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Old 04-06-2016, 08:57 AM
 
Location: Idaho
1,451 posts, read 1,152,796 times
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Quote:
Originally Posted by ReachTheBeach View Post
Half the threads end up with this same discussion...

After a number of these, I have come to the conclusion that if you have a choice then delaying is usually the best decision.

But the parameters of whether you have a choice or not are not really all that simple. ...
RTB,

I totally agree that the parameters of whether one has a choice or not are not simple. Besides the two main factors of financial and health (or expected longevity), emotion plays a HUGE role.

Two persons with similar financial and health status may exhaust all analysis and calculations but come to opposite decisions. Both can be fearful of the future but the one with the deep distrust of the government will decide to take SS early before the funding run out. The one who is worried about their future personal disaster (illness, financial loss etc.) but with more faith in the system may choose the delay route.

Back to the OP, if this was indeed a true story, I feel sorry for the OP's brother. I agree with many posters that a financial adviser or an impartial financial engine/calculator just provide advice based on inputs of the investor: current net worth, future income, expected spending/lifestyle/life expectancy. However, one can not blame the OP's brother for listening 'foolishly'. Yes, it appeared that he wasted his life enduring a miserable stressful job and died before collecting SS leaving behind a big unspent bucket of money.

IMO, his decision to do so was likely governed by his emotion. His fear of the future (be it financial disaster like a depression or a catastrophic illness wiping out saving) was likely the reason why he continued working. Not knowing any personal background, we could only speculate.

My observation of both real life decisions and the pros and cons discussion here is that not too many people make decisions based solely on objective analysis. Even when one tries to be analytical, his/her innate confirmation bias will seek out the stats, probability, projections and even 'raw' data to support a 'pre-made' decision, an intuition formed by one's fear, feeling, psychological makeup and past life experience.
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Old 04-06-2016, 12:39 PM
 
29,764 posts, read 34,848,700 times
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Quote:
Originally Posted by lenora View Post
We already know that most folks on this forum have the resources to delay taking Social Security and we know that there are some people who have no choice but to take the benefits early. But NO ONE seems to have a suggestion for those who will be squeaking by drawing an average Soc Sec benefit AND withdrawing the (often recommended) 4 percent of their retirement account. And for heaven's sake, no Pension. I'm guessing it's because no one on this board has a well reasoned suggestion OR figures it doesn't really matter because someone in that category is poor but just doesn't know it.
Lenora, I agree with much of what you say and really think the reason there are little well reasoned suggestions are from a lack of personal experience with success overcoming or no personal experience at all. Our there answers/suggestions? Perhaps yes but are the free or do they come with a price? Of course if with a price those of limited incomes can't afford. Consider the released reg's today regarding financial advisors. Well intended yes. However will it limit the availability of advice to those of moderate means? Folks aren't going to give the advice without what they consider sufficient compensation. Much of the progressive discussion is about the financial information/advice gap and you bring up a perfect example of.
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Old 04-06-2016, 02:51 PM
 
Location: RVA
2,164 posts, read 1,264,175 times
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The other problem is that reality often intrudes on theory, just as, assuming the original post is true, what happened to the OPs brother. Success is not known until one has surpassed an age where the compounded delayed larger SS benefit is an obvious major benefit, or the recipient has died (and naturally unable to let the forum know that, :-O ) & it was the best choice for their remaining spouse.


It's all math theory, with so many conditionals, it probably HAS been beaten to death. But since we are deeper in to a more volatile market currently, it IS interesting to see tunes change compared to the "what a great investor I must be" bull market of 2011 through 2014, where it was easy to see returns of 12-20% per year. I averaged about 26% per year over those 4 years, but was minus 5% for 2015, and the first two months of 2016 were even worse. Just broke positive for 2015 & 16 this past week, with a strong March. But I can easily see markets tank again at a moments lack of notice.


I also think the average SS benefit recipient that also plans on the 4% rule to supplement income, is not poor, but, as Lenora is saying, a well planned average retirement. The average person retiring now, doesn't have a pension and high SS and a large savings. It certainly is a very grey area to decide at what point of income vs planned expenses there is a clear winner between delaying or collecting early, and even that is highly dependent, just financially, on where and what your money is invested in, and what your tax consequences are.


