Basic Retirement Question

[Stormgod]

I am new at this and just making sure I understand this correctly as I am starting to think about retirement.

• I would like to retire at age 60 (I am 54 now)
• I will be living off of $70K per year once I retire
• My social security benefits will be at age 65 (when I plan on starting to take out) $2,676 per month
• My wife has never worked (homemaker). She gets half that amount I have read (I hope that is right), and is the same age as me $1,335)
• That means combined our social security comes to $48,132 per year.
• So in short I need enough cash on hand to carry me from 60 to 65 (350K) and then an additional $21K per year to bridge the gap between social security and that 70K target.

Do I have this right?

 

[qwerty3656]

Something like that - the devil is in the details. Things like inflation, health care costs, unexpected expenses. It probably makes sense to have some cushion in the $70k number. Also, your FRA social security benefit is at age 67 not age 65 (just making sure that $2,676 is the right number). One final thing - you can't count on staying employed at the same salary for the next 6 years. I made all sorts of plans and my company went bankrupt in my late 40's and I lost my high paying job.

 

[mickeyd]

Do I have this right?

Do you have a pension? 401(k)? IRA? taxable savings?

 

[Dash man]

I am new at this and just making sure I understand this correctly as I am starting to think about retirement.



•I would like to retire at age 60 (I am 54 now)

•I will be living off of $70K per year once I retire

•My social security benefits will be at age 65 (when I plan on starting to take out) $2,676 per month

•My wife has never worked (homemaker). She gets half that amount I have read (I hope that is right), and is the same age as me $1,335)

•That means combined our social security comes to $48,132 per year.

•So in short I need enough cash on hand to carry me from 60 to 65 (350K) and then an additional $21K per year to bridge the gap between social security and that 70K target.



Do I have this right?

You should open a MySocialSecurity account at www.ssa.gov if you haven’t already.
OpenSocialSecurity.com is a good website to see what is optimal for you.
One thing to point out is if your spouse is reliant on your SS after you pass, waiting until 70 to collect (if you can) will help her if longevity is possibly a factor.

 

[Stormgod]

This is all great info and thank you so much.

Answering a couple of your questions...

I do have a 401k as well as Stocks/mutal funds I am investing in.

I do have a SSA and that is where I got the number for my SS amount. I don't want to work until I am 70 for the full benefits, which is why I chose the age 65 amount.

Ya, my salary over the years has been all over the place due to the industry I am in, one year making really good money, next year, company is gone and nothing and living off savings, etc.

 

[Dash man]

I do have a SSA and that is where I got the number for my SS amount. I don't want to work until I am 70 for the full benefits, which is why I chose the age 65 amount.

You don’t have to work until you’re 70. Just waiting until you’re 70 allows your benefit to grow 8%/year over your Full Retirement Age at 67. I quit when I was 56 and could still wait until 70 if I chose for higher benefits.

 

[MissMolly]

If your wife files for spousal SS prior to her full retirement age (67) she will not receive 50% of your full PIA. It will be reduced for filing early. And also, since you plan to file before your full retirement age (67), you will also receive a reduced amount and not your full PIA.

 

[38Chevy454]

Don't forget taxes and healthcare costs in your numbers. $70K of spending will likely need more than $70K of total income to net out what you need. How you get that additional amount above SS depends on your savings investments. Are they pretax 401k/IRA type accounts? Or are they after tax brokerage/Roth type accounts? That makes a big difference in your tax liability. Are you planning on ACA or do you have any other healthcare options to bridge until medicare age 65? Now throw in inflation and there is another big variable.



Essentially your math is right if you are using only after tax income sources and budget remains basically constant for that period until 65. Taxes should be pretty low in that period. No idea on what your health care costs are.


To really answer the question, you need to look at your total financial savings picture with all accounts and determine what is the best withdrawal strategy. That strategy may be to use some pretax money up to certain tax rate cutoff amounts.

 

[MichaelB]

I am new at this and just making sure I understand this correctly as I am starting to think about retirement.

• I would like to retire at age 60 (I am 54 now)
• I will be living off of $70K per year once I retire
• My social security benefits will be at age 65 (when I plan on starting to take out) $2,676 per month
• My wife has never worked (homemaker). She gets half that amount I have read (I hope that is right), and is the same age as me $1,335)
• That means combined our social security comes to $48,132 per year.
• So in short I need enough cash on hand to carry me from 60 to 65 (350K) and then an additional $21K per year to bridge the gap between social security and that 70K target.

Do I have this right?

