Author Topic: higher swr in conjunction with taking social security at 70  (Read 3940 times)

rob in cal

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higher swr in conjunction with taking social security at 70
« on: August 09, 2016, 04:12:54 PM »
   I haven't seen this mentioned and I'm wondering if anyone is using or thinking about the idea of a higher swr, say 6% or so for people in their mid 50's and up, in conjunction with taking social security at age 70.  In essence the later and higher social security payout would act as a hedge against a loss of capital due to a higher swr.  Put another way, using your investments more aggressively (taking a higher swr) would fund those extra years without social security.  Seems to make sense to me.

human

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Re: higher swr in conjunction with taking social security at 70
« Reply #1 on: August 09, 2016, 04:26:22 PM »
Makes sense to me, I'm thinking of taking CPP and OAS (in Canada) at 70 to simply get extra cash to deal with possible long term care. It's possible I wouldn't need it and I may get less money in the long run should I not live longer but I don't really need either so I'll probably hold off.

However, I'm not planning on a high WR. I will be retiring pretty late by mustachian standards, at 50 or even 55 with a pension of 38k to 70 net depending on how long I wait plus investments. I could leave a few years before 50 and live pretty frugally (only started saving recently in my late 30s) but I think the pension is worth it. Of course the pension is enough to not even need the investments really . . .

I'm no math wizard, just a guy on the innnernets

Would you drop the withdrawal to something lower at 70 I guess?

« Last Edit: August 09, 2016, 04:56:39 PM by human »

mathjak107

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Re: higher swr in conjunction with taking social security at 70
« Reply #2 on: August 09, 2016, 04:55:33 PM »
we are taking it at 70 . we can have a higher draw day 1 at 62  .  social security has zero sequence risk which means no extra powder has to be kept dry for worst case scenario's like your own investing . it is also taxed on only  85% of it in our case .

the 69% bigger check at 70 plus colas will refill whatever extra we spend by delaying . with a couple there is a 75% chance one of us will still be here at 85 and go on longer .

i never think about breakeven and what if i die , all our planning is about what if we live .

fidelity has great new software , in house only , that runs every combination of taking ss it can come up with .  it really came up with a plan that surprised us as i would not have come up with it on my own .

we are private access clients so our team ran it for us but i am not sure if it is free for everyone .


we are ata 3.50% draw now but will only need 2% once ss kicks in . we will be way less dependent on markets which is our goal delaying
« Last Edit: August 09, 2016, 05:23:48 PM by mathjak107 »

mathjak107

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Re: higher swr in conjunction with taking social security at 70
« Reply #3 on: August 09, 2016, 05:28:34 PM »
for those interested  , the fidelity optimization software came up with this plan :

my wife is 66 and i will be 64 . she has been collecting an early benefit since 62 .

she will suspend her benefit now that she just turned fra .

she will let it grow to 70 . when she is 70 i will be 69-10 months .  i will file for 1/2 hers with restricted application leaving mine to grow .

at 70 i take my own and since 1/2 mine is larger than hers she gets another 4200  a year added to her benefit when i file .

that produced the biggest bang for the buck and highest draw rates when coupled with our own portfolio
« Last Edit: August 09, 2016, 05:30:34 PM by mathjak107 »

seattlecyclone

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Re: higher swr in conjunction with taking social security at 70
« Reply #4 on: August 09, 2016, 05:39:53 PM »
Basically if you expect your social security to pay for all of your expenses once you start taking it, then you only need your investments to last from your retirement date until you start social security. The 4% rule ensures you won't run out of money for 30 years. If you don't need your portfolio to last 30 years, you can use a higher withdrawal rate. Use FIREcalc or other tools to see what that rate would be for the length of time you're considering.

GreatLaker

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Re: higher swr in conjunction with taking social security at 70
« Reply #5 on: August 09, 2016, 05:40:59 PM »
I plan on taking CPP at 70, for the same reasons. Not so sure about OAS, I'll probably take it at 65. CPP is something I and my company  contributed to, so it's harder to change the rules or take it away. OAS is paid out of general tax revenues, so potentially more subject to government intervention, therefore taking it later may have more risks. Although the outcry from seniors means the govt will have difficulty making major changes to either.

But you can't make money out of thin air. Deferring CPP/OAS means taking a higher WR earlier, and a lower WR later when CPP/OAS or SS kick in.