It certainly would be easier and less stressful if one was a high earner, but lived so far below their means, that there is no desire to ever need near the income than their forced fixed income provided, whether just SS, or SS plus a pension, if so endowed! Then all one would have to do is have enough saved to pay themselves the same as their maxed out SS at 70 would be, from age 62 to 70, then at 70 be perfectly content with that amount and savings would be inconsequential.


While I am close to that point, it is so true that ones expenses and expectations often rise to meet ones income. So when someone asks "Really, how much money do you REALLY NEED?", there are three answers. First, the bottom line where all you do is live, eat, pay your bills, and partake of free enjoyments. While nothing wrong with that at all, it is not what many want if they haven't lived that way all of their life. The next answer is adding enough so that you would be enjoying most of what you have been used to. Which is a comfortable place to be, and where my forced fixed income would be at about forever, if I delayed collecting SS to 70. Then there is that number that is basically above that that allows various levels of bucket list items that you always dreamed of doing when you were retired, as well as including a larger slush fund for LTC, or unforeseen situations, or the desire to leave a substantial inheritance. Basically, absolutely need, really want, and really would prefer.
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Old 04-06-2016, 04:38 PM
 
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We are 68 and know my waiting until 70 was is the best move for us. We have crossed thresholds related to fixed income and investments
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Old 04-06-2016, 06:31 PM
 
Location: Idaho
1,451 posts, read 1,152,796 times
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Quote:
Originally Posted by lenora View Post
But NO ONE seems to have a suggestion for those who will be squeaking by drawing an average Soc Sec benefit AND withdrawing the (often recommended) 4 percent of their retirement account.
Lenora,

I am not a financial expert but like to play with numbers so I ran a spreadsheet calculation for this hypothetical case for a 62 years old woman using the following numbers and assumptions

1. Average SS monthly payment of $1300.
2. Average retirement saving of $100K
3. Life expectancy +23 years (max life at 85).
4. SS payment at 62 is 25% less than collecting at FRA of 66 and 57% (25% +32%) less than collecting at 70.
5. Withdraw 4% of saving to supplement SS income collected at 62 and slowly reduce yearly spending to be within SS payment + 4% of remaining saving.
6. If she delays SS until 66 or 70, she will need to live off her saving (assuming the same yearly spending in the case collecting at 62)

For simplicity, I did not include interest income from remaining saving (which can be quite negligible) and kept SS payments in constant today's value (assuming COLA adjustments).

Case 1: collect $1300/month ($15.6K/year) at age 62 and supplement with 4% withdrawal from saving

- Total yearly expense starts at $19.6K, reduces to ~ $19K at 66, ~ $18.5K at 70, ~$17.4K at 82 and ~$17.2K at 85

- Retirement saving starts at $100K, reduces to ~$81K at 66, $69K at 70, $42.4K at 82 and $37.5K at 85.

- Total SS payment is $62.4K at 66, $124.8K at 70, $327.6K at 82 and $374.4K at 85.

Case 2: collect $1625/month ($19.5K/year) at age 66. This requires withdraw all expenses from saving from 62 to 66 but start adding back money to saving from the delta between higher SS payment and same yearly living expenses as in case 1.

- Total yearly expense starts at $19.6K, reduces to ~ $19K at 66, ~ $18.5K at 70, ~$17.4K at 82 and ~$17.2K at 85 (same as case 1).

- Retirement saving starts at $100K, reduces to ~$22.5K at 66 but increases to $26.3K at 70, $46.3K at 82 and $53.1K at 85.

- Total SS payment is $0 at 66, $97.5K at 70, $331.5K at 82 and $390K at 85.


Case 3: collect $2041/month ($24.5K/year) at age 70 and live off saving until then! This case is not feasible because the woman would run out of her saving at the age of 66 and need to borrow money to wait until 70!

The bottom line is that the 'break even' age is around 82.

If she dies at 85, she will be ahead by $15.6K i.e. leaving an inheritance of $53.1K instead of $37.5K in her saving.

If she dies before 82, she 'loses' money by waiting until 66 but the longer she lives past 82, the more money that she gains.

If I was in this situation, I'm inclined to wait until 66 based on my excellent health and family longevity. In addition I rather enjoy having more money to spend or save with $19.5K SS payment collecting at 66 than having to reduce my expenses with SS payment stuck at $15.6K by collecting early.

I would not be surprise if many others choose to collect at 62 in this situation. The lower SS payment and saving, the harder it is to delay.

