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Old 03-05-2012, 05:11 AM   #221
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Originally Posted by heirloom View Post
I'll be getting my first check this month. I almost waited until next year because the check would be 8% more. But everyone is telling me I'm crazy, so I decided to take it now and invest put it in my bank. It was paying 2%, but now only 1.5%. After I see what the I bonds rate is in May, I'll either purchase some then, or keep the money in the bank.

Yes, I do have gov. paranoia, after all the SS site is only guaranteeing 20 yrs. of pmt at the time. You know the system is running out of money when a lot of candidates are talking about hiking the age for takingy SS early.
Heirloom, would you mind posting a link to the SS where they only guarantee 20 years of payments?
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Old 03-05-2012, 06:32 AM   #222
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Originally Posted by tightasadrum View Post
Let's assume my intentions are to wait until 70 to draw SS benefits and have DW take 50% of mine since her own earnings would mean lower benefit.

1. Would DW receive 50% of my 70yo benefit at her full retirement age of 66, or would she have to also wait until 70yo to receive 50%?

2. And what if, in spite of my best efforts to the contrary, I died suddenly before ever receiving by SS benefit? Would DW draw 50% of what my benefit would have been at my age at death, say 68 for sake of argument, or of age 66, or none of the above?

Item #2 above might affect whether a waited longer than 66 to start my benefits.
#1 - From what I read, the 50% is computed against the PIA of FRA (in your case, assuming age 66). It is not increased due to your claiming after the age of 66. Reference: Benefits for Spouses , assuming you are still alive. IOW, there is no gain to be had for her wating until age 70, if you are still breathing.

#2 - This one I know since we're doing the 66/70 "split". DW will receive an adjustment to her SS (at age 66) to equal 100% of my benefit, regardless of when I die after my FRA age of 66. Note that she does not get my benefit, but an adjustment to hers (a small point, but some folks don't understand what is done "under the covers"). Even though I'm planning not to take SS till age 70, if I pass at age 68 (as you said), my FRA benefit would roughly be 16% more (8% per year of delay), along with any possible COLA. This is a survivor benefit situation rather than a spousal benefit - what you specified in #1, so the rules are a bit different.

In our case, since we're the same age (within a few months), I'll still get SS - however it won't be mine, but based upon her age 66 FRA amount, at 50%. She gets to support me with her SS at age 66-69, and I get to support her (at close to double her benefit), assuming I pass first and after the age of 70.

Since I turn 66 in 21 months - DW a few months after that, stay tuned for any reported "hitches" ...
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Old 03-05-2012, 07:21 AM   #223
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Originally Posted by Cut-Throat View Post
Here's the deal.......After studying SS for 10 years.

You believe that you are such a superior investor that you can beat the market and the guaranteed 8% returns, that delaying SS will give you.
It appears that your 10 years of study did not result in your understanding how to properly calculate the return on an annuity.

The 8% is an increased withdrawal rate, not a guaranteed return.

I am not taking sides on the SS debate, but it is abundantly clear that the return on an annuity can only be calculated if you know (or assume) the date on which the last payment occurs (the death date of the annuitant).
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Old 03-05-2012, 07:40 AM   #224
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...the return on an annuity can only be calculated if you know (or assume) the date on which the last payment occurs (the death date of the annuitant).
Actually, in certain situations you can ...

I don't know the entire thread of your discussion, but just to add something to think about...

DW/I have a life SPIA contract with guaranteed term/payments for our calculated joint lifespan.

Keeping all other factors out of it (i.e. the insurance company will go under ), we created an Excel spreadsheet using the IRR function, specifying the premium paid and each years total payments through the calculated period. We know exactly (for our contract) what the return is.

If we both pass before the end of the "contract", payments continue to our beneficiary/estate on the same payment schedule through the period, thus maintaining that return rate, even after we're both gone.

The "kicker" is that if one of us beats the odds and live longer than the computed termination date, the payments continue (at 100%) until we're both gone. In that case, the IRR will actually rise by adding additional periods to the spreadsheet, however unlikely.

BTW, any reference to SS and 8% only applies to the four year period of age 66 through 69 (assuming an FRA age of 66), plus any COLA's that may be applied. Reference: Delayed retirement credits
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Old 03-05-2012, 07:56 AM   #225
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Actually, in certain situations you can ...

DW/I have a life SPIA contract with guaranteed term/payments for our calculated joint lifespan.

Keeping all other factors out of it (i.e. the insurance company will go under ), we created an Excel spreadsheet using the IRR function, specifying the premium paid and each years total payments through the calculated period. We know exactly (for our contract) what the return is.

If we both pass before the end of the "contract", payments continue to our beneficiary/estate on the same payment schedule through the period, thus maintaining that return rate, even after we're both gone.

