Social Security Gap

[Independent]

I got some interesting replies on the “Social Security Gap” toward the end of this thread: http://www.early-retirement.org/forums/f28/is-4-swr-a-no-brainer-now-44342.html I thought I’d turn the question into a poll.

The concept is that “early” retirees have a period when they aren’t working but aren’t getting SS benefits either. I’m guessing that most people want relatively level total income during retirement, so what provisions are they making (or did they make) for filling the gap?

Using my situation as an example: I planned for 7 years for me (59 to 66) and 8 for my wife. We have/had specific assets (primarily a CD ladder) that we expected to liquidate. This was/is in addition to our regular IRA withdrawals.

(The "bucket of money" option in the poll refers to people who plan to keep the next ___ years of spending in short term fixed assets, with the remaining spending in some long term assets like stocks.)

 

[FUEGO]

We expect to have a multi-decade gap between FIRE and SS (even if taken at 62). So the main benefit of SS is longevity insurance. If we make it the first 25-30 years w/o SS, then we will probably be fine thereafter and SS will be icing on the cake. Given the high level of unknowns as to what will happen to the system in the intervening decades, I can't really rely on receiving much from SS in terms of my planning. I think FIREcalc shows some minor benefits to SS in terms of SWR and probability of survival, so it is worth something obviously. And with a paid off house plus two SS's, we'll be living a very modest existence if the portfolio vaporizes for some reason. But not much different than many other standard age retirees.

 

[Bikerdude]

I had two "gaps" to fill. One from 52 until 55 when I started my pension and 55 until 62 when I will start SS. I used my "outside" money as a bridge for those gaps. I invested mainly in CD's, MM, and short term bond funds. Worked well for me.

 

[ziggy29]

I've kicked around the idea and in the back of my mind I've been tentatively thinking about this, but there's at least a decade between now and the time we can FIRE and maybe a little more. So it's too early to have a concrete strategy; this is too much time for circumstances (and laws) to change.

But ultimately, there will need to be a pile of cash which can augment our income before SS kicks in and after I FIRE.

And changes in health care policy over the next few years will likely make a huge difference in our planning.

 

[FIREd]

I don't include SS benefits in my retirement planning, because who knows what SS will look like in 30 years and what kind of benefits (if any) I might receive... So, when planning for retirement, I find our plan lacking guaranteed income sources (no SS, no pension, etc...). Consequently, at retirement, I plan on buying an immediate COLA'd annuity with 1/3 of our portfolio so that we have a guaranteed fixed income covering all or most of our basic expenses (food, utilities, property taxes, healthcare, etc...), the rest of our portfolio will be set up to throw a diversified stream of dividends which will pay for discretionary expenses. Any SS benefit we might receive would be gravy.

 

[Alan]

I RE in January and I've built up cash to cover the 7 year gap - in I-Bonds, bank savings and CD's.

Note that I also expect to have a non-COLA pension which will cover 60% of what I plan to spend in year 1.

 

[Zathras]

I don't plan on SS being there when I get of age to claim it.
If it is, great, I get a bonus. If it isn't, I planned for that and am ready to keep going without it.

 

[crazy connie]

I voted other and created and enjoy an income stream from the IRA via a 72T along with an after tax portfolio which will could be descimated by the time I reach SS. Downsizing the home will free up another pile o'cash which will be put into Mr Market as well. The Roth IRA and the 401K are still in the reserve category in case of emergency.

 

[LoftyNotions]

I voted other because I'll be getting a pension kicker until age 63. It's not as much as SS will be, but it's enough to make retirement possible.

We'll decide what to do about taking Social Security as we get closer to age 62 or 63 depending on what the markets and gummint do in the meantime.

Larry

 

[CyclingInvestor]

I did not plan on ever getting any SS - if I do, then great. I will continue to live on the dividend flow from my IRAs / 72t (which replaced my old net salary), grabbing whatever SS I can in 12 years before I am means-tested out of it.

 

[Moemg]

Since I retired at 59 I did nothing since at 60 I was eligible for SS survivor benefit which will carry me until I convert to my benefit which is higher.

