Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 05-31-2021, 01:22 PM   #141
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 5,594
Quote:
Originally Posted by pb4uski View Post
I think what I might do is look at the EPVs from opensocialsecurity.com under early and late/optimal SS claiming strategies and calculate that difference... and then compare that difference to Roth conversion tax benefit of deferring.
I'd be interested in the results of that analysis if you end up doing it and happen to remember to post it here.

I have a pretty simple spreadsheet for my RMD analysis, but it has SS hardcoded at age 70, and only looks at federal income taxes on "RMD+85%SS-StdDed" and IRMAA. The simple analysis I could do with it easily was to change my planned Roth conversions from what I had them at (400% FPL before 65; 22% bracket after) to $0 from 62 onward. Doing so increased my tax load by approximately half of what my total SS benefit would be in the year I turn 75.

When I looked at opensocialsecurity, they have added a new feature which tells you , relative to the optimal claiming strategy, how much reduction occurs when claiming at other dates. For me, even over a broad range of discount rates, the most common result there was less than a 10% difference.

So when I see a difference of half of my SS benefit versus a difference of 10% of my SS benefit, I tend to think that the Roth conversion impact is about five times greater than the SS claiming strategy impact.

However, there are limitations to this:

1. My spreadsheet is homebaked. I've checked it for errors, but it's not a commercial product and hasn't gone through rigorous QA. OTOH, it is relatively simple and I have gone over it myself a number of times.

2. The comparison probably shouldn't be between my planned Roth conversions and zero; it should probably be something less drastic than that (maybe reduce Roth conversions by the amount of SS received).

3. I didn't adjust the SS income column from my age 70 amount arriving starting at age 70 to a lower age 67 amount arriving at 67. Practically speaking, I don't think this would make much difference, since my IRA conversions and RMDs are multiples of my SS income.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-31-2021, 01:36 PM   #142
gone traveling
 
Join Date: Oct 2019
Posts: 1,631
Quote:
Originally Posted by chassis View Post
@Time2 how does the converted Roth balance go up the same amount as the IRA balance goes down? Doesn't the government take a bite?

I could have been more clear. I have a Taxable account at Vanguard, I pay taxes out of that rather than reduce the Roth Conversion amount.
Time2 is offline   Reply With Quote
Old 05-31-2021, 01:56 PM   #143
Thinks s/he gets paid by the post
 
Join Date: Jul 2017
Location: Long Island
Posts: 1,593
Hmmm, maybe not get the traditional IRA down to 0; but leave enough to fund charitable donations?
__________________
Use it up, wear it out, make it do or do without.
MarieIG is offline   Reply With Quote
Old 05-31-2021, 02:25 PM   #144
gone traveling
 
Join Date: Oct 2019
Posts: 1,631
Quote:
Originally Posted by MarieIG View Post
Hmmm, maybe not get the traditional IRA down to 0; but leave enough to fund charitable donations?

In recent years, the IRAs are growing faster than we can Roth convert, I expect to have more money in the IRAs after 8 years of conversions than when I started. AKA, First World Problem.
My two charitable Donations are Son and Daughter.
Time2 is offline   Reply With Quote
Old 05-31-2021, 02:34 PM   #145
Thinks s/he gets paid by the post
 
Join Date: Jul 2017
Location: Long Island
Posts: 1,593
Quote:
Originally Posted by Time2 View Post
In recent years, the IRAs are growing faster than we can Roth convert, I expect to have more money in the IRAs after 8 years of conversions than when I started. AKA, First World Problem.
My two charitable Donations are Son and Daughter.
I have six children, and two grandchildren including a special needs grandchild, so I have options there. (We have been buying "stuff" and helping the parents of the grandchildren as part of our normal expenses.) But, I have to make it through a year or two of retirement before my plan, vis-a-vis gifting is more crystalized.
__________________
Use it up, wear it out, make it do or do without.
MarieIG is offline   Reply With Quote
Old 05-31-2021, 02:46 PM   #146
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 29,723
Quote:
Originally Posted by Time2 View Post
In recent years, the IRAs are growing faster than we can Roth convert, I expect to have more money in the IRAs after 8 years of conversions than when I started. AKA, First World Problem.
My two charitable Donations are Son and Daughter.
+1... for my Roth conversions I feel like a dog chashing its tail.

