# How to manage a retirement portfolio?

But how much would you have received between 62 and 70 and if you wait until 70, how long does it take to make that up ?

You make it up in your 80’s just in time for Alzheimer’s to set in and somebody to change your diapers.

Andy

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But how much would you have received between 62 and 70 and if you wait until 70, how long does it take to make that up ?

I didn’t run the number for 62. I just did a quick spreadsheet that assumed Full Retirement Age (FRA) of 66 (for anyone born in 1954 or earlier), with one calculation starting payments at FRA of 66, the other at age 70 after four annual 8% increases. The lines crossed in the year of age 77. As of the end of the year for age 77, retiring at 66 paid, cumulatively, 12 times the FRA amount; the total for delaying to age 70 paid, cumulatively, came to 12.8 times the FRA amount. Through age 80 the numbers were 15 and 18.92, respectively. Nothing was done to try to factor in cost of living changes.

UPDATE! I dug up the numbers for retiring at age 62, with all the same assumptions as above. At 62 the benefit is 75% of the FRA benefit. At the end of the year of age 77 it comes out EXACTLY the same as starting at FRA. Through age 80 it comes to 14.25.

The information to do your own calculations:
https://www.ssa.gov/benefits/retirement/planner/agereduction…

Earlier in the thread there was a list of factors to consider. It is really even more complicated, as one’s entire financial situation should be considered. Personally, I have enough saved that I always planned on waiting until 70. That became an even simpler decision when my wife died, as I have been receiving survivor benefits based on her SS for four years. On my next birthday, at 70, I will change to collecting based on my own SS, which I estimate will be about double what I’ve been getting as a surviving spouse.

“But how much would you have received between 62 and 70 and if you wait until 70, how long does it take to make that up ?”

The breakeven point is about 86. The IRS figures on average half of all people will be dead by then and no longer collect SS.

Thus, if you start at 62 or 70, you’ll collect the same amount of money till age 86. If you live past 86, you’ll be in fat city if you waited till 70, getting 70% more money than having started a 62. Each month. Till you die.

Now, if you smoke, on average you’ll die 13 years earlier than non-smokers. So consider.

It’s all averages. And genes. If your parents both lived to 100, and you are healthy , no bad habits, and likely to live to 100, then wait if you can.

If your family tree ends for everyone in their 70s…well…that’s how your family cookie crumbles, unless they were smokers and did themselves in earlier (on average).

Right now, the leading cause of death, more than heart attacks or traffic accidents is drug overdoses.

t.

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The breakeven point is about 86. The IRS figures on average half of all people will be dead by then and no longer collect SS.

Thus, if you start at 62 or 70, you’ll collect the same amount of money till age 86. If you live past 86, you’ll be in fat city if you waited till 70, getting 70% more money than having started a 62. Each month. Till you die.

I think, at least for upper middle class retirees, that there is a big point that’s missing. And that’s the longevity insurance factor of SS. True, if you defer until age 70 and die before 86, you lose. But you’re dead. If, on the other hand, you make it to 90, 95, 100+, you win and you are alive. You won’t know, perhaps ever, until you survive to age 86 or develop a terminal illness before, if you win or lose. But for many, the longevity insurance factor is a good reason to delay to age 70. It’s not JUST about getting the most dollars out of SS. Plus, the survivor might benefit even if you do die before 86.

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“But how much would you have received between 62 and 70 and if you wait until 70, how long does it take to make that up ?”

How long it takes depends on several factors. Your occupation, employment history, and retirement age are significant. Also significant are Social Security’s COLA from age 62 to age 70 or whenever you claim Social Security retirement benefits.

I was a software engineer. My highest earning years were between ages 62 and 68 when I retired. This eliminated all of the years after graduation from college when my earnings didn’t exceed Social Security’s cap on insured earnings. I was considered a “maximum earner” for the 35 years used to calculate my PIA (Primary Insurance Amount).

