Tapping IRA to Postpone Social Security

[CRLLS]

We have started Medicare--spouse in March deducted from CSRS pension, mine begins May with the payment mailed already.

One item that may/would lead me to file before 66 and January 2020, is a Medicare premium increase when the COLA is smaller than the increase. I understand that the increase cannot exceed the COLA as long as the premium is deducted from your annuity payment.

Have been trying to read/find (haven't contacted SS/Medicare yet) the following answer for this question, during the past few months, but time is starting to creep up.

Would a Dec 2019 benefit, paid in Jan 2020 be "held harmless" from a Medicare premium that exceeded the COLA increase?

I think the premium and COLA are announced around the same time.

I thought so too. Just remember "hold harmless" is based on dollars not %. Let's say, for the ease of discussion, your SS benefits are $1,400 per mo and the Medicare premium is $140 per mo. Next year the SS Cola increase is 1% and Medicare premium goes up 10%. You would get an extra $14 per mo from SS. In turn Medicare premium goes up $14. There is no Medicare premium protection. You will still have to pay Medicare the full $154. A net even situation.

Of course you could manipulate the scenarios in may ways. Where it really works is when there is no Cola increase and Medicare increases. Even then, it is only for a short time. In later years, when your dollar increase from SS goes up faster than the $ increase in Medicare premiums, You will eventually be catching up to the Medicare going rate.

For us, it was not a consideration in determining when to take SS once I looked into the workings of HH.

 

[Chuckanut]

One benefit is reducing the balance in the IRA before higher income from SS kicks in and you also have to take RMDs. You will probably reduce future taxes. It’s worth investigating.

True, but can't that also be done through the skillful use of conversions to Roth IRAs?

 

[Chuckanut]

I have a spouse whose SS benefit is severely whacked by WEP & GPO. For us this means take early.....

Why would WEP and GPO dictate taking SS early?

 

[Chuckanut]

I view the inflation-adjusted SS check as outstanding longevity insurance. By waiting to age 70, I maximize the size of that check for as long as I (or DW) live. That also should allow us to spend down our investments to a lower level than we'd otherwise be comfortable doing.

+1

And for me I view the larger SS check as a buffer against LTD problems. LTD insurance is a no go for me. The cost up front, the fact that they can increase premiums at will (and, perhaps price me out of the market near the time I may need it the most), and the statistics that show most people use it for no more than a year have left me with no decision but to shoulder the risk myself. The higher SS payment will help offset that cost a bit.

Also, I can always turn SS on anytime before I hit 70 should the circumstances change. It's not 62-70, or nothing in between.

Finally, as has been shown multiple times at this site, if you don't care about leaving an estate to your heirs, you have more money to spend each year by taking SS at 70. I and several of my friends have Mr. Cut-Throat to thank for this insight.

https://www.bogleheads.org/forum/viewtopic.php?t=102609

 

[Sunset]

Why would WEP and GPO dictate taking SS early?

I don't think it does.

For me, I get WEP'd, so I looked at it and decided I'd take the non-SS money early, and delay SS.

That way SS becomes a greater amount, and the WEP'd money is lower than normal (but I collect it longer).

When I do take SS, the reduction will be lower than if I had taken both at the same time.

 

[jimandthom]

I thought so too. Just remember "hold harmless" is based on dollars not %. Let's say, for the ease of discussion, your SS benefits are $1,400 per mo and the Medicare premium is $140 per mo. Next year the SS Cola increase is 1% and Medicare premium goes up 10%. You would get an extra $14 per mo from SS. In turn Medicare premium goes up $14. There is no Medicare premium protection. You will still have to pay Medicare the full $154. A net even situation.

Of course you could manipulate the scenarios in may ways. Where it really works is when there is no Cola increase and Medicare increases. Even then, it is only for a short time. In later years, when your dollar increase from SS goes up faster than the $ increase in Medicare premiums, You will eventually be catching up to the Medicare going rate.

For us, it was not a consideration in determining when to take SS once I looked into the workings of HH.

