Taking Social Security early vs. not

[GolfingDuo]

GolfingDuo,

Your situation is more complicated than mine and mine is too complicated to make a decision without carefully comparing the numbers of each strategy. The only tool that I found to incorporate all of the factors is Esplanner from esplanner.com

I will look at this later today or this weekend.

The decision to do Roth conversions depends on several factors taken together. Without knowing all of the details it's not possible to say if a conversion would be a benefit for you or not.
These are:

1. the expected life span of the Roth IRA itself. This might be your life span, but it might be your wife's especially if she is younger or it could be that of your children. Your wife and your children who inherit your Roth will never have to pay taxes on the money.

Good points and I had a feeling I need to postpone due to my high tax state.

2. Your tax rate now and in the future. If your marginal rate will be lower or if you plan to move to a no income-tax state at some point, doing the conversion now might not be advisable. Some of us are delaying SS until 70 and have IRA assets that will necessitate RMDs at age 70. Those income sources together at 70 can push us into a higher bracket meaning that converting before then while still in the lower bracket gives an advantage.

The window between my age of 62 when I move to age 70 when I start collecting SS where my income will be lower and I am in a no income tax state is the point at which I can roll over to Roth. That would be in 7 years or so since we are 55 now.

3. The rate of return of the assets in the Roth. Since you are paying the taxes on those assets earlier than necessary in order to get the tax-free status, the value depends on how much you tax you would have had to pay. It also matters if you trade relatively more since that would generate capital gains if in a taxable account.

We have other accounts but I have the bulk of our savings in one TSP divided up in 4 funds. They are invested in a conservative manner but with 60% in equities.

Rules of thumb and back of the envelope calculations are not going to be adequate for the complex decisions that many of us face.

No I never thought this would be an easy task. It is why I am asking questions now, making notes and in that I am preparing for my second life. One away from this *&*^%^*&% snow!

 

[daylatedollarshort]

If the finances of the organization paying the annuity (AKA the US Government) were in order I would agree with the premise. Since they are not by a long mile, I would argue that depleting one's assets betting that 30 years of future payments from a financially crippled organization I have no control over are assured is too risky.

This is what worries me about waiting. In our retirement spreadsheet I just hate seeing that asset column drop too low in the years prior to collecting SS. I have control over my own assets, but no control over future SS benefit rules, taxation levels and inflation adjustments.

 

[gerrym51]

This is what worries me about waiting. In our retirement spreadsheet I just hate seeing that asset column drop too low in the years prior to collecting SS. I have control over my own assets, but no control over future SS benefit rules, taxation levels and inflation adjustments.

if a straight line equation taking ss at 70 definetley gives more money.
however if you subtract added taxes because you have substantial tax deferred accounts plus the added money made on the earlier withdrawals( be reasonable i used 3 percent although in the funds i'm in i think it will be more) plus taxes saved in the 8 year period before forced withdrawals mandated

and the difference is much closer over the 30 year period i used to one hundred years old i just signed up for it at 62

it also makes me feel better-which is important to me

 

[GolfingDuo]

it also makes me feel better-which is important to me

And that my friend makes all the difference in the world.

 

[gerrym51]

And that my friend makes all the difference in the world.

Amen to that

 

[RetiringAt55]

Wife (66) is retired taking SS at $1000/month. I (65) delay taking my SS until 70 when it will be $2000/month. In the meantime for the next 5 years I apply and receive ½ of wife’s SS giving us a total of $1500/month. Then when I turn 70 I drop the payments that were based on my wife’s SS and start taking my own SS at the $2000/month. Now if I die first my wife can assume my SS that is a higher monthly payment.

Does this sound right? I'm so confused.

Cheers!

That is close. The only thing is that you cannot choose to take the spousal benefit at age 65 if your benefit would be higher. You would probably have to wait until full retirement age (66 or 67?) Otherwise that seems right.

 

[RetiringAt55]

I am pretty sure it is opposite. You file for your SS ben and delay taking. Your wife files taking spousal ben of yours. Then when you reach 70 she drops spousal and you collect full. I am pretty sure that is how you should do it. I am sure others will chime in if I am wrong. That is based on your numbers that is how I would work it. Should she out live you then she resumes spousal. You out live her you take spousal.

