Tapping IRA to Postpone Social Security

[Tiger8693]

There are many calculators that give SS maximization numbers, based on your inputs on expected longevity. Not always does it say "wait until 70", in fact, many times it does not. It especially has varying starts for lower earning spouse SS start.

I think everyone needs to research and make decisions with there own best guesses/inputs. There is not just one :"right answer".

[Lawrencewendall]

Here's my thinking. The increase of deferring SS is less than my portfolio makes (https://www.ssa.gov/OACT/ProgData/ar_drc.html). Why use my tIRA when I can use the house's money and let mine accrue at a greater rate? Additionally, my tIRA withdrawals are 100% taxed as ordinary income whereas SS is taxed max at 85%.

[youbet]

Quote:

Originally Posted by audreyh1 It’s worth investigating.

Nicely put. Either path can work out depending on personal circumstances and financial returns over the years involved. The important thing is to NOT assume you'll necessarily get "average" results from the decision you make.

[Tadpole]

Do you need either right now? I tapped an old 403b at TIAA at age 62 in order to delay SS. The income from the 10year payout annuity was about the same as my SS would have been. Eight years later, I haven't touched a penny of the payout so I could have just delayed SS until I needed it without touching the old TIAA account. I just went on age 70 delayed SS benefits having been fortunate to qualify for spousal between age 66 and 70. Now, for two years my taxes are going to be awful with all three happening. I will be getting that big SS check, two more years of the TIAA payout and paying my first two years on my RMD from my TSP account. My 2019 taxes are more than double my 2018 taxes. Turns out the 403b payout can only be applied to other 403b RMDs but not non-403b's. So check the tax consequences of your decision too.

[Mdlerth]

Quote:

Originally Posted by LXEX55 I am sure this topic has been discussed in detail

There was one earlier thread on this topic... assuming you don't count the other 347,896.

Just kidding! Initiating SS has been the single most frequently discussed topic on the forum since I started coming here. The longest-service members probably dread seeing it introduced again.

But there's a lot of turnover here, with new folks lurking and joining all the time. Just because a question has been asked before doesn't mean those newer members have seen the answers!

Quote:

but, I am just looking for some general opinions rather than detailed analysis favoring pro or con.

You will find plenty of both general opinion and detailed analysis if you search some of the earlier threads.

I second the general opinion that there isn't one "right" answer applicable to everybody. Sometimes it may be an easy call. For instance, I have a brother-in-law who is delaying SS until he turns 70. In his case, earnings penalties, RMDs and joint life expectancy considerations made the decision for him. He is 10 years older than his wife, was the higher earner for his entire career, and still w*rks part-time in his mid 60s. He's got scads in tax deferred accounts that he is spinning down now in anticipation of the eventual "tax torpedo". When he finally taps his SS in 4 years, he'll preserve a high survivor benefit for his young bride for the rest of her life.

At the other end of the spectrum, both of my sisters will likely take it at 62. They are struggling financially and have serious health issues that are almost guaranteed to shorten their lifespans significantly. They'll want the extra cash the very first day it's available.

OTOH, when the above extreme circumstances don't apply, the "right" decision can be less clear. Actuaries tell us that for an individual who dies on schedule, the lifetime benefit is roughly the same regardless of when we take it. Of course, some of us might not be absolutely punctual at dropping off the twig, so part of our decision is just a guess.

I'll also add my own personal opinion that, whatever you decide, it's unlikely to be the "wrong" decision. Good luck!

[Independent]

There are good reasons for starting early and good reasons for deferring.

For most people, it's a close enough call that I'd say there is no "wrong" decision.

The only thing that bothers me is people, who have substantial assets, who think they can spend more money in the early years of retirement by starting SS sooner. That isn't true if you look at the numbers. It may be the right decision from an emotional perspective, but people need to call it what it is.

FTR, we started at 66 and 70 because the numbers say we have a slightly better chance of not running out of money this way. The survivor benefit is part of the numbers thing.

[samclem]

Quote:

Originally Posted by youbet Nicely put. Either path can work out depending on personal circumstances and financial returns over the years involved. The important thing is to NOT assume you'll necessarily get "average" results from the decision you make.

This is my view. And also that it is useful to ask/answer the right question. For me (and, I think, most people), the "right" question is not "Which approach will likely give us the most absolute cumulative payout over our expected remaining life?" This is the question that most people seem to ask. The more important question is "Which approach maximizes the likeliness of greatest financial well being (or "has the greatest expected financial utility")?


