Options for guaranteed income if you’re delaying Social Security until FRA

[audreyh1]

Actually, I'm using the RightCapital retirement planning software and the social security feature within the software. When I toggle between taking my wife's SS at 62 versus 67, it has a minimum increase to my Monte Carlo probability of success score as well as the end-of-life balance. Based on the analysis of this software, it's not worth taking it at her FRA (age 67).

With opensocialsecurity.com, if I use the default mortality table, it recommends that my wife takes her SS benefits at 62 and 1 month, and I take my SS benefits at 70. The default is using the "2020 Social Security Period Life Table".

When I don't use the default mortality table and input my wife and I "assumed age at death" (97 and 94), it recommends we both take our SS benefits at age 70.

It’s good to compare the differences between DW at FRA and 70 for that last case. It may be that the $ difference is small. In which case it doesn’t make much difference and you can decide which suits you best.

 

[pb4uski]

Actually, I'm using the RightCapital retirement planning software and the social security feature within the software. When I toggle between taking my wife's SS at 62 versus 67, it has a minimum increase to my Monte Carlo probability of success score as well as the end-of-life balance. Based on the analysis of this software, it's not worth taking it at her FRA (age 67).

With opensocialsecurity.com, if I use the default mortality table, it recommends that my wife takes her SS benefits at 62 and 1 month, and I take my SS benefits at 70. The default is using the "2020 Social Security Period Life Table".

When I don't use the default mortality table and input my wife and I "assumed age at death" (97 and 94), it recommends we both take our SS benefits at age 70.

I prefer the 2017 CSO Preferred mortality tables to the 2020 SS table, so give that a try. WADR, 97 and 94 are probably optimistic. If you are going to use set ages at death, I suggest that you use the SOA Longevity Calculator.

 

[G-Man]

I prefer the 2017 CSO Preferred mortality tables to the 2020 SS table, so give that a try. WADR, 97 and 94 are probably optimistic. If you are going to use set ages at death, I suggest that you use the SOA Longevity Calculator.

Ok..

Using the "2017 CSO Nonsmoker Preferred" mortality table, the recommendation is for my wife to take her SS benefits at age 65 and 10 months. Mine at age 70.

Using the "2017 CSO Nonsmoker Super-preferred" mortality table, the recommendation is for my wife to take her SS benefits at age 67 and 11 months. Mine at age 70.

We are both extremely healthy individuals and exercise daily.

 

[MarieIG]

I would probably split the retirement funds in half. One half in long term investments, and the other half in investments which would be there no matter the market returns, i.e. CD, MYGA or treasury ladders.

 

[G-Man]

I would probably split the retirement funds in half. One half in long term investments, and the other half in investments which would be there no matter the market returns, i.e. CD, MYGA or treasury ladders.

Thanks for the recommendation.

 

[pb4uski]

Ok..

Using the "2017 CSO Nonsmoker Preferred" mortality table, the recommendation is for my wife to take her SS benefits at age 65 and 10 months. Mine at age 70.

Using the "2017 CSO Nonsmoker Super-preferred" mortality table, the recommendation is for my wife to take her SS benefits at age 67 and 11 months. Mine at age 70.

We are both extremely healthy individuals and exercise daily.

The other comparison that you can do at the bottom section to test alternative claiming strategies is compare the expected present value of the "optimal" strategy to that as early as possible, each at age 65, each at FRA and each at 70.

If the lower earning spouse's PIA is less than half of the higher earning spouse then test lower at 62/higher at 70 and lower at FRA/higher at 70.

In our case, the differences were modest.

 

[Closet_Gamer]

Not sure I understand the various rings I would need in the ladder to produce around $31.5k per year. So, let's assume I need the guaranteed income starting in January 2025. How would I construct the ladder rings?

Schwab's ladder builder doesn't appear to work on Sundays facepalm, so I just cherry picked these from manual searches.

These are CDs. You can do the exact same thing with Treasuries.

I'm not suggesting these exact CDs, but it should give you an idea. The first two are callable but they are not many years so I don't think the risk is high. I chose non-callable for the later ones.

