This is the best one yet. I love the comments to the article. Lot’s of people worried about “means testing”
intercst
2 Likes
The thing about “means testing”, as generally understood: having enough loot to squeak by without SS benefits, would not solve the “problem” of not enough wage slaves. That is where “Plan Steve” comes in: in effect, turn SS into a disability only benefit. Anyone who is able boded doesn’t get it, so they are forced to keep working, unless they have enough loot to live without it. People could only receive benefits when they are so feeble and broken down that “JCs” don’t want to use them anymore.
I did the same cost/benefit analysis as some of the people in the article. I figured the break even point between the larger benefit at 66 vs 62, was at about age 88. So, what would I do with the extra money at 88?
Steve
5 Likes
That’s where people get it wrong. If SS is paying you more money in your 70’s and 80’s, you can spend more of your savings in your 60’s because you’ll need to draw less from the portfolio later on with a bigger SS check after age 70. For someone with say $500,000 in savings, it would make sense to spend down half of it (i.e., $250,000) to delay SS for as long as possible.
Of course, if you have $5 million, it’s not going to make much difference whether you take SS early, late, or not at all. It’s the people with the smaller nesteggs that have the most to gain by waiting, yet they’re the one’s most likely to throw arithmetic to wind and take it early.
Economists call it the “annuity puzzle”
https://retirementresearcher.com/why-do-economists-say-there-is-an-annuity-puzzle/
Of course, there’s no puzzle in wanting to avoid the high fees of an annuity sold by a commercial insurer. But waiting from age 62 to 70 to collect SS essentially allows you to buy an inflation-adjusted life annuity from the Gov’t at a big discount to what the insurer would charge for the same monthly benefit.
About the only positive is that the people who take SS early collect less benefits over their lifetime, so they’re helping the Trust Fund to last longer.
intercst
6 Likes
From elsewhere this needed to have my redactions.
Social Security Administration’s Chief Actuary finds the Medicare and Social Security **** ***** Act, which abides by ********* ***** …not to raise taxes on those making less than $400,000, would extend Social Security solvency for more than 75 years
Of course liars going to lie. The news agencies have top brass who do not back taking the cap off people making more than $400k per year.
If you spend down your portfolio first, you don’t have compounding doing it’s thing for you in the out years. With SS benefits being received for 8 years now, the portfolio has grown.
Steve
7 Likes
It is all about sequence of returns risk. If you plan to delay, your portfolio can sustain a higher initial withdrawal rate that will survive to the end the withdrawal period after a poor initial sequence of returns. This means you can “safely” have a higher spend throughout the withdrawal period. At least that’s the way it works in my case. You can model this in FIRECalc.
If you have a good initial sequence of returns, then your portfolio is going to the moon and it doesn’t matter when you take it, so you might as well delay because that will likely give you the most money.
1 Like
But not the most pleasure. As Steve noted, what am I going to do with the extra money when I’m 88?
DB2
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You can spend more money in the early years, is the point.
3 Likes
I thought you were talking about denying Social Security payments.
DB2
That was my interpretation: spend the loot you own now, and forgo the compounding. ( and trust that the (L&Ses) will not decide to give your SS money to the “JCs” instead.)
Steve
The stock market doesn’t always go up. That’s why many retirees hold bonds even though the average return of fixed income securities is well short of the 10% plus of the S&P 500. Given the choice of i-bonds, Treasuries, corporate bonds, or a larger SS benefit bought at a substantial discount to an annuity sold by an insurer, the larger SS check is the superior choice, as long as you don’t have a medical diagnosis that portends a shorter life expectancy.
intercst
1 Like
That’s what people are missing. The choice that gives you the highest lifetime income allows you to spend more in your 60’s, because you’ll need to draw less from your investment portfolio in your 80’s with a larger SS check.
You can spend more at age 60 and at age 90 if you live that long.
More spending = “more pleasure”.
Of course, if there was an investment product I could buy that would guarantee the 10% plus average return of the S&P 500 over the next 30 years, that would be superior to waiting until age 70 to draw SS, but I don’t see anyone selling that.
intercst
3 Likes
This is the attitude that will eventually end the human race and everything else on this planet!
JimA
2 Likes
That’s not my attitude. I’m quoting DrBob2.
Personally, I take great pleasure in staying alert to those that are financially trying to screw me, and then act to limit the damage.
intercst
1 Like
This sounds nice, but the reality is SS is an entitlement and government can change the rules/ laws. So if you spend your money hoping for a bigger SS later, you are taking a risk, hoping politicians will come through.
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“JCs” have been taking promised retirement benefits away for 30 years. Why would anyone expect Pols to be any more ethical?
Steve
That’s a potential risk, but no politician would dare cut current promised benefits for people over about age 50. Those people have money and they vote.
2 Likes
That is the brilliance of imposing extreme requirements for proof of citizenship. Sell it as “I’ll make sure no illegal received a penny of SS” Then impose the extreme requirements. There will be no repercussions from people who had their SS cut off, as, their citizenship being denied, they will not be able to vote.
Steve
1 Like
I understand. In an electoral democracy it is easy to give concessions and almost impossible to take it away. However, having made it only to become poor at ripe old age is a risk no one should take.
Not to get into the politics of this, but Roe v Wade should wake you up that politicians either directly or indirectly can take anything away from you. If they can take your rights, they can certainly will take your entitlements.
There are other risks too though. For example, Congress could increase capital gains taxes which more most people here would have a bigger impact financially than a SS benefit cut. In that case, it may well have made sense to cash out earlier instead of later.
And in fact, the many provisions of the Tax Cuts and Jobs Act will expire 2025, including the capital gains income threshold adjustments. Congress could extend those, but the majority part that passed the TCJA in the first place has been unable to advance meaningful legislation this session, including legislation favored by the majority of the majority.
2 Likes