Break-even SS 62 vs 66 vs 70 calculators ?

[RunningBum]

One thing is a dead cert in all of these SS discussions. Lots of heat, very little light.

Ha

Very true, but sometimes there is light. For me it was when someone pointed out that a deciding factor, if you're otherwise pretty neutral, could be to take it if/when the market drops, so that you are selling less stock at a low, and able to let it recover while you are using SS benefits. Until then, hold off, for longevity insurance. I hadn't thought of the market timing aspect of taking SS. It makes a lot of sense to me, and barring other changes to me or the SS program, that's what I'll do.

 

[Cut-Throat]

Very true, but sometimes there is light. For me it was when someone pointed out that a deciding factor, if you're otherwise pretty neutral, could be to take it if/when the market drops, so that you are selling less stock at a low, and able to let it recover while you are using SS benefits. Until then, hold off, for longevity insurance. I hadn't thought of the market timing aspect of taking SS. It makes a lot of sense to me, and barring other changes to me or the SS program, that's what I'll do.

There always seems to be new thoughts on this discussion, unless of course you already 'know everything', in which case you should be 'Shedding Light' on this topic.

 

[Scuba]

Very true, but sometimes there is light. For me it was when someone pointed out that a deciding factor, if you're otherwise pretty neutral, could be to take it if/when the market drops, so that you are selling less stock at a low, and able to let it recover while you are using SS benefits. Until then, hold off, for longevity insurance. I hadn't thought of the market timing aspect of taking SS. It makes a lot of sense to me, and barring other changes to me or the SS program, that's what I'll do.

This makes total sense to me. No one knows how long he/she will live, and although the longevity insurance aspect is attractive, I think we’ll decide based on market performance at the time.

 

[pb4uski]

That is how I look at it too. Since I turned 62 I have been making monthly deposits towards a COLAed joint life annuity at a bargain price that I can start benefits anytime between now and age 70. If we had another 2008-2009, I could start benefits if I want to but otherwise I'll buy the bargain priced COLAed annuity since COLAed annuities are hard to find and there is good longevity in my family.

 

[Sandy & Shirley]

A lot of this topic depends on your personal perspective of retirement. What income level do YOU need to provide YOU with the lifestyle YOU want for the rest of YOUR life.

The tallest 4 bars in the middle of this graph show that more than 56% of the households in the US earn between $35,000 and $150,000, and many of them could be facing the excessive marginal tax rates shown in section C of the following graphic.

Section C generally starts when you enter the 22% Federal Bracket while your Social Security benefits are being taxed at an 85% level. 185% of 22% results in a marginal tax rate of 40.7%. The 49.95% marginal rate only exists if your also have LTCG or Dividend income.

SS	ordinary	Taxability	Taxable	AGI -	Taxes	Gross	After	Tax
Benefit	Income	Basis	SSB	$12,000	Paid	Income	Tax	Rate
$35,000	$32,554	$50,054	$18,146	$38,700	$4,454	$67,554	$63,101	6.59%
$25,000	$34,852	$47,352	$15,849	$38,700	$4,454	$59,852	$55,398	7.44%	Extra	At	Tax
$25,000	$41,206	$53,706	$21,250	$50,456	$7,040	$66,206	$59,166	10.63%	$6,355	40.7%	$2,586
$25,000	$46,251	Over Max	$21,250	$55,501	$8,150	$71,251	$63,101	11.44%	$5,045	22%	$1,110

If you are an individual who desires a $63,101 after federal tax lifestyle, the taxable AGI minus standard deduction column of line 1 indicates that you can achieve that lifestyle with a $35,000 SSB without entering the 22% Federal bracket.

If your SSB is only $25,000, one way to look at the overall changes from line 1 to line 4 is that you had to withdraw an extra $13,696 from your IRA to get over the 40.7% Tax Hump to get the extra $7,703 needed to reach your lifestyle goal on the lower SSB level.

• Line 3: some of the extra cash was taxed at the 40.7% marginal level.
• Line 4: some was taxed at the standard 22% federal bracket.
• Some was just plain taxed at normal levels!