I'm also assuming this is in a tax deferred account and that you're looking for gross income. If you want $31,500 net of taxes, you'd need to increase the principle invested. Same thing if you want the $31,500 to grow to account for inflation.

2025 Income:
JPMorgan Chase & Co. OH 5.25% CD 12/12/2024 Callable
YTM 5.25% (Effectively 3.9% net as this matures in Dec.)
$30K invested -> $31,170 at maturity.

2026 Income:
Peoples Security Ban 4.6% CD 01/27/2026 Callable.
YTM 4.8%
$29K invested -> $31850 at maturity

2027 Income:
Discover Bank DE 2.8% CD 01/11/2027
YTM 4.4%
$28K invested -> $31860 at maturity

2028 Income:
UBS Bank USA UT 3.95% CD 01/10/2028
YTM 4.4%
$27K invested -> $32074

2029 Income:
Discover Bank DE 3.45% CD 01/16/2029
YTM 4.7%
$26000 invested -> $32711

Again, these are pre-tax amounts and inflation will chip away at the value. If you want $31,500 after-tax and to make an allowance for inflation, you will need to invest more.

I hope this is helpful.

 

[G-Man]

Schwab's ladder builder doesn't appear to work on Sundays facepalm, so I just cherry picked these from manual searches.

These are CDs. You can do the exact same thing with Treasuries.

I'm not suggesting these exact CDs, but it should give you an idea. The first two are callable but they are not many years so I don't think the risk is high. I chose non-callable for the later ones.

I'm also assuming this is in a tax deferred account and that you're looking for gross income. If you want $31,500 net of taxes, you'd need to increase the principle invested. Same thing if you want the $31,500 to grow to account for inflation.

2025 Income:
JPMorgan Chase & Co. OH 5.25% CD 12/12/2024 Callable
YTM 5.25% (Effectively 3.9% net as this matures in Dec.)
$30K invested -> $31,170 at maturity.

2026 Income:
Peoples Security Ban 4.6% CD 01/27/2026 Callable.
YTM 4.8%
$29K invested -> $31850 at maturity

2027 Income:
Discover Bank DE 2.8% CD 01/11/2027
YTM 4.4%
$28K invested -> $31860 at maturity

2028 Income:
UBS Bank USA UT 3.95% CD 01/10/2028
YTM 4.4%
$27K invested -> $32074

2029 Income:
Discover Bank DE 3.45% CD 01/16/2029
YTM 4.7%
$26000 invested -> $32711

Again, these are pre-tax amounts and inflation will chip away at the value. If you want $31,500 after-tax and to make an allowance for inflation, you will need to invest more.

I hope this is helpful.

Thanks

 

[Surewhitey]

Are you thinking of taking the full 5 years at once from the 401k? I haven't read any discussion on the taxation side of any withdrawal to account for in the equation (or maybe I haven't woke up yet).

I'd withdraw ea year as you need it to spread the taxes over time, personally. MM's in my 401k is ~5.27% currently anyhoo.

 

[G-Man]

Are you thinking of taking the full 5 years at once from the 401k? I haven't read any discussion on the taxation side of any withdrawal to account for in the equation (or maybe I haven't woke up yet).

I'd withdraw ea year as you need it to spread the taxes over time, personally. MM's in my 401k is ~5.27% currently anyhoo.

I was under the impression if I roll over the 5-year amount from her 401k to a T-IRA, I can then create the ladder or purchase the annuity within the T-IRA without generating a taxable event. When I'm ready to withdraw each year, that will then cause a taxable event.

However, I like your recommendation as well.

 

[Surewhitey]

I was under the impression if I roll over the 5-year amount from her 401k to a T-IRA, I can then create the ladder or purchase the annuity within the T-IRA without generating a taxable event. When I'm ready to withdraw each year, that will then cause a taxable event.

However, I like your recommendation as well.

Gotcha & that is likely fine. I did a direct rollover without issue, so ignore my ramblings...