Originally Posted by Throwdownmyaceinthehole
I need someone smarter than me to figure this out, as non of these articles looks at SS after tax, along with the RMDs at 70. I'm thinking taking it earlier before RMDs kick in would give me a higher return. Can anyone point me to research on that?
The only research I know of this are the complex calculated projections I have done for DW and my situation. edit/Most research is based on maximizing SS income and does not consider the whole picture. end edit/
Situation: non-COLA pension, 401k, will have one minor child at age 62. DW disabled and drawing SSDI.
I will have the same future expenses regardless of when I take SS.
All projections are in future dollars using BLS and SS parameters for near future projections.
Future tax estimates are based on current tax rates, deductions, credits and brackets inflated per the rules governing such.
Default inflation assumed to be 2.5% per year.
401k return assumed to be 3.5% after inflation (total 6%)
Expenses are inflated using best estimate of the inflation rate of the particular expense as multiple of base rate of 2.5%. That is to say medical and college expenses escalate at a higher rate than base inflation.
Four scenarios are projected. 1) take SS at age 62, 2) take SS at age 62 and suspend at FRA of 66 y 2 mo and restart at age 70 (this scenario involves Roth conversions between ages 62 and 66) 3) take SS at FRA of age 66 y 2 mo, 4) take SS at age 70. All income, taxes and expenses are projected for each of the next 30 years.
Comparisons are made at ages 70, 78 and 86. No one in my family has ever lived past age 86. I stopped my projections at that age.
Calculate estimated SS.
Calculate 401k withdrawals to cover projected expenses. This includes 401k balance at the beginning of every year.
Calculate estimated expenses for use in tax calculations.
Calculate taxes. This includes estimated deductions and tax credits.
Calculate net after tax income.
Calculate non-taxable portion of SS income.
Calculate DW survivor income at ages 74 and 86. This includes pension, SS, and RMDs for her.
1) Sum of net after tax income is always highest for taking SS at 70 and lowest for taking SS at 62.
2) Sum of taxes paid is always highest for taking SS at 70 and lowest for taking SS at 62.
3) Annual SS income at age 70 is highest for taking SS at 70, next highest is the 62-70 scenario. Lowest is taking at age 62. The 66 and 62-70 are nearly the same.
4) 401k balance is always highest for taking at age 62. Next highest balance is for the 62-70 scenario. Taking at age 70 results in smallest 401k balance.
5) the differences among scenarios in the sum of net income plus 401k balance is always highest for taking at age 62 until sometime between age 78 and 86 when the age 62-70 scenario becomes the highest.
6) DW survivor income is always highest for taking at age 62, Next highest is the age 62-70 scenario which is about 97%. Age 66 is 87% Age 70 is 79%
7) at age 70, SS+pension+RMDs will cover all expenses with a surplus of about 5% for the age 62-70 scenario. The other scenarios do this starting at age 71. Surplus at age 71 is highest for age 70 followed by 62-70 then 66 and then age 62 scenarios. This is a function of my specific expense profile.
8) the sum of total SS income at age 86 is highest for the age 70 scenario, 11% lower for the age 62 scenario and 5% lower for the 66 and 62-70 scenario.
Criteria for selecting which scenario to implement:
1) must cover projected expenses with surplus (all meet this)
2) must allow for sizable 401k balance to fund long term care if/when needed (only 62 and 62-70 meet this) and/or other unaccounted for expenses.
3) must allow for high DW survivor benefits at my age 74 and 86. (Edited out error)
4) must strike a balance between reliance on 401k performance and SS income ( 62-70 and 66 meet this)
5) must be able to survive 25% cut in future SS benefits (62 and 62-70 meet this)
6) Firecalc success rate must stay above 95% to age 86 ( 62 and 62-70 meet this)
So based on this fantasy
calculation, I have decided to start SS at 62, suspend at FRA and restart at age 70. No real surprises here from the calculations.
I understand that this is a fantasy calculation based on many variables and assumptions that will change. I did this as an exercise to attempt to quantify many of aspects of consequences of taking SS at various ages along with tax consequences and ability to maintain some flexibility and to compare DW survivor benefits under various circumstances.
This is all generated by spreadsheet except for the Firecalc calculations. I can model different inflation rates, 401k return rates. I can update periodically with actual returns, inflation, changes in projected spending, etc.
The selected scenario will likely change in the future as I approach 62. If the 401k performs well I may delay taking SS. That is a job for Futureman.
I hope this is intelligible and can provide some insight into your evaluation of your plan.