Here's a question for some thoughts. I know the general recommendation is to hold off on taking Social Security for the higher income spouse until age 70 to maximize income. That's been my general plan. I have a scenario where if I start that higher amount earlier, even back to 65, my lifetime savings grows significantly higher until the very end of the plan and that difference is a small amount. So, the question becomes do I follow the math and keep savings high or do I have more guaranteed income and have lower savings. I lean towards higher savings as more money seems like a good safety net but the same argument could be made for guaranteed income (Social Security).
You are making a poor comparison to compare SS benefits, which are guaranteed and inflation adjusted to the hoped-for returns from a risky portfolio. Mike Piper, who put together the excellent opensocialsecurity.com, recommends that you instead spend down your bonds while waiting to take SS. The idea is that with a larger guaranteed base of SS benefits by waiting, you can take more risk in the stock/bond portfolio without increasing the chance of going broke. Then the math for when to take SS comes down to a study of the increases in the benefit with claim age vs. the life expectancy using the inflation adjusted return on bonds as the discount rate. Since you can buy inflation adjusted bond in the form of TIPS, the long term TIPS rate gives you a rate of return for making the comparison.
In our case, that hardly matters as we need to do Roth Conversions, so it is much better to keep SS benefits out of the way while we do the conversions and then get rewarded with a larger SS benefit.
In Pralana, you can use the allowed changes in asset allocation to ramp up the stock percentage while waiting to claim to make an approximation of doing it this way.
@ricke Thanks, and agree with what you stated. In my scenario, what you don't know is that I only aim for 60% allocation to stocks at a 7% return. I also use stop losses on the stocks with a programmed in 5% loss in the current year with only a 5% gain the next year in the scenario. I never use "hopeful" assumptions and keep everything very conservative so I never have a surprise. I have very low expectations for stock returns. Thus the question, as I've eliminated most of the risk you mentioned and I do agree with.
I don't understand what you are doing and doubt that it would be as effective in preventing losses in a down market as you think, but my lack of understanding of your plan doesn't matter. The use of Long TIPS for the discount rate holds as long as you have any fixed income, you could simply choose to spend down the bonds to keep the comparison as close to like-for-like as possible.
Go to opensocialsecurity.com, click the box at the top to allow additional investigation and try various cases, using the Long TIPS (the openSS default).
Note that if you need ACA or Roth Conversions, those can easily be bigger fish than the relatively small differences in actuarial value of the SS benefit based on claim age, so you should look at those factors first.
@ricke Thanks for the replies and thoughts. I'm pretty much out of bonds now and Roth conversions don't gain me anything, zero. I also maintain 100% chance of success in both the Monte Carlo and Historical analyses. I hope other people are viewing this thread and after thinking about it more, here's maybe what I'm getting at.
All the retirement tools aim for max dollars in your savings over the length of the plan. In this scenario question, the tool calculates that I would have much more money in the middle 20-25 years of retirement. By the end it's essentially the same but is having more available money during most of the retirement better or ignore the tool and stay with max income? That's why I made the post. Math states one thing, does practicality state something else? It's a quirk of these tools I hadn't explored before.
In this scenario question, the tool calculates that I would have much more money in the middle 20-25 years of retirement. By the end it's essentially the same but is having more available money during most of the retirement better or ignore the tool and stay with max income? That's why I made the post. Math states one thing, does practicality state something else? It's a quirk of these tools I hadn't explored before.
It depends. If what you care about is just your end result (say for heirs), then the fact option A generates more the middle years than option B doesn't matter much. If anything it might result in more taxes now for lesser benefit later.
But most people care about more than just their amount for heirs. If you also care about consumption during retirement, it matters a lot to have more money earlier rather than later. It all depends how the results of A and B translate into consumption. Unfortunately Pralana doesn't have a good analysis of total consumption. I've argued that the tables on the monte carlo analysis pages should show total consumption in addition to total savings at the end, so users would be able to compare scenarios like yours.
