You should take SS at 62

[mathjak107]

It may not really matter that much since you would have all the money you didn't spend down waiting , to draw from still growing and compounding as a secondary back up. that may have a higher income stream potential then maybe the higher ss payment.

just something to think about



.

 

[Independent]

DH and I visited a fee only FP at the point that DH retired in 2008. The visit was to have a set of eyes other than our own review our plan once to validate our numbers/assumptions. One of his suggestions was to defer taking SS until 70 and intentionally take RMD's in the amount that SS would have been between retirement(62) and 70. Doing so would keep our income taxes the same during that period but reduce the amount of future RMD's that would need to be taken once reaching 70.5. Furthermore, Converting those 8 years of annual withdrawals into a Roth IRA and investing them also avoided the concern of liquidating during a down market and in fact the Roth grew handsomely as the market since 2009 has outperformed historical returns. And now that Roth is worth a considerable amount and can never be taxed. Not to mention that the SS to be claimed at 70 will be 164 percent of its original amount, not including COLA's. I am well aware that many could not afford to take this path but would need to spend the WD's to live but as a pure math play I think this advise was flawless. Our FP earned his fee for that suggestion alone.

"... the Roth grew handsomely as the market since 2009 has outperformed historical returns." It seems to me that the money withdrawn from the traditional IRA (or other qualified account) would have grown just as handsomely if it had been left there instead of converted to a Roth.

If you had taken the SS and invested it in an ordinary taxable account, using the same asset allocation as the Roth, it would have also grown handsomely over that period.

I tried to build a spreadsheet to reflect this decision. If I assume strong returns in the early years, it seems that the extra earnings on the SS derived from taking SS early outrun the tax savings.

 

[Golden sunsets]

I don't pretend to be a math wizard and mathematically prove one plan over another, but wouldn't the growth of the money in a Roth trump growth of the same money left in an IRA, as that appreciation would eventually be taxed in the IRA but not in the Roth? Also we are in the fortunate position of having to worry about RMD's kicking us into the 33 percent tax bracket with AMT ramifications as well a reduction of deductions and exemptions, thus the 8 years of WD's have reduced/delayed that risk. As several have posted on this string - each individual has a unique set of circumstances, which result in different solutions to the SS filing question. I posted our unique circumstances as anecdotal info for the reader's consumption. And.... there is the longevity insurance aspect - how does one quantify the piece of mind affect of increasing a SS income stream that is 164% higher at 70 than 62, not including 8 years of colas.

Having said this, at the slightest hint that Congress might change the current SS benefits, we would file immediately in a heartbeat to make sure that we are grandfathered if need be.

 

[mathjak107]

you have to compare apples to apples . with a roth you are prepaying the taxes and losing compounding on that money so if you take the equivalent amounts of money ,given the same taxes and gains they will equal the same thing.

folks like to figure by prepaying the taxes on the roth with money from out side the roth but always want to compare it to taking taxes out of the traditional calculation instead of paying that too with money outside the ira..

 

[Mulligan]

you have to compare apples to apples . with a roth you are prepaying the taxes and losing compounding on that money so if you take the equivalent amounts of money ,given the same taxes and gains they will equal the same thing.

folks like to figure by prepaying the taxes on the roth with money from out side the roth but always want to compare it to taking taxes out of the traditional calculation instead of paying that too with money outside the ira..

I admit I am guilty as charged from using that math. But saying all things were equal, if a person wanted to take a huge chunk out for lets say a second vacation home , the Roth would clearly benefit as you are not pushed into a high tax bracket from a big one time withdrawal, correct?


Sent from my iPad using Tapatalk

 

[Independent]

I don't pretend to be a math wizard and mathematically prove one plan over another, but wouldn't the growth of the money in a Roth trump growth of the same money left in an IRA, as that appreciation would eventually be taxed in the IRA but not in the Roth? Also we are in the fortunate position of having to worry about RMD's kicking us into the 33 percent tax bracket with AMT ramifications as well a reduction of deductions and exemptions, thus the 8 years of WD's have reduced/delayed that risk. As several have posted on this string - each individual has a unique set of circumstances, which result in different solutions to the SS filing question. I posted our unique circumstances as anecdotal info for the reader's consumption. And.... there is the longevity insurance aspect - how does one quantify the piece of mind affect of increasing a SS income stream that is 164% higher at 70 than 62, not including 8 years of colas.

