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Re: Wait to Age 70 to Collect SS?
Old 11-23-2005, 04:30 PM   #61
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Re: Wait to Age 70 to Collect SS?

This is the third article I've seen in the past month promoting waiting until full retirement age or later to begin taking benefits. Links the other two articles are included in this thread:

http://early-retirement.org/forums/i...p?topic=4695.0

If I was a suspicious person, I might wonder if there was an orchestrated effort to get boomers to delay taking benefits to keep SS solvent longer. If enough us die off before we start collecting, it could delay the need to "fix" SS.

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Re: Wait to Age 70 to Collect SS?
Old 11-23-2005, 05:23 PM   #62
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Re: Wait to Age 70 to Collect SS?

Quote:
Originally Posted by REWahoo!
If I was a suspicious person, I might wonder if there was an orchestrated effort to get boomers to delay taking benefits to keep SS solvent longer. If enough us die off before we start collecting, it could delay the need to "fix" SS.
Couple this with all the articles about working past retirement age (It's fun! It'll keep you involved in life!) and we have ourselves a real conspiracy. 8)
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Re: Wait to Age 70 to Collect SS?
Old 11-23-2005, 07:10 PM   #63
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Re: Wait to Age 70 to Collect SS?

Hi Guys--

It never ceases to amaze me the way the government seems to think that whatever they tend to sell as "gospel" will be swallowed whole by the masses. And, unfortunately, they are right on the money in many cases.

It bothers me that the government uses front men (e.g. Burns and others) to offer contrarian information and worst case scenarios that play on the fear of the masses. I guess we need to reread Orwell's 1984--excepty is was a few years off.

This ol' boy isn't listening to the front men and the gurus. He's taking the money and running!!!!!!!!!!

Professor
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Re: Wait to Age 70 to Collect SS?
Old 11-23-2005, 07:54 PM   #64
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Re: Wait to Age 70 to Collect SS?

Quote:
Originally Posted by REWahoo!
Links the other two articles are included in this thread:

http://early-retirement.org/forums/i...p?topic=4695.0
@#$* it, I couldn't find that thread so I started a new one. Thanks!

Merge this thread with the other one if you want to...
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Re: Wait to Age 70 to Collect SS?
Old 11-24-2005, 07:41 AM   #65
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Re: Wait to Age 70 to Collect SS?

Quote:
Originally Posted by WhodaThunkit
Another way to look at the SS decision is as an asset allocation question.* SS is a COLA annuity.* Say you're now 62, and you have significant other assets.* * Do you go with the basic annuity at age 62, or do you wait until 70, effectively "buying" a different annuity with higher yeild?* *This decision can be made on a numerical basis.* At today's interest rates, the SS annuity at age 70 is a great deal.* You can't match it on the private market.* *

Rebalance your portfolio to account for the annuity, if you're into high-flyer stocks (and don't confuse being lucky with being smart* * ).* Understand how SS is taxed, and take taxes into account.* Get some realistic idea of your life expectency (one size doesn't fit all).

Also try to account for the significant advantage that waiting til age 70 provides for your surviving spouse (if any).

I must be a government agent or front man (don't tell my wife . . .* *: )

This is a very good post. However, these are things I never have to consider being basically fatalistic. I have excellent genes
(parents are alive, 88 and 86 and I have had a bunch of 100+ relatives). However, I don't count on making it until cocktail hour. This gives me an entirely
different slant on SS, and on life in general.

JG
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Re: Wait to Age 70 to Collect SS?
Old 11-24-2005, 08:59 AM   #66
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Re: Wait to Age 70 to Collect SS?

There are a couple of reasons that SS and delaying SS is being revisited..Changes to the law and the retirement landscape are forcing a harder look at the decision..Individuals are writing about it to help new retirees make the right decision, not because they are helpging the government..Here is what is emerging.

-People are living longer and many do not have the luxury of traditional Defined Benefit pensions which provide guaranteed income.

- The penalty for starting SS early has been increased to 25% from Full Retirement Age as the FRA has gone up from 65 to 66.

- The Delayed Retirement Credit (DRC) has increased to 8% per year.

