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Tap IRA Early to Delay SS
Old 11-24-2017, 01:10 PM   #1
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Tap IRA Early to Delay SS

I am just getting to the point of considering SS options and this article was interesting:

https://www.kiplinger.com/article/re...-security.html

"Please enable JavaScript to view the <a href="https://disqus.com/?ref_noscript" rel="nofollow">comments powered by Disqus.</a> <img src="//b.scorecardresearch.com/p?c1=2&c2=13258294&cv=2.0&cj=1" />It's conventional wisdom that you should delay tapping your IRA as long as you can. There's also the tendency of most retirees to claim Social Security benefits as soon as possible. The unintended consequence: You're likely to shorten the life span of your nest egg."

Of course this is a "live to 100" analysis, ignoring health and inheritance. Any other thoughts?
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Old 11-24-2017, 02:07 PM   #2
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I took SS early on the belief that I was better off letting the tax sheltered assets grow for as long as possible. Hard to tell whether this was the right decision until I'm dead, and then I won't care. It did, however, allow me to ride through the bad times after 2007 without selling into a bear market.

So I think a big factor is your growth expectations for your IRA.
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Old 11-24-2017, 03:04 PM   #3
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We are currently tapping our IRA to have some spending money and to convert to ROTH.
This will reduce the amount subject to the tax torpedo later on.

Our State does not tax IRA withdrawals or conversions, so just Fed taxes on that.

By doing some conversion in the 10 and 15 percent tax bracket this money will never be taxed at 25% which is what would happen at 70.5 if it were left there once you add RMD's + SS + dividends + interest + LTCG.

It can continue to grow tax free in the ROTH so no growth expectations are missed for the conversion portion.
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Old 11-24-2017, 08:04 PM   #4
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Quote:
Originally Posted by Tekward View Post
I am just getting to the point of considering SS options and this article was interesting:

It's conventional wisdom that you should delay tapping your IRA as long as you can. There's also the tendency of most retirees to claim Social Security benefits as soon as possible. The unintended consequence: You're likely to shorten the life span of your nest egg."

[/I]Of course this is a "live to 100" analysis, ignoring health and inheritance. Any other thoughts?
If we're looking at just IRA and SS, and only FIT, and the choice is start at 62 or start at 70, my recollection is that it's a "pay me now or pay me later" choice.

Starting at 62 generates more level taxes. Deferring till 70 raises taxes in the 62-70 period, then reduces them over 70.

I tried a number of spreadsheets for my situation and decided that there were enough unknowns about investment returns, unplanned spending, inflation, and tax laws that there was no clear winner.
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Old 11-24-2017, 08:21 PM   #5
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My plan is to wait until 59 1/2 and then start tapping the T-IRA, postponing SS until 70. I was too good of a saver in my 401k/IRA and will face very high RMD's at 70 unless I spend down the T-IRA before then. We will save a lot in taxes by waiting to claim SS until age 70. By lowering our RMDs, we will have more control over managing our tax bracket once RMD's and SS kick in at 70 1/2. The goal is to stay in the 15% tax bracket.
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Old 11-25-2017, 09:31 AM   #6
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Quote:
Originally Posted by OldShooter View Post
I took SS early on the belief that I was better off letting the tax sheltered assets grow for as long as possible. Hard to tell whether this was the right decision until I'm dead, and then I won't care. It did, however, allow me to ride through the bad times after 2007 without selling into a bear market. ...
I'm in-between.... not taking at 62 but it is comforting to know that if investment results go sideways that I can flip that SS switch anytime.

Another factor is if we were collecting now SS income would be subject to state income tax and we expect to be in an income tax free state later.

Finally, I can do a lot of low cost Roth conversions now (and lower RMDs later) that I would have to cut back on if we have SS income.
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Old 11-25-2017, 09:41 AM   #7
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... I tried a number of spreadsheets for my situation and decided that there were enough unknowns about investment returns, unplanned spending, inflation, and tax laws that there was no clear winner.
This.

Answering the question definitively requires accurate predictions for a huge number of variables, not the least of which are how long we are going to live and what the inevitable "fixes" to Social Security will entail. Compared to this, simply forecasting the stock market should be a piece of cake.
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Old 11-26-2017, 05:30 AM   #8
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if you are delaying ss and can stay within the income requirements than the tax gods give you a bonus . you can draw as much as 22k out of your ira's tax free as a couple .that is money written off at higher incomes that will never owe taxes since just the standard exemptions and deductions negate that much .

combine that with roth income , cash set a side and you can have a pretty nice income almost tax free .

you can pull up to 40k out at as little as 4.50% in taxes too if you want to go higher ..

you can actually reduce rmd's while delaying ss by as much as 320k and pay very little in tax .

but blow that window of opportunity by believing you should hit tax advantaged accounts last and you will give back quite a bit for that incorrect thinking .
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Old 11-26-2017, 09:22 AM   #9
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I'm in-between.... not taking at 62 but it is comforting to know that if investment results go sideways that I can flip that SS switch anytime.

Finally, I can do a lot of low cost Roth conversions now (and lower RMDs later) that I would have to cut back on if we have SS income.
We are holding off DW collecting SS too, with the knowledge she can apply at anytime. It is comforting to us as well to know we can turn on additional income if needed. We are leaning towards her collecting at FRA+ but not set in stone. I'd like to finish our ROTH conversions in 2019. I'm leaving some funds in taxable IRA to spend down once decision to start collecting SS prior to 70 is made. (hopefully pushing off the SS start date by up to a year, thus the +)
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Old 11-26-2017, 10:01 AM   #10
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Present plan is to take SS @ 70 and only tap TIRAs for Roth conversions. Tax on conversions paid out of after tax $. Being 56,we obviously have time to revise the plan, but it should work.
Living expenses coming from after tax $.

edit: this decision really is really dependent on individual situation. One's tax diversification is an important input to making this decision.
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Old 11-26-2017, 10:07 AM   #11
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DW and I are living on taxable account, very small pension, and doing Roth conversions to fill income enough to stay out of Medicaid. This works great with market going up, adjustments as needed if it goes down. We can tap SS at any time, but would like to wait until at least 65.
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Old 11-26-2017, 10:55 AM   #12
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i just took mine at 65 but retired at 62 .
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Old 11-26-2017, 04:44 PM   #13
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if you are delaying ss and can stay within the income requirements than the tax gods give you a bonus . you can draw as much as 22k out of your ira's tax free as a couple .that is money written off at higher incomes that will never owe taxes since just the standard exemptions and deductions negate that much .

combine that with roth income , cash set a side and you can have a pretty nice income almost tax free .

you can pull up to 40k out at as little as 4.50% in taxes too if you want to go higher ..

you can actually reduce rmd's while delaying ss by as much as 320k and pay very little in tax .

but blow that window of opportunity by believing you should hit tax advantaged accounts last and you will give back quite a bit for that incorrect thinking .
+1 Exactly right. I plan on taking out the right mix of Traditional IRA (up to the 22Kish you speak of for MFJ). Add to that SS. Add to that Roth distributions. Between the 3 you can come up with a really nice income and possibly pay almost nothing in Federal taxes. But, before you can do that you've got to have money in each of the different buckets (Tax Deferred, Taxable, and Tax Free (Roth). My goal for the next several years is to increase my Taxable and Roth buckets by doing regular Trad IRA distributions and Roth conversions. Right now, 80% of our retirement funds are in Traditional IRAs.
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