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Hi! a newbie with a twist
Old 03-02-2007, 10:43 AM   #1
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Hi! a newbie with a twist

Hi All - Jonathan Clements came through for me again with advice to check out E-R.org and FIREcalc. Wonderful to find you all.

I am a 52 year old woman in a civil union with another woman age 61. Our legal relationship is only helpful to us in the state of Vermont. The feds don't recognize us at all. My partner is coming up on her 62nd birthday and we're thinking about whether or not to begin collecting those (reduced) SS checks and investing them. She is currently working part time and earning a little under $12K a year. We have 4 grown children (hers biologically) and 3 grandchildren. Her health is very good, but her parents both died fairly young - dad at 70, mom at 74. We're thinking it would be a good idea to begin collecting earlier rather than later, since there would be no beneficiary payments on her SS account if she died prematurely. So long as she keeps earning under the SS maximum, to avoid taxes on the SS money, do you think it would be a good idea for us to collect and invest? One other question I haven't looked into yet, once collecting SS can an individual still contribute to an IRA, or is that option closed off? (I've been funding her IRA for years, and since my good options 401(k), HSA, non-deductible IRA are already maxed out, I'd like to continue to protect $ in her Roth IRA.)

LEM1955



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Re: Hi! a newbie with a twist
Old 03-02-2007, 11:08 AM   #2
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Re: Hi! a newbie with a twist

Welcome to the board!

Your first question is interesting but I don't have a good answer for you there. I think the "take SS early" question is primarily driven by life expectancy, whether or not you need the funds, and how you would invest them. There is a calculator on the SS site that will tell you when your "breakeven" point is if you start collecting SS early, on time, or late. However, it doesn't take into account any earnings you would make on the SS money if you took it early and invested in or saved it:

http://www.ssa.gov/OACT/quickcalc/when2retire.html

I will point out that in the SS benefit calculations age is calculated on a monthly basis, so your spouse's benefit amount will increase slightly each month beyond age 62. It isn't an "either/or" proposition between 62 and 65.

You can still contribute to either a Roth or Traditional IRA even when collecting SS as long as you meet the other requirements. For example, she would be able to contribute to her Roth IRA as long as she had enough earned income to do so and didn't make "too much" for her filing status. Her SS benefits and your income would not be considered earned income for the purposes of determining her contribution eligibility. However, the contribution could come from your income or assets.

2Cor521

Edit: I stand corrected on my last paragraph above. It makes sense though; because you have to start RMD's at 70.5 from the traditional IRA.
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Re: Hi! a newbie with a twist
Old 03-02-2007, 11:57 AM   #3
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Re: Hi! a newbie with a twist

Hello LEM1955,

Yes, you do have an interesting twist.

Normally (pending particular details), a common plan is to withdraw money from your IRA from age 62-70, then take SS at age 70, in order to minimize the size of the RMD from the IRA, as well as to increase your SS payment, and maximize any spousal benefit SS payment.

However, in your case, assuming that her earnings plus SS income keeps her under the limit of the special working SS tax, I would say it sounds like a good move.

To answer your question on IRA contributions (which I had never though to look up until now, and which surprised me a bit on the age limit), here's what the IRS says about contributing to an IRA:

"Age 70 rule. Contributions cannot be made to your traditional IRA for the year in which you reach age 70 or for any later year.

You attain age 70 on the date that is six calendar months after the 70th anniversary of your birth. If you were born on June 30, 1935, the 70th anniversary of your birth is June 30, 2005, and you attained age 70 on December 30, 2005. If you were born on July 1, 1935, the 70th anniversary of your birth was July 1, 2005, and you attained age 70 on January 1, 2006."

source: http://www.irs.gov/publications/p590/ch01.html

I scrolled through the IRA document listed above, and as far as I can tell, it doesn't matter if you are collecting SS or not - the only requirement is that your IRA contribution cannot be greater than your total wage earnings for that year, up to $4,000 (plus the over-50 catchup contribution).

Note that the value of her IRA deduction (if contributing to a Traditional IRA) may be limited, based on her wage income, her SS income, and whether she was covered by a retirement plan at work.

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Re: Hi! a newbie with a twist
Old 03-02-2007, 12:06 PM   #4
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Re: Hi! a newbie with a twist

There are lots of threads on delaying social security - use the search function and read some, I think you will find lots of interesting info.

I believe that as long as the two of you are in good health that this is a prime example of when ss should be delayed - since women have longer life expectancies. I realize that the "risk" of not taking it looks big now, the real risk is 2 women living to 100 and outliving their money.

Anyway, Welcome to the board!
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Re: Hi! a newbie with a twist
Old 03-02-2007, 12:55 PM   #5
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Re: Hi! a newbie with a twist

Thanks for your responses. I think "search" will keep me busy here a long time. Just to clarify my situation a little more. I'm still working and we have no need to draw on either SS or invested money of any kind. (Current plan is ER in 5.5 years.) It's that no spousal benefit thing I keep trying to weigh against the two of us living 100 years thing. We just celebrated my paternal grandmother's 100th birthday at the beginning of February. So 110 for me, isn't out of the question. OMG, maybe I should work longer....
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Re: Hi! a newbie with a twist
Old 03-02-2007, 01:12 PM   #6
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Re: Hi! a newbie with a twist

You might want to look at this thread and the thread Cutthroat linked to in that thread:

http://early-retirement.org/forums/i...?topic=11795.0
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Re: Hi! a newbie with a twist
Old 03-02-2007, 01:51 PM   #7
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Re: Hi! a newbie with a twist

Quote:
Originally Posted by lem1955
Thanks for your responses. I think "search" will keep me busy here a long time. Just to clarify my situation a little more. I'm still working and we have no need to draw on either SS or invested money of any kind. (Current plan is ER in 5.5 years.) It's that no spousal benefit thing I keep trying to weigh against the two of us living 100 years thing. We just celebrated my paternal grandmother's 100th birthday at the beginning of February. So 110 for me, isn't out of the question. OMG, maybe I should work longer....

