Trade off between SS starting age and withdrawal rate

[conversationalphrase]

I'm planning to retire at 62 in 2020.

If I took SS at 62 my savings withdrawal rate to cover planned expenses is 3.5% Of course deferring SS makes sense but increases the withdrawal rate until I start SS probably at 66-67.

Intuitively and per the calculators this is better in the long run but the higher withdrawal rate makes me uncomfortable.

Am I overlooking anything?

 

[pb4uski]

I'd suggest that in your situation that you look at your WR as follows... take the SS benefit at the point that you want to start SS. Subtract from your nestegg, that annual amount times the number of years from 62 to when SS starts. Divide your gap (spending - SS at benefit when you plan to start SS) by the reduced nestegg amount. I view that as your "ultimate WR... as if you partitioned a portion of your nestegg in a savings account and then invested the rest.

 

[Target59]

I've been working through those calculations myself. I made a spreadsheet and found that the variable that has the most impact is my expectation for returns on my portfolio. If I'm pessimistic about long term returns or very conservative in my AA, it's better to wait to take SS. The more optimistic I am, the later the breakeven point and it becomes more attractive to take it earlier. I'm optimistic, so I'm planning to take it at 62. Another reason for choosing 62 is that I don't think I'll have the guts to retire early if I don't. And time is worth more than money. I'm willing to forego a little bit of SS for a few additional years of FIRE while I'm young (at heart, at least).

 

[Ready]

What is your best guess as to your life expectancy based on your health, genetics and family history?

 

[Dtail]

I'm planning to retire at 62 in 2020.

If I took SS at 62 my savings withdrawal rate to cover planned expenses is 3.5% Of course deferring SS makes sense but increases the withdrawal rate until I start SS probably at 66-67.

Intuitively and per the calculators this is better in the long run but the higher withdrawal rate makes me uncomfortable.

Am I overlooking anything?

Conceptually in the same boat although already retired. I have started to think about it, but still have 4 years to go to age 62. I am sure I will go through the myriad of SS calculators plus ER ORG site posts before that time.

 

[mamadogmamacat]

Conceptually in the same boat although already retired. I have started to think about it, but still have 4 years to go to age 62. I am sure I will go through the myriad of SS calculators plus ER ORG site posts before that time.

+1
leaning more toward waiting to age 65 (hold harmless provisions re medicare) at the moment ( I was in the take it at 62 camp for mainly longevity issues) but will see as I also have 4 yrs or so to decide, if I get that far

 

[Dtail]

+1
leaning more toward waiting to age 65 (hold harmless provisions re medicare) at the moment ( I was in the take it at 62 camp for mainly longevity issues) but will see as I also have 4 yrs or so to decide, if I get that far

+1 back at you. lol
My initial thought was taking it at 62, but if not at 62, then at 65 for the hold harmless and thus that would be the same reason not to extend to 70. Who knows though......

 

[RunningBum]

If it makes you feel more comfortable, figure out the NPV of your SS benefit, and then your WR based on added that to your retirement nest egg. Then you are taking the same WR before and after starting SS, regardless of when you choose to start SS.

 

[Independent]

I'd suggest that in your situation that you look at your WR as follows... take the SS benefit at the point that you want to start SS. Subtract from your nestegg, that annual amount times the number of years from 62 to when SS starts. Divide your gap (spending - SS at benefit when you plan to start SS) by the reduced nestegg amount. I view that as your "ultimate WR... as if you partitioned a portion of your nestegg in a savings account and then invested the rest.

+1

And, if you think the 4% guideline makes sense for early withdrawals, you should notice that you can "safely" withdraw more in the early years if you defer.

 

[Independent]

I've been working through those calculations myself. I made a spreadsheet and found that the variable that has the most impact is my expectation for returns on my portfolio. If I'm pessimistic about long term returns or very conservative in my AA, it's better to wait to take SS. The more optimistic I am, the later the breakeven point and it becomes more attractive to take it earlier.

Yes

I'm optimistic, so I'm planning to take it at 62. Another reason for choosing 62 is that I don't think I'll have the guts to retire early if I don't. And time is worth more than money. I'm willing to forego a little bit of SS for a few additional years of FIRE while I'm young (at heart, at least).