Stormgod, here is a FAQ post with some questions you may find useful: https://www.early-retirement.org/fo...-answer-before-asking-can-i-retire-69999.html

 

[Stormgod]

If your wife files for spousal SS prior to her full retirement age (67) she will not receive 50% of your full PIA. It will be reduced for filing early. And also, since you plan to file before your full retirement age (67), you will also receive a reduced amount and not your full PIA.

Yep, yep. I get that. The amount I listed above for my SS is the reduced amount I would get if I was to start withdrawing when I was 65. So hers since she will be doing it at the same time is 50% of that amount.

 

[OldShooter]

Assume 2% inflation over 6 years, your $70K of buying power will take $78K in then-year dollars to pay. Add a 20 year retirement horizon, so a total of 26 years, you'll need $117K.

I think all of us, me included, underestimate reasonable inflation in our planning and don't think at all about what a period of really high (10-20%) will do to our lifestyle.

 

[Bamaman]

This is all great info and thank you so much.

Answering a couple of your questions...

I do have a 401k as well as Stocks/mutal funds I am investing in.

I do have a SSA and that is where I got the number for my SS amount. I don't want to work until I am 70 for the full benefits, which is why I chose the age 65 amount.

Ya, my salary over the years has been all over the place due to the industry I am in, one year making really good money, next year, company is gone and nothing and living off savings, etc.

You're looking at retirement from the income end of the spectrum.

Many of us look at it from what balances are in our 401K/IRA's. We don't want to think we have to live only on Social Security and a small pension.

Now's the time to save until it hurts, and to practice living on a budget--one that you anticipate living on.

 

[OldShooter]

After I made Post #11 I ran across this: "Think Inflation Is Bad Now? Let's Take A Step Back To The 1970s" from NPR: https://www.npr.org/2021/05/29/1001...is-bad-now-lets-take-a-step-back-to-the-1970s

 

[pb4uski]

I am new at this and just making sure I understand this correctly as I am starting to think about retirement.

• I would like to retire at age 60 (I am 54 now)
• I will be living off of $70K per year once I retire
• My social security benefits will be at age 65 (when I plan on starting to take out) $2,676 per month
• My wife has never worked (homemaker). She gets half that amount I have read (I hope that is right), and is the same age as me $1,335)
• That means combined our social security comes to $48,132 per year.
• So in short I need enough cash on hand to carry me from 60 to 65 (350K) and then an additional $21K per year to bridge the gap between social security and that 70K target.

Do I have this right?

Yes, and assuming the 4% "rule", you would need $525k to fund the $21k a year withdrawals increased for inflation each year starting at 65... so that is $875k in total.

You should probably rund your situaton through FIRECalc.... I get a 98.3% success rate given $70k spending, $875k portfolio, 35 years, $32,112 of SS starting in 2026 and $16,056 of SS starting in 2026 and 60% equities (all other assumptions default assumptions).

If you have more than $875k you might consider delaying your SS. Visit opensocialsecurity.com and play with that a bit to see how delay might affect your benefits and expected present value of your benefits. Be sure to check the little eckbox at the top. I prefer to use the 2017 non-smoker preferred mortality tables since we are in good health and I use a discount rate equal to the estimated real reanings rate of the money that you would use if you did defer SS.

 

[pb4uski]

...I don't want to work until I am 70 for the full benefits, which is why I chose the age 65 amount. ...

Just to be clear, just becaue you are not working doesn't mean that you have to be drawing SS retirement benefits.... many of us here are retired and not drawing SS but living off savings and then will start drawing SS later.

One of the great benefits of being retired and not drawing SS right away is to either withdraw or convert tax-deferred money at very low tax rates... in my case about 8% vs 28% or more whne I deferred that money and 12% or more once SS starts for the both of us.

 

[MRG]

Just to be clear, just becaue you are not working doesn't mean that you have to be drawing SS retirement benefits.... many of us here are retired and not drawing SS but living off savings and then will start drawing SS later.

One of the great benefits of being retired and not drawing SS right away is to either withdraw or convert tax-deferred money at very low tax rates... in my case about 8% vs 28% or more whne I deferred that money and 12% or more once SS starts for the both of us.

+1

This is the way for many me included. I do remember what a mind twist that decision was it took my anxiety to the maximum for a while. Eight years later still no SS at 64, looking at 70. Our assets are higher than when I quit getting a paycheck.

 

[homestead]

Yep, yep. I get that. The amount I listed above for my SS is the reduced amount I would get if I was to start withdrawing when I was 65. So hers since she will be doing it at the same time is 50% of that amount.

That is not how it works. The spouse benefit is tied to your FRA benefit amount , doesn't matter when you start benefits. For her to get 50% she has to wait until her FRA. If she starts early then it is reduced depending on how early she starts.