When I retired at the end of 2011 my tIRA balances were 100x. Since I retired, I've converted 44x. Today my tIRA balances are 113x.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 05-31-2021, 03:05 PM   #147
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 11,147
Quote:
Originally Posted by pb4uski View Post
+1... for my Roth conversions I feel like a dog chashing its tail.

When I retired at the end of 2011 my tIRA balances were 100x. Since I retired, I've converted 44x. Today my tIRA balances are 113x.
Yeah, I've heard people say things like that, but what would your balance be had you not converted at all?
RunningBum is offline   Reply With Quote
Old 05-31-2021, 05:52 PM   #148
Recycles dryer sheets
 
Join Date: May 2011
Posts: 194
How does the possible 25% cut in SS benefits in 2031 factor in your calculations?

Will that make any difference in your decision?
11522914 is offline   Reply With Quote
Old 05-31-2021, 06:01 PM   #149
Recycles dryer sheets
 
Join Date: Sep 2016
Location: Way up North
Posts: 412
Quote:
Originally Posted by WestUniversity View Post

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 wasnít 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 62Ö

YMMV
The difference between the two scenarios is not an apples to apples comparison. You are comparing what is probably the least risky investment possible (deferring SS) to an investment that has some bit of risk. The delta in outcomes for deferring SS is practically zero. The outcome delta on a portfolio including equities over 25 years is substantial.

If you wanted to do a more even comparison, model deferring SS while also moving amounts equal to what the early payout would have been from your portfolio bond allocation to portfolio stock allocation. In other words, equalize the growing equity exposure (the risk) between the two scenarios. When you do that, I am confident that deferring SS will beat by a small but consistent amount any projection past your actuarial lifetime and partially close the gap in the case of dying early. The reason is because currently, deferring SS pays a better return than any comparable fixed income investment. SS deferral rates are fixed and they were fixed when we under a higher interest rate environment. Someday interest rates may go up, or SS deferral rates may be adjusted down. Until that happens SS deferral has an advantageous return over comparables.

Most people who retire early with portfolio assets and enter the SS decision years value a de-risking of their withdrawal plans, although almost no one consciously models it that way. Deferring SS is an insurance that a lot of people want. If you don't want the insurance, consider the ways (like the paragraph above) to equalize the risks.

Of course, there's lots of individual situations with health, or cash flow, or spousal/family factors that would trump the above analysis. I don't have a dog in the fight for other people's SS claiming strategies. Just trying to bring a perspective to modelling factors I seldom see addressed when the discussion gets repeated.

I personally am waiting until 70 and I am also aware that the risk reduction of that choice allows for a rising equity glide slope, if I wanted the risk. So far I don't.
__________________
Retired 9/30/20 at age 61 from Evil Mega Big Oil Corp (EMBO corp)
A day in retirement is like a day on the farm. Every meal's a banquet. Every day's a parade. Every SS & pension check a fortune!
bada bing is offline   Reply With Quote
Old 05-31-2021, 06:24 PM   #150
Full time employment: Posting here.
FlaGator's Avatar
 
Join Date: Aug 2008
Location: The 850
Posts: 711
Quote:
Originally Posted by RunningBum View Post
Yeah, I've heard people say things like that, but what would your balance be had you not converted at all?


I think thatís the right question.

In my case, the Roth is 100% equities, while the tIRA is ~ 60/40 (overall 70/30). With the market the last few years, Iím ahead after the conversions, and not by a small amount.
__________________
Stay at home slacker dad since 2015
FlaGator is offline   Reply With Quote
Old 05-31-2021, 06:27 PM   #151
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 29,723
Quote:
Originally Posted by 11522914 View Post
How does the 25% cut in SS benefits in 2031 factor in your calculations?

Will that make any difference?
Yes, it does. As I've previously mentioned, I periodically run various scenarios in opensocialsecurity.com, including with and without a haircut. Below is the impact of the haircut for various scenarios of the latest run that I did in late 2020.... so generally a 9.0-12.5% reduction of the expected present value of lifetime benefits if with the haircut.