This article by Michael Kitces articulates 3 reasons to defer taking SS as long as possible (It is an American article so refers to SS, but I think the same principles apply in Canada.)
https://www.kitces.com/blog/the-asymmetric-value-of-delaying-social-security-benefits-as-the-ultimate-hedge/

Delaying provides the retiree with a higher portion of their spending later in life from sources that are indexed and guaranteed for life. Kitces states 3 benefits from this:
  • Protection from outliving your money
  • Protection from high inflation
  • Protection from low market returns
I think if someone has enough indexed lifetime-guaranteed income from CPP/OAS/Indexed Pensions to support their non-discretionary expenses, then taking CPP at 60 is OK. But for people not in that fortunate situation, delaying CPP is a good way of minimizing the 3 risks that Kitces cites.


mathjak107

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Re: higher swr in conjunction with taking social security at 70
« Reply #6 on: August 09, 2016, 06:28:17 PM »
delaying ss once you pass breakeven ,figuring  spending down a balanced portfolio while  delaying,  can take 22 years . but after that roi takes off .

if a couple you stand almost a coin toss chance of 1 of you seeing 90 today and we are increasing life expectancy now by 1 year every year since 2000 with more folks living longer . by age 90 you can see a 5% real return . that is after inflation . that rivals a balanced fund from what amounts to a just about risk free gov't bond .

for what it cost to delay from 62 to 70 you could never find a commercial annuity that pays that much and is cola adjusted .


« Last Edit: August 10, 2016, 07:52:54 AM by mathjak107 »

Retire-Canada

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Re: higher swr in conjunction with taking social security at 70
« Reply #7 on: August 10, 2016, 07:51:27 AM »
Makes sense to me, I'm thinking of taking CPP and OAS (in Canada) at 70 to simply get extra cash to deal with possible long term care.

Just something to think about....if you retire early and start CPP later you will have more years at less than max contribution in your benefits calculation which will reduce the base amount you will get...however you will get more by waiting so how that plays out is worth calculating to see if waiting is worth it.

mathjak107

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Re: higher swr in conjunction with taking social security at 70
« Reply #8 on: August 10, 2016, 07:54:31 AM »
social security here is based on your 35 highest years . the older years are inflation adjusted . if you have less then 35 years a zero is put in for income for each year under

Scandium

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Re: higher swr in conjunction with taking social security at 70
« Reply #9 on: August 10, 2016, 08:49:54 PM »
for those interested  , the fidelity optimization software came up with this plan :

my wife is 66 and i will be 64 . she has been collecting an early benefit since 62 .

she will suspend her benefit now that she just turned fra .

she will let it grow to 70 . when she is 70 i will be 69-10 months .  i will file for 1/2 hers with restricted application leaving mine to grow .

at 70 i take my own and since 1/2 mine is larger than hers she gets another 4200  a year added to her benefit when i file .

that produced the biggest bang for the buck and highest draw rates when coupled with our own portfolio
Fwiw i believe file and suspend is no longer allowed.

Other than that I don't really understand the question in OP. SS can be estimated and should be included in your calculations. Whether it's taken at 62 or 70..

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« Last Edit: August 10, 2016, 08:53:03 PM by Scandium »

ender

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Re: higher swr in conjunction with taking social security at 70
« Reply #10 on: August 10, 2016, 09:20:51 PM »
Basically if you expect your social security to pay for all of your expenses once you start taking it, then you only need your investments to last from your retirement date until you start social security. The 4% rule ensures you won't run out of money for 30 years. If you don't need your portfolio to last 30 years, you can use a higher withdrawal rate. Use FIREcalc or other tools to see what that rate would be for the length of time you're considering.

+1 for using FIREcalc.

It lets you put whatever you want into it for income, starting whenever. It's interesting to play with, particularly when you put social security estimates in or any potential pension.

mathjak107

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Re: higher swr in conjunction with taking social security at 70
« Reply #11 on: August 11, 2016, 02:44:56 AM »
for those interested  , the fidelity optimization software came up with this plan :

my wife is 66 and i will be 64 . she has been collecting an early benefit since 62 .

she will suspend her benefit now that she just turned fra .

she will let it grow to 70 . when she is 70 i will be 69-10 months .  i will file for 1/2 hers with restricted application leaving mine to grow .

at 70 i take my own and since 1/2 mine is larger than hers she gets another 4200  a year added to her benefit when i file .

that produced the biggest bang for the buck and highest draw rates when coupled with our own portfolio
Fwiw i believe file and suspend is no longer allowed.

