control over the age of death, and where I land vertically is a wild guess. So what can I control? The age I claim. So if I want to be sure to avoid leaving the largest sums on the table at death, the best way to do that is to avoid the right and left ends, and stay in the middle. So I think I should claim anywhere between 65 and 67, inclusive.

Confining the age of claiming to the years from 65 to 67 clearly avoids the very worst of the potential shortfalls. Some of the numbers in the center bottom start getting rather large approaching 90, but honestly that's beyond my expectations.

And the delay also addresses the longevity risk concern I had, to the extent I feel is necessary given the other income.

This feels like a major breakthrough. Age 66 looks like the sweet spot for me. Thank you!

Image
Last edited by iceport on Mon Sep 20, 2021 1:02 pm, edited 1 time in total.
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
goblue100
Posts: 1729
Joined: Sun Dec 01, 2013 9:31 am

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

Post by goblue100 »

iceport wrote: Sun Sep 19, 2021 11:30 am
So it's with that perspective that I scan the table showing the distribution of various shortfalls in present value compared to the optimum, for a range of death ages and claiming ages. As I scan the table, the biggest numbers in the upper right and the lower left start concerning me. I'd like to avoid them all! But I'm assuming that I have no control over the age of death, and where I land vertically is a wild guess. So what can I control? The age I claim. So if I want to be sure to avoid leaving the largest sums on the table at death, the best way to do that is to avoid the right and left ends, and stay in the middle. So I think I should claim anywhere between 65 and 67, inclusive.

Confining the age of claiming to the years from 65 to 67 clearly avoids the very worst of the potential shortfalls. Some of the numbers in the center bottom start getting rather large approaching 90, but honestly that's beyond my expectations.

And the delay also addresses the longevity risk concern I had, to the extent I feel is necessary given the other income.

This feels like a major breakthrough. Age 66 looks like the sweet spot for me. Thank you!
Interesting analysis. I have to be honest, when the thread started I said to myself, "here we go again". But, the topic is very relevant to me, so I've kept up with it. (I'm 60, took a package in November of '20, and we are living on our portfolio and SS for the rest of our lives). I had made the determination that it made the most sense for my wife to claim at 62(she is essentially the same age as me) and for me to wait until 70 to give us some longevity insurance. But I'm not immune to some of the "take it now" arguments. I'd like to leave a legacy for my daughter, I know our health isn't going to get any better and money at 60 is more useful than money at 70+. And I know there are the issues that shall not be discussed. Anyway, I say all that to say thanks for starting the thread and thanks to all who have contributed their viewpoints. I can see myself reaching the conclusion made by the OP, perhaps the optimal spot is around FRA for me.
"Confusion has its cost" - Crosby, Stills and Nash
User avatar
#Cruncher
Posts: 3977
Joined: Fri May 14, 2010 2:33 am
Location: New York City
Contact:

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

Post by #Cruncher »

iceport wrote: Sun Sep 19, 2021 11:30 am... your ... table [in this post] has really helped me to wrap my head around the full scope of potential outcomes. ... #Cruncher ... I find that table so useful that I revised it (by hand) using estimated *future* values from the Open Social Security calculator and my numbers. With that visual aid, I see clearly what my preference is! (underline added)
Wow! I'm impressed, iceport, with your determination to work this problem -- so determined that you collected all those numbers by hand! However, if I'd known you were going to do something like that, I would have shown how to create the Excel spreadsheet. While not as accurate as Open Social Security, it should be sufficiently so for this problem. (I'm including the steps in this post. See below.)

I notice a slight inaccuracy in your table's row "% of PIA". For someone with a Normal Retirement Age of 67, here's what they should be as described on the SSA webpage, Effect of Early or Delayed Retirement on Retirement Benefits:

Code: Select all

  62      63      64      65      66       67       68       69       70
70.00%  75.00%  80.00%  86.67%  93.33%  100.00%  108.00%  116.00%  124.00%
I've modified my spreadsheet to use your assumed PIA [1] and to use claiming ages six months apart 65 to 69. The future value formula is also slightly modified to work with monthly, rather than yearly, payments.

Code: Select all

 Born       1962
  NRA         67
  PIA      2,926
 Rate     -0.55%
Mo rt  -0.04595%
Claim                           65     65.5       66      66.5       67     67.5        68     68.5       69
% PIA                        86.67%   90.00%   93.33%    96.67%  100.00%  104.00%   108.00%  112.00%  116.00%
  Amt                         2,536    2,633    2,731     2,828    2,926    3,043     3,160    3,277    3,394
 Incr                                  97.53    97.53     97.53    97.53   117.04    117.04   117.04   117.04
          --- Optimum ---
  Die     Claim    Fut Val   -----------==--------- Difference vs Optimum Future Value ----------------------