Some possibilities:
1) DW and I both die earlier than average: For us, no significant difference between taking SS early or late. Heirs/charities get a lot of dough.

2) DW and I both live a long time and our investment returns are at/above expectations: For us, no significant difference in taking SS early or late. Each additional dollar of additional monthly "take" has relatively low utility (because we've got a lot of them).
3) DW or I live a long time and have poor investment results or unavoidable high expenses (medical, LTC, etc). The guaranteed, inflation-adjusted, can't-outlive-it attributes of our monthly SS check(s) will be very important. Every dollar of monthly income will have high utility (it's not "should we visit the Alps or go to the Riviera this year?" It's "can we afford to turn the thermostat up to 68 degrees this winter?). In this case, we'll be glad we waited to take SS in order to get that higher check.

For us, the "utility argument" appears to favor waiting to age 70 start our SS.

[braumeister]

One constant I see running through all these discussions is that everyone, no matter what they decide, believes they made the best choice.

[Chapter 3]

Yep, individual choice. I'm in the take it early camp to enjoy during what will likely be my more active years. Having it will psychologically help me to loosen the spending a little for nicer travel and other experiences during those years. I don't see it changing my situation later since I don't really NEED it anyway.

[Perryinva]

It also depends a lot on how the SS amount compares to your total income. SS of $1000/mo is not significant to someone with $20k/mo income. File early or late makes little to no difference. $2100/mo vs $3800/mo when your desired income is $10k/mo is quite a significant change, so choosing when is more important. All I can say is for me, no sooner than FRA, because of DW. After that, it will be a year by year evaluation.

[youbet]

Quote:

Originally Posted by samclem For us, the "utility argument" appears to favor waiting to age 70 start our SS.

Yep, that sounds right........ for you and your circumstances.

For us, starting my SS at 62 was the clear choice and has worked out very well. DW cannot collect on my SS as a spousal benefit or as a survivor benefit due to GPO. If I delayed SS beyond 62 and died before I started to collect, neither of us would have ever collected a penny. And, importantly, I would have provided nothing from SS for DW to live on after my death.

By starting SS at 62 and investing 100% of the monthly checks into a TSM fund I provided a additional source of revenue for her should I predecease her. As it turns out, I'm alive at 71 and since the investment climate was so wonderful these past years, the "SS pot" has grown to where I'm actually money ahead. That is, my age 62 SS + a prudent WR from the accumulated SS pot exceeds what my age 70 SS would have been. Of course, you can't count on this happening since the Investment climate might have turned out to be crappy instead of wonderful.

So, starting SS at 62 provided the greatest utility for us. All these circumstances come into play.......

[youbet]

Quote:

Originally Posted by braumeister One constant I see running through all these discussions is that everyone, no matter what they decide, believes they made the best choice.

Well, they believe they made the correct choice given their individual circumstances. If I was single or if DW was not impacted by GPO, I'd likely have waited until FRA or maybe 70. But with DW impacted by GPO and with my desire to protect her as much as possible if I predecease her, going ahead and starting at 62 was clearly the answer. After that, thanks to luck and Mr. Market, it's turned out to not have been a financial negative.

[youbet]

Quote:

Originally Posted by Independent The only thing that bothers me is people, who have substantial assets, who think they can spend more money in the early years of retirement by starting SS sooner. That isn't true if you look at the numbers. It may be the right decision from an emotional perspective, but people need to call it what it is. .

Folks probably mean they'll feel comfortable spending more money if they start SS early despite a natural tendency to under-spend due to decades of frugal, LBYM living. It's an issue for many.

We hear the same arguments in regard to paying off the mortgage. People just "feel better" or "sleep better at night" or "etc." when in fact there might not be any financial advantage paying off a low interest loan early.

For many, including DW and I, the timing of paying off the mortgage or of starting SS really weren't all that critical in the overall survival of our ER. We paid off the mortgage when I got tired of writing the monthly check and I started SS early to protect GPO-burdened DW in the case I predecease her. There was no significant financial impact.