I started SS at 62 but my wife gets 50% of my FRA amount since she waited until her FRA to start.

 

[pb4uski]

That is not how it works. The spouse benefit is tied to your FRA benefit amount , doesn't matter when you start benefits. For her to get 50% she has to wait until her FRA. If she starts early then it is reduced depending on how early she starts.

I started SS at 62 but my wife gets 50% of my FRA amount since she waited until her FRA to start.

You don't get the spousal benefit until your spouse is collecting benefits.

DW was a SAHM and her benefit based on her work record is ~30% of my PIA. We were both born in 1955.

She recently reached her FRA and started collecting benefits based on her own work record.... ~30% of my PIA.

When I start my benefits in 5 years at age 70, her benefit will increase to 50% of my PIA and my benefit will be 130.7% of my PIA.

If I predecease her, she will continue to collect 130.7% of my PIA for the rest of her life (and her 50% PIA benefit will cease)... so her SS income will be 72.3% of what it was while we were both alive.

Agree on the last part, if you are collecting benefit and she waits until her FRA she would get the larger of the benefit based on her work record or 50% of your PIA.

 

[homestead]

Of course, My point was that the spousal benefit doesn't change depending on when the husband would take his benefit.

 

[qwerty3656]

My wife has her own SS, but it is less than half of mine. If she starts taking her own SS at 62, can she still claim spousal benefits at 67?

 

[pb4uski]

Actually, if she takes at 62, as I understand it she'll automatically get spousal benefits when you start collecting SS, not when she is 6
If you are the same age and she claims at 62 she'll get 70.4% of her benefit and then when you claim at 67 her benefit will increase for the difference between 50% of your PIA and her PIA.

So for example, let's say her PIA is $1,000 and yours is $3,000. If she claims at 62 she'll start collecting $704. When you start your benefits she'll get an additional $500.

If you input your numbers in opersocialsecurity.com it'll do the calculations for you.

From opensocialsecurity.com for the example scenario:

 

[RetireeRobert]

My wife has her own SS, but it is less than half of mine. If she starts taking her own SS at 62, can she still claim spousal benefits at 67?

She will get the greater of her own benefit or spousal benefit (as long as you are taking your SS at that time).

 

[Perryinva]

No, she doesn’t get the greater of the two, though it appears that way. She always gets hers, which is as pb4uski says, based on her earnings and what age she files at. ALWAYS based on her PIA, which becomes fixed at that time . When the spouse files, their PIA at that time is used to calculate the difference between 50% of his PIA and hers, and that is added to her own. So just as in pb4uskis example above, the wife does not get $1500 which would be half of his PIA filed after FRA, she gets $500 (1500-1000) plus her own 704= $1204.

So it does depend on both their ages, when they file. The earlier you file, the lower your PIA, in addition to the reduced benefit. While the later you file, even through age 70, the more your PIA increases, though if you stopped working before age 62, the PIA amount only increases incrementally based on COLA increases.

It is easily forgotten that all estimates in the SS tables and calculators are Always in todays dollars. So if file for SS at 62, your PIA amount is fixed at those age 62 dollar amounts. Were the filer to wait until age 67 FRA, the PIA would be higher, usually at least ~10% higher and why when people actually do file at age 70, it is always significantly more than what was estimated at age 62. .

So for two people, the same exact age, filing two years before FRA, with one having zero work record and a zero PIA (which I’ve never heard of nowadays), her amount would indeed be very close to 50% of his reduced amount (as in the OPs example) or close enough to make no practical difference.

 

[Perryinva]

To answer qwerty3656, it depends. If she is age 67, at the time you file, and you are at FRA or later, then she can file for the spousal adder IF 50% of your PIA minus her PIA at the time she was 62 is greater than zero.

My wife filed at 62, and is 5years older than me, currently 68. She got around $1150, and IIRC, her PIA at the time was ~$1500. If I delay filing until my PIA is greater than $3000, she gets a small adder at the time I file. But even if my PIA is say, $3100, the adder is only $50.

 

[pb4uski]

Perry, I agree with much of what you wrote, but just want to caution that you are using the term PIA too loosely... your PIA is what you are entitled to based on your work record as of, and only as of, your full retirment age (which is between 65 and 67 depending on your birth year).

If you start benefits before your FRA you receive less than your PIA (reduced benefits) and if you start your benefits after your FRA you receive more than your PIA (delayed retirement credits).

PIA definition
The "primary insurance amount" (PIA) is the benefit (before rounding down to next lower whole dollar) a person would receive if he/she elects to begin receiving retirement benefits at his/her normal retirement age. At this age, the benefit is neither reduced for early retirement nor increased for delayed retirement.