Code: Select all

   71         65   179,636       -     8,402   17,981    28,744   40,694   53,025    66,783   81,974   98,605
   72         65   209,001       -     7,188   15,547    25,083   35,800   46,662    58,944   72,651   87,789
   73         65   238,206       -     5,981   13,127    21,443   30,933   40,335    51,148   63,379   77,033
   74         65   267,249       -     4,781   10,720    17,823   26,094   34,042    43,395   54,158   66,336
   75         65   296,133       -     3,587    8,326    14,222   21,280   27,784    35,685   44,987   55,697

   76         65   324,858       -     2,400    5,945    10,642   16,493   21,561    28,017   35,867   45,117
   77         65   353,425       -     1,219    3,578     7,081   11,733   15,372    20,391   26,797   34,596
   78         65   381,834       -        45    1,223     3,540    6,999    9,216    12,807   17,777   24,132
   79       65.5   411,211    1,123       -         4     1,141    3,413    4,218     6,388    9,930   14,848
   80 [2]   66.5   441,671    3,485    1,201       38        -     1,093      492     1,249    3,371    6,861

   81         68   475,824    9,695    6,256    3,932     2,727    2,646      648        -       709    2,779
   82       68.5   511,729   17,809   13,222    9,743     7,377    6,130    2,741       696       -       658
   83         69   548,887   27,330   21,601   16,974    13,453   11,045    6,274     2,840      746       - 
   84         69   586,495   37,453   30,588   24,819    20,151   16,588   10,443     5,626    2,143       - 
   85         69   623,896   47,521   39,526   32,621    26,811   22,101   14,588     8,397    3,532       -

   86         69   661,092   57,533   48,414   40,380    33,435   27,583   18,711    11,153    4,914       - 
   87         69   698,083   67,490   57,254   48,097    40,022   33,035   22,811    13,893    6,288       - 
   88         69   734,871   77,393   66,045   55,771    46,573   38,457   26,888    16,619    7,654       - 
   89         69   771,456   87,240   74,788   63,403    53,088   43,849   30,943    19,329    9,013       - 
   90         69   807,841   97,034   83,483   70,993    59,567   49,212   34,975    22,025   10,364       -
Follow these steps to use the spreadsheet:
  • Select All, copy and paste [3] the following at cell A1 of a blank Excel sheet.

    Code: Select all

    Born	1962
    NRA	=MIN(67,66+MAX(0,B1-1954)/6)
    PIA	2926
    Rate	-0.0055
    Mo rt	=(1+B4)^(1/12)-1
    Claim			65	65.5	=2*E6-D6	=2*F6-E6	=2*G6-F6	=2*H6-G6	=2*I6-H6	=2*J6-I6	=2*K6-J6
    % PIA			=IF(D$6<$B$2,1-(5/900)*MIN(36,($B$2-D$6)*12)-(5/1200)*MAX(0,($B$2-D$6)*12-36),1+(8/1200)*(D$6-$B$2)*12)
    Amt			=$B3*D7
    Incr				=E8-D8
    Age
    71			=IF($A11<=D$6,0,FV($B$5,12*($A11-D$6),-D$8,0,0))
    72
    =2*A12-A11
    =2*A13-A12
    =2*A14-A13
    =2*A15-A14
    =2*A16-A15
    =2*A17-A16
    =2*A18-A17
    =2*A19-A18
    =2*A20-A19
    =2*A21-A20
    =2*A22-A21
    =2*A23-A22
    =2*A24-A23
    =2*A25-A24
    =2*A26-A25
    =2*A27-A26
    =2*A28-A27
    =2*A29-A28
    
    Age	Claim	FV
    =A11	=INDEX(D$6:L$6,1,MATCH(C33,D11:L11,0))	=MAX(D11:L11)	=$C33-D11
  • Copy cells D7:D8 right to column E.
  • Copy cells E7:E9 right to column L.
  • Copy cell D11 down to row 30 and right to column L.
  • Copy cells A33:D33 down to row 52.
  • Copy cells D33:D52 right to column L.
  • Format for readability.
  • Modify assumptions in cells B1, B3, & B4 as needed.
  • Modify claim ages in cells D6:L6 as needed.
  • Modify die ages as needed in cells A11:A30.
  1. The amount of the PIA doesn't affect the optimum claiming age. It is only affected by the discount rate and, to a lesser extent, the Normal Retirement Age.
  2. Example calculation for die age of 80:

    Code: Select all

    Claim   Value    Formula
    -----  -------   -----------------------------------------------
      65:  438,186 = FV(-0.04595%, 12 * (80 - 65),   -2535.87, 0, 0) = 3,485 worse
    66.5:  441,671 = FV(-0.04595%, 12 * (80 - 66.5), -2828.47, 0, 0) = optimum
      69:  434,809 = FV(-0.04595%, 12 * (80 - 69),   -3394.16, 0, 0) = 6,861 worse
  3. If you have trouble pasting, try "Paste Special" and "Text".
User avatar
Topic Author
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

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

Post by iceport »

#Cruncher wrote: Sun Sep 19, 2021 5:10 pm
iceport wrote: Sun Sep 19, 2021 11:30 am... your ... table [in this post] has really helped me to wrap my head around the full scope of potential outcomes. ... #Cruncher ... I find that table so useful that I revised it (by hand) using estimated *future* values from the Open Social Security calculator and my numbers. With that visual aid, I see clearly what my preference is! (underline added)
Wow! I'm impressed, iceport, with your determination to work this problem -- so determined that you collected all those numbers by hand! However, if I'd known you were going to do something like that, I would have shown how to create the Excel spreadsheet. While not as accurate as Open Social Security, it should be sufficiently so for this problem. (I'm including the steps in this post. See below.)