Thanks for your angle--- shouldn't have to think so seriously about things--- we're retired.

I think I was considering the highlighted part and how that works.

There have been a number of no/low COLAs in the last number of years that did limit the Medicare cost to recipient increases if your were receiving the annuity and payment coming from the annuity.

A couple of years ago, I recall that people not having the premium deducted were going to be whacked by a sizable increase.

We have no heirs, most everything going to the local University. Spouse affected by WEP and we both have LTC through the feds which is not crazy priced.

Our SWR is at or less than 3% and our pensions/and 1 SS is really all we need and actually more than needed. Is about 90% of our "desired have it all" amount.

 

[pb4uski]

True, but can't that also be done through the skillful use of conversions to Roth IRAs?

Yes, but if you are collecting SS quite often it takes up significant headroom that would otherwise be available for low cost Roth conversions.

For example, let's say you have $10k of dividend income and $20k of pension income. If $77k is the top of the 12% tax bracket, you have $71k of headroom for Roth conversions. With the same fact pattern, if you're collecting $40k of SS, it reduces that headroom $34k... so from $71k to $37k.

 

[jldavid47]

In our situation, I will be taking my SS at age 70 and my wife will be taking hers at FRA and I will happily spend IRA money to do that. (She will be working another 3+ years). I am 37 months older than my wife and, statistically speaking, am more likely to die first. The survivor benefit from my SS (even at my FRA) will exceed what she can get on her own work record even if she waits to age 70. The longer I wait, the more she gets if I die before her.


Waiting also gives me (virtually) risk-free income growth. I am 64 and 9 months old now. The difference between taking SS now and waiting to age 70 is a bit over $1000 per month. That is (virtually) guaranteed. If I took SS now, paid the taxes then invested it I might do better. Or I might not. There is a lot of risk after a 10 year bull run. If the next 30 years look like the last 30 years then taking the money and investing would work out great. If the next 30 years looks like Japan's stock market over the past 30 years, then taking the money and investing it would be a losing proposition. The problem is, I don't have a crystal ball. All I can do is spread out my (our) risk and try to balance/mitigate longevity and anti-longevity risks.


The object here isn't to simply maximize your benefits/income/assets over your lifetime. You can't actually calculate that because you have no idea when you are going to die and no idea what future returns will be. The best you can do is run various scenarios then decide what fits your mentality, goals and lifestyle the best.

 

[Squirrel]

While there are too many unknowns for an optimal strategy that works for everyone, two cases did seem to work well for a variety of situations: 1) For married couples, having the high earner file at 70 and their spouse as early as possible.

Can you explain why that is a good plan? Wouldn't it be better for both to wait until 70, if longevity risk is a factor?

 

[Dog]

Yep, individual choice. I'm in the take it early camp to enjoy during what will likely be my more active years. Having it will psychologically help me to loosen the spending a little for nicer travel and other experiences during those years. I don't see it changing my situation later since I don't really NEED it anyway.

Same. DH and I plan to enjoy our 6th decade, the go-go sixties, before we hit the slow-go seventies. The SS will help with that

 

[Katsmeow]

To me the thing that I feel is not often discussed is the potential impact of eating up a substantial portion of your IRA while you wait for SS at 70. Sure, it can work out. For people who absolutely have way more portfolio than they will ever spend, it doesn't really matter. Wait or don't wait.

In our case, I was concerned about eating up a substantial portion of our portfolio. What if we later had some large expense where we need a large lump sum? Also, what if SS benefits change later. I would hate to eat up my portfolio waiting for a higher SS at 70 and then have benefits be cut when I am 69.

There is another factor for a married couple who have SS amounts that are close in amount. My SS benefit is lightly more than that of my DH. So, whenever one of us dies the SS of the survivor will be reduced by almost 50%. But with both of us taking SS earlier we hopefully have years when both of us are drawing SS and perhaps fewer years when only one of us draws. Yes, I know it would be a higher amount if one of us had waited but that is still a factor.

