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Social Security versus Financial Assets

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  • Social Security versus Financial Assets

    I find myself questioning the conventional wisdom about delaying social security until age 70. I have read many blogs, articles and a few books. I understand why age 70; that is, provides highest income to the survivor. Break even point 81-85, etc. But here is my conundrum. I am concerned my kids, and especially the one who just lost a high paying job in NYC, will miss out on crucial years to save for retirement. (Kids are talented and hard working, so chances are my worries are just those of a concerned parent and all will work out fine.) Anyway, my concern brought me around to the thought: perhaps I should take Social Security earlier, say 65, to preserve retirement assets that my wife and I can Leave to the kids. The logic as it were is that the delta for social security income is not that great, but an extra five years in the market can do wonders for building assets in the investment accounts. Has anyone else been thinking along these lines? Any comments about the logic?

    I know, I know, all these kinds of questions have situationally dependent answers. My assets will probably grow significantly after retirement anyway. But I am intrigued by letting the government cover income in order to preserve assets. By the way, I liked the WCI v. Cory Fawcett post, which has a now versus later debate, but it really doesn’t address the issue of asset preservation because of the way the debate is framed.

  • #2
    If the math works out that waiting until 70 will put more money in your pocket wouldn't it also work out to more money to pass on? Barring untimely death. And if one does have an unfortunate early death then they will not be spending that money saved for retirement and it can go to the kids.

    I am by no means and expert at the timing of SS because that is a long way off for me and I am sure the game will change in unexpected ways a few times before I get there.

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    • #3
      Well, there are only two variables out of 3.
      •fixed increase in delaying SS ~ 8%
      •How long you live
      •Investment return
      Keep in mind the penalty for prior to FRA is not the same, you will take a hit there too.
      • Investment returns- The wonders of the market never cease to amaze me. This 20% up and 20% down defy logic.
      • How long you live- This is perplexing. Those mortality tables baffle me. If I told you 98, would you believe me?
      No pass on the math.
      https://opensocialsecurity.com/
      Shortcuts on the math are allowed.
      To leave a bigger pot, the controllable factors are in your favor in the following priorities:
      •Cut your spending
      • Work on your health
      • Work longer
      Not a darn thing wrong with sacrificing for the kids. Parents do it endlessly. Your kids can do those three things too and probably will if Social Security is around. Have a “hunch” you will bet on the math.and work on that health thing even though it has no guarantees.
      The real question is why gamble against the odds.



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      • #4
        I certainly like the Mile Piper site for “The math” but the assumptions do matter. I’ve been poking around. The closest I’ve found on WCI was a nice analysis by David Graham here: https://www.whitecoatinvestor.com/wh...cial-security/ Some of his assumptions are aggressive (though he thinks they are conservative) such as stock returns at 7% and bond returns at 4%. But the bottom line: at 70 versus 62 the crossover point is 22 years, or age 84.

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        • #5
          One option rarely considered: Don't cannibalize your assets so that you'll have more to leave as a legacy for the kids if that's your concern. Live on the income derived from the assets and don't sell them except as required by law ie: RMDs. Set up your retirement to generate income from the assets so you don't have to sell them to live. That way you are free to take social security however you like and can wait until 70 if you desire.

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          • #6
            Originally posted by Larry Ragman View Post
            I certainly like the Mile Piper site for “The math” but the assumptions do matter. I’ve been poking around. The closest I’ve found on WCI was a nice analysis by David Graham here: https://www.whitecoatinvestor.com/wh...cial-security/ Some of his assumptions are aggressive (though he thinks they are conservative) such as stock returns at 7% and bond returns at 4%. But the bottom line: at 70 versus 62 the crossover point is 22 years, or age 84.
            Which is harder to guess, Future market returns or the day we will die? If I am 60 and had little to no medical problems and a family history of longevity I would defer. If I had medical problems and or a bad family history I would consider taking it if retired.

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            • #7
              Deferring Social Security also give you a little more space for a series of Roth conversions between retirement and age 70. More money converted from traditional to Roth means lower required minimum distributions starting at age 72.

