Anyone else plan to take SS early, to stay in a lower tax bracket?

[almost there]

Its been a goal the past 9 years of retirement to stay in the 12% bracket.
(Unlike when working, got killed the entire time)
And have tried to configure things to be able to stay there going forward.
Not 100% sure I can pull it off. But its a goal. Roth conversions. Draw down the IRA in small amounts over a long period of time etc.
Plan to take SS at 62 in 2024. About $2900 a month for both my wife and I.
Just wanted to post this, as I don't recall too many SS threads about taking it early.

 

[Car-Guy]

Plenty of threads about when to take SS on this forum but IIRC most advise to take it later (e.g. FRA+) Although I've seen many here say they took it at 62. The DW and I took it at 62 and have no regrets. One of us "may" live to the break even point.... Maybe...

 

[almost there]

Thanks, did a search. Found a lot of older posts. But nothing talking about how SS effects ones fed. taxes.

 

[Looking4Ward]

I haven't had to pay taxes since I FIRE'd eight years ago. I've been drawing from my after-tax account this entire time and plan to do so for at least another 10 years, leaving my tIRA alone to grow.

This year I applied for (and was approved last week) for SS when I turn 62 in July. I haven't gotten the actual letter yet with the true benefits amount, but I anticipate it to be roughly $24K a year.

When I factor that into my reduced withdrawals from my after-tax accounts, I'll begin owing taxes. Roughly $5K based on $24K SS + $10K Dividends + $50K CG Distributions = $80.4K reported income.

So I then consider my SS to be more like $19K a year for now and when I use that as the basis of my calculations I still appear to be ahead drawing it now rather than waiting another 8 years.

 

[almost there]

Very similar here. But will save the after tax accounts till the end. Have not got into the IRA or Roth IRA yet (am 60) Plan to start in 2024 with SS.
After this years and next years Roth conv. will have about 450k in the IRA. And plan make the same yearly withdrawals (27k) over 20 years. Figuring a 3.5% return. Not saying its the best plan, but so far seems like what I feel good about.

 

[TheWizard]

I'm quite content to be in a higher tax bracket throughout retirement, both before and after starting SS and then RMDs.
What I really mean is an AGI that increases by a few percent each year through retirement.
So far I seem to have achieved this goal...

 

[SevenUp]

Thanks, did a search. Found a lot of older posts. But nothing talking about how SS effects ones fed. taxes.

The Taxation of Social Security benefits - Bogleheads wiki article covers that in some detail.

The presence of SS benefits might upset your Roth conversion plans to some extent, given the high marginal rates that can occur.

 

[ShokWaveRider]

Lower income, take at 62, higher income, wait till 70.

Check Opensecurety.com for your own analysis.

 

[almost there]

Lower income, take at 62, higher income, wait till 70.

Check Opensecurety.com for your own analysis.

Thats pretty simplistic. How about manage your income / tax base? Or am I missing something.

 

[ShokWaveRider]

Thats pretty simplistic. How about manage your income? Or am I missing something.

Can you be more specific? We are doing as I stated, DW is taking hers, I am waiting till 70. Withdraw from Taxable stash to top up as needed.

We chose not to do Roth conversions to keep income below ACA limits.

 

[RunningBum]

It's a lot more than staying in the 12% tax bracket.

- If you're under 65 and getting an ACA subsidy, that's at least an additional 8.5% on the taxable portion of your SS, and it could be more

- If you go over the 0% LTCG/QDiv threshold, additional income is taxed at 12%+15%

- It cuts the amount of Roth conversion you can do to stay under any threshold.

- It may expose you to the SS tax hump, where an extra $1000 in income is taxed at 12%, pushes 850 more of SS into being taxed at 12%, and pushed $1850 in QDivs into being taxed at 15%. That's $120 + 102 + $277.50 = $499.50 tax on that $1000.

I recommend everyone run their numbers with and without SS in your tax program or a tax estimator like https://www.irscalculators.com/tax-calculator.

My total tax was $488 in 2021. If I add $24,312 in SS benefits (what I'd get at 62) to that, my tax jumps to $5616, or 21% on the SS benefits. 28.5% counting the 8.5% loss of ACA subsidy on the $20665 of taxable SS income.

I could take out the $15K conversion which would help this year a lot, but it just pushes that deferred income further down the line to be taxed in a later year. So you really have to do more than just figure taxes this year, you also have to figure your taxes later on at 72 when you have to take RMDs. What I've concluded is that getting my IRA converted before starting SS, keeping QDivs from being taxed as long as I can and maximizing ACA subsidies as much as I can while considering the two previous items make delaying SS to 70 my optimal plan for tax efficiency. Other factors may change my mind, since of course the real goal is to maximize wealth, not minimize taxes.

I can't say what's optimal for anyone else but just looking at the 12% bracket doesn't come close to covering it.

 

[RunningBum]

Perhaps someone who uses i-orp can comment on whether it analyzes all of those factors. I know opensocialsecurity does not. I can't get to i-orp right now.

 

[Looking4Ward]

- If you're under 65 and getting an ACA subsidy, that's at least an additional 8.5% on the taxable portion of your SS, and it could be more

Could you elaborate on that, please? I'm not sure I understand.