I think Badger was talking about a different strategy, the one early and one late strategy. You are discussing the file and suspend strategy. I also think you are confusing the terms "spousal" benefit and "survivor" benefit. Spousal benefit is never more than 1/2 what your spouse is making and you can't take it if yours would be more unless you are full retirement age. Survivor benefit applies when your spouse is deceased and it is around what they were making if you are full retirement age and decreased if you take it between 60 and full retirement age.

I would recommend running the numbers with all the different cases as it is not a simple decision. It is very dependent on age differences, SS amounts, and expected life spans.

 

[GolfingDuo]

I think Badger was talking about a different strategy, the one early and one late strategy. You are discussing the file and suspend strategy. I also think you are confusing the terms "spousal" benefit and "survivor" benefit. Spousal benefit is never more than 1/2 what your spouse is making and you can't take it if yours would be more unless you are full retirement age. Survivor benefit applies when your spouse is deceased and it is around what they were making if you are full retirement age and decreased if you take it between 60 and full retirement age.

I would recommend running the numbers with all the different cases as it is not a simple decision. It is very dependent on age differences, SS amounts, and expected life spans.

You are right. He did mention that at the end of survival benefits. It will still be approximately the same amount either way.

 

[gerntz]

Wife (66) is retired taking SS at $1000/month. I (65) delay taking my SS until 70 when it will be $2000/month. In the meantime for the next 5 years I apply and receive ½ of wife’s SS giving us a total of $1500/month. Then when I turn 70 I drop the payments that were based on my wife’s SS and start taking my own SS at the $2000/month. Now if I die first my wife can assume my SS that is a higher monthly payment.

Does this sound right? I'm so confused.

Cheers!

This is exactly what we're doing except DW started her own benefits this past January at 65.5 because we're now both retired and we won't have near as much income in 2013 - lower tax rates. Before now, marginal tax rates on SS benefits made them less worthwhile than waiting & letting them build. I won't be FRA of 66 till next year when I'll file for spousal benefits. Then when I turn 70 four years later, we'll switch benefits as you propose . Our numbers are similar. Her starting at 65.5 vs. 66 will cost us 1-2% total benefits/yr long-term - nbd.

 

[mathjak107]

interesting enough i was looking at some of the rules for ex spouses vs current spouse.

there is a difference in amounts the 2 receive.

a spouse can get up to half the actual benefit her husband gets .

if the husband filed at 62 there is a reduction on the wifes 1/2.

on the ex spouse there is no reduction if the ex husband filed at 62. she is goverened strictly by her own age and how far away from full retirement age she is. her amount is always based of the full retirement age benefit her ex would have gotten even if he filed early.

once it shifts to survivor benefits it is based on what the husband was collecting so both wife and ex wife can be reduced if the husband filed early.

they both are goverened by their own age as well and can be double cut if the husband filed early and they are less than full retirement age.

filing early can really hurt survivor benefits for a younger wife or ex.

 

[Badger]

I’m not sure if I understand this correctly. Let’s use the following scenario not using real numbers or considering any annual cost of living increases to make it simple.

Wife (66) is retired taking SS at $1000/month. I (65) delay taking my SS until 70 when it will be $2000/month. In the meantime for the next 5 years I apply and receive ½ of wife’s SS giving us a total of $1500/month. Then when I turn 70 I drop the payments that were based on my wife’s SS and start taking my own SS at the $2000/month. Now if I die first my wife can assume my SS that is a higher monthly payment.

Does this sound right? I'm so confused.

Cheers!

I'm still confused since there are differences in opinions. I may not have been clear with the idea. Here are the actual ages and a clarification. In both cases the actual amounts of SS benefits for my wife and me are different but mine will be greater. I will just use a set amount for SS without consideration of cost of living increases to simplify. Being a bear of very little brain I don't have the math skills to do otherwise.

My wife took SS early at 64. She is now 66 and has been collecting $1000/month. I am presently 64 and will reach full retirement age at 66 in 2 years. When I reach FRA the idea is to delay taking my SS until I reach 70 when it will be a greater monthly amount than what it would have been at age 66. I would instead (at age 66) apply to recieve 1/2 of the amount of what my wife recieves. This would then make the total amount we recieve from SS to be $1500/month for the next 4 years. Once I reach 70 I would stop taking the $500/month based on my wife's SS and start taking my own SS which would be $2000/month. We would then be recieving her SS of $1000 and my SS of $2000 for a total of $3000/month.

