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Failure of V2.8.1 to adj retirement acct withdrawal

Submitted by hdpowers@comcast.net on 30 August 2006 - 10:17pm

To model delayed SocSec benefit, I created a new profile. I changed the benefit commencement date from 66 to 70 for both my wife and I reran the summary, detail and monte carlo reports. I noticed that the living standard amount made a significant jump at age 70 when the SS benefit started.

Upon checking as to why the consumption wasn't smoothed out, I noticed that the after tax accounts were the limiting factor (dropping to 0 at age 70) and that the retirement account withdrawal rates had not changed from the profile from which they were copied (i.e., the age 66 SS benefit commencement).

I do start retirement account withdrawals at age 60 and can find no setting on the input screen that would indicae why the retirement account withdrawal rate isn't being adjusted from the earlier profile.

Thanks

Kurt

‹ Consumption Smoothing
Submitted by Dick Munroe on 31 August 2006 - 5:50pm.
1

Without further information, you're probably required to make the minimum withdrawal.

Best,

Dick Munroe

Submitted by hdpowers@comcast.net on 31 August 2006 - 11:32pm.
2

Dick,

What additional information do you need?

What makes me suspicious that it isn't a minimum withdrawal requirement is that for the age 66 SS benefit, the standard of living and retirement withdrawal is constant through the projected age of death.

In the age 70 SS benefit profile, the standard of living is a step function increase at age 70 SS benefit comencement. The retirement withdrawal is constant and the same dollar value as the age 66 profile.

I find it difficult to believe that for the age 66 profile, the required retirement withdrawal rate would just coincidentally be the same value needed to provide a constant standard of living.

Thanks,

Kurt

Submitted by Laurence Kotlikoff on 12 September 2006 - 8:23am.
3

Kurt, the living standard increase you reported at 70 almost surely arises because you are liquidity constrained prior to age 70. Once you get your hands on your social security benefits, you can have a higher living standard. Before 70, you'd have to borrow against those future benefits, which isn't allowed by the progam unless your raise the borrowing limit from its default value of zero.

I don't follow what you say about retirement account withdrawals. Changing the age at which you start receiving social security won't change the age of retirement account withdrawals or anything about those withdrawals in the program.

Call me at 617 834-2148 if this isn't clear.

best, Larry

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