 

[almost there]

Thats a great calculator. Thanks for posting it.
Replacing SS with my $$ saves me 10k I would have to pay in tax's.
The goal is huge net worth & tiny yearly income.

 

[Montecfo]

I would not take SS earlier to avoid higher taxes, generally speaking, since it is also more income/spending power.

Stated differently, you still retain the benefit of the 12pct bracket if some of your income is in the 22pct bracket.

Gain harvesting and ACA could affect this of course, since there you have cliff-type thresholds. But of you have more income then you need less gain harvesting, or so it would seem.

I might take SS early for non-tax reasons.

 

[Sunset]

I'm not sure OP has posted enough information to get answers that consider all the facts.

Based on given information, OP should look at what if delay SS, and just withdraw from IRA. To allow the SS amount to increase 8% plus inflation per year. Will end up with more money in pocket for entire lifetime vs current plan.

Also OP's idea of taking out $27K per year from 450K IRA means it likely last ~23 yrs (top of head estimation) as that is a 6% withdrawal rate.

OP has not stated if spouse works/worked, nor on ACA subsidy, plan to pay for health insurance, State lived in as affects taxation of IRA money and SS.

 

[SevenUp]

For those who can use Excel, the case study spreadsheet will show marginal tax rates for Roth conversion amounts, including the effects of SS, LTCG, ACA, etc.

E.g., see Roth Conversion and Capital Gains On ACA Health Insurance.

 

[RunningBum]

Could you elaborate on that, please? I'm not sure I understand.

Whatever part of SS is taxable to you increases your MAGI, which decreases your ACA subsidy. The tax calculator I posted shows how much of you SS is taxable income. Find an ACA subsidy calculator like https://www.kff.org/interactive/subsidy-calculator/ and plug in your numbers with and without the SS taxable income number to see how SS affects your subsidy.

 

[RetMD21]

I haven't had to pay taxes since I FIRE'd eight years ago. I've been drawing from my after-tax account this entire time and plan to do so for at least another 10 years, leaving my tIRA alone to grow.

Will higher taxes in 10 years be a problem?

 

[Sunset]

I haven't had to pay taxes since I FIRE'd eight years ago. I've been drawing from my after-tax account this entire time and plan to do so for at least another 10 years, leaving my tIRA alone to grow.

This year I applied for (and was approved last week) for SS when I turn 62 in July. I haven't gotten the actual letter yet with the true benefits amount, but I anticipate it to be roughly $24K a year.

When I factor that into my reduced withdrawals from my after-tax accounts, I'll begin owing taxes. Roughly $5K based on $24K SS + $10K Dividends + $50K CG Distributions = $80.4K reported income.

So I then consider my SS to be more like $19K a year for now and when I use that as the basis of my calculations I still appear to be ahead drawing it now rather than waiting another 8 years.

Have you looked at your RMD (~3.5% of IRAs and 401Ks) + SS to see what it will be in today's dollars ? Since you let the IRA grow unfettered.

 

[youbet]

Plenty of threads about when to take SS on this forum but IIRC most advise to take it later

Actually, it seems like most have become enlightened and now say it depends on your individual circumstances and goals.

 

[pb4uski]

Its been a goal the past 9 years of retirement to stay in the 12% bracket.

(Unlike when working, got killed the entire time)

And have tried to configure things to be able to stay there going forward.

Not 100% sure I can pull it off. But its a goal. Roth conversions. Draw down the IRA in small amounts over a long period of time etc.

Plan to take SS at 62 in 2024. About $2900 a month for both my wife and I.

Just wanted to post this, as I don't recall too many SS threads about taking it early.

I'm taking it later because I think it makes the most sense for us considering our health and joint mortality suggests that one or the other of us will live until our early 90s... way beyond any payback calculation. The cherry on top is that we can do larger low cost Roth conversions for 4 more years.

 

[pb4uski]

I haven't had to pay taxes since I FIRE'd eight years ago. I've been drawing from my after-tax account this entire time and plan to do so for at least another 10 years, leaving my tIRA alone to grow.
...

Did you consider doing Roth conversions to at least fully utilize your standard deduction fully... at the same time considering the 0% tax bracket for qualified dividends and LTCG? If not, you're leaving an opportunity to do tax-free Roth conversions on the table.

 

[pb4uski]

Actually, it seems like most have become enlightened and now say it depends on your individual circumstances and goals.

While I agree, in most cases delaying is preferable but they should do their own analysis based on their fact's and circumstances. I think opensocialsecurity.com is a great tool to do that analysis.

 

[youbet]

While I agree, in most cases delaying is preferable but I should do their own analysis based on their fact's and circumstances. I think opensocialsecurity.com is a great tool to do that analysis.

I'm glad you agree. Yes, it does seem that there are many folks in situations where the quantitative and/or subjective benefits commonly associated with delaying SS to 70 seem preferable. But there also seems to be a significant minority where taking SS early would be preferable, especially in terms of the subjective factors.

When you say that people should do their own analysis based on their facts and circumstances, I think you should add "goals." That is, based on their facts, circumstances and goals.

For those of us who can afford it, subjective factors and goals often become the primary factors overriding "break-even" and other financial calculations.