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So what percentage of late-Boomers face a scenario where their retirement income is going to be more than their normal burn rate working? 10%?
I do not know.
It sounds like most late-boomers [such as myself] are sweating this scenario.
My pension is way less than what my working salary was. We were able to drop our Cost-Of-Living to be less than my pension. Now we have been on my pension for 15 years, we are adjusted to it and fairly comfortable.
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... Fully 2/3 are faced with an enormous drop in their after-tax cash flow. If you have the accumulated wealth or ginormous pension coming where you don't have the large drop-off, it hardly matters when you decide to collect Social Security.
Our pre-tax income and post-tax income are the same, and they have been the same for decades. But I can easily see where a lot of people refuse to gain control of their own tax-planning. So it does make a big difference, choosing to pay 25% of your income to the government is kind of like a stupid tax.
I certainly do not have a 'ginormous pension', more the opposite really. In a few years, when we become eligible for SS that will be a boost in our income.
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... The harsh reality is most retirees have to slash their cash burn to align with their very-reduced income stream.
Slash it early, while your still working gives you more to invest with. More options for your tax-plan.
But you are correct. Most people who refuse to live on less than what they earn will be forced to cut their spending habits.
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... They don't get to pick when they start collecting Social Security. The minute they stop working, they'll need that monthly check just to cover the basics.
'Crisis management' is what we called it in the Navy.
Either you plan ahead, or else reality is a crisis.
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... Hopefully, I'll be part of that top bracket that actually has the luxury of picking when I collect Social Security. At age 58, I'm still busily trying to catch up with wealth creation to create the nest egg where I have the fortunate option of having to decide when to collect Social Security.
I find these discussions interesting. There is validity to calculating how to optimize your SS returns. All of my life I have seen how the best plans of mice and men go oft awry [to quote Robert Burns].
I am 57, I suspect that I will likely take SS within the first year of eligibility. Not due to any optimizing of benefits. But rather I have no idea how long I will live. If I plan to hold off until I turn 72, I might easily die at 71.
So what percentage of late-Boomers face a scenario where their retirement income is going to be more than their normal burn rate working? 10%? Fully 2/3 are faced with an enormous drop in their after-tax cash flow. If you have the accumulated wealth or ginormous pension coming where you don't have the large drop-off, it hardly matters when you decide to collect Social Security.
The 2010 census data for household net worth for the age 55 to 64 bracket says the 70th percentile is around $350K. That includes the equity in your house. Maybe 10% of people in that age bracket have a decent defined-benefit pension.
For easily half of retirees, that blown transmission on the Pinto would be an economic catastrophe.
The harsh reality is most retirees have to slash their cash burn to align with their very-reduced income stream. They don't get to pick when they start collecting Social Security. The minute they stop working, they'll need that monthly check just to cover the basics.
Hopefully, I'll be part of that top bracket that actually has the luxury of picking when I collect Social Security. At age 58, I'm still busily trying to catch up with wealth creation to create the nest egg where I have the fortunate option of having to decide when to collect Social Security.
Not always of course but it appears more often than not those with less education have less earnings, which can be translated to less benefits, yet seem to collect reduced social security earlier.
From the statistical snapshot the "average" retired working receives $1,348.49 while the average spouse of a retired worker receives $699.77 for a total monthly benefit of $2,048.26.
By the time you take out $120 each for Medicare Part B the average couple is down to $1,808 which is equivalent to a $417 weekly paycheck.
As a whole it appears a good number of those taking benefits early are those that can least afford to.
SOURCE: Authors' calculations using Modeling Income in the Near Term, Version 6 projections.
NOTES: All beneficiaries are fully insured by age 62. Rounded components of percentage distributions do not necessarily sum to 100.
FRA = full retirement age.
Beneficiaries who claimed at their FRA or later were also much more likely to have had high individual non-Social Security income (Chart 5). Almost 60 percent of beneficiaries in those claiming-age groups had individual income in the two highest quintiles. Because those individuals had other sources of income outside of Social Security (including earnings, defined benefit pension income, and asset income)15 to help them maintain their standard of living, it makes sense that they would have claimed benefits later. For individuals who claimed at age 62, about 40 percent had individual income in the two highest quintiles. That proportion represents high individual-income persons who could have possibly afforded to wait past age 62 to claim Social Security benefits, but claimed at age 62 anyway.
There are many articles, charts, graphs and discussions about the advantages or disadvantages of taking SS early, at FRA or delaying until 70.
It is obvious that people who need SS for their daily living have to collect their as soon as it is available. Most people who wait until FRA or 70 can rely on other sources of income (earned salaries, pensions, investment income or savings).
All discussions on the trade offs have focused on the break even age. Many people who delay including myself have checked the numbers. However, I think that when it comes to the time to make the decision, it's likely that people just go with their 'gut' feeling.