Other than that I don't really understand the question in OP. SS can be estimated and should be included in your calculations. Whether it's taken at 62 or 70..

Sent from my Nexus 5X using Tapatalk

what we are doing is  not file and suspend .

file and suspend is out . that is when you suspend your benefit someone else can claim yours while your's grows

we are  still allowed to do restricted application . that is how i get 1/2 hers . file and suspend would have been a better deal but we can't do that anymore .

the fact my wife is stopping is something anyone can do at fra or older .  while you can no longer get retro more than 6 months  you can stop at any time after your fra and let your benefit grow from that point on . no one can collect a benefit off you though when you stop unlike file and suspend .

here is a nice chart as to what still stands .


« Last Edit: August 11, 2016, 02:47:35 AM by mathjak107 »

human

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Re: higher swr in conjunction with taking social security at 70
« Reply #12 on: August 11, 2016, 05:50:29 AM »
Makes sense to me, I'm thinking of taking CPP and OAS (in Canada) at 70 to simply get extra cash to deal with possible long term care.

Just something to think about....if you retire early and start CPP later you will have more years at less than max contribution in your benefits calculation which will reduce the base amount you will get...however you will get more by waiting so how that plays out is worth calculating to see if waiting is worth it.

I will definitely have to run the calculations later. I used their online calculator without a statement so mad some assumptions. You really only make much more money if ou live longer (into mid 90s). I'm more concerned about ltc if I live longer than funding an actual retirement with it like most people, it's more of a last resort.

Retire-Canada

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Re: higher swr in conjunction with taking social security at 70
« Reply #13 on: August 11, 2016, 06:59:32 AM »
I will definitely have to run the calculations later. I used their online calculator without a statement so mad some assumptions. You really only make much more money if ou live longer (into mid 90s). I'm more concerned about ltc if I live longer than funding an actual retirement with it like most people, it's more of a last resort.

When you are doing your calculations/comparisons keep in mind if you took your CPP early you can simply turn around and invest that $$ if you don't need it. That pushes the break even point to an even later age.

GreatLaker

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Re: higher swr in conjunction with taking social security at 70
« Reply #14 on: August 11, 2016, 07:02:42 AM »
Makes sense to me, I'm thinking of taking CPP and OAS (in Canada) at 70 to simply get extra cash to deal with possible long term care.

Just something to think about....if you retire early and start CPP later you will have more years at less than max contribution in your benefits calculation which will reduce the base amount you will get...however you will get more by waiting so how that plays out is worth calculating to see if waiting is worth it.

Are you familiar with Doug Runchey and his DR Pensions Consulting site?
Some great resources to understand CPP, and he has a service to calculate your CPP at various ages.
http://www.drpensions.ca/

He also writes articles for Jim Yih's Retire Happy site:
http://retirehappy.ca/how-to-calculate-your-cpp-retirement-pension/

UnleashHell

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Re: higher swr in conjunction with taking social security at 70
« Reply #15 on: August 11, 2016, 09:24:33 AM »
I'm on a similar theory to the OP. The SS i get (especially with my wife getting 50%) is more than projected expenses at 67 - and way above at 70. SO I don;t need to look forever when calculating my WR. If you fire at 50 then in theory you only need 20 times your expenses and the investment income only has to match inflation (obviously that doesn't allow any room for error there).

or at 50 you only need 17 times expenses if you start SS at 67 and it covers your outgoings.


Using firesim gets very interesting because if you start drawing at 62 although the amount you draw is lower it means you keep money in your investments longer and may actually be better for your total portfolio.

I'm still mulling that one over.

BTW- one margin of safety if your 20 times expenses isn't keeping up with inflatin - go get a part time job until it does. I think this becomes a lot more flexibel if you are willing to do that.

Of course this might not apply for anyone "needing" a 100k a year in expenses.

Classical_Liberal

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Re: higher swr in conjunction with taking social security at 70
« Reply #16 on: August 11, 2016, 10:31:02 AM »
The problem with SS (or similar programs in other countries) is that the benefit amounts are at the whim of politics.  Those of us expecting it more than 15-20 years out may not be nearly as confident we will receive what is currently promised.

