Would you delay taking SS?

[Out of Steam]

+1, if you have significant money in post tax accounts it can be very profitable to stay in the 15% bracket.

I could be missing something, but the opportunity to move IRA/401k money from pretax to after-tax accounts (Roth or regular) for 15% seems like something to take advantage of.

 

[marko]

#1, by collecting SS at 62, you can keep more of your investments intact, earning more money. The cost of deferring and getting the larger monthly payment at 70 is that you get $0 between 62 and 70. Your "analysis" totally misses this.

#2 Some people think that the benefits will change and nobody gets grandfathered in, such that you are better off getting the full benefit while it's still being given out. If you can get benefits at the current rate at age 62, but at age 69 they cut everything by 30% across the board, your breakeven point has been pushed quite a ways out.

There are a lot of other moving parts:
- Being able to convert 401K to Roth at a lower tax rate
- The tax impact if you can't convert it all before 70 and have to take MRDs,
- How much of your SS gets taxed in various situations
- Whether you are trying to limit income to get an ACA subsidy
- Your likelihood of living past the crossover point based on your health and your family history
- Special spousal situations
- The state of the stock market: If we're at a high, I'd rather be selling off a little more of my investments for living expenses and deferring SS. If the market drops, I'd rather limit my selling, and would likely take SS to cover more of my living expenses. Don't forget, you can make that decision at any point between 62 and 70, so if you are 62 now and think the market it high, you can hold off, and then if it crashes in 2 years you can start collecting then. There's no formula for that, just like there isn't one for #2 above, you go with your gut feeling of what's best for you
- others?

The good news is, most of these probably don't matter too much in the big picture. I think because it is an active decision you have to make, people (myself included) overthink this too much. I have a hunch that if the govt just automatically started giving you your SS benefits at 67 unless you explicitly told them otherwise, a lot of people would just passively accept it because then they wouldn't have to make a decision.

Good summary overall RB.
I've also often mentioned the fact that IRA distributions are taxed at 100% whereas the money you don't withdraw because of SS is taxed at a lower total. In my state SS is also untaxed.

Plus, if you take it at 62, you get 3 years at a higher benefit until you get hit with the Medicare bill reduction.

After all is said and done however most folks here will agree on at least one thing: you can slice it 100 different ways, but the break even point is around 80 years old, plus/minus, so it really doesn't seem to matter that much.

 

[youbet]

The opposite view of why folks don't delay:

I talked to a neighbor, he said he is going to claim at 66, since it was not worth waiting until age 70, then he went on to say say a whole host of things that were totally wrong about SS

1. You get a 25% benefit if you delay to age 70, no benefit to delay between 66 and 70.
2. SS is based on the last 2 years of work.
3. SS was tax free. (even if you are working).

It makes me think, a lot of the folks claiming at age 62, or could be doing so because they are filled with wrong information like my neighbor.

At least he knew if you claim early, you get less, and he didn't want less than the full amount.

I think this knife has two edges.......

Most folks I know that delay SS are doing so because they refuse to consider the time value of money and the impact of investing the SS dollars you receive between 62 and 70. While inflation rates and investment returns can't be predicted, reasonable assumptions indicate a good probability of accumulating extra FIRE portfolio dollars that will more than offset the lower SS after 70.

I really think that in the end it won't make much difference, delay or not, for most people (as long as they are informed and prudent investors) and that special circumstances regarding marital status, health and other factors prevail.

 

[Out of Steam]

I will likely delay Social Security to full retirement age, especially since I expect to continue to do some work until then.

As for delaying beyond that, unless someone has excellent health and a strong family history of longevity, I find the case unconvincing.

 

[1-31-18]

Without ever actually doing the math, I firmly believe the optimum strategy with SS is to delay taking until when you portfolio begins to under-perform, like in a recession. Let SS grow, then pull the trigger when it does you the maximum good of avoiding full drawdown in your first down market.

+1.

And if the first down market occurs while I'm still working, I'll probably work through the down market, at least for a year or two, and then retire, and not pull the trigger on SS until the first to occur of age 70 or the next down market. I feel comfort believing that some amount will probably be available when I start it not later than 9 years from now, as a kind of insurance against a first drawdown after work stops.