The "kicker" is that if one of us beats the odds and live longer than the computed termination date, the payments continue (at 100%) until we're both gone. In that case, the IRR will actually rise by adding additional periods to the spreadsheet, however unlikely.
Actually, this only guarantees a minimum IRR. The actual realized IRR will still depend upon when the latter of you passes, should one of you live beyond the guaranteed period.
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Old 03-05-2012, 08:04 AM   #226
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Actually, this only guarantees a minimum IRR. The actual realized IRR will still depend upon when the latter of you passes, should one of you live beyond the guaranteed period.
True, but then the total realized return would be greater than what we were willing to accept under the original contract terms. Why would one disagree with that outcome?

However, I'm sure the insurance company knows more about average life spans (as related to computing payouts to profits) and if anything, we will not exceed the contract (in our lifetime).

We can live with a "minimum IRR". Isn't that the fear of most folks as related to an annuity? That's why we're getting a few less dollars each month to pay for additional "insurance" of a computed life policy, and ignore the oft quoted "if you pay your premium and die tomorrow, the insurance company gets all your money"...
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Old 03-05-2012, 09:22 AM   #227
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I hate to break up the discussion, but I have a question.

DH will be taking ER this year. He's 55 and I'll be 55 in the summer, which means that we are at least 6+ years from having to make any decision about SS. I am almost 100% sure that some of these rules will change between now and then.

I am reading corporate SDPs related to his pension, retiree medical, etc. and researching other things such as ISWRs and the distribution stage of retirement, Roth IRA conversions, etc. Is there any reason why I shouldn't put the time and effort to research SS, at this time, on the back burner? Is there any reason to make any decisions about SS at this time?
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Old 03-05-2012, 09:48 AM   #228
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I hate to break up the discussion, but I have a question.

DH will be taking ER this year. He's 55 and I'll be 55 in the summer, which means that we are at least 6+ years from having to make any decision about SS. I am almost 100% sure that some of these rules will change between now and then.

I am reading corporate SDPs related to his pension, retiree medical, etc. and researching other things such as ISWRs and the distribution stage of retirement, Roth IRA conversions, etc. Is there any reason why I shouldn't put the time and effort to research SS, at this time, on the back burner? Is there any reason to make any decisions about SS at this time?
No reason for you to make any decisions about SS at this time but it is a good idea for you to make an educated guesstimate of what your SS will be and use that information in your other financial planning. For example if the pension and a safe withdrawal rate from your portfolio and SS will provide substantially more money than you will need you could make a better decision on how early to retire. You probably already knew that though.
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Old 03-05-2012, 09:54 AM   #229
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Originally Posted by misty57 View Post
...(snip)...
I am reading corporate SDPs related to his pension, retiree medical, etc. and researching other things such as ISWRs and the distribution stage of retirement, Roth IRA conversions, etc. Is there any reason why I shouldn't put the time and effort to research SS, at this time, on the back burner? Is there any reason to make any decisions about SS at this time?
Hi Misty, SS is an income stream when running FIRECalc so you would use it there with some reasonable assumptions. For Roth conversions, SS could come into the tax picture to reduce or eliminate that conversion process because of higher marginal rates (but not before SS kicks in). If you are planning on making your own spreadsheet, you will want your own SS numbers in that.

What I've done in the past is to note the pros/cons for taking SS early versus later. Thus you can record good arguments people use and will see the same ones come up now and then. Eventually you will form your own opinion. Probably you can avoid getting caught up in too many details at this time but it really depends on your individual circumstances and particularly if you fall into the group that really must draw it early.
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Old 03-05-2012, 09:59 AM   #230
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No reason for you to make any decisions about SS at this time but it is a good idea for you to make an educated guesstimate of what your SS will be and use that information in your other financial planning. For example if the pension and a safe withdrawal rate from your portfolio and SS will provide substantially more money than you will need you could make a better decision on how early to retire. You probably already knew that though.
Yep, I did know that; but I might not have, so thank you.

I already know what SS will be if it is taken at FRA and if we wait until age 70. We won't need it before then, but the government may encourage us to take it earlier.
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Old 03-05-2012, 10:03 AM   #231
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Hi Misty, SS is an income stream when running FIRECalc so you would use it there with some reasonable assumptions. For Roth conversions, SS could come into the tax picture to reduce or eliminate that conversion process because of higher marginal rates (but not before SS kicks in). If you are planning on making your own spreadsheet, you will want your own SS numbers in that.

What I've done in the past is to note the pros/cons for taking SS early versus later. Thus you can record good arguments people use and will see the same ones come up now and then. Eventually you will form your own opinion. Probably you can avoid getting caught up in too many details at this time but it really depends on your individual circumstances and particularly if you fall into the group that really must draw it early.
I've already run FIRECalc including and not including SS. Just as you suggested, we are in the camp that plans to delay in order to increase the number of years for Roth conversions.
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Old 03-05-2012, 10:22 AM   #232
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I've already run FIRECalc including and not including SS. Just as you suggested, we are in the camp that plans to delay in order to increase the number of years for Roth conversions.
Good idea. You might also try the retirement optimizer at: Optimal Retirement Calculator and Retirement Decision Support System
Might give you some hints as to when to start actually using those Roth $'s although so much depends on future tax policy.

