Social Security

[Spock]

It's $75,000 you don't need to pull from IRA, taxed as income, to pay for SS.




The reduction in SS for not working the last years will drop the amount of SS awarded by around $100 a month. The $75,000 saved in the IRA because it's not subject to SS tax offsets that reduction.

When I was calculating how much money I needed to retire, there were several expenses I needed to consider that were no longer going to be owed. SS was one of them and at 6.2%, was substantial. I need much less income in retirement to have the same net to my spending. Meaning I get to keep what I would have had to pay into SS if I had continued to work.

I might want to add that my working income was above the SS max, all of it going to my retirement accounts; IRA, 401K, 457. So I didn't pay SS on those dollars when I earned them and don't now that I draw from those accounts now that I'm retired.

SS withholding is before 401k/IRA deductions...

 

[N02L84ER]

One of the best SS estimating tools I've found is https://ssa.tools/. You copy your actual earnings record from your "MySocialSecurity" account, then you can see how retiring early will affect your social security payments.

Thanks, I really like this tool. I had always wondered if some of my earlier very part-time earnings resulted in any credited quarters.

 

[jimbee]

It's $75,000 you don't need to pull from IRA, taxed as income, to pay for SS.

?
As far as I know, SS tax is only paid on earned income. Why would you ever have to pull from an IRA to pay for SS?

 

[gayl]

Delete. Wrong thread

 

[CardsFan]

SS withholding is before 401k/IRA deductions...

?
As far as I know, SS tax is only paid on earned income. Why would you ever have to pull from an IRA to pay for SS?

I think Skipro33 was simply pointing out that working longer to increase SS payments will likely cost more in SS taxes than the increased benefit is worth.

 

[ncbill]

Not a big deal once you've reached the second "bend point"

IIRC, only a 5-10% reduction for RE.

 

[joeea]

It's $75,000 you don't need to pull from IRA, taxed as income, to pay for SS.

You had no income those years, right?

So you "don't need to pull from IRA" at the cost of 12 years of income?

I think I'm missing something here...

 

[Perryinva]

Not a big deal once you've reached the second "bend point"

IIRC, only a 5-10% reduction for RE.

The 2nd bend point is only at about 50% of maximum earnings. While you only have 15% of earnings after the 2nd bend point counted, it is 15% of roughly $4400, or $660/mo, , assuming you always maxed out earnings. I would have to double check, but I believe it was close to a 27% increase above the 2nd bend point or about 21% of my max FRA total. No one (should) stay working in order to increases SS, that’s a silly statement unless you do not have 40 quarters. You stay working for the income and consider the SS premium a sunk cost. Also, it is only 6.2% of income if you make up to the max. After the max, you stop paying in to FICA, so every check after that for the year lowers your actual contribution percentage. If your income is $265k/yr, then you are only paying 3.1% of your income to fund it. Hardly deal breaking. I calculated mine at well less than 5% of my pay over my career, which is pretty cheap for a COLA annuity that will pay me $3600/mo for life.

The OP will not have 12 zeros (55 to 67). If he/she was employed from age 22 to 55, then they have 33 years, or only 2 zeros. The advantage of working later is to replace the early low years with highest years, but that assumes you didn’t max out right from the beginning. Many do, (I did) so after indexing, even though I am replacing early 1980s earnings with 2019 earnings, the difference is small, because, for example, my maxed indexed 1983 earnings are now around $114k, and get replaced by 2019s maxed $132k. Not a large difference at all after the 2nd bend. It also means that my predicted FRA amount does not change but maybe $10/mo.

 

[whitet]

You might want to deduct 25% from your estimated benefits in case SS isn't "fixed" before the trust fund runs out around 2034.

Yes, this is what concerns me about postponing filing once I have retired (which will be within the next 6 months at age 62). Some popular retirement guides (e.g. How to Make Your Money Last: The Indispensable Retirement Guide, by Jane Bryant Quinn) advise you not to be concerned, because of the voting power of baby boomers. I'm skeptical, and tend to think that taking it sooner rather than later is the prudent course. Any adjustments that get made are likely to occur in my lifetime, so it seems the longer I wait the more it may cost me. Is this irrational thinking?

 

[RobbieB]

Your crystal ball is as good as mine.

 

[razztazz]

Yes, this is what concerns me about postponing filing once I have retired (which will be within the next 6 months at age 62). Some popular retirement guides (e.g. How to Make Your Money Last: The Indispensable Retirement Guide, by Jane Bryant Quinn) advise you not to be concerned, because of the voting power of baby boomers. I'm skeptical, and tend to think that taking it sooner rather than later is the prudent course. Any adjustments that get made are likely to occur in my lifetime, so it seems the longer I wait the more it may cost me. Is this irrational thinking?

I am almost exactly where you are. I could file and get my first check next month. So far though I have decided to play it by ear .... maybe revisiting every 6 months.

My SS will be quite on the low side due to the jobs I've had and the fact I worked only 21 years. If they cut I am not sure it would even get down to my level. On the other hand, say they decide to cut people's payments by 10%. I'd rather have 90% of a larger amount than 90% of a smaller amount. Then again, for most of us here, we won't need the SS or won't need all of it, so why not take it early and just stockpile it in the mean time and just see what happens....?

 

[joeea]

Some popular retirement guides (e.g. How to Make Your Money Last: The Indispensable Retirement Guide, by Jane Bryant Quinn) advise you not to be concerned, because of the voting power of baby boomers. I'm skeptical, and tend to think that taking it sooner rather than later is the prudent course. Any adjustments that get made are likely to occur in my lifetime, so it seems the longer I wait the more it may cost me. Is this irrational thinking?

I agree with Jane Bryant Quinn. She's pretty smart.

