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Budget and SS cuts
Old 11-07-2013, 09:31 AM   #1
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Budget and SS cuts

When we did our retirement planning, we did so conservatively. We budgeted taking SS ay 62, even though we do not plan to take it until 70. We budgeted life expectancies at 94. We also budgeted SS assuming there would be a 25% cut in benefits, thinking it would get addressed in congress. (ok so we made that mistake!)

Now that we are 58 and 57, and within 5 years of eligibility, are we being too conservative with this?

We certainly will still want to spend below means, but we do not want to leave opportunity on the table either.

No one of course knows for sure.. but thoughts?
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Old 11-07-2013, 09:45 AM   #2
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I think it's an issue many of us wonder about. If we could predict the future, then we'd know exactly how much to withdraw.

I'm in the very early years of my retirement/semi-retirement and am thinking that if I gave myself a small raise, I could have a bit more fun while I'm still young. On the other hand, I'm trying to preserve as much of my portfolio as possible just in case things hit the fan later.

What to do.....what to do. This is a much discussed topic here (you've probably seen some of the conversations). I tend to lean towards being conservative, as I'd rather leave money behind when I go, than have to live on an impractically small budget when I'm old.

On the other hand........

I'm telling you, it's a curse being able to see both sides of an argument!
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Old 11-07-2013, 10:00 AM   #3
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I lean towards conservative too. I'm still figuring a 25% cut and fully taxable, but I did it based on the age 70 withdrawal. I think the more it is a part of your total % of your wealth or income (however you want to look at it), the more important it is to be accurate. It's less than 20% for me, so I'm not agonizing over trying getting it precise.
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Old 11-07-2013, 10:05 AM   #4
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Originally Posted by bizlady View Post
When we did our retirement planning, we did so conservatively. We budgeted taking SS ay 62, even though we do not plan to take it until 70. We budgeted life expectancies at 94. We also budgeted SS assuming there would be a 25% cut in benefits, thinking it would get addressed in congress. (ok so we made that mistake!)

Now that we are 58 and 57, and within 5 years of eligibility, are we being too conservative with this?

We certainly will still want to spend below means, but we do not want to leave opportunity on the table either.

No one of course knows for sure.. but thoughts?
Do you get one SS payment or two? There are many different strategies to consider.

Also, have you tried doing planning assuming one of you dies early. Assuming both of you live to 94 is NOT being conservative. It is being optimistic. To be conservative, assume one of you dies early and the other one has to live alone to 94 with one less SS payment, expenses that are more than half than before, a higher single tax rate, and LTC insurance.
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Old 11-07-2013, 10:13 AM   #5
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While there is no telling how SS benefits will be impacted, I do not think they will cut benefits for those that are close to being able to collect nor to those that are already collecting. Certainly the tax treatment, for those collecting as well as those still working are likely to change , and cuts for folks under 55 might also happen. That said, congress never fails to amaze me with the arcane solutions they cook up
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Old 11-07-2013, 10:24 AM   #6
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I comfort myself with the thought that in order for anything to change with the social security formula, Congress would actually be required to DO something. So there's that............
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Old 11-07-2013, 10:27 AM   #7
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Do you get one SS payment or two? There are many different strategies to consider.

Also, have you tried doing planning assuming one of you dies early. Assuming both of you live to 94 is NOT being conservative. It is being optimistic. To be conservative, assume one of you dies early and the other one has to live alone to 94 with one less SS payment, expenses that are more than half than before, a higher single tax rate, and LTC insurance.
We both will have good size SS of nearly equal size. He also has a pension which if he dies first, I will continue to get 100%. Have modeled early death for each of us, and we would be fine. We chose 94 and looked it as conservative since that seems as long as we would live, but I see your point.
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Old 11-07-2013, 10:27 AM   #8
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If you anticipate six figure annual incomes from other sources in retirement then there may be some risk of reduced SS payments for you -- as the changes would probably be focused on the "wealthy". However, if as a couple you will have income below $120 to $150K then I think the risk is very small and you are being excessively conservative in your planning.
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Old 11-07-2013, 10:28 AM   #9
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I comfort myself with the thought that in order for anything to change with the social security formula, Congress would actually be required to DO something. So there's that............
+1 But seriously, my understanding is that even if they did something today (what time is it now?) it would not impact anyone near SS age. Last I heard it was aimed at 40 somethings.

But...my plan is to take SS at 62 (six months from now) just in case they want to get serious about this stuff; I'd be hoping for a grandfather-ing.
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Old 11-07-2013, 10:31 AM   #10
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As someone mentioned previously, a change assumes our CONgress actually does something...

At 59 and change, I don't expect my SS amount will be affected, but taxation of it may, as well as the COLA calculation.
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Old 11-07-2013, 10:35 AM   #11
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Originally Posted by bizlady View Post
We both will have good size SS of nearly equal size. He also has a pension which if he dies first, I will continue to get 100%. Have modeled early death for each of us, and we would be fine. We chose 94 and looked it as conservative since that seems as long as we would live, but I see your point.
That is great! I always urge people to look at this case because most people don't want to plan for it.

One SS strategy I would recommend you look at is the "One early, one late" strategy. One of you would take SS at age 62. The other takes the spousal benefit at full retirement age (1/2 of their spouses full retirement age SS) and then switches to their own SS at age 70 to get the delayed credits. This will preserve the larger SS payment for the one who is widowed.

