early social security (cousin, out of control, date, support)

[DaveinMtAiry]

Originally Posted by reneeh63

Hahaha - yeah, you go ahead and stick it to the gubmint! That'll show 'em.

LOL

So many different perspectives here and obviously they vary depending on the individual situation. I'm somewhere in the middle, I won't have a million dollars but I will have much more than the national average for my age.

I want to retire at 65 and will probably look to file then. Waiting and drawing down my portfolio makes me nervous, I want to have as much actually money as possible and will try to protect myself from market risks by keeping a buck of cash to draw from for a year+, then move to the bond portion to buy time for a recovery. But that also involves a bit of market timing (guesswork) to know when the recovery has occurred.

But I also live a simple life and my SS should account for over half of my monthly living expenses, the additional coming from my 401 and the returns from our portfolio available for big and/or unexpected expenses.

[hikernut]

Originally Posted by mathjak107

i don't follow what you are trying to say

Here it is.

Scenario 1:

Retire
Immediately take SS benefit of "ss1"
Take 4% draw from portfolio balance "bal1" = "draw1"
Income1 = ss1 + draw1

Scenario 2:

Retire
Delay SS by "n" years
That SS benefit will be "ss2" (which should be expressed in today's dollars)
Calculate the amount to set aside = ss2 x n
New portfolio balance = bal1 - (ss2 x n) = bal2
Take 4% draw from bal2 = "draw2"
Income2 = ss2 + draw2


In scenario 2 you are paying yourself the SS benefit from the set aside account for the first "n" years. The portfolio balance is obviously less, so one has less market exposure. In both cases the portfolio draw is 4%, so the sequence risk is the same on a percentage basis, but obviously less on a absolute dollar basis. The "ss2" should be in today's dollars, not future inflated dollars, and it's assumed the set aside account takes no market risk and can earn interest at the rate of inflation. If the set-aside account cannot match inflation, total income will not quite match inflation in those first years.

At any rate, if you go through this exercise using a real scenario you will find that Income2 is a bit larger than Income1. It's a technique to both reduce market exposure and increase spending.

[Perryinva]

Exactly the same as the scenario I provided. Money is fungible. Carve out a no risk amount and use that to pay yourself your SS. Your income will be higher. The only losers are the heirs if you die young because the egg is smaller. The spouse MAY benefit significantly in the long run if the survivors benefit is significantly larger than from filing early. I readily admit that if I was single, I would surely not delay to 70, just FRA. My expenses would be far less than 1/2 of what it will be married.

[mathjak107]

Originally Posted by hikernut

Here it is.

Scenario 1:

Retire
Immediately take SS benefit of "ss1"
Take 4% draw from portfolio balance "bal1" = "draw1"
Income1 = ss1 + draw1

Scenario 2:

Retire
Delay SS by "n" years
That SS benefit will be "ss2" (which should be expressed in today's dollars)
Calculate the amount to set aside = ss2 x n
New portfolio balance = bal1 - (ss2 x n) = bal2
Take 4% draw from bal2 = "draw2"
Income2 = ss2 + draw2


In scenario 2 you are paying yourself the SS benefit from the set aside account for the first "n" years. The portfolio balance is obviously less, so one has less market exposure. In both cases the portfolio draw is 4%, so the sequence risk is the same on a percentage basis, but obviously less on a absolute dollar basis. The "ss2" should be in today's dollars, not future inflated dollars, and it's assumed the set aside account takes no market risk and can earn interest at the rate of inflation. If the set-aside account cannot match inflation, total income will not quite match inflation in those first years.

