Suze Orman VS Mr. Money Mustache (federal, accident, relationship, single)

[mathjak107]

Yep ,it is just the first 12 months. Other then that once you reach fra you can stop your benefit and let it grow until 70. But you get no growth added retro

[Perryinva]

Exactly. And only for one year. So start @ 69 is the same as 70 if you change your mind at 70.

[mathjak107]

Originally Posted by mathjak107

Whether it is money you have invested being spent , or money you could invest that is being spent , if you are talking spending 8 years of ss , that will lose as much as 30 years of compounding on it.

we were layng out almost 100k a year between our draw and the ss i was not collecting while delaying. plus no spousal of 4500 a year until i filed . i filed at 65 .


The math has already been done by kitces as well as the internal roi on delaying ss . You are just choosing more longevity risk with a higher ss check delaying or more market risk taking it early .

if i take the 25k a year i get in social security and lay out 8 years of ss , that is 200k of money that either is being pulled from investments or money i could have invested .

so even if i don't count the fact i lost the compounding on it over the 8 years because not all of it would be spend down in one shot the remaining 22 years even at 6% on a balanced portfolio is 720k .


so that delaying potentially can cost 720k in compounding that is gone , not even counting anything given up on it the first 8 years ...

so that is why when people say they are delaying to have more money , in many cases it is just a wish and not a guarantee.

the reality is some of us will not do well at investing and some of us will not live long enough to give delaying the edge .

so there is nothing inherently built in that makes one way better or worse.

both have risks , we either take on more market risk filing early or more longevity risk delaying .

i went kind of in the middle at 65 for a number of reasons . i have lots of little side gigs i enjoy and earn money at them , as well as my wife could not get a 4500 a year spousal adder until i filed . also you have no medicare premium protection while delaying. you get the full brunt of any increase and are not limited to just the cola amount .

so i suggest that everyone look at their plan not from what if i die but what if i live and make sure you are looking at all the pieces most people do not include in their evaluation .

i wish i had a dollar for everyone mis-informed who said they are taking ss early because we die at 79 , which is of course not even close to true when dealing with ss statistics nor is it a full comparison that includes all the pitfalls of either .

fidelity had a real nice optimizing ss calculator that they started to use in house. we were the beta testers so to speak .

it did a great job finding the biggest dollars , which was usually delaying but it did not consider , spending down assets to delay , spousal you did not get , extra taxes and medicare premiums or the effect of rmds .

it came up with a real sophisticated plan for us for maximum dollars .

my wife had filed early at 62. it had her stopping at fra, letting hers grow to 70. since i am two years younger it had both of us delaying until 70. .when she files at 70 i would be 68 and file restricted application for 1/2 hers . at 70 i would file for my own and she would get the spousal adder to hers .

it sure found the biggest dollars , but it failed to calculate all the other outside factors .

so it was really a half hearted attempt . needless to say they now pulled it back and stopped using it on clients . .

[Nightengale212]

Originally Posted by GeoffD

I don't get it. I'm career high income within a few percent of the maximum possible Social Security benefit. If I start collecting at age 62, I'll collect $198,144 in Social Security checks by the time I'm 70. $24,768/year for 8 years. In my financial planning, $200K is a fairly small fraction of my net worth. It's not like I wouldn't be hitting my savings and wealth fairly heavily over those 8 years if I'm not working. The thing that changes my math is my retirement date, not when I start collecting Social Security. I'm going to defer collecting until age 70 as insurance against outliving my savings. I'll be fine with my house and $44K of mostly tax-free Social Security check and my house is my long term care policy. I'm not trying to maximize return. I'm trying to minimize the risk of running out of money if I live a decade+ beyond what is my most likely outcome. I'm not trying to die with the largest possible pile of money.

If you figure you will be fine living only on an age 70 Social Security check of $44K at 70 and beyond than I would imagine you would be able to live on that same amount for the 8 years from age 62-70 without work or Social Security income which would mean you would need to tap from investments $44K x 8 years = a $352,000. So how are you figuring $200,000 instead ??