Heh, heh... You'd be surprised how easy it actually was! The site was practically built for it: 1) Select year of death; 2) note optimum age and PV; 3) scroll down to the alternatives section and click on age 62+1mo. on the time bar, note change in PV; 4) click on age 63+1mo. (don't know why I kept that pattern going), note change in PV; etc. on down the line to quickly and easily fill out a whole row at a time. Then change the age of death and fill out the next row. I got into a rhythm, and probably whipped through it in 30 - 45 minutes. I thought about contacting you, but after experimenting with the first row, I figured it was just as easy to do it by hand, at least once.

Oh, and I did misrepresent the dollar values in the post. The numbers I used are present values, labeled correctly on the table, not future values. I always do a double-take when I see that the FV numbers are smaller than the PV numbers. And then I remember the negative discount rate.

Thanks very much for the "instant spreadsheet"! It worked like a charm, after I worked out the paste special requirement. I was wondering... is there any way you could provide a similar spreadsheet generator for the original version of the spreadsheet with the full range of claiming ages? :) I actually like to see the full range of options all in one place at a glance.


#Cruncher wrote: Sun Sep 19, 2021 5:10 pm I notice a slight inaccuracy in your table's row "% of PIA". For someone with a Normal Retirement Age of 67, here's what they should be as described on the SSA webpage, Effect of Early or Delayed Retirement on Retirement Benefits:

Code: Select all

  62      63      64      65      66       67       68       69       70
70.00%  75.00%  80.00%  86.67%  93.33%  100.00%  108.00%  116.00%  124.00%
Thanks! Yes, I noticed the funky percentages (the only thing I used a spreadsheet to generate) and attribute it to some crude rounding at the SSA. I got the dollar values directly from my latest SS statement, converted from monthly to annual values. The values on my SS statement for ages 62, 67 and 70 all match the Social Security Calculator site values, but a few of the others are curiously different. I think the PIA is accurate (at least until the next inflation adjustment). It used to be that I had to be careful to use a calculator on the SSA site that allowed an assumed retirement year for a decent PIA estimate. But now that I've got a couple of official "zeros" showing up in the earnings history, it seems that the SSA assumes that zero income to continue going forward when they create the SS statement. So now no matter which calculator I use — including the one at the Social Security Calculator site — they all compute identical PIAs.

Thanks for all your help, #Cruncher! Your table showing the differences in dollar values between the optimum claiming age and all other possible claiming ages is particularly illuminating. And it raises additional questions and points to the need for more information...

Just out of curiosity, assuming you've contributed to other SS claiming strategy threads, have others ever focused their attention on the table of shortfalls in values compared to optimum? It seems you developed it at least in part to show how sensitive the optimum age is to changes in life expectancy, but to me it does much, much more than that!
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
User avatar
Topic Author
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

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

Post by iceport »

iceport wrote: Sun Sep 19, 2021 11:30 am I don't envision any kind of typical distribution for my life expectancy probabilities, but something more like a uniform distribution. Anytime between 70 and 90 is probably as likely as any other! So trying to narrow down a realistic range for the likely age of death feels a little like trying to pick next year's market return. Sure, there might be an *expected* value, but good luck in real life getting actually anywhere close to it!
That was an obvious exaggeration. By definition, dying at 90 is not as likely as dying at the expected age of 82, for a 62 year old. But *how much* less likely is dying at 80, say, than dying at 82?

This leads to an important question pertaining to life expectancy: Does anyone know where to find a graph, say, or bar chart showing the distribution of probabilities of death? Is there a sharp peak around the expected age of death, or an extended flat section over a broader range of ages.

We can look up the expected ages of death, but how much more likely is that age of death than, say, and age 2 years earlier? Are the probabilities significantly different or almost the same?

I believe the answer could have ramifications on the process of choosing an age to claim SS — at least as it relates to a PV analysis. (Of course, as noted throughout this thread, I don't think a PV analysis the only factor that should be considered, or even the most important one. Nor is longevity risk the only *other* factor to consider.)

It's easy to simply run with an expected value for planning purposes. But what if there's an extended range of ages for which death is almost equally likely? If there's a long flat spot in the distribution, it seems rather imprudent to ignore that information and just use a single, pinpointed age of death in considering potential claiming strategy outcomes.

