@jkandell So this kind of highlighted my conundrum. I plugged in your numbers and did the Historical Analysis. It did, more or less, cut everything in half but at age 70 or age 67 for SS the savings throughout retirement neither grew or decreased. I'm now at my absolute personal minimum of savings for my safety net buffer but it does still work. This is how the question started. Do I go more with the math or more with conventional practices? It seems I'm fine either way but there are definite consequences with any decision.
@motogopher This is the type of thing financial advisors can help with, if you want to pay for a one time consult might be well worth it.
My two cents is to go back to what role social security plays in your retirement. I personally use opensecurity to decide, since I am interested in which options give the highest total consumption longevity weighted, compared to TIPs. But I don't know what role it plays for you: Is it crucial money (as it is for most Americans) or is it play money (like it might be for many Pralana users)? For most of us, SS also functions as a type of longevity insurance in case we live longer than expected. I see you did a stress test with lower returns; but did you also experiment with one of you living longer, both in Pralana (stress test section) and in opensocialsecurity? That is where the "70/62" combo often shines, and why I chose it for my family. Remember, you don't expect insurance to pay off with higher totals in a regular optimization-- it is there to avoid catastrophe in the unlikely occasion you need it.
So, to give an extreme: suppose you can retire fine just with your portfolio alone without SS, even assuming a 30 year japan type equity market (i.e. 0% returns). SS isn't needed, it's fun money. Moreover, you ran your simulations with a very conservative longevity and very conservative ROR. Then go for it, retire early and invest the fun money in an AI index or treat it just like you won the lottery. At other extreme, suppose: if we end up in Japan's 30 year stock drought or for other reasons, you need SS to retire at the lifestyle you desire. Or you are worried about paying the bills beyond the life expectancy cliff you used with Pralana, say one of you lives to 100+. In that case, use opensecurity and follow its advice.
@jkandel
I agree that using different tools such as Open SS can help see the alternatives from a different lens’ it can miss interactions with other decisions you are making. Using Pralana can help see the results of those various interactions. So I would see if the conclusions are consistent and if they are not try to understand why.
Also, making a decision based on your own preferences is generally considered rational, not irrational. Rationality in decision-making often means choosing according to your values, goals, and preferences to maximize your satisfaction or utility. When decisions align with what you personally prefer or prioritize, you are acting consistently with your own interests and reasoning.
Irrational decisions tend to involve choices that contradict your preferences, goals, or reasonable reasoning—such as acting against your best interests, ignoring relevant information, or being driven by inconsistent impulses.
Therefore, a decision based on your preferences reflects rational behavior as long as it coherently aligns with your values and goals.
What is your goal as it relates to this decision. I would start with your goal and then use the information and tools you to help evaluate your options. But in the end your choice should align with your goal otherwise you are being irrational.
Also, making a decision based on your own preferences is generally considered rational, not irrational. Rationality in decision-making often means choosing according to your values, goals, and preferences to maximize your satisfaction or utility. When decisions align with what you personally prefer or prioritize, you are acting consistently with your own interests and reasoning.
Irrational decisions tend to involve choices that contradict your preferences, goals, or reasonable reasoning—such as acting against your best interests, ignoring relevant information, or being driven by inconsistent impulses.
Therefore, a decision based on your preferences reflects rational behavior as long as it coherently aligns with your values and goals.
You'll notice I put "rational" in quotation marks in my response to Motogopher to emphasize your point: "There is nothing wrong with doing that [investing your early ss at the portfolio rate]: but it is a gamble not “rational”."
The reason I was willing to use the word "rational" though is that if one compares SS early+invested to SS later, without using the same discount rate (i.e. considering portfolio growth for the former and tips yield for the second), you are making an "apples to oranges" comparison. In other words, that error would be irrational instrumentally within any value system because it would be based on faulty reasoning. However, if one goes in knowing that it is speculation of one's ss and not a apples-to-apples comparison, then it is fine. The key is, to use your words, it can be rational or irrational within one's values so long as one is fully aware of what is being calculated.