 

[Alex The Great]

Congrats! I would love to get a couple of clues on how you do it!

Thank you. To be honest, I did not do much about it. Other than cooking at home and paying off the mortgage, which may not be a wise choice after all as I can see it now. But I still pay around $1K property tax per month, which is increasing. Though it is included into the amount I provided.

 

[sanfanciscotreat]

I did delay SS until 70. Income prevented our rolling into a Roth IRA and now RMD's are required. If we reduce income, there will be an even larger amount left for charities. You pay taxes at some time, especially if you have a decent income.

 

[Alan]

DW will be taking her SS later this year at 62 while I delay taking mine.

a) She has a much higher life expectancy and much lower SS so it is a form of insurance to ensure she has a better income when I'm gone as she will lose 50% of my pensions.

b) Living in the U.K. means that she will not be taxed on it by the US, only the U.K. and since she files as an individual and has little other income it will remain untaxed.

c) RMD's plus UK & US SS will put me in the 40% UK bracket since IRA distributions are taxed first in the U.K. so I have been converting to Roth up to the top of the 25% bracket and will continue to do so now we are living in the UK since Roth conversions are taxed only in the US. (3 more years of conversions before the IRA account is zero, then another couple of years converting DW's IRA)

 

[misanman]

And I don't even need Medicare, I have retiree health insurance.

You may well have something different but I had retiree medical too but the company required that I sign up for Medicare when eligible and the retiree plan became a supplemental policy. You might want to check on the details to be sure.

 

[Sunset]

DW will be taking her SS later this year at 62 while I delay taking mine.

a) She has a much higher life expectancy and much lower SS so it is a form of insurance to ensure she has a better income when I'm gone as she will lose 50% of my pensions.

b) Living in the U.K. means that she will not be taxed on it by the US, only the U.K. and since she files as an individual and has little other income it will remain untaxed.

c) RMD's plus UK & US SS will put me in the 40% UK bracket since IRA distributions are taxed first in the U.K. so I have been converting to Roth up to the top of the 25% bracket and will continue to do so now we are living in the UK since Roth conversions are taxed only in the US. (3 more years of conversions before the IRA account is zero, then another couple of years converting DW's IRA)

If she took SS at FRA, wouldn't she get more even based on 50% of your SS benefit , but taking it early for her, doesn't it reduce the amount she gets of hers, AND yours (when you die) ?

 

[Bigdawg]

DW will be taking her SS later this year at 62 while I delay taking mine.

a) She has a much higher life expectancy and much lower SS so it is a form of insurance to ensure she has a better income when I'm gone as she will lose 50% of my pensions.

With what you stated in a), wouldn't it make sense for her to delay until 70? Am I the only one confused here? My wife is sort of in the same boat. She is 6 years younger and will not get my pension. Her SS will be the same as mine. Because we are planning for her to have 15 years at the end w/out me, she will delay her SS until 70 so she get's the max amount and will not be too harshly affected by the loss of my pension.

Am I missing something Alan? Probably.

 

[Skoach]

I could be missing something, but the opportunity to move IRA/401k money from pretax to after-tax accounts (Roth or regular) for 15% seems like something to take advantage of.

Agreed, and I said that further down the post. However there are situations where maxing the 0% capital gains or maxing a ACA subsidy produce a better result. It is a complicated juggle between these (then add SS and pension projections for a real mess)

YMMV, but serious optimization can produce large increases in your future assets especially when factoring in current and future taxes.

 

[Just_Steve]

You may well have something different but I had retiree medical too but the company required that I sign up for Medicare when eligible and the retiree plan became a supplemental policy. You might want to check on the details to be sure.

Thats how mine works also.
But they reimburse my part B premiums and I retain prescription drug, so no part D needed.

 

[street]

I will not delay SS at this time. My plan is to take SS and the draw out of deferred accounts till I'm just under the 25% tax bracket. I will continue to do that till 70 and then will have to take RMD amount that is required by law. For me the best I can figure it won't make any difference which way I do it I will still be in the 25% tax bracket at some time. The one thing is I will be able if markets stays health that money will keep growing each year and it will pay for the taxes that way. If markets go down I won't be required by law to take as much out if that is the case.

