Tapping IRA to Postpone Social Security

[LXEX55]

I am sure this topic has been discussed in detail, but, I am just looking for some general opinions rather than detailed analysis favoring pro or con. I just read an article on CNBC that referenced a recent article in the Journal of Pension Enconomics and Finance. I gather the study advocated tapping ones IRA in order to claim SS later for a higher payout. I spoke to a friend of mine, a pretty sharp guy who used to work in Vegas casinos. He was against it, saying "why live off my money when I can live off the house money?". On the other side of the coin, The author of the CNBC study said "if you don't need it, why take something now when you can lock in a much bigger check for life later?". I myself am undecided what to do. I am soon to be 64 and if I wait till 70 to collect SS, I would use up slightly less than half my IRA. If important, I have good genetics for a long life, but, I don't put much stock in that. Opinions are welcome. Thanks for sharing your time and expertise.

 

[Teacher Terry]

If the smaller SS combined with your other resources are sufficient to live on through old age than take it now. If not then wait.

 

[Sunset]

Go to SS site and see what you will get at full retirement age vs age 70.
Do you want the larger check for the rest of your life ?
Delaying as long as possible has benefits:
- larger check for rest of life.
- Should SS get reduced (unlikely) a bigger check will still be bigger than possibly too small amount.
- Are you married ? If so then important to delay as good chance one of you will live into 90's.

If you take illegal drugs, are 200 lbs overweight, smoke, drink heavily, skydive, scuba dive , race cars, and your parents died at age 65 from heart attacks, then take it now.

If the stock market crashes , then take it now, so you don't touch your stocks while they slowly recover.

 

[ggbutcher]

I'm going to pull on the 401K first to defer SS and a DB pension to their max monthly payout, because my other pension, military retirement, is going to drop precipitously when I go. Need to keep DW in a sufficient income, and she's working hard to live long...

 

[audreyh1]

One benefit is reducing the balance in the IRA before higher income from SS kicks in and you also have to take RMDs. You will probably reduce future taxes. It’s worth investigating.

 

[ckelly78z]

The 6 years between age 64 and 70 will most likely be the most active of your entire retirement, with the desire to travel more, and buy large ticket items. I'm going to use the "House Money" to help me do that because there is no gaurantee I will live past 70.

 

[pb4uski]

I am sure this topic has been discussed in detail, but, I am just looking for some general opinions rather than detailed analysis favoring pro or con. I just read an article on CNBC that referenced a recent article in the Journal of Pension Enconomics and Finance. I gather the study advocated tapping ones IRA in order to claim SS later for a higher payout. I spoke to a friend of mine, a pretty sharp guy who used to work in Vegas casinos. He was against it, saying "why live off my money when I can live off the house money?". On the other side of the coin, The author of the CNBC study said "if you don't need it, why take something now when you can lock in a much bigger check for life later?". I myself am undecided what to do. I am soon to be 64 and if I wait till 70 to collect SS, I would use up slightly less than half my IRA. If important, I have good genetics for a long life, but, I don't put much stock in that. Opinions are welcome. Thanks for sharing your time and expertise.

We are doing this... principally to try as best we can to reduce the tax torpedo once SS and RMDs start and we are put into a high tax bracket... while I doubt that our strategy will avoid the tax torpedo, it will reduce it and the time we are at higher bracket. It also will help if one of us dies prematurely and the survivor will be thrown into an even higher tax bracket.

I think that your friend's reasoning is silly... especially in our case since we are both quite healthy and I was a high earner and DW was a SAHM so joint mortality comes into play... it is likely that one or the other of us will be alive in our early 90s.

We are deferring SS more for tax minimization... but the higher SS benefit is the cherry on top.

 

[Perryinva]

Same as some others here. Plan is to delay to at least 68, to reduce RMDs, allow more headroom for Roth conversion, and to lower taxable income after claiming, plus remaining spousal income. If leaving a larger inheritance is very important to you, then delaying is not a good option as it would take until age 82 typically to break even, the only discussion of break even that merits any thought. Talking to older relatives, when in your 50-60s 82 seems pretty old. At 75, if still healthy, 82 is just around the corner.

I saved my money to USE IT, not stock pile it for heirs, in case I die IF I l/we live past 82, that higher COLA SS will sure look mighty fine, and I will be quite glad that’s what Inused part of my nest egg for. Of course, that is easier for me to say as delaying until age 69 is less than 20% of my savings. I would never delay past 69, as at that point, you can collect, and THEN decide at age 70 if it was better to collect then or delay, as you can pay back the last year w/o interest and refile at 70 if desired. For me, the difference between collecting at 68 vs 70 is about $7-8k/yr for life.

 

[marko]

IMO, not counting those with severe health issues, it's a bell shaped curve with two types of reasons that people at each end who take SS before FRA.

1) People who absolutely need the money badly i.e. every dime they can get asap, and 2) those who don't need the money at all and want to spend it on extra fun stuff before they age. (I'm in the latter camp)

If you're in the middle and want/need to maximize your income for the next 25 years, waiting for FRA makes the most sense.

YMMV but after reading 24,613 posts here on the subject, that's my distillation.

 

[joeea]

I spoke to a friend of mine, a pretty sharp guy who used to work in Vegas casinos. He was against it, saying "why live off my money when I can live off the house money?".

An ex casino guy talking about "house money" - go figure!

