actually i'm not kidding. i already invest to my best. Not pulling money out of tax deferred funds because i'm taking ss is one thing. taking ss and investing in taxable investments is another.
using ss saves on taxes.
Taking Social Security early vs. not
- Thread starter LeavingOhio
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actually i'm not kidding. i already invest to my best. Not pulling money out of tax deferred funds because i'm taking ss is one thing. taking ss and investing in taxable investments is another.
using ss saves on taxes.
I made a similar change, working 25 years in industry and then went back to school for a terminal degree to qualify for working at State U. which I'm now doing. The numbers are different, but I chose the pension for 2 reasons. One, it added a different leg to the retirement stool since I already had 401k money and SS. Whether or not it would be a better choice, I would have more diversity in my $$$. Second, the student years I spent as a grad assistant counted for time at low earnings, so if I would stay long enough to get "real" salary FAS it would be a good choice. Had to make the choice without knowing whether it would even be possible.
Depending on the specifics, you should see how the withdrawal works if you leave early. In my case, I could get back the contribution plus some interest (varied), plus a portion of employer contributions if I stayed long enough. While not in market, it wasn't like I was throwing the money away.
Bottom line - limited downside with possible upside to going the pension route in my situation.
Look at all the what ifs for your situation.
youbet
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
For purposes of how I look at taking SS early, NOT taking $20k out of investments because you have the SS money arriving monthly amounts to the same think as investing the $20k of SS money.
The fact that we can leave money in IRA's, 401k's, etc., because of the arrival of the monthly SS dole is helpful in making the strategy more likely to pay off. This is especially true if you're leaving a Roth account undisturbed and compounding tax free. But even if you're leaving money in non-deferred retirement accounts, it's money that continues to be invested. (I won't be withdrawing money from IRA's until RMD time with or without SS.)
Perhaps we're just debating semantics. When I don't have to pull $20k from my investments because I use the SS $20k to cover some expenses, I think of that as being equivalent to investing the SS dollars. You call that same process not investing the SS.
I get what you're doing and now I understand how you express it.
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Chuckanut
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
+1
Diversifying sources of income is a big plus considering the financial future is uncertain, IMHO.
all i can say is this. having the ability to avoid having to take money out of tax deferred investments is a reason to take ss early. it is not necessarily a great reason in and of itself. if you take ss at 70 you do have a higher ss benefit(obviously). howeveri ira/401k withdrwals are also mandated. depending on how much you have in retirement accounts versus taxes(perhaps) on higher ss benefits makes taking at 62 an option that is not cut and dried. my wife turns 70 in 4 years and me in 8 years. i will have flexibility in withdrawals versus income until 8 years from now
youbet
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
OK. Understood and good points.
I didn't focus on SS enabling me to not withdraw from deferred accounts because, as things have worked out, I don't need to withdraw from my deferred accounts until RMD time with or without SS. The retirement accounts that SS enables me to not withdraw from are my non-deferred FIRE investment accounts.
My primary motivation to start SS at 62 was to provide financial protection for DW. Because of GPO, she cannot collect survivors benefits. Therefore, by starting my SS early (and not withdrawing that amount from my non-deferred retirement savings) I'll be leaving her with a larger portfolio if I predecease her.
In any case, I'm optimistic that my retirement savings will be enough larger at 70 yo due to reduced non-deferred retirement investment account withdrawals to make up for the reduced SS payments I'm collecting. Based on results so far, I'm optimistic. Only time will tell.
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one other thing. the irs formula for taxable ss is NOT inflation adjusted. like the alternative minimum tax that just got fixed last year as time goes by more and more taxpayers and ss recipients will be hit by higher taxable ss amounts
That's because you fail to account for the accrued benefits of SS that you are earning by delaying. If you did and if you assumed a median life expectancy there would be no difference at all.
Yes. And that's what makes these discussions meaningless. And rather sad, actually.
The SSA says right up front that taking SS anywhere from age 62 to age 70 is actuarially identical. Yet people keep piling into these discussions and getting all excited & emotional about it, as if there was a difference.
If you watch closely, you can see many common financial fallacies come into the discussion.
* Treating different viewpoints of the same thing as if they were difference things. ("investing your SS" vs. "not pulling money out of your retirement accounts.")