1. $16,854 of your $35,000 SSB was tax free on line 1.
2. Only $3,750 of your $25,000 SSB was tax free on line 4.
3. You lost $13,104 of tax free income!

The end result is that the extra $13,696 that was withdrawn from your IRA only raised your standard of living by $7,703. The remaining $5,993, 43.76%, went somewhere else!

Bottom line: There is no simple answer! You have to do your own personal math. What lifestyle do you want? What will it cost? Where will that money come from? And most of all, act as if you are already there and calculate your after tax income for if I do it this way and if I do it that way. Finally, make your own personal decision!

 

[RunningBum]

This makes total sense to me. No one knows how long he/she will live, and although the longevity insurance aspect is attractive, I think we’ll decide based on market performance at the time.

And I don't think this is counter to the longevity insurance planning. The thought is, if the market is at a low, you think you can invest the money you'd get from taking SS at that point better than what you'd get by waiting for a higher SS payout.

 

[Scuba]

And I don't think this is counter to the longevity insurance planning. The thought is, if the market is at a low, you think you can invest the money you'd get from taking SS at that point better than what you'd get by waiting for a higher SS payout.

Agreed

 

[Cessna152]

SS is actuarially neutral for an individual. Excluding most all other outside factors, it makes little difference when to start SS. Once you start including those outside factors and plans, there are significant differences.

While +1 for the last part, the first sentence is totally wrong. It is absolutely not actuarially neutral for an individual. It is neutral for a VERY large group.

My understanding is that the SS is actuarially neutral for the government. If it were acturally neutral for an individual then the following graph (screen snip of a Pralana Gold Retirement Planner sensitivity planning chart) would show little difference in black line (taking SS at 70 for wife and self) and blue line (SS at 63 and 62.) It turns out that the average of our expenses for the last 4 years was $69k +/- 2k. At 70 our joint SS actually exceeds that! So long as both of us survive, we could live comfortably on SS and only a little of our savings. Delaying SS and burning through assets till SS at 70 allows us to retire now with less than a million, rather than working to 65+.

 

[Perryinva]

That is an exact duplicate of many sooner vs later charts. The sooner people say “what if we die before 2038?!! Then we wouldn’t have gotten all our money back!!!” To which the later people say “well, yeah, but you’re dead, so who cares?” Your not living any better because you have to live on less since you know it’s not going to be as high later on and you didn’t KNOW you were going to die before 2038. To which the sooner people will say “you are 70 in 2025! You really expect to still be alive at 83!!” And so we are right back to ... it depends. Everyone on both sides if our families all go on to late 80s and they smoke and drank. We are healthier and had less hardships in our lives. We are betting 90.

And you are correct. It is actuarially neutral for the government payouts. Which in turn represents the whole pool of recipients.

 

[Sandy & Shirley]

This is one advantage that widow(er)s have. They can start out early on a small benefit, then when they live longer, change over to the other at a higher level!


Their loss turns into a win win!

 

[ncbill]

So those of us with low projected SS (~$25k combined) @ 67/70 & then using taxable account withdrawals (at long-term capital gains rate) to meet expenses don't really need to worry about the above ABCD chart?

 

[Sandy & Shirley]

Last year the taxability of LTCGs started at the 25% tax bracket. This year, for some reason, it starts $100 before the 22% bracket, $38,600 for individuals.

If your gains are not being pushed over the $38,600 limit, then your gains remain tax free.

If they are over that limit, each $100 will make $85 of your SSB taxable so you will pay 12% of $185, $22.20 in federal tax, PLUS, 15% of the $185 of LTCGs that was also pushed into the taxable range, another $27.75. Your total tax increase for earning $100 will be $22.20 plus $27.75, $49.95 which is 49.95% of that $100. At least they are taking less than half your money!

 

[Perryinva]

Somewhat worded incomplete. If the gains are your only other source of taxable income ( besides SS) then that is correct. Throw in a $50k or more pension and that all goes out the window. Gains are taxed and the Tax Torpedoe is already bypassed.

