Trade off between SS starting age and withdrawal rate

[CRLLS]

My opinion is to ignore the hold harmless issues. It is there whether you start SS at 65 or at 70. I looked into it for myself, and provided Medicare premium increase in $ is less than the COL increases, it doesn't come into play. It's biggest benefit is when Medicare premium is increased and there is little or no increase in SS. in 2018 there was a COLA SS increase but no Medicare premium increase. Those who had previously benefitted from the hold harmless provision lost out as they saw their premiums increase. The lower the SS monthly check, the more the HH provision has an effect.

 

[Dtail]

My opinion is to ignore the hold harmless issues. It is there whether you start SS at 65 or at 70. I looked into it for myself, and provided Medicare premium increase in $ is less than the COL increases, it doesn't come into play. It's biggest benefit is when Medicare premium is increased and there is little or no increase in SS. in 2018 there was a COLA SS increase but no Medicare premium increase. Those who had previously benefitted from the hold harmless provision lost out as they saw their premiums increase. The lower the SS monthly check, the more the HH provision has an effect.

Good point. The hold harmless feature effectively can be temporary and eventually one gets caught up, although they have "made out" for x number of years.

 

[MichaelB]

If the value of the hold harmless provision is that significant to the retirement budget, it might be a good idea to revisit the financial plan and reconfirm that retirement is adequately financed.

 

[RunningBum]

For the people who have no reason to predict an especially long or short life span remaining, and no other special needs or tax situations, the hold harmless provision may be the only factor to provide any rationale of when to take it. If it seems breakeven otherwise, why not take it for the one thing that could swing it slightly in your favor? Even if it's temporary, early use of money is good. If it's pretty much a 50/50 proposition, even a pretty insignificant benefit of one option is a factor.

For myself, unless things change, my influences are leaving more years to do Roth conversions before RMDs, longevity insurance (leaning toward holding out for the bigger check at 70) and market conditions (if we get a significant drop, I'll may start SS early to avoid selling investments at a low). The most important changes I see possible are health issues and how the anticipated shortfall is addressed. Hold harmless falls below all of this as a factor for me. I still have 5.5 years before I have to decide anything.

 

[ShokWaveRider]

If the value of the hold harmless provision is that significant to the retirement budget, it might be a good idea to revisit the financial plan and reconfirm that retirement is adequately financed.

Not an issue. It is more psychological. If we knew what healthcare was going to cost for the next 5 years the choice would be easier. We do not need the extra cash from SS.

Another point is I will be lucky to get another 10 - 12 years in, so I wanted to max my SS in that time. If I take SS at 65, the difference between SS at FRA is only $145pm. It will take 15 years to break even if I wait, but which time I may/will be 6' under pushing up the daisies.

 

[pb4uski]

A confession: Starting on my last birthday when I turned 62, I started making monthly payments of $750/month into an annuity contract. After 4 years of premium payments I can start a life annuity of $250/month with COLA or after 8 years of premium payments I can start receiving $570 for life with COLA.

Good deal or no?

8 year deal looks better than the 4 year deal if expected longevity is in the cards.
Will leave it to the math people for further comments.

Any other thoughts? Good deal or not? Should I continue making premium payments or stop?

 

[omni550]

Any other thoughts? Good deal or not? Should I continue making premium payments or stop?

pb4uski,

You're a numbers guy and made this annuity purchase decision.
Please show YOUR work.

omni

 

[MichaelB]

Any other thoughts? Good deal or not? Should I continue making premium payments or stop?

What does FIRECalc say?

 

[Rianne]

Our goal is to keep our taxable income low. With that in mind, we have cash and bonds to get us through for @ 8 years before we touch our VG investments with SS at 62. The cash and bonds will cover the difference we need, we spend 60K-70K per year.

That said, if we take SS at 62, our SS take will be $2568 per month or $30,816/year. If we wait until FRA our SS take is $3547/month or $42,564/year. The difference per year is $11,748. I understand we can continue to earn on our VG investments, 75% of it is tax free until we are 70.5/yrs. old.

We are not taxed on $30,816 (SS) by fed or state, in our state. The subsequent difference in our spending is covered by low or no taxable income for approx. 8 years. At 68 yrs. old (we are 60 now) the WR from VG should be approx. 2.8%. This rate should be lower if we guesstimate a 5-6% RR over the next 8 years. I believe taxes have to go up in time, especially if we are moving towards a single payer HC plan. I also believe SS is going to be compromised in some way over the next 8 years. That's my case for taking SS at 62.

 

[ShokWaveRider]

We are not taxed on $30,816 (SS) by fed or state, in our state.

I thought SS was taxable BY FEDS in all states? At least with Interest income of $60k and IRA Withdrawals of $35k it is.

 

[pb4uski]

What does FIRECalc say?

FIRECalc would say I should, but in part because for FIRECalc I assume that we will live to age 100 (40 years). Like any life annuity if I die early then in retrospect it was not a wise investment, but if Iive long then it is a wise decision.

 

[Louis2]

I always get a kick out of these discussions. SS is designed to be actuarially neutral so there is no wrong answer for most folks. Given that, it comes down to personal situation, both financial and psychological.

For me, I hope to be able to delay until 70. I'm lucky enough to have a pension and savings, so I hope to not "need" SS to get by anytime soon.

Both my parents are alive and well in their late 80's. 3 of 4 Grandparents lived to mid-90's. With advances in medical science, it seems entirely possible I could see triple digits. (So hard to imagine).

 

[Chuckanut]

Any other thoughts? Good deal or not? Should I continue making premium payments or stop?

