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3 out of 4 retirees receiving reduced Social Security benefits
@Dex - I agree with you that money may be more useful/valuable early in retirement, when it can be enjoyed. (Of course this depends on one's objectives - if it is to horde every penny for a legacy, then we're throwing enjoyment out the window.)
A problem is that people often tend to underspend in precisely this time period, because they are worried about the possibility of living "too long" (outliving their money). An event that may never happen. So we could view the issue you're raising as asking how to avoid underspending while not having the risk of living too long.
Say, what if we came up with some newfangled insurance product to offload that risk? Maybe we could call it longevity insurance
IMHO that is one of the few products the insurance industry has come up with in the past several decades that could meet a real need at a reasonable price. Deferring SS is sort of like a longevity insurance product. You're "paying" (in foregone checks from age 62 to whenever - 66, 70) for higher payments starting in the future. That increase in SS payments is your longevity insurance payout.
Like longevity insurance, the higher future payments enable you to spend more now, because you don't have to worry (or at least worry as much) about what happens after you're 85. If you don't live to 85, you won't be around to fret that the policy didn't pay off.
Regardless of how long you live (and whether the deferred SS checks pay off), you wind up with more cash to spend in your earlier years (even after subtracting the amount of money those foregone early SS checks cost you). That's because you're no longer saving for that long life that may or may not come.
As you wrote, this is something you have to be able to afford. If you need those checks at age 62, then you collect early, no questions asked.
If the retiree is going to travel, most likely it will be in the earlier years. So having that money early on would help with those expenses.
As for underspending, that's where the Monte Carlo simulations really can be helpful.
Thanks much again for detailed calcs and for your last three paras. The responses make it clear that some still do not really get the points.
I do think smart the notion of period valuation and weighting, extra moneys overvalued for when you can still go to France or Banff or wherever vs more later when you are paying for LTC or whatever. As someone whose comfortable mobility declines by the year, it seems, this sort of thing is on my mind. I still am adhering to spending own moneys now and taking SS as late as possible.
I await heezsafe's sourcing of his pay-in / payout calc assertions.
I love the old pilots' saying about two things in flying that can do you no good: (1) the runway behind you and (2) the sky above you.
I think that's applicable to a lot of things in life including saving and investing. We live comfortably and take what we need from our savings. We're probably guilty of "underspending".
Like the pilot who doesn't need to use up all the available runway to get airborn, we feel more secure than we might otherwise by having some extra savings. We won't feel we've "wasted" our money should we fail to use it all up before we die. There's an old joke about wanting to die completely broke. But, for peace of mind ... I hope we don't.
More Spendable, enjoyable, (YOUR) money at 62yo., or more Gov. money at 80+yo for what? more pills, or nursing care?
Huh ?? What an odd and nearly illiterate article.
It's good to read one article on the benefits of taking SS early. We are overwhelmed by the other side of the equation that waiting is best. Again, it's a personal case by case decision.
David Bach's comments are, as he said, counter-intuitive, but they make perfect sense to me as well.
The snippet is a short, simple, multi-pronged piece presenting one financial advisor's view on the subject we've all been discussing. If you're interpreting it as "heavy" reading, you're probably over-reacting. Yahoo is good at tossing out short and incomplete attention-grabbers like this one. I guess that's how they sell ads. If you read Yahoo's business pages you already know this.
There's a few interesting facts: The number of recipients taking SS early has been growing (although we hardly needed to be informed of that). A Gallup Poll survey showed "... more non-retirees ... than at any point in the last 15 years are planning on Social Security to be a major source of their retirement income ..."
The advisor's main point is, I think, offered a bit tongue-in-cheek in the form of a "paradox". A good paradox often expresses an underlying truth contained within an apparent absurdity. Perhaps that's why the reactions are so divergent.
The underlying truth here is that those at 62 are, health wise, better able to enjoy the extra income from early SS payments by engaging in travel, hobbies, and other life-enriching experiences (and the adviser thinks they should avail themselves of the opportunity.)
The obvious absurdity is that only those who don't need the money can afford to take it early.
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 2013 Merrill Edge paper that addresses many pertinent issues in that decision process:
I 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 $ 31680. 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:
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.