 

[LightningDawg]

So much analysis and over analysis. You don’t know when you are going to die.
The government isn’t stupid. You aren’t beating their system. Mortality tables estimate the average age of death for men and women. It really doesn’t mean much of a total dollars difference when you take it. Take it early and you get more years of monthly checks. Wait and you get less checks but at a higher rate. It’s pretty much a wash. You are splitting hairs. Just relax and take it when you feel you need the money and be happy.

This is exactly correct. And my calculations using multiple longevity calculators predict I will die before the age of 78 so I am going to start taking SS at age 62.

 

[joeea]

my calculations using multiple longevity calculators predict I will die before the age of 78 so I am going to start taking SS at age 62.

Sorry to hear that!

Have you researched to find out if there's anything you can do to extend your life over the next 16+ years? Have you talked to your doctors about this?

Do you have a spouse? Are you two coordinating your SS benefits?

 

[Spanky]

Has anyone used Net Present Value?
The following are some numbers based on longevity of 100 years of age:

	FRA 66	SS@70	Difference
Total Payments:	1,919,066	2,160,116	241,049
NPV (100):	1,078,544	1,155,206	76,662
NPV (84):	585,495	558,970	-26,525
NPV (90):	770,388	782,559	12,170

Discount rate = 3%

The calculations indicate the difference is really minute. If the discount rate were higher, the result favors taking SS at FRA.

 

[ncbill]

Last year the taxability of LTCGs started at the 25% tax bracket. This year, for some reason, it starts $100 before the 22% bracket, $38,600 for individuals.

If your gains are not being pushed over the $38,600 limit, then your gains remain tax free.

If they are over that limit, each $100 will make $85 of your SSB taxable so you will pay 12% of $185, $22.20 in federal tax, PLUS, 15% of the $185 of LTCGs that was also pushed into the taxable range, another $27.75. Your total tax increase for earning $100 will be $22.20 plus $27.75, $49.95 which is 49.95% of that $100. At least they are taking less than half your money!

projected ~$25k in combined SS, MFJ, so qualified dividends/long-term capital gains federally tax-free up to $77,200, right?

with no pensions, & nearly everything in taxable accounts, we'll be fine as long as we spend under ~$100,000 annually?

 

[Cut-Throat]

Has anyone used Net Present Value?
The following are some numbers based on longevity of 100 years of age:

	FRA 66	SS@70	Difference
Total Payments:	1,919,066	2,160,116	241,049
NPV (100):	1,078,544	1,155,206	76,662
NPV (84):	585,495	558,970	-26,525
NPV (90):	770,388	782,559	12,170

Discount rate = 3%

The calculations indicate the difference is really minute. If the discount rate were higher, the result favors taking SS at FRA.

Sure, it's been discussed at length many times.... But, again...... This just looks at just how much S.S. you can "pile up", which is not that helpful. It totally ignores spousal benefits, how much you can actually get to spend in your 60s, Tax advantages by delaying, Roth Conversions and a myriad of other issues.

 

[Sandy & Shirley]

The biggest issue we use is how much of our SSB can we get “Tax Free”. Doing the Math in advance so that you can avoid the Federal 22% bracket makes a major difference.

In the example I used above, $16,854 of your $35,000 benefits was tax free when your target was $63,101 after tax. Only $3,750 was tax free with the same target when your SSB was only $25,000.

We did some major planning, Roth Conversion, Paying off Mortgage, etc. prior to retirement so that we could avoid taxable income sources that would push us into the 22% bracket which results in marginal brackets of 40.7% and 49.95%. You lose huge amounts of tax free benefits when you are pushed into those tax rates.

 

[camfused]

...No one knows how long he/she will live...

Yes, but you can quite easily determine the maximum you will live: https://www.theguardian.com/australia-news/2018/apr/30/david-goodall-australia-oldest-scientist-to-end-own-life-in-switzerland

 

[Sandy & Shirley]

My life ended the day I got married. Then I was reborn when she left me and I met Shirley.

Do the Social Security rules change when you live twice?

PS: I think my ex will tell you the same thing in the other direction!

 

[Dtail]

My life ended the day I got married. Then I was reborn when she left me and I met Shirley.