However, being younger we can look at SS as an additional Xfactor that can be used to our advantage.  If 20 years into retirement at 62 a 4-5% WR rate is in trouble due to poorer early real returns, we can grab SS at 62 to preserve principal for an eventual return to mean.  If we are not in one of those outlying poor scenarios, we can hold off and treat SS as a free longevity annuity. 

mathjak107

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Re: higher swr in conjunction with taking social security at 70
« Reply #17 on: August 11, 2016, 11:00:25 AM »
i thinik with something as crucial to the american way of life as ss will be funded just fine . however there likely will be changes in full retirement gae as well as more changes in spousal .

the 25% shortfall in ss is a piece of cake to get funding for . medicare is the real problem and what that will look like. 2018 already has new income brackets added and premiums will now jump higher at lower levels .

since medicare is taken right out of your ss check there is a phantom reduction right off the bat .





« Last Edit: August 11, 2016, 12:02:12 PM by mathjak107 »

ender

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Re: higher swr in conjunction with taking social security at 70
« Reply #18 on: August 11, 2016, 11:53:20 AM »
The problem with SS (or similar programs in other countries) is that the benefit amounts are at the whim of politics.  Those of us expecting it more than 15-20 years out may not be nearly as confident we will receive what is currently promised.

However, being younger we can look at SS as an additional Xfactor that can be used to our advantage.  If 20 years into retirement at 62 a 4-5% WR rate is in trouble due to poorer early real returns, we can grab SS at 62 to preserve principal for an eventual return to mean.  If we are not in one of those outlying poor scenarios, we can hold off and treat SS as a free longevity annuity.

A good thought exercise regarding social programs is, "will this change screw normal people over entirely?"

Normally the gloom/doom scenarios we FIRE folks think of completely screw over normal folks.

Classical_Liberal

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Re: higher swr in conjunction with taking social security at 70
« Reply #19 on: August 11, 2016, 12:19:45 PM »
A good thought exercise regarding social programs is, "will this change screw normal people over entirely?"

Normally the gloom/doom scenarios we FIRE folks think of completely screw over normal folks.

This is a good point for many reasons.  One being that the majority of the voting populous is much less likely to vote for someone with a plan which has deleterious effects to their personal situation.  Which is why politicians shamelessly pander to the "middle class", whatever that means in any given circumstance.  A second (and potentially conflicting) point being that very small changes are supported vs large ones.  For small changes to be effective they have to impact many people, which would may be perceived as "achievable and fair" to voters.

My personal opinion regarding SS and medicare is that the low hanging fruit will be hit up first, meaning higher income earners who make up a smaller voting pool.  Eliminate the cap on SS and maybe a slight medicare tax increase above certain incomes.  Secondly, slight benefit reductions (probably through age changes for late Gen X'ers & millennials) and small tax increases to all. Tax increases would have less effect on FIRE folks since our working careers are shorter.  In any event, every RE scenario I run includes 75% of my current anticipated SS. When I begin taking payouts will be highly circumstantial.

Scandium

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Re: higher swr in conjunction with taking social security at 70
« Reply #20 on: August 11, 2016, 09:31:12 PM »

BTW- one margin of safety if your 20 times expenses isn't keeping up with inflatin - go get a part time job until it does. I think this becomes a lot more flexibel if you are willing to do that.

Of course this might not apply for anyone "needing" a 100k a year in expenses.

So at 50 cash out portfolio and put it all in inflation - linked bonds? Might not be the worst idea.

But isn't an "average " SS payout about $20k a year? I know I'm a big spender here but I wouldn't want to live on that alone, even twice that for a couple is a bit skimpy to me, even though I know many here do it. And of course you're then relying soley on politicians and handouts which I'd rather not..

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seattlecyclone

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Re: higher swr in conjunction with taking social security at 70
« Reply #21 on: August 11, 2016, 10:57:26 PM »
But isn't an "average " SS payout about $20k a year? I know I'm a big spender here but I wouldn't want to live on that alone, even twice that for a couple is a bit skimpy to me, even though I know many here do it. And of course you're then relying soley on politicians and handouts which I'd rather not..

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Looks like the average benefit for a retired worker is currently $1,348.49/month, or $16,181.88 annually. Of course it can get much higher than that. The maximum possible benefit this year is $3,576/month, or $42,912/year. That would be for a worker who earned more than the maximum that is taxed for social security every year for 35 years and then waited until age 70 to start benefits.

Monkey Uncle

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Re: higher swr in conjunction with taking social security at 70
« Reply #22 on: August 12, 2016, 04:36:03 AM »
But isn't an "average " SS payout about $20k a year? I know I'm a big spender here but I wouldn't want to live on that alone, even twice that for a couple is a bit skimpy to me, even though I know many here do it. And of course you're then relying soley on politicians and handouts which I'd rather not..