 

[WhoDaresWins]

SS gap

I plan to retire in 4 years, at age 58 when I can collect my state pension. I can pay a small amount to continue my health plan until Medicare. I will collect SS survivor benefits at age 60 which will likely be higher than my own benefit amount. I can tap CDs and have bond income and a couple of annuities to augment my pension if need be. I own two paid off houses(in PA and FL). Might sell one or both when the market improves.

 

[unclemick]

1993 - 2005 sold and ate the duplex, severance pay/ other small pile of cash, dividend stocks, one yr temp work, small pension at 55 in 98, and was a really really cheap bastard expense wise.

Started hearing footsteps post Katrina and took the early SS and some trad IRA. Before that I was bulletproof and going to live to 101 so I was putting off SS and planned to be el cheapo on IRA until 70 1/2.

heh heh heh - hope I don't spend it all before the rest of you get there. Just kidding.

 

[Radiophilejapan]

I'm 58 and counting on SS at least into the first 10 or 15 years of retirement. In the longer run, who knows? Humanivorous aliens may have taken over the earth.
To fill the gap, I plan to build a ladder of CDs when interest rates go up (guessing mid next year?). Keeping cash in VG munis fund for now.

 

[JonnyM]

I checked other. FIRE'd at 50 leaving at least a 12 year gap. That was 3 years ago. DW is in similar situation. We differ in age only by 6 months. The plan was to not consider SS as a factor in the planning, but to be pleasantly surprised by the "raise in pay" when we become eligible. The details as to when to begin to draw and whether to play the spousal benefit game will have to wait until we get there to see what tinkering occurs in the meantime to the system.

 

[RE2Boys]

Checked "not planning for gap" as I'm a federal retiree. While I am eligible to receive SS, my work history has a lot of zero income years for SS purposes. I figure I'd get about $300 a month......not enough to overly concern myself of a gap and have sufficient assets in addition to COLA'd pension. SS will be gravy, but my RE did not take it into account.

RE2Boys

 

[bbbamI]

Dribbles of cd's, pension and IRA. When SS time comes, it's party hardy!

 

[Independent]

Thanks for all the responses – 71 in two days. I started the poll because threads on withdrawal rates seem to ignore this issue. I wondered how many people were thinking about it. The poll results show that almost everyone who is expecting SS and close enough to ER to make a plan already has a plan.

Here are some other things I noticed:

Fewer responses in the first two categories than I expected. I thought most of the “younger” posters would pick one of them. Either we have fewer “young” posters or they are doing more long term planning than I thought.

Fewer “bucket of money” responses. Based on other threads, I thought we had more people using this strategy.

More “other”. It’s easy to forget the wide variation in situations. Thanks for the explanations.

The most interesting result is that “earmarked assets” is running dead even with “higher withdrawals from my regular, long term AA”. The wisdom behind the 4% SWR is that you need to be concerned about the risk that the poor returns during your retirement will all bunch up at the beginning. This risk is aggravated if you have to make unusually large withdrawals in the early years. Using earmarked assets (presumably very stable) should cut this risk. My guess is that people are familiar with this reasoning, but that repositioning into those stable assets is expensive (i.e. the post-retirement advantage is offset by a pre-retirement loss). At least, that line of though makes sense to me.

 

[freebird5825]

Using suvivor pension and fixed annuity for income until I can apply for my FERS deferred MRA+10 pension in 5.5 years at age 56. Under FERS rules, SS gap will allegedly be offset. So I have read...

No SS suvivor benefit possible for LH's w*rk history (CSRS fed govt).

Down the road (12 years), I will have my own SS benefit, and plan on taking it right at 62. FWIW by then.

 

[W2R]

Using suvivor pension and fixed annuity for income until I can apply for my FERS deferred MRA+10 pension in 5.5 years at age 56. Under FERS rules, SS gap will allegedly be offset. So I have read....

Not with MRA+10, to the best of my understanding. Might be worth doublechecking.