COLA is earned from age 62. Earned but unclaimed COLA is recursively applied to your PIA calculated when you claim Social Security benefits.

I retired at age 68. My PIA included a 16% increase for claiming 2 years after my FRA. Earned but unclaimed COLA was applied to my PIA and increased my monthly benefit by another 15.3%. As a result, by age 77 I had received more in Social Security benefits than I would have received by retiring and claiming benefits at age 62.

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But how much would you have received between 62 and 70 and if you wait until 70, how long does it take to make that up ?

If you spend it, the break-even point is age 81.

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“But how much would you have received between 62 and 70 and if you wait until 70, how long does it take to make that up ?”

You make it up in your 80’s just in time for Alzheimer’s to set in and somebody to change your diapers.

Heh, that’s why I call it getting a better grade of gruel.

To see some figures, here is a spreadsheet: https://www.dropbox.com/s/gebanzrbr3g33qf/My%20SS%20breakeve…
`Assume you put all the SS payments into a savings/investment account, using the starting date and payment at age 62 and 66`
`The age 62 account starts earlier but the payments are lower. The age 66 account starts later but the payments are bigger.`
`So the age 62 account has a head start, but grows slower.`
`At some point the age 66 account balance will exceed the age 62 balance. This is the break-even point.`
`You should look at how long it takes to break even, and look at your age at the break-even point, and compare that`
`to your life expectancy.`

If you invest it (at 62) and earn 5% above inflation the breakeven age is 91. If you can earn 6% above inflation, the BE is 98.

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But how much would you have received between 62 and 70 and if you wait until 70, how long does it take to make that up ?

This is a common false argument. The purpose of Social Security isn’t how much can you get back from the government. It is to guarantee that you have at least a minimum level of income throughout your retirement regardless of what happens to the rest of your assets.

If your financial situation is such that you can’t foresee any circumstances where you would exhaust your other assets in retirement, then it doesn’t matter when you take Social Security. If you are so asset poor that you can’t survive between 62 and FRA (or 70) without taking Social Security, then you don’t have a choice but to take it early. For those in the middle, the calculation of an “optimal” Social Security strategy is not a trivial exercise. There can be significant lifetime advantages (up to 6 figure differences) of one plan over another. Some of this information can be found in books such as “Get What’s Yours: The Secrets to Maxing Out Your Social Security” by Kotlikoff, Solman and Mueller. There is a whole new industry of Social Security advisors who specialize in running “what-if” analyses for clients. Professionals usually acquire RSSA or NSSA certification.

Disclosure: While I have neither certification, I am considering them as an adjunct to my tax practice.

Ira

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But how much would you have received between 62 and 70 and if you wait until 70, how long does it take to make that up ?

This is a common false argument.

It was pretty much a rhetorical question because it is rarely part of the never-ending argument on this board about when to take social security. I did the calculations starting when I was around 58.

Just so everyone has something to do today, perhaps throw in the calcs for married people to include the possibility of different amounts and tax rates with the death of a spouse.

In my case, a death changed all the calcs

This is no replacement for actually running the numbers, but…

I believe that the standard advice for couples is for the lower-earning spouse to take Social Security early and for the higher-earning spouse to take Social Security as late as feasible. At some point, I used a benefits optimizer and in fact that is what it spit out for us. We’ll investigate again when my wife and I approach 62 and finalize our decision then. It makes little difference for us. We have enough in investments and enough projected Social Security that we will do well enough regardless of which way we approach it. Of course, they have and may again change the rules for Social Security benefits, so it’s best to revisit before making the leap. Between 62 and 65, we will have to consider the effect of SS income on our MAGI for purposes of ACA (Obamacare) premium subsidies and adjust accordingly.

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“We have enough in investments and enough projected Social Security that we will do well enough regardless of which way we approach it.”
and
“If you are so asset poor that you can’t survive between 62 and FRA (or 70) without taking Social Security, then you don’t have a choice but to take it early. For those in the middle, the calculation of an “optimal” Social Security strategy is not a trivial exercise.”