Interesting. I'm hopeful that things will go well, but feel I should plan for the bad case.

So, for me, I don't think I would have had the guts to retire early if I didn't know that we could defer SS until our combined benefits were big enough to cover all our "basic" spending. That's a security blanket.

 

[Sunset]

I'm planning to retire at 62 in 2020.

If I took SS at 62 my savings withdrawal rate to cover planned expenses is 3.5% Of course deferring SS makes sense but increases the withdrawal rate until I start SS probably at 66-67.

Intuitively and per the calculators this is better in the long run but the higher withdrawal rate makes me uncomfortable.

Am I overlooking anything?

Just to make it more complex for you, if you have a lot in IRA/401K, then quite possibly you will get hit with the tax torpedo.

By delaying SS, you can withdraw more from your retirement funds to either spend or convert, so that when you are stuck with RMD's you don't get pushed into high tax brackets.

 

[mystang52]

2 comments/suggestions:

1) Decision does not have to be age 62 vs age 66. Just decide, if you're so inclined, to defer taking SS at age 62 for 6 months. Then revisit the issue, defer again if you're comfortable doing so, etc.

2) The primary reason I waited to age 65, and something you may need to consider, is that the reduced benefit at 62 also means a reduced death benefit. My DW is 99% likely to outlive me, and for a long time to boot. My SS benefit is higher than hers, so taking SS "too soon" would lock in a lower amount for her after my death.

 

[jollystomper]

2 comments/suggestions:

1) Decision does not have to be age 62 vs age 66. Just decide, if you're so inclined, to defer taking SS at age 62 for 6 months. Then revisit the issue, defer again if you're comfortable doing so, etc.

2) The primary reason I waited to age 65, and something you may need to consider, is that the reduced benefit at 62 also means a reduced death benefit. My DW is 99% likely to outlive me, and for a long time to boot. My SS benefit is higher than hers, so taking SS "too soon" would lock in a lower amount for her after my death.

+1

As it applies to me, my earliest potential SS start age is 63. But at that point I will determine if it makes sense or not, and defer if I do not need. Also, the more I defer, the higher the benefit will be for DW.

Also mentioned was having retirement accounts. I'm realizing that I have to start drawing down my tax deferred IRA/401K, or else my RMDs will be massive. So I will start drawing them down as soon as I retire. That may also lead me to defer SS based on what tax bracket it pushes us into.

 

[Chuckanut]

The good thing about not talking SS at 62 is that one change his/her mind and turn it on at any point after that. I know a number of people who have taken SS at full retirement age! (Shocking! What a bunch of radicals!) For them it is a good compromise between living with a much lower amount if taken at 62, and a significant draw down of assets by waiting until 70.

 

[walkinwood]

Would it make sense to purchase an immediate annuity for the time between ER and when you plan to start SS? What would your post SS withdrawal rate be if you did that?

 

[Spock]

For me its not a matter of WR, its comparison of the area under two curves.
If I start SS at 62 vs. 70, it would take until age at least 78 for a delayed SS start to break even.... thats 16 years of "what if I die before then".

Sure, after 78 it would have made more sense to wait with SS... but thats IF SS is still paying out by then... if benefits are reduced by 30% as rumored or the millennials scrap the system entirely in the next 21 years, then one will have wished they started drawing earlier. SS is basically a ponzi scheme to start with... I want to get what $ I was forced to put into it back out while I can.

Its like lotto winnings... you get more $ if you take the annuity payout, but most take the lump sum not trusting that the system will be in place for the 30-40 years.

I'll put other plans in place in case I live longer.

Your mileage may vary.

 

[gerntz]

Just to make it more complex for you, if you have a lot in IRA/401K, then quite possibly you will get hit with the tax torpedo.

By delaying SS, you can withdraw more from your retirement funds to either spend or convert, so that when you are stuck with RMD's you don't get pushed into high tax brackets.

I'm running into this now. Timing is not clear cut other than later gives you the security of a larger near-guaranteed annuity & survivorship benefit.

