Joe is right. “do nothing” is the choice, because everyone can hide and point their finger at someone else.
Meanwhile, the people you speak of, who do not have adequate savings, will get a lecture on “personal responsibility”, as in “these other folks have provided for their retirement. you should have done the same”
Steve
But I’m not talking about investing in the 8 years between 62 and 70. I’m talking about the lump sum of money, $320,000, that is taken in those 8 years. It’s what we are eligible for from SS or we can replace it with withdrawals from IRAs.
What I’m saying is what happens in the years from 70 to 80. If I took the SS and kept my money in the IRA, I have an extra $320,000 in my IRA at age 70. I ran the numbers on a finance calculator in Quicken. $320,000 at 5% comes to $521,246.28 at age 80. A gain of $201,000.
That makes me question the supposed gains a person gets from waiting to take SS.
So tell me where I’m wrong. And thanks for responding.
I am sorry but I am not understanding any of the above. You don’t get lump sum money from SS and you would not be taking lump sum money from your IRA during that time.
What are you living off of from 62 to 70 if you neither spent the SS or took money from retirement accounts?
There is NO one-size-fits-all for this.
We (METAR) have witnessed multiple threads on this topic, over the years.
There ARE experts who wave their hands and produce a “perfect” plan for a hypothetical SS retiree.
But, when a real world INDIVIDUAL applies the concepts to her own personal situation, the “best plan” be becomes less clear.
You do you. Don’t be bullied.
Me? I’m taking at 70, using it as INSURANCE in the event that after age 85, I’m a blubbering, drooling, lump of biomass.
I figure the “extra” monthly income might get me an upgrade at “the home”?
ralph
Let’s say you take SS at age 62 - you get $2520/mo, each month, until you die.
Let’s say you take SS at age 67 (FRA) - you get $3600/mo, each month, until you die.
Let’s say you take SS at age 70 (max) - you get $4464/mo, each month, until you die.
The only calculation you need to do for your case is to take the $2520 each month, for the first 8 years, invest it and compound it through all the years thereafter, and see if it overcomes getting $2520 instead of $4464 each month thereafter (from age 70).
For others contemplating taking it at 70, they need to do a similar calculation. For not taking $3600 each month for 3 years (age 67-70), had they invested the $3600 and compounded it through all the years thereafter, does it overcome getting $4464 a month instead from age 70 until death.
For most relatively affluent people, without any chronic medical conditions that will shorten their lifespan, and without any extremely dangerous hobbies, and with a decent family history of illness, taking it at 70 results in the best overall value.
I’m not sure why that is so difficult for people to understand.
Taking at 70 is allegedly the best risk adjusted return because of sequence risk. But taking and investing in low cost index funds achieves better long term results on average than the 8% promised by SS. I took that risk at FRA in October 2022 and so far the returns are far greater than 8% per year.
Sorry, I’ll try again.
From 62 to 70, the wife and I will receive $320,000 from SS. Instead of lump sum I should have said grand total. Now if we had delayed SS to age 70, we would have withdrawn $320,000 from our IRAs. We are spending all of this money during this time period.
Now we are age 70. Since we drew SS early, we didn’t have to withdraw the $320,000 from our IRA. We have it to invest as we choose. For the next 10 years if we can get 5% on the $320,000 we will have $521,246.28 according to my math.
The math says if you wait till age70 to draw SS you will break even on your total SS earnings round age 78/79 and every year after that your grand totals from SS earnings will continue to increase.
I contend no one ever counts the investment money you lost because you were spending your own money betwen ages 62 and 70.
It’s not about investing any money during ages 62 to 70. It’s about needing money to live on during those 8 years. Whose money am I going to use? SS or my own?
It’s counted in the same way you count receiving $2520 a month instead of $4464 a month from age 70 through death (because you began taking SS at age 62). Can you show us where in your description you counted that?
If you take SS of $2520 a month at age 62 then you don’t take $2520 a month from your retirement savings. And that $2520 a month [remains] invested. Either way, an additional $2520 a month is invested and compounding gains.
If you do not take SS of $2520 a month at age 62, then you take $2520 of retirement savings each month instead, and $2520 less per month is invested and getting compounded. In return for doing this, you will get $4464 a month from SS fro age 70 through death.
Now do you understand why my description is the proper way to evaluate the two alternative?
No I don’t understand.
[quote=“MarkR, post:30, topic:112519”]
It’s counted in the same way you count receiving $2160 a month instead of $4464 a month from age 70 through death (because you began taking SS at age 62). Can you show us where in your description you counted that?
I’m not talking to death since that is an unknown. I’m only talking about to age 80.
Let’s forget about investing anything between ages 62 to 70.
Between ages 62 and 70, we need $320,000 to live on. We can spend our own money, or we can receive/spend SS benefits. If we receive and spend our SS benefits during that period, we will still have our $320,000 at age 70. Starting off with $320,000 to invest at age 70 will outperform an investment that is starting at zero at age 70 and adding $4464 a month over the next 10 years.
I need to edit this. According to Quicken, $4464 a month ($53,568 per year) at 5% comes to $673,772 after 10 years. That’s about $152,000 better than the $320,000. So I was wrong that the $320,000 no money added would perform better.
Bird in hand is better than…
Thank you, that was very helpful.
Using your data, $320,000 over 8 years would be a joint monthly benefit of $3333 ($1666 each) with no COL adjustments included.
This will be your baseline income. I will also use 5% simple interest to keep the math simple as well. I encourage you to go to various sites to run your own monte carlo analysis with your actual data. I’ve not used https://www.firecalc.com/ before (I have proprietary software) but I have heard nothing but positive things about it.