Where can we find the age distribution of probabilities of death for a 62 year old?
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
User avatar
#Cruncher
Posts: 3977
Joined: Fri May 14, 2010 2:33 am
Location: New York City
Contact:

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

Post by #Cruncher »

iceport wrote: Mon Sep 20, 2021 1:01 pm... is there any way you could provide a similar spreadsheet generator for the original version of the spreadsheet with the full range of claiming ages? :) I actually like to see the full range of options all in one place at a glance.
Just modify the existing spreadsheet. Enter "62" into cell D6 and "63" into cell E6. The formulas in cells F6:L6 will take care of the rest.
iceport in same post wrote:Just out of curiosity, assuming you've contributed to other SS claiming strategy threads, have others ever focused their attention on the table of shortfalls in values compared to optimum?
I've contributed to a lot of threads on when to claim SS, but I don't know if I've ever prepared a table like this one before. The "SS" sheet in my Longevity Estimator Excel workbook, does a similar calculation (in cells J6:R8). But instead of doing it separately for each die age, it weights the benefits by survival probability for all ages into a single survival-weighted present value -- as Open Social Security does by default.

iceport wrote: Mon Sep 20, 2021 1:26 pmDoes anyone know where to find a graph, say, or bar chart showing the distribution of probabilities of death? Is there a sharp peak around the expected age of death, or an extended flat section over a broader range of ages.
It's not graphed, but you can get the probabilities from column P on the "Alive" sheet of my Longevity Estimator Excel workbook. (You may need to unhide column P. It is simply the one year difference in column F, the % alive each year.) Just change the age in cell I3 from "65" to "62".
iceport in same post wrote:I believe the answer could have ramifications on the process of choosing an age to claim SS — at least as it relates to a PV analysis.
Yes indeed. And a tool like Open Social Security takes that all into account when it weights all the benefits from claiming at every possible age 62 to 70 by the probability of survival at every age. I didn't intend my table showing outcomes for each die age 71 to 90, to replace such a tool.
bberris
Posts: 2420
Joined: Sun Feb 20, 2011 8:44 am

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

Post by bberris »

HomerJ wrote: Mon Sep 13, 2021 12:51 pm We will take SS as soon as we can, and spend the money as fast as it comes in on fun stuff while we are still young.

Yes, we could, mathematically, spend more of our portfolio from 62-70 instead, and then collect SS at 70, and be better off in the long run.

But that would entail watching our portfolio drop during those 8 years, and my wife won't be able to handle that.

Give her a check for $2000 a month, every month, and she'll be okay spending it. Pull an extra $2000 out of our accounts a month, every month to spend, and she'll resist.

That's just how it is.
But isn't that an argument for buying an annuity? You could even buy an 8 year annuity to stretch from 62 to 70. That way you only have the pain of reducing the portfolio once, although it's kind of a big reduction.
User avatar
Topic Author
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

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

Post by iceport »

#Cruncher wrote: Mon Sep 20, 2021 3:37 pm
iceport wrote: Mon Sep 20, 2021 1:01 pm... is there any way you could provide a similar spreadsheet generator for the original version of the spreadsheet with the full range of claiming ages? :) I actually like to see the full range of options all in one place at a glance.
Just modify the existing spreadsheet. Enter "62" into cell D6 and "63" into cell E6. The formulas in cells F6:L6 will take care of the rest.
Wow! That is slick, #Cruncher! I must say, even this bumbling hack with a spreadsheet can appreciate the technical artistry of your work.

#Cruncher wrote: Mon Sep 20, 2021 3:37 pm
iceport wrote: Mon Sep 20, 2021 1:26 pmDoes anyone know where to find a graph, say, or bar chart showing the distribution of probabilities of death? Is there a sharp peak around the expected age of death, or an extended flat section over a broader range of ages.
It's not graphed, but you can get the probabilities from column P on the "Alive" sheet of my Longevity Estimator Excel workbook. (You may need to unhide column P. It is simply the one year difference in column F, the % alive each year.) Just change the age in cell I3 from "65" to "62".
Thanks! Just what I was looking for:
Image

Well that's a pretty morbid plot to ponder... I can see why it doesn't get plastered everywhere you look, on billboards and such... :(

The peak is rather sharper than I had expected. I guess I really don't know the first thing about what goes on in the computation of an optimum expected value. It represents the highest average value, when weighted by survival probabilities at every age?

So life expectancy is found at the median age of death? And the areas under the curve to the right and left of the median are equal?

Doesn't that curve also show that there is a quite sizeable probability of death five years, say, before the median age (and after)?

#Cruncher wrote: Mon Sep 20, 2021 3:37 pm
iceport in same post wrote:I believe the answer could have ramifications on the process of choosing an age to claim SS — at least as it relates to a PV analysis.
Yes indeed. And a tool like Open Social Security takes that all into account when it weights all the benefits from claiming at every possible age 62 to 70 by the probability of survival at every age. I didn't intend my table showing outcomes for each die age 71 to 90, to replace such a tool.
Very interesting. As I noted, the computations are a mystery to me.

And I'm not at all proposing that the table I find so fascinating is any kind of substitute for the number-crunching that goes on in the effort to determine an optimum expected outcome. But I do believe it provides valuable supplemental information.

