Break-even SS 62 vs 66 vs 70 calculators ?

[Perryinva]

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.

If you go from tax free to $37k of it taxed, and that brings you in to the 22% bracket, you don’t pay 22% on the whole $37k. Only the amount that exceeds the start of the bracket.

 

[Rianne]

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.

In your table, you list "other income." Is this CG income? For instance, a portion of portfolio is Roth, portion cash and rest stocks/bonds some in 401k, some in regular accounts.

I understand anything in SS income below $32K income is not taxed. My dilemma is how to portion WD from various accounts to limit tax liability. I'd like to figure out how to WD avoiding tax penalty. For example:
32K, SS not taxed
WD 10K from Roth
WD 10K from cash
WD 20K from investments that are taxed, but only a % is taxed, so say of 20K WD, 10K is taxed.
Does that kick you into the higher tax bracket because 10K brings your income above $32K to 42K?

 

[Sandy & Shirley]

In your table, you list "other income." Is this CG income? For instance, a portion of portfolio is Roth, portion cash and rest stocks/bonds some in 401k, some in regular accounts.

I understand anything in SS income below $32K income is not taxed. My dilemma is how to portion WD from various accounts to limit tax liability. I'd like to figure out how to WD avoiding tax penalty. For example:
32K, SS not taxed
WD 10K from Roth
WD 10K from cash
WD 20K from investments that are taxed, but only a % is taxed, so say of 20K WD, 10K is taxed.
Does that kick you into the higher tax bracket because 10K brings your income above $32K to 42K?

I am divorced and Shirley is a widow, so almost all of my posts are related to the single filing status. The last paragraph of my post mentions the triple taxation of income, benefits, and gains. This makes the math very complex, so the rest of the post only dealt with the double taxation of income and benefits at the same time.

The taxation of your benefits is a little complex, and there actually is a marriage penalty that I will talk about. The “Basis” for the taxability of your benefits equals half of your Social Security benefits plus just about all of your other income, including LTCGs, Dividends, and even the income from tax free municipal bonds.

For a single individual 50% taxability starts at a basis of $25,000 and 85% at $34,000. The marriage penalty happens because the start points for a married couple are not double those amounts, 50% starts at $32,000 and 85% at $44,000. The penalty is only that the taxation of your benefits happen (per capita) earlier, but the taxation for everyone ends when 85% of your benefits has been taxed, so eventually, at higher income levels, the penalty disappears.

A domestic couple each get $25,000 (a combined $50,000) of basis income before any SSB is taxed. The married couple starts paying 50% at $32,000 and 85% at $44,000.

Here is the math example of what I just said: 32k to 44k is $12,000 and 50% of that is $6,000. 44k to 50k (the domestic start) is $6,000 and 85% of that is $5,100. So the marriage penalty is that the married couple is paying taxes on $11,100 of their combined SSB before the domestic couple pays taxes on a single penny.

If the married couple had a combined SSB of $50,000, they could only have $7,000 of other income before they start paying taxes on some of their SSB. Half of $50,000 is $25,000 plus $7,000 equals $32,000 which is the starting point for the taxation of their benefits. If their other income was $10,000 their basis would be $35,000, $3,000 of the start of 50% taxability, so $1,500 of their benefit becomes taxable.

The taxation point is not your SSB, it is the basis point which is half of your SSB plus your other income.

 

[jabbahop]

We had been planning on both taking @ 70. Recently I read an article by Kitces that discussed why it might make sense for the lower income spouse to claim early and the higher income on wait. The rationale was that both waiting, only made sense if BOTH spouses are long lived (80’s +) since when one dies, you take the largest one.

We are now thinking we will evaluate both our health in a couple years when my wife turns 62 and decide whether she takes hers.

Overall I agree with the posters that say they don’t sweat it since the future is unknowable.

 

[Sandy & Shirley]

As I just said, Shirley is a widow, so we get the best of both worlds. She started survivor benefits at age 61 and 6 months and gets 78.6% of her late husband’s benefit and will start her own at age 70 when she will get 129.33% of hers.

The only downside for your plan is if both of you live long lives.

 

[beowulf]

As demonstrated by the diversity of comments, what age to start SS at is an extremely individual decision. Just running numbers is meaningless for many people, as there are too many other factors that need to be considered. From everything I read on the RE board, more than 50% of the participants hope to retire before they are 62 , some way before. SS is far in the future for them and something that would not only be reduced by applying at 62, but would also be lower as they might not have 35 years of decent income to plug into the formula. I am also confused by the comments about people who need SS at 62 in order to retire at that age. If you need SS at 62 in order to retire, and are otherwise in good health and not burnt out, why would you retire at that age? Clearly they would not have the savings or assets to live the life they want to live and should keep working until they do.

