Tapping IRA to Postpone Social Security

[CardsFan]

Fortunately, SS will be a relatively minor part of my retirement income, when and if it is still around when I am old enough to take it.

I used think this as well. Now that we are 2-3 years from FRA I realize that SS will cover 2/3 of our current annual spending. Far more than I ever anticipated 20 years ago.

 

[Rianne]

If I buy a bond that yields 8%, I give the issuer $10,000 today, get $800 every year, then get all of my original $10,000 back at maturity.

Unless that bond came from Enron. And 8% bonds (AAA) don't exist today. If they do, please share.

 

[Independent]

Unless that bond came from Enron. And 8% bonds (AAA) don't exist today. If they do, please share.

The poster used 8% as an "investment" number. I used bonds to make the point clearer.

If you want to compare the growth in the SS benefit to an investment, you have to use IRR on the SS benefit, and then look at multiple dates of death.

 

[robnplunder]

If I defer SS for a year, I give up one year's benefit (let's say $10,000), I may get an extra benefit of $800 every year, but I never get my $10,000 back.

The only way to beat SS in math is to live long, very long. That will teach the taxman.



As I mentioned before, when all the math is done, the $$$ difference is pretty small. More so (relatively speaking) for those who retired with a lot of asset and spending power. Of course if SS will be a big part of your retirement budget, then picking the right age is crucial. Even so, without knowing how long we will live, it is still going to be a lucky guess to pick the right age. I hope to live until 85 and start taking SS at 67. That's my plan today but is subject to change. I will take a real hard look at it at 61 and 3/4.

 

[joeea]

The only way to beat SS in math is to live long, very long.

When I was young I used to think early 80s was long, very long too.

 

[Rianne]

The poster used 8% as an "investment" number. I used bonds to make the point clearer.

If you want to compare the growth in the SS benefit to an investment, you have to use IRR on the SS benefit, and then look at multiple dates of death.

All PV, FV, IRR calculations aside, have you looked at what you (not your employer) paid into SS? I mean your entire life, consider that amount your investment. Then compare the return you'll get if you live 10,15,20 years.

 

[robnplunder]

When I was young I used to think early 80s was long, very long too.

No one among our family & relatives made plans to live that long. Their target dates were somewhere in 70's. DW who qualifies for 1/2 of my SS amount will likely live to 95 and beyond. That's one reason why DW & I won't be taking SS at 62. Then again, we will see what is our situation at around 62.

 

[samclem]

All PV, FV, IRR calculations aside, have you looked at what you (not your employer) paid into SS? I mean your entire life, consider that amount your investment. Then compare the return you'll get if you live 10,15,20 years.

For someone considering options for the future, it's not clear to me why it is important to consider what has been paid in. It's already paid, it is water under the bridge. What is important is the relative utility (and that's not just absolute dollars) of each available alternative (take SS at 62, at FRA, at age 70, etc).

 

[Perryinva]

That is far too simplistic for me.

The (very approximately) 8% annual increase should not be compared to an 8% return on a bond or a stock. ....

If I defer SS for a year, I give up one year's benefit (let's say $10,000), I may get an extra benefit of $800 every year, but I never get my $10,000 back.

BUt delaying is nothing like a bond. It is a straight forward purchased annuity. Every year I delay filing it is roughly a $3300/yr increase, for forgoing $26k/yr. And that $3500 increases via COLA along with the original amount, unlike a bond. So yeah, I may easily see my “$10k” back and then some. I don’t understand how people say “it’s a wash” and then side with collecting early. If it’s a wash, then why not side with the longevity insurance as well. You should be spending the same amount regardless of when you file. If all else is equal, then you may as well file so that you can spend more now and have plenty of income if you live, because it will be replaced by higher SS, instead of depending more on markets all your life as you age. If you die, you won’t care...you’ll be dead. If I file at 62, at age 70, my SS will be about $30k. If I file at 70, it will be about $52k. A lot more to consider because of those amounts.

 

[joeea]

No one among our family & relatives made plans to live that long. Their target dates were somewhere in 70's.

What do they plan to do once they reached their target date?

DW who qualifies for 1/2 of my SS amount will likely live to 95 and beyond. That's one reason why DW & I won't be taking SS at 62. Then again, we will see what is our situation at around 62.

Makes sense.