Do the Social Security rules change when you live twice?

PS: I think my ex will tell you the same thing in the other direction!

Like your comment.

 

[Perryinva]

The biggest issue we use is how much of our SSB can we get “Tax Free”. Doing the Math in advance so that you can avoid the Federal 22% bracket makes a major difference.

In the example I used above, $16,854 of your $35,000 benefits was tax free when your target was $63,101 after tax. Only $3,750 was tax free with the same target when your SSB was only $25,000.

We did some major planning, Roth Conversion, Paying off Mortgage, etc. prior to retirement so that we could avoid taxable income sources that would push us into the 22% bracket which results in marginal brackets of 40.7% and 49.95%. You lose huge amounts of tax free benefits when you are pushed into those tax rates.

Of course those are not really marginal brackets. They are maximum threshold cusp effective tax rates for the added amounts withdrawn, because SS suddenly became taxed. If you add $20k of taxable income you do not lose 40.7 or 49.95% of it. The actual gross tax paid still ends up being far less than from the same income when working. It drops quickly to make the effective increase rate meet the actual rate. It is a indeed a very annoying consequence of having income JUST breach the levels and lose so much of the small increase due to your SS going from tax free to 85 % of it taxed at the current rate. So yes, you “lose” $1000 of the first added $3000, but it still means you are only taxed on the total income at a preferenced rate. It is the penalty for going from officially lower income to means tested upper income. It is unfair to anyone that has total income around that threshold that it is not a more gradual increase instead of a cliff. But if SS always was and will be 85% taxed for you at the current rate, and your whole career you were in the 25% and above marginal brackets, it is still just seen as tax advantaged income. Just not tax free. One of the few negatives of substantial income from a pension vs LTCGs or tax preferenced divs.

 

[pb4uski]

Yes, in some situations if you add $20k of oncome you can lose 40.7% or 49.95% of it.

If none of your SS is taxed and adding $20k results in 85% being taxed, then your taxable income increases by $37K and at 22% your taxes increase by $8,140 or 40.7% of the $20k... or 22%*185%= 40.7%.

Further if that $20k also pushes some 0% LTCG into 15%, it can increase even more.

But you are right in that luckly in most cases that very high marginal rate applies to a small amount of taxable income before it drops down again to the tax bracket rate.

 

[Sandy & Shirley]

A marginal tax rate is the percentage taken from your next dollar of taxable income. As with standard tax brackets, at some point that rate ends and another begins.

Tax brackets have fixed start and end points. The 40.7% marginal rate begins when you enter the 22% federal tax bracket and ends when 85% of your Social Security has been taxed. The size of this bracket depends on the size of your personal SSB. I like to call this marginal tax bracket The Hump because your marginal rate decreases on the other side.

SSB	$16,300	$20,000	$25,000	$30,000	$35,000	$40,000
Other	$36,850	$36,000	$34,851	$33,703	$32,554	$31,405
Gross	$53,150	$56,000	$59,851	$63,703	$67,554	$71,405
40.7% Width	$6	$2,706	$6,355	$10,003	$13,652	$17,300
Taxed SSB	$13,850	$14,700	$15,849	$16,997	$18,146	$19,295
Tax Free	$2,450	$5,300	$9,151	$13,003	$16,854	$20,705
After Tax	$48,697	$51,547	$55,398	$59,249	$63,101	$66,952

Larger benefits require less Other Taxable Income before you start the 22% bracket, but the tax paid at this point is always the same, $4,453.50.

You can examine the numbers in this table, as your benefit increases you need less from your taxable IRA to enter The Hump, but you do have more spendable after tax income. Since your Tax Free income is always 15% of your benefit, and the amount of tax free benefit at the start of the 22% bracket is increasing, your Tax Hump gets wider because you have to give a larger amount of your savings back to the IRS.


The 40.7% marginal bracket occurs when your additional income plus additional tax deferred Social Security benefits are taxed at the same time.

The 49.95% marginal bracket occurs when your additional income PLUS additional tax deferred Social Security benefits PLUS additional tax deferred LTCG income are all three taxed at the same time.