This 'gut' feeling does not materialize overnight. It is based on life long habit, thinking and feeling about saving, spending and investing. It is based one own's life experience and sometimes dramatic experience of their families, friends, acquaintances. If is based on political leaning and one's attitude/trust of government, politicians, businesses and financial institutions. It is based on one's experience of financial matters and investments. It is based one one's emotion and attitude about life: "a bird in hand is better than two in the bush", "just live and enjoy the moment", "delayed gratification tends to bring great reward", "I can handle what's going on today but tomorrow is a big unknown" etc.
It does not surprise me at all to see ad nauseam arguments in the retirement forum about the wisdom or lack of wisdom of people who hold different view from one's own because we are such a diverse group.
There are 5 people in my family of 12 who are eligible for SS. One collected her at 62 while she was working full time. She did not need the money and lost $1 in benefit for every $2 that she earned in addition to the fact that the extra SS income pushed her family income to a higher tax bracket. Her reason was that she did not trust the government and thought SS would not be around for too long. Another sister who also collected 62 is independently wealthy (high 6-figure investment/rental income and 8-figure net worth). Of course she did not need the money and probably donated more to charity than what she collected but her fragile health was likely the main reason. One collected at FRA and stopped working at the same time. She had some saving but used most of it to buy another home and needed SS for her daily living. One was forced into retirement at 62 and chose to live off her modest pension and planned not to collect until she is 70. The fact that she is single and seems a bit anxious about growing old alone may have something to do with her decision. My husband delays his until 70. I will collect spousal benefit at 66 and let mine grows until 70. Our reason was not because we expected to collect more by delaying based on our expected longevity. It is purely an investment decision. In this economic climate, there is no better return on your investment than COLA adjusted SS payments. We are living off our cash saving. We also have more faith in the government and stability of SS system than some of my sisters.
(1) People with few assets, and either no pension or only a small pension.
(2) People with pension(s) and investment accounts that are more than needed to live off.
(3) People with no pension, some assets but not enough to live comfortably without SS.
The first group has no choice but take SS once they are no longer able to work.
The second group can take SS whenever they like.
The third group should consider carefully when to take SS. Anybody can look at their scenario, and I believe that all will see that they improve their own lot by using some assets to enable delaying SS benefits. You can either have the same total income with a smaller withdrawal percentage on remaining assets, or you can have the same total income with a smaller percentage draw from remaining assets. I've shown this with actual numbers in prior discussions.
There's no right or wrong answer. It's different for everyone. No one knows how long we're all going to live. If my father-in-law waited until he was 70 to collect, he would never have seen a penny! He was already dead. His wife died many years before him so she wasn't left to collect either.
(1) People with few assets, and either no pension or only a small pension.
(2) People with pension(s) and investment accounts that are more than needed to live off.
(3) People with no pension, some assets but not enough to live comfortably without SS.
The first group has no choice but take SS once they are no longer able to work.
The second group can take SS whenever they like.
The third group should consider carefully when to take SS. Anybody can look at their scenario, and I believe that all will see that they improve their own lot by using some assets to enable delaying SS benefits. You can either have the same total income with a smaller withdrawal percentage on remaining assets, or you can have the same total income with a smaller percentage draw from remaining assets. I've shown this with actual numbers in prior discussions.
(4) People with no pension, reasonably healthy assets, and likely to be able to live comfortably without SS, at least initially. Outliving the pool of assets may occur.
There's no right or wrong answer. It's different for everyone. No one knows how long we're all going to live. If my father-in-law waited until he was 70 to collect, he would never have seen a penny! He was already dead. His wife died many years before him so she wasn't left to collect either.
Assuming a relatively recent passing, based on actuarial data, your FIL was an outlier. Of course if you are referring to a passing prior to the 1980s, it would be irrelevant to current decisions. Longevity has increased since the mid 20th century.
Actuarial data are a useful source of info to determine the risk of outliving assets.
Wow, some really insightful posts, especially Belladl (as always). I'd rep you and Geoff and nice4t but can't..
I actually did include earnings on "lost" income from not collecting early. I would be foolish not to. But there is risk involved there as well as earnings assumptions. I am lucky. I will have an appreciable pension. I could live off just my Pension and early SS easily (so a #2). I Also have appreciable investments, mostly in equities. 80% pretax and 20% after. I NEED to get more of the pretax used WHILE my taxes are lower in order to reduce my RMDs, tax rate of the pretax money, and be able to rollover limited amounts to my Roths. When I factor that in, which must be done from retirement until 70, those gains from tax savings quickly negate most or all of any earnings that I would give up on collecting SS early, which only keep my tax base higher for life. Once I hit 70, there is nothing I can do to reduce my taxes based on my fixed income. I have to maximize that pre 70.
In addition, I WANT the additional risk free income of an annuity. I ALREADY have too much risk in the amount I have in equites. I want less risk, not add more!! There is point blank no better annuity than delaying SS. Non debateable. You simply cannot buy a $26000 a year, COLA adjusted annuity with full spousal benefits that is at most taxed at 85% Federal and zero state, for the less than $175k it will "cost" me to delay. Plus I get to "pay" for this annuity over 7 years and can change my mind at any time based on health or economic reasons. And get a 6 month do over if I chose! I KNOW this doesn't apply to the majority....I'm only trying to make others aware of the complexity and to use sound financial logic.
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