 

[Alan]

With what you stated in a), wouldn't it make sense for her to delay until 70? Am I the only one confused here? My wife is sort of in the same boat. She is 6 years younger and will not get my pension. Her SS will be the same as mine. Because we are planning for her to have 15 years at the end w/out me, she will delay her SS until 70 so she get's the max amount and will not be too harshly affected by the loss of my pension.

Am I missing something Alan? Probably.

She gets it tax free for the next 5 years until she starts drawing UK SS which will put her over the UK tax free allowance and then part of it will be taxed at 20%. If we were living in the USA 80% of it would be taxed at 25%, plus it will help pay the taxes on Roth conversions each year, which is to avoid that 40% tax hit for me at RMD time. I prefer paying the taxes on Roth conversions with taxable funds, effectively moving more money into tax free accounts.

She will be getting ~$10k/year tax free which then essentially goes into a Roth by paying taxes on the conversion.

 

[Bigdawg]

She gets it tax free for the next 5 years until she starts drawing UK SS which will put her over the UK tax free allowance and then part of it will be taxed at 20%. If we were living in the USA 80% of it would be taxed at 25%, plus it will help pay the taxes on Roth conversions each year, which is to avoid that 40% tax hit for me at RMD time. I prefer paying the taxes on Roth conversions with taxable funds, effectively moving more money into tax free accounts.

She will be getting ~$10k/year tax free which then essentially goes into a Roth by paying taxes on the conversion.

OK, but you could do THAT (coversions) w/out her drawing US SS. Like you mentioned, she will not get your pension. If she takes US SS at 62 then she get's that reduced amount forever. If she delays until 70 she will get the increased amount forever. Like I said, maybe I am missing something. Probably am.

 

[ShokWaveRider]

My answer to OP's question is No.

 

[Refresher]

If you were already taking SS and you knew your other incomes which calculator would you use to run various scenarios?
ie. SS is 24,000 per yer, pension is 6,000, rental income 6,000
How would you figure how much to convert to Roth if any at all.
I've seen a calculator Smart Asset looking for another excluding Turbo Tax.

 

[foxfirev5]

My answer to OP's question is No.

Likewise.

 

[ejman]

I think this knife has two edges.......

Most folks I know that delay SS are doing so because they refuse to consider the time value of money and the impact of investing the SS dollars you receive between 62 and 70. While inflation rates and investment returns can't be predicted, reasonable assumptions indicate a good probability of accumulating extra FIRE portfolio dollars that will more than offset the lower SS after 70.

Good point. A quick calculation shows that since SS collection started almost 7 years ago (at age 62 for both of us) our RR has been 7.9% and the money in our kitty not touched and left invested is getting to be a tidy sum ~ $200K. Of course, that "not touched" money will continue compounding at whatever the future RR turns out to be.

 

[Alan]

OK, but you could do THAT (coversions) w/out her drawing US SS. Like you mentioned, she will not get your pension. If she takes US SS at 62 then she get's that reduced amount forever. If she delays until 70 she will get the increased amount forever. Like I said, maybe I am missing something. Probably am.

When I file she will get a significant bump in SS albeit still reduced. Meanwhile we'll be taking her SS tax free and investing it. The markets will ultimately make this a win or lose strategy.

https://www.thebalance.com/clearing-spousal-benefits-confusion-2388948

 

[Senator]

Prior to age 62, it's an easy decision, wait. You can say 62, 65 or 70, it doesn't matter; you have no choice anyway.

When you determine when to take SS, you have insider knowledge of your health. Knowing when you are going to die is the main unknown factor that would make the decision easier. Gamblers would sell their soul for the insider knowledge that you have that the 'dealer' does not. Card counting in BlackJack gives about a .5 to 1% advantage, you have knowledge that give you probably a 10%+ advantage.

When SS says actuarial neutral, they do not know a lot of individual items that make a large difference. SS knows nothing about you personally. They do not calculate into the formula your family history, your current health, your sex, or your current risk factors.