Does this sound correct to do? Does the SSA allow a plan of this kind? If we are allowed to do this and have the additional $500/month for those first 4 years then we can wait until I reach 70 before I take my own SS. Then at that time our combined benefits will be greater. The advantage, aside from the extra $6000/year ($500x12) for the 4 years until I reach 70, is if I die first then she will be able to convert over to my SS under survivor benefit. She would then receive my SS of $2000/month instead of her SS of $1000/month.

If this can be done then I would think that most married couples would take advantage of this where one has a greater SS and plans to delay until 70.

Cheers!

 

[mathjak107]

at 66 you can take 1/2 your wifes early benefit and leave yours to grow to 70. we are going to do the same.

 

[RetiringAt55]

Yes Badger. This is exactly what you should do.

In my case, we have similar primary insurance amounts of SS and have a large age difference. I am 48 and DH is 58. So for us, we plan on my DH waiting until he is 70 and I will take my SS early two years later when I am 62. (My SS at that age is more that 1/2 of his.) When he passes, I would get the survivor benefit.

 

[RetiringAt55]

If anyone wants to get a good estimate of their SS PIA at different ages, the SSA has a nice little application you can download called the Anypia Social Security Benefit Calculator that will calculate what your benefits would be working different numbers of years, retiring at different ages, with estimated salaries. I was worried my PIA would be reduced because I will not have 35 years of SS work history when I retired. When I ran the numbers in their program, it turns out that those extra zero years did not affect the benefit much.

 

[rayvt]

I am 48 and DH is 58. So for us, we plan on my DH waiting until he is 70 and I will take my SS early two years later when I am 62

.

That's 15 years from now. Pretty far ahead to be making plans for something that is essentially threading the needle.
Not to mention that it is quite likely that the SS payout & benefit rules will be changed by that time.

 

[RetiringAt55]

.

That's 15 years from now. Pretty far ahead to be making plans for something that is essentially threading the needle.
Not to mention that it is quite likely that the SS payout & benefit rules will be changed by that time.

Actually DH had originally planned to take his SS at 62, so it was doing planning for something that is only 4 years away.

 

[misanman]

My wife took SS early at 64. She is now 66 and has been collecting $1000/month. I am presently 64 and will reach full retirement age at 66 in 2 years. When I reach FRA the idea is to delay taking my SS until I reach 70 when it will be a greater monthly amount than what it would have been at age 66. I would instead (at age 66) apply to recieve 1/2 of the amount of what my wife recieves. This would then make the total amount we recieve from SS to be $1500/month for the next 4 years. Once I reach 70 I would stop taking the $500/month based on my wife's SS and start taking my own SS which would be $2000/month. We would then be recieving her SS of $1000 and my SS of $2000 for a total of $3000/month.

This is what we are doing. I started drawing a spousal benefit last year. I encountered no problems doing this but was surprized that my Medicare number changed to align with DW's.

 

[gerrym51]

I'm still confused since there are differences in opinions. I may not have been clear with the idea. Here are the actual ages and a clarification. In both cases the actual amounts of SS benefits for my wife and me are different but mine will be greater. I will just use a set amount for SS without consideration of cost of living increases to simplify. Being a bear of very little brain I don't have the math skills to do otherwise.

My wife took SS early at 64. She is now 66 and has been collecting $1000/month. I am presently 64 and will reach full retirement age at 66 in 2 years. When I reach FRA the idea is to delay taking my SS until I reach 70 when it will be a greater monthly amount than what it would have been at age 66. I would instead (at age 66) apply to recieve 1/2 of the amount of what my wife recieves. This would then make the total amount we recieve from SS to be $1500/month for the next 4 years. Once I reach 70 I would stop taking the $500/month based on my wife's SS and start taking my own SS which would be $2000/month. We would then be recieving her SS of $1000 and my SS of $2000 for a total of $3000/month.

Does this sound correct to do? Does the SSA allow a plan of this kind? If we are allowed to do this and have the additional $500/month for those first 4 years then we can wait until I reach 70 before I take my own SS. Then at that time our combined benefits will be greater. The advantage, aside from the extra $6000/year ($500x12) for the 4 years until I reach 70, is if I die first then she will be able to convert over to my SS under survivor benefit. She would then receive my SS of $2000/month instead of her SS of $1000/month.

If this can be done then I would think that most married couples would take advantage of this where one has a greater SS and plans to delay until 70.