Having said this, at the slightest hint that Congress might change the current SS benefits, we would file immediately in a heartbeat to make sure that we are grandfathered if need be.

Like you, I rolled some traditional IRA into a Roth IRA, and I deferred SS. Like you said, every situation is different. In my case, I could "fill up" the 15% bracket with a Roth conversion, which was better than waiting to pay 25% later on. You apparently did the same thing with 25% vs. 33%.

So I was just commenting on the good market performance. I actually tried to build a spreadsheet to test this strategy, and that seemed to be a negative.

I agree with mathjak on the " growth of the money in a Roth ..." comparison. Say I'm thinking about rolling $20,000 from a traditional IRA to a Roth IRA. And, suppose I am in a 25% tax bracket.

If I do the rollover, I have $15,000 in my Roth (because I paid $5,000 in taxes). If it doubles before I spend it, then I have $30,000 of spendable cash.

If I don't do the rollover, I have $20,000 in my tIRA. If it doubles before I spend it, I've got $40,000 inside a tIRA. But, in order to spend it, I have to pay $10,000 in taxes, leaving $30,000 of spendable cash. For equal tax rates, this is a wash.

Of course, if my bracket moves up to 33% before I spend the money, the Roth is still $30,000, but the tIRA is only worth $26,667.

 

[RunningBum]

Like you, I rolled some traditional IRA into a Roth IRA, and I deferred SS. Like you said, every situation is different. In my case, I could "fill up" the 15% bracket with a Roth conversion, which was better than waiting to pay 25% later on. You apparently did the same thing with 25% vs. 33%.

So I was just commenting on the good market performance. I actually tried to build a spreadsheet to test this strategy, and that seemed to be a negative.

I agree with mathjak on the " growth of the money in a Roth ..." comparison. Say I'm thinking about rolling $20,000 from a traditional IRA to a Roth IRA. And, suppose I am in a 25% tax bracket.

If I do the rollover, I have $15,000 in my Roth (because I paid $5,000 in taxes). If it doubles before I spend it, then I have $30,000 of spendable cash.

If I don't do the rollover, I have $20,000 in my tIRA. If it doubles before I spend it, I've got $40,000 inside a tIRA. But, in order to spend it, I have to pay $10,000 in taxes, leaving $30,000 of spendable cash. For equal tax rates, this is a wash.

Of course, if my bracket moves up to 33% before I spend the money, the Roth is still $30,000, but the tIRA is only worth $26,667.

Hopefully when you do the rollover you pay the taxes out of pocket and roll over the full amount. So let's say you have 20K in an IRA and 5K in a taxable account with a 5K basis.

If you do the rollover, you have 20K in the Roth, and 0 in the taxable account. If it doubles, you have 40K since there is no tax.

If you don't do the rollover, you have 20K in the tIRA and 5K in taxable. If they double, you have 30K after taxes from the tIRA, and taxable doubles to 10K but you pay 15% cap gains tax on the 5K gain. That's $750, so you have 39,250 total. No longer a wash.

 

[ejman]

Hopefully when you do the rollover you pay the taxes out of pocket and roll over the full amount. So let's say you have 20K in an IRA and 5K in a taxable account with a 5K basis.

If you do the rollover, you have 20K in the Roth, and 0 in the taxable account. If it doubles, you have 40K since there is no tax.

If you don't do the rollover, you have 20K in the tIRA and 5K in taxable. If they double, you have 30K after taxes from the tIRA, and taxable doubles to 10K but you pay 15% cap gains tax on the 5K gain. That's $750, so you have 39,250 total. No longer a wash.

Please correct me if I'm wrong but my understanding is that as long as income es below $73,800 for a couple, long term capital gains are taxed at 0%.

