grabiner wrote: Wed Oct 08, 2025 11:14 pm
lazynovice wrote: Wed Oct 08, 2025 10:37 pm
If you have more money than you can spend and you have moved on to investing for your heirs, then taking the money earlier and investing it makes sense. Like most insurance, the more money you have, the less valuable it is to you.The time horizon for stocks to beat TIPS is no longer the time period between 62 and 70, but is the time horizon from 62 to when your heirs inherit.
It’s far more certain that stocks beat TIPS over the 20-30 year horizon of the latter than the 8-9 year period of the former.
This makes sense only if your investments are 100% stock, which is possible but not common/ Otherwise, the same logic applies to selling your current bond holding to buy more stock. You have the option of delaying SS and using the bonds alone to cover the gap; whether this is expected to leave more for your heirs depends on your life expectancy (and that of your spouse if appropriate).
I think grabiner makes an important point here, and it highlights what I think are two fundamental flaws with the WSJ article.
1. The proper framework here is not discounting future SS payments to PV, as the article contends. Rather, the proper framework is inflating (in a ROI sense, not in “the CPI is up” sense; all my calculations assume today’s dollars and real returns) a series of monthly payment beginning with the month someone claims SS early, and ending with the month that the early claimant turns 70.
a. If we make a bunch of (over) simplifying assumptions (ignore tax effects; effect on Roth conversions, trust fund insolvency, surviving spouses),we could use the future value of that stream of early- claimed SS benefits when claimant turns 70 to calculate a breakeven age for the early claimant.
b Example: Early claimant claims at age 65, and at age 70, assume, after applying some real ROI, that the value in today’s dollars of that stream of monthly payments is $60,000. Assume further that claimant’s benefit had s/he waited until 70 to claim would (again in today’s dollars) be $1,000 higher per month. With all the simplifying assumptions, early claimant’s break even age is 75. Living beyond that would mean that claimant would have been better off waiting.
c. The rate by which we inflate that stream of payments is obviously important because the higher the rate used, the bigger the future value at age 70, and the larger the number of years it will take to reach the break even age.
2. What is the proper ROI by which to inflate that stream of monthly payments from age 65 – 70? I submit it is not a nominal, expected pre-tax return on stocks. Rather, it is the real, after tax ROI of whatever is the asset with the lowest expected after-tax ROI in claimant’s after tax portfolio. That ROI is in effect the opportunity cost to claimant if claimant does NOT claim early.
Conclusions:
A. Using 8% to inflate the monthly stream of early benefits is probably too high, even if early claimant’s taxable portfolio is 100% equities.
B. Consistent with what OP said (but not quite the same, because I am inflating, not discounting), the yields to maturity on a 5 year ladder of TIPS maturing in 1, 2, 3, 4, and 5 years, respectively (corresponding to ages 66-70 in my example where claimant claimed SS at age 65) are probably a much more realistic series of ROIs to use to calculate the future value of the stream of early SS payments and hence more useful in calculating a break even age.
C. If you are too lazy or I’ll-equipped to do these calculations ( as I am), you could just get Pralana and click on the “Optimize social security) button.