 

[whitet]

If they cut I am not sure it would even get down to my level. On the other hand, say they decide to cut people's payments by 10%. I'd rather have 90% of a larger amount than 90% of a smaller amount.

Are you thinking that postponing filing will increase your benefit, even though you are no longer paying into SS? I don't think that will happen, at least not to any significant degree, and according to some of the prior posts it may actually decrease.

 

[MissMolly]

Are you thinking that postponing filing will increase your benefit, even though you are no longer paying into SS? I don't think that will happen, at least not to any significant degree, and according to some of the prior posts it may actually decrease.

Yes, the longer you wait the more you get. It's called Delayed Retirement Credits (DRC). Google it.

 

[MissMolly]

The difference from my age 62 amount to my age 70 amount is over $1,000/month. Not a fortune. Not insignificant. I'll wait.

 

[razztazz]

Are you thinking that postponing filing will increase your benefit, even though you are no longer paying into SS? I don't think that will happen, at least not to any significant degree, and according to some of the prior posts it may actually decrease.

That's not what the SS admin tells me. Even with no annual inflation raises and me not working it goes up something like 7-ish-% per year just by waiting to file for it.

 

[razztazz]

The difference from my age 62 amount to my age 70 amount is over $1,000/month. Not a fortune. Not insignificant. I'll wait.

The diff between 62 & 70 in my case is about $900 so about the same. I have run scenarios high, low, & wide mostly in FireCalc and quite honestly it hardy makes a difference. My max-spend amounts over 30 yrs don't move much. Certainly not enough to make a material difference. Not the kind of money that gets me a "higher standard of living" at any point.

If I wait, yes then I get more cash-flow and spend less of my own money at that point, but in the mean time I am spending more of my own money anyway.

You have to wait a pretty long time to break even, and even then, as my Firecalc scenario playing indicates -- in the end it's hardly a life changer.

This, of course is for a single operator.

 

[MissMolly]

Yes, for a single person it can be different. I'm married and the major breadwinner. My SS is almost twice that of my husband's. He took his at 66. I will wait until 70.

 

[whitet]

Yes, the longer you wait the more you get. It's called Delayed Retirement Credits (DRC). Google it.

OK, I've made a mistake here. I see that now. My sincere apologies to razz. The distinction I missed was that the OP was asking about a benefit reduction at FRA, not at the time of early filing. Perhaps I, and maybe other SS noobs like me reading this, can be forgiven for misinterpreting these comments:

Possibly. It depends, as most things do, on circumstances. How close are you to retirement? Have many zero years will you have? Did you contribute up to the max for all the years that will be counted? Even if there is a reduction, if you are past the second bend point it most likely will not be significant.

and

Yes, if you don't contribute to your FRA of 67 your benefits will be reduced due to the fact you stopped contributing.

Glad to know that benefit will increase by delaying filing, even when not paying in. Thanks for straightening me out.

 

[GenXguy]

Glad to know that benefit will increase by delaying filing, even when not paying in. Thanks for straightening me out.

Yep, it certainly does. I've always used the downloadable detailed SS calculator from ssa.gov that allows me to fine tune scenarios that I can't do with the online calculators, such as working for a few more years but delaying benefits until age 65 (or older) rather than 62 when first eligible. I use the output from it to enter into my spreadsheets to determine the amount of my expenses that will be covered by SS and the effect on taxes so as to determine how much drawdown I will need from my stash to cover the rest of my expenses. My stash will still need to cover everything else just as if SS never existed, so I make no changes in my AA due to SS. They cover separate parts of my expenses.

https://ssa.tools/ is good also.

 

[pb4uski]

That's not what the SS admin tells me. Even with no annual inflation raises and me not working it goes up something like 7-ish-% per year just by waiting to file for it.

True. While the actual increase varies based on your birth year, the age 62 benefit is ~75% of age 66 (FRA for some) benefit... or a bit over 6%/year.... and after FRA increases 8% a year.

So if one's FRA was 66 and PIA was $1,000/month then at 62 they would receive $750/month and at 70 they would receive $1,320/month.... almost 9.5% simple growth on average.... 7.3% compounded on average... not bad.

 

[Chuckanut]

So if one's FRA was 66 and PIA was $1,000/month then at 62 they would receive $750/month and at 70 they would receive $1,320/month.... almost 9.5% simple growth on average.... 7.3% compounded on average... not bad.

Best deal on a COLA’d annuity I could find.

 

[Perryinva]

About $20k a year for me (62-70). So yeah, pretty significant in absolute tax advantaged income. Of course I sacrifice getting 8 years of $26k/yr, inflation adjusted. Just depends on what’s important to you and when. Delaying allows me to increase the differential by providing Roth conversion room, assuming I live. If I die, DW gets increased tax benefits and I personally won’t care much, being dead and all.

 

[Rianne]

DH/me more concerned with spousal survivorship benefit (if one of us dies).

1. At FRA SS benefits combined: $45K/year
Spousal Survivorship Benefit according to Open SS at FRA: $33,471 (if either of us die)
2. DH files at 70, I file at FRA, then file spousal survivorship benefit at 70: $41,196

The combined SS if both live at this scenario is $56,006

Moving the filing ages around to different scenarios brings us somewhere in the middle.
The difference of approx. $8K/year for spousal survivorship benefit has to be weighed by the years not receiving SS. IMHO, the thought of waiting until 70 for DH to file is not worth it.

 

[Perryinva]

Well, under current rules it really never makes sense to go past 69. Collect from 69-70, and then decide if it is worth paying back the last year to start over at the highest rate. I’ve never read about anyone thinking it was worth paying back that last year for the small increase. But if you found out you will have a shorter lifespan in that last year, you might feel somewhat justified. According to SS, if I claim at 69, I should get $42k, vs $46k at 70. Pretty tough decision at that point. DW would be 76.