 

[hnzw_rui]

you have to compare apples to apples . with a roth you are prepaying the taxes and losing compounding on that money so if you take the equivalent amounts of money ,given the same taxes and gains they will equal the same thing.

folks like to figure by prepaying the taxes on the roth with money from out side the roth but always want to compare it to taking taxes out of the traditional calculation instead of paying that too with money outside the ira..

This is true but at least when doing Roth conversions, you have more control. If your traditional IRA or 401k account grows big, RMDs might put you in a much higher tax bracket. Conversely, if account balance goes down in a bear market, you'll still be forced to take anywhere from 3-50% of your remaining account balance not allowing the account to recover. Sure you could put RMD withdrawals in a taxable account but unless you can engineer income so qualified dividends tax rate is 0% (and that's only for federal, some states will tax them as regular income anyway), Roth is better.

Mind, I do have a spreadsheet comparing total net worth and the effect of doing a Roth conversion (assuming 0% inflation, a low 1-3% real rate of return, fixed 15-25% actual tax rate, RMDs reinvested in taxable accounts). While total account balances without conversion are bigger (at least until you start taking RMDs), "effective, after-tax" balances favor Roth conversions. That's not even considering possible tax bracket implications of large RMDs.

 

[ownyourfuture]

There's so many variables to consider here.

But we 'all' have one thing in common, an 'unknown' expiration date.

Dust In The Wind. Written By Kerry Livgren, Kansas guitarist.
"All your money, won't another minute buy"

Therefore, I agree with shotgunner.

Take it as soon as you can get it!

 

[RunningBum]

Please correct me if I'm wrong but my understanding is that as long as income es below $73,800 for a couple, long term capital gains are taxed at 0%.

The scenario I took this from started with

Say I'm thinking about rolling $20,000 from a traditional IRA to a Roth IRA. And, suppose I am in a 25% tax bracket.

In the 25% tax bracket, cap gains are taxed a 15%.

 

[mathjak107]

Please correct me if I'm wrong but my understanding is that as long as income es below $73,800 for a couple, long term capital gains are taxed at 0%.

you are corrrect but the amount rolled over becomes part of the 73,800.

any other income you get at higher tax rates takes priority and eats up the 73,800 first.

so if you have 50k in other income like taxable ss , pension income , interest , roth conversions and distributions not taxed at long term rates that goes in the bucket first eating up what you have left to apply to zero capital gains.

 

[Spanky]

There's so many variables to consider here.

But we 'all' have one thing in common, an 'unknown' expiration date.

Dust In The Wind. Written By Kerry Livgren, Kansas guitarist.
"All your money, won't another minute buy"

Therefore, I agree with shotgunner.

Take it as soon as you can get it!

An approach based on wisdom may surpass those based on analysis paralysis as evident in a lot of posters seeking to optimize or maximize outcome.

 

[mathjak107]

my wife and i have the same discussion about doing some sort of liability matched annuity eventually. i am an investor at heart .

i want to do things soley with market and interest rate risk.

on the other hand she was a widow before i met her. she likes guarantees .

she would rather take longevity risk than market and interest rate risk.

so down the road it will be something i will consider for her sake .

 

[Spanky]

on the other hand she was a widow before i met her. she likes guarantees .

she would rather take longevity risk than market and interest rate risk.

Most people, I think, desire guarantees. She seems to a wise person. The market is risky. Why play the market game (at a later stage of your life) when you do not have to unless you think it's fun?

 

[mathjak107]

well having been left in that position before of having a pile of investments to deal with and a recession in the works i can see her point.

 

[Independent]

Hopefully when you do the rollover you pay the taxes out of pocket and roll over the full amount. So let's say you have 20K in an IRA and 5K in a taxable account with a 5K basis.

If you do the rollover, you have 20K in the Roth, and 0 in the taxable account. If it doubles, you have 40K since there is no tax.

If you don't do the rollover, you have 20K in the tIRA and 5K in taxable. If they double, you have 30K after taxes from the tIRA, and taxable doubles to 10K but you pay 15% cap gains tax on the 5K gain. That's $750, so you have 39,250 total. No longer a wash.

In your case, the gain on the rollover derives from converting some money that's currently in a taxable account into a Roth account. The poster didn't mention anything about taxable accounts, so I assumed (possibly incorrectly) that your scenario wasn't the same as theirs.