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              • #8
                I ran my numbers at the Mike Piper site and it said 70. If you think SS is going to be cut 69. This is my plan. No reason to overthink this.

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                • #9
                  Your goal is to gift or bequeath long term assets to your beneficiaries?
                  Consider the taxes on each. SS is taxable at ordinary income, presumably a high bracket. Any equities in a taxable account will be taxed maximally at 23.9%, unless our legislators change tax law. Phil Demuth's latest book addresses long term wealth preservation.

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                  • #10
                    Originally posted by Lordosis View Post

                    Which is harder to guess, Future market returns or the day we will die? If I am 60 and had little to no medical problems and a family history of longevity I would defer. If I had medical problems and or a bad family history I would consider taking it if retired.
                    Sure, I get that. The typical argument takes it a step farther and says you should consider mortality of both spouses together, which significantly raises the chance that one of you will live into the 90s. This makes your first point more compelling: if the cross over leaves you with more money then defer. QED.

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                    • #11
                      Originally posted by Hank View Post
                      Deferring Social Security also give you a little more space for a series of Roth conversions between retirement and age 70. More money converted from traditional to Roth means lower required minimum distributions starting at age 72.
                      This is good advice for most readers of the Forum. I totally agree. But I may or may take actually do a lot of Roth conversions in my 60s. The reason is that I have the ability to two mega backdoor Roth’s now, so I am stocking up on Roth space while still working.

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                      • #12
                        Originally posted by Hatton View Post
                        I ran my numbers at the Mike Piper site and it said 70. If you think SS is going to be cut 69. This is my plan. No reason to overthink this.
                        Oh, Piper’s calculator definitely says 70 for me, but it is like any other calculator: dependent on the assumptions. I suspect it isn’t going to matter too much. I can meet my retired living expenses at a ~3% withdrawal rate if I deferred SS until 70, and 2% after that. Chances are good too that my assets will increase in retirement rather than getting spent down too far.

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                        • #13
                          Originally posted by jz- View Post
                          Your goal is to gift or bequeath long term assets to your beneficiaries?
                          Consider the taxes on each. SS is taxable at ordinary income, presumably a high bracket. Any equities in a taxable account will be taxed maximally at 23.9%, unless our legislators change tax law. Phil Demuth's latest book addresses long term wealth preservation.
                          I read his Overtaxed Investor but I think you are referring to something newer. I’ll take a look thanks.

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                          • #14
                            Originally posted by Larry Ragman View Post

                            Oh, Piper’s calculator definitely says 70 for me, but it is like any other calculator: dependent on the assumptions. I suspect it isn’t going to matter too much. I can meet my retired living expenses at a ~3% withdrawal rate if I deferred SS until 70, and 2% after that. Chances are good too that my assets will increase in retirement rather than getting spent down too far.
                            If that is the case then you are deciding between leaving 5 M vs 6M to your kids. It will be a ton of money either way.

                            Are they financially savvy? would it be better to be gifting them money now rather than them inherited towards the end of their career? For example if it could help them Max their retirement contributions if they are not already doing so. Or at least invested in a taxable account at a lower tax bracket than you currently are.

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                            • #15
                              Originally posted by Lordosis View Post

                              If that is the case then you are deciding between leaving 5 M vs 6M to your kids. It will be a ton of money either way.

                              Are they financially savvy? would it be better to be gifting them money now rather than them inherited towards the end of their career? For example if it could help them Max their retirement contributions if they are not already doing so. Or at least invested in a taxable account at a lower tax bracket than you currently are.
                              yeah, richest guy in the graveyard and all that. Not my goal per se. My wife and I just have modest needs and I am conservative enough that I worry about the (less likely) downside scenarios. Anyway, yes I think they are pretty savvy. I always said our financial gift to them was a free undergrad education. Both then more or less paid for their own graduate degrees while working. They both make at least contributions to 401ks to get employer match, with a goal of 15% of gross in retirement savings. Although I had started to help them contribute to IRAs last year to help with that, some of those resources may have to divert to help the one get through the COVID job destruction. I had all this in train before my social security musings. They are things that are easy to do when working. I guess I am trying to work out what it looks like in retirement.

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