Cheers!

on a straight line basis taking social security later then earlier usually gets one more money.

however , assuming it is not done in a vacuum, there is interest made on money gotten,lower taxes when you have to take mandatory withdrawals, and thef fact that the ss tax caluculation is not inflation adjusted. all these have to be considered

 

[homestead]

if the husband filed at 62 there is a reduction on the wifes 1/2.

Never seen this one , I thought there was only a reduction in spousal
benefit if the wife took SS earlier than FRA.

 

[mathjak107]

The wife can get up to half the husbands fra less a reduction if he filed earlier than fra as a reguler benefit.

When it comes to survivor benefits she gets whatever the husbands benefit was not his fra if he filed early.

She is then subjected to an additional reduction if she herself files for survivor benefits before her fra.

 

[Tadpole]

Have any of you run AnyPIA? I just ran it under the scenario that I collected the month I turned 70 and it used a PIA factor of 1.32. That is as expected. I tuned the data to the scenario where I died the month I turned 70 having never collected and my 72 year old husband switched to my benefit the month I died. His PIA factor showed up as 1.0, denying him my age 66-70 increase. Is this right or am I doing something wrong or is AnyPIA wrong about age 70 survivor benefits?

 

[homestead]

The wife can get up to half the husbands fra less a reduction if he filed earlier than fra as a reguler benefit.

When it comes to survivor benefits she gets whatever the husbands benefit was not his fra if he filed early.

She is then subjected to an additional reduction if she herself files for survivor benefits before her fra.

Where can I see this documented? I can't find this at ssa site and this
ss calculator shows no reduction in wife's spousal benefit if I take my ss at 62.

 

[Brett_Cameron]

Where can I see this documented? I can't find this at ssa site and this
ss calculator shows no reduction in wife's spousal benefit if I take my ss at 62.

Here: SSA Handbook § 724

A spouse can choose to retire as early as age 62, but doing so may result in a benefit as little as 32.5 percent of the worker's primary insurance amount. A spousal benefit is reduced 25/36 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month. There is no reduction for the prior entitlement as a wife or husband.

Look through the Table of Contents for answers to your other questions.

 

[homestead]

Here: SSA Handbook § 724


Look through the Table of Contents for answers to your other questions.

That reduction you quoted is well documented on ssa site but mathjak107 was stating that the spousal benefit for my wife was reduced if I start ss prior to FRA.
I can't any documentation for that.

 

[Brett_Cameron]

That reduction you quoted is well documented on ssa site but mathjak107 was stating that the spousal benefit for my wife was reduced if I start ss prior to FRA.
I can't any documentation for that.

Here: SSA Handbook § 723

Your benefit rate is reduced if you become entitled to the following benefits at the ages shown:
Retirement insurance benefits at age 62 through the month before you reach Full Retirement Age (FRA);
Husband's or wife's insurance benefits at age 62 through the month before you reach FRA, provided that you do not have in care a child of the worker either under age 16 or disabled and entitled to benefits;
Widow(er)'s insurance benefits beginning at any time from age 50 through the month before you reach FRA;
Widow(er)'s insurance benefits after the deceased worker has received a retirement insurance benefit reduced for age;
Disability insurance benefits received after a reduced retirement insurance benefit; or
Retirement or disability insurance benefits received after a reduced widow(er)'s insurance benefit. This applies only to workers born before 1928.

And Here:
SSA Handbook § 320 Specifically §320.1 C

The benefit paid to you may be less than one-half of the worker's primary insurance amount if:
The “family maximum” applies (see §§731-732 for an explanation of reduction in benefit rates because of this provision);
You are entitled to a retirement, disability, or widow(er)'s insurance benefit that is smaller than your spouse's benefit rate (only the difference between the retirement, disability, or widow(er)'s benefit and the spouse's benefit rate is paid as a spouse's insurance benefit); or
You qualified for a reduced spouse's benefit before retirement age. (See §§723-724 for an explanation of how the reduced rate is figured.)
Note: If you have in care the worker's child under age 16 or disabled, who is entitled to child's insurance benefits, your benefits are not reduced. (See §312 for an explanation of “in care”.)

Both your and spouse's benefits are based on your Primary Insurance amount. If you take SS before your FRA your benefit amount is reduced based on how long before your FRA you start taking benefits. Your spouse's benefit at her FRA is 1/2 your PIA. That half is reduced based on how long before her FRA she starts taking the spousal benefits.