Clear article about when to take Social Security

[pb4uski]

My logic is correct. Key phrase is "unless I pass after my respective break even point".

The benefit of delaying does not kick in until after the break even point. It is by definition.

I think earlier you were making what I thought was a very apt analogy: by delaying SS you are buying an annuity. The premium is non-refundable. Only future events can determine if that "investment" made you better off financially.

I agree... I like the delaying is effectively the installment purchase of a COLA-adjusted annuity the best... so people want to buy and others don't... that is all ok.

 

[levindb]

I did some arithmetic....and not a lot of assumptions

Certainly you have focused solely on the arithmetic part.
And of course your arithmetic contains a huge number of assumptions/guesses.

Other people include not just arithmetic, but emotion.
And of course other people make different assumptions... and thus come to different conclusions.

Actually, there are not a huge number of assumptions. The nest egg, PIA's, and current ages are my life...rounded a smidgeon, but no assumptions. The spending is what I am planning on so that I run out of money age my age 105. The PLAN to run out of money at that age is not an assumption, it is a plan. I may not make it, and my heirs may get more money, but I will live my life as though I am going to live to age 105.

The calculations of ROI's are using Excel What If function, but there is no assumption there either. All the numbers were kept in Today's Dollars to keep things simple, and I also did not do any Monte Carlo...again to keep things simple.

I understand that people might use emotion in making their choices, but I would strongly recommend starting with arithmetic so that they understand what their emotions are going to change. In my example, if I took my SSA at age 62, I would run out of money 6 years earlier than age 105 with the same ROI.

 

[FREE866]

Great point on it not making enough difference to care if you die sooner and the higher survivor benefits.

The other benefit of delaying in many cases, including mine, is more headroom to do low tax cost tIRA withdrawals or Roth conversions before SS and RMDs bump you into a higher tax bracket.

So are you saying that if one wants to wait until age 70 to start SS then from ages 60-70 they should draw down on their IRA as opposed to their taxable accounts?

 

[pb4uski]

Yes, assuming that you are in a lower tax bracket that you will be once SS starts, which is common.

Withdrawals can be distributions or Roth conversions... either reduce the tIRA and are taxable... it's just that the former is available for spending and the latter isn't.

 

[levindb]

Tax Planning...be proactive

So are you saying that if one wants to wait until age 70 to start SS then from ages 60-70 they should draw down on their IRA as opposed to their taxable accounts?

I believe it is a bit more complex than that. You want to manage your tax brackets carefully, if possible. You should max out your current tax bracket from your IRA, and then look at comparing your next tax bracket to what things will be like after RMD's and SSA kick in. That should give you insight as to drawing down your IRA further, or taking from your taxable accounts. You should do that every Nov/Dec from age 62-70.

 

[dtbach]

maybe somebody pointed out earlier that you can do both (as a married couple), i.e. one takes early (in my case DW) and one takes at 70 (me). Get some of the cash while in our 60's and a bigger chunk at 70. And as others have said earlier, in the DW case, its a bigger SS check if I go early.

 

[FREE866]

Yes, assuming that you are in a lower tax bracket that you will be once SS starts, which is common.

Withdrawals can be distributions or Roth conversions... either reduce the tIRA and are taxable... it's just that the former is available for spending and the latter isn't.

Yeah, makes sense. I'm far from that now as I'm only 52, but if I just draw down from my taxable accounts before I hit 70 I have to consider that at age 70 I will be in much higher bracket as I will have SS as well as the RMDs.

 

[FREE866]

I believe it is a bit more complex than that. You want to manage your tax brackets carefully, if possible. You should max out your current tax bracket from your IRA, and then look at comparing your next tax bracket to what things will be like after RMD's and SS kick in. That should give you insight as to drawing down your IRA further, or taking from your taxable accounts. You should do that every Nov/Dec from age 62-70.

Interesting...as I posted above


Yeah, makes sense. I'm far from that now as I'm only 52, but if I just draw down from my taxable accounts before I hit 70 I have to consider that at age 70 I will be in much higher bracket as I will have SS as well as the RMDs.

 

[levindb]

Interesting...as I posted above
Yeah, makes sense. I'm far from that now as I'm only 52, but if I just draw down from my taxable accounts before I hit 70 I have to consider that at age 70 I will be in much higher bracket as I will have SS as well as the RMDs.

Since you know with certainty that you will be in a much higher tax bracket when you hit 70, it would be a good idea to draw down your IRA with Roth conversions (where possible) and withdrawals to max out your current and maybe the next tax bracket. This should help reduce your future RMD's.

A lot can happen in 18 years...the rules may change...there could be significant ups and downs in the market...just do the best with the laws as they are now, then modify your methods when the rules change.

 

[FREE866]

Since you know with certainty that you will be in a much higher tax bracket when you hit 70, it would be a good idea to draw down your IRA with Roth conversions (where possible) and withdrawals to max out your current and maybe the next tax bracket. This should help reduce your future RMD's.

A lot can happen in 18 years...the rules may change...there could be significant ups and downs in the market...just do the best with the laws as they are now, then modify your methods when the rules change.

Thx
I have thought of converting regular IRA to Roth but then I take a somewhat hefty tax hit immediately and I don't have that money " working for me" in the market the next several years. That was my thought process.

