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Take Reduced Benefits ????
Old 07-28-2005, 10:55 AM   #1
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Take Reduced Benefits ????

I'm going to retire at the end of this year and am hung up on whether to take the reduced SS benefit ( I'm 62) and also the same question on my company pension.* *

I've received conflicting advice from two financial planners, one says to take both early and the other says to live off my investments and 401K* (total of 800 thousand) until I'm elgible for the full amounts.*

We plan to move to Mexico and are budgeting 72k per year to live on and if we take early payments, we will need less than 25k per year from our investments.* *Any advice or location of informative websites would be much appreciated.
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Re: Take Reduced Benefits ????
Old 07-28-2005, 11:02 AM   #2
 
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Re: Take Reduced Benefits ????

There are some web sites that discuss the pros and cons. Basicly if you live beyond x years (about 80?) you get more if you wait until 65.

Click here for one point of view.

My plan is to start taking benefits at 62. Bird in the hand, never know how long you'll live, etc.
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Re: Take Reduced Benefits ????
Old 07-28-2005, 11:13 AM   #3
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Re: Take Reduced Benefits ????

ronejack,

All you need to know to answer this question is your date of death. Once you figure that out, let us know and we will tell you when to start drawing your benefits.

Like T-Al, I'm planning on 62. It is not only a matter of longevity, it's other factors for me...bird in the hand, etc.

REW
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Re: Take Reduced Benefits ????
Old 07-28-2005, 12:02 PM   #4
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Re: Take Reduced Benefits ????

Quote:
Originally Posted by ronejack
I'm going to retire at the end of this year and am hung up on whether to take the reduced SS benefit ( I'm 62) and also the same question on my company pension.* *

I've received conflicting advice from two financial planners, one says to take both early and the other says to live off my investments and 401K* (total of 800 thousand) until I'm elgible for the full amounts.*

We plan to move to Mexico and are budgeting 72k per year to live on and if we take early payments, we will need less than 25k per year from our investments.* *Any advice or location of informative websites would be much appreciated.
How much money are you talking about? For me ER'ing at 41 my annual benefits only amount to $8-9K.

On the money side:
- If you need the money to live on then you don't really have much choice.
- If you don't need the money and would end up just frittering it away then don't take it until full eligibility.
- If you don't need the money and have the discipline to invest it in I bonds then that's an approach worth considering. For purchasing micro-cap nanotech stocks, see the previous bullet.

On the longevity side, when you take early SS you have to live 14 years to "win". OTOH if SS is bankrupt before the 14 years is up then you win anyway.

One final point-- Bud Hebeler knows many SS widows whose spouses took early SS, died without saving/investing the proceeds, and left their spouses with benefits reduced by 25%. If your spouse would face any deprivation due to your demise before living out the 14 years, then wait for full eligibility.

Spouse & I are grabbing every penny as soon as we're eligible and investing it. It'll be our personal LTC policy...
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Re: Take Reduced Benefits ????
Old 07-28-2005, 12:22 PM   #5
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Re: Take Reduced Benefits ????

Quote:
Originally Posted by ronejack
We plan to move to Mexico and are budgeting 72k per year to live on and if we take early payments, we will need less than 25k per year from our investments.
ronejack,
A couple other variables to consider especially if you do not need the $ to live.* What will your taxable income be--if take early SS, you give back $1 for every $2 when your taxable income (company pension) is over 12K I believe.
Is your company pension inflation indexed--if not maybe a good reason to take or better yet will they give you a lump sum so you can manage yourself?* With the lump sum rollover, you avoid the future possblity of default and you can manage the taxable portion with a bit more control.
Good Luck
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Re: Take Reduced Benefits ????
Old 07-28-2005, 12:54 PM   #6
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Re: Take Reduced Benefits ????

I think everyone answered the question. My mom is eligible next year at 62 and going for it. I think early is better unless you have other streams of income that would reduce it.

I think a key point is you should get the same amount over your lifetime based on the averages. A lot of pensions work the same way, but people think to stay longer because they think they are missing out on money.
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Re: Take Reduced Benefits ????
Old 07-28-2005, 12:58 PM   #7
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Re: Take Reduced Benefits ????

Taxable income would include iras, 401k, and pension income right?

- I guess this is another reason to consider more buy and hold stock investments with dividend income as part of your taxable saving accounts.
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Re: Take Reduced Benefits ????
Old 07-28-2005, 02:39 PM   #8
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Re: Take Reduced Benefits ????

Rhone, if you are in a private industry defined ben plan I would draw on that early (you never know if they will go belly up). I would roll over my 401k and IRA to Vanguard, Fidelity or the like and let it grow until I needed the dough. SS is a flip of the coin.
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Re: Take Reduced Benefits ????
Old 07-28-2005, 02:45 PM   #9
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Re: Take Reduced Benefits ????