There are 3 categories of people here.

1. Those who are so poor that they need to take SS as soon as they retire.
2. Those who have enough assets (including pensions) that they will do well enough without taking SS.
3. Those in the middle.

It’s only those in the middle who even need to even think about their optimum filing strategy.

A \$2 million in investment assets at 4% gets you \$80,000/yr
An above average SS benefit of \$2500/mo at FRA is \$1,875 at 62 and \$3,300 at 70.
The total comes to \$102,500 for 62 filers at 62 and \$119,600 for 70 filers.
There’s not a whole lot you can do at \$119K that you can’t at \$103K.
Keep in mind that the age 70 filer takes until they are 81 before they pull ahead.

There can be significant lifetime advantages (up to 6 figure differences) of one plan over another.

This large lifetime only happens if they live significantly longer than the mortality tables predict. This is a very very small number of people. Yeah, yeah, us upper-middle & upper income people live longer. But not that much longer.

Life Expectancy of 70 year olds is about 15 years. That’s age 85.
SS breakeven age (defer from 62 to 70) is 11 years (actually 10.5). That’s age 81.

How much longer we us live? 10 more years? That would take us to 95. Rare.

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There can be significant lifetime advantages (up to 6 figure differences) of one plan over another.

This large lifetime only happens if they live significantly longer than the mortality tables predict. This is a very very small number of people. Yeah, yeah, us upper-middle & upper income people live longer. But not that much longer.

That’s only part of the story. The large lifetime differences typically occur when a married couple analyzes their benefits separately and fails to consider the impact on the survivor (second to die).

And as others have pointed out previously, those in the middle group should consider the impact of tapping other resources such as retirement accounts before starting Social Security. The potential reduction in future RMDs and IIRMA charges can provide significant financial advantages over their remaining lives.

Ira

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There are 3 categories of people here.
1) Those who are so poor that they need to take SS as soon as they retire.
2) Those who have enough assets (including pensions) that they will do well enough without taking SS.
3) Those in the middle.

It’s only those in the middle who even need to even think about their optimum filing strategy.

But since you have to make a decision, you might as well make the optimum one, right?

I’ve only run the numbers for my own situation, but I assume my results apply in most cases. In my case, delaying SS increases portfolio survivability, which effectively increases the SWR. The reason is sequence of returns risk. Because SS is inflation adjusted and increases predictably each year you delay, it backstops your portfolio in the event of high inflation and poor market returns early in the withdrawal period.

So even if you are in in Group 2) you are almost certainly financially better off by delaying. The only downside is you die unexpectedly young. But on the flip side, what if you live to be unexpectedly old? Then the risk is outliving your money. Delaying SS helps with that too.

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The only downside is you die unexpectedly young

No, I believe the biggest downside is that you have lots of money when you are very old and can’t use it, either because of you become physically infirm or mentally unable. In both of those cases all that “extra” money is almost meaningless, assuming you have at least enough to keep you out of the gutter in your last years.

I cannot understand the theory that says “I should have more money when I am 90, can’t travel, can’t work outside, can’t do much other than watch TV or read” rather than having more when you are in your 60’s when you horizons are so much more unlimited.

I agree that if you are so close to the line that you think you will end up nearly broke, without other significant assets or means of sustenance that you may do better waiting. Otherwise use more money sooner and enjoy it as best you are able. That’s what money + retirement is for.

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So even if you are in in Group 2) you are almost certainly financially better off by delaying. The only downside is you die unexpectedly young.

The purpose of money is to buy things. More, the utility that spending the money gets you. The simplistic break-even point of delaying is age 81. (The break-even age is even older is you invest some of the early SS instead of spending it all.)

Now list the things you can do and can enjoy doing between 62 and 81, and compare that with the list of things that you can do and enjoy doing when you are in your 80’s.

