Would you delay taking SS?

[Fedup]

It all depends on spending habits, mentality and how many family members you support. For me, $40K per year in retirement is more than enough: currently I live on $30K per year in SF Bay Area (but health insurance from employee). And it is not really a frugal: I buy whatever I want, and have regular trips overseas.

You can't always assume it's $40K for 15 % bracket. It depends on one's tax situation. Right now I have a lot of income that's not taxed thanks to various depreciation from my rentals. So this is why one has to look ahead using Turbotax.

 

[Fedup]

Got that. My post was in response to Fedup saying she didn't need Medicare. From her subsequent post, it looks like she may need it after all.

If your husband is enrolled in both, you probably do need Medicare. It wouldn't hurt to check, no sense in overinsuring.

We need to agree on the word need. I have one insurance. right at this moment so I don't need it. It will be extra insurance in the future when I'm old and senile.

EDIT to add that millions of retired federal employees are not enrolled in Medicare. If there is a such a need, they would do so. I've often frequented Fedsoup to get a read on this so that's how I know.

 

[ABQ2015]

Timely post and questions - I have been questioning the conventional wisdom of doing Roth conversions and delaying SS while drawing down my taxable account. I have no spouse and don't expect to acquire one soon, and prefer to leave behind a clean estate (assuming there is anything left ) with no RMD complications.

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?

I have analyzed taking Roth conversions and delaying SS using i-ORP and FIRECALC toying with the parameters to include rate of return on investments. i-ORP takes into account the Roth conversions and both state and federal taxes. But these calcs take time and it gets a little complicated trying to analyze the impact of each change in parameter.

Because I am single and all my retirement income is taxed, I am automatically in the 25% tax bracket nearing the 28% so Roth conversions are less attractive. For the most part, delaying SS increases my retirement income about $1K a year after taxes if I live to age 95. But I suspect the amount would be greater if I were in the 15% bracket.

I turn 62 in a couple of months and have decided to delay SS since the market is good but will reconsider if there is a correction. And plan to run more calcs once I retire and have the extra time.

 

[jimnjana]

We need to agree on the word need. I have one insurance. right at this moment so I don't need it. It will be extra insurance in the future when I'm old and senile.

I'd bet that your retiree health care automatically becomes a Medicare supplement at age 65. That is what happens with TRICARE, guess not automatic still have to do paperwork.

 

[Fedup]

I'd bet that your retiree health care automatically becomes a Medicare supplement at age 65. That is what happens with TRICARE, guess not automatic still have to do paperwork.

Yes it is. It's like those AARP plans advertised on TV. It will save my kids headache when I'm too old and senile to know.

 

[kimcdougc]

I am in this exact same position right now and look forward to hearing more answers on the RMD's. Thanks for everyone's posts. They really help to clarify things.

 

[Lawrencewendall]

Yes, I'm doing that. May not even take my other small pension at 62 even. I want to convert as much money into Roth first before taking my SS. My husband is already taking SS.

+1

 

[braumeister]

It's in the who knows category

I would say that about practically every conversation about the future of Social Security.

 

[always_learning]

Sorry, I think I miss the point. Having SS early in hand? This would significantly reduce the amount of money you collect. There is a great difference if you start to collect SS at 62 and 70. I do have some analysis here:
Social Security: what to expect? | Seed4Great
The best approach would be to have a plan in place well in advance, how much you can withdraw from 401K (or roll it over to Roth) each year between the time of ER and 70, to meet your tax goal. Staying in 15% bracket seems like a right strategy. Then, start to collect SS at 70.

Yeah, I didn't explain that well. Sorry. By having SS 'in hand" I guess I was thinking of the total SS DH would collect in those years between ER and SS compared to waiting.

#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.

Great summary! It sure does seem like it won't matter in the end, though. I suspect the actuaries who look at this stuff have made it so it all comes out pretty much even.

 

[dallas27]

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.

 

[always_learning]

Excellent summary of all the moving parts..

So far our plan is to delay SS, figuring if the gov't wants to cut SS, there will be discussion before it happens (or a revolt).

During our delay of SS, we will convert heavily, and pay taxes, because once we start SS, should we take out RMD's it will mean SS is also taxed.