* Mental accounting
* Prospect theory
* Ignoring the time value of money. (Treating $1 today as being identical to $1 in eight years).
there is another issue.
the formula for deciding how much ss is taxable and the minimum triggers for a couple 32000/50percent 44/85 percent are not inflation adjusted.
a higher future ss is good and not taxable IF you have little money in retirement accounts but if you have substantial amounts-
at 70 you take ss and have a larger amount than taking at 62 BUT you also have to begin removing money from your retirement accounts.
i just used a taxable ss calculator and more than doubled my taxable ss based on greater ss payouts
i will post more when i actually figure a future post 70 return( using 2012 form )
the formula for deciding how much ss is taxable and the minimum triggers for a couple 32000/50percent 44/85 percent are not inflation adjusted.
a higher future ss is good and not taxable IF you have little money in retirement accounts but if you have substantial amounts-
at 70 you take ss and have a larger amount than taking at 62 BUT you also have to begin removing money from your retirement accounts.
i just used a taxable ss calculator and more than doubled my taxable ss based on greater ss payouts
i will post more when i actually figure a future post 70 return( using 2012 form )
I've looked at the govt site and spread sheeted it and I still confess I don't know what I will do. We have an income stream from an asset sale that continues until I'm 69, actually 69 and 3 months. It is almost enought to live on in retirement, if we're very careful. I assume we won't be that careful and will draw some money out of cash or retirement accounts. Either way, it doesn't matter; we are in great shape until I turn 69. My wife is 5 years younger, so delaying would make sense.
On the other hand, my SS is maxed out. Getting free money in the range of $2,500 a month or more when I'm 66 or so is going to be very hard to turn down. I mean, it's free! I won't have to deal with the angst of taking money out of retirement accounts and all that. It's free money! Who doesn't like free money?
But then, what if my 5 year younger wife lives until she's 100? Or what if I do? Then waiting as long as possible is a good thing. But then again, we're talking about free money!
Don't know what I'll do.
On the other hand, my SS is maxed out. Getting free money in the range of $2,500 a month or more when I'm 66 or so is going to be very hard to turn down. I mean, it's free! I won't have to deal with the angst of taking money out of retirement accounts and all that. It's free money! Who doesn't like free money?
But then, what if my 5 year younger wife lives until she's 100? Or what if I do? Then waiting as long as possible is a good thing. But then again, we're talking about free money!
Don't know what I'll do.
RetiringAt55
Recycles dryer sheets
67walkon, is your wife eligible for benefits on her own? If so, why can't she take hers at 62 and you wait until 70 to take yours so that you increase her survivor benefits? That is what we plan on doing.
I am 9.5 years younger than my DH, and his SS is a little higher. I just ran the numbers through Quicken Lifetime Planner and it makes a huge difference in our portfolio value assuming I live to age 95 and he dies before I do. I encourage you to run the numbers.
I am 9.5 years younger than my DH, and his SS is a little higher. I just ran the numbers through Quicken Lifetime Planner and it makes a huge difference in our portfolio value assuming I live to age 95 and he dies before I do. I encourage you to run the numbers.
tax implications for us approx 1700 a year extra in taxes starting at 70. but every year after unless its adjusted for inflation will be worse and worse
W2R
Moderator Emeritus
I am single, and will be 65 in June. I think I finally made up my mind when to take SS.
What I plan to do is to take it at 70, unless something comes up to persuade me to take it earlier. This could be something like a 2008 style market crash, or even just more of a need/desire for the money than I presently have.
If I take the larger monthly amount at 70, then it will be a sort of like an annuity that will cover my basic expenses (so I will not have to take out an SPIA, or at least as big of an SPIA, for that purpose when I get to my 80's).
70 doesn't seem that far away from where I sit. Pretty scary.
What I plan to do is to take it at 70, unless something comes up to persuade me to take it earlier. This could be something like a 2008 style market crash, or even just more of a need/desire for the money than I presently have.
If I take the larger monthly amount at 70, then it will be a sort of like an annuity that will cover my basic expenses (so I will not have to take out an SPIA, or at least as big of an SPIA, for that purpose when I get to my 80's).
70 doesn't seem that far away from where I sit. Pretty scary.
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You realize that an annuity payout is more for an older person and less for a younger person, right?
For example, I just pulled up a SPIA quote from BRK, based on a $100K premium, with different birth dates. This is the EXACT SAME annuity. Payout per month depending on age:
Age 65: $530
Age 70: $614
These are the same value. The person who waited until 70 isn't getting a better deal, even though a simplistic look at $530 vs. $614 might seem that he is.
You can't ignore the $31,800 (5*12*$530) that you could collect while waiting.
Just doing simplistic math and ignoring interest, $31800 / (614 - 530) is 378 months until break-even. That's 31 years. You have to live to 96 in order to get a net benefit of waiting until 70.
