Modelling when to take Social Security and other pensions

[Winemaker]

At the present time, DW and I have enough dough to do whatever we want, we are in good health except for some aches and pains. We followed the opensocialsecurity.com suggestions and DW took hers at 65. I am younger and was the bigger bread winner, so the suggestion was for me to take at 70 in 7 years.

While waiting until 70, we are living on pension, tax deferred income, DW's SS, and rental income. While I would love to convert to a Roth, we are already watching the 22% tax bracket and IRMAA limits. So instead of converting, we're spending. NW is 50% higher now than 7 years ago, so we have been blessed.

Now, if the SHTF, who knows? I'm not worried about "getting my money back". As pb says, it's good longevity insurance, as a great annuity. My mom's memory hit the wall late last year at 85, she traveled with us a few times a year. It may happen early to me or DW, or we may get hit with a bus next week. The projected $42,000/year for me at 70, should make a difference in whether my diaper gets changed sooner than later.

 

[Dtail]

I have several neighbors on my block who are still very active golf and tennis players in their mid-80s, so I see that as a great incentive for me to keep going as long as I can. They also travel both domestically and internationally for several months every year.

One guy who recently moved away was still playing tennis at 90, as well as doing a lot of cruising.

I have played Pickleball with 2 86 y.o. players who play nationally for medals.

 

[youbet]

I have played Pickleball with 2 86 y.o. players who play nationally for medals.

Clearly we should all wait until we are 86 to start our SS! Despite being a bit anecdotal, this is great input Dtail! Thanks!

 

[Markola]

Man, I’ll have what they’re having.

 

[Chuckanut]

Alas, most of the people I know who are 86 or above are already dead. So, I am not going to wait until then to enjoy fruits of my labor.

In the spirit of the new 'woke' generation certain words frighten and harm me, such as "killing time". The older I get the more offensive that phrase gets. It needs to be banned by government fiat.

 

[Time2]

Before Covid I was having breakfast twice a week with several guys, one of them is now 96. He saw me in the yard several months ago on one of his daily breakfast runs, so turned around to say hi. The Covid isolation has been hard on him. I hope we can get back to breakfast before it's to late.
I just got a report on one of the other breakfast fellows, and he's having trouble walking. As my mother was told by her doctor 50 years ago, if you don't use it, you lose it. Keep moving people.

 

[Bigbass]

Right or wrong, I just filed for my ss last week, 3 mos before turning 62. My husband will get 50% of mine full retirement amt until he turns 70 next March, at which time he'll file for his own benefit. I was telling a group of friends I was surprised as to how easy it was to file for our benefits over the phone. We were not asked for any documentations at all and how I was so happy that my husband was born before 1954, thereby allowing him to file for spousal benefits. One of our friends who is 72 and has been collecting ss yelled out my wife is born in 1953. Are you telling me she can file for spousal benefits? I told him, you bet and you should call the ss office first thing Tuesday morning. Bottom line, there is no right or wrong decision as to when to file for ss. But having conversation on the subject might help people that might not be as informed on the retirement benefits we worked so hard for.

 

[chassis]

Excluding those who make choices based on Roth or spousal benefits...if you have enough money and the break even point is around age 80 then why are you waiting? Take it at 62, have fun and enjoy spending the extra money while you still have some energy to do things.

When you finally break even 18 years later and start "losing"...so what? You were ahead for 18 years. You won the game.

+1 I'm on board with this.

 

[street]

^ Exactly +2.

 

[SecondCor521]

So what have we concluded?

For me, I think that the income tax and IRMAA savings from Roth conversions between 62 and 70 overwhelm any differences in SS claiming strategy. The latter appears to be a pretty broad and relatively flat plateau in my case.

I'm 52, single, and playing the game for the benefit of my three young adult offspring who will be my heirs. For me it won't matter as I already almost certainly have more than enough.

 

[WestUniversity]

My modelling shows very clearly (if correct) that taking SS at 62 is the best route. This is because although you get a smaller SS payment, the invested funds remain invested and have longer to compound to 80 and 85.



So many financial advisers push the 'leave it until late' mantra for SS. I am not clear at all that works for everyone, even leaving aside the question of longevity.

+1 - I usually question “conventional wisdom” as I did with the “they say wait until 70” advice. Here is how our analysis played out.