@jkandell Thanks for that response. I think you helped state what I've noticed. I know a lot of people just use these tools as gospel but what if their goal isn't max savings at death? In my case I'm aiming for a safety cushion of savings. Then I notice I could have a much larger cushion, not necessarily extra consumption money, if I take social security earlier than the general recommendation. I'm fine either way but the extra cushion looks very appealing especially with my low risk profile (to address stock concerns). It seems the only negative so far is concern over stock returns - valid. Hopefully there will be more insights for "tool goal" vs. "life or consumption goal".
There are many terms that mean almost the same thing as the term Values that I used in a different post: Preferences, Goals, What you care about, Priorites etc.are terms that have very similar meanings.
The idea I tried to explain in another post I think gets to the heart of your question.
Once we identify our Values or whatever term you want use, then rank them to get an idea of which ones to use to help tip the scale when evaluating alternatives you have for key decisions you are trying to make.
For example, if you are trying to decide when to take social security and having as much secure income early in retirement is at the top of your list and end of life wealth is way down the list, then don’t put as much weight (if any) on the end of life metric. I realize this is an over simplistic example because there are interdependencies that complicate things.
I don’t think maximizing end of life wealth is a preference or value that ranks as a number one priority above all else for many retirees. But using that metric and playing around with other variables like life expectancy or expected RORs can help quantify the cost of one alternative compared to another alternative and to see the sensitivity to other variables. This is what makes planning hard for some and fun for others.
In summary, I would not use end of life wealth as the deciding factor if it significantly jeopardizes other values/goals/preferences. But, you don’t want to ignore it if you are increasing the risk of running out of money. Sorry if this only makes things more confusing.
There are many terms that mean almost the same thing as the term Values that I used in a different post: Preferences, Goals, What you care about, Priorites etc.are terms that have very similar meanings.
The idea I tried to explain in another post I think gets to the heart of your question.
Once we identify our Values or whatever term you want use, then rank them to get an idea of which ones to use to help tip the scale when evaluating alternatives you have for key decisions you are trying to make.
For example, if you are trying to decide when to take social security and having as much secure income early in retirement is at the top of your list and end of life wealth is way down the list, then don’t put as much weight (if any) on the end of life metric. I realize this is an over simplistic example because there are interdependencies that complicate things.
I don’t think maximizing end of life wealth is a preference or value that ranks as a number one priority above all else for many retirees. But using that metric and playing around with other variables like life expectancy or expected RORs can help quantify the cost of one alternative compared to another alternative and to see the sensitivity to other variables. This is what makes planning hard for some and fun for others.
In summary, I would not use end of life wealth as the deciding factor if it significantly jeopardizes other values/goals/preferences. But, you don’t want to ignore it if you are increasing the risk of running out of money. Sorry if this only makes things more confusing.
There are many terms that mean almost the same thing as the term Values that I used in a different post: Preferences, Goals, What you care about, Priorites etc.are terms that have very similar meanings.
The idea I tried to explain in another post I think gets to the heart of your question.
Once we identify our Values or whatever term you want use, then rank them to get an idea of which ones to use to help tip the scale when evaluating alternatives you have for key decisions you are trying to make.
For example, if you are trying to decide when to take social security and having as much secure income early in retirement is at the top of your list and end of life wealth is way down the list, then don’t put as much weight (if any) on the end of life metric. I realize this is an over simplistic example because there are interdependencies that complicate things.
I don’t think maximizing end of life wealth is a preference or value that ranks as a number one priority above all else for many retirees. But using that metric and playing around with other variables like life expectancy or expected RORs can help quantify the cost of one alternative compared to another alternative and to see the sensitivity to other variables. This is what makes planning hard for some and fun for others.
In summary, I would not use end of life wealth as the deciding factor if it significantly jeopardizes other values/goals/preferences. But, you don’t want to ignore it if you are increasing the risk of running out of money. Sorry if this only makes things more confusing.
There are many terms that mean almost the same thing as the term Values that I used in a different post: Preferences, Goals, What you care about, Priorites etc.are terms that have very similar meanings.