- Individuals should realize that the DRC gets increased, but you also get credit for the COLA increase. So the COLA increase of 4.1% in January is added to the 8%, so you get a 12.1% increase for waiting one year...You can therefore more than double your initial SS amount by waiting from age 62 to age 70.

- Starting at a higher initial amount means you get much higher COLA increases in terms of real dollars.

- The higher delayed benefit can be passed on to a spouse at your death..Women are at risk of running out of income as they tend to live longer than their husbands and many are at the risk of running out of income as traditional pension income fades away.

- The whole bird in the hand idea, I believe is backwards..Here's why..The government has said that they will not change SS for those at or near retirement..So you know what will likely happen..An increase in tax rates..This means your IRA income and other retirement savings will be taxed at higher rates..Take SS early and defer taking income from your IRA - The end result is that you will pay higher taxes later..and force the taxation of your IRA benefits..The "Tax Torpedo" that Burns writes about is 46.25% now, and may increase to over 60% as tax rates later....The bird in the hand is to take a higher amount of SS by delaying SS since it recieves favorable tax treatment if you are not taking high IRA income..Of course this COULD change..All financial planning has some risk.

The Combined Income limits which determine the taxation of SS only counts SS at a 50% rate..Then you are subject to the lesser of three tests..Bottom line is that you could have over $68,000 of SS income before ever facing federal or state taxes..and this is before exemptions, deductions, etc.

Few "break-even calculators" include COLAs, survivor benefit, tax efficiency into their formulas. The biggest question when taking SS early is whether you can expect to get a decent return in stocks or bonds over the next 30 years..There are many questions..10 year Gov't Bond yields under 4.5% today..Higher SS can provide peace of mind..

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Re: Wait to Age 70 to Collect SS?
Old 11-24-2005, 09:23 AM   #67
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Re: Wait to Age 70 to Collect SS?

Hello New Thinking. Very thoughtful post.

If I knew I would make it to 70, I still wouldn't wait. Why?
SS is the foundation of our mutual retirement. Once DW
quits, there would be no practical choice but to begin drawing
benefits. It appears few on this board are in that position,
but I'll bet lots of other folks are.

JG
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Re: Wait to Age 70 to Collect SS?
Old 11-24-2005, 03:07 PM   #68
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Re: Wait to Age 70 to Collect SS?

Mr.Gal - If someone retires early and "needs" the income, by all means take SS Early,,I'm just saying if you are going to be taking SS and IRA income (from 401k or other lump sum ER plan) during your retirement, it is often more beneficial to take the IRA income first..That way, if you do live past age 75 or so, you benefit financially, but prior to that, you can spend what you recieve in income and don't have to live frugally because you are afraid to run out of $$s (or worse yet, have your widow run out of dollars).

Just my opinion, but by reducing your taxable income (by increasing SS income), you may actually save a lot more in Medicare premiums..I believe that Medicare premiums become more means-tested in the future..You may not know it, but many of you will be paying higher Medicare premiums in a couple of years based on current law..The same law that was passed last year to allow for Part D (prescription drug coverage) includes rules that force retirees with higher AGI to pay more premiums.

Happy Thanksgiving
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Re: Wait to Age 70 to Collect SS?
Old 11-24-2005, 07:56 PM   #69
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Re: Wait to Age 70 to Collect SS?

Quote:
Originally Posted by New Thinking
Mr.Gal -

Happy Thanksgiving
I thought your post was pretty good. Just presenting another view
of it. BTW....... "Mr. Gal"??
I may have a whole stew of biases, quirks and antisocial
tendencies, but................... no gender ID issues, I can assure you.

JG
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Re: Wait to Age 70 to Collect SS?
Old 11-24-2005, 10:22 PM   #70
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Re: Wait to Age 70 to Collect SS?

Thanks to all for the lucid thoughts on SS...I'm still catching up on the "Tax Torpedo" issue and I wonder if anyone has an explanation (or link) of the high rates on combined SS and IRA distributions?* This sounds pretty alarming and makes post RE Roth IRA conversions sound much more appealing.* ** It seems to me this is a complex problem requiring optimization software.
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Re: Wait to Age 70 to Collect SS?
Old 11-25-2005, 02:55 AM   #71
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Re: Wait to Age 70 to Collect SS?