[Perryinva]

Its 200k ADDITIONAL draw from savings. If one plans to live on $44k after age 70, then whether you file at 62 or not, the difference is coming out of savings. It makes no sense to try to live on $25k for 8 years, then jump it to $44k once you hit 70. So if that is your income plan, then that amount is already set aside and acounted for. The difference is that if one files at 62, then the inflation adjusted difference of $19k continues forever. If filing at 70, then the only time one draws the difference (plus the equivalent $25k per, of course) is the 8 years from 62 to 70.

For me, I simply calculated what I would have left at age 70 after funding the $44k per, for 8 years, and use that amount as my 4% SWR, which for age 70 is conservative. So to be simple about it, if I have $1M to start, and pull $350k (less, actually because you don’t pull it all at once, just $3650/mo, so the bulk is still earning intetest for almost 8 years), then my start amount for SWR IS 4% of $650k, or $2150/mo. So to equalize income, at age 62 I can draw $5800/mo, knowing that once I hit 70, my draw would drop to just $2150 from remaining nest egg. Using the SWR as a ball park calc, what is better?: drawing $25k from SS @62, and $40k from a Mil, so an income of $65k “forever”, or, draw $44k from SS @70, and then “only” $26k from remaining savings for an income of $70k “forever”??

In the first, only $25k is “guaranteed” COLA, and the $40k inflation adjusted, has to be earned. In the second, $44k is “guaranteed” COLA, and only $26k inflation adjusted has to be earned.

In reality, I have no need to draw that much, because of pensions and wifes SS, which combined with my SS & savings exceeds our income needs.

But that gives me a ball park baseline for the expected available “fixed” income after retirement, which will be greater than my current take home income. I conservatively want that extra fudge factor there, so less worries about finances as we age.

[mathjak107]

bottom line is no matter how you consider the money spent down, drawing 8 years of ss is spent down delaying and gone , it can no longer compound or be invested . even if one is living off a pension and delaying, the ss money could have been invested if it was not needed if you collected instead of delaying .

so to get an internal roi in ss to a 5% real return ( inflation adjusted ) it takes collecting until 90 to see that .

historically a 60/40 mix has produced 5.90% inflation adjusted over the long term so it ends up as take your pick . more longevity risk and more guaranteed income or more market risk and a higher income and balance potential . in the end unless you are anti-investing , balances and income can be the same so no inherent advantage either way ,just different risks to get there

[Nightengale212]

Originally Posted by Perryinva

Its 200k ADDITIONAL draw from savings. If one plans to live on $44k after age 70, then whether you file at 62 or not, the difference is coming out of savings. It makes no sense to try to live on $25k for 8 years, then jump it to $44k once you hit 70. So if that is your income plan, then that amount is already set aside and acounted for. The difference is that if one files at 62, then the inflation adjusted difference of $19k continues forever. If filing at 70, then the only time one draws the difference (plus the equivalent $25k per, of course) is the 8 years from 62 to 70.

For me, I simply calculated what I would have left at age 70 after funding the $44k per, for 8 years, and use that amount as my 4% SWR, which for age 70 is conservative. So to be simple about it, if I have $1M to start, and pull $350k (less, actually because you don’t pull it all at once, just $3650/mo, so the bulk is still earning intetest for almost 8 years), then my start amount for SWR IS 4% of $650k, or $2150/mo. So to equalize income, at age 62 I can draw $5800/mo, knowing that once I hit 70, my draw would drop to just $2150 from remaining nest egg. Using the SWR as a ball park calc, what is better?: drawing $25k from SS @62, and $40k from a Mil, so an income of $65k “forever”, or, draw $44k from SS @70, and then “only” $26k from remaining savings for an income of $70k “forever”??

In the first, only $25k is “guaranteed” COLA, and the $40k inflation adjusted, has to be earned. In the second, $44k is “guaranteed” COLA, and only $26k inflation adjusted has to be earned.

In reality, I have no need to draw that much, because of pensions and wifes SS, which combined with my SS & savings exceeds our income needs.

