Scenario - SS at FRA (66), spouse FRA 3 months later

[stephenson]

Hi All,

Trying to focus a bit more on our particular circumstances.

My FRA at 66 yo is March 2020; my wife (has not met the 40 periods) so her FRA is at 66 yo in May 2020. Both in great health, no known big issues. Both sides of families have good longevity, except for the smokers who killed themselves very early.

My understanding is that if I file and start at FRA, my monthly amount will be $2967.00, and her's will be 1/2 of mine at her FRA. Total: $2967 + $1484 = $4451/mo

That is the easy part - without the SS income, our 2019 income will likely be around $250K 24% 2019 bracket), then adding $54,612, puts us at about $304,612.00 (just under the 32% bracket). Note - a really good year with stock market could add another 50K in LTCG, or if we sell a rental house, we would be over the $315K/32% bracket.

I don't foresee our income dropping over the next 10 years or so ...and, in theory, the taxable accounts will, in good market times, spin off increasing amounts of LTCG from the mutual funds, pushing us into the 32% bracket - almost an inevitability.

If we go this strategy, my starting point would be to adopt an asset allocation goal of about 60% equity (80% US and 20% foreign) and 40% bond (80% US and 20% foreign) into Fidelity low/zero cost funds (TBD). Easy and fun to quibble about which exact funds, but you get the core of the strategy.

Would appreciate your thoughts!

[joeea]

Is there a question here?

It would be difficult to offer any concrete thoughts without knowing your goals.

What do you expect your annual expenses will be throughout your retirement? Do you plan to leave a legacy?

Are you worried about being slightly over the 32% tax bracket? If so, why? You understand that not all of your income will be taxed at 32%, right?

You haven't indicated if you are retired yet or not. And you haven't indicated if you are very risk averse or not. Both could affect an asset allocation recommendation.

Are you wondering about when to start your social security benefits? If so, you may wish to consider delaying yours until 70, so as to maximize an eventual survivor benefit for a good longevity spouse. Check out https://opensocialsecurity.com/

[N02L84ER]

Under current law, only 85% of your SS benefits will be taxed.

[stephenson]

The basic question is: what are the broad community thoughts - opinions - re a strategy, given our circumstances, that takes SS at FRA vice maxing out at 70?

Much of the post was, admittedly, background. So, good point - perhaps some more detail is appropriate.

Been retired for two years. 2M in IRA, 300K in Roth IRA, 2.5M in non-tax advantaged accounts, military retirement, megacorp retirement, income from paid-for rental properties (worth about 600K total), small paid-for home. Annual expenses in the 150K range with some travel. Continuing to fund future grandchildren through 529 contributions.

Not concerned about the bracket, actually - was thinking out loud - can't see a way to avoid 32% bracket given the income, and the future RMDs.

Risk averse only to the point where it doesn't make sense to be too too conservative - we have been reallocating tax advantaged accounts to a bit more bonds now - maybe in the 70-30 range, with some international exposure - a bit high on equities, but I think our income level gives us some pad.

The non-tax advantaged holdings are pretty much all equity based, with about 500K in MMF (included in the 2.5) ready to buy a nicer house.

I like the logic of waiting till 70 to maximize for spouse, on the other hand, we have assets and other income (assuming she outlives me, she would get 50% of military and mega corp pensions, and 100% of the rental income) sufficient to ensure not change in standard of living. This said, I also like the logic of getting a smaller amount now, AA'ing it to where it at least crosses the curve on 70 year social security income level.

I know lots has been written on this - longevity, psychology, etc ... my own sense is that it doesn't matter much in our case - if we AA the SS income each month, till about 70, we may be close to waiting to 70 or so. We can then decide how to address the AA'd amount.

Yeah - some rambling, but have about a year to think about it till FRA time at 66.

[NgineER]

I would consider delaying SS so that you could convert some of your IRA into a Roth IRA before you have to take RMDs which will inevitably force you into a higher tax bracket.

Check out iORP for different scenarios about how to optimize your withdrawals.

[Crabby Mike]

I'm in the camp that says take SS early only if you need it; otherwise wait to 70 to maximize survivor benefit. Since you have $250k/yr coming in and only $150k going out, you don't need it now. Maybe oversimplifying, but that's my quick take.

[stephenson]

I’m gonna be in 24% bracket in 2019 ... not sure the SS income is gonna bump me another bracket.

Opensocialsecurity.com says combined spouse and I $868k at FRA plus 18 months and $860k at FRA of 66 ... she is two months younger and does not have enough credits to qualify on her own.

Kind of a wash at this point ... the calculations done by opensocialsecurity.com don’t take into account any kind of investment of the benefits, right? Just actuarial tables and SS payment tables?

[Jackson D]

I played with opensocialsecurity.com and found the same thing as stephenson. Once me and my wife reached full retirement age, the expected lifetime amount didn't change all that much by waiting. If you have enough assets/income streams that the additional amount by waiting won't make a difference in the lifestyle of the survivor then other factors such as Roth conversions, tax planning and legacy giving come more into consideration. I found it very helpful with opensocialsecurity.com to put in different filing strategies to see how long it would take before delaying would come out ahead in total dollars. Waiting until FRA (full retirement age) vs taking at age 62 made a big difference, but once we were both FRA, delaying to age 70 took us both surviving until nearly age 90 to come out ahead. My current plan is to file for SS once we are both FRA but I have a couple of years to think about it and see where we stand at that point.

[Sunset]

OP - With your income, you may want to compare your State income tax to other States where you would like to live. Depending on the tax brackets and rules, in a case like yours it's possible to save paying $15K or more per year in State taxes.

Delaying SS not for the increased value, but because it will allow you to move $54,612 (your numbers) per year from IRA to ROTH, while paying the same taxes you would if you took SS.

Putting your taxable money into tax efficient things like BRK.B means it can grow tax free until needed.

[Animorph]

I like delaying SS and Roth converting up to the 32% bracket, per NgineER. RMD's are going to to bump your income a lot. This gives you a chance to get a little bit out at 24%.

Given that most of the tIRA will be coming out at 32%, it will probably pay to go ahead and convert to the top of the 32% bracket now as well, paying the taxes with your taxable accounts. It won't make any difference to the tIRA, 32% now or 32% later, but it essentially allows you to move the amount you pay in taxes from your taxable accounts into your Roth accounts. That'll eliminate further taxes on some your currently taxable money. I think you could probably do that even after RMD's start, as long as taxable accounts last and the 32% bracket is big enough.

Of course try to stay as tax efficient as possible in the taxable accounts.