Have you looked at doing Roth conversions before one of you starts SS?
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Old 11-07-2013, 10:51 AM   #12
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Nothing wrong with being a bit conservative in your planning. You can always spend a bit more if you find things are going better than your worst case scenario. The only danger is that you wait to long, your health goes bad, and you find that all those great things you put off in your 50's and 60's are not possible in your 70's and 80's. So.... make sure you put some value on your time and good health as well as your portfolio. Personally, I think you are pretty much spot on as long as you have some $$'s to enjoy yourself and do things you probably won't be able to do in 20 years.
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Old 11-07-2013, 10:58 AM   #13
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That is great! I always urge people to look at this case because most people don't want to plan for it.

One SS strategy I would recommend you look at is the "One early, one late" strategy. One of you would take SS at age 62. The other takes the spousal benefit at full retirement age (1/2 of their spouses full retirement age SS) and then switches to their own SS at age 70 to get the delayed credits. This will preserve the larger SS payment for the one who is widowed.

Have you looked at doing Roth conversions before one of you starts SS?

At this time, we are thinking I will file and suspend at FRA and then he would take spousal. I would then take mine at 70 as it is slightly larger than his.

Roth is an interesting predicament for us. All retirement is taxable. We are living on savings until we hit the 59.5, and really do not have cash to spare for taxes for conversions as a result now. I am also still working self employed part time. Not sure if we should convert to fill the 15% bracket if we also have to pay taxes from that money. Additionally, balancing that with possible health subsidies for 2014 and 2015....

Once we start drawing on retirement, the bucket will be full in the 15% bracket, and we are just not sure it makes sense to convert if that money goes to the 25% bracket. But we will need to pay some attention to this....

Good problems I suppose....
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Old 11-07-2013, 11:03 AM   #14
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Originally Posted by bizlady View Post
When we did our retirement planning, we did so conservatively. We budgeted taking SS ay 62, even though we do not plan to take it until 70.
When using FireCalc, I get a higher SWR taking the reduced SS at 62 rather than waiting until the higher payout at 70.
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Old 11-07-2013, 11:07 AM   #15
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While there is no telling how SS benefits will be impacted, I do not think they will cut benefits for those that are close to being able to collect nor to those that are already collecting. Certainly the tax treatment, for those collecting as well as those still working are likely to change , and cuts for folks under 55 might also happen. That said, congress never fails to amaze me with the arcane solutions they cook up
We could certainly discuss what may or may not happen or the ever popular what should or should not happen but that will not get us anywhere. The issue always comes down to different layers of risk and how to respond.
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Old 11-07-2013, 11:21 AM   #16
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At 59 and change, I don't expect my SS amount will be affected, but taxation of it may, as well as the COLA calculation.
I am the same age and I assess it the way you do.

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+1 But seriously, my understanding is that even if they did something today (what time is it now?) it would not impact anyone near SS age. Last I heard it was aimed at 40 somethings.

But...my plan is to take SS at 62 (six months from now) just in case they want to get serious about this stuff; I'd be hoping for a grandfather-ing.
Of all the possibilities the one that I rate as close to zero as possible without being actually zero is that they would treat someone who is, say, 63 who is already taking SS benefits differently than they would treat someone who is the exact same age and not already taking SS benefits.

There is a reason to take benefits at 62 if you fear future cutbacks but hope of being treating differently from similar aged people not taking benefits isn't one of them. The reason is that if future benefits are cut then you hopefully had several years of receiving benefits at the higher rate before the benefits are cut. My sense though is that for people your age (or even my age) the amount of benefit from doing this probably wouldn't be very great and probably wouldn't be great enough to justify taking benefits at 62 if you would otherwise prerfer to take them at a later age.

In my case, I haven't decided yet when to take benefits. DH took at 62. I might do the same. OTOH, I might wait until 66 and then take a spousal benefit and hold my own until age 70 (DH and I have similar FRA benefits). But I have 3 more years to decide.
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Old 11-07-2013, 11:39 AM   #17
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....No one of course knows for sure.. but thoughts?
We are your age and I assume a 10% haircut in SS only to be conservative, not because I think it will happen. Like others, I think the needed changes will principally affect those still working and people 20 or more years away from retirement.

Our Plan A is to file and suspend at FRA and have DW claim spousal benefits at FRA and then I'll claim benefits at 70. If things go to hell in a handbasket then we'll claim earlier.

We also do a what-if for if I pass tomorrow and reduce expenses by 20%.
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Old 11-07-2013, 12:12 PM   #18
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I am 65, and plan to take SS when I am 70. So, we are both thinking of claiming SS in five years.

Actually, I will be fine without it but since my pension is tiny I like the idea of having additional, regular, annuity-type income coming in if I should live to a very old age.

If it gets a haircut between now and then I will feel extremely stupid, but it won't be the first time in my life that I have felt like that!
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Old 11-07-2013, 12:37 PM   #19
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Our retirement plan is pretty conservative, but we can live in a nice place, have a budget for fun and travel and still save money in retirement. I am not sure if spending any more would really make me happier. I guess most happiness research says it would not.

I realized that when we were looking at retirement homes. An extra $100K than we could afford would always buy a nicer home. But that is true no matter what kind of budget we had. If we had a $100K less to spend, and someone gave us $100K, then we'd be absolutely thrilled with what we can afford now.
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Old 11-07-2013, 01:02 PM   #20
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I would not be as conservative and @ 55, count 100% of projected SS. Most of what I've seen suggest possible SS changes for those younger than 55 and/or very well off. I'd much rather have the risk of running out of money as I get old be higher than the risk of not enjoying life as much as I could in my younger/healtheir years.
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