My break even is at 78. If I ONLY consider Social Security and nothing else in our financial picture, then yes if I live to the most optimistic of my longevity projections of 95, then I clearly come out ahead if I wait until 70 to start drawing a check. Again that is ONLY looking at my social security benefit.

But social security is only one part of my overall retirement picture and it seemed shortsighted to look at it in isolation. If I consider all of our finances then there’s a huge difference when I decide to take it.

I created two different projections, both of which had the same basic structure. Year over year I projected the growth of our net worth using our expenses (adjusted for inflation), the historical returns on our investments, pensions, COLA on the pensions, other income etc.

I rolled those two projections forward to age 95. The only difference between the two projections; one included the social security benefit I would receive starting at age 62 and the other the benefit I would receive starting at age 70.

The difference in the growth in net worth between the two projections wasn’t just a few percent, it was vastly different. That difference being created by the eight years of compounding from 62 to 70. Needless to say I took my social security at 62…

YMMV

 

[RetiredAt55.5]

So what have we concluded?

That pb4uski plans to live another 30-40 years, and plans to still be active on these forums??

(that works for me, I appreciate his posts).

 

[Dtail]

+1 - I usually question “conventional wisdom” as I did with the “they say wait until 70” advice. Here is how our analysis played out.

My break even is at 78. If I ONLY consider Social Security and nothing else in our financial picture, then yes if I live to the most optimistic of my longevity projections of 95, then I clearly come out ahead if I wait until 70 to start drawing a check. Again that is ONLY looking at my social security benefit.

But social security is only one part of my overall retirement picture and it seemed shortsighted to look at it in isolation. If I consider all of our finances then there’s a huge difference when I decide to take it.

I created two different projections, both of which had the same basic structure. Year over year I projected the growth of our net worth using our expenses (adjusted for inflation), the historical returns on our investments, pensions, COLA on the pensions, other income etc.

I rolled those two projections forward to age 95. The only difference between the two projections; one included the social security benefit I would receive starting at age 62 and the other the benefit I would receive starting at age 70.

The difference in the growth in net worth between the two projections wasn’t just a few percent, it was vastly different. That difference being created by the eight years of compounding from 62 to 70. Needless to say I took my social security at 62…

YMMV

Agree it can't just be taken in isolation.
For me with managing my MAGI for Obamacare until hopefully 65 and then a pension at 65, it is a no brainer to wait at least until 66. Then Roth conversions will probably influence waiting later.

 

[Time2]

I would like to figure out what details need to go into the calculation of when to take SS. There are so many details, and I'm not sure if it can be done, and if it can be done how to do it.
Here is my starting point and the options I have. I'm going to start with a limiting factors to simplify/complicate and I can change that later.
I'm waiting to 70 to get my surviving spouse a higher check. So that just leaves when does my wife take SS. I'm also limiting taxes to the 12% bracket and want to do a Roth conversion each year.

If she takes it at 62, she will get $18k per year, That means 18K minus taxes, or $16,840 will not be spent from our invested money each year (because we spend the SS instead) until 70. We need to assume a growth rate, say 8%. After 8 years we have grown the net SS to $178,120. But I have lost the ability to Roth convert $18k each yr for 8 yrs. For a total of $144k. I am going to assume when I spend that $144k, I will be in the 22% bracket rather than 12% and will lose an additional $14,400 to taxes.
So we have $178,120 saved vs $14,400 lost to taxes through not Roth converting.

Now when she hits 70, when she would have received $23,400, she will start not getting the additional $23,400 - $18,000 (already I'm confused because I don't know what to do with taxes) But $5,400 lower check each year.
Clearly the growth on $178,120 will more than cover $5,400.

This is my starting point, would love to Spreadsheet it, but need to know how to figure out the inputs (I'm a novice Excel user)


What did I miss?


I know I didn't figure in the COLA of SS, 2% or 3% could be added in a spreadsheet.

 

[pb4uski]

^^^ Yeah, it gets really complicated really quickly, especially if one wants to factor Roth conversion savings. One thing to consider is not 100% if SS is taxable, and it appears that you have not factored that in... at most, 85% of SS is taxable so $18,000 would result in at most $15,300 of taxable SS and a $15,300 reduction in your annual Roth conversions.

While I think an assumed growth of 8% overly optimistic, if that is what you think then I think that would definitely suggest taking earlier rather than later. See post #27 in this thread.

Have you used opensocialsecurity.com? Its a great tool, but unfortunately doesn consider the impact of forgone Roth conversions but you could factor that in separately.