To me there will always be uncertainty about what SS benefits will exist in the future. I am not unduly pessimistic but there is some uncertainty. But, I know how much I have in my portfolio and so I don't like to reduce it to increase an uncertain amount of SS.

 

[audreyh1]

True, but can't that also be done through the skillful use of conversions to Roth IRAs?

That’s related to the point. If you are not drawing SS you have more room to do those Roth IRA conversions.

The spending money has to come from somewhere. They can draw down their IRA to cover spending, and if so inclined covert additional.

The question was whether to start SS earlier or draw income from the IRA first.

 

[jimandthom]

To me the thing that I feel is not often discussed is the potential impact of eating up a substantial portion of your IRA while you wait for SS at 70. Sure, it can work out. For people who absolutely have way more portfolio than they will ever spend, it doesn't really matter. Wait or don't wait.

In our case, I was concerned about eating up a substantial portion of our portfolio. What if we later had some large expense where we need a large lump sum? Also, what if SS benefits change later. I would hate to eat up my portfolio waiting for a higher SS at 70 and then have benefits be cut when I am 69.

There is another factor for a married couple who have SS amounts that are close in amount. My SS benefit is lightly more than that of my DH. So, whenever one of us dies the SS of the survivor will be reduced by almost 50%. But with both of us taking SS earlier we hopefully have years when both of us are drawing SS and perhaps fewer years when only one of us draws. Yes, I know it would be a higher amount if one of us had waited but that is still a factor.

To me there will always be uncertainty about what SS benefits will exist in the future. I am not unduly pessimistic but there is some uncertainty. But, I know how much I have in my portfolio and so I don't like to reduce it to increase an uncertain amount of SS.

This maybe is the center of my dilemma.

While postponing until 66, as I've stated before really don't see me going past 66, we are drawing about 6% WR. Been fine so far, as except for 2018 its been a pretty upward climbs on portfolio.

We are spending gains that could be growing and that my spouse may need when I have died. Since spouse cannot collect a spousal death benefit on my SS, I feel like I am taking from his future stash.

Gonna be either 1/2020 or FRA in May 2020.

Probably.

 

[Navigator]

Can you explain why that is a good plan? Wouldn't it be better for both to wait until 70, if longevity risk is a factor?

If both people in a marriage wait to 70 to collect social security, then both typically need to live into their 90s at least to recoup the money they gave up by waiting to collect, if lost investment returns on their retirement funds are considered. This occurs only about 2% of the time according to social security actuarial tables. Far more often, one spouse dies before the other, and must live off the largest of the two incomes. Thus, the highest earner waiting to 70 protects the surviving spouse. The lower earning spouse taking SS at 62 provides financial protection for one spouse dying early.

 

[gwraigty]

Can you explain why that is a good plan? Wouldn't it be better for both to wait until 70, if longevity risk is a factor?

This could make sense if the benefit for the lower earning spouse would exceed their spousal benefit, and the desire is to have the largest monthly household SS income. But if the spousal benefit is greater, then there is no reason for the lower earning spouse to wait until 70. For example:

We're still well below any age to consider collecting, but I do have a tentative forecast for SS built into my spreadsheet. In my case, my spousal benefit will be much greater than a benefit based on my own work record. If my husband were to wait until 70, I could start collecting based on my work record anytime starting at 62. If I wanted a larger monthly SS check, I'd wait until 67, collect on my own record for 3 years, then switch to a spousal benefit when he starts collecting at 70. That's only if we're concerned with getting a higher household SS income, which we may decide isn't our goal.

 

[Perryinva]

I presume you already looked at both of you filing at his FRA, to see if that nets more long term.

 

[Marc]

I went to opensocialsecurity.com and came away with same recommendation as many of wife taking her SS at 62 and me delaying to 70. That site gave a PV of our SS of $950K. I added that to portfolio at retirement (i.e, all liquid assets) and based a 4% withdrawal rate on that larger number. So, I am taking a good chunk from my IRA but not touching Roth IRA or brokerage account. I figure that by time I reach 70 and have started taking SS the RMD from regular IRAs will be about what I "want" to take from IRA and still won't touch Roth unless needed.