 

[pb4uski]

Thx
I have thought of converting regular IRA to Roth but then I take a somewhat hefty tax hit immediately and I don't have that money " working for me" in the market the next several years. That was my thought process.

Flawed logic.... if you pay the tax from the rollover it is all about current vs future tax rates.

If tax rate is the same then it doesn't matter. Let's say you have $100k in tIRA and your tax rate both now and in 10 years is 15% and whatever you invest in will double in 10 years.

If you convert now, then you'll have $85k in the Roth and it will double to $170k in 10 years available to you tax-free.

If you don't, the $100k tIRA will be worth $200k in 10 years, but you'll owe $30k in tax for a net after-tax value of $170k.

If you pay the taxes from an after-tax account and the tax rate is the same then you get a small benefit. Same scenario but in addition to $100k tIRA you also have $15k in taxable account.

If you convert and pay taxes from taxable account, $100k Roth grows to $200k tax free in 10 years.

If you don't convert... same for tIRA... total of $200k and $30k tax obligation. $15k will not double because of taxes on taxable account income... will grow to ~$28k. So if your withdraw and pay the tax you end up with $198k ($200k tIRA + $28k in taxable account - $30k tax obligation).

Converting has minor benefit... note... if taxable account is invested such that income or gains are not taxed (like in domestic equities at lower income levels) then it is a wash.

 

[FREE866]

Flawed logic.... if you pay the tax from the rollover it is all about current vs future tax rates.

If tax rate is the same then it doesn't matter. Let's say you have $100k in tIRA and your tax rate both now and in 10 years is 15% and whatever you invest in will double in 10 years.

If you convert now, then you'll have $85k in the Roth and it will double to $170k in 10 years available to you tax-free.

If you don't, the $100k tIRA will be worth $200k in 10 years, but you'll owe $30k in tax for a net after-tax value of $170k.

If you pay the taxes from an after-tax account and the tax rate is the same then you get a small benefit. Same scenario but in addition to $100k tIRA you also have $15k in taxable account.

If you convert and pay taxes from taxable account, $100k Roth grows to $200k tax free in 10 years.

If you don't convert... same for tIRA... total of $200k and $30k tax obligation. $15k will not double because of taxes on taxable account income... will grow to ~$28k. So if your withdraw and pay the tax you end up with $198k ($200k tIRA + $28k in taxable account - $30k tax obligation).

Converting has minor benefit... note... if taxable account is invested such that income or gains are not taxed (like in domestic equities at lower income levels) then it is a wash.

You sure?
I have ~600K in the IRA right now---if I move that to an Roth I will owe upwards of 200K on taxes on that immediately correct?
so then I only have 400K left which is a lower base obv than 600.


I'm not saying you're wrong, just thinking this through

 

[ncbill]

You sure?
I have ~600K in the IRA right now---if I move that to an Roth I will owe upwards of 200K on taxes on that immediately correct?
so then I only have 400K left which is a lower base obv than 600.


I'm not saying you're wrong, just thinking this through

No need to convert in a lump sum, one-time.

Spread the conversion over years, up to the limit of the tax bracket with which you're comfortable (most posters seem to draw the line at the 22% federal bracket, I'm assuming MFJ)

 

[FREE866]

No need to convert in a lump sum, one-time.

Spread the conversion over years, up to the limit of the tax bracket with which you're comfortable (most posters seem to draw the line at the 22% federal bracket, I'm assuming MFJ)

See , my thinking is why not just let it grow tax deferred for 8 years? why pay tax now when I can defer it to later?

 

[pb4uski]

You sure?
I have ~600K in the IRA right now---if I move that to an Roth I will owe upwards of 200K on taxes on that immediately correct?
so then I only have 400K left which is a lower base obv than 600.


I'm not saying you're wrong, just thinking this through

Sure about what? I am sure that if your tax rate is the same and you pay your tax from th tIRA that it doesn't matter.

While I wouldn't do it all at once your example is a good exercise. You are assuming 1/3 in taxes.ting is .

Convert... your $400k Roth doubles to $800k in 10 years.

Don't convert... your $600k tIRA doubles to $1.2m but you owe $400k in taxes so only have $800k after taxes.

That said, as others have posted, it would be foolish to do it all at once.

Like I said before... it all boils down to a tax rate play. If your tax rate later will be higher.... which it will for many of us once SS starts, then converting is good

 

[FREE866]

Sure about what? I am sure that if your tax rate is the same and you pay your tax from th tIRA that it doesn't matter.

While I wouldn't do it all at once your example is a good exercise. You are assuming 1/3 in taxes.ting is .

Convert... your $400k Roth doubles to $800k in 10 years.

Don't convert... your $600k tIRA doubles to $1.2m but you owe $400k in taxes so only have $800k after taxes.

That said, as others have posted, it would be foolish to do it all at once.

Like I said before... it all boils down to a tax rate play. If your tax rate later will be higher.... which it will for many of us once SS starts, then converting is good

Gotcha
thx

 

[CRLLS]

There is more to think about than tax rates now vs later. Since you are 52, if all things are equal, complete the conversion before you start Medicare as converting could increase Part B and Part D premiums, albeit only temporarily. Also watch for any effect of the extra "income" of the conversion as it applies to possible ACA premium subsidy.