Anyone "Pre-spending" SS?

[rodi]

I'm confused by this thread. Unless you borrow against future payments how can you spend something before you have it?

My WR is a bit higher now than it will be next year (I have my very small pension coming online towards the end of this year.) My WR will drop again when my SS comes onine. But my WR is below 4% now - so it's not really pre-spending... it's just drawing from a source that is available now vs from one that isn't available now.

Am I pre-spending my IRA money now because I'm using taxable accounts now vs having to pay a penalty for early withdrawals of IRA money?

Firecalc, I-Orp, FIDO retirement calculator, etc have all the data input - they say I'm good.

 

[RobbieB]

Yeah, it is kinda weird. It's good to know what you will be getting from SS via the "schedule", but unless you are getting it what good it it?

It's good to know what's coming and when for planning your financial life, but other than that?

 

[GravitySucks]

Anyone "Pre-spending" SS?

Good question Rodi. Some questions get interpreted by the readers differently.

I assumed something like a retiree is 60 and at 70 will collect $30k/yr. That person has $1m retirement nest egg, And they are comfortable with a 4% withdraw rate. I considered pre spending the SS as mentally taking the $300k to cover the ten years before SS starts. That leaves $700k in the retirement fund, so at a 4% WR adds $28k a year for a total of $58k a year instead of $40k

That makes a WR of 5.8%. Got to find someway to justify that high not so safe WR.

 

[Hermit]

I'm confused by this thread. Unless you borrow against future payments how can you spend something before you have it?

Yeah, it is kinda weird. It's good to know what you will be getting from SS via the "schedule", but unless you are getting it what good it it?

It's good to know what's coming and when for planning your financial life, but other than that?

My dilemma is do I get used to spending my current income and when I start my SS then reset my spending habits to account for the larger income, or do I set my current spending to match what my income will be when my SS comes on line? My thinking is I start spending it now. If I get in the habit of not spending it, I may just continue at that level even after the added income comes on line. My heirs would probably like that! The money is there. Its just a way to look at the when to spend it issue - now while younger or spend it later because it might be a little more secure or don't spend it at all.

 

[RobbieB]

Yes, that could be a problem. I have been told that I'm one of the few that has been able to successfully deal with it. This issue of living frugally and then being able to "loose the hounds" and seek ever more expensive pleasures.

But I've always been a hedonist at heart -

By all means blow the dough now and have fun!

 

[RunningBum]

Good question Rodi. Some questions get interpreted by the readers differently.

I assumed something like a retiree is 60 and at 70 will collect $30k/yr. That person has $1m retirement nest egg, And they are comfortable with a 4% withdraw rate. I considered pre spending the SS as mentally taking the $300k to cover the ten years before SS starts. That leaves $700k in the retirement fund, so at a 4% WR adds $28k a year for a total of $58k a year instead of $40k

That makes a WR of 5.8%. Got to find someway to justify that high not so safe WR.

Hmm, that's not quite how I took it, but I know I was probably taking it differently. I'd amortize the 30K/yr that's coming in 10 years for the rest of my life. Without doing any actual calcs, let's just say it comes out to $250K. I'd add that to my $1M. If you're happy with a 4% WR, 4% of 1.25M is $50K. So I'd take out $50K instead of $40K, then in 10 years, I'd only take out $20K (plus whatever adjustments made for inflation) + $30K SS. Some might say I have a 5% WR early, then 2%, but I think of it as steady 4%.

I don't think it makes sense to just take 4% every year and then in 10 years get a $30K raise. People talk about taking SS early so they can spend it while they are more active; my thinking is to count on at least a discounted amount and "spend some it in advance" now, before I'm even eligible for SS, since I'm even more active now than I'll be at 62 or 70.

In real life, I think I'm spending under budget without throwing amortized SS+ pension in, so I'm not too worried about whether this is a flawed plan, but I don't think it is unless SS goes belly up. It could, but I think it's just as likely a 4% SWR could fail due to a worse run in the market than any backtesting shows.

 

[kaudrey]

My WD rate will be higher before taking SS, but I don't think of it as pre-spending.

 

[UpAnchor]

On the cusp of retirement and delaying SS to 70, I add projected SS for me/DW (70/62+spousal) into an SWR based on multiple calculators (Firecalc, VPW, RIP, etc.) and then plan to dial it back a bit. I'm not as concerned as some about the future of SS over our remaining life spans. But I am cautious that higher withdrawals during the early years in anticipation of forthcoming SS (and reduced SWR at that time) might expose me a bit more to SOR risk. That said, even one or two average or better market years during the first few of retirement and I'll likely drop that concern as well.