The idea I tried to explain in another post I think gets to the heart of your question.
Once we identify our Values or whatever term you want use, then rank them to get an idea of which ones to use to help tip the scale when evaluating alternatives you have for key decisions you are trying to make.
For example, if you are trying to decide when to take social security and having as much secure income early in retirement is at the top of your list and end of life wealth is way down the list, then don’t put as much weight (if any) on the end of life metric. I realize this is an over simplistic example because there are interdependencies that complicate things.
I don’t think maximizing end of life wealth is a preference or value that ranks as a number one priority above all else for many retirees. But using that metric and playing around with other variables like life expectancy or expected RORs can help quantify the cost of one alternative compared to another alternative and to see the sensitivity to other variables. This is what makes planning hard for some and fun for others.
In summary, I would not use end of life wealth as the deciding factor if it significantly jeopardizes other values/goals/preferences. But, you don’t want to ignore it if you are increasing the risk of running out of money. Sorry if this only makes things more confusing.
There are many terms that mean almost the same thing as the term Values that I used in a different post: Preferences, Goals, What you care about, Priorites etc.are terms that have very similar meanings.
The idea I tried to explain in another post I think gets to the heart of your question.
Once we identify our Values or whatever term you want use, then rank them to get an idea of which ones to use to help tip the scale when evaluating alternatives you have for key decisions you are trying to make.
For example, if you are trying to decide when to take social security and having as much secure income early in retirement is at the top of your list and end of life wealth is way down the list, then don’t put as much weight (if any) on the end of life metric. I realize this is an over simplistic example because there are interdependencies that complicate things.
I don’t think maximizing end of life wealth is a preference or value that ranks as a number one priority above all else for many retirees. But using that metric and playing around with other variables like life expectancy or expected RORs can help quantify the cost of one alternative compared to another alternative and to see the sensitivity to other variables. This is what makes planning hard for some and fun for others.
In summary, I would not use end of life wealth as the deciding factor if it significantly jeopardizes other values/goals/preferences. But, you don’t want to ignore it if you are increasing the risk of running out of money. Sorry if this only makes things more confusing.
I want to double the advice @ricke said above about using opensocialsecurity.com to evaluate your social security start dates, not Pralana. This will compare the npv of both options, discounting by the tips rate and using a weighted average for your chances of being alive.
My hunch is that claiming earlier looks better for you in pralana because more is being invested at 60% allocation with 7% return. That is deceptive, because claiming later is guaranteed money and the higher return of claiming early is only “expected”, so comparing apples to oranges.
You say you have “very low expectations” for stocks and are “conservative” invested, but then say you have 60% in stocks at 7% expected return. That contradiction confuses me. That is not a pessimistic assumption nor conservatively invested, even using stop losses.
Please let us know what opensocialsecurty says about your two claiming options.
@jkandell OpenSS basically shows a 1% reduction in PV for each year claimed earlier than 70. And, good point about my other claim. I'm probably closer to 50% on average and my claim on 7% was that at least I'm not inflating it to 10% or more. I've always made 9-10% minimum so 7% was "conservative" for me.
@jkandell OpenSS basically shows a 1% reduction in PV for each year claimed earlier than 70..
This confirms what @ricke and i were saying that your higher results for claiming ss earlier are based on the assumption stocks will pay out like they have. You can verify this by entering a discount rate in opensocialsecurty of 4.5% (or whatever your portfolio ror is in Pralana, eg 50%x7% + 50%x 2%). You’ll see magically opensocialsecurity now recommends taking ss early. There is nothing wrong with doing that: but it is a gamble not “rational”.
If you really want to be conservative you’d look at the bottom line on the Monte Carlo, and, even more important, do stress test analysis in pralana with returns being 50% less (or more) then your expected returns in both scenarios, and living longer. (This is not science fiction: your 10% is one of the longest bull markets in world history.) And then do historic analysis of both scenarios, using 1968 as your starting point. Does it still show taking ss early giving you a better results?