[sengsational]

This question comes up a lot and, like many "serial responders" to it, I usually say the same thing: i-orp. Not because it's perfect, but because, if you take your time with it, understand the inputs and the outputs, and change the inputs to see what happens, you can learn a lot. Usually it's about limiting Roth conversions, but it can also be about when to take SS. You've got things you CAN control, like when to take SS, how much to Roth convert, and there's things you CAN'T control, like when you die and when your spouse dies, whether SS will be fully funded, whether income tax will change, etc. The point is, if you're patient, you can use i-orp to get a feel for how these decisions and non-controlled eventualities can affect your life. The most interesting revelation about SS that I came up with is that if the market has it's historical return and at my proposed asset allocation, I can spend more every year for the "duration of the plan" if I take SS now. The surprising thing to me was that I'd end up taking less out of SS (if I lived long enough), AND I'd pay more income tax, but I'd have more to spend! So less of a burden on the treasury AND more money for me to spend. The idea of getting the most out of SS is the wrong goal if, by maximizing SS, you have less to spend.

[pb4uski]

Quote:

Originally Posted by Lawrencewendall Here's my thinking. The increase of deferring SS is less than my portfolio makes (https://www.ssa.gov/OACT/ProgData/ar_drc.html). Why use my tIRA when I can use the house's money and let mine accrue at a greater rate? Additionally, my tIRA withdrawals are 100% taxed as ordinary income whereas SS is taxed max at 85%.

Looking at the annual increase in benefits.... IIRC about ~6.25%+/- a year from 62 to FRA and 8% a year from FRA to 70... compared to portfolio return is a crazy way to look at it IMO.

Since benefits increase each year for both deferral and for inflation (benefits are COLA adjusted).... then you should be comparing real portfolio rates to the annual increase in benefits.

Where can you get a real return of ~6.25%+/- or 8%? Assuming only 2% for inflation, that is an AVERAGE nominal portfolio return of ~8.25%+/- to 10%!

[Lawrencewendall]

Quote:

Originally Posted by pb4uski Looking at the annual increase in benefits.... IIRC about ~6.25%+/- a year from 62 to FRA and 8% a year from FRA to 70... compared to portfolio return is a crazy way to look at it IMO. Since benefits increase each year for both deferral and for inflation (benefits are COLA adjusted).... then you should be comparing real portfolio rates to the annual increase in benefits. Where can you get a real return of ~6.25%+/- or 8%? Assuming only 2% for inflation, that is an AVERAGE nominal portfolio return of ~8.25%+/- to 10%!

Small and Midcap index fund average annual return since 1990 is 11%. Increase by deferring SS is 5% for 62, 63 and 64, 6 3/8 for 65 and 66.

[pb4uski]

If your portfolio is 100% in small and mid-cap stocks then when to take social security is probably the least of your problems.

Good cherry picking though.

[googily]

As for the "playing with house money" notion, some of us are "lucky" enough to do both. I'll be taking my survivor benefit at 60 (house money!) while letting my own percolate until 70 (or whatever they've upped it to by the time I get there).

Um, yay?

[jimandthom]

Quote:

Originally Posted by youbet Yep, that sounds right........ for you and your circumstances. For us, starting my SS at 62 was the clear choice and has worked out very well. DW cannot collect on my SS as a spousal benefit or as a survivor benefit due to GPO. If I delayed SS beyond 62 and died before I started to collect, neither of us would have ever collected a penny. And, importantly, I would have provided nothing from SS for DW to live on after my death. By starting SS at 62 and investing 100% of the monthly checks into a TSM fund I provided a additional source of revenue for her should I predecease her. As it turns out, I'm alive at 71 and since the investment climate was so wonderful these past years, the "SS pot" has grown to where I'm actually money ahead. That is, my age 62 SS + a prudent WR from the accumulated SS pot exceeds what my age 70 SS would have been. Of course, you can't count on this happening since the Investment climate might have turned out to be crappy instead of wonderful. So, starting SS at 62 provided the greatest utility for us. All these circumstances come into play.......

This post has really hit home as recently(bit over 1 year) I have been battling a chronic illness.

Same circumstances as you mention. Really thinking about collecting now at 65 rather than waiting until 66. But was not going to go past 66 in any case.

CSRS + SS +private pension = 90% + of our spending. Even early the Firecalc % is still 100%. I can defer my private pension until 70 and spouse can collect that.

65 in May------ gonna give it some more thought

[LRDave]

Quote:

Originally Posted by youbet Well, they believe they made the correct choice given their individual circumstances. If I was single or if DW was not impacted by GPO, I'd likely have waited until FRA or maybe 70. But with DW impacted by GPO and with my desire to protect her as much as possible if I predecease her, going ahead and starting at 62 was clearly the answer. After that, thanks to luck and Mr. Market, it's turned out to not have been a financial negative.

DW's SS is whacked by WEP & GPO, as with Youbet. I don't even think it's marginal or a toss-up - I'd be a dummy to defer, if my driving interest is to protect her as best I can.