I am not limiting myself at all; I am spending what I want. And if I die before 70 and never take SS there will still be the higher SS for my wife and still a lot of money for her to play with.

Marc

 

[audreyh1]

If most of your retirement investments are in IRAs then I think it would be good to tap into them before drawing SS because it lessens the tax torpedo. Especially if your annual income needs are 3% or below of your investments indicating you have accumulated a pretty large stash compared to you needs.

However, if you are depending on SS income to make retirement work, it’s a more delicate trade off. If you feel that by delaying SS you are drawning down your investments “too much” then you have to think about how large a nest egg you need to preserve. Maybe you are thinking of heirs.

 

[Teacher Terry]

At 65 I am slowing down from 60 so yes go as much as you can.

 

[Cantwaitanylonger]

Be careful thinking that you have longevity in the family. I have great longevity in my family and I just received a cancer diagnosis 2 weeks ago at age 58. Things can change in a hurry.

 

[joeea]

Be careful thinking that you have longevity in the family. I have great longevity in my family and I just received a cancer diagnosis 2 weeks ago at age 58. Things can change in a hurry.

Sorry to hear that. For many, a cancer diagnosis doesn't necessarily alter their longevity these days.

I was diagnosed with cancer a bit less than 1.5 years ago. After a little more than a year of treatments, no more cancer. It's amazing how much better treatments have gotten in recent years.

Very good longevity in my family. I don't intend to impact that negatively at all.

 

[Out of Steam]

Planning on postponing Social Security until 65, mostly to make sure I'm really retired. I'll rethink it then.

 

[meleana]

I am sure this topic has been discussed in detail, but, I am just looking for some general opinions rather than detailed analysis favoring pro or con. I just read an article on CNBC that referenced a recent article in the Journal of Pension Enconomics and Finance. I gather the study advocated tapping ones IRA in order to claim SS later for a higher payout. I spoke to a friend of mine, a pretty sharp guy who used to work in Vegas casinos. He was against it, saying "why live off my money when I can live off the house money?". On the other side of the coin, The author of the CNBC study said "if you don't need it, why take something now when you can lock in a much bigger check for life later?". I myself am undecided what to do. I am soon to be 64 and if I wait till 70 to collect SS, I would use up slightly less than half my IRA. If important, I have good genetics for a long life, but, I don't put much stock in that. Opinions are welcome. Thanks for sharing your time and expertise.

We are just in the planning stages with our fee only financial planner and in our case he says once my husband retires next year at age 66 (I am retired at age 63) we both should delay SS until age 70 and live off our taxable accounts (brokerage and cash) first and do Roth conversions each year until age 70 to stay under $101,000 and therefore lower income taxes due to the capital gains (except for the Roth conversions which we will owe taxes on). This will lower our tax bite when we turn 70 and start taking SS and start the mandatory IRA withdrawals.


Also, this strategy will help with the Medicare rates.


I am good with this though I suppose I could take it at age 64 next year if I wanted to. But the FP asked me if I would be ok with taking it at age 70.


Also- I have always thought of SS as an annuity. I don't like the idea of buying an annuity from an insurance company. We already have one we were forced to pay into- Social Security.

 

[bberris]

I agree with the general consensus that there is no clear cut right or wrong answer here.

I have opted to take my SS "early". It has helped keep my taxes low for a few years, and my MAGI low for ACA purposes. ....

I'm getting tired of trying to figure this stuff out.

How does that work? Even untaxed social security income counts toward ACA income.

 

[2retireearly]

Just keep in mind that SOC sec has much lower taxes (if any) than your trad IRA. So if you take SOC sec early, make sure you don't also need to take some fromIRA, as that will up your tax bracket, so that you might pay more taxes on soc sec than you would, if you waited later, when it was a higher benefit, and you took very little, or no IRA. It's all a numbers game..for me..to keep taxes low. But also remember, actuarially, based on actuarial life expectancy tables, you get the same aggregate sum of SOC sec benefits at the end of your predicted life span, whether taking it early or later...