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Cola'd Pensions
Old 01-27-2010, 11:58 AM   #21
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Cola'd Pensions

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Originally Posted by Nords View Post
Have you already read Bud Hebeler's articles?
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Nords isn't taking SS at 62 a no brainer for you, with both you and your wife getting cola'd gov't pensions.

When I look at projected total of my pension and early SS, I wonder how we'll spend it all. Well, we probably won't and the surplus will go into savings and investments. <Just like it has over the past 7+ yrs of ER.> Perhaps there's an argument to be made for waiting for an even larger amount, if you really don't need the money. But what would I be waiting for and what would I be spending the extra on. It's alot like the decision to ER. Waiting will always get you more dollars, but not necessarily more enjoyment.

In addition, I can't help but believe at some point there will be means testing to reduce benefits or increase taxes even more than current provisions. Taking a smaller amount over a longer period of time seems safer. I'd even take reduced benefits at 60 or even earlier, if I could.
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Old 01-27-2010, 03:57 PM   #22
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Originally Posted by W2R View Post
Many may choose to use the Dec to Dec number and that might be the better choice. I have no idea. I am a new retiree and new to this so I am just now trying to figure this out.

My thinking was that my true cost of living is affected more by the average consumer prices throughout the year than the point value in Dec only, due to volatility in monthly prices even when seasonally adjusted.
When I adjust our spending budget for inflation I use the Dec-Dec figures. Probably doesn't really matter that much in any given year as we spend what's needed to enjoy life and meet obligations. If you look at how TIPS interest rates are calculated (the index ratio) based on the CPI-U, they use the monthly data and not averages. Here's a representative link: Institutional - 2-3/8% 5-YEAR TREASURY INFLATION-PROTECTED SECURITIES (TIPS) Due April 15, 2011
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Old 01-27-2010, 06:33 PM   #23
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Originally Posted by JustNtime View Post
Nords isn't taking SS at 62 a no brainer for you, with both you and your wife getting cola'd gov't pensions.
I've read a lot and thought about it, but I haven't done the math yet. As far as the IRS is concerned, the sooner spouse & I start taking SS the sooner we can start paying 25% taxes on it.

I only have 24 years of work history; the rest is zeroes. So far our earnings histories are almost equal and we're only a year apart in age. Our latest SS estimates are around $1000/month (each) at age 62 rising to $1800/month at age 70. We both expect to live past 100 (she has four Ashkenazim grandparents who proved it) and I'll probably get nagged too much to be able to stray very far off the beaten path. No doubt there's some advantageous combination of file/suspend with one of us at age 62 and the other at age 70.

Between now and my 62nd birthday (in 2022) I don't think there's much political risk to SS benefits, but there might be quite a bit of means-testing/taxation risk from the IRS.

In 10 or so years, when I'm around age 60, I'll do the spreadsheet from hell to see what happens if we take it at ages 62 or 70, invest it for estate planning, or invest it for charitable foundation planning, or donate it to charity. I suppose we could also see what happens if we spend it as fast as we get it, but we're not doing that right now.

Ooh, I know, we could assess the effects of taking SS at age 62 and using it to accelerate our mortgage payments!
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Old 01-28-2010, 08:54 AM   #24
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Well, interesting Nords, particularly from a tax bracket perspective. It looks assured that at least 85% of our SS will be taxable and I suppose that will likely go to 100% eventually. Further there won't be much room, if any to top off our current tax bracket even with the reduced benefits at age 62. Waiting to 66 will almost definitely move us into a higher bracket.

I converted an SP index fund in Dec to top off last years tax bracket. Right now at a modest loss. Should the fund head further south before Oct. I may want to recharacterize. Which will be going the wrong way in conversions to Roths. I am considering doing another major conversion this year with the splitting of taxes in 11 & 12 to fill those tax brackets. By paying the taxes from after tax money, it is like contributing those taxes to a Roth. Since I have no earned income and don't expect any <except stop/loss pay, if they ever finish processing it>, I can't normally contribute to an IRA any more. So this is definitely a plus. Converting all the traditional IRAs to Roths should leave us the flexibility to take or not take funds without tax consequence. And to save and invest without the proceeds being taxed. Of course, losses aren't deductible which of late has been somewhat aggravating. But then again losses always are. As long as the gains offset most or all of the losses, I don't let it get me down.

I suppose that is all off topic. But a cpi-u question, our military pensions didn't receive a cola this year due to dropping of the cpi. Will our next cola increase be calculated from the difference in Sep 10 minus Sep 09 or Sep 08 cpi's. Obviously using Sep 09 should get us the higher raise and would be a little bonus for NOT getting a cola this yr. I think this is the way I-bonds work following a period of deflation. Anyone know?
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Old 01-28-2010, 10:38 AM   #25
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W2R,
IIRC, your SWR is so conservative, that it shouldn't matter in the least which one you pick!
Until I claim my SS at age 66, my SWR is a little under 3.5% and when I start getting SS I will probably take around 2.5% - 3.0%. And really, 3.5% is more than I can spend. So in a sense you're right - - it really doesn't matter which one I pick. Still, if I am going to bother to compute CPI at all, why not do it using the correct index for my purposes? It would bother me a lot to intentionally use incorrect values. I am always fighting perfectionist tendencies as a recovering "little miss perfect" and seriously, something like this would keep me up at night.

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Me, on the other hand, I'm back to work in year 2! It is very much a part-time job right now, and I'm feeling good about it. ("enjoying" would be too strong a word)
Glad you are feeling good about it. Part time work is better than full time work and it helps to have a good attitude whatever life brings.
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Old 01-28-2010, 10:42 AM   #26
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Well, interesting Nords, particularly from a tax bracket perspective. It looks assured that at least 85% of our SS will be taxable and I suppose that will likely go to 100% eventually.
My tax bracket is going to be lower than either of yours and I am older, at 61, but for some reason I have always assumed in my calculations that SS will be 100% taxable as ordinary income. Maybe it's a premonition... I keep forgetting that it isn't.
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Old 01-28-2010, 03:04 PM   #27
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I only have 24 years of work history; the rest is zeroes. So far our earnings histories are almost equal and we're only a year apart in age. Our latest SS estimates are around $1000/month (each) at age 62 rising to $1800/month at age 70.

Nords,
Have you been able to tell how much the zero's will hurt your SS?
I'm about to start stacking them up for the next 10 to 15 years.
Steve
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Old 01-28-2010, 08:49 PM   #28
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I suppose that is all off topic. But a cpi-u question, our military pensions didn't receive a cola this year due to dropping of the cpi. Will our next cola increase be calculated from the difference in Sep 10 minus Sep 09 or Sep 08 cpi's. Obviously using Sep 09 should get us the higher raise and would be a little bonus for NOT getting a cola this yr. I think this is the way I-bonds work following a period of deflation. Anyone know?
for SS the 3rd qtr 08 average cpi number will be used as the starting point until a cola is paid. i know that fed pensions use the SS computations and i think military pensions use it too.
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