At any rate, if you go through this exercise using a real scenario you will find that Income2 is a bit larger than Income1. It's a technique to both reduce market exposure and increase spending.

no the draw is not 4% .. it can't be if you delay . in reality if you have a 23k early ss benefit and 1 million in assets you need 63k . no matter how you wan't to structure that 1 million you need to draw 4% which is 40k plus the additional 23k from those assets. it is irrelevant if you stuff some of it in your mattress to supply the ss money . it is still coming from the total asset base

in total you are pulling 6.30% for 8 years , not 4%. you may just have a very conservative allocation with that ss money being held in a conservative investment .

but in any case best fiecalc came up with was a 1k difference in draw a year using cd's

[DaveinMtAiry]

Originally Posted by mathjak107

no the draw is not 4% .. it can't be if you delay . in reality if you have a 23k early ss benefit and 1 million in assets you need 63k . no matter how you wan't to structure that 1 million you need to draw 4% which is 40k plus the additional 23k from those assets. it is irrelevant if you stuff some of it in your mattress to supply the ss money . it is still coming from the total asset base

in total you are pulling 6.30% for 8 years , not 4%.

but in any case best fiecalc came up with was a 1k difference in draw a year using cd's

Prezactly. You need to account for the lack of SS for those earlier years, that is accounted for by taking more than 4% from your holdings.

[hikernut]

Originally Posted by mathjak107

no the draw is not 4% .. it can't be if you delay . in reality if you have a 23k early ss benefit and 1 million in assets you need 63k . no matter how you wan't to structure that 1 million you need to draw 4% which is 40k plus the additional 23k from those assets. it is irrelevant if you stuff some of it in your mattress to supply the ss money . it is still coming from the total asset base

in total you are pulling 6.30% for 8 years , not 4%. you may just have a very conservative allocation with that ss money being held in a conservative investment .

but in any case best fiecalc came up with was a 1k difference in draw a year using cd's

Allow me to make a couple of points.

Notice that if we choose to model the entirety of assets as a single account, the asset allocation is not static. The allocation will vary with time as the set-aside account is being depleted. Furthermore, the allocation is not even traveling on a pre-determined glide path like Kitces describes. The sequence of asset allocations is also market dependent. For every retirement scenario (i.e., the starting of retirement) the allocation will start out with the same percentages, but after one year they will all be different, and again after two years, and so on until the set-aside account is exhausted.

Unless firecalc has an option to model this sort of thing, and you used it, the results are not going to be accurate.

It's vastly simpler to understand and analyze this by using two accounts, as I described.

[mathjak107]

the variables are all over the place. the biggest being your balance you have when ss kicks in at 70 . even cd's can have negative real returns and depending how bad inflation is you can be hurt pretty bad delaying .

those in 1965/1966 saw inflation soar . it was a benign 2.50% -3.50% . who would have guessed in 3 years time it would have doubled and by 1974 it would be 11%. it was crushing to a retiree. but with inflation so low who ever expected a 4x increase coming .

so the combination of trying to layout the extra ss money and the excess spending down can really hurt that balance you have when ss kicks in . .

it can be a double edge sword if things do not go as planned while delaying .

[Perryinva]

Sorry Matt, but I have to agree with hikernut. No where does Firecalc state you have to account for every asset and use it. YOU CHOOSE the amount that is part of the investment portfolio. So from age 62, you select $735k, not $1M. Period. There is no what if etc. Inflation is only a major influence on a retiree for certain things, like if you plan to buy a new car or house etc. But for most (with regards to this discussion) the actual increases to living expenses during an 8 year period aren’t going to be skyrocketing for them, limited to food, entertainment, travel, and sometimes energy, much of which is discrectionary. Their mortgage isn’t changing, if they have one, because inflation goes up. They aren’t buying new cars because theirs is wearing out from having to drive to work, etc.

[mathjak107]

it is all coming out of the same pot . like said take a 100k and suff it in a mattress and it changes nothing . if you need 63k in my example to live that is what you need . if you have no ss it has to come from assets .

sitting it on the side and inputting less in to firecalc changes nothing. just because you input 735k and put the rest in cash instruments to front ss does not mean you are not using the million .

run the numbers any way you like in firecalc and post em . run it any you want for the 8 years and then put what you want for the remaining 22 years .

let us keep it constant though . you desire a 63k income and have 23k in early ss or 40k at 70 . you have 1 million to play with

[shokwaverider]

So to sum it up, Take SS When you want and it is best for YOU. Withdraw as much from your stash as you need/want as long it will last the amount of years you need it for. Investment returns are gravy...