At the time I think the haircut was 23% in 2034. The most current 2020 SS Trustees report was a 24% haircut in 2034. Where are you seeing a 25% cut in 2031?

 No haircutHaircutImpact of haircut
Optimal solution100.0%87.5%-12.5%
Both now91.2%82.2%-9.0%
Both 6592.3%83.0%-9.2%
Both at FRA94.5%84.5%-10.0%
Me 70/DW FRA100.0%87.5%-12.5%
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 05-31-2021, 07:22 PM   #152
Recycles dryer sheets
 
Join Date: Aug 2020
Posts: 334
Quote:
Originally Posted by Time2 View Post
I could have been more clear. I have a Taxable account at Vanguard, I pay taxes out of that rather than reduce the Roth Conversion amount.
@Time2 Thanks for the clarification. If I understand correctly, your net worth went down at the moment in time the Roth conversion was accomplished and the tax was paid from your taxable account, correct?

Example:

IRA balance down, because of Roth conversion
Roth balance up, by virtue of conversion
Taxable balance down, to pay tax on Roth conversion
Net result: net worth down
chassis is offline   Reply With Quote
Old 05-31-2021, 08:42 PM   #153
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 29,723
Quote:
Originally Posted by chassis View Post
@Time2 Thanks for the clarification. If I understand correctly, your net worth went down at the moment in time the Roth conversion was accomplished and the tax was paid from your taxable account, correct?

Example:

IRA balance down, because of Roth conversion
Roth balance up, by virtue of conversion
Taxable balance down, to pay tax on Roth conversion
Net result: net worth down
Yes, net worth went down by the amount of taxes paid, but only because people don't typically recognize deferred income tax liabilities in their personal net worth calculations.

OTOH, if one recognizs deferred income taxes (and some members here do) then net worth would be unchanged because the reduction in cash/net worth when the taxes are paid would be offset by a reduction of deferred tax liabilities of the same amount (ignoring any possible measurement differences).
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 05-31-2021, 08:56 PM   #154
Recycles dryer sheets
 
Join Date: Aug 2020
Posts: 334
Quote:
Originally Posted by pb4uski View Post
Yes, net worth went down by the amount of taxes paid, but only because people don't typically recognize deferred income tax liabilities in their personal net worth calculations.

OTOH, if one recognizs deferred income taxes (and some members here do) then net worth would be unchanged because the reduction in cash/net worth when the taxes are paid would be offset by a reduction of deferred tax liabilities of the same amount (ignoring any possible measurement differences).
@pb4uski Thanks. What do you mean by deferred tax liability? Is there a term, time period or date for this?
chassis is offline   Reply With Quote
Old 05-31-2021, 09:13 PM   #155
Recycles dryer sheets
 
Join Date: May 2011
Posts: 194
Quote:
Originally Posted by pb4uski View Post
Yes, it does. As I've previously mentioned, I periodically run various scenarios in opensocialsecurity.com, including with and without a haircut. Below is the impact of the haircut for various scenarios of the latest run that I did in late 2020.... so generally a 9.0-12.5% reduction of the expected present value of lifetime benefits if with the haircut.

At the time I think the haircut was 23% in 2034. The most current 2020 SS Trustees report was a 24% haircut in 2034. Where are you seeing a 25% cut in 2031?

No haircutHaircutImpact of haircut
Optimal solution100.0%87.5%-12.5%
Both now91.2%82.2%-9.0%
Both 6592.3%83.0%-9.2%
Both at FRA94.5%84.5%-10.0%
Me 70/DW FRA100.0%87.5%-12.5%
Here is where I saw the SS haircut figures.

https://www.foxbusiness.com/economy/...l-affect-first

"Based on CBO's*figures, Social Securityís retirement benefit would be cut by roughly one-quarter in 2031," the CRFB said in an*analysis*on Wednesday. "In other words, todayís youngest retirees will face a sharp 25% drop in their benefits when they turn 73."
11522914 is offline   Reply With Quote
Old 05-31-2021, 09:53 PM   #156
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 29,952
Quote:
Originally Posted by pb4uski View Post
+1... for my Roth conversions I feel like a dog chashing its tail.

