Delayed Retirement Calculation - Social Security

[BadSaver]

Delayed (or Early) Retirement Calculation (from Full Retirement Age)
Who might care: Those within 10-years of retirement.
The point of this: When might I claim Social Security
Why: To plan for Financial Security

Social Security is an important part of retirement planning. In my own personal financial planning I've been contemplating three mathematical problems: Delayed (or Early) Retirement, Benefit Calculation, and Taxation.

I started saving for retirement via an IRA at age 25. Now at age 56, it hasn’t really worked out. The problem is/was discipline, market cycles, and now a Zero Interest Rate Policy (ZIRP). I heard the other day (maybe wrong) that Retirement Accounts only account for 4% of retiree’s income. I think, IRA’s haven’t really worked out. So I was thinking, darn, I wish I had bought an annuity at age 25 instead. Back then, they were paying pretty well.

Then I realized, I can get annuity rates of yesteryear! Social Security was written into law with a Rate of Return that hasn’t changed in decades. Let’s take a look at it and discuss how to buy in.

This is Part 2: In part 1 how to calculate for benefit at full retirement age (FRA) was discussed. If you want to skip that, you can get the benefit amount off you Social Security Statement.

Calculation Elements (Incentive Structure):
Full Retirement Age (FRA): 67 years old (for those born 1960 or later). If not you, fear not, the principle that follows generally applies to all recipients.

Early Eligibility Age (EEA): 62 years old (really 62 & a month for most people).

Delayed Retirement Credit (DRC): Delaying retirement up to 70 years of age.

Basic Calculation:Taking Social Security at age 62 reduces your benefit by about 30%. Taking Social Security at age 70 increases your benefit by about 24%.

Basic Calculation (there are 3 rates of return):
1) From age 62, the rate of increase is 6.67% for the first three years (20%).
2) At age 65, the rate of increase is 5% for the next two years (10%).
3) And, at 67 (FRA), rate of increase is about 8% for the last three years (24%).

So, at ages 62 – 64 the monthly rate increases are 5/9 of 1% percent, ages 65 – 66 the monthly rate increase is 5/12 of 1% percent.

https://www.ssa.gov/OACT/quickcalc/earlyretire.html

Break Even Point: Using a spreadsheet, if you calculate the various ages you wish to claim social security (For example 62, 67, 70 years of age). Add the total revenues, per year together, you may find that your break even point is about eighty years of age. Eighty years of age is my break even. No matter when I claim Social Security, in total, I’ll get the same amount if I die at 80 years of age. In other words, if you die before age 80 (and you’re single), it may not make sense to delay claiming social security early. If you are married and in good health it may make sense to delay claiming Social Security.

Actuarial Life Tables: We often hear that people are living longer. Unfortunately, it’s only slightly true. I think people are living about 2 years longer. But, this all depends on how you define the sample. Modern medicine has done really well with childhood disease. Add children into the sample, people are living a lot longer. However, we care about how long an average 65 year old person is expected to live. Born 1960 it's 80 years for a male and 85 years for a female.

https://www.ssa.gov/oact/STATS/table4c6.html]https://www.ssa.gov/oact/STATS/table4c6.html

If you are married and in good health, there’s a good chance that one of you will live into your 90s. It may make sense to delay one social security to carry the survivor forward if one dies.

Popular age for Claiming Social Security: The most popular age for claiming Social Security is 62. The second most popular age is 65 because at 65 you can start Medicare.

Medicare: Be aware that Medicare (part B) Premiums are often deducted from Social Security (2016 starts at $104.90 a month at age 65). I’ll admit I don’t know much about Medicare, only that it’s an expense that’s hanging out there.

https://www.medicare.gov/your-medicare-costs/costs-at-a-glance/costs-at-glance.html

Given that you’re in good health and/or married you may want to delay filling for social security. The rate of return is better than most Bonds, CDs, or Annuities. Because, the rate of return was written into it decades ago. If you retire early, say 62, you might want to consider living frugally on your IRA (401k), while increasing your Social Security Benefit.

Buying in (up): Living frugally, intentionally, and delaying Social Security, might be the best investment choice for a retiree. The rate of return (waiting) looks pretty good in this ZIRP enviroment.

Disclaimer: The above is for educational purposes only. These are just my opinions. It probably contains errors. Refer to the social security and Medicare web sites for actual information.