Granted, the SS numbers are slightly different -- but you can do the same math.
For example, I just pulled up a SPIA quote from BRK, based on a $100K premium, with different birth dates. This is the EXACT SAME annuity. Payout per month depending on age:
Age 65: $530
Age 70: $614
These are the same value. The person who waited until 70 isn't getting a better deal, even though a simplistic look at $530 vs. $614 might seem that he is.
You can't ignore the $31,800 (5*12*$530) that you could collect while waiting.
Just doing simplistic math and ignoring interest, $31800 / (614 - 530) is 378 months until break-even. That's 31 years. You have to live to 96 in order to get a net benefit of waiting until 70.
Granted, the SS numbers are slightly different -- but you can do the same math.
W2R
Moderator Emeritus
Interestingly (given what you are saying), the vast preponderance of advice columns and books (of the hundreds that I have read, anyway) do not agree with you at all in the case of a single woman like me, from a family with great longevity. You are completely correct that your mathematics is simplistic, and as you hint, perhaps too much so. Having done the math many times myself, I vehemently disagree from that standpoint although I do respect and appreciate your opinion and will take it into consideration.
Something for all to think about might be whether or not the only factor to be considered is total money received throughout one's lifetime (even though the probabilities are that that does come to more for me if I claim at age 70). I don't think that should be the most important factor in my decision, so much as when in my lifetime I am receiving that money and how much I need more reliable vs less reliable sources of money at different ages, and how reliable SS will be for me. Some might say that is an argument for claiming early, but that is not my perception right now.
Another factor is greed! And yes, I do experience that as much as anybody. I very nearly applied for SS a couple of months ago just because I would like to have that money now, and sometimes I could care less about practicalities such as probable longevity and planning for my 90's or 100's in case I get there. I guess there is a Scrooge McDuck inside many of us, including me.
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as i've posted if there are no issues with taxes paid because money has to be pulled from retirement accounts after 70-taking social security later is probably a better deal if you live long enough.
the key words are if you live long enough
the key words are if you live long enough
W2R
Moderator Emeritus
Exactly.
If someone is planning to take SS at 70, it is a good idea to consider the tax implications of RMDs and perhaps start pulling more out of retirement accounts before 70 than one otherwise might.
youbet
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
The key words are "probably" and "if you live long enough." But, yes, like most or all annuities, delaying the start of SS and getting the higher payout looks better and better the longer you live, all else being equal. Whether it's the "best" thing to do depends on both your personal circumstances and the utility of the dollars received due to taking the early SS option.
My summary would be a bit different than yours. Most likely, given that you handle the early money prudently and have no extreme investment or tax situations, it will make little difference whether you take SS early or late. If you die young, taking it early wins. If you live to be extremely old, taking it late wins. Issues such as marital status and GPO add complications calling for individual interpretations and calculations.
You won't know if you did the "right" thing unless you're able (and interested) in doing all the calculations and giving consideration to all the subjective factors on the day you die.
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Independent
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Yes, the SS numbers are different.
Suppose my SS normal retirement age is 66, and I have a $1,000/month if I start then. If I start at 65, the benefit is $933/month. If I start at 70, the benefit is $1,320.
Using your math (60 x 933) / (1320-933) = 145. So the break-even age is 77. That's well within a normal life expectancy.
(Of course, this simplistic calculation ignores investment earnings, investment risks, and longevity risks. Those are all important.)
Correct. Happily, your figures exactly match what I came up with, so that's verified.
In fact, at 0% the break-even age is 77.8. At 3% it's 79.5%.
FWIW, the SS mortality table gives a 66 y.o. male a life expectancy of age 82.
'course, one of the other things I ponder upon is not break-evens or percentage improvements, but the absolute dollar amounts.
If you can afford to eschew getting $933/mo for 5 years, then you have a pretty comfortable income without SS.
If you have a pretty comfortable income, then you don't have an urgent need for that extra $387/mo in 5 years time.
If all you have is SS, then your annual income would be either $11,200 or $15,800. And with either of those, you are so far under the poverty line that it doesn't matter.
But suppose you have a comfortable pension of $24,000 ($2k/mo). Now your total income will be $35,200 or $39,800. Your lifestyle at either of these figures is going to be essentially the same.
Eh...when you get down to it, it's just a matter of personal preference. Whether you take SS at 62 or at 70, there will be little difference in your overall financial situation.
$387/mo is not going to lift you from poverty to opulence. If you are poor, it will relieve some of the burden -- but in that case, you can't afford to skip 5 years of income. If you are rich, it's just another shrimp on the barbie.