Last edited by BellaDL; 04-06-2016 at 06:44 PM..
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Old 04-06-2016, 07:07 PM
 
6,875 posts, read 7,267,992 times
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BellaDL, why do you have her yearly expenses going down, and not up?
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Old 04-06-2016, 09:05 PM
 
Location: Idaho
1,451 posts, read 1,152,796 times
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Quote:
Originally Posted by selhars View Post
BellaDL, why do you have her yearly expenses going down, and not up?
Because the assumption is that she only draws 4% of her saving a year. This 4% amount reduces each year as the principal amount goes down.

The bottom line is that one has to reduce yearly expenses to keep a constant 4% drawing rate. This is the reason why my calculation showed that delaying to 66 was better. One has to withdraw a lot more saving between 62 and 66 but once the higher monthly income comes in, one has to option to keep the expenses at a constant rate or to reduce the expenses to replenish the saving.

I reran the calculations using a constant withdrawal rate of $4000/year so that the yearly expenses stay constant at $19.6K.

At 82, the woman would have $16K left in her saving account for case 1 (started at 62) or $19.9K in saving for case 2 (started at 66).

At 85, the remainder in saving account is $4K for 62 start case and $19.6K for 66 start case. At 86, she has no money left in saving and must live with only her 62-year SS payment of $15.6K. If she had waited until 66, her saving is down to $19.5K but she can continue spending $19.5K while receiving her 66-year SS payment of $19.6K, For the constant withdrawal rate, it is even clearer that this hypothetical lady would have serious financial problem if she lives longer than 85!

Last edited by BellaDL; 04-06-2016 at 09:48 PM..
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Old 04-06-2016, 09:11 PM
Status: "Re-edit status" (set 13 days ago)
 
Location: Was Midvalley Oregon; Now Eastside Seattle area
4,134 posts, read 1,883,639 times
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SS is nothing more than a deferred SPIA with an inflation option. If one dies too soon. It's done since you are done.
SS is an insurance program and should be seen as an insurance program.
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Old 04-06-2016, 10:10 PM
 
6,875 posts, read 7,267,992 times
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Thanks, BellaDL, I'm sure that has helped some people.

I'm only teasing when I propose this of course, but how about a hypothetical where costs go up. Since many (if not most) people have to pay MORE for medical expenses as they age. Sure a script may only be $7 a month but add two new medications, an additional doctor's office visit copay, having to pay for certain "daily personal items" that aren't covered by Medicare and you could be at $100 more a month…. That's not a LOT, but all I hear is that for "someone on a fixed income" things can get tighter every year.

It's almost like a mantra, "I'm on a fixed income, I'm on a fixed income."

I'm not really suggesting you run numbers for that hypothetical scenario. But of all the possibilities to choose I did wonder why that one for expenses going down instead of up. As I'm sure we all know, a person's available income going down has nothing do to with one's expenses going up. Thanks again for your example, though. It does help for people so see an example of how thing might go.
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Old 04-07-2016, 01:54 AM
 
71,463 posts, read 71,629,249 times
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Quote:
Originally Posted by BellaDL View Post
Because the assumption is that she only draws 4% of her saving a year. This 4% amount reduces each year as the principal amount goes down.

The bottom line is that one has to reduce yearly expenses to keep a constant 4% drawing rate. This is the reason why my calculation showed that delaying to 66 was better. One has to withdraw a lot more saving between 62 and 66 but once the higher monthly income comes in, one has to option to keep the expenses at a constant rate or to reduce the expenses to replenish the saving.

I reran the calculations using a constant withdrawal rate of $4000/year so that the yearly expenses stay constant at $19.6K.

At 82, the woman would have $16K left in her saving account for case 1 (started at 62) or $19.9K in saving for case 2 (started at 66).

At 85, the remainder in saving account is $4K for 62 start case and $19.6K for 66 start case. At 86, she has no money left in saving and must live with only her 62-year SS payment of $15.6K. If she had waited until 66, her saving is down to $19.5K but she can continue spending $19.5K while receiving her 66-year SS payment of $19.6K, For the constant withdrawal rate, it is even clearer that this hypothetical lady would have serious financial problem if she lives longer than 85!
the 4% safe withdrawal rate is based on INCREASING each year by the rate of inflation to keep the spending constant . in fact 90% of the time in every rolling 30 year period to date you died with more then you started with so spending down 4% inflation adjusted income has that reduction not realistic on a purely financial basis .

human spending patterns mayy influence spending but that is an individual thing .

here is a nice chart as to the differences .

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