No matter at what age a person claims, or what age is the theoretically optimum time to claim, the odds of death will follow along a plot like this. That means there is a good likelihood that a large portion of the population will end up dying at a sub-optimum time — either well before or after the expected age. (Not that there's ever a good time to die... ) Folks claiming at 70 might want to take a peek at the right edge of the table, to see how much money they might be leaving on the table if they go early. Folks claiming at 62 might want to look at the left edge of the table, to see how much they could be giving up in the event of a much longer life.

For folks that don't need SS for longevity insurance, it might be a reasonable option to stay in the middle of the claiming range, as a hedge against the worst possible outcomes of either edge. Does any of that make sense?
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
User avatar
LadyGeek
Site Admin
Posts: 95686
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

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

Post by LadyGeek »

Not if you look at this from a retirement spending perspective. Consider your retirement income streams as filling up one big bucket of money - IRAs, Roth IRAs, savings accounts, company pension. You tap into the bucket every month to cover expenses.

Does the bucket get dangerously close to empty at any time?*

If not, go for the maximum payout at age 70-1/2. Otherwise, claim when Social Security at 62 (or any time later where your income streams start drying up).

If you have a health condition where your life expectancy is considerably shorter than those tables, claim sooner rather than later. (My late husband claimed Social Security as soon as possible when this situation became a reality.)

* Your emergency fund is a separate bucket of money that's only tapped for unplanned expenses.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
User avatar
Nestegg_User
Posts: 2112
Joined: Wed Aug 05, 2009 1:26 pm

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

Post by Nestegg_User »

iceport wrote: Mon Sep 20, 2021 1:01 pm Just out of curiosity, assuming you've contributed to other SS claiming strategy threads, have others ever focused their attention on the table of shortfalls in values compared to optimum? It seems you developed it at least in part to show how sensitive the optimum age is to changes in life expectancy, but to me it does much, much more than that!

If you think about that you'd see that that's equivalent to asking about the returns you would get in the future. Even valuation calcs using a (usually) static number would only give you an "expected value" {imagine the discount value for something today versus my earlier years in the early 70's ==> much different number} and the farther out the harder to get any estimates. Ideally, one would have to consider the range/value at each year and consider the difference between the results from starting that year (thus saving the depletion of the portfolio...and then estimate what it added to the portfolio) and repeat for each year.... in reality that's a WAG when far enough in the future, so might as well look at the nominal value for a representation (i.e., about how much does it matter?). That's why I didn't try to do any valuation in my modeling; the variation quickly gets outweighed by other factors like "are one or both still healthy? or disabled" , "are both alive? and which one (full or half pension)?, "are we still in the house, or in assisted living?" etc. The variation in those factors and the resultant portfolio variation can quickly swamp the variation in the SS outputs.
"Fortunately" for me I don't have to look at age 62 claiming (... or 63, or 64) since I'm already past that... but joint life expectancy/survivor expectancy for our ages still puts it out aways...but I stopped modeling because i'm "close enough" (not to mention that I'm running out of years to model :| )
Northern Flicker
Posts: 15363
Joined: Fri Apr 10, 2015 12:29 am

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

Post by Northern Flicker »

iceport wrote: Thanks! Just what I was looking for:
Image
When I was examining the curves, my first thought was why should a 62-year-old have a lower probability of dying at 70 than a 70-year-old?

But it is because the 62-year-old could die before turning 70, reducing the likelihood of dying specifically at age 70 a little. The point is that we have to exercise some care in interpreting the curves.

For instance, the 70-year-old male may have higher probability of dying at age 70, but has a higher probability of reaching his 71st birthday than a 62-year-old male does.

In technical terms, I believe that the curves are probability density functions, but what you want is the cumulative distribution function. This plots the probability of dying on or before a given point in time for a 62-year-old. The cumulative distribution value at a point in time is the area under the curve of the density function up to that point in time.
wrongfunds
Posts: 3187
Joined: Tue Dec 21, 2010 2:55 pm

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

Post by wrongfunds »

Even though I might be called stupid, I do NOT understand that graph. What is on y-axis? It goes from 1% to 4.5% What does life span has to do with that number?
Northern Flicker
Posts: 15363
Joined: Fri Apr 10, 2015 12:29 am

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

Post by Northern Flicker »

I believe the y-axis represents the probability of dying at a given age expressed as a probability.

In technical terms, I described it as a probability density function, but that was not quite accurate. For each age A it provides the probability that the date of death occurs in the interval between birthday A and A+1, which actually would be a histogram for each discrete age, but it then is interpolated to form a continuous curve. This then would be an approximation to the probability density function (which also would have the time of death as a continuous random variable on the x-axis).
bradpevans
Posts: 801
Joined: Sun Apr 08, 2018 1:09 pm

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

Post by bradpevans »

wrongfunds wrote: Tue Sep 21, 2021 4:43 pm Even though I might be called stupid, I do NOT understand that graph. What is on y-axis? It goes from 1% to 4.5% What does life span has to do with that number?
the y-axis = chance of dying at that age.