Quote:
Originally Posted by Brat
* SS is a flip of the coin.
Regarding SS at62, keep in mind the choice is not 62 or 65.* You are just eligible at 62.* Every month pass 62 you defer taking the benefit, your payment is discounted less.* By floating a bit you can see more clearly you taxable income situation.* Look at the discount rates for early payment in your private pension, if not indexed for inflation, it may work as the best source for early income.
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Re: Take Reduced Benefits ????
Old 07-28-2005, 03:56 PM   #10
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Re: Take Reduced Benefits ????

I am getting mine and investing it. It is DW's insurance policy, should/when I croak. I don't need it, but I'm saving it, buying I-bonds and of course re-investing dividends with Vanguard. When I applied, the SS administrator advised me to take it, unless I intended to work. He said it would take 15 years to catch up.

OTOH, those who think they might live 30 more years or so and can wait, might be better off. I'm sure there's a breakeven point that someone can show on a graph that makes it smarter to wait. Getting mine now makes sense to me.
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Re: Take Reduced Benefits ????
Old 07-28-2005, 04:03 PM   #11
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Re: Take Reduced Benefits ????

Quote:
Originally Posted by nwsteve
ronejack,
A couple other variables to consider especially if you do not need the $ to live. What will your taxable income be--if take early SS, you give back $1 for every $2 when your taxable income (company pension) is over 12K I believe.
Is your company pension inflation indexed--if not maybe a good reason to take or better yet will they give you a lump sum so you can manage yourself? With the lump sum rollover, you avoid the future possblity of default and you can manage the taxable portion with a bit more control.
Good Luck
nwsteve
The $12000.00 is earned income either from an employer or self-employment. It does not apply to any other type of income. Your pension could be $50,000.00 per year and it will not affect your social security.

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Re: Take Reduced Benefits ????
Old 07-28-2005, 04:22 PM   #12
 
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Re: Take Reduced Benefits ????

Quote:
OTOH, those who think they might live 30 more years or so and can wait, might be better off.* I'm sure there's a breakeven point that someone can show on a graph that makes it smarter to wait. Getting mine now makes sense to me.
Eagle,

I have thought about this and there are pros and cons either way.

One school of thought says that if investment returns are very low (like today) delay the SS and let it grow. Even if you don't live to recoup delaying it, you'll be dead and won't care and if you have a surviving spouse, they will thank you for it, because they are getting a bigger monthly check.

The other school of thought. If Investment returns are very high. Like my Checking account in 1980 that paid 14%. Take the money early and invest it. Then there is also the bird in hand theory. If you think the government might screw around with your check. Take the money and run.

I won't have to make my decision for 8 years.
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Re: Take Reduced Benefits ????
Old 07-28-2005, 05:05 PM   #13
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Re: Take Reduced Benefits ????

Thanks Dreamer, that helps a lot.
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Re: Take Reduced Benefits ????
Old 07-28-2005, 05:26 PM   #14
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Re: Take Reduced Benefits ????

I had a thread on early/late SS about a year ago pertaining to a particular situation where both husband and wife are eligible for SS based on their own earnings records.

I'm not sure I convinced other folks here but I believe it can easily be shown that it is clearly to this couple's advantage (statistically) for the spouse with the lower benefit to take SS early and for the spouse with the larger benefit to take SS late. This assumes, of course, that neither spouse has fairly reliable knowledge that they may not live as long as the SS actuaries predict.

I believe this situation is a statistical anomaly that the current SS actuarial tables have overlooked.
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Re: Take Reduced Benefits ????
Old 07-28-2005, 05:45 PM   #15
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Re: Take Reduced Benefits ????

Here are a couple links I came across on the web. There are more just google social security early
http://www.fpanet.org/journal/articl...0601-art13.cfm* This is a bit dated (2001) so the threshold for earned income penalty is only 10680 but it covers the key points to understand and financial math for early social security.
http://www.yourwayahead.com/blog/_ar...31/294732.html

As you can see there is no one answer that fits every situation.* You need to do the financial math for your household and look at the death risk your genes provide.*
If the funds are not needed and any part-time work is anticipated, deferral makes sense.* Also the previous posters comment about the low wage spouse taking early provides another wrinkle to your choices
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Re: Take Reduced Benefits ????
Old 07-28-2005, 06:05 PM   #16
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Re: Take Reduced Benefits ????

Quote:
Originally Posted by Dreamer
The $12000.00 is earned income either from an employer or self-employment.* It does not apply to any other type of income.* Your pension could be $50,000.00 per year and it will not affect your social security.

Dreamer
Dreamer,
I need some help with your statement that pensions are not taxable.* Checking the IRS publication http://www.irs.gov/pub/irs-pdf/p554.pdf
it indicates that unless you paid into the pension, it is all considered taxable income.* Perhaps some public sector pensions are treated different.* But this publications seems to indicate the best you can do is exclude some allocated component of your pension related to your own direct payment (salary deferral) into the plan.
nwsteve
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Re: Take Reduced Benefits ????
Old 07-28-2005, 07:05 PM   #17
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Re: Take Reduced Benefits ????

