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Social Security on Tabular Projections--Income

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Issues and Potential Errors

Last Post by Bill Hines, Advice-Only Flat-F... 4 years ago

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Dame Wang

(@tchamber236)

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Topic starter December 8, 2022 11:07 am

@smatthews51

>> Depending on the starting year of the selected historical sequence, Social Security income will vary in terms of future dollars but it will be a constant value in terms of today's dollars regardless of the historical sequence.

Perfect. Thanks.

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Bill Hines, Advice-Only Flat-F...

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January 1, 2023 2:34 pm

FWIW myself and other planners aren't huge fans of relying on distinct sets of historical data to model future retirements. Yes, Monte Carlo simulations use historical data to run hundreds of models and tie trends and related factors together to simulate bet and worst outcomes.

But, the odds of an exact same historical timeframe occurring again are miniscule. As well, that was then, this is now - tax laws have changed among countless other factors. Checks and balances have been implemented to prevent those circumstances from happening again. The market can no longer free-fall, for example. We have learned from modern economic downturns and added tools to our toolbelt like quantitative easing, stimulus payments, interest rate adjustments, and so on.

Because of all this, recessions are now measured in months, not years for the most part, and most are over before we actually realize we were in one. Yes, it's interesting to see what would happen if you had retired on the eve of the Great Recession, or in 1965. But I wouldn't use that information or much more than entertainment value.

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Peter Knupfer

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January 3, 2023 12:34 pm

@smatthews51 Try this to get a ballpark FRA: Use SSA's current benefit amount to work backwards to FRA, because the annual increment of +.08 is static, ie, if your FRA age = 66, your benefit at 70 = 1.32*FRA. So if your current benefit at 69=2000, the math would be 1.24*x=2000 ($1619).

This post was modified 4 years ago by Peter Knupfer

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Peter Knupfer

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January 3, 2023 12:39 pm

@hines202 As a historian, I can agree that the past doesn't repeat itself. But backtesting against historical scenarios can help reveal patterns in an investment's capacity to withstand different conditions. Michael McClung used extensive backtesting of various investing strategies and allocations to develop recommendations -- not predictions -- that reflect probabilities within a range of economic circumstances. You either have theory or you have experience to develop a plan; they can work together.

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Bill Hines, Advice-Only Flat-F...

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January 5, 2023 6:14 am

@docfiddle I agree, but it's important for folks to do it with some level of understanding that certain scenarios just can't happen again.

For example, I've seen folks compare against the 1929 crash and great depression and say "Welp, we can't retire, this sequence would have broke us." Or the Black Monday crash in 1987. But, circuit breakers were implemented after that, so those events just aren't possible any more.

Similarly, the long-term recessions we've seen in the 60's, etc. I believe we have too many tools now to prevent such a thing, but that part is a bit more dubious. We never know when or what the next black swan event is, maybe something we've never seen and not prepared for, like the pandemic, or maybe the next world-war, or some massive hack and cleaning out of world-wide bank assets that make Madoff and SBF/FTX look like child's play.

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