Now, if the market drops like crazy, we have enough cash for a few years, and would convert "IN KIND" like Crazy, so everything can go back up in a ROTH.

By convert heavily and pay taxes, do you mean that you intend to go into the 25% bracket?

The OP seems mostly about taxes.

I'm pretty analytical, but when I looked at our situation, it seemed that taxes were pretty much "pay me now or pay me later". Things that lowered taxes sooner increased taxes later, things that lowered taxes later raised taxes sooner.

There are plenty of assumptions that go into these calculations. In my case, reasonable differences in assumptions switched the result, so I felt I didn't have a definitive answer.

It's crazy, isn't it? It's like the Butterfly Effect where one change now affects the outcomes of lots of things later. There are so many possibilities, it's nearly impossible to analyze. And I'm not even worrying about future dollars vs current dollars or inflation!

I'm beginning to the think that we should just convert as much as we can each year to a Roth IRA and pay our 25% taxes and be done with it. We'll still fill the lower brackets, so at least some of the money will be taxed at that lower rate.

I understand the "pay me now or pay me later" argument. I'm sure it applies in many cases. But one of the issues I'm most concerned about (in my situation) is that RMD required withdrawal RATE increases every year (starts about 4% and goes up from there). Eventually, that might place one in a relatively HIGHER tax bracket.

At 70, it's too late for me for most options, but OP is still less than 70 so has many options available. 1) when to take SS 2) whether/how much Roth conversion 3) Spending from 401(k)/tIRA or not 4) Possibly when to FIRE or stop adding to deferred savings 5) etc.

I think it might be well worth a couple of hours with the RIGHT financial planner (as in fee-only) or "tax guy" to set up a frame work for how to manage all of this for tax efficiency. It just could turn out to be pay me now or later, BUT it might be an "aha!" of tax savings once all the pieces are put in place. even though my options are so limited, I'm still looking into more Roth conversions if I can find the right person to help me make the calculations (I've never done my own taxes).

All in all, I think this is a very worthwhile exploration to make - especially those with a little time to the critical date of age 70. YMMV

You have outlined our concerns/options well. Happily, we do have a number of years before reaching the RMD stage, which is why I'm looking at as many variables as I can. I didn't realize how difficult it would be to come up with a plan of action.

A financial planner would be an absolute last-ditch option, though. DH isn't keen on telling a stranger our financial details but if it comes to that, I will just do it. I would hate for this to "beat me", though. It's a pride thing.

I would say that about practically every conversation about the future of Social Security.

So true!!

 

[always_learning]

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.

Now that is an idea I haven't seen before! Very interesting. It is definitely something to keep in mind.

 

[dallas27]

Now that is an idea I haven't seen before! Very interesting. It is definitely something to keep in mind.

Ya, I don't know why it isn't thrown around more. Even if it isn't the absolute optimum strategy, it's a pretty intuitive strategy that at least is better than average. It's re-insurance on your drawdown, what more could a retiree hope for short of immortality and good health?

 

[bingybear]

There are so many right answers.. and wrong ones. It really depends on situations. The take SS when the market under performs... is like all market timing... are you lucky? If 2 months after you start SS because of a down market the market rebounds... oops.

Present plan here is to take SS @70. To this point I've been converting up to the top of the 15% bracket... not PTC or similar. I pay the taxes with after tax $. Going forward depends on changes in the tax environment and how I see the future. There are too many moving parts that our out of my control. I have to adapt the approach based on what I see and believe.

The idea of taking SS @ market down turn is not necessarily bad. One is making a bet. We all do that when we invest.

 

[bmcgonig]

Ya, I don't know why it isn't thrown around more. Even if it isn't the absolute optimum strategy, it's a pretty intuitive strategy that at least is better than average. It's re-insurance on your drawdown, what more could a retiree hope for short of immortality and good health?

If you have a heloc that you can access at around 4% then borrowing the SS amount would let your SS increase by 8%. Better choice?

