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Drawing income from SS vs. Investments
Old 11-15-2013, 07:02 PM   #1
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Drawing income from SS vs. Investments

I'm wondering if there is some general guidance about the trade-off between taking SS earlier vs. drawing income from investments.

I'm currently age 60 and retired, but my spouse is age 58 and planning to work two more years. We're living off her income until she retires.

When she retires, we'll need some income. Some of that will come from her pension and some from drawing on investments. I'll be age 62 at that time and could start drawing SS which would reduce the amount we would need to draw from investments. Or I could delay drawing SS to age 66 or 70 and draw more from investments to supply our income. Of course, we'll have the same decision to make with her SS a couple years later.

I tried modeling these scenarios with FIRECALC and it seems to indicate that delaying SS for myself and my spouse would be the best approach. I used "Given a success rate, determine spending level" on the "Investigate" tab and ran scenarios with both of us starting SS at age 62 and both of us starting SS at age 70. With a 95% success rate, the FIRECALC calculated spending level increases quite a bit (about 8%) when I delay SS for both of us from age 62 to age 70.

Wondering if there's some general guidance on the trade-offs involved and if the way I modeled it in Firecalc makes sense.

Thanks much.
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Old 11-15-2013, 07:49 PM   #2
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Quote:
Originally Posted by johnstoeckel View Post
I'm wondering if there is some general guidance about the trade-off between taking SS earlier vs. drawing income from investments.
The short answer is no.

One reason you've been hearing nothing but the sound of crickets chirping in response to your post is this is one of the most frequently asked questions on the forum. Do a forum search on variations of "when to take SS" and you'll see dozens of threads on the subject - and hundreds of different opinions.

But that's just my opinion. Others will be along shortly to disagree.
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Old 11-15-2013, 08:11 PM   #3
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There isn't a simple answer. In addition to this forum, you might want to search around on

www.bogleheads.org

it gets discussed there often.
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Old 11-15-2013, 08:36 PM   #4
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No good broad answer.

My personal view is that taking SS at 62 works if your portfolio is growing at a better rate than the 8% SS growth.

If it is growing within an IRA it's even better because only 85% of SS is taxed federally (I think) and, (not sure about all States, but here in Mass) it is free of State 5.3% income tax --both of which you'd have to pay if you were withdrawing from an IRA. The difference can be an additional $1200 to $2,000 or so in your pocket on the tax issue alone.

Just my view. YMMV
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Old 11-15-2013, 09:05 PM   #5
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No good broad answer.

My personal view is that taking SS at 62 works if your portfolio is growing at a better rate than the 8% SS growth.

If it is growing within an IRA it's even better because only 85% of SS is taxed federally (I think) and, (not sure about all States, but here in Mass) it is free of State 5.3% income tax --both of which you'd have to pay if you were withdrawing from an IRA. The difference can be an additional $1200 to $2,000 or so in your pocket on the tax issue alone.

Just my view. YMMV
+1

Also consider spousal benefit strategies like file and suspend. That can raise the bar a bit for investment gains you'd need to match late SS.
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Old 11-15-2013, 09:07 PM   #6
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By entering your actual numbers in ORP Retirement Calculator - Parameter Form, an industrial-strength linear programming optimizer, and changing the amount and start dates of your SS, you can see what effects it will have on your annual spending.

omni
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Old 11-15-2013, 09:20 PM   #7
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Here's an ongoing poll that offers some insight into the OP's question: http://www.early-retirement.org/foru...ml#post1380294
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Old 11-16-2013, 04:09 PM   #8
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Quote:
Originally Posted by marko View Post
No good broad answer.

My personal view is that taking SS at 62 works if your portfolio is growing at a better rate than the 8% SS growth.

If it is growing within an IRA it's even better because only 85% of SS is taxed federally (I think) and, (not sure about all States, but here in Mass) it is free of State 5.3% income tax --both of which you'd have to pay if you were withdrawing from an IRA. The difference can be an additional $1200 to $2,000 or so in your pocket on the tax issue alone.

Just my view. YMMV
I'm remaining flexible, planning to take at 65-70, but willing to draw from it at 65 or even earlier, if the portfolio has a large draw down, which would allow it more time to recover. So I consider SS the "ace in the hole."
DW is 5 years younger, so if I draw earlier, we would wait on her until 70 or no earlier than 66.
This is a highly individualized answer--there is no "right" answer.
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Old 11-16-2013, 04:34 PM   #9
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Originally Posted by marko View Post
No good broad answer.

1) My personal view is that taking SS at 62 works if your portfolio is growing at a better rate than the 8% SS growth.

2) If it is growing within an IRA it's even better because only 85% of SS is taxed federally (I think) and, (not sure about all States, but here in Mass) it is free of State 5.3% income tax --both of which you'd have to pay if you were withdrawing from an IRA. The difference can be an additional $1200 to $2,000 or so in your pocket on the tax issue alone.

Just my view. YMMV
Both of these are more complex. I won't comment on (1) as there is extensive debate in other threads.

Regarding (2), the share of SS that gets into FIT taxable income varies by both SS and ordinary income. 85% is the max. Note that if you start early so you lower your taxes in the early years, you will be raising your taxes in the later years. That trade-off, and the 85% issue, require some analysis.
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