To die at 73 covers the 365 day window from your 73rd birthday to the day before your 74th

if you summed the dots (for each color) you would get 100% because no one lives forever
bltn
Posts: 1844
Joined: Mon Feb 20, 2017 8:32 pm

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

Post by bltn »

HomerJ wrote: Mon Sep 13, 2021 12:51 pm We will take SS as soon as we can, and spend the money as fast as it comes in on fun stuff while we are still young.

Yes, we could, mathematically, spend more of our portfolio from 62-70 instead, and then collect SS at 70, and be better off in the long run.

But that would entail watching our portfolio drop during those 8 years, and my wife won't be able to handle that.

Give her a check for $2000 a month, every month, and she'll be okay spending it. Pull an extra $2000 out of our accounts a month, every month to spend, and she'll resist.

That's just how it is.
She sounds like my wife.
marcopolo
Posts: 8445
Joined: Sat Dec 03, 2016 9:22 am

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

Post by marcopolo »

JoeRetire wrote: Sat Sep 18, 2021 10:00 am
JackoC wrote: Sat Sep 18, 2021 8:33 am
JoeRetire wrote: Fri Sep 17, 2021 8:14 pm
JackoC wrote: Fri Sep 17, 2021 9:36 am It's good that there's been some exchange of ideas about future cuts to SS. I think it's counterproductive to squelch that because so many people say it's a significant factor in their choice. But I view that likelihood as pretty much zero if even close to 62.
You do admit that future cuts across the board are exactly what the current laws require, right?
And that anything else is just speculation?
Across government policies there are provisions where policy (tax, benefit, regulation, what have you) would change significantly past date X (either specified or estimated) unless action is taken to change or extend the provision over what's currently written down. But in some cases it's overwhelmingly likely the provisions will be extended or changed to keep the underlying policy basically the same. This is the case IMO with public old age pension payments to existing recipients: the provisions will change if the alternative is the automatic electoral political suicide of cutting benefits to existing pensioners, in rich world democracy X, Y or Z. Or it's anyway among the very last things that would be cut in an unprecedented meltdown, in which case the scenario and likelihood is of that meltdown, not whether provisions written down right now are the best predictor of future policy. And every opinion of the future is speculation, so hard to see why anyone would think 'that's speculation' is a good argument against one particular opinion of the future over another. Though again if your or anyone else's opinion on the likelihood of SS cuts to existing recipients differs from mine, that's fine.
Opinions and speculation are fun. If no action intervenes, the law is clear on what will happen to benefits once the trust fund is depleted. There are dozens of other possibilities if the government chooses to intervene. I wouldn't predict which changes might occur. And of course board rules prohibit discussion of pending/speculative legislation anyway.

I, like you, speculate that changes will happen before then. But I always plan like they won't.
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
Once in a while you get shown the light, in the strangest of places if you look at it right.
marcopolo
Posts: 8445
Joined: Sat Dec 03, 2016 9:22 am

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

Post by marcopolo »

LadyGeek wrote: Tue Sep 21, 2021 1:45 pm Not if you look at this from a retirement spending perspective. Consider your retirement income streams as filling up one big bucket of money - IRAs, Roth IRAs, savings accounts, company pension. You tap into the bucket every month to cover expenses.

Does the bucket get dangerously close to empty at any time?*

If not, go for the maximum payout at age 70-1/2. Otherwise, claim when Social Security at 62 (or any time later where your income streams start drying up).

If you have a health condition where your life expectancy is considerably shorter than those tables, claim sooner rather than later. (My late husband claimed Social Security as soon as possible when this situation became a reality.)

* Your emergency fund is a separate bucket of money that's only tapped for unplanned expenses.
70-1/2?
Did they change the maximum age to which one can receive delayed credits?
Once in a while you get shown the light, in the strangest of places if you look at it right.
tibbitts
Posts: 23716
Joined: Tue Feb 27, 2007 5:50 pm

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

Post by tibbitts »

JoeRetire wrote: Sat Sep 18, 2021 10:00 am I, like you, speculate that changes will happen before then. But I always plan like they won't.
I definitely don't speculate on changes happening before "then." Maybe after "then", and after multiple midnight deadlines have passed and stopgap bailout measures employed.

Surprisingly, the calculators I've tried that let you select with or without the current projected adjustment for the trust fund running out of money, don't show much difference in my optimal claiming age either way.
Wannaretireearly
Posts: 4880
Joined: Wed Mar 31, 2010 4:39 pm

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

Post by Wannaretireearly »

I like the idea upstream where SS $ are considered 'not my money'. Go blow it and enjoy your 60s!
It's again the income stream thing. Just seems easier to spend $ when it's monthly 'income' rather than eating into a nest egg. All psychological.
“At some point you are trading time you will never get back for money you will never spend.“ | “How do you want to spend the best remaining year of your life?“
Northern Flicker
Posts: 15363
Joined: Fri Apr 10, 2015 12:29 am

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

Post by Northern Flicker »

marcopolo wrote: Tue Sep 21, 2021 8:06 pm
LadyGeek wrote: Tue Sep 21, 2021 1:45 pm Not if you look at this from a retirement spending perspective. Consider your retirement income streams as filling up one big bucket of money - IRAs, Roth IRAs, savings accounts, company pension. You tap into the bucket every month to cover expenses.