Make the payments. The math shows that you can spend more every year if you take the annuity at 8 years. No need to worry about withdrawal rates, how long you live, etc. etc. etc. This assumes you can afford the $750 a month payment and you don't care what you leave your heirs.

 

[Rustic23]

I believe DashMan has the right attitude.

While I am well past 62, (75) and have been taking SS since 67. If at 62 you need the cash to continue you lifestyle and sleep at night take it at 62, if all seems to be going peachy and you don't need it wait.

The surviving spouse's SS payment should enter into your decission.

 

[daylatedollarshort]

One consideration in deciding when to take SS is what are your end goals? What are the most important factors to you? Is it to squeeze every dollar out of the SS system? Longevity insurance? Or something else?

There is the math part of when to take SS, and there is also a happiness factor. After a certain point, for some the diminishing marginal utility of wealth / losses hurt more than gains factors may come into play. The book Against the Gods: The Remarkable Story of Risk has nothing specifically to do with Social Security, but it did play a role in our decisions. By taking SS at 62, combined with our pension income, we can preserve our portfolio in inflation adjusted dollars and invest it mainly in low volatility asset classes. We're perhaps giving up the chance for more money in the long term by not investing more in stocks and delaying SS until 70, but we're also avoiding the chance of big losses. And we don't have to ever worry about any big stock market drops impacting our spending or net worth. YMMV.

 

[Andre1969]

I've run a variety of numbers through Firecalc, and in my case at least, it doesn't seem to make much difference in success whether I take SS at 62, 70, or any year in between. I'd have to do it again to make sure nothing's changed, but I don't remember the success rate changing more than maybe 1%, at the most, from best to worst.

Now, I'm also single...maybe it would be different for a married couple? Also, while it's nothing to dismiss, SS isn't that big of a chunk of my anticipated retirement earnings.

I just pulled up my most recent statement, and it says if I take it at age 62, it would be about $1663/month, and if I wait until 70, it would be around $2998/month. So, waiting eight years gets me an additional $1335/month, but then I've had 8 years of having to spend more out of the portfolio, to make up for it.

Doesn't SS go up something like 7% for each year you delay, after age 62, until your full retirement age? And then, for every year you delay after FTR through 70, it's 8%? Well, "they" also say the stock market averages around 7-8% per year. So maybe that's why it's mostly a wash for me?

Anyway, at this point in life, I'm thinking about claiming at 62. But, I'm going to re-assess that as I get closer. I just turned 48 a couple weeks ago, so I still have 14 years to make up my mind

 

[Rianne]

I thought SS was taxable BY FEDS in all states? At least with Interest income of $60k and IRA Withdrawals of $35k it is.

Only above a certain amount, that may change. If we can keep our SS below, I think $32K a year and make up the rest with tax free cash, no income taxes. What little we make in bond W/D should be offset by expenses.

 

[ShokWaveRider]

Only above a certain amount, that may change. If we can keep our SS below, I think $32K a year and make up the rest with tax free cash, no income taxes. What little we make in bond W/D should be offset by expenses.

What about the return on your Tax Free Cash?

 

[Rianne]

What about the return on your Tax Free Cash?

That is actually a loss. So we squirreled away cash over the years and decided it offsets income nicely. So we didn't invest it.

 

[MichaelB]

FIRECalc would say I should, but in part because for FIRECalc I assume that we will live to age 100 (40 years). Like any life annuity if I die early then in retrospect it was not a wise investment, but if Iive long then it is a wise decision.

I think FIRECalc can tell you something different. It will let you model alternate scenarios and contrast how your risk changes. How does the annuity impact your portfolio survivability, and how does that filter through to the surviving spouse? If there is no change or impact, the decision to continue with the annuity is simple finance - which option has the better return. If the annuity improves the risk profile for you or your surviving spouse, however, it might make sense.

 

[Yarnstormer]

I just pulled up my most recent statement, and it says if I take it at age 62, it would be about $1663/month, and if I wait until 70, it would be around $2998/month. So, waiting eight years gets me an additional $1335/month, but then I've had 8 years of having to spend more out of the portfolio, to make up for it.

I think all of the social security provided "estimates" assume you continue working at the same salary until the age you claim. So that 2998 might be if you work til 70?

 

[ShokWaveRider]

That is actually a loss. So we squirreled away cash over the years and decided it offsets income nicely. So we didn't invest it.

We get nearly $50k a year return from our CASH CD's

 

[Independent]

Our goal is to keep our taxable income low.

...

I believe taxes have to go up in time, especially if we are moving towards a single payer HC plan. I also believe SS is going to be compromised in some way over the next 8 years. That's my case for taking SS at 62.

Yes, taking SS sooner lowers your FIT in the early years. However, it can raise FIT in the later years.

I'm not saying that people always gain or always lose on taxes by deferring or by starting sooner. But, when I did the math for our situation, it turned out that, over time, the total taxes paid were about the same.

I assumed consistent tax rates. If I believed that tax rates will go up, I think I'd rather take my taxable income (i.e. IRA withdrawals) sooner rather than later.

(In our case, our long term investments were in traditional IRAs.
For us, it made sense to increase our taxable income in the early years by doing traditional => Roth IRA conversion.)

 

[bmcgonig]

Any other thoughts? Good deal or not? Should I continue making premium payments or stop?

I see what you did there [emoji16]

Continue making them until you get that SS check at 70

 

[pb4uski]

For those who don't understand what bmcgonig is referring to above ^^^^, the question that I outlined in post 44 is the same as delaying SS from age 62 to age 66 or 70 since assuming a FRA of 66 the amounts that one could collect per month are ~$750, $1,000 or $1,320, represpectively.

I was being coy.