 

[Goshawk]

If all you have is SS then delaying might work. But death sure works faster. And how about full disability or partial disability. Then you have hidden disability (like being old and not thinking fast enough in the job. Or not moving fast enough) and how does that factor into working longer?

This society sure likes its worker bees. Buzzing in the rat race from business to business. Job to job. Sure you need to make money. Some think that $15000 is never going to be enough to live on. Yet many minimum wage 40 hour folks are making that now.

Go to church or elderly center or veterans hospital and volunteer. See what others are living like at 65 and 70 and 80. It's rare that you have your capability to live well at that age. Existing is no way to live. Zero relatives of mine live past 80. They are home bound by then. Point is to plan a good twenty years of retirement. MAXIMUM. IF LUCKY.


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[DannyB1954]

Delayed (or Early) Retirement Calculation (from Full Retirement Age)
Who might care: Those within 10-years of retirement.
The point of this: When might I claim Social Security
Why: To plan for Financial Security

Social Security is an important part of retirement planning. In my own personal financial planning I've been contemplating three mathematical problems: Delayed (or Early) Retirement, Benefit Calculation, and Taxation.

I started saving for retirement via an IRA at age 25. Now at age 56, it hasn’t really worked out. The problem is/was discipline, market cycles, and now a Zero Interest Rate Policy (ZIRP). I heard the other day (maybe wrong) that Retirement Accounts only account for 4% of retiree’s income. I think, IRA’s haven’t really worked out. So I was thinking, darn, I wish I had bought an annuity at age 25 instead. Back then, they were paying pretty well.

Then I realized, I can get annuity rates of yesteryear! Social Security was written into law with a Rate of Return that hasn’t changed in decades. Let’s take a look at it and discuss how to buy in.

This is Part 2: In part 1 how to calculate for benefit at full retirement age (FRA) was discussed. If you want to skip that, you can get the benefit amount off you Social Security Statement.

Calculation Elements (Incentive Structure):
Full Retirement Age (FRA): 67 years old (for those born 1960 or later). If not you, fear not, the principle that follows generally applies to all recipients.

Early Eligibility Age (EEA): 62 years old (really 62 & a month for most people).

Delayed Retirement Credit (DRC): Delaying retirement up to 70 years of age.

Basic Calculation:Taking Social Security at age 62 reduces your benefit by about 30%. Taking Social Security at age 70 increases your benefit by about 24%.

Basic Calculation (there are 3 rates of return):
1) From age 62, the rate of increase is 6.67% for the first three years (20%).
2) At age 65, the rate of increase is 5% for the next two years (10%).
3) And, at 67 (FRA), rate of increase is about 8% for the last three years (24%).

So, at ages 62 – 64 the monthly rate increases are 5/9 of 1% percent, ages 65 – 66 the monthly rate increase is 5/12 of 1% percent.

https://www.ssa.gov/OACT/quickcalc/earlyretire.html

Break Even Point: Using a spreadsheet, if you calculate the various ages you wish to claim social security (For example 62, 67, 70 years of age). Add the total revenues, per year together, you may find that your break even point is about eighty years of age. Eighty years of age is my break even. No matter when I claim Social Security, in total, I’ll get the same amount if I die at 80 years of age. In other words, if you die before age 80 (and you’re single), it may not make sense to delay claiming social security early. If you are married and in good health it may make sense to delay claiming Social Security.

Actuarial Life Tables: We often hear that people are living longer. Unfortunately, it’s only slightly true. I think people are living about 2 years longer. But, this all depends on how you define the sample. Modern medicine has done really well with childhood disease. Add children into the sample, people are living a lot longer. However, we care about how long an average 65 year old person is expected to live. Born 1960 it's 80 years for a male and 85 years for a female.

https://www.ssa.gov/oact/STATS/table4c6.html]https://www.ssa.gov/oact/STATS/table4c6.html

If you are married and in good health, there’s a good chance that one of you will live into your 90s. It may make sense to delay one social security to carry the survivor forward if one dies.

Popular age for Claiming Social Security: The most popular age for claiming Social Security is 62. The second most popular age is 65 because at 65 you can start Medicare.

Medicare: Be aware that Medicare (part B) Premiums are often deducted from Social Security (2016 starts at $104.90 a month at age 65). I’ll admit I don’t know much about Medicare, only that it’s an expense that’s hanging out there.

https://www.medicare.gov/your-medicare-costs/costs-at-a-glance/costs-at-glance.html

Given that you’re in good health and/or married you may want to delay filling for social security. The rate of return is better than most Bonds, CDs, or Annuities. Because, the rate of return was written into it decades ago. If you retire early, say 62, you might want to consider living frugally on your IRA (401k), while increasing your Social Security Benefit.