If they convert to a national sales tax, the Roth may not work out so well.
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Tax Torpedo
Old 11-25-2005, 10:19 AM   #72
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Tax Torpedo

Here is some background on the Taxation of SS benefits by Scott Burns
THE TAX TORPEDO, PART I: HOW THE TAX TORPEDO HITS

Portfolio managers call them "torpedo stocks." They are the disastrous stocks that can sink the performance of a portfolio. Well, allow me to introduce the "torpedo tax," the single tax that can reduce your retirement standard of living. It's the tax on Social Security benefits.
It is experienced as a high tax rate on income other than Social Security. Economists call this the "marginal tax rate." To them, this means the rate of tax paid on the last dollar of income. To most human beings, the phrase is meaningless. Indeed, many of the people who responded to my recent columns about this tax asked how a tax on benefits could produce a tax rate of 50 percent.

The answer is simple, but not obvious.

Suppose you are in the 27 percent tax bracket, which means that you'll pay $270 in income taxes if you receive an additional $1,000 in income. When you add this $1,000 of income, you may also trigger the inclusion of $500 or $850 of Social Security benefits in your tax calculation.

As a consequence, each additional $1,000 of other income will trigger either $405 ($270 plus $135) or $500 ($270 plus $230) of additional income taxes. That's like having a tax rate of 40.5 percent or 50 percent on the additional $1,000. To put those rates in perspective, the top tax rate is 38.6 percent, levied against taxable income over $307,050.

The best way to see how the tax hits is to demonstrate it. So I've done that, assuming a two-earner couple with lifetime average incomes. An average earner who retired this year at 65 would receive $13,900 in Social Security benefits. The average-earner spouse, retiring at 62, would receive $11,360 in Social Security benefits. Together, they receive $25,260 in Social Security benefits.

Their tax bill, as other income rises from $19,000, is shown in the table below.

If they have about $46,000 in income beyond their Social Security benefits, each additional $1,000 of income increases their federal income tax bill by 50 percent. At a cash income just over $70,000, they are paying taxes at higher rates than other people whose taxable income is at least $307,050.




Calculation of federal income taxes due for a new retiree couple with $25,260 in Social Security benefits.

Federal Income Taxes
S.S. taxable
Tax Increase
Marginal Rate
Average Tax Rate
Cash Income