Anyway, I have to admit I agree with his "take the money and run" Regardless, I also agree there is no right or wrong answer. However, one tenet I absolutely don't buy is the health issue. Meaning, if you are in excellent or even reasonably good health you should wait. I think that is absurd, as in any age, but most especially old age (62+) your health can turn on a dime. That is most especially true if you are a male. I have a neighborhood full of 75+ year old widows but only one 75+ year old widower.
Edit: But I will give him credit. He has made it to over 80! Maybe being haughty and verbose are markers for an extended lifespan. I would like to think it's being a Roman Catholic, about the only trait we share.
Edit #2: Heavens forbid if it is an understanding or even appreciation of that Monte Carlo mumbo jumbo. Because if it is, I will probably die in my sleep this evening. So I better enjoy my last hike this afternoon.
In a very short space, your comments managed to be vituperous, tasteless, and inaccurate. That’s quite a trifecta for a single entry.
Good health is an essential ingredient to the likelihood of an extensive longevity. I hope you enjoy your hiking and continue to do so for a long time. That exercise program is a major contributor to a positive lifespan outcome. I too hike, but for much shorter distances these days.
I’m surprised that MFO’s own Mini-Me hasn’t joined your diatribe just yet. But I’m patient (that’s a characteristic of old age); that too is likely to happen. On the happenstance that you don’t recall, Mini-Me is a comic nemesis to Austin Powers in the movies of the same name. Here is a short clip:
It surely is a “hard knock life” if you choose to make it so. I don’t.
I fully understand that Monte Carlo simulations are not everyone’s cup of tea. I merely offer it as one candidate financial planning tool. If it is not attractive from your perspective, the functional solution is simple: just ignore it. I really don’t care if you do or you don’t. You’re always free to choose.
Twenty years ago I developed my own retirement Monte Carlo code because none existed at that time. In that same timeframe, Bill Sharpe was developing his version. It’s now accessible on his Financial Engines website. I called Professor Sharpe to help in a few tricky programming places. He graciously provided guidance. I recognize that you have little interest, but other MFOers might, so I’ll link to his Financial Engines website now:
Sharpe also offers a Social Security planner on his site. I have not used it.
You do yourself a disservice with your insipid submittal. I’m baffled by the animosity displayed by a few MFO members. Question the message, but don’t disparage the messenger based on pure personality conjecture.
Regardless, I do extend you Best Wishes for a long, a happy, and a prosperous life.
Quick Edit: It happened as anticipated!
"Projecting any financial SS break-even point, given these uncertainties, is an impossible task."
"I suggest we just move-on."
Too bad you didn't follow your own advice. "haughty and verbose", hmm? That certainly sounds familiar.
You don't fail to disappoint.
Yes, I did offer that suggestion some time ago. That suggestion was completely overwhelmed by the subsequent.numerous MFO member submittals. I simply acknowledged the wisdom of the MFO membership, so I continue to participate.
There are no easy answers to either the retirement or the SS decisions, mostly because of longevity and investment performance uncertainties. That uncertainty causes pain and inaction. Monte Carlo tools partially address that uncertainty and can reduce, but not eliminate them.
You and I have had this debate since FundAlarm days. You reported that you did SpreadSheet analysis to aid your retirement decision process. Good for you. I replied that Monte Carlo does thousands of such SpreadSheet calculations.
I suspect I caused you considerable discomfort when I asked how you filled the annual portfolio return box in your SpreadSheet analysis.I proposed that the estimate you input is identical to a Monte Carlo random selection controlled by the input statistics. I'm not sure you took kindly to that proposal.
Perhaps that's a factor in your continuing harangue?
Once again you misrepresent my post and/or you doubt my purpose. Also, I post hundreds of words, and you often focus on a single one. In this instance you favor “vituperative as a replacement for “vituperous”.
That’s acceptable to me, but so is my original choice. Why is a picayune change even worth mentioning? You seem to stress minor distinctions. My source for either word selection is the online thesaurus.com application.
Although I did not claim that good health is essential to improve the odds for longevity, I do believe that linkage. Junkster was inaccurate when he incorrectly credited that statement to me. The “good health” claim was lifted from the referenced Merrill Edge paper, and was identified as such. In this instance, Junkster was definitely inaccurate. That’s sloppy reading.
It was both tasteless and inaccurate to ascribe my longevity to a ludicrous opinion that it results from my perceived “haughty and verbose" writing style. Who made you guys the judge and jury of anyone’s writing style? That’s presumptuous on your part. I believe my health and longevity is most properly correlated to my wife’s care, love, and attention. And why comment on it anyway on a mutual fund website?