Or move?
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Re: Hi! a newbie with a twist
Old 03-02-2007, 03:30 PM   #8
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Re: Hi! a newbie with a twist

Quote:
Originally Posted by lem1955
Thanks for your responses. I think "search" will keep me busy here a long time. Just to clarify my situation a little more. I'm still working and we have no need to draw on either SS or invested money of any kind. (Current plan is ER in 5.5 years.) It's that no spousal benefit thing I keep trying to weigh against the two of us living 100 years thing. We just celebrated my paternal grandmother's 100th birthday at the beginning of February. So 110 for me, isn't out of the question. OMG, maybe I should work longer....
Well, if longevity is in your family's history, and you don't need to draw SS, then waiting until age 70 to max out SS would probably be a good idea.

If you don't need to draw on invested money or SS, then why are you still working?

What were the causes of death of the father/mother at 70/74? You could always have the lower-valued benefit SS take it before age 65, and have the higher SS benefit taken at age 70, since the penalty $-wise of taking the lower SS early wouldn't be as much as the gain in delaying the higher SS benefit until 70.
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Re: Hi! a newbie with a twist
Old 03-02-2007, 03:53 PM   #9
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Re: Hi! a newbie with a twist

I thought this topic was going to be a new alcoholic drink!
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Re: Hi! a newbie with a twist
Old 03-02-2007, 03:56 PM   #10
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Re: Hi! a newbie with a twist

Hi and welcome. I'm generally against annuities in any form or fashion but the US government stuck us in one and the question is how to maximize your money out. If you health is bad, take it right away. If your health is good, delay as long as you can afford to. SS goes up about 8.5% plus COLA for every year delayed until age 70. There isn't any "safe" place to invest your money that will give you that kind of return.

Even if her parents and grandparents died in their 60's, I recommend she look at her own health to make the decision. Both of my parents smoked heavily -- my mother died of lung cancer (65) and an abdominal cancer/tumor killed my father (79). Three out of four grandparents made it to 85. You don't know what will happen until you get something serious.

Things might change if the legal union was treated like marriage for SS purposes. Then there are more financial jumbles to consider that don't matter for either of you.

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Re: Hi! a newbie with a twist
Old 03-02-2007, 03:58 PM   #11
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Re: Hi! a newbie with a twist

Quote:
Originally Posted by dex
I thought this topic was going to be a new alcoholic drink!
2 shots Wild Turkey
Ice

Done!

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Re: Hi! a newbie with a twist
Old 03-03-2007, 06:50 AM   #12
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Re: Hi! a newbie with a twist

Quote:
Originally Posted by MooreBonds

If you don't need to draw on invested money or SS, then why are you still working?
We WILL need to draw on SS and invested money, but not until I stop working. We're just regular middle class types trying to put it all together.

Thanks for all your responses. And for those of you who were mislead by my subject heading, try this:

The Mary Pickford:
1 1/2 oz white rum
1 1/2 oz pineapple juice
1/4 oz grenadine
1/4 oz maraschino liqueur
Shake w/ice and strain into a cocktail glass. Add a twist, if desired!
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Re: Hi! a newbie with a twist
Old 03-03-2007, 09:13 AM   #13
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Re: Hi! a newbie with a twist

Quote:
Originally Posted by lem1955
We WILL need to draw on SS and invested money, but not until I stop working. We're just regular middle class types trying to put it all together.
Here's another couple of twists.

Your partner with biological children probably has an ex-husband in the woodpile (living or dead). If so, she probably has some spousal rights to his social security. She is eligible for either her SS or half of his depending on which is greater. It's worth checking out and seeing if there is any benefits there.

Tax wise you win by the feds not recognizing your union. She can start taking SS whenever she wants and your income won't count against it by raising your joint return taxes. The normal rules apply if she is working and starts taking SS.

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Re: Hi! a newbie with a twist
Old 03-03-2007, 02:45 PM   #14
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Re: Hi! a newbie with a twist

Plus if your partner's ex has died she can start collecting a portion of his SS benefits now and let hers grow till 70.
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Re: Hi! a newbie with a twist
Old 03-04-2007, 07:42 AM   #15
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Re: Hi! a newbie with a twist

Quote:
Originally Posted by 2B
Here's another couple of twists.

Your partner with biological children probably has an ex-husband in the woodpile (living or dead). If so, she probably has some spousal rights to his social security. She is eligible for either her SS or half of his depending on which is greater. It's worth checking out and seeing if there is any benefits there.
Yup, she does. He's still living and remarried many years ago. Is my partner still entitled to half his SS benefit, despite his remarriage? Does he have to be cooperative, or can she apply without his knowledge or cooperation?
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Re: Hi! a newbie with a twist
Old 03-04-2007, 07:51 AM   #16
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Re: Hi! a newbie with a twist

Quote:
Originally Posted by lem1955
Yup, she does. He's still living and remarried many years ago. Is my partner still entitled to half his SS benefit, despite his remarriage? Does he have to be cooperative, or can she apply without his knowledge or cooperation?
Actually, just found my own answer --- she would have to have been married at least 10 years, and it was only 7 years. (She'd say "only?". It was an eternity, and not the good kind.) Oh well, collecting on his spousal benefits would have been sweet justice, if it had worked for her. Thanks for the tip, anyway.
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