 

[N02L84ER]

We are spending more than we would consider safe if we had no SS coming in the future. So, in a way, Yes. But we are spending 15% to 20% less than the amount calculated using GravitySucks method and a little less than FireCalc indicates is safe.

 

[jollystomper]

We basically came up with a desired spending amount for retirement and subtracted what pension income would be. I then looked at the number of years between planned retirement and taking SS to calculate what would be the required passive income (dividends, capital gains, interest) plus cash withdrawals to make up that difference. At the earliest time we would consider SS, the decision will be driven based on whether we need it to reduce the amount of withdrawals, or if we want to increase our expenditures, or just wait if we really do not need it. So at least for the years before SS we are not pre-sending, but the year we take SS will depend on what our savings+investments look at at that time.

 

[Major Tom]

rodi's comment struck a chord. In a few years time, I may well increase my WR, which is currently standing at ~2%. The fact that SS will be coming online for me in 10 years (at the earliest) will serve to increase my confidence, but even the new WR is unlikely to be more than ~3.5% (of my portfolio, and not including future SS). I don't think this qualifies as pre-spending SS.

 

[pb4uski]

I guess in a sense that we are "prespending" SS in that our WR is higher in ER whole we are relying on our savings... it will go down once I start my pension and will go down again when DW starts SS and when I start SS.

But to be candid... I think prespending SS is a bit of a silly way to frame it... money is fungible.

Actually your DW can access her IRA now... but with a 10% penalty or certain restrictions (SEPP). But we are doing the same as you... our spending is constant other than perhaps inflation but withdrawals are from our portfolios only to the extent that spending exceeds income (pension and SS).

DW is 58 and has a good sized IRA. For planning purposes, I have always included that amount in our portfolio even if she can't access it for another year and a half.

She plans to take SS at age 62.

I wonder how many of you would already include future SS in today's spending?

Or do you view it as a 'raise' (increase in income) coming in four years from now?

As with her IRA, we just withdraw her future benefit from our available portfolio and I suspect that Firecalc also implies doing the same.

We view her IRA and SS as banked money that is just waiting for the proper time to withdraw from a larger total and as those funds open up, we would lower our portfolio withdrawals. In essence, we'd maintain the same spending level but it would be coming from other sources.

Yes, I'm aware of a certain level of risk (accidental death, etc) but I'm excluding that at this time.

 

[bmcgonig]

Anyone "Pre-spending" SS?

Good question Rodi. Some questions get interpreted by the readers differently.

I assumed something like a retiree is 60 and at 70 will collect $30k/yr. That person has $1m retirement nest egg, And they are comfortable with a 4% withdraw rate. I considered pre spending the SS as mentally taking the $300k to cover the ten years before SS starts. That leaves $700k in the retirement fund, so at a 4% WR adds $28k a year for a total of $58k a year instead of $40k

That makes a WR of 5.8%. Got to find someway to justify that high not so safe WR.

That's exactly what I intend to do. It's a mental trick really so that I can just use 4% or whatever both before and after I take SS at 70, but it helps me plan better. It's especially useful if you intend to use the VPW method that we chatted about in the past, since that needs a set/predetermined withdrawal rate.

Sent from my iPad using Early Retirement Forum

 

[old woman]

I am living pretty frugally and don't know if I will want to spend more over 70. I get half my exs SS now until 70 and draw down investments if I need money without a plan might take 2% now but less after my income goes up.

 

[youbet]

I'm confused by this thread. Unless you borrow against future payments how can you spend something before you have it?

You spend more from savings today based on the fact you'll have SS coming in the future. It's a basic premise in the "delay until 70" strategy.

 

[youbet]

My WD rate will be higher before taking SS, but I don't think of it as pre-spending.

Think of it this way......

If you would spend less today if SS didn't exist in your future, then you're pre-spending SS.

 

[marko]

You spend more from savings today based on the fact you'll have SS coming in the future. It's a basic premise in the "delay until 70" strategy.

OP here.

Yes. My question was whether people use their savings to make up for their SS benefit until it become available or if they wait and consider SS as a 'raise'.

If your calculated SWR minus SS is $50K and your SS is $10K, do you withdraw $60K from your savings until SS arrives or do you live on $50K until then?