Sent from my Nexus 5X using Tapatalk


Looks like the average benefit for a retired worker is currently $1,348.49/month, or $16,181.88 annually. Of course it can get much higher than that. The maximum possible benefit this year is $3,576/month, or $42,912/year. That would be for a worker who earned more than the maximum that is taxed for social security every year for 35 years and then waited until age 70 to start benefits.

Once DW and I are both drawing, ours will be around $25k.  Add to that a small FERS pension, and our total annuity income will be around $34k.  At that point our house will be paid off and the $34k will more or less cover our spending.  That's assuming DW takes SS at 65 and I start both SS and FERS pension at 62.  If the portfolio is doing well and we're healthy, we likely will delay taking SS and be even better off when it finally kicks in.

I'm accounting for all of this in my cFiresim modeling, which, if everything goes according to plan, will allow me FIRE on a stash in the $600 - $650k range instead of the $1.2 MM that we would need if we were ignoring annuitized income sources.  Of course, I'll be FIREing late compared to most folks here (me approx. 49 and DW approx. 62), so I feel justified in cutting things a little closer than the typical FIREE.

mathjak107

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Re: higher swr in conjunction with taking social security at 70
« Reply #23 on: August 12, 2016, 07:46:11 AM »
But isn't an "average " SS payout about $20k a year? I know I'm a big spender here but I wouldn't want to live on that alone, even twice that for a couple is a bit skimpy to me, even though I know many here do it. And of course you're then relying soley on politicians and handouts which I'd rather not..

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Looks like the average benefit for a retired worker is currently $1,348.49/month, or $16,181.88 annually. Of course it can get much higher than that. The maximum possible benefit this year is $3,576/month, or $42,912/year. That would be for a worker who earned more than the maximum that is taxed for social security every year for 35 years and then waited until age 70 to start benefits.


my wife has a low earnings history but mine is pretty decent . our 70 benefit will be about 55-60k depending on colas . as of now , i will be 64 and she is 66 .

UnleashHell

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Re: higher swr in conjunction with taking social security at 70
« Reply #24 on: August 18, 2016, 09:42:38 AM »

BTW- one margin of safety if your 20 times expenses isn't keeping up with inflatin - go get a part time job until it does. I think this becomes a lot more flexibel if you are willing to do that.

Of course this might not apply for anyone "needing" a 100k a year in expenses.

So at 50 cash out portfolio and put it all in inflation - linked bonds? Might not be the worst idea.

But isn't an "average " SS payout about $20k a year? I know I'm a big spender here but I wouldn't want to live on that alone, even twice that for a couple is a bit skimpy to me, even though I know many here do it. And of course you're then relying soley on politicians and handouts which I'd rather not..

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My pay out from SS will be about 24k.
my wife can also get 50% of that.

add in a few K from a UK pension and we are looking at 40k. thats expenses more than covered.

SO yeah - go To bonds AT 50!
don't think i'd want to do that but its an option as an alternative to "MUST SAVE 25 TIMES SPENDING"

sisto

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Re: higher swr in conjunction with taking social security at 70
« Reply #25 on: August 19, 2016, 11:21:00 AM »
we are taking it at 70 . we can have a higher draw day 1 at 62  .  social security has zero sequence risk which means no extra powder has to be kept dry for worst case scenario's like your own investing . it is also taxed on only  85% of it in our case .

the 69% bigger check at 70 plus colas will refill whatever extra we spend by delaying . with a couple there is a 75% chance one of us will still be here at 85 and go on longer .

i never think about breakeven and what if i die , all our planning is about what if we live .

fidelity has great new software , in house only , that runs every combination of taking ss it can come up with .  it really came up with a plan that surprised us as i would not have come up with it on my own .

we are private access clients so our team ran it for us but i am not sure if it is free for everyone .


we are ata 3.50% draw now but will only need 2% once ss kicks in . we will be way less dependent on markets which is our goal delaying
Can you please tell me the name of the Fidelity tool? I have Fidelity, but I don't know if I've seen a tool that does what you described. TIA

mathjak107

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Re: higher swr in conjunction with taking social security at 70
« Reply #26 on: August 19, 2016, 01:42:19 PM »
if you notice in my post i said it is in house only . it is not a tool you have access to . you have to set up a consultation to do it . i did it . we got a nice report and they tried to sell us nothing .