Hi Guys,
Wow! The Social Security (SS) drawdown decision is a MFO subject that just keeps on giving.
I suppose that’s because it’s a complex decision for most upcoming retirees. It includes both factual and feelings elements that interact in a non-predictable manner for each person or couple. That observation has been bolstered by the variety of opinions and approaches that have been recorded on this continuing exchange.
There is a mountain of opinions and studies that are accessible on the Internet. Here is a Link to a 20
13 Merrill Edge paper that addresses many pertinent issues in that decision process:
https://www.merrilledge.com/publish/content/application/pdf/gwmol/me_timeismoney_topic_paper.pdfI selected this paper because it summarizes the conventional wisdom: “If you or your spouse are in reasonably good health and you can afford to, wait to collect your payments for as long as you can. Yet three quarters of Americans do the very opposite….”.
It certainly is a “no-brainer” that if a candidate retiree can’t afford to wait, he simply will not wait. The operational controversy about initiating SS drawdown only applies to those fortunate folks who don’t need SS benefits for a comfortable retirement, but are eligible. Now a timing issue enters the equation. When?
The Merrill paper advices delay because of the benefits increase it shows as a function of age. Merrill quotes an annual $
18000. benefit at age 62 that increases to a $ 3
1680. annual award at age 70. Merrill concludes that: “Being an early bird usually doesn’t pay”. That’s a standard viewpoint.
I’m not convinced that that advice universally applies to those wealthy enough to wisely invest the smaller, but longer duration SS income. As in many investment scenarios, time is an ally.
Investment outcomes are notoriously uncertain which further confuses any decision. Given these uncertain outcomes, I default to Monte Carlo analyses. In this instance, I used the Monte Carlo simulator available on the Portfolio Vizualizer website. Here is a Link to that excellent resource:
https://www.portfoliovisualizer.com/ That website offers many fine investment tools. I ran its Monte Carlo code for a reasonable approximation of what might happen if a retiree had the resources to invest his entire SS benefits in a respectable portfolio.
My postulated portfolio included US stocks, International stocks, Core Bonds, and Short Term Corporate Bonds (STCB) in a 40/20/30/
10 mix, respectively. I used the STCB as a cash equivalent. For money inflow, I used the age dependent Table recommended by Merrill. I coupled those cash inflows to early, nominal, and late SS drawdown timeframes.
Time was the central influence in this analysis. The early (age 62) withdrawal initiation ended with the highest median portfolio end wealth. The results ordered nicely according to time in market. Even the lowest 25th percentile and the highest 75th percentile ordered the same way; early withdrawal was best while late withdrawal yielded the smallest end portfolio.
The simplest conclusion from this very incomplete analysis is to “take the money and run” with it to assemble a diversified portfolio. My analysis produced results that are counter to the Merrill paper.
Yes, there are risks since the government payday is guaranteed and investing is not. But for those who are strong of heart, and have the financial resources to do so, taking the early SS payout seems like a positive in the risk/reward tradeoff.
I hope this is helpful.
Best Regards.