For example, we traveled and hiked, etc. all over the world in our 60’s. But starting in 2019, it was impossible to travel the world. Instead of having memories and photos, we would be looking at travel brochures and sighing and wishing we could see & do in person.
And I guarantee that you have much more physical stamina in your 60’s than in your 80’s.

---- Maybe that’s why this is a neverending discussion. Some people look at the size of the money as the goal, and some people look at the utility of the money as the goal.

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No, I believe the biggest downside is that you have lots of money when you are very old and can’t use it, either because of you become physically infirm or mentally unable. In both of those cases all that “extra” money is almost meaningless, assuming you have at least enough to keep you out of the gutter in your last years.

I very much hope that the extra money in our SS checks remains meaningless. I never want to have to collect on insurance, but I also never want to be without it.

Otherwise use more money sooner and enjoy it as best you are able. That’s what money + retirement is for.

LOL. Spending money for the sake of spending money is not something that interests me. While we are waiting until 70 for SS, we are in no way depriving ourselves, or not doing something because we can’t afford to do so. More money in the bank would not change our behavior. Better insurance down the road, (SS,) does make me sleep a little bit better.

Why insist on a one size fits all rather than consider all your options?

IP

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No, I believe the biggest downside is that you have lots of money when you are very old and can’t use it, either because of you become physically infirm or mentally unable. In both of those cases all that “extra” money is almost meaningless, assuming you have at least enough to keep you out of the gutter in your last years.

I cannot understand the theory that says “I should have more money when I am 90, can’t travel, can’t work outside, can’t do much other than watch TV or read” rather than having more when you are in your 60’s when you horizons are so much more unlimited.

That’s the thing. Somewhat counterintuitively, by delaying SS you will have more money to spend when you are younger. The reason is sequence of returns risk. You are essentially exchanging volatile stock market returns now for guaranteed, inflation adjusted returns later. That’s a good bet, and if the market does poorly and there is a period of high inflation in the early years it becomes a great bet.

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No, I believe the biggest downside is that you have lots of money when you are very old and can’t use it, either because of you become physically infirm or mentally unable. In both of those cases all that “extra” money is almost meaningless, assuming you have at least enough to keep you out of the gutter in your last years.

What leads you to believe you can’t use it?

My wife’s grandmother was able to use her excess savings to pay for private in-home 24 hr care for years which kept her in her lifetime home with all of her known comforts and without having to move to an assisted living facility. I am quite positive that such living conditions allowed her to live many years longer and certainly more comfortably. I am also quite sure if you were to ask her if she had preferred to spend that money on a bunch of European vacations while she was younger - with the opportunity cost of having to move in her 80s to a facility, she would not have to think long that she made the correct decision.

Hawkwin
Aims for both.

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A \$2 million in investment assets at 4% gets you \$80,000/yr
An above average SS benefit of \$2500/mo at FRA is \$1,875 at 62 and \$3,300 at 70.
The total comes to \$102,500 for 62 filers at 62 and \$119,600 for 70 filers.
There’s not a whole lot you can do at \$119K that you can’t at \$103K.
Keep in mind that the age 70 filer takes until they are 81 before they pull ahead.

I think the break-even point is a red herring. What matters is not running out of money, the safe withdrawal rate. Delaying SS lets you spend more starting at age 62. There’s no need to wait until age 70 to spend. You withdraw more from your portfolio from 62-70 to cover the “missing” SS, and then less from your portfolio after 70.

cfiresim.com does the calculation for you. Using your numbers, a 95% SWR gives constant (inflation adjusted) spending of \$103,515 if you take SS at 62, and \$108,497 if you take SS at age 70. Waiting to take SS increases your spending by \$4982, 4.8%, each and every year.

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Certainly there is appeal to staying in your home. On the other hand, when you’re at that stage of life what else do you have other than memories? Maybe photos you can sort through?