 

[eta2020]

I will delay it to at minimum age 65 unless doctor tells me I have 2-3 years left to live.

Why? Because there is no guaranteed investment which astronomical returns that delaying SS provides so why would I miss this return....... It is all about discipline and plan

Taking SS at 62 tells me lack of planning which results in missing high returns.

 

[cooch96]

A third is which will minimize one's chances of dying broke.

A fourth is which wil maximize one's chances of dying broke. I can't take it with me.

 

[Independent]

This is true but at least when doing Roth conversions, you have more control. If your traditional IRA or 401k account grows big, RMDs might put you in a much higher tax bracket. Conversely, if account balance goes down in a bear market, you'll still be forced to take anywhere from 3-50% of your remaining account balance not allowing the account to recover. Sure you could put RMD withdrawals in a taxable account but unless you can engineer income so qualified dividends tax rate is 0% (and that's only for federal, some states will tax them as regular income anyway), Roth is better.

Mind, I do have a spreadsheet comparing total net worth and the effect of doing a Roth conversion (assuming 0% inflation, a low 1-3% real rate of return, fixed 15-25% actual tax rate, RMDs reinvested in taxable accounts). While total account balances without conversion are bigger (at least until you start taking RMDs), "effective, after-tax" balances favor Roth conversions. That's not even considering possible tax bracket implications of large RMDs.

I'll re-word this to "If you assume you'll be forced to take RMDs that you won't spend, then the proceeds are going to go into taxable accounts. In this case, it's better to proactively get money into Roth accounts. This is true even for equal tax brackets."

Correct?

 

[fh2000]

We look at SS as our longevity insurance. Our current plan is to take SS at age 70.

My dad died from lung cancer at age 50 from smoking all his life. Our other 3 parents are still living (90, 87, 80).

If I ran FireCal without SS, I get 100% success rate for 25 years.
Taking SS at 70 for both of us, I get 100% for 35 years.

If we die before taking SS, at least we hope to get to spend most of our money.

 

[Spanky]

If I ran FireCal without SS, I get 100% success rate for 25 years.
Taking SS at 70 for both of us, I get 100% for 35 years.

What about the success rate for taking SS at 62, 66?

Would 100% for 30 years suffice?

 

[pb4uski]

Please correct me if I'm wrong but my understanding is that as long as income es below $73,800 for a couple, long term capital gains are taxed at 0%.

You're sort of right. $73,800 is 2014 taxable income at the top of the 15% tax bracket, after deductions and exemptions.

Assuming MFJ, standard deductions and exemptions under age 65 you could have up to $95,500 of income and still have 0% LTCG rate. That $95,500 would include any LTCG.

2015 top of 15% tax bracket for MFJ...........$74,900
2015 standard deduction for MFJ..................12,600
2015 personal exemptions x 2 ......................8,000

Total income.............................................$95,500

But be careful, if you go over then the excess is subject to an incremental tax rate of 30%... ouch!

 

[pb4uski]

...Why play the market game (at a later stage of your life) when you do not have to unless you think it's fun?

Because i'm an averages player and believe that over a 30-40 year retirement time horizon that the market will not only provide for us but will also optimize our family wealth (and our kids wealth). As an investor, I have the stomach/fortitude for it and we can afford to take the risk.

 

[hnzw_rui]

Most people, I think, desire guarantees. She seems to a wise person. The market is risky. Why play the market game (at a later stage of your life) when you do not have to unless you think it's fun?

This is why I work for government even if the same work pays 1.5-3x in private.

I'll re-word this to "If you assume you'll be forced to take RMDs that you won't spend, then the proceeds are going to go into taxable accounts. In this case, it's better to proactively get money into Roth accounts. This is true even for equal tax brackets."

Correct?

Yep, pretty much. I think for folks with a sizeable IRA or 401k account and other streams of income (SS, pension, rentals and taxable accounts), it's a fairly valid concern.

I'm treating my 457 and IRAs as part fun money and part long term care insurance (I'm not HSA eligible) so I'd like to keep as much funds in those as possible.