For us, I was squirreling away the Roth $'s but then realized it was really time to start taking all income streams in parallel. We don't need to be 100% certain of having too much money at age 83 -- would rather have fun now! There is always a Plan B in the wings too.
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Old 03-05-2012, 03:21 PM   #233
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For us, I was squirreling away the Roth $'s but then realized it was really time to start taking all income streams in parallel.
Exactly. Not all forms of retirement investments need to be consolidated into one type, IMHO.

We have Traditional, Non-Deductable, and Roth IRA's and are/intend to use them that not only make sense today but also allows us to be flexible in our future withdrawls - depending on then current tax laws.

The same old story - "it all depends"...
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Old 03-05-2012, 06:21 PM   #234
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Heirloom, would you mind posting a link to the SS where they only guarantee 20 years of payments?
Michael,

It was in the May 13 press release on the SS site. It isn't quite 20 yrs yet, it's 24 yrs. But if they keep cutting back the yrs., it will soon be 20 yrs.


Social Security Press Office: Social Security Board of Trustees:Projected Trust Fund Exhaustion One Year Sooner
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Old 03-05-2012, 07:52 PM   #235
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I have the perfect way to merge the two most contentious topics on these boards, when to take SS and whether to pay off the mortgage.

Simply, keep the 4% 30 yr FRM, take SS as soon as you retire, and set up automatic bill-pay to direct the SS check to the mortgage payment.
Perfect
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Old 03-05-2012, 08:18 PM   #236
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... plans to delay in order to increase the number of years for Roth conversions.
This is an interesting idea. I am still converting to Roth, but will stop next year, because of SS income will push us into higher bracket (and tax changes, also). Did anyone run some numbers on this?
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Old 03-05-2012, 08:26 PM   #237
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This is an interesting idea. I am still converting to Roth, but will stop next year, because of SS income will push us into higher bracket (and tax changes, also). Did anyone run some numbers on this?
Probably this has been discussed in another thread, when taking SS it may be advantageous to take a high IRA distribution in one year and then a lower one the next. This gets you over the SS bump up in marginal rates in year #1, then in year #2 you can get the lower marginal rate by spending the excess distribution from year #1.

One should run Turbo Tax on their situation to see if this is feasible.
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Old 03-06-2012, 06:37 AM   #238
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It appears that your 10 years of study did not result in your understanding how to properly calculate the return on an annuity.

The 8% is an increased withdrawal rate, not a guaranteed return.
Not sure why you're splitting hairs here....... I said return, because I was comparing the Withdrawal rate to the returns you would have to get in the market to keep up with the increase in the withdrawal rate.......That's what I meant and for that matter they are basically the same thing.

Example Say you had the $1 Million Portfolio and you got an 8% return every year.

Year 1 .... 1,000,000
Year 2..... 1,080,000
Year 3......1,166,400
Year 4......1,258,712
Year 5......1,360,489
Year 6......1,469,328
Year 7......1,586,874
Year 8......1,713,824

A 4% withdrawal rate on $1,713,824 would equal $68,552


Now let's say your are increasing your Withdrawal Rate, starting at 4% and increasing it by 8% every year...

Year 1 .... 40,000
Year 2..... 43,200
Year 3......46,656
Year 4......50,388
Year 5......54,419
Year 6......58,773
Year 7......63,474
Year 8......68,552

You end with the same amount of $68,552 either way...And yes I ignored the taxes you would have to pay, just to keep it simple.
But, you get the basic idea.
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convert more IRA to Roth
Old 03-06-2012, 10:29 AM   #239
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convert more IRA to Roth

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This gets you over the SS bump up in marginal rates in year #1, then in year #2 you can get the lower marginal rate by spending the excess distribution from year #1.

One should run Turbo Tax on their situation to see if this is feasible.
Thanks, I will run it in TT this year - I usually use Taxact.
I am not sure if it's worth it to delay SS until 66, so I can convert more IRA to Roth.
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Old 03-06-2012, 10:45 AM   #240
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Thanks, I will run it in TT this year - I usually use Taxact.
I am not sure if it's worth it to delay SS until 66, so I can convert more IRA to Roth.
Any tax program will work. The table I make has:
1) withdrawal from IRA (major source of taxed income)
2) taxed part of SS (up to 85% of SS)
3) Fed tax
4) State tax
5) Total tax (items 2 + 3)
6) Marginal rate for every $10k or so withdrawn from IRA

You see the taxed part of SS going up and that's where the marginal rate gets nasty. Then you get to the max (85% of SS taxed) and marginal rates decline perhaps before rising again as you push into higher brackets.

I'm just detailing this in case others might benefit from this approach.
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