Read your article on when to take SS income; thanks for that. Here are some other thoughts:

THOUGHTS ON WHY YOU SHOULD ALWAYS TAKE YOUR SOCIAL SECURITY BENEFITS EARLY

By Chris Gillette (cgillette@thehollyhockcompany.com)

September 2014

THOUGHT #1: COLA and TVOM

I find that advisors almost NEVER take into account the COLA (annual cost of living increase) OR the TVOM (time value of money). Over the past 20 years or so, the

COLA has averaged over 3% (it was 0% two years). It cannot be negative. As a first example, I am 62 right now, and you use 0% as your COLA for each year going forward and a 0% TVOM here are your results:

Total benefits if you start at 66 "catches up" to 62 at age 79

66 "catches up" to 70 at age 83 years and 1 month

Again, using me as an example, and use 2% COLA (on average going forward) and a TVOM of 5% (municipal bond) then:

66 catches up to 62 at 83 years 3 months

70 catches up to 66 at 87 years 7 months

Again, using me as an example and use 0% COLA going forward and TVOM of 5% then:

66 catches up to 62 at 89 years and 5 months

70 catches up to 66 at 94 years 1 month

This last example is a little counterintuitive: since there is no COLA, it takes longer for the later choices to “catch up”. These numbers are pretty discouraging for waiting. My SS customer service rep says for this reason she tells EVERYONE to take the benefits (almost without exception) as soon as you qualify.

THOUGHT #2: HOW SS IS DESIGNED

Believe it or not, the system is designed so that if you die EXACTLY on your life expectancy, it DOES NOT matter which of the three retirements you choose (Assume 0% COLA and 0% TVOM). The three amounts will be almost exactly the same (I have verified this, again, in my case). Of course, when you stop to think about it, of course, it would have to be designed this way.

THOUGHT #3: HOW MUCH MONEY DO YOU WANT TO LEAVE ON THE TABLE

If I wait until I am 66 and die the month I qualify (2% COLA and 5% TVOM), I would leave $59,099 on the table. If I waited until I was 70 and died the month I qualify, I would leave $134,229 on the table.

THOUGHT #4: IT’S ALL IN THE SMALL PRINT (DETAILS)

In my case, I am fortunate to have a 13 year-old daughter. That means that if I file now at 62, I will receive an additional $707 per month benefit UNTIL she reaches the age of 18 (about 57 months). This benefit will be subject to COLA and TVOM as well. That means that I will receive an additional $47,853 in benefits (2% COLA and 5% TVOM) by the time she reaches adulthood. This also changes the “catchup” calculations:

66 catches up to 62 at 94 years and 7 months

70 catches up to 66 at 94 years and 6 months

You could say that 66 never catches up, because it is “lapped” by the 70 choice. If I do NOT take my benefits now and wait until I am 66, I will only get the benefit for my child for 8 months and the additional amount will be closer to $6,000.

Returning for a moment to thought # 3, if I get this additional benefit, again with the 2% COLA and 5% TVOM and I wait until I reach age 66 and die the month I qualify I will leave $98,509 on the table.

THOUGHT #5: LONGEVITY OR YOU AIN’T GETTIN’ ANY YOUNGER

As you age, your probability of reaching the next year of your life DECREASES each year. It is not constant. What this means is that if you are 73, your probability of dying before you turn 74 is higher than when you were 72 turning 73. This is not a pleasant thought to ponder – but it is realistic. People generally do not understand this and as we probably all do, we think we will live forever.

MY CONCLUSION:

You must include the application of COLAs and the TVOM in any calculation. Since the payouts happen at different times, this is the only way to compare them. Your particular situation might be different (like mine is), so it is important to consider all of the particulars. Bottom Line: It does not seem to me that many people would really benefit by waiting until either the 66 or 70 retirement ages.

THOUGHTS ON WHY YOU SHOULD ALWAYS TAKE YOUR SOCIAL SECURITY BENEFITS EARLY

By Chris Gillette (cgillette@thehollyhockcompany.com)

September 2014

THOUGHT #1: COLA and TVOM

I find that advisors almost NEVER take into account the COLA (annual cost of living increase) OR the TVOM (time value of money). Over the past 20 years or so, the

COLA has averaged over 3% (it was 0% two years). It cannot be negative. As a first example, I am 62 right now, and you use 0% as your COLA for each year going forward and a 0% TVOM here are your results:

Total benefits if you start at 66 "catches up" to 62 at age 79

66 "catches up" to 70 at age 83 years and 1 month

Again, using me as an example, and use 2% COLA (on average going forward) and a TVOM of 5% (municipal bond) then:

66 catches up to 62 at 83 years 3 months

70 catches up to 66 at 87 years 7 months

Again, using me as an example and use 0% COLA going forward and TVOM of 5% then:

66 catches up to 62 at 89 years and 5 months

70 catches up to 66 at 94 years 1 month

This last example is a little counterintuitive: since there is no COLA, it takes longer for the later choices to “catch up”. These numbers are pretty discouraging for waiting. My SS customer service rep says for this reason she tells EVERYONE to take the benefits (almost without exception) as soon as you qualify.

THOUGHT #2: HOW SS IS DESIGNED

Believe it or not, the system is designed so that if you die EXACTLY on your life expectancy, it DOES NOT matter which of the three retirements you choose (Assume 0% COLA and 0% TVOM). The three amounts will be almost exactly the same (I have verified this, again, in my case). Of course, when you stop to think about it, of course, it would have to be designed this way.

THOUGHT #3: HOW MUCH MONEY DO YOU WANT TO LEAVE ON THE TABLE

If I wait until I am 66 and die the month I qualify (2% COLA and 5% TVOM), I would leave $59,099 on the table. If I waited until I was 70 and died the month I qualify, I would leave $134,229 on the table.

THOUGHT #4: IT’S ALL IN THE SMALL PRINT (DETAILS)

In my case, I am fortunate to have a 13 year-old daughter. That means that if I file now at 62, I will receive an additional $707 per month benefit UNTIL she reaches the age of 18 (about 57 months). This benefit will be subject to COLA and TVOM as well. That means that I will receive an additional $47,853 in benefits (2% COLA and 5% TVOM) by the time she reaches adulthood. This also changes the “catchup” calculations:

66 catches up to 62 at 94 years and 7 months

70 catches up to 66 at 94 years and 6 months

You could say that 66 never catches up, because it is “lapped” by the 70 choice. If I do NOT take my benefits now and wait until I am 66, I will only get the benefit for my child for 8 months and the additional amount will be closer to $6,000.

Returning for a moment to thought # 3, if I get this additional benefit, again with the 2% COLA and 5% TVOM and I wait until I reach age 66 and die the month I qualify I will leave $98,509 on the table.

THOUGHT #5: LONGEVITY OR YOU AIN’T GETTIN’ ANY YOUNGER

As you age, your probability of reaching the next year of your life DECREASES each year. It is not constant. What this means is that if you are 73, your probability of dying before you turn 74 is higher than when you were 72 turning 73. This is not a pleasant thought to ponder – but it is realistic. People generally do not understand this and as we probably all do, we think we will live forever.

MY CONCLUSION:

You must include the application of COLAs and the TVOM in any calculation. Since the payouts happen at different times, this is the only way to compare them. Your particular situation might be different (like mine is), so it is important to consider all of the particulars. Bottom Line: It does not seem to me that many people would really benefit by waiting until either the 66 or 70 retirement ages.