Does the bucket get dangerously close to empty at any time?*

If not, go for the maximum payout at age 70-1/2. Otherwise, claim when Social Security at 62 (or any time later where your income streams start drying up).

If you have a health condition where your life expectancy is considerably shorter than those tables, claim sooner rather than later. (My late husband claimed Social Security as soon as possible when this situation became a reality.)

* Your emergency fund is a separate bucket of money that's only tapped for unplanned expenses.
70-1/2?
Did they change the maximum age to which one can receive delayed credits?
I believe it is still 70. 70.5 used to determine the year to start IRA RMDs but that was changed to 72
sixtyforty
Posts: 656
Joined: Tue Nov 25, 2014 11:22 am
Location: USA

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

Post by sixtyforty »

nigel_ht wrote: Fri Sep 17, 2021 5:00 pm I read the other threads.

I did my own analysis.

I read this thread.

My claim is SS is my hedge against SORR. If at any point between 62 and 70 the bottom falls out I’ll apply for SS. Currently I believe I get 12 months to change my mind so if it’s a rapid recovery a la 2020 I can cancel it if I pay everything back.

That would let me reduce our withdrawal rate in a deep downturn without cratering our spending in presumably our healthiest years…and allows me to peacefully rebalance into stocks even if things go all 2008 like or even 1929.

If the portfolio continues to rise (or at least keep pace with inflation) then drawing it down isn’t an issue for expenses.

We’re also keeping a cash budget for early retirement travel that isn’t EF or SORR shield but for YOLO experiences before we’re too old to want to bother. Things are going to have to be pretty dire to tap that for anything other than gleeful (but restrained) spending.

The reality is I punted and that simply sounds like a rational explanation to put into my IPS to make me sound smarter when I read it.
This was my thinking as well. Then I got the bright idea to model this scenario in PV. I ran the model simulating the worst 5 years up front in retirement (SORR) and comparing the results taking it at 62 and 68. The results surprised me. Taking SS at 62, even with SORR, produced a lower success rate than taking it at 68.
"Simplicity is the ultimate sophistication" - Leonardo Da Vinci
User avatar
HomerJ
Posts: 21281
Joined: Fri Jun 06, 2008 12:50 pm

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

Post by HomerJ »

sixtyforty wrote: Wed Sep 22, 2021 8:18 am The results surprised me. Taking SS at 62, even with SORR, produced a lower success rate than taking it at 68.
Assuming SS never changes. Which is what we assume here (bows to LadyGeek).
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
User avatar
Topic Author
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

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

Post by iceport »

Northern Flicker wrote: Tue Sep 21, 2021 2:33 pm When I was examining the curves, my first thought was why should a 62-year-old have a lower probability of dying at 70 than a 70-year-old?

But it is because the 62-year-old could die before turning 70, reducing the likelihood of dying specifically at age 70 a little. The point is that we have to exercise some care in interpreting the curves.
Yes, exactly. That's actually why I included the second plot for a 70 year old, to initiate that thought process. I had to reason it out, too. It got me thinking about what is being depicted.

bradpevans wrote: Tue Sep 21, 2021 6:06 pm
wrongfunds wrote: Tue Sep 21, 2021 4:43 pm Even though I might be called stupid, I do NOT understand that graph. What is on y-axis? It goes from 1% to 4.5% What does life span has to do with that number?
the y-axis = chance of dying at that age.

To die at 73 covers the 365 day window from your 73rd birthday to the day before your 74th

if you summed the dots (for each color) you would get 100% because no one lives forever
That's how I read it also. Unfortunately for all of us, the total area under the curves must be 100%. :( (Death is not only 90% certain.)

So that means that the 70 year old has fewer years in which to reach the 100% probability.

And that means that the area *between* the two curves is the same as the area under the 62 yo curve *before* age 70. (It doesn't look like it, but it must be.)

The area under the curve between two ages represents the probability of dying within that age range. Even without knowing how to compute that area, just eyeballing the plot can give a decent idea of the order of magnitude of the probability. That's what I was looking for.
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
User avatar
Topic Author
iceport
Posts: 6054
Joined: Sat Apr 07, 2007 4:29 pm

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

Post by iceport »

For people wondering how I ended up looking at the distribution of the probability of dying over time, it's really not too complicated.

First, a calculator like Mike Piper's Open Social Security site figures out a person's life expectancy and computes the theoretically optimum time to claim SS — all based on some kind of optimization algorithm that weights the PV of total benefits possible by claiming at various ages, and weights those values by the probability of being alive at those ages. <Honestly, I don't know how that calculation is made, what goes into it. And that's probably part of the issue here.> Let's say that ends up at a round number, 70 years old.