Not sure why you picked 10 years. You should be looking the NPV of what 8 years of $3333 a month would be and assuming a constant yield of 5%.
Using the following NPV calculator:
$3333 a month at 5% cost yield (.416% monthly) would require about $265,000 in investments.
Option 2 assumes you delayed SS until age 70, thus your monthly benefit has grown to $6568 - or roughly $3235 more income each month.
Again, we are going to assume that your income/expenses remain constant.
In option 1, you took SS early and your $265,000 in investments was left to grow at a constant rate of 5% and your income needs never grow above the $3333 a month you get from SS.
In option 2, you delayed SS until 70 and spent all of that $265,000 - but now you can save the $3235 a month extra from SS.
Using the following compound interest calculator:
Option 1 growth of $265,000 from age 62 to age 80 at 5% would be 650,577.23.
Option 2 growth of $3235 a month from age 70 to age 80 at 5% would be 507,666.25.
Lets keep going.
Option 1 at age 84 would be 794,286.72. Option 2 at age 84 would be 791,310.52.
At 84 and 1 month, option 2 has achieved break point.
Note, none of this includes the significant COL increases you would get from the delay which in reality would further reduce that breakeven point. It also doesn’t take into account Sequence of Return Risk or Bad Timing.
Now, if all you have is $265,000 saved, you might want to take it early.
If you have much more saved, you will be better off to delay, all else being equal.
Edit: removed duplicate post. TMF is struggling a bit.
Nope. Over an 8-year span (age 62 to 70) investing in the stock market is pretty risky. If you have a 50-60 year timeframe, the stock market almost invariably does well. That’s why getting the guaranteed 8% by waiting is the better choice. You just happened to live in an 8-year period where the S&P 500 produced favorable results.
Apparently. {{ LOL }}
But arithmetic does tell you the solution that produces the most money over your lifetime, assuming that you don’t have a medical diagnosis that predicts a shortened lifespan.
People being comfortable with their choices doesn’t change the arithmetic.
That UCLA study I posted upthread estimated that those taking SS early are leaving $3.4 Trillion on the table. That’s increasing the solvency of SS for people like me who are waiting until age 70, so maybe I should be encouraging sub-optimal choices? {{ LOL }}
intercst
First off, thanks to Hawkin, MarkR and Intercest for the replies.
Hawkin, I chose 10 years because you have to choose a length of time for comparisons. I specifically chose age 70 to 80 years of age because age 70 is often quoted as the time to start taking SS benefits for maximum overall lifetime gain. I understand that math. I just don’t think the difference is as large as people claim when you look at the lost investment opportunity you incur when you spend your money instead of SS benefits.
I appreciate the detail you presented. In my early examples I left out the investment gains during the 62 to 70 ages on purpose. I was trying to keep it simple. Though the amount spent during that 8-year period is $320,000, it is only $3333 a month, so the balance of that amount is still earning 5%. That is if I’m spending my own money and not receiving SS benefits. And if I’m receiving SS benefits that $320,000 is earning interest during those 8 years.
To put it another way.
I take SS benefits early. I keep the $320,000 and invest it for18 years (age 62 to age 80). The total comes to $ 770,118.
I take SS benefits at age 70. My benefit amount at age 70 is $6568. I invest that over the next 10 years (age 80). The total amount is $991,039.
So, the first response is you made more money waiting. $991,039 -$770,118 = $220,921. Looks really good until you remember you spent $320,000 of you own money during the 62 to 70 year age instead of taking SS early. However, if you go out 2 more years with the same numbers/scenarios the totals come to $1,254,524 (claim at 70) to $849,055 (claim early). A difference of $405,469. Take out the initial $320,000 that you spent from age 62 to 70 and you are now coming out ahead claiming at 70.
Not sure if that made sense to anybody else. I’m going to have to go with what Ralph said up post. It’s an individual decision.
Did we finally find a way for deficit reduction: voluntary decisions on SS withdrawals?
A challenge is that averages of investment returns and lifespan work better on a population of order 100 million (all SS beneficiaries) than of order 1 (individual decision).
Of course, we are all above average.
I have moved from smaller artist to game developer. Very different hats.
My business partner(four partners in total) who wanted to create an NFT platform in 2020 told me getting a patent had cost him over $100k. This was for the company he currently runs. His patent must have been challenged. Our project became obviously not a go.
I am now working to file a provisional patent. Starting from scratch it is quite the undertaking. The third lawyer I interviewed was the charm. He has informed me well and honestly. The provisional is low budget. The future work will be in good hands. Assuming the game does well I will need his services.
The number of hats to wear has grown but people if they are honest are often helpful steering me towards better solutions. Once I have the skill I just need to place it and move on. Hardly onerous.
I have gone back to meditating with Jon Zabat-Zinn.
It’s not that simple. You would have to look at the total population of people who take SS at age 62 and then determine how many of them end up on medicaid and government spending on them goes up significantly (I read somewhere that over 7 million seniors are on medicaid!)
You are staring from a faulty premise. You neither gain that $320k at once nor spend $320k at once.
The number you need to start with is $265k.
It takes $265k at 5% to generate $3333 a month for 8 years (age 62 to 70).
You don’t get to compare starting at age 62 with $320k. By comparison, $320k at age 62 would generate over $4000 a month for the next 8 years at 5%.
Unless you go and do the math yourself at the links provided, you are unlikely to get the correct results.
SS data suggests up to 30% take SS at age 62 so if 7 million (out of 70 million on SS) end up on Medicaid, then there is probably another 10-14 million that took it early but are on Medicare Advantage (cause you know they are) still costing more money.
Still means SS money left on the table and increasing the solvency since Medicaid is paid from the general fund and not social security receipts.