 

[pb4uski]

Would it make sense to purchase an immediate annuity for the time between ER and when you plan to start SS? What would your post SS withdrawal rate be if you did that?

IMO a SPIA would not make sense for a 4-8 year period... a bond or CD ladder would accomplish the same thing, probably at a better return and one will have full access to you money if they need it.

I suggested something similar to your second question in post#2.

 

[GravitySucks]

IMO a SPIA would not make sense for a 4-8 year period... a bond or CD ladder would accomplish the same thing, probably at a better return and one will have full access to you money if they need it.

I suggested something similar to your second question in post#2.

+1

 

[SumDay]

I've been working through those calculations myself. I made a spreadsheet and found that the variable that has the most impact is my expectation for returns on my portfolio. If I'm pessimistic about long term returns or very conservative in my AA, it's better to wait to take SS. The more optimistic I am, the later the breakeven point and it becomes more attractive to take it earlier. I'm optimistic, so I'm planning to take it at 62. Another reason for choosing 62 is that I don't think I'll have the guts to retire early if I don't. And time is worth more than money. I'm willing to forego a little bit of SS for a few additional years of FIRE while I'm young (at heart, at least).

Exactly - not sure why but the thought of no regular deposits appearing in my checking account (after 45 years) makes me woozy. I'm taking mine at 62, and DH was born in 1953, so he can take 1/2 mine that year at his FRA, and let his percolate until he turns 70.

I'm sure there's a right and wrong answer for this question, but also it's a matter of the recipient's comfort level. I'm a worry wart by nature.

 

[bw5972]

I'm planning to retire at 62 in 2020.

If I took SS at 62 my savings withdrawal rate to cover planned expenses is 3.5% Of course deferring SS makes sense but increases the withdrawal rate until I start SS probably at 66-67.

Intuitively and per the calculators this is better in the long run but the higher withdrawal rate makes me uncomfortable.

Am I overlooking anything?

I’m now 59 and retired for just over a year. I see no real need to fret over the SS start decision now. I will do the math when approaching 62 based on 3 years better, if not more, facts than I have today re: my health, my financial position, market outlook, SSA wellness, etc... etc...).

 

[Chuckanut]

I’m now 59 and retired for just over a year. I see no real need to fret over the SS start decision now. I will do the math when approaching 62 based on 3 years better, if not more, facts than I have today re: my health, my financial position, market outlook, SSA wellness, etc... etc...).

For many of us, even though we say we are waiting until 70, it is a yearly re-evaluation. The decision is not cast in concrete for most of us.

 

[CardsFan]

For many of us, even though we say we are waiting until 70, it is a yearly re-evaluation. The decision is not cast in concrete for most of us.

Agreed. We have pretty much decided on FRA (66.2) which is 3+ years away. If the market tanks, we will re-evaluate. Maybe take it at 65 so we start at the same age as medicare.

Regarding the OP: I think pb4uski gave you the best way to look at it, and if it makes you feel better, set up a CD ladder as suggested. At this point, you are dealing with emotions, but emotions are real.

After many years of a steady paycheck, not having one is a BIG change. Whenever DW says we are on a fixed income, I remind her we have NO income, unless we chose to create some. She has a bit of a hard time with this.

 

[daylatedollarshort]

We took our pensions at 55 and will/are taking SS at 62. We are not big spenders so that combined income is enough to cover most of our basic retirement expenses and a few frills. I like getting those checks deposited every month. No work and yet we still get regular pay checks. It seems almost too good to be true.

That leaves our portfolio income to be mainly reinvested or available for extra travel, charity, helping out the family, leaving it to the kids, unknown unknowns or the asteroid strike. When we are older our mortgage will be paid off and we will likely downsize to a condo much less expensive than the current house, so we'll have more disposable income when we are older even without delaying SS until 70 due to lower housing expenses and the extra investment income from the house proceeds.

 

[jjflyman]

Everybody has their own reasons for when to start SS. I know you can do calculations based on live expectancy, and lay everything out in a spreadsheet.
Personally, my DW and I will both be taking SS at 62, and get on with our retirement. For the majority of people (IMHO) it will end up coming out about even no matter when you start