When I retired at the end of 2011 my tIRA balances were 100x. Since I retired, I've converted 44x. Today my tIRA balances are 113x.
Well, it would be way worse if you hadnít converted.
__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Old 05-31-2021, 10:16 PM   #157
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 7,499
Quote:
Originally Posted by Brianjone5 View Post
On our company pensions, the same logic applies, to me at least. As these grow so slowly, conserving the equivalent funds as investments is even more obvious, and I should start those pensions asap. It is hard to know our exact budget in post-Covid life, but I estimate SS plus pensions could leave us with a SWR of zero.

We took our pensions as annuities at 55 and SS at 62 for a variety of reasons, including income diversity, concerns over future legislation changes and inheritance reasons. No regrets so far. Right now pensions and SS more than cover our baseline annual expenses, so if we get dementia in the future and make some bad investments, we still should have enough regular income coming in to pay the bills. We'll use the investments for big expenses like LTC, remodeling the house and leaving money to the kids to help them ER, too.
__________________
Even clouds seem bright and breezy, 'Cause the livin' is free and easy, See the rat race in a new way, Like you're wakin' up to a new day (Dr. Tarr and Professor Fether lyrics, Alan Parsons Project, based on an EA Poe story)
daylatedollarshort is offline   Reply With Quote
Old 05-31-2021, 11:44 PM   #158
Recycles dryer sheets
 
Join Date: Mar 2014
Posts: 198
Quote:
Originally Posted by Brianjone5 View Post
Hi all,
I retired at 55. Six years later I am approaching the point where 'when to take Social Security' (SS) becomes more than an academic question.

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.

How has any modelling you have done played out?

Cheers,

B
We also made the decision to have dh take SS at 62. He noted that he was "ahead" of the game until age 80. He is older than me (by almost 4 years) and I do not get SS myself and will not get dh's if he goes first. So we felt it was better to start as soon as we could. We have two pensions and pretty decent savings. We don't anticipate needing to take much out of our savings until we are required to do so

Our situation is not typical, I know, and what we have chosen to do may not be best for most people. Heck, financially, it might not be the best for us either.....we won't know that for many years. But we made it our decision and are okay with what we've done. And that's all you can really do......make the best decision you can and move forward.
PandaBear is offline   Reply With Quote
Old 06-01-2021, 05:34 AM   #159
gone traveling
 
Join Date: Oct 2019
Posts: 1,631
Quote:
Originally Posted by 11522914 View Post
How does the possible 25% cut in SS benefits in 2031 factor in your calculations?

Will that make any difference in your decision?

I hope it doesn't get cut and they have ten years to start the pumping up changes. All I hear is crickets.
If it gets cut it will be for those of us that spent 30 years living below our means and saving for the future. (doing the right thing) We will be means tested and loose.
Time2 is offline   Reply With Quote
Old 06-01-2021, 05:50 AM   #160
gone traveling
 
Join Date: Oct 2019
Posts: 1,631
Quote:
Originally Posted by chassis View Post
@Time2 Thanks for the clarification. If I understand correctly, your net worth went down at the moment in time the Roth conversion was accomplished and the tax was paid from your taxable account, correct?

Example:

IRA balance down, because of Roth conversion
Roth balance up, by virtue of conversion
Taxable balance down, to pay tax on Roth conversion
Net result: net worth down

Yes, net worth down by the same amount as the federal taxes paid. But I still need living expenses that must be withdrawn.

However, I'm in my third year of living on savings, so far net worth is up every year, because of stock market growth. This is even with paying stupid high tuition of over $60k each year which is more than our living expenses. Only $38k left and the student expenses are over.
Time2 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Social Security Torpedo Tax with Pensions? MrLoco FIRE and Money 39 04-17-2017 12:55 AM
What mortgage number to use in retirement modelling jazzbo FIRE and Money 9 01-27-2017 12:21 PM
Deficit panel leaders' plan curbs Social Security and Other Sacred Cows MasterBlaster FIRE and Money 140 11-15-2010 05:59 AM
Modelling health care cost in early retirement? maldini Health and Early Retirement 37 10-10-2007 01:53 PM
Valuing pensions and other income streams two4theroad FIRE and Money 2 05-10-2007 05:16 PM

» Quick Links

 
All times are GMT -6. The time now is 10:24 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.