The "house money" concept is why most folks give back all their winnings before leaving a casino.

I plan to delay until 70. That will maximize our lifetime benefits if we live a reasonable life and ensure my wife has as much inflation-protected income should I predecease her as expected.

Everyone's situation is different. But "house money" or "my money / their money" makes for a poor argument.

 

[CRLLS]

There are valid reasons for both plans. If you will be approaching the next Tax bracket when RMD's are required, then reducing the IRA/401K may help manage that. Then there is IRAA and ACA and … and....

The SS survivor benefit is another consideration. How much will the SS added delayed benefit help the survivor compared to your other streams of income? And Longevity considerations. There are too many variables for a one-fits-all answer.

Have you run any of the retirement calculators using each of the many various retirement options you have? I would recommend that over listening to your Las Vegas friend to see what your future might play out. Using SS benefits calculator and FireCalc I-Orp, Fidelity Retirement Planner (or whatever they call it now) are good ones to help you develop your retirement plan. And last but not least, reading a lot of threads here of course.

 

[samclem]

I view the inflation-adjusted SS check as outstanding longevity insurance. By waiting to age 70, I maximize the size of that check for as long as I (or DW) live. That also should allow us to spend down our investments to a lower level than we'd otherwise be comfortable doing.

 

[LRDave]

I have a spouse whose SS benefit is severely whacked by WEP & GPO. For us this means take early.....

 

[ABQ2015]

I am 63 and delaying SS, probably at least until FRA, but am re-evaluating each year. I am single so delaying to increase survivor benefits is not a factor in my decision. Also am already in a high tax bracket so there is no tax torpedo and 85% of my SS will be taxed at the federal level. Family longevity is average. Mostly my thought process is:

- I am not a great investor so prefer to be less market dependent. And I do not feel confident enough to take SS now and invest it. Would rather just let SS sit and grow at 6-8% a year before collecting it.
- Although not a natural investor, my 401k and IRA are more than I expected thanks to good market performance the last five years. So I just need to withdraw about 4-5% to compensate for delaying SS. Not enough to significantly deplete my investments.
- My current state taxes SS while the state where I plan to relocate has higher tax rates up to 10% but does not tax SS.
- By delaying SS to FRA or later, my SS and pension alone may be enough for living expenses including some travel. My investments could be used for extras or just maintained for a sense of security and as protection against inflation. My pension has a diet COLA and SS COLA's do not compensate for increases in insurance, taxes, healthcare, etc. so I need that protection.

If there is a recession, I plan to take SS to maintain my investments and not sell low. Based on feedback from this forum, the market correction in late 2018 was not serious enough for that. I would not feel comfortable depleting my 401k and IRA more than 30-40% in order to delay SS - just a recommendation from a person in another forum whose judgement I trust.

 

[Bamaman]

As they said, health is a major issue. It is like a good "investment" to wait until age 70 if you're otherwise liquid.

My mother died living in a luxurious assisted living with keepers, and she was down to her last $5,000 in cash. She was very happy and had a great time every day. I consider that the perfect retirement--leaving when the money runs out.

 

[Teacher Terry]

Dave, my SS should be 800 but because of WEP is 363. In 2 years when my husband is 62 we will evaluate taking his. He is effected by WEP also. I was working until recently so it didn’t pay to take mine sooner.

 

[Perryinva]

That’s a good point to make. If it a relatively small amount, delaying makes little sense in the big scheme of things. At 61 now, my 62 amount is just over $26k, FRA, about $36k, and age 70, $44k in 2019 dollars. Maybe not to many here, but the difference of $10-$18k/yr is a considerable difference in fixed income to me. Coupled with pensions it is the difference of covering all normal living expenses with just a bit extra for extras vs easily covering everything and a lot left for extras, regardless of my invested amounts.

 

[MI-Roger]

Timing doesn't matter for most of us

The Actuaries at SSA have done a fantastic job making the timing of your SS start date almost irrelevant. For a person with average life span, their total lifetime income from SS benefits will be the same whether they collect at age 62 or defer to age 70.

If you have serious health issue that are expected to shorten your life expectancy, then you should start drawing earlier.

If you absolutely know you will live longer than the average life span, then delay until 70. IF, you have other sources of income from which to draw.

 

[HadEnuff]

I agree with the general consensus that there is no clear cut right or wrong answer here.

I have opted to take my SS "early". It has helped keep my taxes low for a few years, and my MAGI low for ACA purposes. NY State does not tax SS benefits, and since I'm living largely off of after tax (non sheltered ) assets, very little of my SS benefits are taxed by the Feds either.

For now. There will be a day of reckoning when my RMDs (or MRDs- can never remember which way they are referenced) will come due. I'll pay more taxes then. But who knows? Maybe I'll be dead then?

DW turns 62 in October, and her SS benefit, at that time, will be about 1/2 of mine. I was planning on having her take hers after Jan 1, and starting to increase my WR from my Inherited IRAs, up to the 77K marginal tax rate point, to reduce some taxation later. But frankly, for me, the math gets a bit convoluted. I'm not convinced it makes that big a difference in the long run.

I'm getting tired of trying to figure this stuff out.

 

[marko]

I'm getting tired of trying to figure this stuff out.

+1
And just when you think you have, they throw in a new wrinkle like the 2034 haircut or the RMD change.

 

[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]

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]

The Eternal Question

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!

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!