Thanks for clarifying the quotes. Rationality many times is judged based on the values of the person doing the judging so I just wanted to clarify that it can be rational if it fits within your preferences. But as you point out it is not the only criteria.
Since we are on the subject, the following are the key elements we used as a corporation to make what we called quality strategic decisions. Not all decisions are strategic so you can clearly over analyze.
-
Clear definition of the decision and problem: Understand exactly what decision needs to be made and the context surrounding it. The Frame.
-
Gathering relevant information: Collect all necessary, accurate, and timely data related to the options and impacts.
-
Identification of alternatives: Generate a comprehensive list of possible options or solutions to choose from. The options should be different enough that you are not just stuck in minutiae
-
Establishing decision criteria consistent with values and objectives: Define the factors or criteria that matter most and will guide evaluation, such as cost, time horizon, feasibility, risks, and alignment with goals, priorities, and objectives.
-
Evaluation of alternatives: Systematically assess each option against the criteria, weighing pros and cons, risks, and benefits.
-
Inclusion of stakeholder input: Where relevant, involve experts like professional planners , affected parties like spouses, to enrich understanding and perspective. Seeking input from this forum is an example.
-
Balancing short and long-term consequences: Consider immediate effects as well as future impacts and sustainability.
-
Implement the decision: Take action in a timely and well-planned manner.
-
Review and feedback: After implementation, monitor outcomes and learn from the results to improve future decisions.
These elements together help ensure the decision is thoughtful, informed, structured, and aligned with desired outcomes, improving the quality and effectiveness of decisions.
@motogopher
Here is a new article from Kitces organization that should be of interest by anyone facing Social Security timing decisions. It does a better job explaining some of the concepts I was trying to convey plus many more.
I agree with Mike Piper on this, that if you have bonds, it does a better job of balancing your overall risk over time to spend the bonds down while you wait for SS benefits. Since nominal bonds are not inflation protected, but TIPS are, the most straightforward comparison then is simply to use the long TIPS rate as the discount rate. Waiting means a larger SS benefit which means a reduced draw from the risky portfolio in the future, the same situation as if you had a TIPS ladder (though SS also provides protection against outliving your portfolio that TIPS do not). So waiting to claim SS can increase your lifetime consumption and a well constructed plan would simply let you spend more in those bridge years in anticipation.
That said, if you need ACA or would profit from Roth Conversions, those can vastly overwhelm the SS claim optimization and mean that you should wait. We claimed my wife's benefits early based on Opensocialsecurity.com and wish we hadn't as our plans changed as I kept working, so we have limited space for Roth Conversions and the SS money limits it further. Also, I could have kept her on the HSA, which would have given us a way to reduce taxable income further.
Here is a new article from Kitces organization that should be of interest by anyone facing Social Security timing decisions. It does a better job explaining some of the concepts I was trying to convey plus many more.
Great article, thanks for sharing. He raises things not normally discussed in the trillion other articles on ss claiming.
My two cents:
- Opensocialsecurity.com (Mike Piper) advocated by Richard and myself incoporates "mortality risk" in its comparisons. So the author should like that app.
- The article mentions the debate about whether to use the portfolio return as the discount rate or whether to use 0% or TIPs bonds as the discount rate. I'm on the side of the latter if you are depending on your social security for your retirement plan (as most Americans are). However if your SS is "play money" not needed for your retirement plan, the former might sense. The reasons to use a conservative discount rate if you rely on the money are simple: you can't afford to undershoot. Also, inherently the nature of social security is closer to a pension or TIP than it is a 60/40 portfolio.
- The risk mentioned in the article that the govt might push the PIA date back during the time one is postponing till 70 to collect SS is real. It factors should factor in to one's decision making.
- The "health risk" is real too, that you won't be able to enjoy the fruits of your postponing at 70 if your health happens to deteriorate. My response is that it makes more sense to "front load" the portfolio withdrawal rather than "front load" your social security by claiming at 62! In other words, the "best use" of ss is as longevity insurance. You'd be wasting that if you have the option to front load your portfolio withdrawal instead.