You know if you have high-blood pressure, diabetes, prior heart attacks, smoking or drinking issues, previous cancer, go free climbing, hang around with criminals, etc. The SS administration doesn't.

You can go to a mortality calculator and guesstimate longevity based on life style factors. SS does not. They just know averages based on millions of people that have collected before.

You can hedge your bets with the insider knowledge. Of course, if it means eating dog food until you can collect a larger SS, that was the wrong choice.

 

[pb4uski]

.....What I haven't figured out yet is a good analytical framework for evaluating the options. Can do the TVM calcs, but need a roadmap for the steps to make sure I don't forget anything significant. The online calcualtors I have found like SSAnalyze appear to use assumptions that are not relevant for me.

Any tips from the crowd as to how to approach this type of analysis?

The most relevant analytical framework for me is analogizing the incremental benefits to the purchase of a COLA-adjusted annuity.

If your FRA is age 66 and your FRA benefit is $1,000/month and you wait until 70 to claim, your benefit will be $1,320 ($1,000 + ($1,000 * 8%) * (70-66)), an increase of $320/month or $3,840/year. In the meantime, you will have foregone 48 months of benefits totalling $48,000. At 4% real interest return, that $48,000 might have grown to $51,840 or so. So the payout rate would be 7.40% comparing the $3,840 annual benefit increase to the "premium" of $51,840.

A few years ago, I priced out a CPI-U inflation adjusted annuity and for a single life annuity the payout rate was 6.98% so you get a 6% higher benefit if you "buy" your inflation adjusted annuity from the SSA rather than a commercial provider. (My analysis was for a married couple and the benefit was 50% higher since the payout rate for the SSA joint life annuity was the same 7.40% but the payout rate for a commercial joint life annuity is much lower 4.93%).

FWIW, as another point of reference, a fixed immediate annuity for a 65 yo single and couple woud be 6.74% for a single person and 5.72% for a married couple according to immediateannuities.com.

 

[Niuatoputapu]

In response to OP's question - YES.

Assuming tax brackets remain the same and SS is not needed to meet living expenses, would you delay SS in order to reduce the amount of money in tax-deferred accounts subject to future RMDs?

Our plans recently changed because I was positioning myself to spend down Roth accounts to qualify for ACA subsidies in 2020 and 2021. Now we assume those subsidies will not exist in 2020 and 2021, so the new plan is:

A) Delay SS until 2027
B) 2017-2026, convert tIRA monies (max the 15% bracket and venture into the 25% bracket) to Roth.
C) 2027 and after, collect SS with lower RMDs, draw on Roths as needed and stay in the 15% bracket.

I agree with the notion that we either pay taxes now or later - it makes little difference. (Except to the extent you can pay 15% to avoid 25% later).

I agree that the early demise of one spouse will throw the survivor into a higher marginal rate, thus the 15% marginal rate could be elusive.

I like the idea of converting tIRA to Roth upon market drop. If done correctly, one may be out of the market not at all or for one day at the most, so it is hardly market timing - more timing to minimize income tax.

The above plan would prove its worth if we are subjected to income based means testing for SS by or after 2027- a possibility. If that happens, lower RMDs could be golden. Of course, the plan achieves nothing if Roth distributions are included in the means testing.

 

[Sunset]

In response to OP's question - YES.

....

...

I like the idea of converting tIRA to Roth upon market drop. If done correctly, one may be out of the market not at all or for one day at the most, so it is hardly market timing - more timing to minimize income tax.

......

You can convert from IRA to ROTH "IN KIND" , I have done it. So you are never out of the market.

The only issue is, You know the share price when you start the conversion, but depending upon your brokerage, the actual transfer date was different, so the actual money value of the shares was different. But you have a good estimate, and they send you a tax form for the conversion with the precise value so doing taxes is no issue.

We are talking about an insignificant difference, as there is no IRS defined maximum to worry about, unlike a yearly IRA/ROTH contribution for taxes where you might try to hit the $6,500 limit per person, so I didn't worry about it.