 

[Fedup]

Taking SS at 62 is not a whole lot of money. IIRC, not facts, go check SS for facts, it's less than $2000 a month, so about $24k per year. Some(not all) people's retirement account earns more than that in a month, so it depends on the amount.
What I found beneficial in this up and up market is after you convert, you earn more in Roth IRA to cover tax and the subsequent years, they are tax free. What's not to like. But I don't want to like it too much because somebody will find ways to close the loophole.

 

[RunningBum]

Now that is an idea I haven't seen before! Very interesting. It is definitely something to keep in mind.

Stick around here, there are a lot of good ideas that go around. I was convinced that I should take SS at 70 for longevity insurance. But I kept my mind open and heard this rationale, and it has become my strategy for that time, subject to some of the other factors.

To bingybear's point that it's market timing, yes, but only to a small degree. If the market does bounce back quickly, you've just made a decision that's more or less neutral unless your life span is an outlier. If it doesn't recover right away, you're probably coming out ahead. And if you pull the trigger a little early, you probably still come out ahead, not as much. I feel like it's pretty low risk market timing. Not that much downside.

 

[dallas27]

If you have a heloc that you can access at around 4% then borrowing the SS amount would let your SS increase by 8%. Better choice?

You have to do the math. Apparently you are going to pay higher than 4% since you would have to borrow enough extra to service the payments throughout the expected downturn, meaning you pay extra interest on cash in accounts while it is also being devalued to inflation. Not a place I would want to be. Probably way smarter to take SS and if it is more than you need take that heloc and stick it in the index for some IR arbitrage during the downturn - should come out way ahead in 5-10 years at most.

 

[Al18]

FYI SS does not increase 8% per year for those born in 1960 or later. If you start SS at 62, you'll get 70% of your full benefit (age 67). It increases to 75% at 63
80% at 64
86.7% at 65
93.3% at 66
100% at 67
according to https://www.ssa.gov/planners/retire/1960.html

 

[Fedup]

I think 8% is at FRA till age 70. IIRC

 

[travelover]

........ IIRC

I don't know either.

 

[Fedup]

I don't know either.

Stop being a lazy bum in retirement. Do your own googling. Here I've found it for you. Mathjack often mentioned this that's why I remember.

https://www.kitces.com/blog/social-security-full-retirement-age-fra-increasing-from-age-66-to-67/

 

[Skoach]

If I was in the 15% tax bracket, I would take it and live more. Even if you have enough to live, living below the 15% bracket is not much spending.

Take it and live a better life.

You can't always assume it's $40K for 15 % bracket. It depends on one's tax situation. Right now I have a lot of income that's not taxed thanks to various depreciation from my rentals. So this is why one has to look ahead using Turbotax.

+1, if you have significant money in post tax accounts it can be very profitable to stay in the 15% bracket. 0% capital gains allow you to increase your basis or take profits for free up to the top. You can also look to maximize ACA subsidy. Finally you can look to see if Roth conversions are for you.

Your tax bracket isn't dependent on what you spend or your lifestyle, its dependent on how much you receive from untaxed sources.

 

[jane_sm1th73]

Kudos! Quite an accomplishment in Bay area!

It all depends on spending habits, mentality and how many family members you support. For me, $40K per year in retirement is more than enough: currently I live on $30K per year in SF Bay Area (but health insurance from employee). And it is not really a frugal: I buy whatever I want, and have regular trips overseas.

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

I coulda been a contender. After eleven years renting in DC Metro, swearing at the traffic etc., I have capitulated. I'm buying a condo. At this point, it's cheaper than renting.

Don't think I'll be able to avoid the 25% marginal in retirement, or the tax torpedo once RMDs start. So, all these years of paying taxes upfront for my Roths for naught...sad, really.

 

[Sunset]

When I said ealier that we would convert heavily to ROTH , it definitely means the full 15% , and quite possibly into the 25%.

Reason being is I may not be around long, and if DW is filing single, the 28% tax bracket starts at ~$91K. And with the 25% for single starting at $37,651 , she would pay 25% no matter what with RMD and SS.

Also currently our state IL, does not tax retirement income, so no State tax on IRA withdrawals and conversions Due to the poor finances of the State they just raised the income tax from 3.75% to 4.95% and are still looking for $$$$. Makes me want to convert before they tax it too.