|
Posted by Douglas Johnson on February 19, 2008, 3:28 pm
>Yes - the inflation adjustments of the total increase, and the fact that the
>average life expectancy for someone aged 70 is around 11 years (i.e. this
>pretty much breaks even on average).
Expanding on this point: Almost all of this kind of analysis, e.g. should I
start at 62 or 70 or whatever, shows that it will break even on average. Which
proves the folks at Social Security have some pretty good actuaries.
It has been awhile since the payments have been set, so things probably break
slightly in your favor because of increased life span, but probably not more
than a few months.
>Finally, you control the choice of
>whether to make this "investment". People in relatively healthy conditions
>should consider taking advantage of this, since they have a good chance of
>beating the odds. (Anyone can die suddenly, but we're talking conditional
>probabilities here.)
What this "game" lets you do is take both sides of the same bet. You can hedge
against dying early by starting payments at 62. Eight years later, if you are
still healthy, you can hedge against longevity.
-- Doug
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
|
|
Posted by Puddin' Man on February 20, 2008, 5:35 am
wrote:
>Let's see what happens over 12 years:
>1st payment: $360.00 * (1 + 0.05/12) ^ 144 = $655.15
>12th payment: $360.00 * (1 + 0.05/12) ^ 143 = $652.43
>13th payment: $382.80 * (1 + 0.05/12) ^ 132 = $662.73
No offence, but none of the 5% calculations do much for me.
Real interest rate =~ nominal rate - inflation rate.
Any body looked at CD rates lately? The real inflation rate?
I wouldn't be surprised if the real interest rate were now
close to 0 or even negative. Of course, that will never be
reflected in the gov't numbers.
Puddin'
"Blues starts to rolling ... stops at my front do'.
I'm gonna change my way of living ... won't have to worry no mo'."
- from "Blues Before Sunrise", Leroy Carr, maybe 1934
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
|
|
Posted by Mark Freeland on February 20, 2008, 11:58 am
> No offence, but none of the 5% calculations do much for me.
>
> Real interest rate =~ nominal rate - inflation rate.
>
> Any body looked at CD rates lately? The real inflation rate?
>
> I wouldn't be surprised if the real interest rate were now
> close to 0 or even negative.
No offsense taken; I took Ernie's 5% to mean a nominal rate. Personally, I
prefer to work in constant dollars, since it makes the calculations much
cleaner. (SS is inflation-adjusted, and by working in constant dollars, we
can zero out that effect). Same result, just much easier to see.
Assume 0% real interest rate on $96,000. At the end of 11 years, you still
have $96,000 in constant dollars.
SS benefit increase is $760/month the first year, and since it adjusts by
inflation, that's a constant dollar amount. After 11 years, one has 11 * 12
* $760 = $100,320. Actually a little less, since the SS inflation
adjustment is annual, not monthly. So let's just call it even after 11
years.
Give or take a little, same result either way - whether one calculates in
nominal dollars or constant dollars.
Mark Freeland
BnetOnewsX@sbcglobal.net
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
|
|
Posted by sandybeth on February 21, 2008, 11:24 am
I'm not very good at complex mathematical problems, so I'm thinking of
this social security game in a simpler way. You could take your SS at
age 62, bank it, hoping to re-apply at age 66, but find out that the
SS department has closed this loop-hole by then. Or they've reduced
benefits. Or you've invested all your SS benefits, only to lose a
great deal of it in a bad recession and can't pay it back anyway. If
you're looking at 5% no-risk interest rate, you need to invest in
CD's, which are below 5% now with no crystal ball into the future
rates.
If you're planning on applying for SS at age 62 anyway, you can just
wait and see (but make sure you're saving all the payments in the
meantime). If you planned on taking it later, you may lose the game
if any of the above happens.
SandyBeth
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
|
|
Posted by Douglas Johnson on February 21, 2008, 3:14 pm
>I'm not very good at complex mathematical problems, so I'm thinking of
>this social security game in a simpler way. You could take your SS at
>age 62, bank it, hoping to re-apply at age 66, but find out that the
>SS department has closed this loop-hole by then. Or they've reduced
>benefits. Or you've invested all your SS benefits, only to lose a
>great deal of it in a bad recession and can't pay it back anyway.
All of these are real risks.
>
>If you're looking at 5% no-risk interest rate, you need to invest in
>CD's, which are below 5% now with no crystal ball into the future
>rates.
The good news is that this is free money, since you need to repay your actual SS
payments, not any earnings you may have made on them. You also get to repay
with inflated dollars.
>If you're planning on applying for SS at age 62 anyway, you can just
>wait and see (but make sure you're saving all the payments in the
>meantime).
The other thing you need to do is keep careful tax records. To get the tax
credit on the repayment, you need to figure your taxes with and without Social
Security on every year you have received SS before the repayment year.
-- Doug
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
|
| Similar Threads | Posted | | Social Security questions | September 5, 2007, 5:08 pm |
| Social Security Redux | September 24, 2007, 2:35 pm |
| Social Security Confusion | October 11, 2007, 12:24 pm |
| Social Security Rate of Return | January 29, 2007, 5:47 pm |
| SOCIAL SECURITY THREAD CLOSED | February 2, 2007, 1:42 pm |
| Social Security Spouse Benefit | April 26, 2007, 10:42 am |
| Social Security survivors benefit | April 30, 2008, 7:19 pm |
| future Social Security benefits and taxes | December 7, 2006, 10:11 am |
| Optimizing Social Security Benefit withdrawal | February 9, 2007, 12:34 pm |
| Thread Closed (was: Social Security Rate of Return) | February 2, 2007, 8:48 am |
|
|
Yahoo! 
Google 
Windows Live 
del.icio.us 
digg 
Netscape 
XML Sitemap