I agree that SS is a 0 sum game. Whether you atart collecting at 62 or 70, actuarial numbers show that you come out the same - on average, Some people die early, some live into their 90s. It's the ultimate crap game. If you want to retire and collect SS, then do so. But there is no need to use advanced calculus to decide if you need SS - you would already know if you need it. The decision to claim then comes down to the standard of living you want. No amount of mathematical juggling is going to tell you how long you will live.

We took the compromise position. I burned out at 64 and retired from work. Took SS at 64 1/2 (January of the next year). My wife retired at 60 and will wait until 70 to claim. She was the much higher SS earner as I am retired CSRS federal. And, as many on this board, SS is not necessary to our survival. Nice to have, but never really counted as a make or break decision in our retirement plans.

 

[joeea]

I am also confused by the comments about people who need SS at 62 in order to retire at that age. If you need SS at 62 in order to retire, and are otherwise in good health and not burnt out, why would you retire at that age?

Because the desire to retire early (no matter what) is what brings a lot of people to this forum.

Otherwise, many wouldn't be here.

 

[beowulf]

I, and many on this forum do not consider 62 to be a particularly young age to retire. 55, 50, and lower are what I would call early retirees. For a long time, 62 was a normal retirement age. And, it’s true that many folks who work jobs that involve a lot of physical stress in their bodies need to retire at or before that age. I don’t see many people here talking about SS at 62 being the main reason they can retire.

 

[Dtail]

I, and many on this forum do not consider 62 to be a particularly young age to retire. 55, 50, and lower are what I would call early retirees. For a long time, 62 was a normal retirement age. And, it’s true that many folks who work jobs that involve a lot of physical stress in their bodies need to retire at or before that age. I don’t see many people here talking about SS at 62 being the main reason they can retire.

I was 57.. does that qualify?lol

 

[joeea]

I, and many on this forum do not consider 62 to be a particularly young age to retire.

LOL! You can choose any arbitrary age you like and declare that "early" or "not early".

The point was that retiring without sufficient funds when you are healthy enough to keep working is "too early".

 

[Perryinva]

I, and many on this forum do not consider 62 to be a particularly young age to retire. 55, 50, and lower are what I would call early retirees. For a long time, 62 was a normal retirement age. And, it’s true that many folks who work jobs that involve a lot of physical stress in their bodies need to retire at or before that age. I don’t see many people here talking about SS at 62 being the main reason they can retire.

Except for the benefits of collecting a pension as a public employee, when has 62 ever been considered normal retirement age?? When people speak of the ability to retire at 62 because of a good pension, no one says, “ Good thing you got that pension so you could retire at a normal age”. Bunch of humble brag there. Lets not confuse FI with RE and with FIRE. I have been FI for years. I chose not to RE until 62, because of certain goals, both financial and personal. There are obviously many different levels of FI, just choose your expense level. While 62 is not very early, compared to 65 and later, it is early. Those here that retired at 40 or 50 are big time outliers. But they have always existed, we just called them “rich” . Many here are more traditional RE because they transitioned from accumulating wealth through employment, to becoming rich and managing income from wealth. If you were always wealthy and managed income from wealth (say family wealth) are you retired at age 18? No. Of course not. The true REs are those that finished doing what they did just for money, & simply do what they love and money is not a consideration. But if what you have always done, and love to do, is accumulate wealth, then you may not ever be retired. Just FI. Or if you always enjoyed your job, and its what you always want to do. Plenty out there.

I mentioned the differences between here and Retirement on CD, and over there the majority do talk about collecting at 62 just so they can retire “early”. I said, this is to be expected when here the majority of topics revolve around retirement as young as possible, where there it is about just being able to retire. The average poster here is many times more financially successful than the average CD Retirement forum poster.

So here, the discussion is rightly so more about the financial benefits, pros/cons of when to file. To which, there can not be an across the board correct answer.

 

[Perryinva]

LOL! You can choose any arbitrary age you like and declare that "early" or "not early".

The point was that retiring without sufficient funds when you are healthy enough to keep working is "too early".

Exactly!! Want vs can vs have to. All different scenarios.

 

[Sandy & Shirley]

I have to be totally honest here, I have told each of my children from their early teen age years that they can retire anytime they want. If you are happy living in a cardboard box and standing on a corner asking people for food, you can retire today! If you want to retire at a higher standard of living, study hard while in school and then get a good job. The harder you work, the longer you work, the higher your retirement standard of living will be.