The calculator recommends claiming at 70, and that supposedly provides the best chance of getting the most money, expressed as a present value out of SS. Okay, fine, but statistics break down at the individual level.

Doesn't anyone ever wonder how much less they'd end up with if they die at, say 71 instead of 82? Well, with the enormous help of #Cruncher, the table he produced shows us exactly how much less we'd have received by claiming at 70 and dying at 71, vs. claiming at the optimum age (62) for a death at 71.

It turns out, the number is pretty large.

In fact, it's easy to scan the far right column of table — the column in which SS is claimed at 70 — and see how much less you'd get than the optimum value possible if you die at various times earlier than expected.

I was ribbed at the start of this thread for being willing to leave $65k on the table by claiming early. Well, how do all the folks claiming at 70 feel about the possibility of leaving $183k on the table, instead, if they go early?

Still confused why nobody seems to care about that, I started wondering if it was because the chances of dying so much earlier than expected are too slim to worry about. But that didn't make intuitive sense. So I wanted to get some kind of handle on how likely it would be to die in the years from, say, 65 to 75. I still don't know how to compute the probability, but just eyeballing the area under the 62 YO curve leads me to estimate that it could be somewhere in the vicinity of 25%.

So you decide to claim at 70, reaching for the highest expected payout, but you could end up with something far, far less than optimum, maybe something like 25% of the time. That's a 1 in 4 chance of ending up with a very poor outcome.

Am I the only one that doesn't like those odds?

There's a similar risk for those claiming at 62 who end up living longer. And those chances are also pretty good.

Thus, my newfound way of looking at this problem is to consider hedging against the most extreme poor outcomes by not choosing one of the extreme ends of the claiming range.

(As a reminder, the longevity insurance aspect of SS is only a secondary consideration for me. If it were the major overriding objective, it could override the risk of a poor PV outcome, and a late claiming age could be the appropriate choice.)

Image
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
JackoC
Posts: 4714
Joined: Sun Aug 12, 2018 11:14 am

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

Post by JackoC »

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
Here's the basic problem. If I focus just on Social Security and assume it goes down X% at Y date according to my SS statement that's conservative. What's wrong with being conservative? If it isn't cut, or even if it's extremely unlikely it would be, great.

However, investing is about the whole portfolio and choices. Assuming SS is going to be cut for existing recipients a known % at a known date tilts the analysis of alternatives among longevity hedging instruments toward SPIA's, or towards not hedging longevity as much at all (even if not dramatically, an assumption of fixed % cuts past a fixed date makes taking at 62 look relatively more attractive than 70). That's the opposite of conservative if the probability of cuts to existing recipients is actually very small. In that case SPIA's are riskier credit wise (the credit risk of ins cos/state gtee orgs v something very little more than the federal govt's overall *default* risk), and we know SPIA's have a big weakness for very long term longevity hedging in not being CPI adjusted. Same if we tilt away from longevity hedging in general towards just assuming a fixed pile of assets will last till death. The arbitrary assumption is now inducing us to take on more risk, it's not conservative.

It would nice if it didn't distort the discussion to say you must assume what the SS statement says is the best estimate of what will really happen. But it's not the best estimate, or even close, and assuming it artificially promotes actually riskier alternatives at the margin compared to waiting till 70 for SS, entire sentence *IMO* (not that taking SS at 70 is *the* right answer all things considered, to beat the dead horse one more time: it's not for everybody).
bradpevans
Posts: 801
Joined: Sun Apr 08, 2018 1:09 pm

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

Post by bradpevans »

as a rough rule, the "breakeven" point is about 13-14 years after the start date.

if you delay to 70, you need to live to 83-84 to have made the right choice (cashflow, not considering gains/losses)

if you thinking you can invest and produce more wealth, then the 13-14 years needs to be longer yet.
Of course, if you start early and lose money, your breakeven would have been < 13-14 years.

At least 15% of SS is never taxed, so that helps a bit too for the "you should delay" crowd
namajones
Posts: 778
Joined: Sat Aug 08, 2020 12:41 pm

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

Post by namajones »

iceport wrote: Wed Sep 22, 2021 10:55 am I was ribbed at the start of this thread for being willing to leave $65k on the table by claiming early. Well, how do all the folks claiming at 70 feel about the possibility of leaving $183k on the table, instead, if they go early?

Still confused why nobody seems to care about that
A lot of people here seem to believe they'll live well into their 80s or even 90s. Wishful thinking, I'd say.

Most of the older people in my family and in my life died in their 50s, 60s, and 70s. Two made it into the early to mid 80s, albeit with a lot of pain and a low quality of life in the last years.

And by the way, going in your 70s isn't really considered dying "early." 60s, maybe. I've never heard anyone say at the funeral of a 70-something, "oh, she was so young!"

To me, the best reasons to wait until 70 are if you have a much younger spouse and you want that spouse to have a bigger benefit or if you're using SS as a kind of longevity insurance or long term health care policy AND taking the money earlier would mean next to nothing to you in terms of quality of life.
Post Reply