Quote:
Originally Posted by nwsteve
Dreamer,
I need some help with your statement that pensions are not taxable.* Checking the IRS publication http://www.irs.gov/pub/irs-pdf/p554.pdf
it indicates that unless you paid into the pension, it is all considered taxable income.* Perhaps some public sector pensions are treated different.* But this publications seems to indicate the best you can do is exclude some allocated component of your pension related to your own direct payment (salary deferral) into the plan.
nwsteve
New Steve: I believe Dreamers statement was that the only thing that may affect a partial loss of soc. sec. benefits at retirement is "earned income", ie. a job.
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Re: Take Reduced Benefits ????
Old 07-28-2005, 07:35 PM   #18
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Re: Take Reduced Benefits ????

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Originally Posted by ex-Jarhead
thing that may affect a partial loss of soc. sec. benefits at retirement is "earned income", ie. a job.
Ex-Jarhead,
Got that part but where I am confused is what you are looking at that said only earned income is used to determine if social security income gets taxed.* What I am seeing is that if you are drawing social security before 65 and your earned income (pension counts)is above the threshhold, you get to pay on a portion of your SS income as well.
The following is from the SS Admin site
"Some people who get Social Security benefits have to pay income taxes on them. This will apply to you only if you have other substantial income in addition to your benefits (for example, wages, self-employment, interest, dividends and other taxable income that you have to report on your tax return). No one pays taxes on more than 85 percent of his or her Social Security benefits and some pay on a smaller amount, based on these IRS rules:

If you file a federal tax return as an "individual" and your combined income* is between $25,000 and $34,000, you may have to pay income tax on 50 percent of your Social Security benefits. If your combined income is above $34,000, up to 85 percent of your Social Security benefits is subject to income tax.
If you file a joint return, you may have to pay taxes on 50 percent of your benefits if you and your spouse have a combined income* that is between $32,000 and $44,000. If your combined income is more than $44,000, up to 85 percent of your Social Security benefits is subject to income tax.
If you are married and file a separate tax return, you probably will pay taxes on your benefits.
*On your 1040 tax return, your "combined income" is the sum of your adjusted gross income, plus nontaxable interest, plus one-half of your Social Security benefits."

Since pensions are taxable income, how are they not figured into the calculation?* Not trying to be argumentive at all but really want to know for my own exposure.
Thanks
Nwsteve
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Re: Take Reduced Benefits ????
Old 07-28-2005, 07:59 PM   #19
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Re: Take Reduced Benefits ????

Quote:
Originally Posted by nwsteve
Ex-Jarhead,
Got that part but where I am confused is what you are looking at that said only earned income is used to determine if social security income gets taxed.* What I am seeing is that if you are drawing social security before 65 and your earned income (pension counts)is above the threshhold, you get to pay on a portion of your SS income as well.
The following is from the SS Admin site
"Some people who get Social Security benefits have to pay income taxes on them. This will apply to you only if you have other substantial income in addition to your benefits (for example, wages, self-employment, interest, dividends and other taxable income that you have to report on your tax return). No one pays taxes on more than 85 percent of his or her Social Security benefits and some pay on a smaller amount, based on these IRS rules:

If you file a federal tax return as an "individual" and your combined income* is between $25,000 and $34,000, you may have to pay income tax on 50 percent of your Social Security benefits. If your combined income is above $34,000, up to 85 percent of your Social Security benefits is subject to income tax.
If you file a joint return, you may have to pay taxes on 50 percent of your benefits if you and your spouse have a combined income* that is between $32,000 and $44,000. If your combined income is more than $44,000, up to 85 percent of your Social Security benefits is subject to income tax.
If you are married and file a separate tax return, you probably will pay taxes on your benefits.
*On your 1040 tax return, your "combined income" is the sum of your adjusted gross income, plus nontaxable interest, plus one-half of your Social Security benefits."

Since pensions are taxable income, how are they not figured into the calculation?* Not trying to be argumentive at all but really want to know for my own exposure.
Thanks
Nwsteve
Newsteve: I think you may be getting confused because of two different issues.

On the one hand, at age 62, if you have earned income, ie. a job, you will lose part of your soc. security directly. Not talking about tax situation, but an actual reduction of Soc. Security benefits.

What you alluded to in your quote above, is that soc. Sec. benefits are subject to TAXES if certain guidelines are exceeded.

Two different issues.

Basically, if you are age 62, and do not have a job, your soc. sec. won't be affected directly, no matter how much income you have.

However, if you exceed the thresholds as quoted, you will be TAXED by varying degrees on your soc. sec. income.

Most states do not tax soc. sec. at all. (I live in Calif., and they don't tax soc. sec.).

If that;s not clear, fire away, I'm retired and have plenty of time.
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Re: Take Reduced Benefits ????
Old 07-29-2005, 08:16 AM   #20
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Re: Take Reduced Benefits ????

I think that a pension is not "Earned Income". That would explain why SS doesn't get docked (reduced) because of pensions. Jarhead nailed that one. But Uncle Sam is gonna tax whenever he can. If I understand it, your pension will just affect how much of the SS is taxed. Wait-a-minute. Jarhead just said that! Oh well, if two of us believe it, it must be true. Anybody want to make it three?

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