Buying in (up): Living frugally, intentionally, and delaying Social Security, might be the best investment choice for a retiree. The rate of return (waiting) looks pretty good in this ZIRP enviroment.

Disclaimer: The above is for educational purposes only. These are just my opinions. It probably contains errors. Refer to the social security and Medicare web sites for actual information.

You have not factored in how much money that you didn't receive if you wait until 66. A person retiring at 62 gets 48 paychecks by the time they get 66. It takes more than 10 year for the person that waits to catch up even to the person who didn't wait.

 

[ccbreder]

We talk about collecting our SS, which is a small amount to start with. It is more about how much we have each month for our living expenses rather than the total we collect over some number of years. Those of us that are fortunate enough to be able to do it should delay collecting until we receive our full benefit. Other more fortunate ones, that had well paying jobs, will collect sufficient benefit to live well enough at 62. As a Nation, how should we care for the others?

 

[wagoneer]

I started collecting at 65 and have no regrets, Musicians Union claimed a fire destroyed my records, I held on to my union stuff and showed them the amount of years I put in dues and jobs worked they told me they needed their own records to verify my claim. While having enjoyed most of my past
musical ventures it was JUST NOT FAIR. GET THE MONEY WHEN YOU CAN. Thats my advice

 

[blars]

Most of the delayed retirement calculations ignore the time value of money -- you need to factor in the interest rate as well. That could be pretty high if it means paying off or avoiding a loan.

 

[Goshawk]

I think this would be a great time for those who rant about Socialism to step up and refuse to draw Social Security.

Actually they should find a needy relative (single mother) whose kids sure could use new clothes, or car could have new tires and brakes.  And use that SS for them.

 

[Goshawk]

Now, why would I refuse to draw from a program that I have paid into for that very purpose, not to mention that I had no choice as to whether to pay into the program in the first place?

Thirty years ago most government employees could choose never to pay SS ever.  Most choose not to pay SS back then, and then get an 80% retirement pension at 25 years service (55 or older).  They are the government employee walking dead millionaires ($50 annuity is $1m in the bank); who each have no clue that they are in the top 1%.

 

[BadSaver]

Valuing an Investment - Rule of 25. Investing Calculators & Monte Carlo Simulations.

Historically, 4% is the safe withdrawal rate given a 30-year period. A 4% withdrawal rate, provides about a 94% chance of success over 30-years.

https://retirementplans.vanguard.com/VGApp/pe/pubeducation/calculators/RetirementNestEggCalc.jsf

If I need a reliable cash flow of $10,000, I would need $250,000 ($10,000 x 25) invested.

If you want to figure cash flow out on a monthly basis use 300 (Rule of 25 x 12 months).

A cash flow of $500 a month requires $150,000 ($500 x 300)

So, a phone bill of $50 per month requires an investment of $15,000.

Example (Recent story). Lady takes her Social Security at age 65 - $2,300 a month. Her expenses are $5,000 a month - going into retirement with a mortgage. She needs to return $2,700 (yearly 32,400 = $2,700 x 12 months) on her $400,000 IRA. She has a 16% chance of not running out of money over a 25 year period. She has a 32% chance of making it to 85 years of age. This is the median survival age. She has gone back to work.

If she had waited to draw social security at age 70 it would be about $3,000 per month. She would need $2,000 a month to secure her standard of living. This would give her an 84% chance of success over a 20-year period.

Because Social Security is risk free and inflation proof. It is index3ed to the cost of living (COLA). There really isn't an investments out there that compares.

If we look at Social Security as a Lump Sum of money (Time Value of Money). Then what is it worth? Apply the rule of 25, $2,300 a month requires $690,000 (at a 94% success rate). $3,000 per month requires $900,000. By waiting 4-years she increased the value of the Asset we call Social Security by $210,000. Withdrawing Social Security at $2,700 a month she withdrew $129,600 over the same time.

Another interest Calculator is found at Firecalc.com. It graphically illustrates the Monte Carlo Simulation.

Note: Do your own due diligence.

 

[wagoneer]

DON'T DELAY COLLECT TODAY, kinda catchy, will get my 1300 bucks on the 3rd. the way I live in SF i can even save some (which i always do)

 

[BadSaver]

My wife and I are planning to take one early and one late. The reason being if one dies, one Social Security check goes away.