 

[pb4uski]

... The difference in the growth in net worth between the two projections wasn’t just a few percent, it was vastly different. That difference being created by the eight years of compounding from 62 to 70. Needless to say I took my social security at 62…

YMMV

What did you use for an investment earnings rate assumption? If you go back to the table in post #27, your earnings rate would have the be ~8% or more (nominal) for your to come out ahead at age 95 based on the differential cash flows.

 

[Time2]

^^^ Yeah, it gets really complicated really quickly, especially if one wants to factor Roth conversion savings. One thing to consider is not 100% if SS is taxable, and it appears that you have not factored that in... at most, 85% of SS is taxable so $18,000 would result in at most $15,300 of taxable SS and a $15,300 reduction in your annual Roth conversions.

Seems I made a $1,000 error when I input the yearly SS into the Compound interest calculator. So where I had $178,120, it should have been $168,484, not that it changes anything.



You are correct and I did have that thought when I wrote, but didn't add it in. But certainly a spreadsheet should incorporate it.

While I think an assumed growth of 8% overly optimistic, if that is what you think then I think that would definitely suggest taking earlier rather than later. See post #27 in this thread.

Are you telling me past results do not... well never mind that. If a spreadsheet is put together making multiple assumptions about future growth would be an easy change and create a new factor to add to "crossover point"

Have you used opensocialsecurity.com?

Yes, opensocialsecurity.com tells me to what until 70 and my wife should start collecting in July at 62.

Its a great tool, but unfortunately doesn't consider the impact of forgone Roth conversions but you could factor that in separately.

Yes, that is basically the whole reason for my post. Trying to get a flow chart of how to figure it out. (Fortran class in the 70s
How do we calculate When to collect SS with Roth Conversions, Taxes and growth of saved assets in mind?
I was on the take it late bandwagon, but always had the, "but what about the growth of the early SS checks if you invested them" in the back of my mind clanging away, but never started thinking about calculating it.
A spreadsheet needs to be built so everyone can use there own data to figure out what is best. Probably by some adult on the group.
My first approximation says take it now, but did I only applied the variables I thought of...
If I recalculate using 85% of SS Taxable and use 6% growth vs 8% growth.
Then instead of the $168,484, I have $158,982. The earnings on this still way over cover the extra taxes I would pay on the IRA money because I could not convert in the 12% tax bracket (because of the extra SS income).
And that brings up another column in the spreadsheet, tax bracket when SS is received and tax bracket when money is withdrawn.


This is complicated, but not nearly as complicated as MDMs tax spreadsheet over on MMM. https://forum.mrmoneymustache.com/forum-information-faqs/case-study-spreadsheet-updates/250/
Note: because there was such a learning curve to MDMs spreadsheet, once I found Dinkytown, I use that, very simple. Admittedly, MDMs spreadsheet does much more.

 

[TheWizard]

I would like to figure out what details need to go into the calculation of when to take SS. There are so many details, and I'm not sure if it can be done, and if it can be done how to do it.
Here is my starting point and the options I have. I'm going to start with a limiting factors to simplify/complicate and I can change that later.
I'm waiting to 70 to get my surviving spouse a higher check. So that just leaves when does my wife take SS. I'm also limiting taxes to the 12% bracket and want to do a Roth conversion each year.

If she takes it at 62, she will get $18k per year, That means 18K minus taxes, or $16,840 will not be spent from our invested money each year (because we spend the SS instead) until 70. We need to assume a growth rate, say 8%. After 8 years we have grown the net SS to $178,120. But I have lost the ability to Roth convert $18k each yr for 8 yrs. For a total of $144k. I am going to assume when I spend that $144k, I will be in the 22% bracket rather than 12% and will lose an additional $14,400 to taxes.
So we have $178,120 saved vs $14,400 lost to taxes through not Roth converting.

Now when she hits 70, when she would have received $23,400, she will start not getting the additional $23,400 - $18,000 (already I'm confused because I don't know what to do with taxes) But $5,400 lower check each year.
Clearly the growth on $178,120 will more than cover $5,400.

This is my starting point, would love to Spreadsheet it, but need to know how to figure out the inputs (I'm a novice Excel user)


What did I miss?


I know I didn't figure in the COLA of SS, 2% or 3% could be added in a spreadsheet.