But that gives me a ball park baseline for the expected available “fixed” income after retirement, which will be greater than my current take home income. I conservatively want that extra fudge factor there, so less worries about finances as we age.

Thanks for the clarification. I myself am doing something similar to you except it won't be for 8 years from age 62 to 70 but 3 years from FRA to 70.

[NewbieHere]

Originally Posted by mathjak107

there is nothing inherent in delaying that automatically gives you more money to spend or a bigger balance for heirs compared to filing early .you see this myth all the time posted , how waiting gives them more money . but that is not always true . the only time it is true is if you work and delay .

not spending down invested assets when taking ss early or investing money you get that could be invested if you take ss early can add a lot of money back in to the equation . by the same token , to match a balanced portfolio under average market outcomes ,delaying requires you or a spouse to live to 90 to equal that amount .

so it really boils down to betting on at least seeing average market outcomes if you take ss early or betting on you or a spouse living to age 90 if delaying ss since that is what it takes to get to the tipping point .

if you or a spouse live to 95 then delaying ss wins . if you and your spouse live less than 90 , then taking ss early and investing wins . the odds really favor investing and taking ss early but that does not mean it is guaranteed .

both can provide higher income along the way . if markets are at least average outcomes then raises can be taken when you invest and take ss early all along the way possibly even beating the higher ss check by age 70 .
so don't get to wrapped up in thinking one is better than the other because they are both dependent on certain expectations . the real deal is do you want to bet more on markets or more on longevity for the "same " potential income and balance?

you can see taking ss early and not spending down assets to delay can be matched by delaying ss to 70 but you need to see at least 90 to equal the balanced funds return in average outcomes . so delaying until 70 does not guarantee more money for heirs .

Does this take into account of tax situation yet. Some states don’t take SS, so save SS to take at 70 may save some state tax. Plus do you account for Roth conversion. Like everything, it depends on your situation.

[Perryinva]

So true, and taxes are/can be a big part of it. Mathjak’s argument is not centered on net income thanks to a tax difference, just earnings and compounding. His posts are more about the bottom line of estate value, not net income. In my explanation above, the elephant in the room is that “Sure, you have $5k more a year that way, but that’s mainly because you now only have a nest egg of $650k vs $1M. I would have essentially purchased a $24k ($19k +$5k/yr) annuity for $200k.

But if we take taxes in to account it looks better than that, depending on your tax rate and source of other funds. If all your income post age 70 is already tax free, (all Roth and SS, and maybe LTCGs) then the delaying is less advantageous. In my own case, our pensions are taxed, so we automatically are in the 22/25% tax bracket. So everything drawn from an IRA to supplement income is both Fed & State taxed for us. About 30% after age 68 for me)

So in addition to the “extra” $5k in the annuity, delaying until 70 allows me to back door more to my Roth from tIRA while taxes are still 22%, so when they go back to 25%, that is an instant 3% tax savings. That net amount could easily be 3% of $200k or $6k.

Plus, the $44k@70 vs the $25k@62 SS means I only pay 25% rate on 85% of the difference; $19k or $4037 in taxes on just that (SS is tax free in my state), so NET take home of that difference is $14963. This is compared to taking a gross amount from a tIRA to be the equal net, where the full amount is taxed at 30%. In order to net $14963, I need to take out 14963/.7= $21,375. So the reality is, thanks to taxes (for me), I get to keep an extra 21375- 19000 = $2375 in my taxable account, which is an extra $1662 net to me. So for me, the $200k annuity is really buying me a taxed $26375/yr annuity, netting me the same income as collecting SS @62 would. This drops any break even argument to a much shorter time frame. (An extra $23.75k plus interest after 10 years). For our circumstances, net income is my driver, not gross estate so more can be left to heirs. And being married if/when either passes, the survivor has a lower tax burden and higher income

YMMV, as everyone has a different circumstance.

[NewbieHere]

Plus if you leave money to heirs, it depends on their tax bracket of course, but leave after tax money and Roth will help them, one you have step up value, the other you don’t pay any tax. So the best bucket to use while alive is traditional IRA before you get your SS. In my case, I have very small pension, not a huge amount either.