 

[robnplunder]

What do they plan to do once they reached their target date?

In case of one of my uncles, he kept on working. He is still working at age 79. He's a rich man but once he boasted about buying an expensive wine. How much was the win? It was $8. When I heard that, I could not burst out laughing and also felt sorry for him. He does not know the meaning of spending money.

 

[Independent]

All PV, FV, IRR calculations aside, have you looked at what you (not your employer) paid into SS? I mean your entire life, consider that amount your investment. Then compare the return you'll get if you live 10,15,20 years.

I can see the miscommunication.

I was talking about the decision to start now or defer until later. You're talking about the "return" on SS from the day I started working. Two completely different questions.

For example, I might have a $15,000 annual benefit if I start at 62, but $16,000 if I start at 63. If I wait, I give up $15,000 once in order to get $1,000 annually for life. I have to live for 16 years to get my IRR up to 0%. If I live 21 years, 2.91%. For 26 years, 4.39%. Since those are CPI adjusted rates, they are worth thinking about. But, none of them are 8%.

 

[Independent]

BUt delaying is nothing like a bond. It is a straight forward purchased annuity.

Correct, that's what I was trying to say.

Note that some people would like to buy CPI indexed annuities, others wouldn't. I don't think there is a "right" answer.

 

[Independent]

Of course if SS will be a big part of your retirement budget, then picking the right age is crucial. Even so, without knowing how long we will live, it is still going to be a lucky guess to pick the right age.

I could say that the wisdom of buying homeowners insurance depends on making a lucky guess on whether my house will burn down. But, since I don't know that in advance, I make decisions based on gut feels about utility (risk aversion). I think of life annuities as "longevity insurance", so that gut feel gets into play.

 

[dtbach]

Taking from IRA's which might produce a 6-7% at best rate vs postponing SS at a guaranteed 8% rate is a no brainer. Plus it reduces your RMD at 70. That's the route I'm taking.

 

[Perryinva]

Like everyone here has said, there is no universal right or wrong answer. The ROI on SS is never 8%. Well, maybe if you live to 115. It’s a risk based annuity like any of them are, just with much better terms. And no one lives on “percent”. They live on real numbers. If ones SS is insignificant compared to their income then it is pretty moot, anyway. If I was single and had any reason to suspect a less then 80 year life, I’d file at 62 myself. (Well, 63 anyway, since I already have too much “earned income” locked in through age 62. Which I think sucks, for severance pay, when collecting a pension from the same employer, which MEANS I’m retired, to be liable for all taxes, + FICA & Med)

 

[joeea]

In case of one of my uncles, he kept on working. He is still working at age 79. He's a rich man but once he boasted about buying an expensive wine. How much was the win? It was $8. When I heard that, I could not burst out laughing and also felt sorry for him. He does not know the meaning of spending money.

So his plan had a target date of 70s, he lived past his target date, and he's a rich man.

What was the point of the plan? What was the point of the target date?

 

[jimandthom]

Turned 65 a couple of days ago and the tug to draw early is very strong. Since spouse can't collect a survivor benefit, that weighs heavily on the final determination.

Game plan for now is
1-- reassess every quarter when the Medicare bill comes
2-- not past age 66
3-- probably January 2020 when the reduction is only about 2.5%

362 days to go or bust.

 

[Clone]

Since spouse can't collect a survivor benefit, that weighs heavily on the final determination.

This is the where the actuarially neutral part takes over. There is not really a wrong time to start for one person.


For us, I am the higher earner and will wait until 70. This gives us a few more years to do ROTH conversions. If either one of us lives past 83, then we will have 'beat' the break-even point. Not that the breakeven is important, but this is the only revenue stream that we have that has COLA.

 

[robnplunder]

Like everyone here has said, there is no universal right or wrong answer. The ROI on SS is never 8%. Well, maybe if you live to 115. It’s a risk based annuity like any of them are, just with much better terms. And no one lives on “percent”. They live on real numbers. If ones SS is insignificant compared to their income then it is pretty moot, anyway. If I was single and had any reason to suspect a less then 80 year life, I’d file at 62 myself.

+1. For every thread like this, this is answer pretty much nails it. So, my plan would be to live until 115. I still may lose this game given how much Fed tax I've paid to the US government.



(I don't look forward to getting old enough to start taking SS, be it 62 or 70 )