I just wish that I was in the position that I could have said to each of them that they could have retired at 13 of 14 and I would have given them our winter villa in the mountains to live in, unfortunately, that was not realistic!

 

[Dtail]

Interesting discussion.
Looking at some of the ages in the different "Class of XXXX" posts, I would think that the most common (mode) age of retirement on this forum is 55-57 years old.

 

[beowulf]

The OP asked about SS claiming calculators. My simple answer to that remains the same. It depends. On your health. On your desire to keep working. On longevity indicators in your family history. The calculators themselves can give you a break even point. They can’t tell you when to claim. No one can, except maybe your DR with some really bad news. If you really can’t figure it out and are married, just go with the tried and true lower earner claims first, higher one claims at 70. If you’re single and can’t decide, flip a coin. In the end, it really doesn’t make that much of a difference for the vast majority of people.

I did have a friend in college whose older brother decided to retire after he graduated. At the ripe old age of 22, he became what we would call a bum. He received public assistance for his whole life, lived in highly subsidized housing, got food stamps and never really worked a day in his life, unless you call panhandling working. He lived in a big city that was very generous with welfare, so he was in no danger of starving or having no place to live. I lost track of him about 20 years ago, but I can’t imagine he changed his ways. He was happy with what little he had. I have seen quite a few posters on RE who lived a very frugal lifestyle for a number of years, accumulating enough wealth to RE and continue that lifestyle. It’s not for everyone, but I’m sure there are more of those families than of millionaires who retire in their 30s and 40s. Making big money is addictive and it’s a habit that’s very hard to break.

 

[Perryinva]

+1. There’s just no such thing as average. There are similar circumstances that foster similar decisions but the variety of income sources, savings, COL, life expectancy, etc etc means there can’t possibly be a single right answer across the board.

 

[stephenson]

Love SS threads!

So, assuming I have pensions and savings and IRAs, and don’t NEED SS at all ... is there an optimum time to start with the sole intent to DCA it into equities?

Health good. .64 now. No debt. Wife is 64. Wife’s health good.

 

[pb4uski]

Tell us when each of you will die and what the DCA funds will earn and we can give you a good answer.

 

[stephenson]

pb,

I didn’t wanna hi jack thread, but ....

I know this approach is considered often ..to me the part that makes it work is the lack of NEED for the income.

So, figure I’m gone at 88 and she hangs on till 94 ...all equity approach at 5%.

 

[beowulf]

Then, without question, with the best prestidigitational analysis possible, with a margin of error of 95%, give or take 10%, the only correct answer is “yes.”

 

[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!

I want to correct something I said in this post.

Your gains are not “exactly” tax free! Yes, the gains themselves are not taxed until your gross income exceeds the $38,600 limit, but they are still considered in the calculation of the “basis” for the taxability of your Social Security Benefits.

Yes, a $1,000 LTCG remains tax free, but it also makes $850 of your Social Security Benefits taxable income, and 12% of $850 results in a tax increase of $102. Basically LTCGs prior to the $38,600 gross taxable income limit results in a 10.2% marginal tax rate.

 

[Helena]

.


I retired from my corporate job at age 55 and took early SS at 62. So glad I did.

 

[Independent]

Love SS threads!

So, assuming I have pensions and savings and IRAs, and don’t NEED SS at all ... is there an optimum time to start with the sole intent to DCA it into equities?

Health good. .64 now. No debt. Wife is 64. Wife’s health good.

If
you think historic returns on equities are a reasonable indication of future returns, and
your goal is to leave a windfall to your kids or some charity (that they don't need, but will be nice to have), and
there are no complications with spousal benefits,
then you can maximize the expected value of their windfall by taking SS sooner.

 

[joeea]

If
you think historic returns on equities are a reasonable indication of future returns, and
your goal is to leave a windfall to your kids or some charity (that they don't need, but will be nice to have), and
there are no complications with spousal benefits,
then you can maximize the expected value of their windfall by taking SS sooner.

I'd be interested to see the math behind that conclusion.

 

[Sandy & Shirley]

If you think historic returns on equities are a reasonable indication of future returns, and your goal is to leave a windfall to your kids or some charity (that they don't need, but will be nice to have), and there are no complications with spousal benefits, then you can maximize the expected value of their windfall by taking SS sooner.

Shirley and I found a very relevant organization called the SKI club which was started in Australia. There are no membership fees, just follow the objectives, S.K.I. Spending your Kids Inheritance!

Between us we have put 4 children through college with no college debt, our turn!

Since Shirl is a widow, we can play this game from both sides. Start early, before 62, on Survivor Benefits, then switch to her max benefits at 70!