 

[BradKW]

The reason being if one dies, one Social Security check goes away.

Well, not if you don't tell nobody...

 

[vanman2300]

I have extensive experience with the elderly and the one thing at the top of their list of regrets is that they didn't do as much as they wanted to do before their health declined. I plan on trying to make it as far as I can on savings and maybe with easy enjoyable jobs mixed in from time to time to extend how far I can go before having to use SS or until I become 70. For me it's more important to get to doing what I want before I need that walker or wheel chair but I don't underestimate the money situation.

Don't let money deny you a good life.

 

[ArtW]

All I know is; I never started a 401k untill last year, and i'm 50, I'm not gonna benefit that much from the time value of money over the next 12 years
I do also get a bit of stock in the co I work for, each year that they do well, that might work better, because even when thew economy tanked, it was expanding, albeit slowly
SS will probably be my biggest asset, aside from owniong this little patch of dirt and a travel trailer
Worse, if i retire at 62, I'll need to buy my own insurance for the next 5 years

 

[Goshawk]

Badsaver -- your example of 65 years old and a 25 year pay out is not even close to reality. Half the people are dead in five years. HALF! seriously don't understand folks who think they will live to 90 or 100 as it's not happening. And even if you live to just 70 your ability to enjoy anything in mobile entertainment is going to be limited. You are going to go to be hanging around the house a lot. Elderly housing self care subsidized apartments look good then.


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[ccbreder]

Goshawk. Statistics indicate less than 30% of today's 60 year olds will live until 90. But 65% will live until 80. 20% of all men die before 65.
Reference the poor government retiree, To be in the USA top 1% of income you will make $450,000 per year. Top 1% net wealth is only $9,000,000.
I'm a government retiree, I am in the bottom 25% income. I am well over 70 and doing well. But, "I drinks a bit." I am sure glad I managed to work long enough to collect full benefits. Or I couldn't drinks a bit.

 

[Goshawk]

Goshawk. Statistics indicate less than 30% of today's 60 year olds will live until 90. But 65% will live until 80. 20% of all men die before 65.
Reference the poor government retiree, To be in the USA top 1% of income you will make $450,000 per year. Top 1% net wealth is only $9,000,000.
I'm a government retiree, I am in the bottom 25% income. I am well over 70 and doing well. But, "I drinks a bit." I am sure glad I managed to work long enough to collect full benefits. Or I couldn't drinks a bit.

Lots of 60 year olds hiking the Appalachian trail. Healthy enough. Not many 70 year olds doing that. No 80 year olds. You give me a safe room and a computer and sunshine at 70 I will be happy. That requires $15000 a year income. All other income is opulence at that age. My extremely biased opinion of course.


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[vanman2300]

ArtW, I think Medicare is available once you turn 65. They are separate from SS. That will leave you 3 years to pay instead of 5. If you check to see if you can get Obamacare that can be a very affordable insurance as long as you're reportable income is low. I know there is a lot of negative feedback on Obamacare but look into it yourself because you can't trust the opinions of any politician or media sources all of whom have their spin. I want to my state's website for Obamacare where there was a questionnaire to fill out and they give you your choices of coverage and how much it costs. I tried several times using different income levels and found that if you make less than 18,000/year the cost was between zero and 100 dollars/month if you stayed with the bronze plans.It may have increased since I did that but still much more affordable.

One thing that might help some others to know is I had a client once who was on Medicaid but there were no dentists willing to take him as a patient because they would have to bill at a lesser rate. He called the state agency for Obamacare and for forty bucks a month he got dental insurance through Blue Cross ... suddenly all the dentists didn't seem to have a problem taking him as a patient. Sosome can pick individual items cafeteria style.

 

[ArtW]

Vanman what state is that in? I know Texas opted out of what they could of the ACA (mainly the expanded medicaid) still, might bear some research, as you say

 

[Goshawk]

Vanman what state is that in? I know Texas opted out of what they could of the ACA (mainly the expanded medicaid) still, might bear some research, as you say

Everything in obamacare is just too state dependent. Right now the media is on a distraction spin to hype democratic Obamacare as being from the devil. To get people to read articles with eyeballs for paying advertisements. It's a good use of your time to find the best state that has the most liberal supplemental support for Medicare/ Medicaid; and set up residence there somehow.


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