Other Income

$19,000
$428
$0
na
na
1.0%
$44,260

$20,000
$558
$315
$130
13.0%
1.2%
$45,260

$21,000
$708
$815
$150
15.0%
1.5%
$46,260

$22,000
$858
$1,315
$150
15.0%
1.8%
$47,260

$23,000
$1,008
$1,815
$150
15.0%
2.1%
$48,260

$24,000
$1,158
$2,315
$150
15.0%
2.4%
$49,260

$25,000
$1,361
$2,815
$203
20.3%
2.7%
$50,260

$26,000
$1,586
$3,315
$225
22.5%
3.1%
$51,260

$27,000
$1,811
$3,815
$225
22.5%
3.5%
$52,260

$28,000
$2,036
$4,315
$225
22.5%
3.8%
$53,260

$29,000
$2,261
$4,815
$225
22.5%
4.2%
$54,260

$30,000
$2,486
$5,315
$225
22.5%
4.5%
$55,260

$31,000
$2,711
$5,815
$225
22.5%
4.8%
$56,260

$32,000
$2,966
$6,536
$255
25.5%
5.2%
$57,260

$33,000
$3,244
$7,386
$278
27.8%
5.6%
$58,260

$34,000
$3,521
$8,236
$277
27.7%
5.9%
$59,260

$35,000
$3,799
$9,086
$278
27.8%
6.3%
$60,260

$36,000
$4,076
$9,936
$277
27.7%
6.7%
$61,260

$37,000
$4,354
$10,786
$278
27.8%
7.0%
$62,260

$38,000
$4,631
$11,636
$277
27.7%
7.3%
$63,260

$39,000
$4,909
$12,486
$278
27.8%
7.6%
$64,260

$40,000
$5,186
$13,336
$277
27.7%
7.9%
$65,260

$41,000
$5,464
$14,186
$278
27.8%
8.2%
$66,260

$42,000
$5,741
$15,036
$277
27.7%
8.5%
$67,260

$43,000
$6,019
$15,886
$278
27.8%
8.8%
$68,260

$44,000
$6,296
$16,736
$277
27.7%
9.1%
$69,260

$45,000
$6,709
$17,586
$413
41.3%
9.5%
$70,260

$46,000
$7,208
$18,436
$499
49.9%
10.1%
$71,260

$47,000
$7,708
$19,286
$500
50.0%
10.7%
$72,260

$48,000
$8,207
$20,136
$499
49.9%
11.2%
$73,260

$49,000
$8,707
$20,986
$500
50.0%
11.7%
$74,260

$50,000
$9,112
$21,471
$405
40.5%
12.1%
$75,260

Source: Scott Burns' calculations, done with Turbotax 2002.

Query: Should we make a fuss?

Maybe not. Since the pre-retirement earnings of an average-earner couple was about $70,000, they probably won't hit the 50 percent marginal tax. The retiree couple also pays less in income taxes than a working couple pays. On a cash income of $45,260, the retiree couple pays $3,538 less in federal income taxes than the working couple pays. The retired couple still pays $1,321 less in federal income taxes at $75,260.

Unfortunately, this isn't a static problem. In 1983, when the $25,000 and $34,000 thresholds were set, very few paid the tax. With the thresholds unindexed, the torpedo tax bites more each year.

Now ask a simple question.

How much of the money in your tax-deferred account will be yours to spend? Before 1983, most retirees faced top tax rates the equivalent of 15 percent or 27 percent. In effect, 73 cents to 85 cents of every retirement account dollar was theirs to spend.

No more. Social Security benefit taxation can reduce the value of tax-deferred accounts to 50 cents to 78 cents on the dollar.



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Re: Wait to Age 70 to Collect SS?
Old 11-25-2005, 10:43 AM   #73
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Re: Wait to Age 70 to Collect SS?

I sure hope Scott Burns has a good life insurance policy. The govt hates people who can do math, and he's giving it away for free...
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Re: Wait to Age 70 to Collect SS?
Old 11-25-2005, 12:50 PM   #74
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Re: Wait to Age 70 to Collect SS?

New Thinking, Thanks for the Burns article...the marginal tax rates on combined (SS + IRA) distributions can become extreme.* Obviously our government doesn't like the idea that citizens with pre-tax savings benefit too much from SS income.* I love how people are penalized for years of financial responsibility* *

OTOH, the important number is ones spendable income during retirement.* As long as the total tax bite doesn't require unacceptable SWR's from ones IRA then I suppose all is well.* The total (or average) tax rates look O.K. today, but without inflation indexing that won't last long.* Maybe that's all part of the plan..to let inflation do the work that means testing would have done?

I'm sticking with my assumption that one way or another, SS benefits for those under age 55 will fall 25%.* Waiting till 65-70 is looking more plausible.
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Re: Wait to Age 70 to Collect SS?
Old 11-25-2005, 03:50 PM   #75
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Re: Wait to Age 70 to Collect SS?

New Thinking, can you provide a link to the Scott Burns article, or at least the date? I would like to print out the table but can't find it in his archives. Thanks.

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Re: Wait to Age 70 to Collect SS?
Old 11-25-2005, 04:12 PM   #76
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Re: Wait to Age 70 to Collect SS?

Here is the link you requested (2/1/03)..Some of the tax rates have changed a little..

http://www.uexpress.com/scottburns/?..._date=20030211
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Re: Wait to Age 70 to Collect SS?
Old 11-25-2005, 04:20 PM   #77
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Re: Wait to Age 70 to Collect SS?

New Thinking, thanks...



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Re: Wait to Age 70 to Collect SS?
Old 11-27-2005, 03:49 AM   #78
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Re: Wait to Age 70 to Collect SS?

It's very difficult to make decisions based on all these uncertainties. I'm holding off even running the numbers on when to take SS until I get closer to 62 (I'm 48).

One way or another I will be able to fund my early retirement come hell or high water.

-helen
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