Which, oddly enough, is what the SSA implicitly says, when they say that they are actuarially the same.
The people who need the money can't afford to wait 5 years.
The people who don't need the money, it doesn't matter whether or not they wait 5 years.
M Paquette
Moderator Emeritus
Yup. My particular optimal plan has me running down the IRA account from 59 1/2 to 70, and then starting Social Security at 70, as a higher payout form of longevity insurance for DW and I.
You are severely missing the point in several of your posts. First of all, SS is only actuarially fair for a single taxpayer. If the taxpayer is married and especially if the spouse has a longer life expectancy at this point, then the Delayed Retirement Credits represent a free lunch.
Second, it is true that many people cannot afford to delay SS and for some others SS benefits are not important for funding retirement. However, that leaves many, many people for whom optimizing the benefit from SS can contribute significantly to their well-being during retirement. Probably most of the people on this board fall into that category. For many of these people optimizing SS benefits is likely to have a bigger effect than many investment decisions. An increase of 10% in COLA'ed income is not small; it's huge.
Even for a single person the decision to delay SS is not unimportant. The decision to delay is actuarially neutral only for the entire pool of participants, i.e. the SSA. For an individual, it is not neutral. The individual has risks of inflation and longevity that he cannot afford to bear. He can pay the SSA to assume more of that risk for him. Although if we use the median life expectancy only, his expected lifetime income may not have changed, but that ignores the 50% likelihood that he will live longer than the median life expectancy. It is a serious mistake in analyzing SS optimizing decisions to ignore risk, since risk is the big problem facing the retiree. Break-even analyses are beside the point.
Let me explain this point by analogy. A homeowner without fire insurance is bearing the risk of possibly ruinous loss himself. The cash value of that risk can be determined and is approximately equal to the premium that an insurance company would charge for fire insurance. (It isn't actuarially neutral because the insurance company intends to make a profit, unlike the SSA, but it's close enough.) So, when the homeowner recognizes the risk of financial ruin and decides to buy the fire insurance he merely transfers to the carrier the amount of the premium, which is about equal to the expected value of fire loss. So, the effect on his net worth is probably negligible. Nevertheless, you can't say the choice is unimportant, because now he does not live under the threat of financial ruin from fire.
Another way of saying this, with respect to SS, is that it is a huge mistake to treat the median life expectancy as certain or even very likely. Most participants will not live the median life expectancy even though it is the best estimate of how long they will live. It's like flipping a coin eight times. We know that the best estimate is that four heads and four tails will result, but it's unlikely that that is what will actually happen. Accordingly, if we consider how to provide for ourselves in the even that we live to 100, the buying more annuity from the SSA would be the best solution that is widely available.
For many people, myself included, the optimal strategy is to do Roth conversions between the ages of retirement and 70, keeping conversion amounts within the current bracket, and delaying SS until 70. The result is to reduce both the RMDs themselves and the tax on both the RMDs and SS beginning at 70. Whether the effect of the Roth conversions is beneficial or not depends on such factors as: life expectancy of the Roth tax-exemption, i.e. of the wife or kids, expected rate of return of the investments in the Roth, difference between current and expected future tax rates.
irs calculation for taxable SS include
dividends
taxable interest
TAX-FREE interest
pension benefits
Ira distributions
ROTH IRA distributions
other taxable income
wages
1/2 social security received
the tax free interest and roth ira are NOT TAXABLE but are part of ss calculation for taxes.
the calculation and the 25,000,32000,and 44 thousand limits for single and married 50 percent and 85 percent are NOT inflation adjusted.
just like the AMT kept hitting more and more people as time passed unless the congress fixes this it will keep getting worse.
if you have substantial deferred accounts and have to pull money out after 70
the only adjustment to this is either pulling out more money out of accounts before it hits or take ss earlier to lessen the impact. 1/2 of whatever ss you are getting will be included in the calculation
dividends
taxable interest
TAX-FREE interest
pension benefits
Ira distributions
ROTH IRA distributions
other taxable income
wages
1/2 social security received
the tax free interest and roth ira are NOT TAXABLE but are part of ss calculation for taxes.
the calculation and the 25,000,32000,and 44 thousand limits for single and married 50 percent and 85 percent are NOT inflation adjusted.
just like the AMT kept hitting more and more people as time passed unless the congress fixes this it will keep getting worse.
if you have substantial deferred accounts and have to pull money out after 70
the only adjustment to this is either pulling out more money out of accounts before it hits or take ss earlier to lessen the impact. 1/2 of whatever ss you are getting will be included in the calculation
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