 

[RunningBum]

I don't think you want to pre-spend the whole SS amount. If your SS income is $10K you can't magically stretch that $10K to include the years before you collect and have 0 income from it. If you figure on collecting that $10K for 20 years, but want to pre-spend it 10 years early, that is $200K you are stretching over 30 years (ignoring the time value of money to make this simpler). So, you'd figure $6666 available per year, even after you start to collect. In essence you are borrowing $6666 from your savings for 10 years, and then when you start collecting SS you have to pay back $3333 from your SS income back to your savings for 20 years. That $10K can't come from thin air, unless you're willing to risk a higher than 4% WR.


This is why I calculate SS as an annuity. Then I can just treat it like a source of funds that I can't yet tap, like an IRA. You aren't pre-spending from your IRA, right? Think of SS in the same way.


Think of it like 3 jugs of water of varying size, corresponding to how much you have in each type of account. You have a bottle that you are going to fill 4% of the total amount of water each year. Water is water, just like the "money is fungible" comment someone else made. At first you can only fill from the taxable jug. Later you will be able to fill from the IRA and SS jugs, requiring you to take less from the taxable jug. But if you take more than 4% from the taxable jug early, knowing that eventually the SS jug will start running, you have more risk that the taxable and IRA jugs will go dry.

 

[marko]

You aren't pre-spending from your IRA, right?

Well, actually we are.

In our case, I'm drawing from my IRA and DW turns 59.5 in 18 months. We each have sizable IRAs and I consider her's as part of the total portfolio from which we draw.

It's just a matter of where the withdrawal comes from. That was kind of the point of my original question.

She'll be getting SS in four years and we're supplementing that with additional withdrawals until then.

If we had to make a 15 or 20 year bridge, that might be different, but we view the four year bridge as a minor additional withdrawal.

 

[RunningBum]

Well, that's up to you what kind of risk you want to take. To answer your original question, I do not, and would not, take a extra withdrawal for the full future SS amount.

 

[marko]

Well, that's up to you what kind of risk you want to take. To answer your original question, I do not, and would not, take a extra withdrawal for the full future SS amount.

I could stand corrected here, but when I enter my numbers into FireCalc (and others) I enter my portfolio size and expected SS dates of beginning SS.

I am under the belief that the calculated SWR included delayed SS dates and gave me a SWR that had steady withdrawals with delayed SS factored in.

No?

 

[jim584672]

I am planning to take my pension at 65 and SS at 70. These will cover my expenses very well. So I can spend down savings until I get to these "life savers", I am now 51.

So I guess I am "pre-spending" SS.

 

[pb4uski]

I could stand corrected here, but when I enter my numbers into FireCalc (and others) I enter my portfolio size and expected SS dates of beginning SS.

I am under the belief that the calculated SWR included delayed SS dates and gave me a SWR that had steady withdrawals with delayed SS factored in.

No?

My understanding is that in its simulations that Firecal withdraws from the portfolio spending in excess of SS (aka the gap). You provide the spending and it returns the success rate. Firecalc does not provide a WR to my knowledge... it can provide the amount you can spend at different success rates.

 

[samclem]

Yes, we'll be "pre-spending" our SS. Our withdrawals from our savings (which we compute as a % of each year's year-end balance) will be higher in the years before we start SS, then we'll reduce the percentage after the SS checks start.
And, yes, we'll be spending from our tIRAs from the get-go (I'll be 55YO), using 72t (aka SEPP) to avoid penalties. They aren't very big withdrawals from the tIRAs, but they will help a bit to reduce later possible tax bracket increases for us.

 

[RunningBum]

I could stand corrected here, but when I enter my numbers into FireCalc (and others) I enter my portfolio size and expected SS dates of beginning SS.

I am under the belief that the calculated SWR included delayed SS dates and gave me a SWR that had steady withdrawals with delayed SS factored in.

No?

It's been quite awhile since I've used Firecalc so I can't say for sure but I didn't think Firecalc gives you a SWR. From what I see, you give it your portfolio and SS with planned begin date, along with your expenses, and Firecalc tells you if that plan works based on history. If you go take 4 extra years out of your portfolio to make up for the shortfall before you start collecting SS, you are no longer following the plan that you entered into Firecalc.

If you use a tool like I-orp, it would have you taking more out of your portfolio early, then reducing that when your SS kicks in.

Someone more familiar with those tools can correct me if I'm wrong.

Like you say, it's only 4 years. But if you were doing this for 20 years, I think you could see clearly this is wrong and puts your portfolio at risk. For 4 years, or even 1 year, is still wrong, but just not nearly as risky as 20 years.