I have a spreadsheet which projects my Adjusted Gross Income year by year in retirement. I have updated this sheet each year since 2013 with actual amounts when they became known.

85% of my SS goes into my AGI, so that's a simple computation.

I project growth of 2% per year in my SS and annuity income, but then update things each January with actual amounts.

I decided to project 0% growth in my tax-deferred 403(b) balance year to year. This may seem silly, but stock funds are somewhat volatile and your balance can actually decrease from one year to the next.
I do subtract Roth conversion amounts from my 403(b) balance.

My original goal for this spreadsheet was to provide a target for Roth conversions in my 60s to "levelize" my income. So if my AGI was $90k last year, I might aim for $93k this year, etc.

But especially now that IRMAA tiers are adjusted to inflation again, my goal has evolved to doing just enough Roth conversions each year to get my AGI/MAGI to within $2000 of the next higher IRMAA tier.

The point is: you can tune your AGI spreadsheet as desired for your own needs.
And separately each December, I do an accurate estimate of my AGI for the year to figure an accurate final Roth conversion amount for the year.

And yes, I delayed claiming SS until age 70...

 

[Time2]

And yes, I delayed claiming SS until age 70...

Why?

 

[latexman]

I'm waiting to 70 to get my surviving spouse a higher check. So that just leaves when does my wife take SS.

I suspect getting the surviving DW a bigger monthly check has been a driver for me too. She will not even try to learn about our investments. She's not interested and she trusts me. She wants me to write it all down. I keep kicking that can down the road, but I did write down our account username and PW (which she has always had, but never used) and the contact information of our Fidelity Premium Services Advisor (they've met). I'm also watching the five kids to see if and which one might take an interest in investments. So far, they need to bake a little longer.

 

[latexman]

Yes, that is basically the whole reason for my post. Trying to get a flow chart of how to figure it out. (Fortran class in the 70s

As you indicated Excel is probably the best tool of choice for this task, but for all us old Fortran warriors, I have one word of advice. Python!

 

[TheWizard]

Why?

I delayed claiming SS until age 70 to give me seven years of doing larger Roth conversions from my 403(b) so that my eventual RMD amount starting at age 70 (now starting at age 73) wouldn't be too large.

I had significant pension/annuity income for those seven years so I didn't desperately need SS income to live on.

And the stock market has gone up considerably since 2013, so my 403(b) balance isn't all that much lower now than in 2013.
But if I hadn't done the few hundred $K of Roth conversions, that tax-deferred balance would be lots higher...

 

[Time2]

I delayed claiming SS until age 70 to give me seven years of doing larger Roth conversions from my 403(b) so that my eventual RMD amount starting at age 70 (now starting at age 73) wouldn't be too large.

OP here, yes that's why I'm waiting to 70.

I had significant pension/annuity income for those seven years so I didn't desperately need SS income to live on.

No pensions or annuities, but large net worth for the income I want/need/

And the stock market has gone up considerably since 2013, so my 403(b) balance isn't all that much lower now than in 2013.
But if I hadn't done the few hundred $K of Roth conversions, that tax-deferred balance would be lots higher...

OH... there's a big one, I didn't subtract the Roth Conversions from my tax deferred accounts. Add a column!

 

[TheWizard]

For someone age 60 or so trying to decide when to start SS, I might do the following:

1) are you reasonably confident you'll be in good health a decade from now?
If not, claim SS at 62.

2) add up your monthly retirement income sources for the first few years, including a "bridge amount" of $2000 to $3000 per month in lieu of SS.
Then ask some questions:
A) by how much does this monthly retirement income EXCEED your expected expenses?
B) what is your expected annual portfolio drawdown rate over the eight years prior to age 70 SS, compared to the 4% SWR benchmark?
C) what will your three portfolio segments (tax-deferred, Roth, taxable) look like after eight years of drawdowns and delaying SS?

Answers to these questions may help you decide if you can POSSIBLY AFFORD to delay claiming SS.

Even then, you can do a wait and see approach after age 62, depending on how well the markets and your portfolio are doing.
You can claim SS in any month after age 62, depending on what happens...

 

[Time2]

As you indicated Excel is probably the best tool of choice for this task, but for all us old Fortran warriors, I have one word of advice. Python!

I can't take any credit for being a Fortran warrior, I wouldn't even remember how to make a punch card! I was more making fun of the flow chart, I don't think they are a big thing now, could be wrong.