I’m constantly puzzled by the vituperative character of your postings that target me; it is designed to be purposely insulting. It also has the foul smell of a fetish. Our current closings illustrate the distinction between your postings and mine.
I’m a happy warrior and when I say Best Wishes I truly mean it. I want everyone to succeed. When you post “Best Wishes” in quotation marks it speaks volumes for your vindictive nature. That’s too bad.
It was both tasteless and inaccurate to ascribe my longevity to a ludicrous opinion that it results from my perceived “haughty and verbose" writing style. Who made you guys the judge and jury of anyone’s writing style? That’s presumptuous on your part. I believe my health and longevity is most properly correlated to my wife’s care, love, and attention. And why comment on it anyway on a mutual fund website?<<<<<
I normally let others have the last word and rarely get into these types of debates here. But MJG I truly believe you are losing it! Your first paragraph above is completely befuddling to me. When I said I didn't buy into the tenet that if you enjoy excellent or reasonably good health that you should postpone taking early SS...... That comment wasn't from any link nor was I crediting that statement to you. I didn't even read any of the links in your above posts (I rarely read anything you link) It was merely from the compilation of the contributors to this thread, some who stated you should wait if your good health dictates.
As to the second paragraph, you obviously have zero comprehension of sarcasm. You actually believe that I think your longevity can be attributed to your haughty and verbose writing style????? I feel sorry for you now and will refrain from any further perceived personal attacks.
With respect to "vituperous", if you check thesaurus.com as you suggested, you will note: "vituperous: see definition of vituperous" . That link takes you to http://dictionary.reference.com/misspelling?term=vituperous where you will be informed that there is no such word. To quote an unimpeachable source (that would be, of course, yourself) "In this instance, you were definitely inaccurate. That’s sloppy reading."
You've made the following accusations: vituperous, tasteless, and inaccurate; total fabrication; continuing and gratuitous tirade; spiteful and nasty nature; ill-conceived vendetta; vindictive nature; vituperative character; foul smell of a fetish. And that's just within this one post! "Happy warrior", indeed.
You're fond of claiming that others "misrepresent my post[s]". I suggest that your posts are quite representative of themselves. It wasn't me who characterized them as "haughty and verbose", although I must concede agreement in that evaluation.
As I mentioned earlier, I never did put much stock in your "Best Wishes", especially when used to end one of your many polemics. Kinda sounds insincere, if you follow me.
"I have a gub." ---Woody Allen.
There you go again with your wordsmith worshipping. It is really tiresome and even dishonest. I try to make the case for including Monte Carlo analyses in the retirement decision process, and you emphasize challenging a single word.
I didn’t invent ”vituperous”. If you link to the thesaurus.com website, two sets of definitions are given. One is associated with “scurrilous” while the other is associated with “truculent”. I meant the word in terms of scurrilous.
The listed synonyms for vituperous include: defamatory, indecent, insulting, obscene, offending, salacious, and a few others. From my viewpoint, these are all adequate alternatives. Your claim that the word doesn’t exist is dishonest. It might not be the best choice, but who cares? Why linger on a single word?
Maybe that’s the best you have to offer. When you find yourself in a weak position, the military approach is to confuse and obfuscate; when in a stronger position, simplification is the order of the day. You seem to be in the confuse and obfuscate mode.
Why? I suspect you detest and distrust Monte Carlo analyses. We each get to pick our own poison. From my viewpoint it Macht Nichts what your personal preferences are. I’m merely offering another tool for everyone’s toolbox consideration.
I’m satisfied with my submittals on this MFO exchange. I’ll let the MFO readership judge their merits and shortcomings. I’m sure they both exist. However, they reflect my honest opinions on the subject matter. And I truly mean it when I say without reservation……
Within this one thread you've now made the following accusations: vituperous, tasteless, and inaccurate; total fabrication; continuing and gratuitous tirade; spiteful and nasty nature; ill-conceived vendetta; vindictive nature; vituperative character; foul smell of a fetish; tiresome and even dishonest" . Surely your thesaurus of nasty words must be near exhaustion.
Your choice of language and your dismissive attitude towards other contributors speaks for itself, much more so than anything that I can add. Over and out.